UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

Commission File Number 1-32375


Comstock Homebuilding Companies, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware

 

20-1164345

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

11465 Sunset Hills Road
Suite 510 Reston, Virginia 20190
(703) 883-1700

(Address including zip code, and telephone number, including area code, of principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

Class A common stock, par value $.01 per share

(Title of Class)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  o   No  x

The aggregate market value of the Class A common stock held by nonaffiliates of the registrant (4,887,634 shares) based on the last reported sale price of the registrant’s Class A common stock on the Nasdaq National Market on December 31, 2004, which was the last business day of the registrant’s most recently completed fourth fiscal quarter, was $107,381,318. For purposes of this computation, all officers, directors, and 10% beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed to be an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the registrant. The registrant’s Class A common stock was not registered pursuant to Section 12(g) of the Securities Exchange Act as of the last business day of the registrant’s most recently completed second fiscal quarter.

As of March 24, 2005, there were outstanding 8,887,166 shares of the registrant’s Class A common stock, par value $.01 per share, and 2,733,500 shares of the registrant’s Class B common stock, par value $.01 per share.

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.

 




COMSTOCK HOMEBUILDING COMPANIES, INC.

ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2004

TABLE OF CONTENTS

 

 

 

Page

PART I

ITEM 1.

 

BUSINESS

 

2

ITEM 2.

 

PROPERTIES

 

31

ITEM 3.

 

LEGAL PROCEEDINGS

 

31

ITEM 4.

 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

31

PART II

ITEM 5.

 

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

32

ITEM 6.

 

SELECTED FINANCIAL DATA

 

33

ITEM 7.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

34

ITEM 7A.

 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

50

ITEM 8.

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

50

ITEM 9.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

50

ITEM 9A.

 

CONTROLS AND PROCEDURES

 

51

ITEM 9B.

 

OTHER INFORMATION

 

51

PART III

ITEM 10.

 

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

 

51

ITEM 11.

 

EXECUTIVE COMPENSATION

 

52

ITEM 12.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

52

ITEM 13.

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

52

ITEM 14.

 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

52

PART IV

ITEM 15.

 

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

52

SIGNATURES

 

55

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-1

 




PART I

Item 1.                         Business

Overview

We are a production home builder that develops, builds and markets single-family homes, townhouses and condominiums. We focus on geographic areas, products and price points where we believe there is significant demand for our homes and the greatest profit potential. We currently operate in the Washington, D.C. and Raleigh, North Carolina markets where we target a diverse range of buyers, including first-time, early move-up, secondary move-up, empty nester move-down and active adult home buyers. We believe that this demographic represents a significant and stable segment of the home buying market.

Over the past several years we have successfully expanded our business model to include the development of land for our home building operations as a complement to the purchasing of finished building lots developed by others. Our markets have generally been characterized by strong population and economic growth trends that have led to strong demand for housing. We believe that these markets provide attractive long-term growth opportunities.

We were incorporated in Delaware in May 2004. Our business was started in 1985 by Christopher Clemente, our Chief Executive Officer, as a residential land developer and home builder focused on the upscale home market in the northern Virginia suburbs of Washington, D.C. Prior to our initial public offering in December 2004, we operated our business through four primary holding companies. In connection with our initial public offering, these primary holding companies were consolidated and ultimately merged into Comstock Homebuilding Companies, Inc. Our principal executive offices are located at 11465 Sunset Hills Road, Suite 510, Reston, Virginia 20190, and our telephone number is (703) 883-1700. Our Web site is www.comstockhomebuilding.com . References to “Comstock,” “we,” “our” and “us” refer to Comstock Homebuilding Companies, Inc. together in each case with our subsidiaries and any predecessor entities unless the context suggests otherwise.

Our Markets

We operate in the Washington, D.C. and the Raleigh, North Carolina markets. We believe that in the home building industry, local economic trends and influences have a more significant impact on supply and demand than national economic trends and influences. According to the National Association of Home Builders, the Washington, D.C. and Raleigh, North Carolina metropolitan areas are both ranked in the top 25 housing markets in the country with respect to total residential building permits issued in 2003.

Greater Washington, D.C. Metropolitan Market

Our current and anticipated projects for the Washington, D.C. market are in Arlington, Culpeper, Fairfax, Fauquier, Loudoun, Prince William and Stafford counties in Virginia, and Anne Arundel, Frederick, Howard, Montgomery, Prince Georges counties in Maryland and in the District of Columbia. The Washington, D.C. new home buying market is characterized by strong demand and a limited supply of available housing inventory. Demand in the Washington, D.C. area is strong because of a low unemployment rate and relatively high household incomes, among other factors. The supply of new homes in the market has been constrained in part by slow-growth and environmental preservation initiatives that are strictly enforced in many counties in the metropolitan area.

Raleigh, North Carolina Market

Our current and anticipated projects for the Raleigh, North Carolina market are in Durham, Franklin, Johnston and Wake counties, which includes the city of Raleigh. From 1990 to 2000, the Raleigh, North




Carolina market was the 12th fastest growing metropolitan area in the United States and was the second fastest growing area in the Southeast in terms of population growth, according to the U.S. Census Bureau.

Similar to the Washington, D.C. market, the local economy in the Raleigh, North Carolina market is generally stable and less sensitive to national economic trends because of large public sector employment. Raleigh is the state capital of North Carolina. The area is home to Research Triangle Park, a public/private, planned research park containing over nine million square feet of office space, and the headquarters of multiple technology and research companies. Duke University, the University of North Carolina-Chapel Hill and North Carolina State University are also located in the Raleigh, North Carolina market. Additional local employers include numerous pharmaceutical and manufacturing companies and hospitals.

Our Competitive Strengths

We believe we possess the following competitive strengths:

Committed and experienced management.   We have been building homes since 1985 under the leadership of our current Chief Executive Officer. Our current President joined us in 1991. Most of our senior executives have been with us for at least five years. Many of our senior executives and managers have over 15 years of experience in the home building industry with some having over 30 years of experience.

Attractive land position.   At December 31, 2004, we owned or controlled over 3,750 lots in our markets including our backlog. In our business we define lots as individually saleable housing units. We believe that restrictions on the development of new lots in our markets have increased, and will continue to increase, the market value of our land position. Our land planning, processing and development expertise allows us to acquire land positions in various stages of the entitlement process, which we believe provides us greater opportunities than many of our competitors. We intend to continue to utilize our land acquisition and development process to further develop an attractive land inventory.

Creative approach to land acquisition and development.   We have developed a specialized, selective approach to land acquisition and development, focused on maximizing the value of each parcel. We have extensive knowledge regarding all aspects of the site selection, land planning, entitlement and development processes relative to all types of new home developments, from suburban single-family homes, townhouses and low-rise condominiums to high-rise, mixed-use urban condominium developments. We have significant experience in dealing with the governmental and regulatory authorities that govern the site development and entitlement processes. We leverage this knowledge and experience to manage development risk and create more value from the land that we acquire. Our knowledge and experience also allow us to be active in the development of urban mixed-use projects, which puts us in the position of acquiring and developing parcels of land that many of our competitors are not able to pursue.

Diversified product mix.   Our products range from traditional single-family homes, townhouses and low-rise condominiums designed for suburban settings, to contemporary townhouses and high-rise condominiums designed for urban settings, and highly amenitized buildings targeting the active adult home buyer. This product mix allows us to diversify our risks in fluctuating market conditions by ensuring that we are positioned to attract a broad segment of the home buying population. We design all of our products to be attractively priced and value oriented.

Broad customer base.   By offering a wide variety of affordably-priced products in distinctly different types of locations we serve a broad customer base including first-time, early move-up, secondary move-up, empty nester move-down and active adult home buyers. First-time and early move-up home buyers make up a significant percentage of home buyers. The ownership of a home is a high priority for a large percentage of the population in the United States. We believe the growth in immigration of almost one

3




million immigrants per year in the 1990s has increased the number of potential home buyers in America and has helped fuel growth in the first-time and early move-up home buyer market. In addition, we believe the large “baby boom” population in the United States is aging and is increasing demand for secondary move-up, empty nester move-down and active adult new homes. Active adult refers to age-restricted developments that require at least one of the primary owners of the homes in the development to be at least 55 years old. As the baby boom generation ages, we believe that housing developments focused on this segment of the population will garner a larger share of the market.

Quality control and customer service.   We strive to provide a high level of customer service during the sales and construction process as well as after a Comstock home is sold. Our sales representatives, on-site construction supervisors and post-closing customer service personnel work as a team in an attempt to ensure a high level of customer satisfaction. Our sales staff receives extensive training in understanding the needs of the customer and assisting them in the selection of a Comstock home and mortgage program that meets their requirements. As part of our commitment to quality assurance, each Comstock home is subject to a series of 25 stringent construction quality inspections covering virtually every aspect of the construction process. Our customer service personnel are trained to promptly and thoroughly address any concerns that our customers may have and also provide our home buyers with home maintenance training and advice. We believe this high level of attention to quality assurance in the construction process and focus on our customers’ post-closing experience has earned Comstock a reputation for delivering high-quality products and excellent customer service. We believe this ultimately leads to enhanced customer satisfaction and additional sales through referrals.

Brand recognition.   We believe the “Comstock” brand is strong and widely recognized in the Washington, D.C. and Raleigh, North Carolina markets. We license the “Comstock” trademark from Christopher Clemente, our Chief Executive Officer and Chairman of our board of directors. We plan to maintain and enhance this brand and continue to live up to our reputation for building homes marked by quality and value.

Extensive selection of options and upgrades.   Our home buyers can choose from hundreds of options and upgrades to customize their homes to meet their individual preferences. These options and upgrades include exterior finishes, bonus rooms, additional bathrooms and upgraded bath finishes, upgraded appliances, cabinets and countertop surfaces in the kitchen, decorative trims, various flooring finishes, fireplaces, lighting packages and technology options such as high speed data cabling, in-home stereo systems, in-home theatres and built-in flat screen televisions. We believe that by making many upgraded features available as options at an additional cost we are able to keep our products affordable to a greater number of potential home buyers. The availability of these options allows us to meet individual home buyer preferences while enhancing profitability through the sale of optional features.

Our Growth Strategy

Our business strategy is to focus on geographic areas, products and price points where we believe there is the greatest market potential. Our strategy has the following key elements:

Build in and expand with the strong growth markets in which we currently operate.   We believe there are significant opportunities for growth in our existing markets. We plan to maintain and expand our business in the Washington, D.C. and Raleigh, North Carolina markets to capitalize on their robust economies and continued population growth. We expect the growth in these two markets to continue. We plan to utilize our strong regional presence and our extensive experience in the these markets to expand our operations in both markets through acquisition of additional land, and we may acquire local home builders whose operations would complement ours and enhance our competitive position in the marketplace.

Acquire and develop a high-margin and high-return land inventory.   We believe that our market knowledge and experience in land entitlement and development enable us to successfully identify attractive

4




land acquisition opportunities, efficiently manage the process of obtaining development rights and maximize land value. We have the expertise to acquire land positions in various stages of the entitlement and development process, which we believe provides us more opportunities to build land inventory than many of our competitors. We intend to continue to utilize our land acquisition and development process to further develop an attractive land inventory. As a complement to our development strategy, we will continue to grow our land inventory through acquisition of finished lots from other developers. We believe our network of relationships and broad recognition in our core markets gives us an advantage over some of our competitors in acquiring finished lots. In addition, since we can often acquire options on large numbers of finished lots with minimal deposits, this strategy allows us to cost-effectively control significant land positions with reduced risk. As such, we intend to continue to option land positions whenever possible.

Create opportunities in areas overlooked by our competitors.   We believe there is a significant market opportunity for well-designed, upscale homes and condominiums in urban and suburban areas in close proximity to transportation facilities. Local governments in our markets, especially the Washington, D.C. market, have modified zoning codes in response to mounting traffic concerns to allow for high-density residential development near transportation improvements. In our experience, buyers place a premium on new homes in developments within these areas. We believe that our townhouse and condominium products, along with our substantial experience in dealing with both the market and regulatory requirements of urban mixed-use developments, enable us to identify and create value in land parcels often overlooked by larger production home builders. As a result, we believe we can achieve higher overall margins on our products than larger production home builders who are only focused on volume. We plan to continue to focus on developing and creating these opportunities within our core markets.

Focus on a broad segment of the home buying market.   Our single-family homes, townhouses and condominiums are designed and priced to appeal to a wide segment of the home buying market. We serve a broad customer base including first-time, early move-up, secondary move-up, empty nester move-down and active adult home buyers. We believe first-time and early move-up home buyers are a significant portion of home buyers and have in the past, we believe, been more resistant to market downturns. We believe that the aging of the American population makes it more likely that a significant percentage of the population will continue to be attracted to secondary move-up, empty nester move-down and active adult products as well. We expect our diversified product offerings to position us to benefit from the projected population growth in our core markets and the aging population in America, and to provide a degree of protection against market fluctuations.

Expand into selected new geographic markets within our region.   We intend to expand into selected new geographic markets in the eastern United States through both start-up operations and acquisitions of other home builders that have strategic land positions, strong local management teams and sound operating principles. In evaluating expansion opportunities, we prefer new markets that are easily reached from our headquarters in northern Virginia in order to enhance our ability to integrate the acquired operation into our core operation. We expect to target new markets that have favorable demographic and economic trends where we believe we will be able to achieve sufficient scale to successfully implement our business strategy. While we are currently evaluating various potential expansion opportunities, we have not identified any specific geographic markets into which we intend to expand our operations or entered into serious negotiations to establish a market presence in any other geographic area.

Expand into the growing active adult market.   Many localities are adopting zoning rules that encourage construction of mixed-use and active adult developments. We expect the large and aging baby boom population in the United States to fuel growth in the active adult market of the home building industry. As the baby boom generation ages, we anticipate that housing developments focused on this population will capture a larger share of the market. We believe this growing segment of the population will also likely be attracted to the urban convenience and activities available in upscale urban active adult developments. Active adult developments are often favored by local governments because they increase the tax base while

5




requiring fewer government-funded services and infrastructure, such as schools and summer programs, as compared to traditional developments that attract families. We believe that we are well positioned to take advantage of this growing demand.

Maximize our economies of scale.   As a production home builder, we construct a large number of homes each year. In many instances, we utilize plans we have built numerous times which allows us to minimize cost through value engineering resulting from previous field experience. We are also able to coordinate labor and material purchasing under bulk contracts thereby reducing unit costs. As a result, we are able to realize economies of scale in the purchase of raw materials, supplies, manufactured inputs and labor. As we expand, we will seek to maximize these benefits through purchasing arrangements with national and regional vendors.

Our Operations

We integrate the process of building a home by carefully controlling each phase of the process from land acquisition to the construction, marketing and sale of a home. During every stage of the process we manage risk and focus on products, geographic areas and price points that maximize our revenue and profit opportunities.

Land Identification and Acquisition

We believe that by controlling and managing a significant portion of our land inventory we are better able to manage our growth in accordance with our business plan.

We acquire land for our home building operations both as finished building lots and as raw land that we develop. We primarily acquire land that has vested development rights. Often we contract to purchase land from land developers that will maintain ownership of the land through the entitlement process. Similarly we often will contract to purchase finished building lots from land developers that will maintain ownership of the land through the land development process. When we purchase land in this manner we typically will provide our home building expertise to the seller in order to ensure the land is developed in a manner consistent with our plans for the project. By contracting to purchase land that is owned by the land developer during the entitlement and development process we minimize the risks associated with seeking entitlements and performing land development.

We also buy land that we develop into building lots ourselves. We generally buy undeveloped land when we are developing high-density projects because the product design is often integrated into the site development operations. We also buy land that we develop into traditional building lots when we believe the additional risk associated with developing the land is manageable and the return on investment will likely be enhanced. We routinely purchase these sites after the development rights have been secured, which eliminates or substantially reduces risks associated with seeking entitlements.

We have recently begun to engage in the business of converting existing rental apartment properties to for-sale condominium projects. This process involves the purchase of existing structures which may be new and never occupied or may be occupied by tenants with leases of varying duration. When we purchase these properties we subdivide the units and form a condominium association. In these projects we will usually invest capital in the improvement of the common areas and exteriors. If the properties are occupied, as the tenants’ leases expire we will renovate the interiors of the apartments and then sell each apartment as an individual condominium unit. These conversion projects typically produce lower profit margins than our standard real estate development projects. However, since they take significantly less time to complete than our real estate development projects, they tend to generate higher returns on invested capital. We expect to continue to acquire condominium conversion and similar projects to the extent quality opportunities present themselves.

6




Our land acquisition and development process is managed by our executive land committee that includes representatives from our various business departments. This committee meets regularly to evaluate prospective land acquisitions and evaluates several factors that could affect the outcome of a project under consideration. These factors include:

·        supply and absorption rates of similar new home projects;

·        supply and absorption rates of existing homes in the area;

·        projected equity requirements;

·        projected return on invested capital;

·        status of land development entitlements;

·        projected net margins of homes to be sold by us;

·        projected absorption rates;

·        demographics, school districts, transportation facilities and other locational factors; and

·        competitive market positioning.

We focus on opportunities that we believe have the potential to generate revenue on home sales as well as appreciation in land value through the application of our expertise. Many of the sites we select may be overlooked by large, national competitors due to the complexity of zoning and entitlement issues or other development characteristics of the site. Our acquisition due diligence process involves a high level of scrutiny which includes a variety of analyses, including land title examination, applicable zoning evaluations, environmental analysis, soil analysis, utility availability studies, and marketing studies that review population and employment trends, school districts, access to regional transportation facilities, prospective home buyer profiles, sales forecasts, projected construction costs, labor and material availability, assessment of political risks and other factors.

Land Entitlement and Development

We manage development opportunities and risks through our entitlement process.

We have extensive knowledge and experience in all aspects of the site selection, land planning, entitlement and land development processes. Specifically, we have significant experience in dealing with the governmental and regulatory authorities that govern the site selection, development and zoning processes. Entitlement is the process by which a local government determines the density it will permit to be developed on a particular property. Entitlements and development permits are often obtained through negotiations with local governmental authorities. This process often involves consultation with various parties, including the local homeowner associations, federal governmental agencies and environmental protection groups. Infrastructure improvements, such as sewers, roads, utilities and transportation improvements are often required to be built in connection with the development of a parcel of land.

Our experience and knowledge allow us to effectively negotiate with all concerned parties in an attempt to ensure the costs of the improvements associated with obtaining entitlements are commensurate with the development potential of the subject property. We can quickly assess the likely approvals on a particular property in the early stages of our due diligence process. As a result, we can control the details of development, from the design of each community entryway to the placement of streets, utilities and amenities, in order to efficiently design a development that we expect will improve our ability to maximize the potential return on our investment in the property. We seek to manage development risk by acquiring options to purchase properties after the approval of the necessary entitlements, while assuming control of their entitlement process, thereby deferring acquisition of the property until all necessary entitlements are obtained.

7




At times, we may sell lots and parcels within our developments to other home builders. This enables us to create a more well-rounded community. As of December 31, 2004, we controlled over 3,750 building lots in our market. Of that inventory we owned approximately 50% of the building lots and controlled the balance of the building lots through option or deferred settlement contracts. Accordingly, we are able to reduce the risk associated with ownership of the land in our inventory. We expect to expand our inventory of building lots through additional acquisitions of finished building lots and development sites.

Sales and Production

We have a wide variety of product lines and custom options for our products that enable us to meet the specific needs of each of our markets and each of our home buyers. We believe that our diversified product strategy enables us to best serve a wide range of home buyers and adapt quickly to changing market conditions. We continually reevaluate and improve upon our existing product designs and develop new product offerings to keep up with changing consumer demands and emerging market trends.

Our single-family homes range in size from approximately 2,000 square feet to over 6,000 square feet and are priced from the $300,000s to the $700,000s. Our townhouses range in size from approximately 1,200 square feet to over 4,500 square feet and are priced from the $100,000s to the $600,000s. Unlike many of our traditional home building competitors, we also design, sell and build mid-rise and high-rise condominiums. We believe that our condominium products are particularly well-suited to the high-density, infill and active adult home buyer market. Our condominiums range in size from approximately 400 square feet to over 2,400 square feet and are priced from the $200,000s to the $700,000s.

We typically act as the general contractor in the construction of our single-family homes, townhouses and mid-rise condominium buildings. On projects where we offer these product lines our employees provide land development management, construction management, material purchasing and quality control supervision on the homes we build. Substantially all construction work on these types of projects is done by subcontractors that contract directly with us and with whom we typically have an established relationship. On our high-rise and mixed-use developments where we typically build concrete structures, we engage a general contractor for the site preparation and construction management, and typically we have a fixed price or a gross maximum price contract with the selected bonded general contractor. In these instances the subcontractors that perform the construction work are typically contracted directly with the general contractor that we select. On projects where we offer these product lines our employees provide land development oversight management, construction quality supervision and construction management services. In all instances we follow generally accepted management procedures and construction techniques which are consistent with local market practices. We believe that we comply with local and state building codes on all of our developments.

We seek to obtain favorable purchasing arrangements with our vendors and subcontractors using our leverage as a production home builder. We typically enter into forward contracts with our vendors for the construction materials used in building our homes. This process allows us to manage the pricing risk associated with fluctuating prices for the materials, such as lumber. We do not have long-term contracts with our subcontractors but in general we have contracts that fix the price of work being provided on homes that have been sold.

We primarily build our single-family homes after contracts are signed and mortgage approval has been obtained by the home buyer. We generally begin construction of our townhouses and condominiums after we have obtained customer commitments for a significant percentage of the units in the building. Depending on the market conditions and the specific community, we may also build speculative homes. Most of these homes are sold while under construction or are used as model homes during the marketing phase of the project. We closely monitor our inventory of speculative units applying a measured approach to unit production in keeping with sales absorption. On occasion we will sell a completed model home to a

8




third party investor purchaser who is willing to lease back the home to us for use during the marketing phase of a project.

To facilitate the sale of our products, we normally build, decorate, furnish and landscape model homes for each product line and maintain onsite sales offices. In most cases, we employ in-house commissioned sales personnel to sell our homes. On occasion we will contract for marketing services with a third party brokerage firm. All personnel engaged in the sale of Comstock homes receive extensive training in the sales process. We strive to provide a high level of customer service during the sales process. Through relationships that we have created with our preferred mortgage lenders and utilization of a proprietary custom marketing program, we are able to help our customers prepare for home ownership and obtain a mortgage tailored to their specific needs.

Our NextHome™ programs are designed to assist our customers in many aspects of purchasing a Comstock home, as follows:

·        DownRight™—a program designed to help identify ways to meet the down payment requirements of a new home purchase;

·        Tailor Made™—a program with unique financing products and agreements with major lenders that tailor a monthly payment in order to make home ownership affordable in any interest rate climate;

·        Get It Sold™—a program designed to help our customers sell their current home quickly and efficiently in order to facilitate their purchase of a new Comstock home;

·        All@Home™—a program enabling our customers to design technology solutions for their new Comstock home to meet their individual specifications;

·        Built Right™—a quality assurance program incorporating quality assurance inspections with high-quality materials; and

·        Home Style™—an optional upgrade program providing hundreds of options to choose from to customize a new Comstock home to suit the specific desires of our customers.

9




Our Communities

We currently have communities under development in Arlington, Fairfax, Loudoun and Prince William counties in Virginia. In Maryland we are currently active in Frederick County. In North Carolina we have active communities in Wake County. The following chart summarizes certain information for our current and planned communities at December 31, 2004:

 

 

As of December 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

Lots under

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

Lots

 

Option

 

 

 

 

 

 

 

 Units at

 

Units

 

 

 

Owned

 

Agreement

 

Average

 

Project

 

 

 

Status(1)

 

Completion

 

Settled

 

Backlog(2)

 

Unsold

 

Unsold

 

Sales Price

 

Virginia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blooms Mill TH 20

 

Active

 

 

91

 

 

 

89

 

 

 

 

 

 

2

 

 

 

 

 

 

$

271,000

 

 

Blooms Mill TH 22

 

Active

 

 

113

 

 

 

24

 

 

 

12

 

 

 

77

 

 

 

 

 

 

$

385,000

 

 

Blooms Mill Carriage

 

Active

 

 

91

 

 

 

23

 

 

 

21

 

 

 

47

 

 

 

 

 

 

$

414,000

 

 

Blooms Mill Singles

 

Active

 

 

35

 

 

 

30

 

 

 

4

 

 

 

1

 

 

 

 

 

 

$

488,000

 

 

Commons on Potomac Sq

 

Active

 

 

192

 

 

 

 

 

 

 

 

 

192

 

 

 

 

 

 

n/a

 

 

Commons on Williams Sq

 

Active

 

 

180

 

 

 

 

 

 

15

 

 

 

165

 

 

 

 

 

 

$

322,000

 

 

The Eclipse on Center Park

 

Active

 

 

465

 

 

 

 

 

 

281

 

 

 

184

 

 

 

 

 

 

$

373,000

 

 

River Club at Belmont Bay 5

 

Active

 

 

84

 

 

 

11

 

 

 

46

 

 

 

27

 

 

 

 

 

 

$

439,000

 

 

Woodlands at Round Hill

 

Active

 

 

65

 

 

 

 

 

 

5

 

 

 

60

 

 

 

 

 

 

$

673,000

 

 

Wescott Ridge

 

Active

 

 

133

 

 

 

106

 

 

 

27

 

 

 

 

 

 

 

 

 

$

332,000

 

 

Wescott Ridge—ADUs(3)

 

Active

 

 

37

 

 

 

25

 

 

 

9

 

 

 

3

 

 

 

 

 

 

$

77,000

 

 

Total Virginia Active

 

 

 

 

1,486

 

 

 

308

 

 

 

420

 

 

 

758

 

 

 

 

 

 

$

377,400

 

 

Total Virginia Active Weighted
Average(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

324,328

 

 

Aldie Singles

 

Development

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

n/a

 

 

Barrington Park

 

Development

 

 

134

 

 

 

 

 

 

 

 

 

 

 

 

134

 

 

 

n/a

 

 

Blakes Crossing

 

Development

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

n/a

 

 

Brandy Station

 

Development

 

 

350

 

 

 

 

 

 

 

 

 

 

 

 

350

 

 

 

n/a

 

 

Countryside

 

Development

 

 

102

 

 

 

 

 

 

 

 

 

 

 

 

102

 

 

 

n/a

 

 

Loudoun Station Condominiums

 

Development

 

 

218

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

n/a

 

 

Penderbrook

 

Development

 

 

424

 

 

 

 

 

 

 

 

 

 

 

 

424

 

 

 

n/a

 

 

River Club at Belmont Bay 8&9

 

Development

 

 

600

 

 

 

 

 

 

 

 

 

 

 

 

600

 

 

 

n/a

 

 

Total Virginia Development

 

 

 

 

1,973

 

 

 

 

 

 

 

 

 

 

 

 

1,973

 

 

 

 

 

 

Total Virginia

 

 

 

 

3,459

 

 

 

308

 

 

 

420

 

 

 

758

 

 

 

1,973

 

 

 

 

 

 

Maryland

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Emerald Farm

 

Active

 

 

84

 

 

 

40

 

 

 

18

 

 

 

26

 

 

 

 

 

 

$

409,000

 

 

North Carolina

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allyn’s Landing

 

Active

 

 

117

 

 

 

11

 

 

 

2

 

 

 

104

 

 

 

 

 

 

$

229,000

 

 

Beckett Crossing

 

Active

 

 

115

 

 

 

98

 

 

 

5

 

 

 

12

 

 

 

 

 

 

$

308,000

 

 

Delta Ridge II Townhouses

 

Active

 

 

41

 

 

 

37

 

 

 

 

 

 

4

 

 

 

 

 

 

$

175,000

 

 

Kelton at Preston

 

Active

 

 

56

 

 

 

21

 

 

 

2

 

 

 

33

 

 

 

 

 

 

$

304,000

 

 

North Shore Condominiums

 

Active

 

 

196

 

 

 

 

 

 

5

 

 

 

191

 

 

 

 

 

 

$

282,000

 

 

North Shore Townhouses

 

Active

 

 

163

 

 

 

20

 

 

 

1

 

 

 

142

 

 

 

 

 

 

$

225,000

 

 

Wakefield Plantation

 

Active

 

 

77

 

 

 

27

 

 

 

 

 

 

50

 

 

 

 

 

 

$

463,000

 

 

Total North Carolina Active

 

 

 

 

765

 

 

 

214

 

 

 

15

 

 

 

536

 

 

 

 

 

 

$

283,714

 

 

Total North Carolina Active Weighted Average(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

279,752

 

 

TOTAL ACTIVE

 

 

 

 

2,335

 

 

 

562

 

 

 

453

 

 

 

1,320

 

 

 

 

 

 

 

 

 

TOTAL DEVELOPMENT

 

 

 

 

1,973

 

 

 

 

 

 

 

 

 

 

 

 

1,973

 

 

 

 

 

 

TOTAL

 

 

 

 

4,308

 

 

 

562

 

 

 

453

 

 

 

1,320

 

 

 

1,973

 

 

 

 

 

 


Key—for purposes of this chart:

(1)     " Active” communities are open for sales. “Development” communities are in the development process and have not yet opened for sales.

(2)     " Backlog” means we have an executed order with a buyer, inclusive of lot sales, but the settlement has not yet taken place.

(3)     " ADUs” are affordable dwelling units.

(4)     Weighted average is calculated as total estimated homes at completion for projects with average sales prices multiplied by average sales price divided by total of estimated homes at completion (i.e.: S (estimated homes at completion  ´  average sales price)  ¸  S estimated homes at completion).

10




Virginia

Blooms Mill is a 377-unit development in Manassas, Virginia. This development offers a mix of single-family homes, attached carriage homes and townhouses. The development offers amenities that include a community club, swimming pool and “family friendly” street plan all in a traditional village setting. In May of 2003 we contracted to sell 47 developed lots in this development to another home builder. At December 31, 2004,  we had settled all 47 of these lots. This project is expected to continue to settle townhouses and carriage homes through the first half of 2006.

Commons on Potomac Square is planned to be a 192-unit mid-rise condominium complex in Loudoun County, Virginia. The complex will consist of up to four buildings. The project is positioned for first-time homeowners and is intended to offer significant appeal to renters in the market seeking to move up to home ownership. Sales opened in the first quarter of 2005 with the first settlements expected in 2005 and the balance of the settlements expected during 2006 and early 2007.

Commons on William Square is a 180-unit two-over-two townhouse condominium development in Prince William County, Virginia. The project was originally designed to accommodate a mid-size apartment complex. Based on our understanding of zoning and our creative approach to land use, our land development group redesigned the project to maximize available density using a unique, stacked townhouse product. Sales opened in the fourth quarter of 2004 with settlements expected to begin in the second half of 2005 and continue in 2006.

The Eclipse on Center Park is a 465-unit high-rise condominium complex in Arlington County, Virginia. Located at Potomac Yard, just minutes from downtown Washington, D.C., the Pentagon and Reagan National Airport, the Eclipse is designed as an upscale, urban-style mixed-use complex with residential condominiums being built above an 80,000 square foot retail complex that will host a grocery store and other convenience oriented retailers. Upper floors will have views of the Potomac River and the monuments in Washington, D.C. Sales opened in June 2004 with settlements projected to begin in the second half of 2006 and continue in the first quarter of 2007.

River Club at Belmont Bay 5 is a three-building, 84-unit condominium development located at the convergence of the Potomac and Occoquan Rivers at Belmont Bay in Woodbridge, Virginia. The project has an 18-hole golf course, full-service marina and a Virginia Rail Express commuter train station on site. The project consists of three 28-unit upscale mid-rise concrete condominium buildings with open rooftop decks overlooking the water and the golf course. At December 31, 2004, we had delivered 11 of these units. We expect to deliver the balance of the units during 2005.

Woodlands at Round Hill is located in western Loudoun County, Virginia, the fastest growing county in the United States. This large lot single-family home development has 65 lots of three or more acres each. We are acting as the developer of the site, and we are currently building road and utility infrastructure for the home sites. This project opened for sales in 2004. We expect settlements to begin in 2005 and continue into 2007.

Wescott Ridge Condominiums is a 170-unit mid-rise condominium development in Fairfax, Virginia. The complex consists of 10 buildings and is conveniently located near major transportation routes and suburban employment and shopping centers. Amenities at Wescott Ridge include elevators, private indoor garages and a community swimming pool. The project includes 37 units of affordable dwelling units which were pre-sold to Fairfax County. These units will be sold by Fairfax County at a discount to market value to individuals with incomes in an established range. This project is currently sold out with settlements expected to be completed in 2005.

Aldie Singles is a 15-unit in development in Aldie, Virginia. The community is planned to have 15 single family homes on 3 acre and above home sites. At December 31, 2004 the project was under contract. The project is expected to be ready to open for sales in late 2006 with settlements expected to begin in 2007.

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Barrington Park is a 134-unit mid-rise, walk-up, garden style condominium development in Manassas Park, Virginia. At December 31, 2004 the project was under contract with a non-refundable deposit posted. We acquired the land in March 2005. We are currently in the process of finalizing the site plan and we expect to open for sales in the second half of 2005 with settlements beginning in 2006.

Blakes Crossing is planned to be a 130-unit mixed-use parcel in Culpeper, Virginia which will be a combination of townhouses and retail sites. At December 31, 2004 the project was under contract. We acquired the land in March 2005. We are currently in the process of determining the optimal site plan configuration for this site. We expect to receive site plan approval for this project in the second half of 2006 and open for sales soon thereafter. We expect to sell the retail portion of this parcel when site plan approval is received. Settlements are expected to begin in 2007.

Brandy Station is a 350-unit single-family home development in Culpeper, Virginia. The project is currently under contract while we manage it through the entitlement process. We will close on the property when approvals have been received. We expect to open for sales in 2006.

Countryside is a 102-unit apartment complex in Sterling, Virginia that we intend to convert to condominiums . At December 31, 2004 we have the project under contract. We acquired the property in March 2005. We expect to invest in significant improvements to the common areas and exteriors of the buildings prior to selling the units. Sales are expected to commence during second quarter of 2005 with a significant portion of the settlements to occur in 2005.

Loudoun Station Condominiums is a being planned as an up to 218 unit mid-rise condominium complex located in Ashburn, Virginia. The project is part of a high-density, transit-oriented, mixed-use development which is modeled after the successful Reston Town Center in Reston, Virginia. When completed, Loudoun Station will be at the terminus of the planned Metro extension past Washington Dulles International Airport and will have an approximately 1,500 for-sale and rental residential units. Loudoun Station will also have over one million square feet of retail and commercial space. Sales of our condominiums are expected to begin in late 2005 or early 2006. We have a right of first refusal on the balance of the residential units in the development.

Penderbrook is a rental apartment complex which we are converting to a 424-unit condominium project in the Fair Oaks area of Fairfax County, Virginia. At December 31, 2004 we had the project under contract. We acquired the property in February 2005. We expect to make a significant investment in renovations at this project including common areas, building exteriors and units heating systems. Sales are expected to open in early 2005 with settlements to begin in the third quarter of 2005 and continue into the first quarter of 2006.

River Club at Belmont Bay 8 & 9 is planned as a 600-unit active adult condominium community located at the convergence of the Potomac and Occoquan Rivers at Belmont Bay in Woodbridge, Virginia. This development is designed as a combination of nine- and five-story buildings with open rooftop decks overlooking the water and golf course. The project will be deed-restricted such that one of the buyers for each unit must be 55 years of age or older and will include active adult lifestyle amenities, such as a health and wellness center, a business center, guest accommodations and swimming pools. Sales are expected to begin in 2006 with settlements expected in late 2006 or early 2007.

Maryland

Emerald Farm is an 84-unit development of single-family homes in Frederick, Maryland. The development is conveniently located near major transportation routes. Frederick, Maryland recently abated a water moratorium that had shut down development in the area. Since the abatement, the demand for new housing in Frederick is extremely strong. The project has been open for sales since 2000 and is expected to deliver homes through 2006.

12




North Carolina

Allyn’s Landing is a 117-unit townhouse development located in the heart of Raleigh, North Carolina near Research Triangle Park and the Raleigh-Durham International Airport. The project overlooks an eight-acre lake and includes amenities such as a fountain, gazebo, walking trails and canoe rack. The project is currently open for sales and is delivering homes.

Beckett Crossing is a 115-unit development located in Apex, North Carolina consisting of single-family homes situated on large wooded lots. The project is open for sales and is delivering homes with settlements expected through 2005.

Delta Ridge II is a 41-unit townhouse development located in Raleigh, North Carolina. The development is close to Research Triangle Park and the trails of Umstead State Park. The project is nearly sold out and is expected to complete deliveries in 2005.

Kelton at Preston is a 56-unit upscale townhouse development in the prestigious Kelton golf course community of Cary, North Carolina. This community has three 18-hole courses, a swimming complex and a clubhouse with fitness, tennis and dining facilities. Many of our home sites have golf course views. This project is currently open for sales and is delivering homes.

North Shore is a unique community located on the Centennial Campus of North Carolina State University. It consists of 196 townhouses and 163 mid-rise condominium units. The mid-rise condominium residences are five-story elevator buildings with structured garage parking. The townhouse residences feature four finished levels, private garages, a rear deck and a rooftop terrace. Designed as an urban-style neighborhood with rear alleys, North Shore, which is minutes from downtown Raleigh and Research Triangle Park, is situated on the shore of Lake Raleigh. This project is currently open for sales and is delivering homes.

Wakefield Plantation is a 57-unit development in Raleigh, North Carolina consisting of 53 carriage homes and 4 single family lots. Our unique carriage homes at Wakefield are attached homes with as much as 5,300 square feet of finished living space in three-and four-unit configurations with two-car garages and interior court yards. Many of the homes are lakefront and with golf course views. Home buyers at Wakefield qualify for social membership in the Wakefield Country Club, which offers amenities such as fine dining, swimming pools, tennis and golf. This project is currently open for sales and is delivering homes.

Warranty

We provide our single-family and townhouse home buyers with a one-year limited warranty covering workmanship and materials. The limited warranty is transferable to subsequent buyers not under direct contract with us and requires that home buyers agree to the definitions and procedures set forth in the warranty. Our condominium home buyers typically have a statutory two-year warranty on their purchases. In addition, we provide a five-year structural warranty pursuant to statutory requirements. From time to time, we assess the appropriateness of our warranty reserves and adjust future accruals as necessary. When deemed appropriate by us, we will accrue additional warranty reserves. We self-insure all of our warranties.

Sales and Marketing

All personnel involved in the sale of our homes receive extensive training on the product they are selling. In addition, our sales professionals are trained on the specialized programs offered by us in connection with the purchasing, customizing and financing of a Comstock home and the warranty we provide. We employ in-house commissioned sales personnel to sell our homes. We employ our sales personnel on a long-term basis, rather than a project-by-project basis, which we believe results in a more

13




committed and motivated sales force with better product knowledge. We believe that this has a positive impact on sales and conversion.

Division managers are responsible for developing marketing objectives, sales strategies, and advertising and public relations programs for their assigned communities. These objectives, strategies and home pricing decisions are subject to approval by senior management. We typically build, decorate, furnish and landscape model homes for each product line and maintain onsite sales offices, which are open seven days a week. We believe that model homes play a critical role in our marketing efforts.

Our homes are typically sold before or during construction through sales contracts that are accompanied by a cash deposit. Such sales contracts are usually subject to certain contingencies such as the home buyer’s ability to qualify for financing. Cancellation rates are subject to a variety of factors beyond our control such as adverse economic conditions and increases in mortgage interest rates.

Competition

The real estate development and home building industries are highly competitive and fragmented. Competitive overbuilding in local markets, among other competitive factors, could materially adversely affect home builders in those markets. Home builders compete for financing, raw materials and skilled labor, as well as for the sale of homes. Additionally, competition for prime properties is intense and the acquisition of such properties may become more expensive in the future to the extent demand and competition increase. We compete with other local, regional and national real estate companies and home builders. Some of our competitors have greater financial, marketing, sales and other resources than we have.

The principal competition we face in each of our markets is as follows:

·        Washington, D.C.    In the greater Washington, D.C. metropolitan market, we compete against approximately 15 to 20 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and many local home builders, some of whom are very small and may build as few as five to 25 homes per year.

·        Raleigh, North Carolina .   In the Raleigh, North Carolina market, we compete against approximately 10 to 15 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and a large number of small, local home builders.

We do not compete against all of the builders in our geographic markets in all of our product types or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition with our communities. We believe the factors that home buyers consider in deciding whether to purchase from us include the location, value and design of our products. We believe that we typically build attractive, innovative products in sought-after locations that are perceived as good values by customers. Accordingly, we believe that we compare favorably on these factors.

Regulation

We and our competitors are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulation, which imposes restrictive zoning and density requirements in order to limit the number of homes that can ultimately be built within the boundaries of a particular project. We and our competitors may also be subject to periodic delays or may be precluded entirely from developing in certain communities due to building moratoriums or “slow-growth” or “no-growth” initiatives that could be implemented in the future in the states in which we operate. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction.

14




We and our competitors are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning protection of the environment. Some of the laws to which we and our properties are subject may impose requirements concerning development in waters of the United States, including wetlands, the closure of water supply wells, management of asbestos-containing materials, exposure to radon, and similar issues. The particular environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former uses of the site. These environmental laws may result in delays, may cause us and our competitors to incur substantial compliance and other costs, and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. However, environmental laws have not, to date, had a material adverse impact on our operations.

We also compete with resales of existing homes and condominiums and available rental housing.

Technology

We are committed to the use of Internet-based technology for managing our business and communicating with our customers. We use Builder’s Co-Pilot Ô , a management information system that was custom developed in accordance with our needs and requirements. This system allows us to integrate our field and office operations as well as to track the progress of construction on each of our projects. In addition, this system allows online and collaborative efforts between our sales and marketing functions. We believe real-time access to our construction progress and our sales and marketing data and documents through our systems increases the effectiveness of our sales and marketing efforts as well as management’s ability to monitor our business. Through our Web site, www.comstockhomebuilding.com , our prospects receive automatic electronic communications from us on a regular basis. We believe this application of technology has greatly enhanced our conversion rates.

Intellectual Property and Other Proprietary Rights

We rely primarily on a combination of copyright, trade secret and trademark laws to protect our proprietary rights. We do not own the “Comstock” brand or trademark. Christopher Clemente owns the “Comstock” brand and trademark and has licensed them to us under a perpetual, royalty-free license agreement. We have filed a U.S. federal trademark application with respect to “Comstock Homes Worthy of the Investment” and we will file a U.S. federal trademark application with respect to “Comstock Homebuilding Companies.” We believe the strength of these trademarks benefits our business.

Employees

At December 31, 2004, we had approximately 102 full-time and part-time employees. Our employees are not represented by any collective bargaining agreement and we have never experienced a work stoppage. We believe we have good relations with our employees.

15




Executive Officers

Our executive officers and other management employees and their respective ages and positions as of December 31, 2004 are as follows:

Name

 

 

 

Age

 

Position

Christopher Clemente*

 

45

 

Chairman and Chief Executive Officer

Gregory V. Benson*

 

50

 

President, Chief Operating Officer and Director

Bruce J. Labovitz*

 

37

 

Chief Financial Officer

William P. Bensten

 

57

 

Senior Vice President

Jason Parikh*

 

34

 

Chief Accounting Officer

David D. Howell

 

54

 

Vice President—Market Development

Thomas A. Williamson**

 

44

 

Vice President—Land Acquisition

Jubal R. Thompson

 

35

 

General Counsel and Secretary


*                     Section 16 officers.

**              Thomas Williamson resigned as an officer of the Company effective as of March 1, 2005.

Executive Officers and Key Employees

Christopher Clemente founded Comstock in 1985. Since 1992, Mr. Clemente has served as our Chairman and Chief Executive Officer. Mr. Clemente has over 20 years of experience in all aspects of real estate development and home building, and 25 years of experience as an entrepreneur.

Gregory V. Benson joined us in 1991 as President and Chief Operating Officer. Mr. Benson is also a member of our board of directors. Mr. Benson has over 30 years of home building experience including over 13 years at national home builders, including NVHomes, Ryan Homes and Centex Homes.

Bruce J. Labovitz has served as our Chief Financial Officer since January 2004, after serving as our Vice President—Finance from April 2002 to January 2004 and Vice President—Investment Finance from January 2002 to April 2002. From June 2001 to January 2002, Mr. Labovitz was a Vice President of Viking Communications, a telecommunications company. From November 2000 to June 2001, Mr. Labovitz was the President, Marketing & Services of Inlec Communications, a telecommunications company. Prior to that, from May 1996 to November 2000, Mr. Labovitz was Executive Vice President/Chief Operating Officer of BMK Advertising, an advertising agency.

William P. Bensten has served as our Senior Vice President since November 2004 and as our Vice President—Business Development from December 2003 to November 2004, after serving as our Vice President—Land Acquisition from 1995 to 2003. During 1997 and 1998 Mr. Bensten served as our division manager of our Raleigh, North Carolina division and was responsible for opening the division. Mr. Bensten has over 30 years of experience in the home building industry, including serving in various positions with Centex Homes, a national home builder, and Charter Communities.

Jason Parikh has served as our Chief Accounting Officer since April 2004. Mr. Parikh was Chief Financial Officer and Secretary of On-Site Sourcing, Inc. from May 2000 to April 2004 and Controller from July 1997 to May 2000. From July 1994 until July 1997, Mr. Parikh was Controller of Shirt Explosion Inc., a clothing manufacturer.

David D. Howell has served as our Vice President—Market Development since August 2004. Prior to that, from July 2000 to July 2004, Mr. Howell served as Vice President—Comstock Homes of Washington. From 1995 to March 2000, Mr. Howell was a Division President with M/I Homes, Inc., a national home builder. Prior to that Mr. Howell spent several years as division manager at Ryan Homes.

16




Thomas A. Williamson has served as our Vice President—Business Development and Land Acquisition since February 2004. Prior to joining us, from 1998 to 2004, Mr. Williamson served as Vice President and General Manager of Reston Town Center and Broadlands for Terrabrook. Prior to 1998, Mr. Williamson was the Director, Administrative and Operations Services for the Fairfax County School board.

Jubal R. Thompson has served as our General Counsel since October 1998. and our Secretary as of December 2004. From April 2002 to April 2003, Mr. Thompson also served as our Vice President—Finance. From 1995 to 1998, Mr. Thompson was associated with Robert Weed & Associates, PLLC, a law firm.

Other Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange Act”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC. The public can obtain any documents that we file with the SEC at http://www.sec.gov .

We also make available, free of charge, at our Internet website located at www.comstockhomebuilding.com , our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, and our current reports on Form 8-K as well as Form 3, Form 4, and Form 5 Reports for our directors, officers, and principal stockholders, together with amendments to those reports filed or furnished pursuant to Section 13(a), 15(d), or 16 under the Exchange Act. These reports are available as soon as reasonably practicable after their electronic filing with the Securities and Exchange Commission.

CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this report include forward-looking statements. These forward-looking statements can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” “expect,” “will,” “should,” “seeks” or other similar expressions. Forward-looking statements are based largely on our expectations and involve inherent risks and uncertainties including certain risks described in this report. When considering those forward-looking statements, you should keep in mind the risks, uncertainties and other cautionary statements made in this report. You should not place undue reliance on any forward-looking statement, which speaks only as of the date made. Some factors which may affect the accuracy of the forward-looking statements apply generally to the real estate industry, while other factors apply directly to us. Any number of important factors which could cause actual results to differ materially from those in the forward-looking statements include, without limitation: general economic and market conditions, including interest rate levels; our ability to service our substantial debt; inherent risks in investment in real estate; our ability to compete in the Washington, D.C. and Raleigh, North Carolina real estate and home building markets; regulatory actions; fluctuations in operating results; our anticipated growth strategies; shortages and increased costs of labor or building materials; the availability and cost of land in desirable areas; natural disasters; our ability to raise debt and equity capital and grow our operations on a profitable basis; and our continuing relationships with affiliates.

Many of these factors are beyond our control. For a discussion of factors that could cause actual results to differ, please see the discussion in the section of this report entitled “Business—Risk Factors.”

17




RISK FACTORS

You should carefully consider the following risk factors, in addition to those discussed elsewhere in the report, in evaluating our Company and our business.

Risks Relating to Our Business

We engage in construction and real estate activities which are speculative and involve a high degree of risk.

The home building industry is speculative and is significantly affected by changes in economic and other conditions, such as:

·         employment levels;

·         availability of financing;

·         interest rates; and

·         consumer confidence.

These factors can negatively affect the demand for and pricing of our homes and our margin on sale. We are also subject to a number of risks, many of which are beyond our control, including:

·         delays in construction schedules;

·         cost overruns;

·         changes in governmental regulations (such as slow- or no-growth initiatives);

·         increases in real estate taxes and other local government fees;

·         labor strikes;

·         transportation costs for delivery of materials; and

·         increases and/or shortages in raw materials and labor costs.

Fluctuations in market conditions may affect our ability to sell our land and home inventories at expected prices, if at all, which could adversely affect our revenues and earnings.

We are subject to the potential for significant fluctuations in the market value of our land and home inventories. We must constantly locate and acquire new tracts of undeveloped and developed land to support our home building operations. There is a lag between the time we acquire control of undeveloped land or developed home sites and the time that we can bring the communities built on that land to market and deliver our homes. This lag time varies from site to site as it is impossible to determine in advance the length of time it will take to obtain governmental approvals and building permits. The risk of owning undeveloped land, developed land and homes can be substantial. The market value of undeveloped land, buildable lots and housing inventories can fluctuate significantly as a result of changing economic and market conditions. Inventory carrying costs can be significant and can result in losses in a poorly performing development or market. Material write-downs of the estimated value of our land and home inventories could occur if market conditions deteriorate or if we purchase land or build home inventories at higher prices during stronger economic periods and the value of those land or home inventories subsequently declines during weaker economic periods. We could also be forced to sell homes, land or lots for prices that generate lower profit than we anticipate, or at a loss, and may not be able to dispose of an investment in a timely manner when we find dispositions advantageous or necessary. Furthermore, a decline in the market value of our land or home inventories may give rise to a breach of financial covenants contained in one or more of our credit facilities, which could cause a default under those credit facilities.

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Because our business depends on the acquisition of new land, the potential limitations on the supply of land could reduce our revenues or negatively impact our results of operations.

Due to increased demand for new homes, we have experienced an increase in competition for available land and developed home sites in the Washington, D.C. and Raleigh, North Carolina markets. In these markets, we have experienced competition for home sites from other, sometimes better capitalized, home builders. In the Raleigh, North Carolina market, we have recently experienced competition from large, national home builders entering the market. Our ability to continue our home building activities over the long term depends upon our ability to locate and acquire suitable parcels of land or developed home sites to support our home building operations. As competition for land increases, the cost of acquiring it may rise, and the availability of suitable parcels at acceptable prices may decline. The increased cost of land requires us to increase the prices of our homes. This increased pricing could reduce demand for our homes and, consequently, reduce the number of homes we sell and lead to a decrease in our revenues and earnings.

Our business is subject to governmental regulations that may delay, increase the cost of, prohibit or severely restrict our development and home building projects and reduce our revenues and growth.

We are subject to extensive and complex laws and regulations that affect the land development and home building process, including laws and regulations related to zoning, permitted land uses, levels of density (number of dwelling units per acre), building design, access to water and other utilities, water and waste disposal and use of open spaces. In addition, we and our subcontractors are subject to laws and regulations relating to worker health and safety. We also are subject to a variety of local, state and federal laws and regulations concerning the protection of health and the environment. In some of our markets, we are required to pay environmental impact fees, use energy saving construction materials and give commitments to provide certain infrastructure such as roads and sewage systems. We must also obtain permits and approvals from local authorities to complete residential development or home construction. The laws and regulations under which we and our subcontractors operate, and our and their obligations to comply with them, may result in delays in construction and development, cause us to incur substantial compliance and other increased costs, and prohibit or severely restrict development and home building activity in certain areas in which we operate. If we are unable to continue to develop communities and build and deliver homes as a result of these restrictions or if our compliance costs increase substantially, our revenues and earnings may be reduced and we may not be able to continue our current level of growth.

Cities and counties in which we operate have adopted, or may adopt, slow or no-growth initiatives that would reduce our ability to build and sell homes in these areas and could adversely affect our revenues and earnings.

From time to time, certain cities and counties in which we operate have approved, and others in which we operate may approve, various “slow-growth” or “no-growth” initiatives and other similar ballot measures. Such initiatives restrict development within localities by, for example, limiting the number of building permits available in a given year. Approval of slow- or no-growth measures could reduce our ability to acquire land, obtain building permits and build and sell homes in the affected markets and could create additional costs and administration requirements, which in turn could have an adverse effect on our revenues and earnings.

Increased regulation in the housing industry increases the time required to obtain the necessary approvals to begin construction and has prolonged the time between the initial acquisition of land or land options and the commencement and completion of construction. These delays increase our costs, decrease our profitability and increase the risks associated with the land inventories we maintain.

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Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If municipalities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to build in those municipalities. This, in turn, could reduce the number of homes we sell and decrease our revenues and earnings.

Our ability to sell homes, and, accordingly, our results of operations, will be affected by the availability of financing to potential home buyers.

Most home buyers finance their purchases through third-party mortgage financing. Real estate demand is generally adversely affected by:

·         increases in interest rates and/or related fees;

·         increases in real estate transaction closing costs;

·         decreases in the availability of mortgage financing;

·         increasing housing costs;

·         unemployment; and

·         changes in federally sponsored financing programs.

Increases in interest rates or decreases in the availability of mortgage financing could depress the market for new homes because of the increased monthly mortgage costs or the unavailability of financing to potential home buyers. Even if potential home buyers do not need financing, increases in interest rates and decreased mortgage availability could make it harder for them to sell their homes. This could adversely affect our operating results and financial condition.

The competitive conditions in the home building industry could increase our costs, reduce our revenues and earnings and otherwise adversely affect our results of operations or limit our growth.

The home building industry is highly competitive and fragmented. We compete in each of our markets with a number of national, regional and local builders for customers, undeveloped land and home sites, raw materials and labor. In the Washington, D.C. market, we compete against approximately 15 to 20 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and many local home builders, some of whom are very small and may build as few as five to 25 homes per year. In the Raleigh, North Carolina market, we compete against approximately 10 to 15 publicly-traded national home builders, approximately 10 to 15 privately-owned regional home builders, and a large number of small, local home builders. We do not compete against all of the builders in our geographic markets in all of our product types or submarkets, as some builders focus on particular types of projects within those markets, such as large estate homes, that are not in competition with our projects.

We compete primarily on the basis of price, location, design, quality, service and reputation. Some of our competitors have greater financial resources, more established market positions and better opportunities for land and home site acquisitions than we do and have lower costs of capital, labor and material than us. The competitive conditions in the home building industry could, among other things:

·         make it difficult for us to acquire suitable land or home sites in desirable locations at acceptable prices and terms, which could adversely affect our ability to build homes;

·         require us to increase selling commissions and other incentives, which could reduce our profit margins;

·         result in delays in construction if we experience delays in procuring materials or hiring trades people or laborers;

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·         result in lower sales volume and revenues; and

·         increase our costs and reduce our earnings.

We also compete with resales of existing homes and condominiums and available rental housing. An oversupply of competitively priced resale or rental homes in our markets could adversely affect our ability to sell homes profitably.

Our business is concentrated in two geographic areas which increases our exposure to localized risks.

We currently develop and sell homes principally in the Washington, D.C. and Raleigh, North Carolina markets. Our limited geographic diversity means that adverse general economic, weather or other conditions in either of these markets could adversely affect our results of operations or our ability to grow our business.

Our growth strategy to expand into new geographic areas poses risks.

We may expand our business to new geographic areas outside of the Washington, D.C. and Raleigh-Durham, North Carolina metropolitan areas. We will face additional risks if we develop communities in geographic areas or climates in which we do not have experience or if we develop a different size or style of community than those currently being developed, including:

·         adjusting our construction methods to different geographies and climates;

·         obtaining the necessary construction materials and labor in sufficient amounts and on acceptable terms;

·         obtaining necessary entitlements and permits under unfamiliar regulatory regimes;

·         attracting potential customers in a market in which we do not have significant experience; and

·         the cost of hiring new employees and increased infrastructure costs.

We may not be able to successfully manage the risks of such an expansion, which could have a material adverse effect on our revenues, earnings and financial condition.

We may not be able to successfully identify, complete or integrate acquisitions.

As part of our business strategy, we expect to review acquisition prospects in our existing markets and in new markets in the Mid-Atlantic region or elsewhere that would complement our existing business, or that might otherwise offer growth opportunities. We have not currently identified any acquisition targets, and we may not be successful in identifying suitable acquisition targets or in completing acquisitions. Further, to the extent we complete acquisitions, we may be unable to realize the anticipated benefits because of operational factors or difficulties in integrating the acquisitions with our existing business. Acquisitions entail numerous risks, including, but not limited to:

·         difficulties in assimilating acquired management and operations;

·         risks associated with investing the necessary resources in order to achieve profitability;

·         the incurrence of significant due diligence expenses relating to acquisitions that are not completed;

·         unforeseen expenses and liabilities;

·         risks associated with entering new markets or sub-markets in which we have limited or no prior experience;

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·         the diversion of our management’s attention from our current business;

·         the potential loss of key employees of acquired organizations; and

·         risks associated with transferred assets and liabilities.

We may not be able to acquire or manage profitably additional businesses, or to integrate successfully any acquired businesses, properties or personnel into our business, without substantial costs, delays or other operational or financial difficulties. Our failure to do so could have a material adverse effect on our business, financial condition and results of operations.

We are dependent on the services of certain key employees and the loss of their services could harm our business.

Our success largely depends on the continuing services of certain key employees, including our Chairman and Chief Executive Officer, Christopher Clemente, Gregory Benson, our President and Chief Operating Officer, and Bruce Labovitz, our Chief Financial Officer. Our continued success also depends on our ability to attract and retain qualified personnel. We believe that Messrs. Clemente, Benson and Labovitz each possesses valuable industry knowledge, experience and leadership abilities that would be difficult in the short term to replicate. The loss of these or other key employees could harm our operations and business plans.

Mr. Clemente may devote a portion of his time to his personal business interests, which may reduce the amount of time he devotes to the Company.

Mr. Clemente retains certain personal business interests. The Company may be disadvantaged to the extent that Mr. Clemente does not devote substantially all of his time to the business of the Company.

Our significant level of debt could adversely affect our financial condition and prevent us from fulfilling our debt service obligations.

We currently have a significant amount of debt, and our ability to meet our debt service obligations will depend on our future performance. Numerous factors outside of our control, including changes in economic or other business conditions generally, such as employment levels, population growth and consumer confidence, or in the markets or industry in which we do business, may adversely affect our operating results and cash flows, which in turn may affect our ability to meet our debt service obligations. As of December 31, 2004, we had $89.3 million aggregate principal amount of total debt outstanding (including our distribution payable to our pre-initial public offering stockholders), or 145.3% of our total shareholders’ equity as of that date. We may incur additional debt to fund our operations.

For the year ended December 31, 2004, our interest payments on account of outstanding indebtedness totaled $4.7 million or 4.9% of our total revenues for that period. If we are unable to meet our debt service obligations, we may need to restructure or refinance our debt, seek additional equity financing or sell assets. We may be unable to restructure or refinance our debt, obtain additional equity financing or sell assets on satisfactory terms or at all. In addition, a substantial portion of our cash flow from operations must be dedicated to the repayment of debt, including interest, thereby reducing the funds available to us for other purposes. Our level of debt may limit our flexibility to adjust to changing economic or market conditions, reduce our ability to withstand competitive pressures and make us more vulnerable to a downturn in general economic conditions.

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Our growth requires additional capital, which may not be available.

The real estate development industry is capital intensive and requires significant expenditures for land purchases, land development and construction. We intend to pursue a strategy of continued investment in additional real estate related projects. We anticipate that we will need to obtain additional financing as we expand our operations. These funds may be obtained through public or private debt or equity financings, additional bank borrowings or from strategic alliances or joint ventures. We may not be successful in obtaining additional funds in a timely manner, on favorable terms or at all. Moreover, certain of our bank financing agreements contain provisions that limit the type and amount of debt we may incur in the future without our lenders’ consent. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced, and lenders may require us to invest increased amounts of equity in a project in connection with both new loans and the extension of existing loans. If we do not have access to additional capital, we may be required to delay, scale back or abandon some or all of our acquisition plans or growth strategies or reduce capital expenditures and the size of our operations.

Our growth depends on the availability of construction, acquisition and development loans.

Currently, we have multiple construction, acquisition and development loans. We are considering replacing these credit facilities with one or more larger facilities, which may reduce our aggregate debt financing costs. If we are unable to obtain a larger facility, we will need to continue to rely on our smaller credit facilities. These smaller credit facilities generally have higher costs and require significant management time to administer them. Additionally, if financial institutions decide to discontinue providing these facilities to us, we would lose our primary source of financing our operations or the cost of retaining or replacing these credit facilities could increase dramatically. Further, this type of financing is typically characterized by short-term loans which are subject to call. If our primary financing becomes unavailable or accelerated repayment is demanded, we may not be able to meet our obligations.

Our bank credit facilities impose restrictions on our operations, which, if violated, could result in our indebtedness being immediately due and payable and the loss of our assets.

Our bank credit facilities impose restrictions on our operations and activities. The most significant restrictions relate to debt incurrence, lien incurrence, sales of significant assets and cash distributions and require us to comply with certain financial covenants. If we fail to comply with any of these restrictions or covenants, the banks could cause our debt to become payable immediately. In addition, some of our debt instruments contain cross-default provisions, which could cause a default under a number of debt instruments if we default on only one debt instrument. Most of our credit facilities are secured by the land, improvements and fixtures owned by the entity that is party to the facility. If we were unable to repay indebtedness owed to our secured creditors, they could foreclose on the collateral securing that indebtedness.

A significant portion of our business plan involves construction of mixed-use developments and high-rise projects with which we have less experience.

We expect to increase our construction and development of mixed-use and high-rise residential projects. Our experience is largely based on smaller wood-framed structures that are less complex than high-rise construction or the development of mixed-use projects. A mixed-use project is one that integrates residential and non-residential uses in the same structure or in close proximity to each other, on the same land. As we expand into these new product types, we expect to encounter operating, marketing, customer service, warranty and management challenges with which we have less familiarity. Although we have expanded our management team to include individuals with significant experience in this type of real estate development, we have not completed any projects managed by these persons. If we are unable to

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successfully manage the challenges of this portion of our business, we may incur additional costs and our results of operations could be adversely affected.

If we experience shortages of labor or supplies or other circumstances beyond our control, there could be delays or increased costs in developing our projects, which would adversely affect our operating results.

We and the home building industry from time to time may be affected by circumstances beyond our control, including:

·        work stoppages, labor disputes and shortages of qualified trades people, such as carpenters, roofers, electricians and plumbers;

·        lack of availability of adequate utility infrastructure and services;

·        transportation cost increases;

·        our need to rely on local subcontractors who may not be adequately capitalized or insured; and

·        shortages or fluctuations in prices of building materials.

These difficulties have caused and likely will cause unexpected construction delays and short-term increases in construction costs. In an attempt to protect the margins on our projects, we often purchase certain building materials with commitments that lock in the prices of these materials for 90 to 120 days or more. However, once the supply of building materials subject to these commitments is exhausted, we are again subject to market fluctuations and shortages. We may not be able to recover unexpected increases in construction or materials costs by raising our home prices because, typically, the price of each home is established at the time a customer executes a home sale contract. Furthermore, sustained increases in construction costs may, over time, erode our profit margins.

We depend on the availability and skill of subcontractors.

Substantially all of our construction work is done by subcontractors with us acting as the general contractor or by subcontractors working for a general contractor we select for a particular project. Accordingly, the timing and quality of our construction depends on the availability and skill of those subcontractors. We do not have long-term contractual commitments with subcontractors or suppliers. Although we believe that our relationships with our suppliers and subcontractors are good, we cannot assure that skilled subcontractors will continue to be available at reasonable rates and in the areas in which we conduct our operations. The inability to contract with skilled subcontractors or general contractors at reasonable costs on a timely basis could limit our ability to build and deliver homes and could erode our profit margins.

Product liability litigation and claims that arise in the ordinary course of business may be costly or negatively impact sales, which could adversely affect our results of operations.

Our home building business is subject to construction defect and product liability claims arising in the ordinary course of business. These claims are common in the home building industry and can be costly. Among the claims for which developers and builders have financial exposure are property damage, environmental claims and bodily injury claims. Damages awarded under these suits may include the costs of remediation, loss of property and health-related bodily injury. In response to increased litigation, insurance underwriters have attempted to limit their risk by excluding coverage for certain claims associated with environmental conditions, pollution and product and workmanship defects. As a developer and a home builder, we may be at risk of loss for mold-related property, bodily injury and other claims in amounts that exceed available limits on our comprehensive general liability policies. In addition, the costs of insuring against construction defect and product liability claims are high and the amount of coverage offered by insurance companies is limited. Uninsured product liability and similar claims, claims in excess

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of the limits under our insurance policies and the costs of obtaining insurance to cover such claims could have a material adverse effect on our revenues and earnings.

Increased insurance risk could negatively affect our business.

Insurance and surety companies have reassessed many aspects of their business and, as a result, may take actions that could negatively affect our business. These actions could include increasing insurance premiums, requiring higher self-insured retentions and deductibles, requiring additional collateral on surety bonds, reducing limits, restricting coverages, imposing exclusions, and refusing to underwrite certain risks and classes of business. Any of these actions may adversely affect our ability to obtain appropriate insurance coverage at reasonable costs, which could have a material adverse effect on our business. Additionally, coverage for certain types of claims, such as claims relating to mold, is generally unavailable. Further, we rely on surety bonds, typically provided by insurance companies, as a means of limiting the amount of capital utilized in connection with the public improvement sureties that we are required to post with governmental authorities in connection with land development and construction activities. The cost of obtaining these surety bonds is, from time to time, unpredictable and on occasion these surety bonds are unavailable. These factors can delay commencement of development projects and adversely affect revenue and earnings.

We are subject to warranty claims arising in the ordinary course of business that could be costly.

We provide service warranties on our homes for a period of one year or more post closing and a structural warranty for five years post closing. We self-insure all of our warranties and reserve an amount we believe will be sufficient to satisfy any warranty claims on homes we sell. We also attempt to pass much of the risk associated with potential defects in materials and workmanship on to the subcontractors performing the work and the suppliers and manufacturers of the materials. In such cases, we still may incur unanticipated costs if a subcontractor, supplier or manufacturer fails to honor its obligations regarding the work or materials it supplies to our projects. If the amount of actual claims materially exceeds our aggregate warranty reserves and/or the amounts we can recover from our subcontractors and suppliers, our operating results would be adversely affected.

Our business, revenues and earnings may be adversely affected by adverse weather conditions or natural disasters.

Adverse weather conditions, such as extended periods of rain, snow or cold temperatures, and natural disasters, such as hurricanes, tornadoes, floods and fires, can delay completion and sale of homes, damage partially complete or other unsold homes in our inventory and/or decrease the demand for homes or increase the cost of building homes. To the extent that natural disasters or adverse weather events occur, our business and results may be adversely affected. To the extent our insurance is not adequate to cover business interruption losses or repair costs resulting from these events, our revenues and earnings may be adversely affected.

We are subject to certain environmental laws and the cost of compliance could adversely affect our business.

As a current or previous owner or operator of real property, we may be liable under federal, state, and local environmental laws, ordinances and regulations for the costs of removal or remediation of hazardous or toxic substances on, under or in the properties or in the proximity of the properties we develop. These laws often impose liability whether or not we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost of investigating, remediating or removing such hazardous or toxic substances may be substantial. The presence of any such substance, or the failure promptly to remediate any such substance, may adversely affect our ability to sell the property, to use the property for our

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intended purpose, or to borrow funds using the property as collateral. In addition, the construction process involves the use of hazardous and toxic materials. We could be held liable under environmental laws for the costs of removal or remediation of such materials. In addition, our existing credit facilities also restrict our access to the loan proceeds if the properties that are used to collateralize the loans are contaminated by hazardous substances and require us to indemnify the bank against losses resulting from such occurrence for significant periods of time, even after the loan is fully repaid.

Our Eclipse project is part of a larger development located at Potomac Yard in northern Virginia. Potomac Yard was formerly part of a railroad switching yard contaminated by rail-related activities. Remediation of the property was conducted under supervision of the U.S. Environmental Protection Agency, or EPA, in coordination with state and local authorities. In 1998, federal, state and local government agencies authorized redevelopment of the property. Our plans for development of our portion of the project are consistent with those authorizations. Although concentrations of contaminants remain on the property under the EPA-approved remediation work plan, the EPA has determined that they do not present an unacceptable risk to human health or the environment. However, it is possible that we could incur some costs to defend against any claims that might be brought in the future relating to any such contaminants.

If we are not able to develop our communities successfully, our earnings could be diminished.

Before a community generates any revenues, material expenditures are required to acquire land, to obtain development approvals and to construct significant portions of project infrastructure, amenities, model homes and sales facilities. It can take a year or more for a community development to achieve cumulative positive cash flow. Our inability to develop and market our communities successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on our ability to service our debt and to meet our working capital requirements.

Our operating results may vary.

We expect to experience variability in our revenues and net income. Factors expected to contribute to this variability include, among other things:

·        the uncertain timing of real estate closings;

·        our ability to continue to acquire additional land or options thereon on acceptable terms and the timing of all necessary regulatory approvals required for development;

·        the condition of the real estate market and the general economy in the Washington D.C. and Raleigh, North Carolina markets, and other markets we may enter;

·        the cyclical nature of the home building industry;

·        the changing regulatory environment concerning real estate development and home building;

·        changes in prevailing interests rates and the availability of mortgage financing; and

·        costs of material and labor and delays in construction schedules.

The volume of sales contracts and closings typically varies from month to month and from quarter to quarter depending on several factors, including the stages of development of our projects, weather and other factors beyond our control. In the early stages of a project’s development, we incur significant start-up costs associated with, among other things, project design, land acquisition and development, construction and marketing expenses. Since revenues from sales of properties are generally recognized only upon the transfer of title at the closing of a sale, no revenue is recognized during the early stages of a project unless land parcels or residential homesites are sold to other developers. Periodic sales of

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properties may be insufficient to fund operating expenses. Further, if sales and other revenues are not adequate to cover operating expenses, we will be required to seek sources of additional operating funds. Accordingly, our financial results will vary from community to community and from time to time.

Acts of war or terrorism may seriously harm our business.

Acts of war, any outbreak or escalation of hostilities between the United States and any foreign power or acts of terrorism, may cause disruption to the U.S. economy, or the local economies of either the Washington, D.C. or Raleigh, North Carolina market, cause shortages of building materials, increase costs associated with obtaining building materials, result in building code changes that could increase costs of construction, affect job growth and consumer confidence, or cause economic changes that we cannot anticipate, all of which could reduce demand for our homes and adversely impact our revenues and earnings.

Being a public company increases our administrative costs.

We completed our initial public offering in December 2004. As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, have required changes in corporate governance practices of public companies. In addition to final rules and rule proposals already made by the Securities and Exchange Commission, the National Association of Securities Dealers, or NASD, has adopted revisions to its requirements for companies that are listed on the Nasdaq National Market. We expect these new rules and regulations to increase our legal and financial compliance costs, and to make some activities more time consuming and/or costly. For example, in anticipation of becoming a public company we added personnel, particularly accounting staff, added independent directors, created board committees, adopted additional internal controls and disclosure controls and procedures, retained a transfer agent and a financial printer, adopted an insider trading policy and other corporate governance policies, and will have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We also expect these new rules and regulations to make it more expensive for us to obtain director and officer liability insurance. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors and qualified executive officers.

Being a public company will require us to significantly enhance our controls over the preparation of financial statements in order to ensure the detection, in a timely manner, of misstatements that could occur in our financial statements in amounts that may be material.

Our independent registered public accounting firm has in the past reported material weaknesses in our internal controls that, if not remedied, could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock. In connection with the audits of the combined consolidated financial statements of our previous three holding companies for the three years ended December 31, 2003, in July 2004 our independent auditors reported to our board of directors several matters that are “reportable conditions” and “material weaknesses” in our internal controls as defined in standards established by the American Institute of Certified Public Accountants. In general, the reportable conditions are significant deficiencies in our internal controls that, if not addressed, could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which internal controls do not reduce to a low level the risk that undetected misstatements caused by error or fraud may occur in amounts that are material to audited financial statements.

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The conditions resulting in the material weaknesses gave rise to a number of adjustments under generally acceptable accounting principles, and adjustments relating to the completeness and accuracy of certain underlying data, which materially changed our 2003 financial statements between initial presentation and issued audit. We have employed additional qualified personnel and adopted and implemented policies and procedures to address the reported material weaknesses. However, the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

We have had only limited operating experience with the remedial measures we have made to date and we cannot be certain that the measures we have taken to date or any future measures will adequately remediate the material weaknesses reported by our independent auditors or that the measures we implement will enable us to maintain adequate controls over our financial processes and reporting in the future. In addition, we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. Any failure to remediate the material weaknesses reported by our independent auditors or to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations, subject us to increased risk of errors and fraud related to our financial statements or result in material misstatements in our financial statements. Any such failure also could adversely affect the results of the periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our “internal control over financial reporting” that will be required when the Securities and Exchange Commission’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 become applicable to us beginning with our Annual Report on Form 10-K for the year ending December 31, 2005 to be filed in early 2006. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We do not own the Comstock brand or trademark, but use the brand and trademark pursuant to the terms of a perpetual license granted by Christopher Clemente, our Chief Executive Officer and Chairman of the Board.

Our Chief Executive Officer and Chairman of the Board, Christopher Clemente, has licensed the “Comstock” brand and trademark to us in perpetuity and free of charge. We do not own the brand or the trademark and may be unable to protect it against infringement from third parties. However, Mr. Clemente retains the right to continue using the “Comstock” brand and trademark individually and through affiliates, including in real estate development projects in our current or future markets. We will be unable to control the quality of projects undertaken by Mr. Clemente or others using the “Comstock” brand and trademark and therefore will be unable to prevent any damage to its goodwill that may occur. We will further be unable to preclude Mr. Clemente from licensing or transferring the ownership of the “Comstock” trademark to third parties, some of whom may compete against us. Consequently, we are at risk that our brand could be damaged which could have a material adverse effect on our business and operations.

Risks Related to our Common Stock and the Securities Markets

Volatility of our stock price could adversely affect stockholders.

The market price of our Class A common stock could fluctuate significantly as a result of:

·        quarterly variations in our operating results;

·        general conditions in the home building industry;

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·        interest rate changes;

·        changes in the market’s expectations about our operating results;

·        our operating results failing to meet the expectation of securities analysts or investors in a particular period;

·        changes in financial estimates and recommendations by securities analysts concerning our Company or the home building industry in general;

·        operating and stock price performance of other companies that investors deem comparable to us;

·        news reports relating to trends in our markets;

·        changes in laws and regulations affecting our business;

·        material announcements by us or our competitors;

·        material announcements by our construction lenders or the manufacturers and suppliers we use;

·        sales of substantial amounts of Class A common stock by our directors, executive officers or significant stockholders or the perception that such sales could occur; and

·        general economic and political conditions such as recessions and acts of war or terrorism.

Investors may not be able to resell their shares of our Class A common stock following periods of volatility because of the market’s adverse reaction to that volatility. Our Class A common stock may not trade at the same levels as the stock of other homebuilders, and the market in general may not sustain its current prices.

Investors in our Class A common stock may experience dilution with the future exercise of stock options and the grant of restricted stock.

From time to time, we have issued and we will continue to issue stock options or restricted stock grants to employees and non-employee directors pursuant to our equity incentive plan. We expect that these options or restricted stock grants will generally vest commencing one year from the date of grant and continue vesting over a three-year period. Investors may experience dilution as the options vest and are exercised by their holders and the restrictions lapse on the restricted stock grants.

Substantial sales of our Class A common stock, or the perception that such sales might occur, could depress the market price of our Class A common stock.

A substantial amount of the shares of our Class A common stock are eligible for immediate resale in the public market. Any sales of substantial amounts of our Class A common stock in the public market, or the perception that such sales might occur, could depress the market price of our Class A common stock.

Future sales, or the availability for sale, of our Class A common stock may cause our stock price to decline.

In connection with our initial public offering, we, along with our officers, directors and stockholders, have agreed that, subject to limited exceptions, not to sell or transfer any shares of Class A common stock for 180 days after December 14, 2004 without the underwriters’ consent. However, the underwriters may release these shares from these restrictions at any time. In evaluating whether to grant such a request, the underwriters may consider a number of factors with a view toward maintaining an orderly market for, and minimizing volatility in the market price of, our Class A common stock. These factors include, among others, the number of shares involved, recent trading volume and prices of the stock, the length of time before the lock-up expires and the reasons for, and the timing of, the request. We cannot predict what

29




effect, if any, market sales of shares held by any stockholder or the availability of these shares for future sale will have on the market price of our Class A common stock.

Commencing one year after December 14, 2004, existing stockholders may begin selling a portion of their shares of Class A common stock in the public market in accordance with the provisions of Rule 144 under the Securities Act. Sales of substantial amounts of our Class A common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our Class A common stock and could materially impair our future ability to raise capital through offerings of our Class A common stock.

The holders of our Class B common stock exert control over us and thus limit the ability of other stockholders to influence corporate matters.

Messrs. Clemente and Benson own 100% of our outstanding Class B common stock, which, together with their shares of Class A common stock, represent approximately 87.6% of the combined voting power of all classes of our voting stock. As a result, Messrs. Clemente and Benson, acting together, have control over us, the election of our board of directors and our management and policies. Messrs. Clemente and Benson, acting together, also have control over all matters requiring stockholder approval, including the amendment of certain provisions of our certificate of incorporation and bylaws, the approval of any equity-based employee compensation plans and the approval of fundamental corporate transactions, including mergers. In light of this control, other companies could be discouraged from initiating a potential merger, takeover or any other transaction resulting in a change of control. Such a transaction potentially could be beneficial to our business or to our stockholders. This may in turn reduce the price that investors are willing to pay in the future for shares of our Class A common stock.

The limited voting rights of our Class A common stock could impact its attractiveness to investors and its liquidity and, as a result, its market value.

The holders of our Class A and Class B common stock generally have identical rights, except that holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to 15 votes per share on all matters to be voted on by stockholders. The difference in the voting rights of the Class A and Class B common stock could diminish the value of the Class A common stock to the extent that investors or any potential future purchasers of our Class A common stock ascribe value to the superior voting rights of the Class B common stock.

It may be difficult for a third party to acquire us, which could inhibit stockholders from realizing a premium on their stock price.

We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These anti-takeover laws prevent Delaware corporations from engaging in business combinations with any stockholder, including all affiliates and employees of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s voting stock unless specified conditions are met.

Our amended and restated certificate of incorporation and bylaws contain provisions that have the effect of delaying, deferring or preventing a change in control of us that stockholders may consider favorable or beneficial. These provisions could discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:

·        a staggered board of directors, so that it would take three successive annual meetings to replace all directors;

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·        a prohibition of stockholder action by written consent; and

·        advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.

Our issuance of shares of preferred stock could delay or prevent a change of control of us.

Our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 20,000,000 shares of preferred stock, par value $.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price or prices and liquidation preferences of such series. The issuance of shares of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders, even where stockholders are offered a premium for their shares. The issuance of shares of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of Class A common stock, including the loss of voting control. We have no present plans to issue any shares of preferred stock.

Item 2.   Properties

Our principal administrative, sales and marketing facilities are located at our headquarters in Reston, Virginia. We currently lease 20,609 square feet of office space in the Reston facility from Comstock Asset Management, L.C., an affiliate wholly-owned by Christopher Clemente. Pursuant to this five-year headquarters lease which we entered into on October 1, 2004, we pay annual rental rates of $484,000, subject to a 4% annual increase. We also lease office space in Raleigh, North Carolina where we occupy approximately 3,300 square feet of office space. We believe these facilities are suitable and provide the appropriate level of capacity for our current operations.

Item 3.   Legal Proceedings

We are not currently 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 currently pending against us, we do not expect that any such liability will have a material adverse effect on our financial position, operating results or cash flows.

We believe that we have obtained adequate insurance coverage or rights to indemnification, or where appropriate, have established reserves in connection with these legal proceedings.

Item 4.   Submission of Matters to a Vote of Security Holders.

On November 24, 2004, our then-existing stockholders approved by written consent in lieu of a special meeting (1) our amended and restated certificate of incorporation and bylaws, (2) the initial public offering of our Class A common stock, (3) the election of each of our current directors, namely Christopher Clemente, Gregory V. Benson, A. Clayton Perfall, David M. Guernsey, James A. MacCutcheon and Gary L. Martin, (4) the classification of our board of directors, (5) our 2004 Long-Term Incentive Compensation Plan, (6) our 2004 Employee Stock Purchase Plan, (7) the form of Indemnification Agreement entered into, or to be entered into, with our current and/or future board members and executive officers, and (8) the form of Tax Indemnification Agreement entered into with stockholders of certain of our subsidiaries.

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PART II

Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock

Our Class A common stock has been traded on the Nasdaq National Market under the symbol “CHCI” since our initial public offering on December 14, 2004. The following table sets forth the high and low sale prices of our Class A common stock, as reported on Nasdaq, for the period indicated:

 

 

High

 

Low

 

2004

 

 

 

 

 

Fourth quarter (ended December 31, 2004)

 

$

22.10

 

$

16.00

 

 

On March 24, 2005, the last reported sale price of our Class A common stock was $22.18 per share. On March 24, 2005, there were approximately 16 record holders and approximately 2,157 beneficial owners of our Class A common stock.

Dividends

We have never paid any cash dividends on our common stock. From time to time, our board of directors evaluates the desirability of paying cash dividends. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, applicable loan covenants and other factors deemed relevant by our board of directors.

Initial Public Offering

In connection with our initial public offering of our Class A common stock, the SEC declared our Registration Statement on Form S-1 (No. 333-118193), filed under the Securities Act of 1933, effective on December 13, 2004. On December 17, 2004, we closed the sale of 3,960,000 shares of our Class A common stock registered under the Registration Statement. Furthermore, we sold 594,000 shares of our Class A common stock on December 28, 2004 pursuant to the exercise in full of the underwriters’ over-allotment option. BB&T Capital Markets, a Division of Scott and Stringfellow, Inc., Robert W. Baird & Co. and Ferris, Baker Watts Incorporated served as the managing underwriters.

The initial public offering price was $16 per share. The aggregate sale price for all of the shares sold by us was approximately $72.8 million, resulting in net proceeds to us of approximately $64.9 million after payment of underwriting discounts and commissions of approximately $5.1 million and legal, accounting and other fees incurred in connection with the offering of approximately $2.8 million.

We used approximately $8 million from the net proceeds received from our initial public offering to acquire minority membership interests in certain of our subsidiaries, approximately $3 million to repay certain indebtedness, and approximately $8.5 million to fund the payment of a portion of certain S corporation distributions and other amounts owed to stockholders by certain of our subsidiaries in conjunction with our internal consolidation. We have invested the remainder of the proceeds from the initial public offering in short-term, interest-bearing, investment-grade securities.

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Item 6.   Selected Financial Data

The following table contains selected consolidated and combined financial information and is supplemented by the more detailed financial statements and notes thereto included elsewhere in this report. We derived the selected historical financial data shown below for 2000, 2001, 2002, 2003 and 2004 from our audited and unaudited financial statements. You should read the following financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our combined consolidated financial statements and the related notes, included elsewhere in this report.

FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA

Dollars in thousands (except per share data)

 

 

Years ended December 31,

 

 

 

2004

 

2003

 

2002

 

2001

 

2000

 

Revenues

 

$

96,045

 

$

55,521

 

$

34,752

 

$

50,929

 

$

49,439

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

63,993

 

41,756

 

26,820

 

40,853

 

43,199

 

Selling, general and administrative

 

11,940

 

5,712

 

3,725

 

3,900

 

1,603

 

Operating income

 

20,112

 

8,053

 

4,207

 

6,176

 

4,637

 

Other (income) expense, net

 

908

 

(44

)

10

 

(302

)

(62

)

Income before minority interest and equity in earnings of real estate partnerships

 

19,204

 

8,097

 

4,197

 

6,478

 

4,699

 

Minority interest

 

5,260

 

2,297

 

664

 

1965

 

1861

 

Income before equity in earnings of real estate partnerships

 

13,944

 

5,800

 

3,533

 

4,513

 

2,838

 

Equity in earnings of real estate partnerships

 

118

 

139

 

51

 

6

 

0

 

Income before income taxes

 

14,062

 

5,939

 

3,584

 

4,519

 

2,838

 

Income tax provision (benefit)

 

(241

)

 

 

 

 

Net income

 

$

14,303

 

$

5,939

 

$

3,584

 

$

4,519

 

$

2,838

 

Basic earnings per share

 

$

1.95

 

$

0.84

 

$

0.59

 

$

0.74

 

$

0.47

 

Basic weighted average shares outstanding(1)

 

7,347

 

7,067

 

6,074

 

6,074

 

6,074

 

Dilutive earnings per share

 

$

1.95

 

$

0.84

 

$

0.59

 

$

0.59

 

$

0.59

 

Dilutive weighted average shares outstanding(1)

 

7,351

 

7,067

 

6,074

 

6,074

 

6,074

 

 

 

 

December 31,

 

 

 

2004

 

2003

 

2002

 

2001

 

2000

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,559

 

$

17,160

 

$

8,695

 

$

7,086

 

$

6,664

 

Real estate held for development and sale

 

104,326

 

65,272

 

20,192

 

8,573

 

12,889

 

Total assets

 

304,507

 

90,184

 

33,971

 

18,402

 

20,959

 

Notes payable

 

76,628

 

61,062

 

17,203

 

9,439

 

11,855

 

Total liabilitities

 

239,586

 

71,746

 

21,574

 

13,035

 

17,033

 

Minority interest

 

2,695

 

11,413

 

8,790

 

2,390

 

1,318

 


(1)   Shares outstanding for prior years have been adjusted to account for shares issued in connection with the initial public offering of Comstock’s common stock.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial and Other Data” and our consolidated and combined financial statements and related notes appearing elsewhere in this report . Other than in the “Overview” below, this discussion and analysis does not incorporate the financial condition and results of operations of Comstock Service, Inc., under which entity we previously conducted our Raleigh, North Carolina operations before the merger of Comstock Service, Inc. into Comstock Homebuilding Companies, Inc. The merger of Comstock Service, Inc. was treated as an acquisition for accounting purposes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Please see “Cautionary Notes Regarding Forward-looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those discussed below and elsewhere in this report, particularly under the headings “Business-Risk—Factors” and “Cautionary Notes Regarding Forward-looking Statements.”

Overview

We engage in the business of residential land development, production home building and high-rise condominium development in the greater Washington, D.C. and Raleigh, North Carolina markets. Our business was started in 1985 by Christopher Clemente, our Chief Executive Officer, as a residential land developer and home builder focused on the luxury home market in the northern Virginia suburbs of Washington, D.C. In 1992, we repositioned ourselves as a production home builder focused on moderately priced homes in areas where we could more readily purchase finished building lots through option contracts. In 1997, we entered the Raleigh, North Carolina market.

In the late 1990s, in response to increasing competition for finished lots, we diversified our product base to include multiple product types and home designs, and we rebuilt our in-house land development department to include significant experience in both land development operations and land entitlement expertise. Our strategic goal was to secure and control a pipeline of diversified land inventory at various stages of entitlement, thus reducing our dependence on other land developers for finished building lots and improving our ability to control our growth.

In recent years, our financial results have been influenced significantly by the availability of building lots, the timing of entitlement processes, the mix of products available for sale and the timing of settlements.

The amount of time that it takes to bring a new development to market varies greatly depending on, among other things, the location and jurisdiction, governmental zoning and permitting processes, site development conditions, weather conditions, and the type of product to be constructed on the subject site. There can be a six- to 36-month lag time between the time we contract to purchase a site and the time we begin developing and/or delivering homes on the site. For example, a site that requires entitlement processing takes longer than a site where we purchase finished building lots. Additionally, condominium homes take longer to construct than townhouses and single-family homes and high-rise developments take longer to construct than low-rise developments. As a result of this lag, it has been our experience that an increasing lot inventory in one period does not necessarily correlate to increasing sales in the immediately following periods. Thus, there are both market risks and benefits associated with the lag time between controlling a property and realizing revenue from the property.

We can experience significant variation from one period to the next with respect to average price per new order and average settlement revenue. This variation often results from shifts in the mix of products being sold during the period. While it is most typical that single-family homes are priced higher than townhouses or condominiums, it is possible that during a given period, orders and deliveries may include townhouses, based on location, that price higher than single-family homes. Likewise, in any project in any

34




period, condominium units may produce higher average per unit sales prices and/or settlement revenues. Lower average per unit orders or settlements do not necessarily indicate that margins have been eroded or that profits have been reduced. Average settlement revenue can be both higher and lower than average price per new order in the prior period based on the mix of available product for sale.

For the 12 month periods ended December 31, the approximate average order prices for our market rate homes (which excludes county government mandated affordable housing program units sold at a discount) were as follows:

 

 

12-month period ended December 31,

 

SUMMARY

 

2002

 

2003

 

2004

 

Townhouse

 

$

226,700

 

$

271,430

 

$

342,457

 

Single Family

 

$

415,150

 

$

443,400

 

$

460,066

 

Condominium

 

$

302,900

 

$

343,560

 

$

380,548

 

 

We have made significant investments over the past three years to become a fully integrated and diversified home building operation with a wide spectrum of skills and a substantial pipeline of building lot inventory. The costs of our expansion and diversification were most evident in 2002 and 2003 as we experienced delays developing our inventory of land due to entitlement delays and extreme weather conditions. In 2002, these delays were principally caused by demand for development and construction entitlements and permitting at a pace that exceeded the ability of the local municipalities to respond. Severe weather exacerbated these delays. The result was a temporary shortage of building lot inventory from which we could sell homes and an increase in our land position and backlog. Consequently, we posted negative growth in 2002 and slower than expected growth in 2003. Towards the end of 2003 we began to realize the benefits of a replenished and diversified building lot inventory. At December 31, 2004, we either owned or controlled under option agreements over 3,750 building lots.

Recent accounting pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments, (“SFAS 123R”). SFAS 123R is a revision of SFAS 123 and supersedes APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, and applies to all awards granted, modified, repurchased or cancelled after the effective date, and all outstanding portions of awards granted prior to the effective date which are unvested as the effective date of the pronouncement. Entities may adopt the provisions of SFAS 123R using either the modified prospective or modified retrospective application. Under the modified prospective method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosure. For periods before the required effective date, the modified retrospective application may be applied to either (a) all prior years for which SFAS 123 was effective or (b) only to prior interim periods in the year of initial adoption, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. The Company adopted SFAS 123R on January 1, 2004. Prior to December 17, 2004 the Company had no share-based payment transactions.

Critical Accounting Policies and Estimates

Our consolidated and combined financial statements are prepared in accordance with generally accepted accounting principles, which require us to make certain estimates and judgments that affect the

35




reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates, including those related to the consolidation of variable interest entities, revenue recognition, impairment of real estate held for development and sale, warranty reserve and our environmental liability exposure. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates.

A summary of significant accounting policies is provided in Note 2 to our audited consolidated and combined financial statements. The following section is a summary of certain aspects of those accounting policies that require our most difficult, subjective or complex judgments and estimates.

Consolidation of Variable Interest Entities

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” or FIN 46. FIN 46 requires the primary beneficiary of a variable interest entity to consolidate that entity. A variable interest entity is created when (i) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Expected losses are the expected negative variability of an entity’s net assets exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s assets, exclusive of variable interests. Prior to the issuance of FIN 46, an enterprise generally consolidated an entity when the enterprise had a controlling financial interest in the entity through ownership of a majority voting interest.

In December 2003, the FASB issued a revision of FIN 46 (“FIN 46-R”), clarifying certain provisions of FIN 46. We adopted the provisions of FIN 46-R on February 1, 2003 to the extent that they related to variable interest entities created on or after that date. For variable interest entities created before January 31, 2003, FIN 46-R was deferred to the end of the first interim or annual period ending after March 15, 2004. We fully adopted FIN 46-R effective March 31, 2004. Based on the provisions of FIN 46-R, we have concluded that whenever we option land or lots from an entity and pay a significant nonrefundable deposit, a variable interest entity is created under condition (ii) (b) of the previous paragraph. This is because we have been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected theoretical losses if they occur. Therefore, for each variable interest entity created, we compute the expected losses and residual returns based on the probability of future cash flows as outlined in FIN 46 to determine if we are deemed to be the primary beneficiary of the variable interest entity.

The methodology used to evaluate our primary beneficiary status requires substantial management judgement and estimation. These judgments and estimates involve assigning probabilities to various estimated cash flow possibilities relative to the selling entity’s expected profits and losses and the cash flows associated with changes in the fair value of the land under contract. Because we do not have any ownership interests in the entities with which we contract to buy land (such as LLCs), we may not have the ability to compel these entities to provide financial or other data to assist us in the performance of the primary beneficiary evaluation. This lack of direct information from the contracting entities may result in our evaluation being conducted solely based on the aforementioned management judgments and estimates. Further, where we deem ourselves to be the primary beneficiary of such an entity created after December 31, 2003 and that entity refuses to provide financial statements, we utilize estimation techniques

36




to perform the consolidation. While management believes that our estimation techniques provide a reasonable basis for determining the financial condition of a entity that refuses to provide financial statements, the actual financial condition of the entity could differ from that reported. In addition, although management believes that our accounting policy is designed to properly assess our primary beneficiary status relative to our involvement with the entities from which we acquire land, changes to the probabilities and the cash flow possibilities used in our evaluation could produce different conclusions regarding our primary beneficiary status.

Revenue Recognition

We primarily derive our earned revenues from the sale of residential property. We recognize residential revenue and all related costs and expenses when full payment has been received, title and possession of the property has been conveyed and risks and rewards of ownership transfer to the buyer and other sale and profit recognition criteria are satisfied. Management estimates of future costs to be incurred after the completion of each sale are included in cost of sales. A change in circumstances that causes these estimates of future costs to increase or revenues to decrease would significantly affect the profit recognized on these sales.

Impairment of Real Estate Held for Development and Sale

Real estate held for development and sale includes land, land development costs, interest and other construction costs and is stated at cost or, when circumstances or events indicate that the real estate held for development or sale is impaired, at estimated fair value. Circumstances or events we consider important which could trigger an impairment review include the following:

·        significant negative industry or economic trends;

·        a significant underperformance relative to historical or projected future operating results;

·        a significant change in the manner in which an asset is used; and

·        an accumulation of costs significantly in excess of the amount originally expected to construct an asset.

Real estate is stated at the lower of cost or estimated fair value using the methodology described as follows. A write-down to estimated fair value is recorded when we determine that the net book value exceeds the estimated selling prices less cost to sell. These evaluations are made on a property-by-property basis. When we determine that the net book value of an asset may not be recoverable based upon the estimated undiscounted cash flow, an impairment write-down is recorded. The evaluation of future cash flows and fair value of individual properties requires significant judgment and assumptions, including estimates regarding expected sales prices, development absorption and remaining development costs. Significant adverse changes in circumstances affecting these judgments and assumptions in future periods could cause a significant impairment adjustment to be recorded.

Warranty Reserve

Warranty reserves for houses sold are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the one-year warranty period provided by us or within the five-year statutorily mandated structural warranty period. Since we generally subcontract our home building work, subcontractors are required to provide us with an indemnity and a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. Variables used in the calculation of the reserve, as well as the

37




adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Although management considers the warranty reserve to be adequate, there can be no assurance that this reserve will prove to be adequate over time to cover losses due to increased costs for material and labor, the inability or refusal of manufacturers or subcontractors to financially participate in corrective action, unanticipated adverse legal settlements, or other unanticipated changes to the assumptions used to estimate the warranty reserve.

Environmental Liability Exposure

Development and sale of real property creates a potential for environmental liability on our part as owner and developer, for our own acts as well as the acts of prior owners of the subject property or owners or past owners of adjacent parcels. If hazardous substances are discovered on or emanating from any of our properties, we and prior owners may be held liable for costs and liabilities relating to those hazardous substances. We generally undertake environmental studies in connection with our property acquisitions, when warranted. If we incur environmental remediation costs in connection with properties we previously sold, including clean up costs, consulting fees for environmental studies and investigations, monitoring costs, and legal costs relating to clean up, litigation defense and the pursuit of responsible third parties, they are expensed. We capitalize costs relating to land under development and undeveloped land as part of development costs. Costs incurred for properties to be sold are deferred and charged to cost of sales when the properties are sold. Should a previously undetected, substantial environmental hazard be found on our properties, significant liquidity could be consumed by the resulting clean up requirements and a material expense may be recorded. Further, governmental regulation on environmental matters affecting residential development could impose substantial additional expense on us, which could adversely affect our results of operations or the value of properties owned under contract, or purchased by us. For additional information regarding risks associated with environmental hazards and environmental regulation, see “Business—Risk Factors—We are Subject to Certain Environmental Laws and the Cost of Compliance Could Adversely Affect our Business.”

Internal Control Over Financial Reporting

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, among other material adverse consequences, our operating results could be misstated and our reputation may be harmed. Prior to our initial public offering in December 2004, we operated four primary independent privately held S-corporations and single purpose limited liability companies (“LLC”). In the past we had produced audited individual S-corporation and a number of LLC financial statements that did not contemplate eliminations for inter-company transactions. Early in the process of preparing for our initial public offering, we recognized the need to produce audited combined consolidated financial statements. After having produced combined consolidated financial statement for the four S-corporations, it was decided that based on a disparity of ownership between the shareholders (which we determined represented a substantive exchange) we would, upon consolidation, need to treat Comstock Service, Inc., as an acquired company for accounting purposes and therefore we produced a separate audit for that company. We then produced combined consolidated financial statements for the remaining three S-corporations, designated as the Comstock Companies.

Prior to our initial public offering, we had never needed to produce audited combined financial statements for the Comstock Companies. As a result, we did not maintain a system of internal controls that was adequate for producing a combined consolidated financial statements such as is needed for a public company. In preparing the financial statements included in this report we modified several of our policies and procedures and created numerous new policies and procedures to remedy problems identified with our internal control structure that existed prior to December 31, 2003. Subsequent to December 31, 2003,

38




we have, among other things, supplemented our accounting staff with, among others, a Chief Financial Officer (promoted from Vice President of Finance), a Chief Accounting Officer, a Corporate Controller and an Assistant Controller, to attempt to establish an infrastructure appropriate for reporting as a public company.

In connection with the audit of the combined consolidated financial statements of our three primary holding companies for the three years ended December 31, 2003, in July 2004 our independent registered public accounting firm reported to our Board of Directors several matters that are “reportable conditions” and “material weaknesses” in our internal controls as defined in standards established by the American Institute of Certified Public Accountants. In general, reportable conditions are significant deficiencies in our internal controls that, if not addressed, could adversely affect our ability to record, process, summarize and report financial data consistent with the assertions of management in the financial statements. A material weakness is a reportable condition in which internal controls do not reduce to a low level the risk that undetected misstatements caused by error or fraud may occur in amounts that are material to audited financial statements.

The conditions resulting in the material weaknesses gave rise to a number of adjustments under generally acceptable accounting principles, and adjustments relating to the completeness and accuracy of certain underlying data, which materially changed our financial statements between initial presentation and issued audit. The material weaknesses, as reported in July 2004 to our Board of Directors in connection with their audit of our financial statements for the three years ended December 31, 2003, are summarized below:

·        Our accounting system had significant limitations with respect to the process of preparing combined consolidated financial statements. In response to this recommendation, as of September 2004, we have designed a tool to work with our existing accounting system which has the ability to generate more detailed reporting for the purpose of producing combined consolidated financial statements. We have evaluated upgrading our accounting software and have decided that in light of upcoming Sarbanes-Oxley Act systems and procedures documentation requirements, we would be better served to postpone a conversion until the beginning of 2006.

·        Our policies and procedures with respect to record retention were deemed inadequate. In addition, we needed to enhance our policies and procedures with respect to the formal review and documentation by management of business performance. In response to this recommendation we have initiated a formal policy for records retention and documentation by management of business performance. Subsequent to December 31, 2003 we began producing quarterly fluctuation reports and management discussion of the results of operations. We have formed a Disclosure Committee comprised of senior managers and initiated an internal reporting procedure for senior management that is to be completed prior to the release of financial statements in an effort to assure completeness of information with respect to the analyses prepared. The process of internal and external reporting is overseen by our Chief Financial Officer.

·        We needed to increase and improve our in-house accounting staff in preparation for the requirements of financial reporting as a public company. Subsequent to December 31, 2003 we promoted our Vice President of Finance to the position of Chief Financial Officer and hired a Chief Accounting Officer with extensive public company reporting experience. We reassigned the responsibility for accounting to our Chief Accounting Officer with day-to-day oversight by our Chief Financial Officer. In addition we created the position of Assistant Controller to work closely with the Corporate Controller who had been hired in late November 2003. We believe this additional staff, along with additional staff level personnel, provides the resources necessary to remedy the deficiencies in our controls identified by our auditors. We have retained internal auditors and consultants to work closely with our Chief Accounting Officer to prepare for compliance under Section 404 of the Sarbanes-Oxley Act. We have a timeline which provides us an opportunity to

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conduct internal audits of our controls and procedures prior to December 31, 2005 when we will be subject to an audit of our internal controls and procedures.

·        Our policies and procedures with respect to the capitalization of selling, general and administrative costs as real estate held for development and sale and released into cost of sales at settlement were deemed to be inaccurate. The result of the inaccurate capitalization of selling, general and administrative expenses was that accurate reporting of expenses was delayed. Since the three-year audit presented herein is the first combined consolidated audit of the Comstock Companies, there was no restatement associated with this change in policy and procedure. We have adjusted our policy with respect to the capitalization and recognition of selling, general and administrative expenses. The effect of this change in policy was on timing of profit recognition and resulted in increased gross margins from previously reported non-consolidated financial statements. This change in policy was effected historically throughout our three-year audited combined consolidated financial statements for the period ending December 31, 2003.

·        Our policies and procedures for accruals with respect to period end cut-off were deemed to be insufficient to properly present the financial position of the company with respect to accrued expenses. The result of the inaccurate accrual and release of completion expenses was that accurate reporting of profits was delayed. This change in policy affected the timing of reported profits, not cumulative reported profits. Since the three-year audit presented herein is the first combined consolidated audit of the Comstock Companies there was no restatement associated with this change in policy and procedure. We adjusted our policy with respect to accruals for estimable and probable expenses associated with unit settlements. We have established formal procedures for reviewing these estimates on a quarterly basis for completeness. This change in policy was effected retroactively and is reflected in our three-year audited combined consolidated financial statements.

·        Our policies and procedures with respect to the approval and documentation of related party transactions needed to be formalized so that we could ensure the fairness of these transactions and proper inclusion of these transactions in our financial statements. We have adopted a new procedure for presenting all related party transactions to our Board of Directors for approval by a majority of the independent members of our Board of Directors. Our procedure requires that our Chief Financial Officer, assuming he is not party to the related party transaction, coordinate with the independent members of our Board of Directors in evaluating the fairness of related party transactions.

We believe that the remedial measures described above address the material weaknesses identified by our independent registered public accounting firm. We were able to accurately report our financial condition and results of operations for the year ended December 31, 2004 without any reportable conditions or material weaknesses having been reported, and we believe that we will continue to be able to accurately report on a timely basis our financial condition and results of operations. However, the process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We have had only limited operating experience with the improvements we have made to date. We cannot be certain that the measures we have taken to date or any future measures will adequately remedy the material weaknesses reported by our independent auditors. Our independent registered public accounting firm has not formally evaluated the measures we have taken or plan to take to address any material weaknesses. For a description of risks associated with our internal controls, please see “Business—Risk Factors—Being a public company will require us to significantly enhance our controls over the preparation of financial statements in order to ensure the detection, in a timely manner, of misstatements that could occur in our financial statements in amounts that may be material.”

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Results of Operations

Year ended December 31, 2004 compared to year ended December 31, 2003

Orders and Backlog

New orders for the year ended December 31, 2004 increased $155 million, or 224.6%, to $224.2 million on 608 homes as compared to $69.1 million on 208 homes for the year ended December 31, 2003. This increase in new orders was primarily attributable to the opening of our Eclipse at Potomac Yard project during the second half of the year. Including Comstock Service, which was acquired on December 17, 2004, the value of new orders for the year ended December 31, 2004 was $241.0 million on 665 units.

The average sale price per new order for the year ended December 31, 2004 increased by $49,000 to $369,000 as compared to $320,000 for the year ended December 31, 2003. This change was attributable to both a shift in product mix that included a significant number of higher-priced condominiums sales derived from the opening of our Eclipse at Potomac Yard project during the year ended December 31, 2003 and general price appreciation in the Washington, DC area. On average, the sale price of townhouses increased $90,300 to $361,700 for the year ended December 31, 2004 as compared to the year ended December 31, 2003. On average, the sale price of our single-family homes increased by approximately $65,300 during the year ended December 31, 2004 to $508,700 from $443,400 at December 31, 2003. The average sale price of our condominiums increased by $37,400 to $381,000 for the period ending December 31, 2004 as compared to $343,600 for the period ended December 31, 2003. Including Comstock Service, the changes for the year ended December 31, 2004 were a $71,000 increase in the average sale price of a townhouse to approximately $342,500; a $16,700 increase in the average sale price of a single family home to approximately $460,100; and a $37,000 increase in the sales price of a condominium to approximately $380,500.

Our backlog at December 31, 2004, which includes Comstock Service, increased $138.2 million, or 438.4%, to $174.6 million on 329 homes compared to our backlog at December 31, 2003 of $31.5 million on 93 homes. This increase in backlog is primarily attributable to sales at the Eclipse project in Arlington, Virginia which represented approximately $105 million of the backlog at December 31, 2004.

Revenues.

The number of homes delivered in the year ended December 31, 2004 increased by 62.3% to 263 from 162 homes in the year ended December 31, 2003. Average per settlement revenue increased by approximately $25,000 to $328,000 for the year ended December 31, 2004 as compared to $303,000 for the year ended December 31, 2003. Home building revenues increased by $37.9 million, or 77.3%, to $87.0 million for the year ended December 31, 2004 as compared to $49.1 million for the year ended December 31, 2003. Total revenue increased $40.5 million to $96.0 million for the year ended December 31, 2004 as compared to $55.5 million in the year ended December 31, 2003. The increase in deliveries and revenue from December 31, 2003 to December 31, 2004 are in large part attributable to the opening of new communities and the release of inventory for sale in late 2003 at projects such as Blooms Mill (137 deliveries in 2004) and Emerald Farm (20 deliveries in 2004). In addition, the beginning of deliveries in the first building at Belmont Bay 5 (11 deliveries in 2004) and the completion of Flynns Crossing (49 deliveries in 2004) contributed to the increase. The $25,000 increase in average per settlement revenue also contributed to the increase. Total revenue increased in part due to the delivery of 30 lots at Blooms Mill to another homebuilder during the year ended December 31, 2004 for $3.9 million of Other Revenue which was an increase of 13 units and $1.7 million from the year ended December 31, 2003.

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Cost of sales and selling, general and administrative expenses.

Cost of sales for the year ended December 31, 2004 increased $22.2 million, or 53.3%, to $64.0 million, or 66.6% of revenue, as compared to $41.8 million, or 75.2% of revenue, for the year ended December 31, 2003. The increase in cost of goods sold during the year ended December 31, 2004 as compared to the year ended December 31, 2003 is directly attributable to the increase in deliveries. The reduction of 8.6 percentage points in cost of goods sold as a percentage of revenue is primarily attributable to the cost basis in the land which was settled during the year ended December 31, 2004 which represented a lower percentage of revenue as compared to the cost basis of the land settled during the year ended December 31, 2003. For the year ended December 31, 2004, land costs for units settled represented 17% of total revenue as compared to 20% for the year ended December 31, 2003. The increase in gross margin was also partially attributable to price increases in the market which in general outpaced increases in costs of goods sold.

Selling, general and administrative costs for the year ended December 31, 2004 increased $6.2 million to $11.9 million from $5.7 million for the year ended December 31, 2003. This increase was the result of additional staffing costs of $3.6 million to support our growth and to provide the staffing required of a public company, increased marketing expenses of $1.2 million, and increased audit fees of $1.4 million associated with historical periods presented in our initial public offering. As a percentage of revenue, and as a result of expenses associated with preparation for our initial public offering selling, general and administrative expenses increased by 1.1 percentage points to 12.4% during the year ended December 31, 2003 from 10.3% during the year ended December 31, 2002.

Operating income.

Our operating income for the year ended December 31, 2004 increased $12.1 million to $20.1 million as compared to $8.1 million for the year ended December 31, 2003. Our operating margin for the year ended December 31, 2004 was 20.9% compared with 14.5% for the year ended December 31, 2003. The increase in operating margin is attributable to an increased gross margin that outpaced the increase in sales, general and administrative expenses as a percentage of revenue. The increase in margin resulted in large part from reductions in land and house costs as a percentage of revenue.

Income before minority interest.

Our income before minority interest increased by $11.1 million, or 137.2%, to $19.2 million for the year ended December 31, 2004 as compared to $8.1 million for the year ended December 31, 2003. Net margins as a percentage of revenues increased by 5.4% to 20.0% for the year ended December 31, 2004 from 14.6% for the year ended December 31, 2003. The increase in net income before minority interests was a result of the increase in deliveries (101 units) and corresponding gross profit generated by those settlements ($18.3 million). This increase was offset by the increase in sales, general and administrative expenses ($6.2 million).

Other (income) expense, net.

Other (income) expense, net increased by $1.0 million to a net expense of $0.9 million for the year ended December 31, 2004 as compared to net income of $44,000 for the year ended December 31, 2003. The increase in Other (income) expense net is primarily attributable to interest from a corporate working capital line of credit ($0.4 million) and a pre-payment premium associated with the early retirement of $2.5 million of the facility ($0.5 million).

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Minority interest.

Minority interest increased by $3.0 million, or 129.0%, to $5.3 million for the year ended December 31, 2004 as compared to $2.3 million for the year ended December 31, 2003. This increase is primarily the result of increased income earned by Comstock Investors, VI a limited partnership in which the minority interest partners have been subsequently redeemed.

Income taxes

On December 17, 2004, the Company  reorganized from an S corporation to a C corporation. For the period December 17, 2004 to December 31, 2004 the Company recorded a net income tax benefit of $241,000. Of this amount, $290,000 represents the current year income tax expense on earnings from December 17, 2004 to December 31, 2004 and $531,000 represents a deferred tax benefit arising from the reorganization.  The Company’s effective tax rate net of deferred income taxes for this period was 38.9% (1.71%). In future periods the Company expects its effective tax rate to be higher and the Company expects income tax expense to be a more significant expense which will have a material impact on our net income. We do expect to receive tax rate relief as a result of the American Jobs Creation Act of 2004.

Year ended December 31, 2003 compared to year ended December 31, 2002

Orders and backlog.

New orders for the year ended December 31, 2003 increased $40.2 million, or 139%, to $69.1 million on 216 homes as compared to $28.9 million on 101 homes for the year ended December 31, 2002. This increase in new orders was primarily attributable to an increase in the demand for our products in the Washington, D.C. market and the increased availability of lots at our Blooms Mill, Emerald Farm and Flynns Crossing communities during the course of the year. Sales for the year ended December 31, 2002 were lower due in part to the shortage of inventory of building lots available for sale. This shortage resulted from the inability of the municipalities in which we operate to keep pace with new development and construction permitting requests. While we expect to continue to experience such delays, we do not anticipate such delays having a significant impact on us in the near future. The delays we experienced as a result of time spent processing land during 2002 created a natural opportunity for increased orders in 2003. Increases in saleable inventory during the period are partially attributable to the resolution of several infrastructure limitations within the counties in which we operate that had in the recent past restricted the release of development and building permits. For example, the water moratorium we experienced at our Emerald Farm and Riverside developments resulted in no new permits being issued for either development during late 2002 and early 2003.

The average sale price per new order for the year ended December 31, 2003 increased by $34,000 to $320,000 as compared to $286,000 for the year ended December 31, 2002. This change was attributable to a shift in product mix that included a significant number of higher-priced townhouse sales derived from the opening of our Blooms Mill development during the year ended December 31, 2003 and higher average overall price points than was derived from inventory settled for the year ended December 31, 2002. On average, the sale price of townhouses increased $44,730 to $271,430 for the year ended December 31, 2003 as compared to the year ended December 31, 2002. Our single-family homes increased by approximately $28,250 during the year ended December 31, 2003 to $443,400 from $415,150 at December 31, 2002. The average sale price of our condominiums increased by $40,660 to $343,560 for the period ending December 31, 2003 as compared to $302,900 for the period ended December 31, 2002.

Our backlog at December 31, 2003 increased $20.0 million, or 175%, to $31.5 million on 93 homes compared to our backlog at December 31, 2002 of $11.5 million on 39 homes. This increase in backlog is attributable to increases in orders during the second half of the year resulting from the increased demand for our products in the Washington, D.C. market and due to the increased availability of saleable building

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lots in our developments. Several projects that were in the approval review process at the beginning of the period received approvals necessary for initiation of development or construction during the second half of 2003, increasing inventory of building lots available for sale. As a result of the timing of sales and a year that experienced record rainfall, inventory under construction could not be converted into settlements by the end of 2003. Increased undelivered inventory increased our backlog at December 31, 2003.

Revenues.

The number of homes delivered in the year ended December 31, 2003 increased by 30.6% to 162 from 124 homes in the year ended December 31, 2002. Average per settlement revenue increased by approximately $66,000 to $303,000 for the year ended December 31, 2003 as compared to $237,000 for the year ended December 31, 2002. Home building revenues increased by $19.7 million, or 67.0%, to $49.0 million for the year ended December 31, 2003 as compared to $29.4 million for the year ended December 31, 2002. Total revenue increased $20.8 million to $55.5 million for the year ended December 31, 2003 as compared to $34.8 million in the year ended December 31, 2002. The increase in deliveries and revenue from December 31, 2002 to December 31, 2003 are in large part attributable to the delivery in the quarter ended December 31, 2003 of homes sold during the quarters ended June 30, 2003 and September 30, 2003. Significant price appreciation in the Washington, D.C. market also led to increases in revenues during the year ended December 31, 2003. The addition of single-family homes at Blooms Mill and the conversion into revenue of the increases in order prices at Wescott Ridge Condominiums, where average settlement revenue increased approximately $25,660, increased settlement revenue during the year ended December 31, 2003 as compared to the year ended December 31, 2002.

Cost of sales and selling, general and administrative expenses.

Cost of sales for the year ended December 31, 2003 increased $15.0 million, or 55.7%, to $41.8 million, or 75.2% of revenue, as compared to $26.8 million, or 77.2% of revenue, for the year ended December 31, 2002. The two percentage point change in cost of sales as a percentage of home building revenues is attributable to the sale of finished lots during 2003. Increases in total cost of sales are primarily attributable to an increase in settlements during the year ended December 31, 2003 and the associated capitalized costs of sales of those settlements that were expensed during the year ended December 31, 2003 as cost of sales. Since costs associated with development and construction are capitalized into real estate held for development and resale as incurred and released pro rata as units and/or finished lots settle, cost of sales is directly related to revenue. As such, higher settlement revenues for the year ended December 31, 2003 resulted in an increased cost of sales. Extended construction and development periods resulting from severe weather during the second half of the year ended December 31, 2003 contributed to increased carrying costs on the homes and lots that were settled during the year ended December 31, 2003. In addition, the competition for skilled labor and subcontractors increased during the year ended December 31, 2003 causing an increase in per unit labor costs. Price appreciation in the market was sufficient, however, to offset these increases.

Selling, general and administrative costs for the year ended December 31, 2003 increased $2.0 million to $5.7 million from $3.7 million for the year ended December 31, 2002. This increase was the result of additional staffing costs of $300,000 to support our growth, increased marketing expenses of $800,000, and general inflation with respect to the goods and services of $900,000. As a percentage of revenue, selling, general and administrative expenses decreased to 10.3% during the year ended December 31, 2003 from 10.7% during the year ended December 31, 2002.

Operating income.

Our operating income for the year ended December 31, 2003 increased $3.8 million to $8.1 million as compared to $4.2 million for the year ended December 31, 2002. Our operating margin for the year ended

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December 31, 2003 was 14.6% compared with 12.1% for the year ended December 31, 2002. The increase in operating margin in spite of increased cost of sales is attributable to selling, general and administrative expenses that did not experience a similar increase as a percentage of revenue during the year ended December 31, 2003. The increase in margin resulted in large part from leverage gains in our fixed cost structure, increased deliveries and price appreciation.

Income before minority interest.

Our income before minority interest increased by $3.9 million, or 93.0%, to $8.1 million for the year ended December 31, 2003 as compared to $4.2 million for the year ended December 31, 2002. Net margins as a percentage of revenues increased by 2.5% to 14.6% for the year ended December 31, 2003 from 12.1% for the year ended December 31, 2002. This increase is primarily attributable to the selling, general and administrative expenses that increased but did not increase pro rata to revenue growth during the year ended December 31, 2003. As a result, income increased due to leverage gains in our fixed price structure, increased deliveries and price appreciation.

Other (income) expense, net.

Other (income) expense, net increased by $54,000 to a net income of $44,000 for the year ended December 31, 2003 as compared to a net expense of $10,000 for the year ended December 31, 2002. Other (income) expense net is primarily comprised of miscellaneous items including financing fees and fees from the rental of model homes to mortgage brokers.

Minority interest.

Minority interest increased by $1.6 million, or 250%, to $2.3 million for the year ended December 31, 2003 as compared to $664,000 for the year ended December 31, 2002. This increase is primarily the result of increased income to the minority shareholders in Comstock Investors VI, L.C. of $1.0 million and Comstock Investors V, L.C. of $400,000.

Liquidity and Capital Resources

We require capital to post deposits on new deals, to purchase and develop land, to construct homes, to fund related carrying costs and overhead and to fund various advertising and marketing programs to facilitate sales. These expenditures include engineering, entitlement, architecture, site preparation, roads, water and sewer lines, impact fees and earthwork, as well as the construction costs of the homes and amenities. Our sources of capital include, and will continue to include, funds derived from various secured and unsecured borrowings, operations which include the sale of constructed homes and finished lots, and the sale of equity securities. Our currently owned and controlled inventory of home sites will require substantial capital to develop and construct.

In production home building, it is common for builders such as us to employ revolving credit facilities whereby the maximum funding available under the facility exceeds the maximum outstanding balance allowed at any given time. Our overall borrowing capacity may be constrained by loan covenants which limit the ratio of our total liabilities to our total equity. This revolving debt will typically provide for funding of an amount up to a pre-determined percentage of the cost of each asset funded. The balance of the funding for that asset is provided for by us as equity. The efficiency of revolving debt in production home building allows us to operate with less overall debt capital than would be required if we built each project with long-term amortizing debt. At December 31, 2004, we had approximately $64.5 million of equity financing, $89.3 million of debt financing (including our distribution payable to our pre-initial public offering stockholders) and $75.1 million of cash. As discussed in more detail below, we believe that funds generated from the sale of our equity securities, operations and borrowings under our credit facilities will provide us with sufficient capital to meet our existing and expected capital needs.

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Limited Liability Companies and Minority Interest Members

Since 1999, we have formed several LLCs in which there were minority interests to fund one or more developments. At December 31, 2004, we were the managing member of two active minority-interest LLCs (Comstock North Carolina, LLC and Comstock Investors V, L.C.) that had provided significant capital to our operation. These two active minority-interest LLCs have collectively generated approximately $2.5 million of equity financing for us. The terms of the operating agreements of our minority-interest LLCs vary by LLC but they generally include the following characteristics:

·        We are the managing member;

·        Priority members (the minority members) receive priority with respect to cash distributions until such time as they have received a pre-determined return, which ranges from 20% to 30%;

·        After the return has been achieved we share in the profits of the partnership with interests ranging from 67% to 87%;

·        The managing member may not use the funds of the LLC for developments other than those stipulated in the operating agreement without the approval of a majority of the members;

·        We have the right, triggered by a restructuring of our operational structure, to repurchase the minority interest in the LLC at a pre-determined rate of return, which ranges from 25% to 30%;

·        Other than as allowed in the operating agreement, funds may not be loaned to other entities; and

·        These LLCs are consolidated within our financial statements for reporting purposes.

As of December 31, 2004, we have paid approximately $8 million out of the proceeds of our initial public offering to purchase all of the outstanding minority membership interests in these minority-interest LLCs.

Credit Facilities

At December 31, 2004, we had approximately $137 million available under existing secured revolving development and construction loans for planned construction and development expenditures. A majority of our debt is variable rate, based on LIBOR or the prime rate plus a specified number of basis points, typically ranging from 300 to 600 basis points over the LIBOR rate and 50 to 100 basis points over the prime rate. As a result, we are exposed to market risk in the area of interest rate changes. At December 31, 2004, the one-month LIBOR and prime rates of interest were 2.39% and 5.25%, respectively, and the interest rates in effect under our existing secured revolving development and construction credit facilities ranged from 4.95% to 7.25%. For information regarding risks associated with our level of debt and changes in interest rates, see “Business-Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk.”

We have generally financed our development and construction activities on a project basis so that, for each project we develop and build, we have a separate credit facility. Accordingly, we have numerous credit facilities. While the loan agreements relating to these various facilities contain certain covenants, they generally contain few, if any, material financial covenants. Typically, our loan agreements contain covenants requiring us to:

·        obtain agreements of sale for a specified number of homes within a specified time period, with the number of homes and time period varying by project;

·        in the case of facilities entered into directly by our project-based subsidiaries, maintain minimum equity levels, typically in the range of 10% to 20% of the project’s cost;

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·        in the case of facilities entered into directly by us, maintain minimum tangible net worth levels, typically in the range of $3.0 million to $5.0 million, and minimum leverage ratios, typically of five-to-one or less;

·        maintain control of any subsidiary that is a party to the applicable loan agreement;

·        complete any construction which is the subject of the loan agreement without significant delay and in accordance with the approved plan;

·        notify the lender immediately if we receive a claim of material lien with respect to any services, labor or material furnished in connection with applicable construction, and to remove any such lien within a specified number of days after the date the lien was filed;

·        maintain certain minimum levels of insurance;

·        provide inventory status reports and financial statements and other inventory and financial information periodically and as reasonably requested by the lender;

·        furnish the lender with copies of all notices received by us claiming any breach or potential breach of any contracts related to the construction, claiming or asserting a right to a lien for work performed or materials provided in connection with construction, or from any governmental authority asserting that the land or construction which is the subject of the loan agreements may or does violate any law or regulations;

·        not enter into leases affecting the land or the construction which is the subject of the applicable loan agreements without the prior written consent of the lender;

·        not obtain subordinate financing on the land, construction or other property granted as security under applicable loan agreements without the prior approval of the lender; and

·        not sell or otherwise dispose of any of the land or the construction other than in the normal course of the business of the project subject to applicable loan agreements.

As of December 31, 2004, we were in compliance with the financial covenants set forth in our loan agreements.

In order to obtain some of our current credit facilities, which were entered into in some cases by us and in other cases by our project-based subsidiaries, we were generally required to obtain guaranties by one or more of the now-consolidated primary holding companies as well as Christopher Clemente, our Chief Executive Officer, and Gregory Benson, our President and Chief Operating Officer, in their personal capacities. At December 31, 2004, such parties guaranteed approximately $63.1 million under our credit facilities. In connection with the consolidation of our operations, we intend to replace the guarantees provided by Messrs. Clemente and Benson with guarantees provided by the Company.

From time to time, we employ subordinated and unsecured credit facilities to supplement our capital resources or a particular project or group of projects. Our lenders under these credit facilities will typically charge interest rates that are substantially higher than those charged by the lenders under our senior and secured credit facilities. These credit facilities will vary with respect to terms and costs. As of December 31, 2004, the annual rate of interest on these facilities ranged from 12% to 14%. At December 31, 2004, we had approximately $13.6 million outstanding under these subordinate and unsecured facilities. We intend to continue to use these types of facilities on a selected basis to supplement our capital resources.

We are considering replacing our credit facilities with one or more larger facilities, which may reduce our aggregate debt financing costs. We would be the borrower and primary obligor under this larger facility or facilities, and we anticipate the indebtedness will be secured, nonrecourse and based on an available borrowing base.

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Cash Flow

Net cash provided by/(used in) operating activities was $11.1 million for the year ended December 31, 2004, $(32.4 million) for the year ended December 31, 2003 and $(7.9 million) for the year ended December 31, 2002. In 2004, the primary source of the increase in cash from operating activities was attributable to increases in net income and accounts payable which were only partially offset by increased investments in real estate held for development and sale. In 2003, the primary source of the decrease in cash from operating activities was attributable to increased investment in real estate held for development and sale which was offset by minority interest investment and an increase in accounts payable and accrued liabilities. In 2002, the primary source of the decrease in cash from operating activities was attributable to increased investment in real estate held for development and sale which was offset by minority interest investment and an increase in accounts payable and accrued liabilities.

Net cash provided by/(used in) investing activities was $1.0 million for the year ended December 31, 2004, $67,000 for the year ended December 31, 2003 and $(1.1 million) for the year ended December 31, 2002. In 2004, the primary source of the increase in cash from investing activities was attributable cash received from the acquisition of Comstock Service (as discussed in Note 2 and Note 4 of the accompanying consolidated financial statements). In 2003, the primary source of the increase in cash from investing activities was attributable distributions from real estate partnerships. In 2002 the primary source of the decrease in cash from investing activities was attributable to an investment in a real estate partnership.

Net cash provided by/(used in) by financing activities was $38.3 million for the year ended December 31, 2004, $40.8 million for the year ended December 31, 2003 and $10.6 million for the year ended December 31, 2002. The primary source of the increases in cash from financing activities for the period ended December 31, 2004 was attributable to net proceeds received from the Company’s initial public offering which were partially offset by distributions paid to stockholders. The primary source of the increases in cash from financing activities for the periods ended December 31, 2003 and December 31, 2002 were the proceeds from notes payable and contributions from minority interest shareholders.

Material Acquisitions

In December 2003, we purchased approximately 4.5 acres of unimproved land in Arlington, Virginia, which is expected to yield approximately 470 condominium units and 80,000 square feet of retail space. Our purchase price was approximately $21.5 million. The estimated project cost for this development is $160 million. We entered into a new senior construction credit facility for this project in the estimated amount of $119.3 million and a mezzanine credit facility of approximately $28.2 million.

In November 2004 we entered into an option contract to purchase 424 completed rental apartments in Fairfax, Virginia for the purpose of converting them to for-sale condominiums. Our purchase price is approximately $75 million with anticipated construction costs for upgrades of approximately $12 million. Upon closing in February 2005 we entered into a new senior acquisition and construction facility for this project.

In December 2004 we entered into an option contract to purchase 103 completed rental apartments in Loudon County, Virginia for the purpose of converting them to for-sale condominiums. Our purchase price is approximately $17 million with anticipated construction costs for upgrades of approximately $5 million. Upon closing in March 2005 we intend to enter into a new senior acquisition and construction facility for this project.

Contractual Obligations and Commercial Commitments

In addition to the above financing arrangements, we have commitments under certain contractual arrangements to make future payments for goods and services. These commitments secure the future

48




rights to various assets and services to be used in the normal course of operations. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with current accounting rules, the future rights and obligations pertaining to such firm commitments are not reflected as assets or liabilities on the consolidated balance sheet. The following table summarizes our contractual and other obligations at December 31, 2004, and the effect such obligations are expected to have on liquidity and cash flow in future periods:

 

 

Payments due by period

 

 

 

Total

 

Less than 1
year

 

1 - 3 years

 

3 - 5 years

 

More
than 5
years

 

 

 

(in thousands)

 

Notes payable

 

$

80,523

 

 

$

33,430

 

 

$

47,093

 

 

$

 

 

 

$

 

 

Operating leases

 

$

3,142

 

 

$

647

 

 

$

1,938

 

 

$

557

 

 

 

$

 

 

Total

 

$

83,665

 

 

$

34,077

 

 

$

49,031

 

 

$

557

 

 

 

$

 

 

 

Notes payable have an undefined repayment due date and are typically due and payable as homes are settled.

We are not an obligor under, or guarantor of, any indebtedness of any party other than for obligations entered into by the subsidiaries of one of the now-consolidated primary holding companies.

We have no off-balance sheet arrangements except for the operating leases described above.

As discussed in Note 3 in the accompanying consolidated financial statements as of December 31, 2004, the Company has posted aggregate non-refundable deposits of $4.2 million on $119 million worth of land purchase options.

Seasonality and Weather

Our business is affected by seasonality with respect to orders and deliveries. In the markets in which we operate, the primary selling seasons are from January through May as well as September and October. Orders in other months typically are lower. In addition, the markets in which we operate are four-season markets that experience significant periods of rain and snow. Construction cycles and efforts are often adversely affected by severe weather.

Inflation

Inflation can have a significant impact on our business performance and the home building industry in general. Rising costs of land, transportation costs, utility costs, materials, labor, overhead, administrative costs and interest rates on floating credit facilities can adversely affect our business performance. In addition, rising costs of certain items, such as lumber, can adversely affect the expected profitability of our backlog. Generally, we have been able to recover any increases in costs through increased selling prices. However, there is no assurance we will be able to increase selling prices in the future to cover the effects of inflation and other cost increases.

New Accounting Pronouncements

Consolidation of variable interest entities.

We typically acquire land for development at market prices from various entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if we fail to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts. We may, at our option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the land under

49




contract. Our sole legal obligation and economic loss for failure to perform under these purchase agreements is typically limited to the amount of the deposit pursuant to the liquidating damage provision contained within the purchase agreement. As a result, none of the creditors of any of the entities with which we enter into forward fixed price purchase agreements have recourse to the general credit of the Company. We also do not share in an allocation of either the profit earned or loss incurred by any of these entities with which we enter fixed price purchase agreements.

We have concluded that whenever we option land or lots from an entity and pay a significant nonrefundable deposit as described above, a variable interest entity is created under the provisions of FIN 46-R. This is because we have been deemed to have provided subordinated financial support, which refers to variable interest that will absorb some or all of an entity’s expected theoretical losses if they occur. We therefore examine the entities with which we enter into fixed price purchase agreements, for possible consolidation by us under FIN 46-R. This requires us to compute expected losses and expected residual returns based on the probability of future cash flows as outlined in FIN 46-R. This calculation requires substantial management judgments and estimates. In addition, because we do not have any contractual or ownership interests in the entities with which we contract to buy the land, we do not have the ability to compel these development entities to provide financial or other data to assist us in the performance of the primary beneficiary evaluation.

Item 7A.   Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows, due to adverse changes in financial and commodity market prices and interest rates. We are exposed to market risk in the area of interest rate changes. A majority of our debt is variable rate based on LIBOR and prime rate, and, therefore, affected by changes in market interest rates. Based on current operations, as of December 31, 2004, an increase/decrease in interest rates of 100 basis points on our variable rate debt would have resulted in a corresponding increase/decrease in interest actually incurred by us of approximately $680,000 in a fiscal year, a significant portion of which would be capitalized and included in cost of sales as homes are delivered. As a result, the effect on net income would be deferred until the underlying units settled and the interest was released to cost of goods sold. Changes in the prices of commodities that are a significant component of home construction costs, particularly lumber, may result in unexpected short-term increases in construction costs. Because the sales price of our homes is fixed at the time a buyer enters into a contract to acquire a home and we generally contract to sell our homes before construction begins, any increase in costs in excess of those anticipated at the time of each sale may result in lower consolidated operating income for the homes in our backlog. We attempt to mitigate the market risks of the price fluctuation of commodities by entering into fixed price option contracts with our subcontractors and material suppliers for a specified period of time, generally commensurate with the building cycle. These contracts afford us the option to purchase materials at fixed prices but do not obligate us to any specified level of purchasing.

Item 8.   Financial Statements and Supplementary Data

Reference is made to the financial statements, the notes thereto, and the report thereon, commencing on page F-1 of this report, which financial statements, notes, and report are incorporated herein by reference.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

50




Item 9A.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated, with the participation of our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of December 31, 2004. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer have each concluded that our disclosure controls and procedures are effective to ensure that we record, process, summarize, and report information required to be disclosed by us in our quarterly reports filed under the Exchange Act within the time periods specified by the Securities and Exchange Commission’s rules and forms. During the fiscal year covered by this report, there have not been any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Changes in Internal Controls

Subsequent to the date of that evaluation, there have not been any significant changes in our internal controls or in other facts that could significantly affect these controls, including any corrective action with regard to significant deficiencies and material weaknesses. As part of our upcoming compliance obligation under Section 404 of the Sarbanes-Oxley Act we are in the process of evaluating and documenting our internal control structure. We expect to introduce changes to our control structures but we do not expect these changes to have a significant impact on our financial statements.

Limitations on the Effectiveness of Controls

We do not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Item 9B.   Other Information.

Not applicable.

PART III

Item 10.                  Directors and Executive Officers of the Registrant

The information required by this Item relating to our directors is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2005

51




Annual Meeting of Stockholders. The information required by this Item relating to our executive officers is included in Item 1, “Business—Executive Officers” of this report.

Item 11.                  Executive Compensation

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2005 Annual Meeting of Stockholders.

Item 12.                  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2005 Annual Meeting of Stockholders.

Item 13.                  Certain Relationships and Related Transactions

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2005 Annual Meeting of Stockholders.

Item 14.                  Principal Accountant Fees and Services

The information required by this Item is incorporated herein by reference to the definitive Proxy Statement to be filed pursuant to Regulation 14A of the Exchange Act for our 2005 Annual Meeting of Stockholders.

PART IV

Item 15.                  Exhibit and Financial Statement Schedules

(a)     Financial Statements

( 1)           Financial Statements are listed in the Index to Financial Statements on page F-1 of this report.

(2)   Schedules have been omitted because they are not applicable or because the information required to be set forth therein is included in the consolidated and combined financial statements or notes thereto.

(b)     Exhibits

Exhibit
Number

 

Exhibit

3.1*

 

Amended and Restated Certificate of Incorporation

3.2*

 

Amended and Restated Bylaws.

4.1(4)

 

Specimen Stock Certificate

10.1(1)

 

Lease Agreement, dated as of April 30, 2002, with Comstock Partners, L.C.

10.2(1)

 

Lease Agreement, dated as of January 31, 2004, with Comstock Partners, L.C.

10.3(3)

 

Agreement of Sublease, dated as of October 1, 2004, with Comstock Asset Management, L.C.

10.4(2)

 

Loan Agreement, dated December 17, 1997, as amended, with Bank of America, N.A.

10.5(3)

 

Partial Assignment of Note, dated December 15, 2003, with Kasprowicz Family, LLC.

10.6(3)

 

Promissory Note, dated April 30, 2004, with Kasprowicz Family, LLC.

10.7(1)

 

Disbursement and Construction Loan Agreement and Disbursement and Development Loan Agreement, each dated October 10, 2002 and as amended, with Branch Banking and Trust Company of Virginia.

52




 

10.8(1)

 

Disbursement and Construction Loan Agreement and Acquisition, Disbursement and Development Loan Agreement, each dated July 25, 2003, with Branch Banking and Trust Company of Virginia.

10.9(1)

 

Purchase Money Deed of Trust and Security Agreement, dated December 15, 2003, with Crescent Potomac Yard Development, LLC.

10.10*

 

Loan Agreement, dated January 25, 2005, with Corus Bank, N.A.

10.11*

 

Completion Guaranty, dated January 25, 2005 in favor of Corus Bank, N.A.

10.12*

 

Carve-Out Guaranty, dated January 25, 2005, in favor of Corus Bank, N.A.

10.13(3)

 

Form of Indemnification Agreement.

10.14(3)

 

Form of Promissory Note to be issued to each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub by each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.15(3)

 

Form of Tax Indemnification Agreement to be entered into by each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub with each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.16(3)

 

2004 Long-Term Incentive Compensation Plan.

10.17(3)

 

Form of Stock Option Agreement under the 2004 Long-Term Incentive Compensation Plan.

10.18*

 

Form of Restircted Stock Grant Agreement under the 2004 Long-Term Incentive Compensation Plan

10.19(3)

 

Employee Stock Purchase Plan.

10.20(2)

 

Purchase and Sale Agreement, dated as of April 25, 2003, as amended, with Crescent Potomac Yard Development, LLC.

10.21*

 

Purchase and Sale Agreement, dated as of November 9, 2004, as amended, with Fair Oaks Penderbrook Apartments L.L.C.

10.22*

 

Real Estate Purchase Contract, dated as of February 4, 2005, with Westwick Apartments LLC

10.23*

 

Services Agreement, dated March 4, 2005, with Comstock Asset Management, L.C.

10.24(3)

 

Employment Agreement with Christopher Clemente.

10.25(3)

 

Employment Agreement with Gregory Benson.

10.26(3)

 

Employment Agreement with Bruce Labovitz.

10.27(3)

 

Confidentiality and Non-Competition Agreement with Christopher Clemente.

10.28(3)

 

Confidentiality and Non-Competition Agreement with Gregory Benson.

10.29(3)

 

Confidentiality and Non-Competition Agreement with Bruce Labovitz.

10.30*

 

Description of Arrangements with William Bensten

10.31*

 

Description of Arrangements with David Howell

10.32(3)

 

Trademark License Agreement.

10.33*

 

Purchase Agreement, dated November 12, 2004, with Comstock Asset Management, L.C.

53




 

14.1*

 

Code of Ethics

21.1*

 

List of subsidiaries.

24.1*

 

Power of Attorney

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.3*

 

Certification of Chief Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of Chief Executive Officer, Chief Financial Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.


*                     Filed herewith.

(1)           Incorporated by reference to an exhibit to the Registrant’s Registration Statement on Form S-1 filed with the Commission on August 13, 2004 (No. 333-118193).

(2)           Incorporated by reference to an exhibit to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-1 filed with the Commission on October 1, 2004 (No. 333-118193).

(3)           Incorporated by reference to an exhibit to the Registrant’s Amendment No. 5 to the Registration Statement on Form S-1 filed with the Commission on December 7, 2004 (No. 333-118193).

(4)   Incorporated by reference to an exhibit to the Registrant’s Amendment No. 6 to the Registration Statement on Form S-1 filed with the Commission on December 9, 2004 (No. 333-118193).

54




 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

COMSTOCK HOMEBUILDING COMPANIES, INC.

Date: March 31, 2005

 

By:

 

/s/ CHRISTOPHER CLEMENTE

 

 

 

 

Christopher Clemente

 

 

 

 

Chairman and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature

 

Capacity

 

Date

/s/ CHRISTOPHER CLEMENTE

 

Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

 

March 31, 2005

Christopher Clemente

 

 

 

/s/ GREGORY V. BENSON

 

President, Chief Operating Officer and Director

 

March 31, 2005

Gregory V. Benson

 

 

 

/s/ BRUCE J. LABOVITZ

 

Chief Financial Officer (Principal Financial Officer)

 

March 31, 2005

Bruce J. Labovitz

 

 

 

/s/ JASON PARIKH

 

Chief Accounting Officer (Principal Accounting Officer)

 

March 31, 2005

Jason Parikh

 

 

 

/s/ BRUCE J. LABOVITZ *

 

Director

 

March 31, 2005

A. Clayton Perfall

 

 

 

 

/s/ BRUCE J. LABOVITZ *

 

Director

 

March 31, 2005

David M. Guernsey

 

 

 

 

/s/ BRUCE J. LABOVITZ *

 

Director

 

March 31, 2005

James A. MacCutcheon

 

 

 

 

/s/ BRUCE J. LABOVITZ *

 

Director

 

March 31, 2005

Gary L. Martin

 

 

 

 

 

*Pursuant to a power of attorney executed by the director.

55




INDEX TO FINANCIAL STATEMENTS

 

Page

COMSTOCK HOMEBUILDING COMPANIES, INC.

 

 

Report of Independent Registered Public Accounting Firm

 

F-2

Consolidated and Combined Balance Sheets as of December 31, 2004 and 200 3

 

F-3

Consolidated and Combined Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002

 

F-4

Consolidated and Combined Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2004, 2003, and 2002

 

F-5

Consolidated and Combined Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

 

F-6

Notes to Consolidated and Combined Financial Statements

 

F-7

 




 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Comstock Homebuilding Companies, Inc.:

In our opinion, the accompanying consolidated and combined balance sheets and the related consolidated and combined statements of income, shareholders’ equity, and cash flows present fairly, in all material respects, the financial position of Comstock Homebuilding Companies, Inc. (the “Company”) and the Comstock Companies (as defined in Note 1) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, the Company adopted FIN 46-R, “Variable Interest Entities” and SFAS 123R, “Share Based Payment” on January 1, 2004.

/s/ PricewaterhouseCoopers LLP

 

McLean, Virginia

March 25, 2005

 

F- 2




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED BALANCE SHEETS
(Amounts in thousands, except share data)

 

 

As of December 31,

 

 

 

2004

 

2003

 

 

 

 

 

Predecessor

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,559

 

 

$

17,160

 

 

Restricted cash

 

7,500

 

 

 

 

Receivables

 

239

 

 

1,938

 

 

Due from related parties

 

1,447

 

 

3,140

 

 

Real estate held for development and sale

 

104,326

 

 

65,272

 

 

Inventory not owned—variable interest entities

 

118,558

 

 

 

 

Property, plant and equipment

 

488

 

 

223

 

 

Investment in real estate partnerships

 

1,029

 

 

1,139

 

 

Deferred income tax

 

821

 

 

 

 

Other assets

 

2,540

 

 

1,312

 

 

TOTAL ASSETS

 

$

304,507

 

 

$

90,184

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

35,532

 

 

$

10,454

 

 

Income taxes payable

 

290

 

 

 

 

Due to related parties

 

148

 

 

230

 

 

Obligations related to inventory not owned

 

114,333

 

 

 

 

Notes payable

 

65,684

 

 

51,923

 

 

Notes payable—related parties

 

10,944

 

 

9,139

 

 

Distribution payable

 

12,655

 

 

 

 

TOTAL LIABILITIES

 

239,586

 

 

71,746

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

Minority interest

 

2,695

 

 

11,413

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Comstock Holding Company, Inc.

 

 

 

 

 

 

 

Common stock, $1 par value; 2,000 shares authorized, 1,279 shares issued and outstanding

 

 

 

1

 

 

Comstock Homes, Inc.

 

 

 

 

 

 

 

Common stock, $1 par value; 2,000 shares authorized, 1,279 shares issued and outstanding

 

 

 

1

 

 

Sunset Investment Corp., Inc.

 

 

 

 

 

 

 

Common stock, $1 par value; 1,000 shares authorized, issued and outstanding

 

 

 

1

 

 

Comstock Homebuilding Companies Inc.

 

 

 

 

 

 

 

Class A common stock, $0.01 par value, 77,266,500 shares authorized, 9,162,484 issued and outstanding

 

92

 

 

 

 

Class B common stock, $0.01 par value, 2,733,500 shares authorized, 2,733,500 issued and outstanding

 

27

 

 

 

 

Additional paid-in capital

 

75,510

 

 

1,493

 

 

Unearned compensation

 

(4,314

)

 

 

 

Retained earnings (accumulated deficit)

 

(9,089

)

 

5,529

 

 

TOTAL SHAREHOLDERS’ EQUITY

 

62,226

 

 

7,025

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

304,507

 

 

$

90,184

 

 

 

The accompanying notes are an integral part of these consolidated and combined financial statements.

F- 3




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS
(Amounts in thousands, except share data)

 

 

Years ended December 31,

 

 

 

2004

 

2003

 

2002

 

 

 

 

 

PREDECESSOR

 

Revenues

 

 

 

 

 

 

 

 

 

Sale of real estate—homes

 

 

$

87,003

 

 

$

49,081

 

$

29,397

 

Other revenue

 

 

9,042

 

 

6,440

 

5,355

 

Total revenue

 

 

96,045

 

 

55,521

 

34,752

 

Expenses

 

 

 

 

 

 

 

 

 

Cost of sales of real estate

 

 

57,339

 

 

36,620

 

22,102

 

Cost of sales of other

 

 

6,654

 

 

5,136

 

4,718

 

Selling, general and administrative

 

 

11,940

 

 

5,712

 

3,725

 

Operating income

 

 

20,112

 

 

8,053

 

4,207

 

Other expense (income), net

 

 

908

 

 

(44

)

10

 

Income before minority interest and equity in earnings of real estate partnerships

 

 

19,204

 

 

8,097

 

4,197

 

Minority interest

 

 

5,260

 

 

2,297

 

664

 

Income before equity in earnings of real estate partnerships

 

 

13,944

 

 

5,800

 

3,533

 

Equity in earnings of real estate partnerships

 

 

118

 

 

139

 

51

 

Income before income taxes

 

 

14,062

 

 

5,939

 

3,584

 

Income tax provision (benefit)

 

 

(241

)

 

 

 

Net income

 

 

$

14,303

 

 

$

5,939

 

$

3,584

 

Basic earnings per share

 

 

$

1.95

 

 

$

0.84

 

$

0.59

 

Basic weighted average shares outstanding

 

 

7,347

 

 

7,067

 

6,074

 

Dilutive earnings per share

 

 

$

1.95

 

 

$

0.84

 

$

0.59

 

Dilutive weighted average shares outstanding

 

 

7,351

 

 

7,067

 

6,074

 

 

The accompanying notes are an integral part of these consolidated and combined financial statements.

F- 4




 

COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in thousands, except share data)

 

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

PREDECESSOR

 

Comstock Homebuilding Companies, Inc.

 

Additional

 

 

 

Retained

 

 

 

 

 

The Comstock Companies

 

Class A

 

Class B

 

paid-in

 

Unearned

 

earnings

 

 

 

 

 

    Shares    

 

    Amount    

 

  Shares  

 

  Amount  

 

  Shares  

 

  Amount  

 

capital

 

compensation

 

(deficit)

 

Total

 

Balance at December 31, 2001

 

 

2,558

 

 

 

$ 2

 

 

 

 

 

 

 

$  

 

 

 

 

 

 

 

$  

 

 

 

$   307

 

 

 

$        

 

 

$  2,627

 

$ 2,936

 

Repurchase of shares

 

 

(68

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock compensation

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

77

 

 

 

 

 

 

 

77

 

Contributions

 

 

1,000

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,109

 

 

 

 

 

 

 

1,110

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,100

)

(4,100

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,584

 

3,584

 

Balance at December 31, 2002

 

 

3,558

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,493

 

 

 

 

 

 

2,111

 

3,607

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,521

)

(2,521

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,939

 

5,939

 

Balance at December 31, 2003

 

 

3,558

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,493

 

 

 

 

 

5,529

 

7,025

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,668

)

(5,668

)

Issuance of common stock in Homebuilding on June 7, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recapitalization by virtue of merger

 

 

(3,558

)

 

 

(3

)

 

 

4,333

 

 

 

43

 

 

 

2,733

 

 

 

27

 

 

 

4

 

 

 

 

 

 

 

 

71

 

Acquisition of Service on December 17, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,756

 

 

 

 

 

 

 

 

4,756

 

Issuance of common stock of Homebuilding on December 17, 2004 (less transaction costs)

 

 

 

 

 

 

 

 

 

 

3,960

 

 

 

40

 

 

 

 

 

 

 

 

 

 

 

56,012

 

 

 

 

 

 

 

 

56,052

 

Issuance of common stock—overallotment

 

 

 

 

 

 

 

 

 

 

594

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

8,833

 

 

 

 

 

 

 

 

8,839

 

Distribution following IPO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,253

)

(23,253

)

Issuance of restricted common stock

 

 

 

 

 

 

 

 

 

 

275

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

4,402

 

 

 

(4,405

)

 

 

 

 

Stock-based compensation—restricted stock grants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

91

 

Stock-based compensation—stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

10

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,303

 

14,303

 

Balance at December 31, 2004

 

 

 

 

 

$ —

 

 

 

9,162

 

 

 

$ 92

 

 

 

2,733

 

 

 

$ 27

 

 

 

$ 75,510

 

 

 

$ (4,314

)

 

$ (9,089

)

$ 62,226

 

 

The accompanying notes are an integral part of these combined consolidated financial statements.

F- 5




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
(Amounts in thousands, except share data)

 

 

Years Ended December 31,

 

 

 

2004

 

2003

 

2002

 

 

 

 

 

PREDECESSOR

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

 

$

14,303

 

 

$

5,939

 

$

3,584

 

Adjustment to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

 

Depreciation

 

 

106

 

 

67

 

61

 

Loss on disposal of assets

 

 

1

 

 

 

 

 

 

Minority interest

 

 

5,260

 

 

2,297

 

664

 

Equity in earnings of real estate partnerships

 

 

(118

)

 

(139

)

(51

)

Stock compensation

 

 

101

 

 

 

77

 

Deferred income tax

 

 

(531

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

(7,500

)

 

 

 

Receivables

 

 

2,107

 

 

(1,736

)

402

 

Due from related parties

 

 

1,693

 

 

(1,832

)

(564

)

Real estate held for development and sale

 

 

(23,081

)

 

(44,260

)

(11,757

)

Other assets

 

 

(5,428

)

 

1,005

 

(1,057

)

Accounts payable and accrued liabilities

 

 

24,025

 

 

6,237

 

825

 

Income tax payable

 

 

290

 

 

 

 

 

 

Due to related parties

 

 

(82

)

 

(24

)

(50

)

Net cash provided by (used in) operating activities

 

 

11,146

 

 

(32,446

)

(7,866

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of property, plant, and equipment

 

 

(372

)

 

(90

)

(132

)

Distributions from Investments in real estate partnerships

 

 

120

 

 

157

 

 

Investment in real estate partnerships

 

 

 

 

 

(1,000

)

Acquisition of Service

 

 

1,215

 

 

 

 

Net cash provided (used in) by investing activities

 

 

963

 

 

67

 

(1,132

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

81,747

 

 

74,521

 

26,240

 

Proceeds from related party notes payable

 

 

4,646

 

 

6,300

 

2,839

 

Payments on notes payable

 

 

(78,716

)

 

(37,782

)

(21,218

)

Payments on related party notes payable

 

 

(6,000

)

 

 

 

Contribution from minority shareholders

 

 

 

 

2,000

 

7,592

 

Contributions received from shareholders

 

 

 

 

 

1,110

 

Distributions paid to minority shareholders

 

 

(14,181

)

 

(1,674

)

(1,856

)

Distributions paid to shareholders

 

 

(14,168

)

 

(2,521

)

(4,100

)

Proceeds from offering

 

 

64,962

 

 

 

 

 

 

Net cash provided by financing activities

 

 

38,290

 

 

40,844

 

10,607

 

Net increase in cash and cash equivalents

 

 

50,399

 

 

8,465

 

1,609

 

Cash and cash equivalents, beginning of period

 

 

17,160

 

 

8,695

 

7,086

 

Cash and cash equivalents, end of period

 

 

$

67,559

 

 

$

17,160

 

$

8,695

 

Supplemental information of noncash activites

 

 

 

 

 

 

 

 

 

Amounts owed for real estate acquired via deferred purchase agreements (Note 10)

 

 

$

873

 

 

$

1,128

 

$

308

 

Supplemental Cash Flow Data

 

 

 

 

 

 

 

 

 

Interest paid (net of amounts capitalized)

 

 

$

378

 

 

$

8

 

$

12

 

 

The accompanying notes are an integral part of these consolidated and combined financial statements.

F- 6




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Amounts in thousands)

1.    ORGANIZATION

Comstock Companies, Inc. (the “Company”) was incorporated on May 24, 2004 as a Delaware corporation. On June 30, 2004, the Company changed its name to Comstock Homebuilding Companies, Inc.

On December 17, 2004 as a result of completing its initial public offering (“IPO”) of its Class A Common Stock, the Company acquired 100% of the outstanding capital stock of Comstock Holding Company, Inc. and subsidiaries (“Comstock Holdings”) by merger, which followed a consolidation that took place immediately prior to the closing of the IPO (the “Consolidation”). The Consolidation was effected through the mergers of Sunset Investment Corp., Inc. and subsidiaries and Comstock Homes, Inc. and subsidiaries and Comstock Service Corp., Inc and subsidiaries (“Comstock service”) with and into Comstock Holdings. Pursuant to the terms of the merger agreement, shares of Comstock Holdings were canceled and replaced by 4,333 and 2,734 shares Class A and B Common Stock of the Company respectively. Both Class A and B Common Stock shares bear the same economic rights. However for voting purposes, Class A stock holders are entitled to one vote for each share held while Class B stock holders are entitled to fifteen votes for each share held.

The mergers of Sunset Investment Corp., Inc. and subsidiaries and Comstock Homes, Inc. and subsidiaries with and into Comstock Holdings (collectively “The Comstock Companies” or “Predecessor”) and the Company’s acquisition of Comstock Holdings was accounted for using the Comstock Companies’ historical carrying values of accounting as these mergers were not deemed to be substantive exchanges. The merger of Comstock Service was accounted using the purchase method of accounting (see Note 2) as this was deemed to be a substantive exchange due to the disparity in ownership.

The Predecessor is not a legal entity but rather a combination of entities that have a high degree of common ownership, common management, and common corporate governance that resulted in substantially the same ownership as the Comstock Companies before and after the transaction, and therefore these combined financial statements present the combined historical operations of the Company.

As a result of the IPO, the Company sold 3,960 Class A Common Shares at $16.00 per share, raising proceeds net of the underwriting discount, of approximately $56.0 million.

On December 28, 2004, pursuant to the underwriters’ exercise of their over-allotment option, the Company sold an additional 594 shares resulting in additional proceeds net of underwriting discount, of approximately $8.8 million. As of December 31, 2004, the Company had used approximately $19 million of the $64.9 million in net proceeds from the IPO to (i) repay certain indebtedness (approximately $2.5 million); (ii) pay our stockholders, prior to the offering, amounts owed for undistributed tax partnership profits (approximately $8.5 million); and (iii) purchase outstanding minority membership interests in certain of our subsidiaries (approximately $8.0 million).

Our common stock is traded on the NASDAQ National market under the symbol “CHCI”. We have no public trading history prior to December 14, 2004.

For purposes of identification and description, we are referred to as the “Predecessor” for the period prior to the IPO, the Company for the period subsequent to the IPO, and “we,” “us,” and “our” for both periods.

F- 7




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

The Company develops, builds and markets single-family homes, townhouses and condominiums in the Washington D.C. and North Carolina metropolitan markets. The Company also provides certain management and administrative support services to certain related parties.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting principles and practices used in the preparation of the consolidated and combined financial statements is as follows:

Basis of Presentation

As discussed in Note 1, the Company and the Predecessor effected the Consolidation on December 17, 2004. The Company and the Predecessor were entities that had a high degree of common ownership, common management, and common corporate governance as they were owned by the same individuals each holding substantially the same ownership. As a result, the Company has determined that, based on the high degree of common ownership that resulted in substantially the same ownership interests before and after the transaction, the common nature of the businesses, the long-term business relationships between the companies and other related factors, the exchange lacked substance and therefore, they accounted for the Consolidation on a historical cost basis in accordance with FASB Technical Bulletin (FTB 85-5, “Issues Related to Accounting of Business Combination.”) Further,  SFAS 141 “Business Combinations” states that, in transactions between parties under common control, the receiving entity should account for the assets and liabilities received at their historical carrying values. Additionally, such transfers should be accounted for by the receiving entity as of the beginning of the period in which the transaction occurs. Accordingly, the Company has reflected the assets and liabilities acquired in the transaction at their historical carrying values and the results of operations are presented as if the transaction occurred on January 1, 2004. The accompanying combined balance sheet as of December 31, 2003 and the combined statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2003 and 2002 are those of the Predecessor.

As further discussed in Note 4, the Predecessor merged with Comstock Service on December 17, 2004. Due to a disparity in ownership as compared to the other entities which comprised the Predecessor, Comstock Service was not under common control with the Predecessor and as such the consolidation transaction was considered a substantive exchange. Accordingly, the Company has accounted for the consolidation of Comstock Service as an acquisition using the purchase method of accounting as required by SFAS 141. As a result, the assets and liabilities acquired have been recorded at the fair values in the accompanying financial statements on the date of the transaction. No goodwill was recognized in connection with this transaction.

Principles of consolidation

The consolidated and combined financial statements include all controlled subsidiaries. In addition, the Company reviews its relationships with other entities to assess if the Company is the primary beneficiary of a variable interest entity. If the determination is made that the Company is the primary beneficiary, then that entity is consolidated. See the “Recent accounting pronouncements” section of this Note and Note 3 for additional discussion on the consolidation of variable interest entities. All material inter-company balances and transactions are eliminated in consolidation.

F- 8




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Cash and cash equivalents

Cash and cash equivalents are comprised of cash and short-term investments with maturities when purchased of three months or less. At times, the Company may have deposits with institutions in excess of federally insured limits. Banking institutions with which the Company does business are considered credit worthy; therefore, credit risk associated with cash and cash equivalents is considered low. At December 31, 2004, the Company had restrictedcash of $7,500, which primarily includes certain customer deposits related to home sales.

Receivables

Receivables include amounts in transit or due from title and settlement companies for residential property closings. The Company has determined that no allowance for uncollectibility is required at December 31, 2004 and 2003 based on a review of the individual accounts.

Real estate held for development and sale

Real estate held for development and sale includes land, land development costs, interest and other construction costs and is stated at cost or, when circumstances or events indicate that the real estate held for development or sale is impaired, at estimated fair value.

Land, land development and indirect land development costs are accumulated by specific area and allocated to various lots or housing units using specific identification and allocation based upon the relative sales value, unit or area methods. Direct construction costs are assigned to housing units based on specific identification. Construction costs primarily include direct construction costs and capitalized field overhead. Other costs are comprised of prepaid local government fees and capitalized interest and real estate taxes. Selling costs are expensed as incurred.

Estimated fair value is based on comparable sales of real estate in the normal course of business under existing and anticipated market conditions. The evaluation takes into consideration the current status of the property, various restrictions, carrying costs, costs of disposition and any other circumstances, which may affect fair value including management’s plans for the property. Due to the large acreage of certain land holdings, disposition in the normal course of business is expected to extend over a number of years. A write-down to estimated fair value is recorded when the carrying value of the property exceeds its estimated fair value. These evaluations are made on a property-by-property basis. The Company assesses the impairment of real estate assets whenever events or changes in circumstances indicate that the net book value may not be recoverable.

Capitalized interest and real estate taxes

Interest and real estate taxes incurred relating to the development of lots and parcels are capitalized to real estate held for development and sale during the active development period, which generally commences when borrowings are used to acquire real estate assets and ends when the properties are substantially complete. Interest is capitalized based on the interest rate applicable to specific borrowings or the weighted average of the rates applicable to other borrowings during the period. Interest and real estate taxes capitalized to real estate held for development and sale are expensed as a component of cost of sales as related units are sold.

F- 9




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

The following table is a summary of interest incurred and capitalized:

 

 

Years Ended December 31,

 

 

 

2004

 

2003

 

2002

 

Total interest incurred

 

$

4,686

 

$

1,944

 

$

739

 

Beginning interest capitalized

 

$

1,428

 

$

586

 

$

468

 

Plus: Interest incurred on notes payable

 

2,847

 

1,782

 

550

 

Plus: Interest incurred on related party notes payable

 

1,461

 

154

 

177

 

Less: Interest expensed as a component of cost of sales

 

(1,212

)

(1,094

)

(609

)

Ending interest capitalized

 

$

4,524

 

$

1,428

 

$

586

 

 

Environmental remediation costs

Development and sale of real estate property creates a potential for environmental liability. Environmental costs relating to land and properties under development are capitalized and charged to cost of sales when sold. Environmental costs incurred in connection with properties previously sold are expensed in the period when identified.

Property, plant, and equipment

Property, plant, and equipment are carried at cost less accumulated depreciation and are depreciated on the straight-line method over their estimated useful lives as follows:

Furniture and equipment

 

7 years

 

Computer equipment

 

3 years

 

Office equipment

 

7 years

 

 

Provisions for impairment are recorded when estimated future cash flows from operations and projected sales proceeds are less than the net carrying value. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from their separate accounts and any gain or loss on sale is reflected in operations. Expenditures for maintenance and repairs are charged to expense as incurred.

Investment in real estate partnerships

Real estate partnerships in which the Company has significant influence and is not the primary beneficiary under FIN 46, but less than a controlling interest, are accounted for under the equity method. Under the equity method, the Company’s initial investment is recorded at cost and is subsequently adjusted to recognize its share of earnings and losses. Distributions received reduce the carrying amount of the investment.

Warranty reserve

Warranty reserves for houses sold are established to cover potential costs for materials and labor with regard to warranty-type claims expected to arise during the one-year warranty period provided by the Company or within the five-year statutorily mandated structural warranty period. Since the Company

F- 10




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

subcontracts its homebuilding work, subcontractors are required to provide the Company with an indemnity and a certificate of insurance prior to receiving payments for their work. Claims relating to workmanship and materials are generally the primary responsibility of the subcontractors and product manufacturers. The warranty reserve is established at the time of closing, and is calculated based upon historical warranty cost experience and current business factors. Variables used in the calculation of the reserve, as well as the adequacy of the reserve based on the number of homes still under warranty, are reviewed on a periodic basis. Warranty claims are directly charged to the reserve as they arise. The following table is a summary of warranty reserve activity which is included in accounts payable and accrued liabilities:

 

 

Years Ended December 31,

 

 

 

2004

 

2003

 

2002

 

Balance at beginning of period

 

$

541

 

$

460

 

$

615

 

Additions(1)

 

823

 

344

 

214

 

Releases and/or charges incurred

 

(448

)

(263

)

(369

)

Balance at end of period

 

$

916

 

$

541

 

$

460

 


(1)   Includes $147 in net additions as a result of the acquisition of Comstock Service as previously discussed in Note 1.

Minority interest

Minority interest reflects third parties’ ownership interest in entities the Company has consolidated. Also included in minority interest is the estimated fair value of all third-party interests in our consolidated variable interest entities, which are described in Note 3.

Revenue recognition

The Company recognizes revenues and related profits from the sale of residential properties and finished lots when closing has occurred, full payment has been received, title and possession of the property transfer to the buyer and the Company has no significant continuing involvement in the property.

Other revenues are derived from management and administrative support services provided to related parties, which are recognized as the services are provided.

Advertising costs

The total amount of advertising costs charged to general, selling and administrative expense was $863, $391, and $413 for the years ended December 31, 2004, 2003 and 2002, respectively.

Stock compensation

As discussed in Note 14, the Company currently sponsors stock option plans and restricted stock award plans. Prior to December 14, 2004, the Company did not sponsor any such plans. Effective January 1, 2004, the Company adopted SFAS No. 123R (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.”

F- 11




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements over the vesting period based on their fair values at the date of grant.

Income taxes

Prior to December 17, 2004 the Predecessor Company had elected to be treated as an S corporation under Subchapter S of the Internal Revenue Code and therefore was not subject to income taxes. Taxable income or loss was passed through and reported by the individual shareholders. Subsequent to the Consolidation the company was reorganized as a C corporation under which income taxes are accounted for under the asset and liability method in accordance with SFAS 109 “Accounting for Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Earnings per share

The following weighted average shares and share equivalents are used to calculate basic and diluted EPS for the years ended December 31, 2004, 2003 and 2002:

 

 

Year Ended December 31

 

 

 

2004

 

2003

 

2002

 

Basic earnings per share

 

 

 

 

 

 

 

Net Income

 

$

14,303

 

$

5,939

 

$

3,584

 

Basic weighted-average shares outstanding

 

7,347

 

7,067

 

6,074

 

Per share amounts

 

$

1.95

 

$

0.84

 

$

0.59

 

Dilutive Earnings Per Share

 

 

 

 

 

 

 

Net Income

 

$

14,303

 

$

5,939

 

$

3,584

 

Basic weighted-average shares outstanding

 

7,347

 

7,067

 

6,074

 

Stock options and restricted stock grants

 

4

 

 

 

Dilutive weighted-average shares outstanding

 

7,351

 

7,067

 

6,074

 

Per share amounts

 

$

1.95

 

$

0.84

 

$

0.59

 

 

Shares issued to the owners of the Predecessor in exchange for their interests in connection with the Consolidation have been reflected in weighted average shares as of the beginning of the earliest period presented.

Comprehensive income

For the years ended December 31, 2004, 2003, and 2002, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying combined consolidated financial statements.

F- 12




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Segment reporting

Since the Company operates primarily in a single extended geographical market with similar products at its various development projects, it is considered to represent a single reportable segment for financial reporting purposes.

Use of estimates

The preparation of the financial statements, in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes amounts. Actual results could differ from those estimates. Material estimates are utilized in the valuation of real estate held for development and sale, capitalization of costs, consolidation of variable interest entities and warranty reserves.

Recent accounting pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments, (“SFAS 123R”). SFAS 123R is a revision of SFAS 123 and supersedes APB No. 25. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements and establishes fair value as the measurement objective in accounting for share-based payment arrangements. SFAS 123R is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, and applies to all awards granted, modified, repurchased or cancelled after the effective date, and all outstanding portions of awards granted prior to the effective date which are unvested as the effective date of the pronouncement. Entities may adopt the provisions of SFAS 123R using either the modified prospective or modified retrospective application. Under the modified prospective method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS 123 for either recognition or pro forma disclosure. For periods before the required effective date, the modified retrospective application may be applied to either (a) all prior years for which SFAS 123 was effective or (b) only to prior interim periods in the year of initial adoption, on a basis consistent with the pro forma disclosures required for those periods by SFAS 123. The Company adopted SFAS 123R prospectively on January 1, 2004. Prior to December 17, 2004 the Company had no share based payment transaction.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 requires the primary beneficiary of a variable interest entity to consolidate that entity. A variable interest entity is created when (i) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support from other parties or (ii) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the variable interest entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Expected losses are the expected negative

F- 13




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

variability of an entity’s net assets exclusive of its variable interests, and expected residual returns are the expected positive variability in the fair value of an entity’s assets, exclusive of variable interests. Prior to the issuance of FIN 46, an enterprise generally consolidated an entity when the enterprise had a controlling financial interest in the entity through ownership of a majority voting interest.

In December 2003, the FASB issued a revision of FIN 46 (“FIN 46-R”), clarifying certain provisions of FIN 46. The Company adopted the provisions of FIN 46-R on February 1, 2003 to the extent that they related to variable interest entities created on or after that date. For variable interest entities created before January 31, 2003, FIN46-R was deferred to the end of the first interim or annual period ending after March 15, 2004. The Company fully adopted FIN 46-R effective March 31, 2004. Based on the provisions of FIN 46-R, the Company has concluded that whenever it options land or lots from an entity and pays a significant non-refundable deposit, a variable interest entity is created under condition (ii) (b) of the previous paragraph. The Company has been deemed to have provided subordinated financial support, which refers to variable interests that will absorb some or all of an entity’s expected theoretical losses if they occur. For each variable interest entity created the Company will compute expected losses and residual returns based on the probability of future cash flows as outlined in FIN 46-R. If the Company is deemed to be the primary beneficiary of the variable interest entity it will consolidate the variable interest entity on its balance sheet. See Note 3.

In December 2004, the FASB issued Staff Position SFAS 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (“FSP SFAS 109-1”). The American Jobs Creation Act of 2004 (the “Act”), which was signed into law on October 22, 2004, provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 through 2010. The Company does not expect the phase in of this new deduction to result in a significant impact in the effective tax rate for fiscal years 2005 and 2006 based on current earnings levels. However, due to the lack of clarification regarding certain aspects of the Act, the Company is still evaluating the overall impact of the Act on the Company’s earnings forecast . Under the guidance in FSP SFAS 109-1, the deduction will be treated as a “special deduction” as described in SFAS No. 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on the Company’s tax return.

3.    CONSOLIDATION OF VARIABLE INTEREST ENTITIES

The Company typically acquires land for development at market prices from various entities under fixed price purchase agreements. The purchase agreements require deposits that may be forfeited if the Company fails to perform under the agreement. The deposits required under the purchase agreements are in the form of cash or letters of credit in varying amounts. The Company may, at its option, choose for any reason and at any time not to perform under these purchase agreements by delivering notice of its intent not to acquire the land under contract. The Company’s sole legal obligation and economic loss for failure to perform under these purchase agreements is typically limited to the amount of the deposit pursuant to the liquidated damages provision contained within the purchase agreement. As a result, none of the creditors of any of the entities with which the Company enters into forward fixed price purchase agreements have recourse to the general credit of the Company. The Company also does not share in an allocation of either the profit earned or loss incurred by any of these entities with which the Company enters fixed price purchase agreements.

F- 14




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

The Company has concluded that whenever it options land or lots from an entity and pays a significant non-refundable deposit as described above, a variable interest entity is created under the provisions of FIN 46-R (see recent accounting pronouncement in Note 2). This is because the Company has been deemed to have provided subordinated financial support, which refers to variable interest that will absorb some or all of an entity’s expected theoretical losses if they occur. The Company therefore examines the entities with which the Company enters into fixed price purchase agreements, for possible consolidation by the Company under FIN 46-R. This requires the Company to compute expected losses and expected residual returns based on the probability of future cash flows as outlined in FIN 46-R. This calculation requires substantial management judgments and estimates. In addition, because the Company does not have any contractual or ownership interests in the entities with which it contracts to buy the land, the Company does not have the ability to compel these development entities to provide financial or other data to assist the Company in the performance of the primary beneficiary evaluation.

The Company has evaluated all of its fixed price purchase agreements and has determined that it is the primary beneficiary of five of those entities. As a result, at December 31, 2004, the Company has consolidated these entities in the accompanying combined and consolidated balance sheet. The effect of the consolidation at December 31, 2004 was the inclusion of $118,558 in “Inventory not owned—Variable Interest Entities” with a corresponding inclusion of $114,333 (net of land deposits paid of $4,225) to “Obligations related to inventory not owned.” Creditors, if any, of these Variable Interest Entities have no recourse against the Company.

4.    ACQUISITIONS

As discussed in Note 1, the Company on December 17, 2004, merged Comstock Service into Comstock Holdings. The acquisition was accounted for under the purchase method and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on their estimated fair value on the acquisition date.

Pursuant to the terms of the purchase agreement, shares of Comstock Service were canceled and replaced by shares of Comstock Holding. (As discussed in Note 1)

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

Cash

 

1,216

 

Notes receivable

 

2,506

 

Real estate held for development and sale

 

19,338

 

Other assets

 

25

 

Total assets acquired

 

23,085

 

Less: Accounts payable

 

(1,052

)

Less: Notes payable

 

(13,889

)

Less: Minority interest

 

(2,717

)

Less: Other liabilities

 

(671

)

Net assets acquired

 

$

4,756

 

 

F- 15




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Additionally, in 2004, the Company purchased certain noncontrolling minority interests in its consolidated subsidiaries for a total of $900. The net excess of the fair value over the book value of $226 was allocated to the related subsidiary’s assets, primarily work in process.

The selected unaudited pro forma consolidated information for the years ended December 31, 2004 and 2003, determined as if the acquisition, described above, had occurred on January 1, of each year as follows:

 

 

Proforma (unaudited)
Years ended
December 31,

 

 

 

2004

 

2003

 

Revenues

 

$

102,135

 

$

62,359

 

Operating income

 

19,456

 

8,695

 

Other (income) expense, net

 

1,018

 

(70

)

Income before minority interest and equity in earnings of real estate partnerships

 

18,438

 

8,765

 

Minority interest

 

5,157

 

3,713

 

Income before equity in earnings of real estate partnerships

 

13,281

 

5,052

 

Equity in earnings of real estate partnerships

 

118

 

139

 

Net Income before income taxes

 

$

13,399

 

$

5,191

 

 

The selected unaudited pro forma information is presented for illustrative purposes only and is not necessarily indicative of results of operations in future periods or results that would have been achieved had the Company and the acquired business been combined during the specified periods.

5.   REAL ESTATE HELD FOR DEVELOPMENT AND SALE

Real estate held for development and sale consists of the following:

 

 

December 31,

 

 

 

2004

 

2003

 

Land and land development costs

 

$

65,545

 

$

48,459

 

Cost of construction (including capitalized interest and real estate taxes)

 

38,781

 

16,261

 

Homes held for resale (model homes)

 

 

552

 

 

 

$

104,326

 

$

65,272

 

 

6.    PROPERTY, PLANT, AND EQUIPMENT, NET

Property, plant, and equipment consist of the following:

 

 

December 31,

 

 

 

2004

 

2003

 

Computer equipment

 

$

498

 

$

318

 

Furniture and fixtures

 

152

 

89

 

Office equipment

 

271

 

165

 

 

 

921

 

572

 

Less: accumulated depreciation

 

433

 

349

 

 

 

$

488

 

$

223

 

 

F- 16




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Depreciation expense, included in “Selling, general, and administrative” in the consolidated and combined financial statements of operations, amounted to $106, $67 and $61 for the years ended December 31, 2004, 2003 and 2002, respectively.

7.   INVESTMENTS IN REAL ESTATE PARTNERSHIPS

Investments in real estate partnerships accounted for using the equity method are comprised of the following:

 

 

December 31,

 

 

 

2004

 

2003

 

TCG Fund I, L.C.(1)

 

$

1,029

 

$

1,029

 

Comstock North Carolina, L.L.C.(2)

 

 

110

 

North Shore Investors, LLC (3)

 

 

 

 

 

$

1,029

 

$

1,139

 


(1)           TCG Fund I, L.C. (“Fund I”)—During 2002, the Predecessor made a $1,000 investment in Fund I. Under the terms of the investment, the Company has a 9.58% member interest in Fund I and a 33.18% interest in the Loan Class of Fund I. Fund I provides funds for real estate projects being developed, managed or built by entities in which the Company has an interest. For the years ended December 31, 2004, 2003, and 2002 the Company recorded earnings of $120, $120, $65 respectively. The Company received distributions of $120, $156 and $0 during the year ended December 31, 2004, 2003, 2002, respectively.

(2)           Comstock North Carolina, L.L.C. (“Comstock North Carolina”)—Prior to the acquisition of Comstock Service on December 17, 2004 as discussed in Note 1, the Predecessor had a 1.35% member interest in Comstock North Carolina, an entity formed to acquire developed residential lots and constructed single-family and townhouse units through subsidiary entities. The remaining 98.65% of member interests are held by 18 individual investors, including Comstock Service acting as general partner and owning a 75% member interest. For the years ended December 31, 2004, 2003 and 2002 the Company recorded earnings (losses) of $2, $19, and $(14), respectively. The Company has not received any distributions during the years ended December 31, 2004 and 2003. On December 17, 2004 as a result of the acquisition of Comstock Service, the Company acquired the controling interest in Comstock North Carolina and accordingly now consolidates this investee.

(3)           Prior to the Company’s acquisition of Comstock Service as discussed in Note 1, Comstock Service in 2001, had invested $41 in North Shore Investors, LLC for a 50% ownership interest. North Shore Investors, LLC was formed to acquire and develop residential lots and construct single family and townhouse units. In 2002, as a result of recognizing its share of net losses incurred by North Shore Investors, LLC, the Comstock Service reduced its investment in North Shore Investors, LLC, to $0. As of December 31, 2004 the Company had not received dividends from North Shore Investors, LLC.

F- 17




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

The condensed combined balance sheets and the statements of operations for the real estate property partnerships accounted for using the equity method are as follows:

Condensed Combined Balance Sheets (unaudited)

 

 

December 31,

 

 

 

2004

 

2003

 

Real estate held for development and sale

 

$

10,556

 

$

8,575

 

Other assets

 

4,037

 

11,780

 

Total assets

 

$

14,593

 

$

20,355

 

Mortgage notes payable

 

$

10,659

 

$

5,577

 

Notes payable to related parties

 

1,432

 

606

 

Other liabilities

 

181

 

1,330

 

Total liabilities

 

12,272

 

7,513

 

Partners’ capital

 

2,321

 

12,842

 

Total liabilities and partners’ capital

 

$

14,593

 

$

20,355

 

 

Condensed Combined Statements of Operations (unaudited)

 

 

Years Ended December 31,

 

 

 

2004

 

2003

 

2002

 

Revenues

 

$

22,157

 

$

11,349

 

$

12,225

 

Operating income (loss)

 

4,573

 

1,691

 

(832

)

Other (income) and expense

 

99

 

21

 

32

 

Net income (loss)

 

4,474

 

1,670

 

(864

)

Company’s share of net income (loss)

 

$

118

 

$

139

 

$

51

 

 

8.   OTHER ASSETS

Other assets consist of the following:

 

 

December 31,

 

 

 

2004

 

2003

 

Contract land deposits

 

$

630

 

$

380

 

Restricted escrow deposits

 

776

 

431

 

Other

 

1,134

 

501

 

 

 

$

2,540

 

$

1,312

 

 

9.   ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

 

 

December 31,

 

 

 

2004

 

2003

 

Trade payables

 

$

15,317

 

$

7,418

 

Warranty

 

916

 

541

 

Customer deposits

 

16,678

 

1,263

 

Other

 

2,620

 

1,232

 

 

 

$

35,531

 

$

10,454

 

 

F- 18




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

10.   NOTES PAYABLE

The Company has outstanding borrowings with various financial institutions and other lenders which have been used to finance the acquisition, development, and construction of real estate property. Notes payable consist of the following:

 

 

2004

 

2003

 

Notes payable to non-related parties

 

 

 

 

 

Shared construction and development loans with approximately $136,760 available to be drawn for planned development expenditures, with monthly interest payments ranging from prime + 0.5% to prime +2% (5.75% to 7.25% and 4.50% to 6.58% for years ended December 31, 2004 and 2003, respectively)

 

$

63,071

 

$

33,567

 

Interest bearing deferred purchase money deed of trust note issued in exchange for land, with interest at a rate of 5.39%. The note matures in December 2005

 

1,512

 

 

Acquisition loan facility of $16,000 with monthly interest only payments at the 30 day LIBOR rate + 3% (4.12% and 4.95% at December 31, 2003 and November 2004 maturity)

 

 

16,000

 

Subordinated second trust loans of $1,000 and $228 with monthly interest only payments of 18% and 14%, respectively. The remaining note matures in February 2007

 

228

 

1,228

 

Non-interest bearing deferred purchase money notes issued in exchange for land

 

873

 

1,128

 

 

 

65,684

 

51,923

 

Notes payable to related parties

 

 

 

 

 

Subordinated second trust loans of $300 with monthly interest and $6,000 with quarterly interest only payments of 14% and 18% respectively. The notes mature in October 2004 and February 2007, respectively

 

300

 

6,300

 

Note payable of up to $5,000 with quarterly interest only payments of 12% per annum maturing in April 2007

 

2,500

 

 

Note payable of $2,400 with monthly interest only payments of 12% per annum maturing in July 2005

 

2,400

 

 

Note payable to TCG Fund I LC, an equity method investee for a loan up to $4,000 with interest only payments at 12% per annum maturing in June 2006. At December 31, 2002, 2003 and 2004 the accrued interest on the note is $185, $90 and $106, respectively

 

3,323

 

2,839

 

Note payable to TCG Debt Fund II LC, a related party due to common ownership, for a loan up to $2,600 with interest only payments at 12% per annum maturing in September 2007. At December 31, 2004 the accrued interest on the note is $49

 

2,421

 

 

 

 

$

76,628

 

$

61,062

 

 

F- 19




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Maturities with respect to all notes payable as of December 31, 2004 are as follows:

Years ending December 31,

 

 

 

 

 

2005

 

$

30,976

 

2006

 

$

17,566

 

2007

 

$

28,086

 

 

 

$

76,628

 

 

For the years ended December 31, 2004, 2003 and 2002, aggregate debt had a weighted average annual effective interest rate of 6.9%, 6.6%, and 6.0% respectively.

Upon settlement of each home or lot, principal is curtailed based upon a specific release payment to the lender. The loans are collateralized by first liens on the land held for development and the construction in progress of the respective developments. In addition, borrowings at the project entity level are guaranteed by the Company and in most cases some of its shareholders. The Company must comply with certain restrictive covenants, which include maintenance of a total debt-to-tangible net worth ratio and a minimum tangible net worth level. As of December 31, 2004 and 2003, the Company and Predecessor was in compliance with all covenants as required.

The second trust loans are collateralized by subordinate liens on the land held for development and the construction in progress of the respective developments. These subordinate liens are subject to inter-creditor agreements with the senior lenders and are used by the Company to satisfy all or a portion of the equity requirements of the senior lenders. As such, these subordinated facilities are considered higher risk investments and as a result they command premium interest rates.

During May 2000, the Predecessor entered into a non-interest bearing deferred purchase money note agreement in exchange to hold title to and develop certain land. Under the terms of the note, the Company is permitted to develop lots on the underlying land, and upon settlement is obligated to pay a specific release payment. During April 2003, the note was increased by $820 as a result of additional land commitments. From May 2000 to September 30, 2003, the Company, as a result of settled lots, has paid a total of $724.

11.   COMMON STOCK

In June 2002, Sunset issued 1,000 shares of its $1 par value common stock upon formation in consideration of $1,110.

During 2002, the Predecessor repurchased 68 shares, of its $1 par value common stock for $5 per share from one of the shareholders under the terms of agreements entered into by the shareholders of Comstock Holdings and Comstock Homes. During 2002, 68 shares, respectively, were issued to certain shareholders of Comstock Holdings and Comstock Homes in consideration for services rendered. The Company recorded compensation expense of $77, in consideration for such services rendered.

As discussed in Note 1, the Company immediately prior to the IPO as a result of its merger with Comstock Holdings, had 4,333 and 2,734 shares Class A and B Common Stock outstanding.  Class A and B Common Stock shares bear the same economic rights.  However for voting purposes, Class A stock holders are entitled to one vote for each share held while Class B stock holders are entitled to fifteen votes for each share held.

F- 20




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

As a result of the IPO, the Company sold 3,960 Class A shares of Common Stock.  The Company also sold an additional 594 shares of Class A Common Stock pursuant to the underwriters’ exercise of their over-allotment option.

In connection with the IPO, the Company recorded a distribution payable of $23,253 with its common stockholders immediately prior to the offering. The distribution payable represents undistributed tax partnership profits and other amounts owed to the stockholders. The distribution payable bears interest at a rate of 3% and is expected to be paid over a one year period. At December 31, 2004 the balance of the distribution payable was $12,655.

12.    RELATED PARTY TRANSACTIONS

In June 2002, the Predecessor entered into a promissory note agreement with TCG Fund I, LC to fund development projects. TCG Fund I, LC, is a related party in which the Company has an equity investment (Note 7). The promissory note agreement allows the Company to borrow up to $4 million. The note bears interest at 12% per annum and is due on June 15, 2006. The Predecessor borrowed $2.8 million in December 2002 and $0.2 million in May 2004 under this promissory agreement. As of December 31, 2004, 2003 and 2002, the amount owed to TCG Fund I amounted to approximately $3.3 million. Accrued interests on this note totaled $106, $90 and $185 at December 31, 2004, 2003 and 2002, respectively.

In September 2004, the Predecessor entered into a promissory note agreement with TCG Fund II, LC to fund development projects. TCG Fund II, LC is a related party which the company manages. The promissory note agreement allows the Company to borrow up to $10 million. The note bears interest at 12% per annum and is due on September 7, 2007. As of December 31, 2004 the Company owed $2.4 million under this promissory agreement. Accrued interest on this note totaled $49 at December 31, 2004.

In April 2002 and January 2004, the Predecessor entered into lease agreements for 7,703 and 8,797 square feet, respectively, for its corporate headquarters at 11465 Sunset Hills Road, Reston, Virginia from Comstock Partners, L.C., an affiliate in which executive officers of the Company Christopher Clemente, Gregory Benson, and others are principals. Christopher Clemente owns a 45% interest, Gregory Benson owns a 5% interest, an entity which is owned or controlled by Christopher Clemente’s father-in-law, Dwight Schar, owns a 45% interest, and an unrelated third party owns a 5% interest in Comstock Partners. For the nine months ended September 30, 2004 and the years ended December 31, 2003 and 2002, total payments made under this lease agreement were $231, $221, and $114, respectively. These leases ended on September 30, 2004. On October 1, 2004, we entered into a lease with Comstock Asset Management, L.C., an entity owned by Christopher Clemente, for 20,609 square feet for our corporate headquarters. Total payments made under this lease agreement were $142 as of December 31, 2004.

In May 2003, the Predecessor hired a construction company, in which Christopher Clemente’s brother, Louis Clemente, serves as the President and is a significant shareholder, to provide construction services and act as a general contractor at one of the Company’s developments. The Predecessor paid $4,352, and $829 to this construction company during the year ended December 31, 2004 and 2003, respectively, to this company.

In May 2003, the Predecessor entered into a lot purchase agreement to sell 47 developed lots to an entity in which Christopher Clemente’s father-in-law, Dwight Schar, serves as the chief executive officer

F- 21




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

and chairman of the board of directors and is a shareholder. During the year ended December 31, 2004 and 2003, the Company delivered 30 and 17 lots, respectively, to this entity for $3,910 and $2,193, respectively.

In December 2003, the Predecessor entered into a $7,000 second trust loan agreement, accruing interest at 18% per annum, with Comstock Capital Partners, L.C., a related entity equally owned by Christopher Clemente and Gregory Benson. Immediately upon execution, Comstock Capital Partners assigned 100% of the second trust loan to other parties. An assignment was made covering $6 million of the principal under the second trust loan to an entity owned or controlled by Christopher Clemente’s father-in-law, Dwight Schar, at 15% per annum. At December 31, 2003 the principal owed was $7,000. Accrued interest at December 31, 2003 amounted to $55. The remaining $1 million of principal under the loan was assigned to an entity controlled by Scott Kasprowicz who became a related party on June 1, 2004 upon the hiring of his son, Reid Kasprowicz. This $7,000 second trust loan matured in November 2004 and was paid in full.

In April 2004, the Predecessor entered into an additional three year $5,000 promissory note agreement, with an entity controlled by Scott Kasprowicz, bearing interest at a rate of 12%. Under the terms of the note, the Predecessor was advanced $2,500 in April 2004 and additional $2,500 in June 2004. In the event of a consolidation of The Comstock Companies, the lender is entitled to a premium of up to 10% of the outstanding principal balance. As of December 31, 2004 the amount owed to Scott Kasprowicz was $2,500. Accrued interest and premium at December 31, 2004 totaled $598.

During the years ended December 31, 2004 and 2003, the Company and the Predecessor paid $128 and $500, respectively, to Investors Management, LLC for consulting services provided. Investors Management, LLC is a related party, which is owned by Christopher Clemente, Gregory Benson, Bruce Labovitz, Lawrence Golub and James Keena (executive officers and/or shareholders of the Company). In addition, at December 31, 2003 the Company had an outstanding note receivable from Investors Management, LLC of $14, which accrues interest at a rate of 10% per annum. The Note was paid in June of 2004. In August 2004 the Predecessor entered into a new note agreement in the amount of $163, which accrues interest at a rate of 12% per annum. At December 31, 2004 accrued interest on this note totaled $5.

Christopher Clemente’s mother-in-law, Janice Schar, and Gary Martin each invested $100 as minority shareholders in one of our subsidiaries, respectively, and Judah and Deborah Labovitz, the parents of Bruce Labovitz, loaned approximately $300 to another of our subsidiaries.

During 2003, the Predecessor entered into agreements with I-Connect, L.C., a company in which Investors Management, LLC holds a 25% interest, for information technology consulting services and the right to use certain customized enterprise software developed with input from the Company. The intellectual property rights associated with the software solution that was developed by I-Connect along with any improvements made thereto by the Company remained the property of I-Connect. During the years ended December 31, 2004 and 2003, the Predecessor paid $434 and $471, respectively, to I-Connect. Also, in March 2003, the Predecessor entered into a space sharing agreement with I-Connect, L.C. to occupy and use 3,342 square feet of office space subleased by I-Connect, L.C. from a third party in Reston, Virginia. The Predecessor paid $4 and $40, respectively, under this agreement for the years ended December 31, 2004 and 2003. On June 24, 2003, the I-Connect, L.C. sublease was assigned to Comstock Partners, L.C. (as landlord). The space sharing agreement with I-Connect ended on September 30, 2004.

F- 22




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

At the end of December 31, 2004, 2003 and 2002, the Predecessor received revenue of approximately $3,280, $2,908, and $4,348, respectively, by providing administrative and sales support to Comstock Service Corp., Inc., a related party owned by Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub. At December 31, 2003 and 2002 the Company had a receivable of approximately $2,690 and $365, respectively, from this entity.

For the years ended December 31, 2004, 2003 and 2002, the Predecessor received revenue of approximately $1,619, $926 and $634, respectively, by providing administrative and sales support to other related parties in which Christopher Clemente, Gregory Benson, Jim Keena, Lawrence Golub and Christopher Clemente’s father-in-law, Dwight Schar, are shareholders.

From October 31, 2003 to December 31, 2003, the Predecessor granted interest-free loans totaling $38 to an employee of the Company. As of December 31, 2003 and June 30, 2004 the employee owed the Company $38 and $39, respectively. The loan was repaid in July of 2004.

In October 2004, the Predecessor entered into an agreement with Comstock Asset Management Inc. to provide (management services) for a fee of $20 a month. Comstock Asset Management Inc is a related party wholly owned by Christopher Clemente. As of December 31, 2004 the Predecessor earned $60 in revenue and recorded a receivable for $60 from this entity. Also, in November 2004, the Company entered into an agreement with Comstock Asset Management to sell retail condo units #1 through #5 at Potomac Yard for $14,500. In connection with this sale, the Company received a deposit of $8,000 upon execution of this agreement.

During the course of the years ended December 31, 2004, 2003 and 2002, the Company provided bookkeeping services to related party entities at no charge.

In August 2004, the Predecessor entered into a $2,400 promissory note agreement with Belmont Models I, L.C., an affiliate managed by Investors Management. The note bears an interest rate of 12%, which is payable monthly and matures in July 2005. Accrued interest on this note totals $49 as of December 31, 2004.

In July 2003, the Predecessor loaned William Bensten, an officer of the Company, $70. The loan was repaid in August 2003 with no interest.

During 2004, 2003, 2002 the Predecessor has entered into sales contracts to sell homes to certain employees of the Company.  The Company, in order to attract, retain, and motivate employees maintains a homes ownership benefit program.  Under the home ownership benefits, an employee receives certain cost benefits provided by us when purchasing a home or having one built by us.  Sales of homes to employees for investment purposes are conducted at market prices.

13.   RETIREMENT PLAN

The Company maintains a defined contribution retirement savings plan pursuant to Section 401(k) of the Internal Revenue Code (the “Code”). Eligible participants may contribute a portion of their compensation to their respective retirement accounts in an amount not to exceed the maximum allowed under the Code. The plan provides for matching Company contributions at the sole discretion of the board of directors. The Company and the Predecessor made no contributions to the plan during the years ended December 31, 2004, 2003 and 2002.

F- 23




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

14.   RESTRICTED STOCK, STOCK OPTIONS AND OTHER STOCK PLANS

Effective January 1, 2004, the Company adopted the fair value recognition provisions of SFAS No. 123(R). In accordance with the provisions of SFAS No. 123(R) and SFAS No. 148, $10 was recorded for total stock-based compensation expense for the year ended December 31, 2004. Prior to December 14, 2004 the Company did not sponsor any stock based plans. Accordingly, no stock based compensation was included for the years ended December 2003 and 2002.

On December 14, 2004 the Company adopted the 2004 Long-Term Compensation Plan. The plan provides for the issuance of stock options, stock appreciation rights, or SARs, restricted stock, deferred stock, dividend equivalents, bonus stock and awards in lieu of cash compensation, other stock-based awards and performance awards. The plan provided for an initial authorization of 1,550 shares of Class A Common stock for issuance thereunder, plus an additional annual authorization equal to 10% of the authorized shares of common stock under the Long-Term Compensation Plan.

On December 14, 2004 the Company issued 275 shares of restricted stock grants to certain directors, officers and employees. Of the 275 shares of restricted stock issued, 1 shares vest in full on April 15, 2005 and the remainder of the shares vest on December 31, 2006. Unearned compensation arising from the restricted stock grants is shown as a reduction in stockholders’ equity in the consolidated balance sheets and is amortized to expense over the vesting period. The company also issued 107 options to the Company’s Chief Financial Officer at an exercise price of $16.00 per share. At December 31, 2004 the company had 107 options outstanding. The expense recognized in the consolidated income statement for the year ended December 31, 2004 for restricted stock grants and options was $91 and $10, respectively.

The fair value of each option award is calculated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Because the Company does not have sufficient trading history, expected volatilities are based historical volatilities of comparable companies within our industry. The company estimates the expected life of the option based on the estimated volatility and the vesting terms of the underlying options. The risk-free rate for periods is based on the U.S. Treasury rates in effect at the time of grant.

Weighted-average fair value of options granted

 

$

13.49

 

Dividend yields

 

N/A

 

Expected volatility

 

48%

 

Risk-free interest rates

 

3.5

 

Expected lives

 

4 years

 

 

On December 31, 2004 the following amounts were available for issuance:

Shares Available for issuance at December 14, 2004

 

1,550

 

Less:

 

 

 

Restricted Stock Grants

 

3

 

Stock Option Grants

 

78

 

Shares Available for issuance at December 31, 2004

 

1,469

 

 

F- 24




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

15.    COMMITMENTS AND CONTINGENCIES

Litigation

In the normal course of its business, the Company and/or its subsidiaries are named as defendants in certain legal actions arising from its normal business activities. Management believes that none of the litigation matters in which the Company or any subsidiary is involved would have a material adverse effect on the consolidated financial condition or operations of the Company.

Lot purchase agreements

On December 26, 2001, the Predecessor entered into a purchase commitment agreement to purchase developed residential lots. The purchase commitment agreement provides for fixed purchase prices per lot subject to escalation throughout the build-out period for each project. At December 31, 2004, the Company had commitments to purchase fifty-six lots at an average minimum purchase price of approximately $65 per lot, under non-specific performance agreements.

Letters of credit and performance bonds

The Company has commitments as a result of contracts entered into with certain third parties to meet certain performance criteria as 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 such commitments entered into are met by the Company. At December 31, 2004, the Company has issued $8,777 in letters of credit and $7,306 in performance and payment bonds to these third parties. No amounts have been drawn against these letters of credit and performance bonds.

Operating leases

The Company leases office space under non-cancelable operating leases. Minimum annual lease payments under these leases at December 31, 2004 approximate:

Year Ended:

 

 

 

Amount

 

2005

 

$

647

 

2006

 

629

 

2007

 

642

 

2008

 

667

 

2009

 

547

 

Thereafter

 

10

 

Total

 

$

3,142

 

 

Operating lease rental expense aggregated $234, $304 and $205, respectively, for years ended December 31, 2004, 2003 and 2002.

16.   SUBSEQUENT EVENTS

In February 2005 the Company completed a purchase of a 424 unit condo conversion project located in Fairfax, VA for a total purchase price of $75,000. To finance this transaction, the Company entered into

F- 25




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

a $67,000 promissory note agreement bearing interest at a rate equal to the greater of: (A) 5.50% or (B) 3.50% + the three month LIBOR rate.

In March 2005 the Company completed the purchase of three real estate projects totaling approximately $27,000. The company entered into an aggregate $8,700 in promissory note agreements bearing an weighted average interest rate of interest rate of approximately 6.0% to finance this transaction.

In March 2005 the Company bought out the interests of certain holders of minority interests in certain of the Company’s project-level investment entities for a total purchase price of $2,014.

17.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the combined consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and floating rate debt approximate fair value.

The carrying amount and fair value of fixed rate debt at December 31, 2004 and 2003 were as follows:

 

 

December 31,

 

 

 

2004

 

2003

 

Carrying amount

 

$

11,172

 

$

10,367

 

Fair value

 

$

12,789

 

$

11,672

 

 

Fair value estimates are made at a specific point in time, based on relevant market information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

18.    INCOME TAXES

Prior to December 17, 2004 the Predecessor Company had elected to be treated as an S corporation under Subchapter S of the Internal Revenue Code and therefore was not subject to income taxes. Taxable income or loss was passed through and reported by the individual shareholders. Subsequent to the Consolidation the company was reorganized as a C corporation under which income taxes are accounted for under the asset and liability method in accordance with SFAS 109 “Accounting for Income Taxes”.

F- 26




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

Income Tax provision consists of the following as of December 31, 2004 and the year ended:

Current:

 

 

 

 

 

Federal

 

 

242

 

 

State

 

 

48

 

 

 

 

 

290

 

 

Deferred:

 

 

 

 

 

Federal

 

 

(472

)

 

State

 

 

(59

)

 

 

 

 

(531

)

 

Total Income Tax Expense

 

 

(241

)

 

 

Income taxes payable consist of the following:

Current:

 

 

 

 

 

Federal

 

 

242

 

 

State

 

 

48

 

 

Income taxes payable

 

 

290

 

 

 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company’s deferred tax assets and liabilities at December 31, 2004 were as follows:

 

 

December 31,
2004

 

Deferred tax assets:

 

 

 

 

 

Inventory

 

 

2,067

 

 

Warranty

 

 

293

 

 

Deferred rent

 

 

8

 

 

Accrued expenses

 

 

96

 

 

Stock-based compensation

 

 

39

 

 

 

 

 

2,503

 

 

Less—valuation allowance

 

 

(1,508

)

 

Net deferred tax assets

 

 

995

 

 

Deferred tax liabilities:

 

 

 

 

 

Depreciation and amortization

 

 

(174

)

 

Net deferred tax liabilities

 

 

(174

)

 

Net deferred tax assets

 

 

821

 

 

 

F- 27




COMSTOCK HOMEBUILDING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands)

The Company has adequately provided for contingencies related to income taxes in accordance with SFAS No. 5. At December 31, 2004, the Company recorded a $68 income tax reserve which is included in other accrued expenses on the balance sheet. This tax reserve relates predominately to a potential dispute by taxing authorities over tax benefits resulting from additional income tax basis in certain residential housing development projects. The Company has also determined that a valuation allowance of approximately $1,508 as of December 31, 2004 related to a deferred tax asset of approximately $1,508 resulting from additional tax basis in residential real estate development projects. In analyzing the need for the provision of tax contingency reserves and the valuation allowance, management reviewed applicable statutes, rules, regulations and interpretations and established these reserves based on past experiences and judgments about potential actions by taxing jurisdictions.

A reconciliation of the statutory rate and the effective tax rate follows:

 

 

Effective

 

 

 

rate

 

Statutory Rate

 

34.00

%

Income attributable to period during which  the Predecessor was under S Corporation status.

 

(37.19

)%

State income taxes—net of federal benefit

 

4.26

%

Permanent differences

 

0.02

%

Tax reserve

 

0.35

%

Deferred tax assets resulting from a change in tax status, net

 

(10.96

)%

Change in valuation allowance

 

7.81

%

 

 

(1.71

)%

                                                                                                                                               

On October 22, 2004, the President of the U.S. signed into law the American Jobs Creation Act of 2004. The Company is currently evaluating the impact of this new law on its operations and effective tax rate. In particular, the Company is evaluating the law’s provisions relating to the phased-in deduction associated with pre-tax income from domestic production activities. This special deduction is 3% of qualifying income for years 2004 and 2005, 6% in years 2006 through 2009 and 9% thereafter.

F- 28




Exhibit
Number

 

Exhibit

3.1*

 

Amended and Restated Certificate of Incorporation

3.2*

 

Amended and Restated Bylaws.

4.1(4)

 

Specimen Stock Certificate

10.1(1)

 

Lease Agreement, dated as of April 30, 2002, with Comstock Partners, L.C.

10.2(1)

 

Lease Agreement, dated as of January 31, 2004, with Comstock Partners, L.C.

10.3(3)

 

Agreement of Sublease, dated as of October 1, 2004, with Comstock Asset Management, L.C.

10.4(2)

 

Loan Agreement, dated December 17, 1997, as amended, with Bank of America, N.A.

10.5(3)

 

Partial Assignment of Note, dated December 15, 2003, with Kasprowicz Family, LLC.

10.6(3)

 

Promissory Note, dated April 30, 2004, with Kasprowicz Family, LLC.

10.7(1)

 

Disbursement and Construction Loan Agreement and Disbursement and Development Loan Agreement, each dated October 10, 2002 and as amended, with Branch Banking and Trust Company of Virginia.

10.8(1)

 

Disbursement and Construction Loan Agreement and Acquisition, Disbursement and Development Loan Agreement, each dated July 25, 2003, with Branch Banking and Trust Company of Virginia.

10.9(1)

 

Purchase Money Deed of Trust and Security Agreement, dated December 15, 2003, with Crescent Potomac Yard Development, LLC.

10.10*

 

Loan Agreement, dated January 25, 2005, with Corus Bank, N.A.

10.11*

 

Completion Guaranty, dated January 25, 2005 in favor of Corus Bank, N.A.

10.12*

 

Carve-Out Guaranty, dated January 25, 2005, in favor of Corus Bank, N.A.

10.13(3)

 

Form of Indemnification Agreement.

10.14(3)

 

Form of Promissory Note to be issued to each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub by each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.15(3)

 

Form of Tax Indemnification Agreement to be entered into by each of Christopher Clemente, Gregory Benson, James Keena and Lawrence Golub with each of Comstock Holding Company, Inc., Comstock Homes, Inc., Sunset Investment Corp., Inc. and Comstock Service Corp., Inc.

10.16(3)

 

2004 Long-Term Incentive Compensation Plan.

10.17(3)

 

Form of Stock Option Agreement under the 2004 Long-Term Incentive Compensation Plan.

10.18*

 

Form of Restircted Stock Grant Agreement under the 2004 Long-Term Incentive Compensation Plan

10.19(3)

 

Employee Stock Purchase Plan.

10.20(2)

 

Purchase and Sale Agreement, dated as of April 25, 2003, as amended, with Crescent Potomac Yard Development, LLC.

10.21*

 

Purchase and Sale Agreement, dated as of November 9, 2004, as amended, with Fair Oaks Penderbrook Apartments L.L.C.

10.22*

 

Real Estate Purchase Contract, dated as of February 4, 2005, with Westwick Apartments LLC

10.23*

 

Services Agreement, dated March 4, 2005, with Comstock Asset Management, L.C.

10.24(3)

 

Employment Agreement with Christopher Clemente.

10.25(3)

 

Employment Agreement with Gregory Benson.

10.26(3)

 

Employment Agreement with Bruce Labovitz.

10.27(3)

 

Confidentiality and Non-Competition Agreement with Christopher Clemente.

10.28(3)

 

Confidentiality and Non-Competition Agreement with Gregory Benson.

10.29(3)

 

Confidentiality and Non-Competition Agreement with Bruce Labovitz.

10.30*

 

Description of Arrangements with William Bensten

10.31*

 

Description of Arrangements with David Howell




 

10.32(3)

 

Trademark License Agreement.

10.33*

 

Purchase Agreement, dated November 12, 2004, with Comstock Asset Management, L.C.

14.1*

 

Code of Ethics

21.1*

 

List of subsidiaries.

24.1*

 

Power of Attorney

31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.3*

 

Certification of Chief Accounting Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1*

 

Certification of Chief Executive Officer, Chief Financial Officer and Chief Financial Officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.


*                     Filed herewith.

(1)           Incorporated by reference to an exhibit to the Registrant’s Registration Statement on Form S-1 filed with the Commission on August 13, 2004 (No. 333-118193).

(2)           Incorporated by reference to an exhibit to the Registrant’s Amendment No. 1 to the Registration Statement on Form S-1 filed with the Commission on October 1, 2004 (No. 333-118193).

(3)           Incorporated by reference to an exhibit to the Registrant’s Amendment No. 5 to the Registration Statement on Form S-1 filed with the Commission on December 7, 2004 (No. 333-118193).

(4)           Incorporated by reference to an exhibit to the Registrant’s Amendment No. 6 to the Registration Statement on Form S-1 filed with the Commission on December 9, 2004 (No. 333-118193).

 

 



Exhibit 3.1

 

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
COMSTOCK HOMEBUILDING COMPANIES, INC.

 

 

Comstock Homebuilding Companies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows:

 

1.                                        The corporation was incorporated on May 24, 2004, under the name Comstock Companies, Inc., pursuant to the General Corporation Law of the State of Delaware.  The Certificate of Incorporation was amended on June 30, 2004.

 

2.                                        Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of the corporation.

 

3.                                        The text of the Certificate of Incorporation is hereby amended and restated in its entirety as follows:

 

“ARTICLE I

NAME

 

The name of the Corporation is Comstock Homebuilding Companies, Inc. (the “Corporation”).

 

ARTICLE II

REGISTERED OFFICE AND AGENT

 

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle.  The name of its registered agent at such address is Corporation Service Company.

 

ARTICLE III

PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

 

ARTICLE IV

CAPITAL STOCK

 

The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is One Hundred Million (100,000,000) shares, of which:

 



 

Seventy Seven Million Two Hundred Sixty Six Thousand and Five Hundred (77,266,500) shares, par value $0.01 per share, shall be shares of Class A common stock (the “Class A Common Stock”);

 

Two Million Seven Hundred Thirty Three and Five Hundred (2,733,500) shares, par value $0.01 per share, shall be shares of Class B common stock (the “Class B Common Stock” and, together with the Class A Common Stock, the “Common Stock”); and

 

Twenty Million (20,000,000) shares, par value $0.01 per share, shall be shares of preferred stock (the “Preferred Stock”).

 

(A)                               Common Stock .  Except as (i) otherwise required by law or (ii) expressly provided in this Amended and Restated Certificate of Incorporation (as amended from time to time), each share of Common Stock shall have the same powers, rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters.

 

(1)                                   Dividends .  Subject to the rights of the holders of Preferred Stock, and to the other provisions of this Amended and Restated Certificate of Incorporation (as amended from time to time), holders of Common Stock shall be entitled to receive equally, on a per share basis, such dividends and other distributions in cash, securities or other property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor; provided , however , that any dividends payable in shares of Common Stock (or payable in rights to subscribe for or purchase shares of Common Stock or securities or indebtedness convertible into or exchangeable for shares of Common Stock) shall be declared and paid at the same rate on each class of Common Stock and only in shares of Class A Common Stock (or rights to subscribe for or to purchase shares of Class A Common Stock or securities or indebtedness convertible into or exchangeable for shares of Class A Common Stock) to holders of Class A Common Stock and in shares of Class B Common Stock (or rights to subscribe for or to purchase shares of Class B Common Stock or securities or indebtedness convertible into or exchangeable for shares of Class B Common Stock) to holders of Class B Common Stock.

 

(2)                                   Voting Rights .  Except as otherwise provided in this Amended and Restated Certificate of Incorporation, the holders of Class A Common Stock and Class B Common Stock shall vote together as a single class with respect to all matters submitted to a vote of holders of shares of Common Stock, subject to any voting rights which may be granted to holders of any Preferred Stock.  The holders of shares of Common Stock shall have the following voting rights:

 

(a)                                   Each share of Class A Common Stock shall entitle the holder thereof to one (1) vote in person or by proxy on all matters submitted to a vote of the stockholders of the Corporation; and

 

(b)                                  Each share of Class B Common Stock shall entitle the holder thereof to fifteen (15) votes in person or by proxy on all matters submitted to a vote of the

 

2



 

stockholders of the Corporation, except with respect to any Going Private Transaction (as hereinafter defined), which shall be governed by Paragraph (A)(10) of this Article IV.

 

(3)                                   Liquidation Rights .  In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the Corporation’s debts and amounts payable upon shares of Preferred Stock entitled to a preference, if any, over holders of Common Stock upon such dissolution, liquidation or winding up, the remaining net assets of the Corporation shall be distributed among holders of shares of Common Stock equally on a per share basis.  A merger or consolidation of the Corporation with or into any other corporation or other entity, or a sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to its stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Paragraph (A)(3).

 

(4)                                   Voluntary Conversion of Class B Common Stock .

 

(a)                                   The holder of each share of Class B Common Stock shall have the right at any time, or from time to time, at such holder’s option, to convert such share into one fully paid and nonassessable share of Class A Common Stock on and subject to the terms and conditions hereinafter set forth.

 

(b)                                  In order to exercise the conversion privilege, the holder of any shares of Class B Common Stock to be converted shall present and surrender the certificate or certificates representing such shares during usual business hours at any office or agency of the Corporation maintained for the transfer of Class B Common Stock and shall deliver a written notice of the election of the holder to convert the shares represented by such certificate or any portion thereof specified in such notice. Such notice shall also state the name or names (with address) in which the certificate or certificates for shares of Class A Common Stock issuable on such conversion shall be registered. If required by the Corporation, any certificate for shares surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder of such shares or his duly authorized representative. Each conversion of shares of Class B Common Stock shall be deemed to have been effected on the date (the “Conversion Date”) on which the certificate or certificates representing such shares shall have been surrendered and such notice and any required instruments of transfer shall have been received as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Class A Common Stock shall be issuable on such conversion shall be, for the purpose of receiving dividends and for all other corporate purposes whatsoever, deemed to have become the holder or holders of record of the shares of Class A Common Stock represented thereby on the Conversion Date.

 

(c)                                   As promptly as practicable after the presentation and surrender for conversion, as herein provided, of any certificate for shares of Class B Common Stock, the Corporation shall issue and deliver at such office or agency, to or upon the written order of the holder thereof, certificates for the number of shares of Class A Common Stock issuable upon such conversion.  Subject to the provisions of Paragraph (A)(5) of this Article IV, in case any

 

3



 

certificate for shares of Class B Common Stock shall be surrendered for conversion of only a part of the shares represented thereby, the Corporation shall deliver at such office or agency, to or upon the written order of the holder thereof, a certificate or certificates for the number of shares of Class B Common Stock represented by such surrendered certificate that are not being converted.

 

(5)                                   Automatic Conversion of Class B Common Stock Upon Certain Events .

 

(a)                                   As used in this Paragraph A(5), the following terms have the following meanings:

 

(i)                                      “Initial Holder” shall mean each of Christopher Clemente and Gregory V. Benson, individually.

 

(ii)                                   “IPO Date” shall mean the closing date of any initial public offering of the Class A Common Stock in a firm commitment underwritten offering that is registered with the U.S. Securities and Exchange Commission.

 

(iii)                                “Permitted Transferee” shall mean:

 

(AA)                     In the case of a holder of record of the Class B Common Stock (the “Class B Holder”) who is a natural person and the beneficial owner of the shares of Class B Common Stock to be transferred, Permitted Transferees shall include only the following:

 

(I)                                     the spouse of such Class B Holder, any lineal descendant of a grandparent of such Class B Holder, or any spouse of such lineal descendent (herein collectively referred to as such Class B Holder’s “Family Members”);

 

(II)                                 the trustee or trustees of a trust (including a voting trust) for the sole benefit of such Class B Holder and/or one or more of such Class B Holder’s Permitted Transferees, except that such trust may also grant a general or special power of appointment to one or more of such Class B Holder’s Family Members and may permit trust assets to be used to pay taxes, legacies, and other obligations of the Trust or the estates of one or more of such Class B Holder’s Family Members payable by reason of the death of any of such Family Members; provided , however , if at any time such trust ceases to meet the requirements of this subparagraph (II), all shares of Class B Common Stock then held by such trustee or trustees shall immediately and automatically, without further act or deed on the part of the Corporation or any person, be converted into Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock;

 

(III)                             a corporation or similar entity wholly owned by such Class B Holder and/or such Class B Holder’s Permitted Transferees or a partnership or similar entity in which all of the general partners are, and all of the general partnership interests are owned by, such Class B Holder and/or such Class B Holder’s Permitted Transferees; provided that if by reason of any change in the ownership of such stock or general partners or

 

4



 

general partnership interests, such corporation or partnership would no longer qualify as a Permitted Transferee of such Class B Holder, all shares of Class B Common Stock then held by such corporation or partnership shall immediately and automatically, without further act or deed on the part of the corporation or any other person, be converted into shares of Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock;

 

(IV)                             an organization established by the Class B Holder and/or such Class B Holder’s Permitted Transferees, contributions to which are deductible for federal income, estate, or gift tax purposes (a “Charitable Organization”) and a majority of whose governing board at all times consists of the Class B Holder and/or one or more of the Permitted Transferees of such Class B Holder, or any successor to such Charitable Organization meeting such definition; provided that if by reason of any change in the composition of the governing board of such Charitable Organization, such Charitable Organization shall no longer qualify as a Permitted Transferee of such Class B Holder, all shares of Class B Common Stock then held by such Charitable Organization shall immediately and automatically, without further act or deed on the part of the Corporation or any other person, be converted into shares of Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent the like number of shares of Class A Common Stock; and

 

(V)                                 the executor, administrator, or personal representative of the estate of a deceased Class B Holder or guardian or conservator of a Class B Holder adjudged disabled or incompetent by a court of competent jurisdiction, acting in his capacity as such.

 

(BB)                         In the case of a Class B Holder who is the executor or administrator of the estate of a deceased Class B Holder or guardian or conservator of the estate of a disabled or incompetent Class B Holder, Permitted Transferees shall include only a Permitted Transferee of such deceased, disabled, or incompetent Class B Holder.

 

(CC)                         In the case of a Class B Holder holding the shares of Class B Common Stock as trustee pursuant to a trust, Permitted Transferees shall include only the following:

 

(I)                                     the person who contributed such shares to such trust and any Permitted Transferee of such person, determined in accordance with Paragraph (A)(5)(a)(iii)(AA) of this Article IV; and

 

(II)                                 any successor trustee of such trust who is described in the immediately preceding subparagraph (CC)(I).

 

(DD)                       In the case of a Class B Holder that is a partnership or similar entity, Permitted Transferees shall include only:

 

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(I)                                     any partner of such partnership who was also a partner of such partnership on the IPO Date;

 

(II)                                 any person transferring shares of Class B Common Stock to such partnership after the IPO Date (to the extent of the number of shares of Class B Common Stock transferred by the transferor to such partnership); and

 

(III)                             any Permitted Transferee of such person referred to in the immediately preceding subparagraphs (DD)(I) or (DD)(II) (not in excess of the number of shares that such person is entitled to receive pursuant to this subparagraph (DD)).

 

(EE)                           In the case of a Class B Holder that is a corporation or similar entity, Permitted Transferees shall include only:

 

(I)                                     any stockholder of such corporation on the IPO Date who receives shares of Class B Common Stock pro rata to his stock ownership in such corporation through a dividend or a distribution on or upon redemption of the shares of such corporation;

 

(II)                                 any person transferring shares of Class B Common Stock to such corporation after the IPO Date (to the extent of the number of shares of Class B Common Stock transferred by the transferor to such corporation); and

 

(III)                             any Permitted Transferee of such stockholder or person referred to in the immediately preceding subparagraphs (EE)(I) or (EE)(II) (not in excess of the number of shares that such stockholder or person is entitled to receive pursuant to this subparagraph (EE).

 

(FF)                           An employee benefit plan sponsored by the Corporation or any of its affiliates.

 

(GG)                         Any Initial Holder.

 

For purposes of this Paragraph (A)(5)(a)(iii), (1) the relationship of any person that is derived by or through legal adoption shall be considered a natural one; (2) each joint owner of shares of Class B Common Stock shall be considered a Class B Holder of such shares; (3) a minor for whom shares of Class B stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder of such shares; and (4) unless otherwise specified, the term “person” means both natural person and legal entities.

 

(iv)                               “Transfer” shall mean any sale, assignment, transfer, gift, hypothecation or other disposition, whether voluntary or involuntary, of Class B Common Stock.

 

(b)                                  No record or beneficial owner of shares of Class B Common Stock may Transfer, and the Corporation shall not register the Transfer of, such shares of Class B

 

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Common Stock, whether by sale, assignment, gift, bequest, appointment, or otherwise, except to a Permitted Transferee.

 

(c)                                   Any purported Transfer of shares of Class B Common Stock not permitted hereunder shall result in the conversion of the transferee’s shares of Class B Common Stock into shares of Class A Common Stock, effective on the date on which certificates representing such shares are presented for transfer on the stock transfer record books of the Corporation; provided , however , that if the Corporation should determine that such shares were not so presented for transfer within 20 days after the date of such sale, transfer, assignment, or other disposition, the transfer date shall be the actual date of such sale, transfer, assignment, or other disposition as determined in good faith by the Board of Directors or its appointed agent. The Corporation may, as a condition to the transfer or the registration of transfer of shares of Class B Common Stock to a purported Permitted Transferee, require the furnishing of such affidavits or other proof as it deems necessary to establish that such transferee is a Permitted Transferee. If no indication to the contrary is supplied at the time shares of Class B Common Stock are presented for transfer, the transfer shall be presumed by the Corporation to be a transfer to a person other than the Permitted Transferee.

 

(d)                                  Shares of Class B Common Stock shall not be registered in “street” or “nominee” names; provided , however , that certificates representing shares of Class B Common Stock may be registered in the name of a nominee which is a Permitted Transferee.  The Corporation shall note on the certificates representing the shares of Class B Common Stock that there are restrictions on transfer and registration of transfer imposed by this Amended and Restated Certificate of Incorporation.

 

(e)                                   Notwithstanding anything to the contrary set forth herein, (i) upon the death or permanent disability (as determined in good faith by the Board of Directors) of either of the Initial Holders, all shares of Class B Common Stock then held by such Initial Holder shall be converted automatically into shares of Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock; (ii) if either Initial Holder ceases to beneficially own (as such term is defined under Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) at least 5% of the then-outstanding shares of Common Stock, all shares of Class B Common Stock then held by such Initial Holder shall be converted automatically into shares of Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock; and (iii) upon a Permitted Transferee ceasing to qualify as a Permitted Transferee (and subject to the operation of Paragraph (A)(5)(f) of this Article IV) all shares of Class B Common Stock held by it shall be converted automatically into shares of Class A Common Stock on a share-for-share basis, and stock certificates formerly representing such shares of Class B Common Stock shall thereupon and thereafter be deemed to represent a like number of shares of Class A Common Stock.

 

(f)                                     Notwithstanding the foregoing, in the event that any transferee of Class B Common Stock is not at the time of transfer or thereafter ceases to qualify as a Permitted

 

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Transferee, and within ten business days after the Corporation notifies such person that it has concluded that such person is not or has ceased to qualify as a Permitted Transferee and the bases for such conclusion, such person transfers the shares of Class B Common Stock to a Permitted Transferee, demonstrates that it is a Permitted Transferee or takes appropriate action so that it qualifies as a Permitted Transferee, then notwithstanding anything else in this Section 4.2, the shares of Class B Common Stock held by such person that converted automatically into shares of Class A Common Stock as a result of such person not being or ceasing to qualify as a Permitted Transferee shall convert back to Class B Common Stock.

 

(g)                                  No Class B Holder may pledge its Class B Common Stock to a third party for any reason, including but not limited to a pledge of such Class B Common Stock as collateral security for indebtedness or a similar obligation.

 

(6)                                   Further Provisions Regarding Conversions .

 

(a)                                   Any dividends declared and not paid on shares of Common Stock prior to their conversion as provided above shall be paid, on the payment date, to the holder or holders entitled thereto on the record date for such dividend payment, notwithstanding such conversion; provided , however , that such holder or holders shall not be entitled to receive the corresponding dividends declared but not paid on the shares of Common Stock issuable upon such conversion.

 

(b)                                  In the event of a reclassification or other similar transaction as a result of which the shares of Class A Common Stock are converted into another security, then a holder of Class B Common Stock shall be entitled to receive upon conversion the amount of such security that such holder would have received if such conversion had occurred immediately prior to the record date of such reclassification or other similar transaction.

 

(c)                                   Shares of the Class B Common Stock converted into Class A Common Stock shall be retired and shall resume the status of authorized but unissued shares of Class B Common Stock.

 

(d)                                  The issuance of certificates for shares of Class A Common Stock issuable upon the conversion of shares of Class B Common Stock by the registered holder thereof shall be made without charge to the converting holder for any tax imposed on the Corporation in respect of the issue thereof. The Corporation shall not, however, be required to pay any tax that may be payable with respect to any transfer involved in the issue and delivery of any certificate in a name other than that of the registered holder of the shares being converted, and the Corporation shall not be required to issue or deliver any such certificate unless and until the person requesting the issue thereof shall have paid to the Corporation the amount of such tax or has established to the satisfaction of the Corporation that such tax has been paid.

 

(7)                                   Reservation of Shares .  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, solely for the purpose of effecting the conversions provided for herein, such number of shares of Class A Common Stock as shall from time to time be sufficient to effect the conversions provided for

 

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herein and shall take all such corporate action as may be necessary to assure that such shares of Class A Common Stock shall be validly issued, fully paid and non-assessable upon conversion of all of the outstanding shares of Class B Common Stock; moreover, if at any time the number of authorized but unissued shares of Class A Common Stock shall not be sufficient to effect the conversions provided for herein, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Class A Common Stock to such number of shares as shall be sufficient for such purpose.

 

(8)                                   Adjustments for Stock Splits and Stock Dividends . The Corporation shall treat the shares of Common Stock identically in respect of any subdivisions or combinations (for example, if the Corporation effects a two-for-one stock split with respect to the Class A Common Stock, it shall at the same time effect a two-for-one stock split with respect to the Class B Common Stock).

 

(9)                                   Mergers, Consolidation, Etc .  In the event that the Corporation shall enter into any consolidation, merger, combination or other transaction in which shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then, and in such event, the shares of each class of Common Stock shall be exchanged for or changed into (i) the same amount of stock, securities, cash and/or any other property, as the case may be, into which or for which each share of any other class of Common Stock is exchanged or changed; provided , however , that if shares of Common Stock are exchanged for or changed into shares of capital stock, such shares so exchanged for or changed into may differ to the extent and only to the extent that the Class A Common Stock and the Class B Common Stock differ as provided herein; or (ii) if holders of each class of Common Stock are to receive different distributions of stock, securities, cash and/or any other property, either (1) holders of Class A Common Stock shall receive an amount of stock, securities, cash and/or property per share having a value, as determined by an independent investment banking firm of national reputation selected by the Board of Directors, greater than or equal to the value per share into which or for which each share of Class B Common Stock is exchanged or changed, or (2) holders of Class A Common Stock and holders of Class B Common Stock shall receive such stock, securities, cash and/or property per share as shall be provided for pursuant to a transaction approved by the holders of a majority of Class A Common Stock and by the holders of a majority Class B Common Stock, each voting separately as a class.

 

(10)                             Going Private Transaction .  Notwithstanding anything to the contrary contained in this Amended and Restated Certificate of Incorporation, with respect to any Going Private Transaction (as defined below), the holders of shares of Class A Common Stock and Class B Common Stock shall vote together as a single class, with each share of Class A Common Stock and each share of Class B Common Stock entitling the holder thereof to one (1) vote.  For purposes of this Paragraph (A)(10), the term “Going Private Transaction” shall mean any transaction between the Corporation and (i) an Initial Holder, (ii) any Affiliate (as defined below) of an Initial Holder, or (iii) any group including an Initial Holder or Affiliates of an Initial Holder where the participation of such person or persons in such group would cause the transaction to be deemed a “Rule 13e-3 Transaction,” as such term is defined in Rule 13e-3(a)(3), as amended from time to time, promulgated under the Exchange Act; provided , however , that the term “affiliate” as used in Rule 13e-3(a)(3)(i) shall be deemed to include an Affiliate, as

 

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defined herein.  For purposes hereof, an “Affiliate” of a person shall mean (i) any individual or entity who or that, directly or indirectly, controls, is controlled by, or is under common control with such person, and (ii) the spouse, a child or grandchild (by blood, adoption or marriage) of such person, or any trust for the benefit of one or more of the foregoing.

 

(B)                                 Preferred Stock .  The Board of Directors is authorized, subject to limitations prescribed by law, to provide by resolution or resolutions for the issuance of shares of Preferred Stock in one or more series, to establish the number of shares to be included in each such series, and to fix the voting powers (if any), designations, powers, preferences, and relative, participating, optional or other rights, if any, of the shares of each such series, and any qualifications, limitations or restrictions thereof.  Irrespective of the provisions of Section 242(b)(2) of the DGCL, the number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote, without the separate vote of the holders of the Preferred Stock as a class.

 

ARTICLE V
BOARD OF DIRECTORS

 

(A)                               Management .  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or this Amended and Restated Certificate of Incorporation directed or required to be exercised or done by the stockholders.

 

(B)                                 Number of Directors .  The number of directors of the Corporation shall be fixed from time to time in the manner provided in the Amended and Restated Bylaws.

 

(C)                                 Newly-Created Directorships and Vacancies .  Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or any other cause may be filled by the Board of Directors, provided that a quorum is then in office and present, or by a majority of the directors then in office, if less than a quorum is then in office, or by the sole remaining director.  Directors elected to fill a newly created directorship or other vacancies shall hold office until such director’s successor has been duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.

 

(D)                                Removal of Directors .  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director may be removed from office at any time for cause, at a meeting called for that purpose, and only by the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

 

(E)                                  Rights of Holders of Preferred Stock .  Notwithstanding the foregoing provisions of this Article V, whenever the holders of one or more series of Preferred Stock issued by the

 

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Corporation shall have the right, voting separately or together by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship shall be governed by the rights of such Preferred Stock as set forth in the certificate of designations governing such series.

 

(F)                                  Written Ballot Not Required .  Elections of directors need not be by written ballot unless the Amended and Restated Bylaws of the Corporation shall otherwise provide.

 

(G)                                 Bylaws .  The Board of Directors is expressly authorized to adopt, amend or repeal the bylaws of the Corporation.  Any bylaws made by the directors under the powers conferred hereby may be amended or repealed by the directors or by the stockholders.  Notwithstanding the foregoing and anything contained in this Amended and Restated Certificate of Incorporation to the contrary, the bylaws of the Corporation shall not be amended or repealed by the stockholders, and no provision inconsistent therewith shall be adopted by the stockholders, without the affirmative vote of the holders of 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

 

(H)                                Classification of Directors .  At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, and until their successors have been duly elected and qualified; except that if any such election shall be not so held, such election shall take place at a stockholders’ meeting called and held in accordance with the DGCL.  The directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III.  The term of office of the initial Class I directors shall expire at the next succeeding annual meeting of stockholders, the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders.  For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors elected by the stockholders of the Corporation in connection with the adoption of this Amended and Restated Certificate of Incorporation.  At each annual meeting after the first annual meeting of stockholders, directors to replace those of a Class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting and until their respective successors shall have been duly elected and qualified.  If the number of directors is hereafter changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as practicable.

 

ARTICLE VI

LIMITATION OF LIABILITY

 

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided, however , that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.  If the DGCL is hereafter amended to permit further elimination or

 

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limitation of the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.  Any repeal or modification of this Article VI by the stockholders of the Corporation or otherwise shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

 

ARTICLE VII
INDEMNIFICATION

 

Each person who was or is made a party or is threatened to be made a party to or is involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, limited liability company, joint venture, trust or other entity, including service with respect to an employee benefit plan (hereinafter an “Indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while so serving, shall be indemnified and held harmless by the Corporation to the full extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), or by other applicable law as then in effect, against all costs, expenses, liabilities and losses (including attorneys’ fees and related costs, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”), penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such Indemnitee in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, partner, member or trustee and shall inure to the benefit of his or her heirs, executors and administrators.  Each person who is or was serving as a director or officer of a subsidiary of the Corporation shall be deemed to be serving, or have served, at the request of the Corporation.

 

(A)                               Procedure .  Any indemnification (but not advancement of expenses) under this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment).  Such determination shall be made with respect to a person who is a director or officer at the time of such determination (a) by a majority vote of the directors who were not parties to such proceeding (the “Disinterested Directors”), even though less than a quorum, (b) by a committee of Disinterested Directors designated by a majority vote of Disinterested Directors, even though less than a quorum, (c) if there are no such Disinterested Directors, or if such Disinterested Directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders.

 

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(B)                                 Advances for Expenses .  Expenses (including attorneys’ fees, costs and charges) incurred by a director or officer of the Corporation in defending a proceeding shall be paid by the Corporation in advance of the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified by the Corporation as authorized in this Article VII.  The majority of the Disinterested Directors may, in the manner set forth above, and upon approval of such director or officer of the Corporation, authorize the Corporation’s counsel to represent such person, in any proceeding, whether or not the Corporation is a party to such proceeding.

 

(C)                                 Procedure for Indemnification .  Any indemnification or advance of expenses (including attorney’s fees, costs and charges) under this Article VII shall be made promptly, and in any event within 60 days upon the written request of the director or officer (and, in the case of advance of expenses, receipt of a written undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that Indemnitee is not entitled to be indemnified therefor pursuant to the terms of this Article VII).  The right to indemnification or advances as granted by this Article VII shall be enforceable by the director or officer in any court of competent jurisdiction, if the Corporation denies such request, in whole or in part, or if no disposition thereof is made within 60 days.  Such person’s costs and expenses incurred in connection with successfully establishing his/her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation.  It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses (including attorney’s fees, costs and charges) under this Article VII where the required undertaking, if any, has been received by the Corporation) that the claimant has not met the standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), but the burden of proving such defense shall be on the Corporation.  Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he/she has met the applicable standard of conduct set forth in the DGCL, as the same exists or hereafter may be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), nor the fact that there has been an actual determination by the Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.

 

(D)                                Other Rights; Continuation of Right to Indemnification .  The indemnification and advancement of expenses provided by this Article VII shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his/her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and

 

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shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administers of such person.  All rights to indemnification under this Article VII shall be deemed to be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this Article VII is in effect.  Any repeal or modification of this Article VII or any repeal or modification of relevant provisions of the DGCL or any other applicable laws shall not in any way diminish any rights to indemnification of such director or officer or the obligations of the Corporation arising hereunder with respect to any proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal.  For the purposes of this Article VII, references to “the Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation, so that any person who, following such consolidation or merger, is a director or officer of such a constituent corporation or is serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other entity shall stand in the same position under the provisions of this Article VII, with respect to the resulting or surviving corporation during the period following such consolidation or merger, as he would if he/she had served the resulting or surviving corporation in the same capacity.

 

(E)                                  Insurance .  The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other entity, against any liability asserted against him and incurred by him or on his behalf in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VII; provided, however , that such insurance is available on acceptable terms, which determination shall be made by a vote of a majority of the Board of Directors.

 

(F)                                  Savings Clause .  If this Article VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each person entitled to indemnification under the first paragraph of this Article VII as to all costs, expenses, liabilities and losses (including attorneys’ fees and related costs, judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification is available to such person pursuant to this Article VII to the full extent permitted by any applicable portion of this Article VII that shall not have been invalidated and to the full extent permitted by applicable law.

 

ARTICLE VIII

ACTION BY WRITTEN CONSENT/SPECIAL MEETINGS OF STOCKHOLDERS

 

For so long as either any class of the Corporation’s Common Stock is registered under Section 12 of the Exchange Act, or the Corporation is required to file periodic reports with the Securities and Exchange Commission pursuant to Section 15(d) of the Exchange Act with respect to any class of the Corporation’s Common Stock:  (i) the stockholders of the Corporation

 

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may not take any action by written consent in lieu of a meeting, and must take any actions at a duly called annual or special meeting of stockholders and the power of stockholders to consent in writing without a meeting is specifically denied and (ii) special meetings of stockholders of the Corporation may be called only by either the Board of Directors pursuant to a resolution adopted by the affirmative vote of the majority of the total number of directors then in office or by the chief executive officer of the Corporation.

 

ARTICLE IX

AMENDMENT

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.  Notwithstanding any other provision of this Amended and Restated Certificate of Incorporation or the Amended and Restated Bylaws of the Corporation, and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws of the Corporation or otherwise, but in addition to any affirmative vote of the holders of any particular class or series of the capital stock required by law, this Amended and Restated Certificate of Incorporation, the Amended and Restated Bylaws of the Corporation or otherwise, (i) the affirmative vote of the holders of at least 66-2/3% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt any provision inconsistent with, to amend or repeal any provision of, or to adopt a bylaw inconsistent with, Articles V, VI, VII, VIII or IX of this Amended and Restated Certificate of Incorporation, and (ii) the rights of the Class B Common Stock may not be amended, altered, changed or repealed without the approval of the holders of a majority of the outstanding shares of Class B Common Stock, voting as a separate class.”

 

*     *     *

 

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4.                                        The foregoing amendment and restatement of the Certificate of Incorporation has been duly approved by the Board of Directors of the corporation in accordance with the provisions of Sections 144, 242 and 245 of the General Corporation Law of the State of Delaware.

 

5.                                        The foregoing amendment and restatement of the Certificate of Incorporation has been duly approved by the written consent of the stockholders in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware.

 

IN WITNESS WHEREOF, the corporation has causes this Amended and Restated Certificate of Incorporation to be signed by its President on this 17 th day of December, 2004.

 

 

COMSTOCK HOMEBUILDING
COMPANIES, INC.

 

 

 

 

 

By

/s/ Gregory Benson

 

 

Name:

Gregory Benson

 

Title:

President

 

16


Exhibit 3.2

 

AMENDED AND RESTATED

BYLAWS OF

COMSTOCK HOMEBUILDING COMPANIES, INC.

 

ARTICLE I

 

Offices

 

SECTION 1.  Registered Office .  The registered office of the Corporation in the State of Delaware shall be located at 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle.  The name of the Corporation’s registered agent at such address shall be Corporation Service Company.  The registered office and/or registered agent of the Corporation may be changed from time to time by action of the Board of Directors.

 

SECTION 2.  Other Offices .  The Corporation may have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require.

 

ARTICLE II

 

Meetings of Stockholders

 

SECTION 1.  Place of Meetings .  All meetings of the stockholders for the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof.

 

SECTION 2.  Annual Meeting .  An annual meeting of stockholders shall be held each year and stated in a notice of meeting or in a duly executed waiver thereof.  The date, time and place of such meeting shall be determined by the Chief Executive Officer of the Corporation; provided that if the Chief Executive Officer does not act, the Board of Directors shall determine the date, time, and place of such meeting.  At such annual meeting, the stockholders shall elect directors to replace those directors whose terms expire at such annual meeting and transact such other business as may properly be brought before the meeting.

 

SECTION 3.  Special Meetings .  Special meetings of stockholders may be called for any purpose in the manner provided in the Amended and Restated Certificate of Incorporation of the Corporation (as may be further amended or restated from time to time, the “Certificate of Incorporation”) and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof.

 

SECTION 4.   Notice of Meetings .  Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less

 



 

than ten (10) nor more than sixty (60) days before the date of the meeting.  Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.  Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation.  Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid.  Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy.  Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice.

 

SECTION 5.  List of Stockholders .  The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting:  (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation.  If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

 

SECTION 6.  Quorum; Adjournments .  The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation.  If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy.  At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called.  If the adjournment is for more than thirty (30) days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

SECTION 7.  Organization .  At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his absence or if one shall not have been elected, the Chief Executive Officer shall act as chairman of the meeting.  The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof.

 

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SECTION 8.  Order of Business .  The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.

 

SECTION 9.  Voting .  Except as otherwise provided by the Certificate of Incorporation (including pursuant to any duly authorized certificate of designation) or the General Corporation Law of the State of Delaware, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one (1) vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation:

 

(a)           on the date fixed pursuant to the provisions of Section 14 of Article II of these Amended and Restated Bylaws (the “Bylaws”) as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or

 

(b)           if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held.

 

Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy which is in writing or transmitted as permitted by law, including, without limitation, electronically, via telegram, internet, interactive voice response system, or other means of electronic transmission executed or authorized by such stockholder or his attorney-in-fact, but no proxy shall be voted after (3) three years from its date, unless the proxy provides for a longer period.  Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies.  Any proxy transmitted electronically shall set forth information from which it can be determined by the secretary of the meeting that such electronic transmission was authorized by the stockholder.  When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present and voting, in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question.  Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot.  On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted and the number of votes to which each share is entitled.

 

SECTION 10.  Inspectors .  The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof.  If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.  The inspectors shall determine the number of shares of

 

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capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders.  On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them.  No director or candidate for the office of director shall act as an inspector of an election of directors.  Inspectors need not be stockholders.

 

SECTION 11.  Advance Notice Provisions for Election of Directors .  Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation.  Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, or at any special meeting of stockholders called for the purpose of electing directors as provided under Section 3 of this Article II, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 11 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 11.

 

In addition to any other applicable requirements, for a nomination to be made by a stockholder such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

 

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date of the anniversary of the previous year’s annual meeting; provided, however , that in the event the annual meeting is scheduled to be held on a date more than thirty (30) days prior to or delayed by more than sixty (60) days after such anniversary date, notice by the stockholder in order to be timely must be so received not earlier than one hundred twenty (120) days prior to such annual meeting, and not later than the later of the close of business ninety (90) days prior to such annual meeting or the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made and (b) in the case of a special meeting of stockholders called for the purpose of electing directors, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.

 

To be in proper written form, a stockholder’s notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be disclosed in a proxy statement or

 

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other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.  Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

 

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 11.  If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

 

SECTION 12.  Advance Notice Provisions for Business to be Transacted at Annual Meeting .  No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of  stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 12.

 

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.

 

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the date of the anniversary of the previous year’s annual meeting; provided, however , that in the event the annual meeting is scheduled to be held on a date more than thirty (30) days prior to or delayed by more than sixty (60) days after such anniversary date, notice by the stockholder in order to be timely must be so received not earlier than one hundred twenty (120) days prior to such annual meeting, and not later than the later of the close of business ninety (90) days prior to such annual meeting or the tenth (10th) day

 

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following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made.

 

To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meting to bring such business before the meeting.

 

No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 12; provided, however , that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 12 shall be deemed to preclude discussion by any stockholder of any such business.  If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

 

SECTION 13.  Action by Written Consent .  For so long as either any class of the Corporation’s capital stock is registered under Section 12 of the Exchange Act, or the Corporation is required to file periodic reports with the Securities and Exchange Commission pursuant to Section 15(d) of the Exchange Act with respect to any class of the Corporation’s capital stock:  (i) the stockholders of the corporation may not take any action by written consent in lieu of a meeting, and must take any actions at a duly called annual or special meeting of stockholders and the power of stockholders to consent in writing without a meeting is specifically denied.

 

SECTION 14.  Fixing the Record Date .  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action.  If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;

 

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provided, however , that the Board of Directors may fix a new record date for the adjourned meeting.

 

ARTICLE III

 

Board of Directors

 

SECTION 1.  General Powers .  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.

 

SECTION 2.  Number, Election and Term .  Subject to any rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors which shall constitute the Board of Directors shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the total number of directors then in office.  The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors; provided, however, whenever the holders of any class or series of Preferred Stock of the Corporation are entitled to elect one or more directors pursuant to the provisions of the Certificate of Incorporation (including pursuant to any duly authorized certificate of designation), such directors shall be elected by a plurality of the votes of such class or series of Preferred Stock present in person or represented by proxy at the meeting and entitled to vote in the election of such directors.  The directors shall be elected and shall hold office in the manner provided in the Certificate of Incorporation.

 

SECTION 3.  Place of Meetings .  Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting.

 

SECTION 4.  Annual Meetings .  The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held.  In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III.

 

SECTION 5.  Regular Meetings .  Regular meetings of the Board of Directors shall he held at such time and place as the Board of Directors may fix.  If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day.

 

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SECTION 6.  Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation or by the Chief Executive Officer.

 

SECTION 7.  Notice of Meetings .  Notice of regular meetings of the Board of Directors need not be given except as otherwise required by law or these Bylaws.  Notice of each special meeting of the Board of Directors, and of each regular and annual meeting of the Board of Directors for which notice shall be required, shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting.  Except as otherwise required by these Bylaws, such notice need not state the purposes of such meeting.  Notice of any special meeting, and of any regular or annual meeting for which notice is required, shall be given to each director at least (a) twenty-four (24) hours before the meeting if by telephone or by being personally delivered or sent by telex, telecopy, or similar means or (b) five (5) days before the meeting if delivered by mail to the director’s residence or usual place of business.  Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopy, or similar means.  Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.  Any director may waive notice of any meeting by a writing signed by the director entitled to the notice and filed with the minutes or corporate records.

 

SECTION 8.  Waiver of Notice and Presumption of Assent .  Any member of the Board of Directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.  Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting.  Such right to dissent shall not apply to any member who voted in favor of such action.

 

SECTION 9.  Quorum and Manner of Acting .  A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.  In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place.  Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat.  At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.  The directors shall act only as a Board and the individual directors shall have no power as such.

 

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SECTION 10.  Organization .  At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the Chief Executive Officer (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat.  The Secretary or, in his absence, any person appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof.

 

SECTION 11.  Resignations; Newly Created Directorships; Vacancies; and Removals .  Any director of the Corporation may resign at any time by giving notice in writing or by electronic transmission of his resignation to the Corporation.  Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt.  Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.  Newly created directorships resulting from any increase in the number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal or any other cause shall be filled in the manner provided in the Certificate of Incorporation.  Any director may be removed in the manner provided in the Certificate of Incorporation.

 

SECTION 12.  Compensation .  The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.

 

SECTION 13.  Committees .  The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it.  Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors.  Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors.

 

SECTION 14.  Committee Rules .  Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee.  Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum.  In the event that a member and that member’s alternate, if alternates are designated by the Board of Directors as provided in Section 13 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.

 

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SECTION 15.  Action by Written Consent .  Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

SECTION 16.  Telephonic and Other Meetings .  Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other.  Participation by such means shall constitute presence in person at a meeting.

 

ARTICLE IV

 

Officers

 

SECTION 1.  Number and Qualifications .  The officers of the Corporation shall be elected by the Board of Directors and shall include the Chief Executive Officer, the President and Chief Operating Officer, the Chief Financial Officer, and the Secretary.  The Corporation may also have, at the discretion of the Board of Directors, such other officers as are desired, including a Chairman of the Board, one or more Vice Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries, and such other officers as may be necessary or desirable for the business of the Corporation.  In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title.  As the time of the election of officers, the directors may by resolution determine the order of their rank.  Any number of offices may be held by the same person, and no officer except the Chairman of the Board, if any, need be a director.  In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable, except that the offices of Chief Executive Officer and Secretary shall be filled as expeditiously as possible.

 

SECTION 2.  Election and Term of Office .  The officers of the Corporation shall be elected annually by the Board of Directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be.  The Chairman of the Board, if any, and Chief Executive Officer shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of stockholders or as soon thereafter as is convenient.  Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors.  Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these Bylaws.

 

SECTION 3.  Resignations .  Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation.  Any such resignation shall take effect

 

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at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt.  Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.

 

SECTION 4.  Removal .  Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof.

 

SECTION 5.  Vacancies .  Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term by the Board of Directors then in office.

 

SECTION 6.  Compensation .  The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors.  An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation.

 

SECTION 7.  Chairman of the Board .  The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these Bylaws.  If there is no Chief Executive Officer, the Chairman of the Board shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties prescribed in Section 8 of this Article IV.

 

SECTION 8.  Chief Executive Officer .  The Chief Executive Officer shall be the chief executive officer of the Corporation and shall have the powers and perform the duties incident to that position.  He shall, in the absence of the Chairman of the Board, or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders.  He shall be an ex-officio member of all committees.  Subject to the powers of the Board of Directors, he shall be in the general and active charge of the entire business and affairs of the Corporation, including authority over its officers, agents and employees, and shall have such other duties as may from time to time be assigned to him by the Board of Directors.  The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors are carried into effect, and execute bonds, mortgages and other contracts requiring a seal under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation.

 

SECTION 9.  President and Chief Operating Officer .  The President and Chief Operating Officer shall be the chief operating officer of the Corporation.  He shall perform all duties incident to the office of President, and be responsible for the general direction of the operations of the business, reporting to the Chief Executive Officer, and shall have such other duties as may from time to time be assigned to him by the Board of Directors or as may be provided in these Bylaws.  At the written request of the Chief Executive Officer, or in his absence or in the event of his inability to act, the President shall perform the duties of the Chief Executive Officer, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the Chief Executive Officer in respect of the performance of such duties.

 

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SECTION 10.  Vice President .  Each Vice President shall perform all such duties as from time to time may be assigned to him by the Board of Directors.  At the written request of the President, or in the absence or disability of the President, the Vice Presidents, in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Directors, shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions placed upon the President in respect of the performance of such duties.

 

SECTION 11.  Chief Financial Officer .  The Chief Financial Officer shall:

 

(a)           have charge and custody of, and be responsible for, all the funds and securities of the Corporation;

 

(b)           keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;

 

(c)           deposit all moneys and other valuables to the credit of the Corporation in such depositories as may be designated by the Board of Directors or pursuant to its direction;

 

(d)           receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;

 

(e)           disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefore;

 

(f)            render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and

 

(g)           in general, perform all duties incident to the office of Chief Financial Officer and such other duties as from time to time may be assigned to him by the Board of Directors.

 

The Chief Financial Officer may also be the Treasurer if so determined by the Board of Directors.

 

SECTION 12.  Secretary .  The Secretary shall:

 

(a)           keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders;

 

(b)           see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law;

 

(c)           be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation

 

12



 

(unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;

 

(d)           see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and

 

(e)           in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors.

 

SECTION 13.  The Assistant Treasurer .  The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or, if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability to act or his failure to act (in violation of a duty to act or in contravention of direction to act by the Board of Directors), perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors.

 

SECTION 14.  The Assistant Secretary .  The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability to act or his failure to act (in violation of a duty to act or in contravention of direction to act by the Board of Directors), perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors.

 

SECTION 15.  Other Officers, Assistant Officers and Agents.   Officers, assistant officers and agents, if any, other than those whose duties are provided for in these Bylaws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors.

 

SECTION 16.  Officers’ Bonds or Other Security .  If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.

 

SECTION 17.  Absence or Disability of Officers .  In the case of the absence or disability of any officer of the Corporation and of any person hereby authorized to act in such officer’s place during such officer’s absence or disability, the Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select.

 

13



 

ARTICLE V

 

Stock Certificates and Their Transfer

 

SECTION 1.  Stock Certificates .  The Board of Directors may issue stock certificates, or may provide by resolution or resolutions that some or all of any or all classes or series of stock of the Corporation shall be uncertificated shares of stock.  Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by a certificate and, upon request, every holder of uncertificated shares shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or, the Chief Executive Officer, the President or a Vice-President and by the  Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him or her in the Corporation.  A certificate representing shares issued by the Corporation shall, if the Corporation is authorized to issue more than one class or series of stock, set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any stockholder upon request and without charge, a full statement of the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.  The Corporation shall furnish to any holder of uncertificated shares, upon request and without charge, a full statement of the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.  Any request by a holder for a certificate shall be in writing and directed to the Secretary of the Corporation.

 

SECTION 2.  Facsimile Signatures .  Any or all of the signatures on a certificate may be a facsimile, engraved or printed.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

 

SECTION 3.  Lost Certificates .  The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed.  When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate

 

SECTION 4.  Transfers of Stock .  Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however , that the Corporation shall be entitled to recognize and

 

14



 

enforce any lawful restriction on transfer.  Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

 

SECTION 5.  Transfer Agents and Registrars .  The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.

 

SECTION 6.  Regulations .  The Board of Directors may make such additional rules and regulations, not inconsistent with these Bylaws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.

 

SECTION 7.  Registered Stockholders .  The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

ARTICLE VI

 

General Provisions

 

SECTION 1.  Dividends .  Subject to the provisions of statutes and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting.  Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation.

 

SECTION 2.  Reserves .  Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation.  The Board of Directors may modify or abolish any such reserves in the manner in which it was created.

 

SECTION 3.  Seal .  The seal of the Corporation shall be in such form as shall be approved by the Board of Directors, which form may be changed by resolution of the Board of Directors.

 

SECTION 4.  Fiscal Year .  The fiscal year of the Corporation shall end on December 31 of each fiscal year and may thereafter be changed by resolution of the Board of Directors.

 

15



 

SECTION 5.  Checks, Notes, Drafts, Etc All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.

 

SECTION 6.  Execution of Contracts, Deeds, Etc .  The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.

 

SECTION 7.  Loans .  The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer (other than a named executive officer, as defined by the Securities and Exchange Commission) or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation.  The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation.  Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute.

 

SECTION 8.  Voting of Stock in Other Corporations .  Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board, or the Chief Executive Officer, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation.  In the event one or more attorneys or agents are appointed, the Chairman of the Board, or the Chief Executive Officer may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent.  The Chairman of the Board, or the Chief Executive Officer may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.

 

SECTION 9.  Inspection of Books and Records .  Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation’s stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom.  A proper purpose shall mean any purpose reasonably related to such person’s interest as a stockholder.  In every instance where an attorney or other agent shall be the person who seeks the right of inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder.  The demand under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal place of business.

 

16



 

SECTION 10.  Inconsistency Provisions .  In the event that any provision of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these Bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.

 

ARTICLE VII

 

Amendments

 

These Bylaws may be amended or repealed or new Bylaws adopted only in accordance with Article V of the Certificate of Incorporation.

 

17


Exhibit 10.10

 

 

LOAN AGREEMENT

 

Dated as of January 27, 2005

 

between

 

COR US BANK, N.A.

 

 

(“ Lender ”)

 

and

 

COMSTOCK PENDERBROOK, L.C.,
a Virginia limited liability company

 

 

(“ Borrower ”)

 

 

LOAN:  $67,000,000

 

 



 

TABLE OF CONTENTS

 

RECITALS

 

 

 

 

 

I.

Borrower

 

 

 

 

II.

The Land

 

 

 

 

III.

The Project

 

 

 

 

IV.

The Property

 

 

 

 

V.

The Loan

 

 

 

 

ARTICLE I

DEFINITIONS

 

 

 

 

SECTION 1.1

Definition of Terms Used in This Agreement

 

 

 

 

ARTICLE II

BASIC LOAN TERMS

 

 

 

 

SECTION 2.1

The Loan

 

 

 

 

SECTION 2.2

Maturity Date

 

 

 

 

SECTION 2.3

Loan Fees

 

 

 

 

SECTION 2.4

Loan Expenses

 

 

 

 

SECTION 2.5

Loan Documents

 

 

 

 

SECTION 2.6

Borrower’s Equity

 

 

 

 

SECTION 2.7

Voluntary Prepayment

 

 

 

 

SECTION 2.8

Exit Fee

 

 

 

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

 

 

 

 

SECTION 3.1

Status of Documents

 

 

 

 

SECTION 3.2

Due Organization; Authority

 

 

 

 

SECTION 3.3

Enforceability

 

 

 

 

SECTION 3.4

Pending Litigation

 

 

 

 

SECTION 3.5

No Violation

 

 

 

 

SECTION 3.6

No Conflict

 

 



 

SECTION 3.7

No Consent

 

 

 

 

SECTION 3.8

Truth of Financial Statements; Financial Condition Warranty

 

 

 

 

SECTION 3.9

Access

 

 

 

 

SECTION 3.10

Project Budget

 

 

 

 

SECTION 3.11

Leases

 

 

 

 

SECTION 3.12

Business Purpose

 

 

 

 

SECTION 3.13

Material Facts

 

 

 

 

SECTION 3.14

Title

 

 

 

 

SECTION 3.15

Brokerage Fees and Commissions

 

 

 

 

SECTION 3.16

Conditions Preventing Compliance

 

 

 

 

SECTION 3.17

Taxes

 

 

 

 

SECTION 3.18

ERISA

 

 

 

 

SECTION 3.19

Regulations G, U and X

 

 

 

 

SECTION 3.20

Government Regulation

 

 

 

 

SECTION 3.21

Principal Place of Business and Chief Executive Office

 

 

 

 

SECTION 3.22

Ownership Structure

 

 

 

 

SECTION 3.23

Priority and Perfection

 

 

 

 

SECTION 3.24

Condominium Contracts

 

 

 

 

SECTION 3.25

Condominium Documents

 

 

 

 

SECTION 3.26

Borrower’s Equity; Advances

 

 

 

 

SECTION 3.27

Patriot Act

 

 

 

 

SECTION 3.28

Solvency

 

 

 

 

SECTION 3.29

Single Purpose Entity

 

 

ii



 

SECTION 3.30

Indebtedness

 

 

 

 

SECTION 3.31

Representations and Warranties to be Continuing

 

 

 

 

SECTION 3.32

Acknowledgment of Lender’s Reliance

 

 

 

 

ARTICLE IV

CLOSING DELIVERY CONDITIONS; CONDITIONS TO INITIAL DISBURSEMENT

 

 

 

 

SECTION 4.1

Conditions to Loan Closing; Closing Date

 

 

 

 

ARTICLE V

OTHER PROVISIONS CONCERNING ADVANCES

 

 

 

 

SECTION 5.1

General Terms and Conditions for Advances

 

 

 

 

SECTION 5.2

Payout Conditions and Deliveries

 

 

 

 

SECTION 5.3

Final Advance

 

 

 

 

SECTION 5.4

Payment of Interest; Interest Reserve

 

 

 

 

ARTICLE VI

PROJECT BUDGET, BORROWER’S EQUITY, LOAN BALANCING, AND CHANGE ORDERS

 

 

 

 

SECTION 6.1

Project Costs and Project Budget

 

 

 

 

SECTION 6.2

Change Orders and Changes to the Project Budget

 

 

 

 

SECTION 6.3

Loan Balancing

 

 

 

 

SECTION 6.4

Accounts

 

 

 

 

SECTION 6.5

Deposits for Real Estate Taxes

 

 

 

 

ARTICLE VII

CERTAIN COVENANTS BY BORROWER

 

 

 

 

SECTION 7.1

Inspection

 

 

 

 

SECTION 7.2

Mechanics’ Liens, Real Estate Taxes and Condominium Homeowner’s Association Dues

 

 

 

 

SECTION 7.3

Compliance; Construction; Operation

 

 

 

 

SECTION 7.4

Transfers; Changes in Organization

 

 

iii



 

SECTION 7.5

Leases

 

 

 

 

SECTION 7.6

Management Agreement

 

 

 

 

SECTION 7.7

Financial and Other Reports and Deliveries

 

 

 

 

SECTION 7.8

Insurance Requirements

 

 

 

 

SECTION 7.8.1

Insurance

 

 

 

 

SECTION 7.8.2

Policy Requirements

 

 

 

 

SECTION 7.8.3

Notice of Policies

 

 

 

 

SECTION 7.8.4

Insurance Review

 

 

 

 

SECTION 7.9

Borrower’s Indemnities

 

 

 

 

SECTION 7.10

Single Purpose Entity

 

 

 

 

SECTION 7.11

Further Assurances

 

 

 

 

SECTION 7.12

ERISA

 

 

 

 

SECTION 7.13

New Appraisals

 

 

 

 

SECTION 7.14

Contract Maintenance; Other Agreements

 

 

 

 

SECTION 7.15

Liens

 

 

 

 

ARTICLE VIII

CONDOMINIUM MATTERS

 

 

 

 

SECTION 8.1

Condominium Contracts

 

 

 

 

SECTION 8.2

No Modification or Termination of Condominium Contracts

 

 

 

 

SECTION 8.3

Performance under Condominium Contracts

 

 

 

 

SECTION 8.4

Sale Activity

 

 

 

 

SECTION 8.5

Minimum Unit Sales Price

 

 

 

 

SECTION 8.6

Condominium Documents

 

 

 

 

SECTION 8.7

Condominium Sales; Release of Units

 

 

iv



 

SECTION 8.8

Establishing the Condominium Regime

 

 

 

 

SECTION 8.9

Application of Unit Release Payments

 

 

 

 

SECTION 8.10

Upgrades

 

 

 

 

ARTICLE IX

CASUALTY AND CONDEMNATION

 

 

 

 

SECTION 9.1

Insurance and Condemnation Proceeds

 

 

 

 

SECTION 9.2

Disbursement of Property Proceeds

 

 

 

 

SECTION 9.3

Reduction in Secured Obligations

 

 

 

 

ARTICLE X

EVENTS OF DEFAULT

 

 

 

 

SECTION 10.1

Events of Default

 

 

 

 

ARTICLE XI

REMEDIES

 

 

 

 

SECTION 11.1

Accelerate the Note

 

 

 

 

SECTION 11.2

Terminate Lender’s Obligations

 

 

 

 

SECTION 11.3

Take Possession of the Property and Complete the Project (Borrower’s Power of Attorney)

 

 

 

 

SECTION 11.4

Offset

 

 

 

 

SECTION 11.5

Default Interest

 

 

 

 

ARTICLE XII

MISCELLANEOUS PROVISIONS

 

 

 

 

SECTION 12.1

Agreement Binding Only Upon Execution by Lender

 

 

 

 

SECTION 12.2

Entire Agreement

 

 

 

 

SECTION 12.3

No Waiver

 

 

 

 

SECTION 12.4

Amendments

 

 

 

 

SECTION 12.5

No Third Party Benefits

 

 

 

 

SECTION 12.6

Successors and Assigns

 

 

v



 

SECTION 12.7

Participations and Assignments

 

 

 

 

SECTION 12.8

All Advances Obligatory and Secured

 

 

 

 

SECTION 12.9

Publicity

 

 

 

 

SECTION 12.10

Notices

 

 

 

 

SECTION 12.11

Form of Documents

 

 

 

 

SECTION 12.12

Severability

 

 

 

 

SECTION 12.13

Lender Not Partner of Borrower

 

 

 

 

SECTION 12.14

Joint and Several Obligations

 

 

 

 

SECTION 12.15

Survival

 

 

 

 

SECTION 12.16

Time of the Essence

 

 

 

 

SECTION 12.17

Conflicts

 

 

 

 

SECTION 12.18

Waiver of Subrogation

 

 

 

 

SECTION 12.19

Governmental Regulation

 

 

 

 

SECTION 12.20

Counterparts; FAX

 

 

 

 

SECTION 12.21

Partial Release

 

 

 

 

SECTION 12.22

Governing Law; Jurisdiction; Venue; and Service of Process

 

 

 

 

SECTION 12.23

Waiver of Punitive and Consequential Damages

 

 

 

 

SECTION 12.24

Written Credit Agreements

 

 

vi



 

LOAN AGREEMENT

 

This Loan Agreement (this “ Agreement ”) is made and entered into as of January 27, 2005, by and between COMSTOCK PENDERBROOK, L.C., a Virginia limited liability company (“ Borrower ”) and COR US BANK, N.A. (“ Lender ”).

 

R E C I T A L S

 

Borrower hereby represents, warrants and covenants to Lender as follows:

 

I.              Borrower .  Borrower is a Virginia limited liability company which is wholly-owned and controlled by Comstock Homebuilding Companies, Inc., a Delaware corporation (“Comstock”) and Comstock is the sole member and manager of Borrower as set forth on Exhibit D attached hereto.

 

II.            The Land .  Borrower owns, or will own as of the Closing Date, in fee simple that certain parcel of real property commonly known as Fair Oaks Penderbrook , as more particularly described on Exhibit A attached hereto, and all easements, licenses, agreements, rights, hereditaments and privileges appurtenant to that parcel of real property (the “ Land ”).  The Land is located at 3905 Penderview Drive in Fairfax, Virginia.

 

III.           The Project .  The existing improvements on the Land consist of an 18-building apartment complex (the “ Building ”) with 424 units comprising no less than 327,396 square feet of net saleable space (collectively, “ Residential Units ”) and no less than 637 parking spaces (collectively, “ Parking Units ”).  The net saleable square footage shall be measured from the outside of exterior walls and from the middle of walls separating Residential Units and shall exclude balconies, hallways and all common areas.  The Building, all other improvements and construction to be made to the Land, and all fixtures, machinery, furnishings, equipment, supplies, and all other property of any kind installed or used at the Land are collectively called the “ Project ”.

 

IV.           The Property .   The Land and Project are collectively called the “ Property ”.

 

V.            The Loan .  Borrower desires to arrange financing for the purpose of providing funds for the acquisition of the Property, conversion of the Project to condominiums and for certain other Project expenses specified in this Agreement. Lender has agreed to lend to Borrower and Borrower has agreed to borrow an amount not to exceed $67,000,000 (the “ Loan ”), on the terms and conditions set forth in this Agreement.

 

THEREFORE, in consideration of the foregoing and of the various agreements set forth in this Agreement, Lender and Borrower agree as follows:

 



 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.1                   Definition of Terms Used in This Agreement .  Unless the context shall otherwise require, capitalized terms used and not defined herein shall have the meanings assigned thereto in Appendix A attached hereto for all purposes of this Agreement.  The rules of interpretation set forth in Appendix A to this Agreement shall apply to this Agreement and all of the other Loan Documents.

 

ARTICLE II

 

BASIC LOAN TERMS

 

SECTION 2.1                   The Loan .  Subject to the terms and conditions of this Agreement, Lender agrees to lend and Borrower agrees to borrow sums up to the maximum amount of the Loan.  The Loan will be used for the acquisition, renovation and conversion of the Project into condominiums and other Project Costs as set forth in the Project Budget or elsewhere in this Agreement.  The Loan is evidenced by the Note.  The Loan shall bear interest as set forth in the Note.  All disbursements made by Lender pursuant to the terms of this Agreement shall be added to the outstanding principal balance of the Note.

 

SECTION 2.2                   Maturity Date .  Borrower will make payment in full of all unpaid principal and interest on the Note and all other amounts owing in connection with the Loan on the Maturity Date, or earlier upon acceleration of the Loan.

 

SECTION 2.3                   Loan Fees .  In consideration of Lender’s making the Loan to Borrower (and in addition to other amounts payable under this Agreement and the other Loan Documents), Borrower shall pay to Lender a fee in an aggregate amount equal to $670,000, of which: (a) $50,000 (the “ Application Fee ”) was paid (and Lender hereby acknowledges receipt) upon issuance of the Application Letter; (b) $150,000 (the “ Commitment Fee ”) shall be due and payable upon Borrower’s acceptance of the Commitment Letter; and (c) $470,000 shall be due and payable on the Closing Date (the “ Closing Fee ”, the Application Fee, the Commitment Fee and the Closing Fee, collectively, the “ Loan Fees ”) and shall be referred to as the Loan Fee on the Project Budget attached hereto as Exhibit B ).

 

SECTION 2.4                   Loan Expenses .

 

(a)           Borrower shall pay all fees, costs and expenses paid or incurred by Lender in connection with the Loan, including:  (i) all costs of closing, administering and enforcing the Loan, including all unpaid Loan Fees; (ii) all costs of preparation, negotiation and execution of the Loan Documents and all closing or Loan administration documents; (iii) all costs of the Title Commitment, the Title Policy, date downs to any existing Title Commitment or Title Policy and any and all endorsements to any of the foregoing, the Survey and any and all additions or updates to the Survey, escrow charges, title charges, UCC, tax lien and judgment and all similar searches and reports which Lender may require in assessing the status of the security for the Loan in each

 

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of the foregoing cases, as such items may be required from time to time in the discretion of Lender; (iv) all fees and expenses of any consultants engaged by Lender in connection with this Loan, including cost-estimators, construction inspectors, consulting architects, appraisers, insurance consultants, environmental consultants, investigators and Lender’s Project Consultant; (v) all Project Costs; (vi) brokerage commissions (if any); (vii) recording and filing fees, and taxes, levies or fees required to be paid with respect to the Note, the Deed of Trust or any other of the Loan Documents or the filing or recordation thereof, even if such taxes, levies or fees are levied or assessed against, or under applicable Laws are to be borne by, Lender; and (viii) all of Lender’s travel and lodging costs relating to Property site inspections.  With respect to travel expenses, airfare for each officer or analyst who inspects the Project as part of Lender’s due diligence will be charged to Borrower.  If Lender employees utilize a commercial airline, the amount charged will be the actual expense incurred.  In the event Lender utilizes a private aircraft, the amount charged will be $800 per individual.

 

(b)           Borrower shall also pay all reasonable fees and disbursements of Lender’s attorneys (whether charged by outside or “in-house” counsel) in connection with the Loan, including fees and disbursements related to: (i) preparing and negotiating documentation for the Loan; (ii) Loan administration items (such as reviewing items to be approved during the term of the Loan); (iii) enforcing or exercising Lender’s rights or remedies connected with the Loan; and (iv) any litigation or threatened litigation or the preparation therefor which in any way whatsoever relates to the Loan, the Loan Documents or the Property. The terms “attorneys fees,” “legal fees and expenses” or other terms of such import whether used herein or in any other Loan Document shall include, without limitation, the fees charged by Lender for its in-house counsel, provided such fees are within the range of fees charged by attorneys of similar experience at medium to large sized law firms located in the City of Chicago, Illinois.

 

(c)           All amounts payable by Borrower under this Section 2.4 which are known as of the Closing Date shall, unless Lender agrees otherwise, be paid by Borrower, as a condition to the closing of the Loan.  Otherwise all amounts payable under this Section 2.4 shall be: (i) payable upon demand, (ii) shall bear interest as provided in the Note for sums advanced under this Agreement from the date of demand until payment in full and (iii) shall be a Secured Obligation under this Agreement, secured by the Deed of Trust and other Loan Documents.  Borrower hereby authorizes Lender to deduct the same from Loan proceeds as they are disbursed.  If the actual amount of charges are not ascertainable as of the Closing Date, Borrower hereby authorizes Lender to charge any applicable line item of the Project Budget to pay or to reimburse Lender for any amounts payable under this Section 2.4 and Borrower shall pay on demand any excess monies due .  Any such disbursement, if made, shall be added to the outstanding principal balance of the Note.  The authorization hereby granted shall not obligate Lender to make such disbursements.

 

SECTION 2.5                   Loan Documents .  The Loan shall be evidenced and secured by the Loan Documents.

 

SECTION 2.6                   Borrower’s Equity .  On or prior to the Closing Date, Borrower shall furnish to Lender evidence establishing to Lender’s sole satisfaction that Borrower has invested Eighteen Million One Hundred Thirty-Five Thousand and No/100 Dollars ($18,135,000) to pay for approved Project Costs contained in the Project Budget (“ Borrower’s Minimum Equity

 

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Investment ”).  Borrower’s Minimum Equity Investment shall be: (i) subject to such verification as requested by Lender in its sole discretion and (ii) subject to increases as a result of any increases to the Project Budget.  In addition, Borrower shall make additional equity contributions from time to time as may be required to keep the Loan In Balance as required in Section 6.3 (“ Borrower’s Additional Equity ”; Borrower’s Minimum Equity Investment and Borrower’s Additional Equity are collectively referred to herein as “ Borrower’s Equity ”). It is understood and agreed that Lender shall not be required to disburse any proceeds of the Loan which shall be used to reimburse Borrower for Borrower’s Equity.  In the event Borrower or any other party invests more than Borrower’s Minimum Equity Investment, the amount of the Loan shall be permanently reduced by the amount of such excess deposit unless either: (x) such amount is Borrower’s Additional Equity required to be invested pursuant to Section 6.3 and is used in accordance with the terms thereof, or (y) Borrower delivers to Lender a written request for a reimbursement of such excess within thirty (30) days of such excess investment, but in no event shall a request be required sooner than thirty (30) days after the Closing Date.  In order to qualify to Borrower’s Equity, Borrower must receive the Borrower’s Minimum Equity Investment as a contribution to capital from Comstock.  Comstock is also referred to herein as a “ Contributor ”.  Borrower may not be indebted to any of the Contributors or any other entities for the contribution to capital.  Any contributors of equity shall be subordinate to Lender and to general unsecured creditors of Borrower and, if requested by Lender, shall execute a subordination agreement evidencing such subordination in form and substance satisfactory to Lender in its sole discretion.

 

SECTION 2.7                   Voluntary Prepayment .  In the event Borrower repays the Loan in whole or in part prior to the Maturity Date from a source other than Unit Release Payments, Borrower shall pay Lender a prepayment fee in an amount equal to two percent (2%) of the amount being prepaid or, in the event of prepayment in full, whether by acceleration of otherwise, two percent (2%) of the amount prepaid plus any unfunded commitment under the Loan (“ Prepayment Fee ”).  The Prepayment Fee payable pursuant to this Section shall be in addition to all other Secured Obligations (including Costs and the Exit Fee) due pursuant to the terms hereof.  The Prepayment Fee shall be applicable to all prepayments of principal, from any source of funds (other than Unit Release Payments) or cause of prepayment, including but not limited to voluntary prepayments, mandatory payments made after an Event of Default and acceleration (or shall be included as principal due in the event of a judgment of foreclosure), and payments made by Guarantor or any other Person pursuant to the Environmental Indemnity Agreement, the Guaranty or otherwise.  Any amounts prepaid may not be reborrowed.

 

SECTION 2.8                   Exit Fee .  In consideration of Lender’s making the Loan to Borrower (and in addition to other amounts payable under this Agreement and the other Loan Documents), Borrower shall pay to Lender a fee (the “ Exit Fee ”) equal to $335,000.  The Exit Fee will be due and payable as follows:  (a) $5,000 per individual Residential Unit (the “ Individual Unit Exit Fee ”) shall be due and payable in connection with the sale and release of each Residential Unit and (b) a final payment, equal to the difference between the Exit Fee less the sum of any previously paid Individual Unit Exit Fees, shall be due and payable at the earlier of (i) payment in full of the Loan for any reason (which shall be deemed to include Borrower’s cancellation or termination of the Loan prior to the funding of any Advances); or (ii) at Loan Maturity, whether by acceleration or otherwise.  In no event, however, shall the aggregate sum of Individual Unit Exit Fee s exceed the aggregate amount of the Exit Fee .

 

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ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

The Recitals set forth above are made a part of this Article and constitute representations, warranties and covenants of Borrower.  Borrower further represents, warrants, covenants, and agrees as follows:

 

SECTION 3.1                   Status of Documents .  Each of (a) the Organizational Documents and (b) the Management Agreement are in full force and effect and are free from any default on the part of Borrower.  Such documents are hereinafter sometimes collectively called the “ Basic Agreements ”.  Borrower has provided Lender with true, correct and complete copies of the Basic Agreements which are in effect as of the Closing Date.

 

SECTION 3.2                   Due Organization; Authority .

 

(a)           Borrower is a limited liability company qualified to do business and in good standing under the Laws of the Commonwealth of Virginia and any other jurisdiction in which Borrower is required to qualify to do business and maintain its good standing therein.  Borrower has been duly authorized by all necessary corporate, limited liability company or partnership action and has all requisite power and authority to carry on its business, to hold title to the Property, to execute, deliver, borrow money under and otherwise perform this Agreement and the Loan Documents, and to consummate the transactions contemplated thereby.

 

(b)           Each Borrower Party is a corporation, partnership or limited liability company, as the case may be, duly organized and validly existing in the State of its incorporation or formation (as the case may be), and is qualified to do business and in good standing under the Laws of the State where the Property is located and any other jurisdiction in which such Borrower Party is required to qualify to do business and maintain its good standing therein.  Each Borrower Party has been duly authorized by all necessary corporate, partnership or limited liability company action (as the case may be) and has all requisite corporate, partnership or limited liability company power and authority to carry on its business and to execute, deliver and perform, for itself and on behalf of Borrower the Loan Documents entered into by such Borrower Party either for itself or on behalf of Borrower in connection with the Loan.

 

SECTION 3.3                   Enforceability .

 

(a)           This Agreement is, and all other Loan Documents executed by Borrower, on the execution and delivery thereof, will be, the legal, valid and binding obligation of Borrower enforceable in accordance with their terms;

 

(b)           This Agreement is, and all other Loan Documents executed by each Borrower Party on behalf of Borrower, on the execution and delivery thereof, will be, the legal, valid and binding obligation of such Borrower Party enforceable in accordance with their terms; and

 

(c)           The Guaranty, the Environmental Indemnity and each other Loan Document executed by Guarantor, on the execution and delivery thereof, will be, the legal, valid and binding obligation of Guarantor enforceable in accordance with their terms.

 

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SECTION 3.4                   Pending Litigation .  Except as disclosed on Exhibit C attached to this Agreement, no actions, suits, or proceedings (including condemnation or eminent domain proceedings) are pending or, to Borrower’s knowledge, threatened against or affecting Borrower, any Borrower Party, Guarantor, the Property or any other assets subject to the Loan Documents.  None of the items (if any) listed on Exhibit C or disclosed to Lender in writing during the term of the Loan will have a Material Adverse Effect.

 

SECTION 3.5                   No Violation .  There exists no violation, or default with respect to any of the Basic Agreements or of any mortgage, deed of trust, indenture or any other material contract, agreement or instrument applicable to Borrower, Guarantor or the Property, or by which any of the foregoing is bound.  The execution, delivery and performance of the Loan Documents will not result in any such violation, conflict or default, or result in the creation of any Lien on any of the assets of Borrower, any Borrower Party or Guarantor, other than the Permitted Exceptions.

 

SECTION 3.6                   No Conflict .  The Loan and all other transactions contemplated by the Loan Documents will not conflict with or result in a breach or violation of any Governmental Approval applicable to any of Borrower, any Borrower Party, Guarantor or the Property.

 

SECTION 3.7                   No Consent .  No consent, approval, or authorization of, or registration, declaration or filing with any Governmental Authority is required and has not been obtained in connection with the execution, delivery and performance by Borrower, any Borrower Party or Guarantor of each of the Loan Documents to which it is a party or any of the transactions contemplated in the Loan Documents.

 

SECTION 3.8                   Truth of Financial Statements; Financial Condition Warranty .  Any Financial Statements delivered to Lender by Borrower, any Borrower Party or Guarantor prior to or after the date of this Agreement: (a) are materially true, correct and complete and (b) fairly present in a manner internally consistent and consistent with prior statements submitted to Lender the respective financial conditions of the subjects thereof and for the periods referenced therein.  All charges payable with respect to the Project are current and not in default.  Borrower further warrants that except as disclosed to Lender in writing, neither Borrower, any Guarantor, any manager/director of Borrower, any equity owner of Borrower nor any of their respective Affiliates: (i) has ever been the subject of any criminal proceedings, other than minor traffic violations; (ii) has ever been the owner, whether directly or indirectly, of a parcel of real property which was the subject of foreclosure proceedings (whether judicial or non judicial); (iii) has ever been a party directly or indirectly, to a deed in lieu of foreclosure; and (iv) is not currently a party to any material pending litigation or administrative proceedings, or subject to any judicial or non-judicial orders or consent agreements.

 

SECTION 3.9                   Access .  The Property is contiguous to public streets, roads or highways, and vehicular and pedestrian access from the Property is permitted to such streets, roads or highways.

 

SECTION 3.10                 Project Budget .  The Project Budget in good faith estimates all material costs and expenses which will be incurred by Borrower in the acquisition, development, renovation, conversion and operation of the Project through the Maturity Date.

 

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SECTION 3.11                 Leases .   All Leases are in full force and effect and are free from any default on the part of Borrower.

 

SECTION 3.12                 Business Purpose .  Borrower will use the proceeds of the Loan solely for business purposes.

 

SECTION 3.13                 Material Facts .  Neither this Agreement, nor the other Loan Documents, nor any other document, financial information, certificate or statement required by any Loan Document to be furnished to Lender by Borrower, any Borrower Party or the Guarantor contains, or will contain, at the time of submission, any untrue statement of a material fact or intentionally omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they are made, not misleading.

 

SECTION 3.14                 Title .  Borrower has good and marketable fee title to the Property, subject only to the Permitted Exceptions.

 

SECTION 3.15                 Brokerage Fees and Commissions .  Neither Borrower nor any Person claiming by, through or under Borrower, has dealt with any Person in connection with the Loan in a manner that would entitle such Person to any brokerage fee or commission.

 

SECTION 3.16                 Conditions Preventing Compliance .  To the knowledge of Borrower, no conditions exist which would prevent Borrower, any Borrower Party or Guarantor from complying with the provisions of the Loan Documents within the time limits set forth in the Loan Documents.

 

SECTION 3.17                 Taxes .  Each of Borrower, Guarantor and each Borrower Party has filed all tax returns and reports required by law to have been filed by it, and each has paid all taxes, assessments and governmental charges levied upon each of them and any of its assets which are due and payable.

 

SECTION 3.18                 ERISA .  Neither Borrower, any Borrower Party, nor Guarantor is an “employee benefit plan” (within the meaning of section 3(3) of ERISA) to which ERISA applies and neither Borrower’s, any Borrower Party’s nor Guarantor’s assets constitute assets of any such plan.

 

SECTION 3.19                 Regulations G, U and X .  Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of the Loan will be used for a purpose which violates, or would be inconsistent with Federal Reserve System Board of Governors’ Board Regulations G, U or X.  Terms for which meanings are provided in Federal Reserve System Board of Governors’ Board Regulations G, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings.

 

SECTION 3.20                 Government Regulation .  Neither Borrower, any Borrower Party nor Guarantor is: (i) an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended; (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility

 

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Holding Company Act of 1935, as amended; or (iii) subject to any other federal or State Law or regulation which purports to restrict or regulate its ability to borrow money.

 

SECTION 3.21                 Principal Place of Business and Chief Executive Office .  The principal place of business and chief executive office (as such term is defined in Article 9 of the UCC) of Borrower is located at c/o Comstock Homebuilding Companies, Inc., 11465 Sunset Hills Road, Suite 510, Reston, Virginia 20190.  The state of organization of Borrower is Virginia.  The federal employment identification number of Borrower is [20-2176975] and the organizational identification number of Borrower, as designated by the Commonwealth of Virginia is [S 139465-1].  Borrower shall not change its State of organization without Lender’s prior written consent.

 

SECTION 3.22                 Ownership Structure .  The ownership structure of Borrower (including the ownership interests) is accurately set forth on Exhibit D hereto.

 

SECTION 3.23                 Priority and Perfection .  As of the Closing Date, Lender has a first priority, perfected security interest in the Property, in each item thereof, and in each other item of property  (tangible or intangible) given to Lender by Borrower or Guarantor or any other party pursuant to any of the Loan Documents as security for the Loan. From and after the Closing Date, Borrower will not take any action which has any effect on Lender’s first priority perfected security interest in the Property.

 

SECTION 3.24                 Condominium Contracts .  Upon the execution and delivery thereof, all Approved Condominium Contracts shall be in full force and effect and shall be in compliance with Section 8.1 .  No event of default, or any event which, with the passage of time or the giving of notice, or both, would constitute an event of default, has occurred pursuant to the terms of any of the Approved Condominium Contracts, upon the execution and delivery thereof, on the part of Borrower or, to Borrower’s knowledge, the other parties thereto.

 

SECTION 3.25                 Condominium Documents .  Borrower has delivered (or will deliver) to Lender true, correct and complete copies of each Condominium Document and each Condominium Document is (or will be) in compliance with applicable Laws.

 

SECTION 3.26                 Borrower’s Equity; Advances .  Borrower has used (or will use) all of Borrower’s Minimum Equity Investment, all of Borrower’s Additional Equity and all Advances solely for purposes set forth in, and consistent with, the Project Budget.

 

SECTION 3.27                 Patriot Act .  Neither Borrower, Guarantor, nor any of their respective officers, directors, shareholders, partners, members or Affiliates (including the indirect holders of equity interests in Borrower or Guarantor) is or will be an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 (“ EO13224 ”); (ii) whose name appears on the United States Treasury Department’s Office of Foreign Assets Control (“ OFAC ”) most current list of “Specifically Designated National and Blocked Persons” (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens to commit or supports “terrorism”, as that term is defined in EO13224; or (iv) who is otherwise affiliated with any

 

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entity or person listed above (any and all parties or persons described in clauses [i] – [iv] above are herein referred to as a “ Prohibited Person ”).  Borrower covenants and agrees that neither Borrower, Guarantor, nor any of their respective officers, directors, shareholders, partners, members or any Affiliates (including the indirect holders of equity interests in Borrower or Guarantor) will: (i) conduct any business, nor engage in any transaction or dealing, with any Prohibited Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Prohibited Person; or (ii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in EO13224.  Borrower further covenants and agrees to deliver (from time to time) to Lender any such certification or other evidence as may be requested by Lender in its sole and absolute discretion, confirming that: (i) neither Borrower, Guarantor, nor any of their respective officers, directors, shareholders, partners, members or Affiliates (including the indirect holders of equity interests in Borrower or Guarantor) is a Prohibited Person; and (ii) neither Borrower, Guarantor, nor any of their respective officers, directors, shareholders, partners, members or Affiliates (including the indirect holders of equity interests in Borrower or Guarantor) has engaged in any business, transaction or dealings with a Prohibited Person, including, but not limited to, the making or receiving of any contribution of funds, goods, or services, to or for the benefit of a Prohibited Person.

 

SECTION 3.28                 Solvency .  Borrower:  (i) is now and at all times during the term of this Agreement shall be generally paying its debts as they mature; (ii) now owns, and at all times during the term of this Agreement shall own, property which, at a fair valuation, is greater than the sum of its debts; and (iii) now has and at all times during the term of this Agreement shall have capital sufficient to carry on its business and transactions and all business transactions in which it is about to engage.

 

SECTION 3.29                 Single Purpose Entity .  Borrower shall remain a Single Purpose Entity.

 

SECTION 3.30                 Indebtedness .  Borrower has and shall have no indebtedness, other than the Secured Obligations evidenced hereby or indebtedness arising in the ordinary course of its business (which indebtedness is not indebtedness for borrowed money).

 

SECTION 3.31                 Representations and Warranties to be Continuing .  All of the representations and warranties in this Agreement shall be true, correct and complete in all respects at the Closing Date and the date of the Initial Disbursement, and will continue to be true, correct and complete in all respects throughout the term of the Loan as if remade at all times afterwards.  All representations and warranties made in this Agreement, the Commitment Letter, the Loan Documents or in any other document delivered to Lender by or on behalf of Borrower, any Borrower Party or Guarantor shall survive the making of the Loan and shall continue in full force and effect as long as there remains unperformed any Secured Obligation to Lender under any of the Loan Documents.

 

SECTION 3.32                 Acknowledgment of Lender’s Reliance .  Borrower acknowledges that the Loan will be made by Lender in reliance upon the representations, warranties, and agreements contained in the Loan Documents or any certificate delivered to Lender pursuant to

 

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the Loan Documents.  Lender shall be entitled to such reliance notwithstanding any investigation which has been or will be conducted by Lender or on its behalf.

 

ARTICLE IV

 

CLOSING DELIVERY CONDITIONS; CONDITIONS TO INITIAL DISBURSEMENT

 

SECTION 4.1                   Conditions to Loan Closing; Closing Date .  Prior to and as a condition to the closing of the Loan and disbursement of the Initial Disbursement, Lender must have received and approved the items specified in this Section 4.1 on or before the Closing Date.  These items must be fully executed where applicable, and all submissions which are not originals must be true and complete copies of these items and if requested by Lender, must be so certified by Borrower or Guarantor or any of such parties (as the case may be). In the event that Lender agrees to close the Loan without requiring Borrower to have satisfied each and every condition set forth in this Section 4.1 or otherwise (it being understood that Lender shall have no obligation to do so), then each and every condition not so satisfied as of the Closing Date shall be a condition to the funding of any additional Advance unless and until Borrower shall have satisfied such condition or Lender shall have expressly agreed in writing to permanently waive such condition.

 

(a)           Loan Documents .  The Loan Documents and the Commitment Letter.

 

(b)           UCC Searches .  Federal, state and local tax and judgment lien searches and searches of the appropriate Uniform Commercial Code filing offices showing no Liens affecting the Property or Borrower, other than the Permitted Exceptions.

 

(c)           Insurance .  Borrower shall provide, at least four (4) Business Days prior to the Closing Date, evidence that the insurance required under Section 7.8 is in effect.

 

(d)           Formation, Authority and Good Standing Documents .  The following items: (i) evidence of the due organization or incorporation and good standing of Borrower, its members and Guarantor (if a legal entity), as certified by the Secretary of State of such party’s State of organization or incorporation, the Secretary of State of the State where the Property is located and any other jurisdiction where such party is required to qualify to do business and maintain its good standing therein; (ii) true, correct and complete copies of all Organizational Documents; and (iii) evidence of the due authorization of this transaction by Borrower, its members and Guarantor, including, without limitation, corporate, partnership or limited liability company resolutions specifically authorizing this transaction and incumbency certificates with original specimen signatures for the officers signing the Loan Documents.  The foregoing organizational documents must demonstrate that the ownership, management and capital structure of the Borrower is consistent with Recital I of this Agreement.

 

(e)           Opinions of Borrower’s and Guarantor’s Counsel .  Legal opinions from Borrower’s and Guarantor’s counsel, whose identity must be satisfactory to Lender, addressing corporate, partnership and limited liability organization, authority and good standing, the enforceability of the Loan Documents, usury and such other matters which Lender may reasonably  request.

 

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(f)            Financial Statements .  The most current financial statements available for Borrower and Guarantor, certified as required in and meeting the other requirements of Section 7.7 .

 

(g)           Representations .  All representations and warranties of Borrower contained in this Agreement and in all of the other Loan Documents shall be true and correct as of the Closing Date.

 

(h)           Event of Default .  No Default or Event of Default shall have occurred and be continuing.

 

(i)            Adverse Change .  There shall be no material adverse change in the financial condition of Borrower or Guarantor or the condition of the Property.

 

(j)            Casualty; Condemnation .  Neither the Property nor any part thereof shall have suffered any casualty or be subject to any existing or threatened condemnation or taking by eminent domain proceedings or otherwise.

 

(k)           Pending Litigation .  There shall be no pending or threatened litigation against Borrower, Guarantor or the Property known to Borrower or its counsel.

 

(l)            Commitment Letter .  There shall have been full compliance by Borrower with all of the terms and conditions of the Application Letter and the Commitment Letter.

 

(m)          Compliance with Laws .  Lender shall have received evidence satisfactory to it that the Property is in compliance with all Laws (including all local, State and federal environmental laws), including a copy of the final tract map or other Governmental Approval by each planning commission or other Governmental Authority with jurisdiction over the lawful development of the Project, and that there are no conditions existing currently or likely to exist during the term of the Loan that require or are likely to require clean-up, removal or other remedial action pursuant to any of the aforesaid environmental laws.

 

(n)           Appraisal .  A current appraisal of the Property addressed to Lender, which must be acceptable to Lender in its sole discretion. Acceptability shall be predicated upon, among other things: (a) a stated “as-is” value of the Property of no less than $75,000,000, (b) a stated “as-completed” value of the Project on the basis of a gross retail sell-out as condominiums of no less than $99,000,000, (c) a stated bulk sale upon completion value for the Project as condominiums of no less than $79,000,000, (d) a logical and consistent presentation, and (e) conformance with federal regulations governing the content of the appraisal.

 

(o)           Title Policy .  The Title Policy.  The Title Policy shall not contain any exceptions relating to the use by Borrower of any Contract Purchaser’s deposit with respect to Upgrades as funds with respect to the conversion of the Project.

 

(p)           Survey .  The Survey which shall be prepared and be certified in accordance with the survey certification attached as Exhibit F .

 

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(q)           Environmental Report .  A complete Phase I environmental report addressed to and approved by Lender, prepared in such detail as Lender may require by a firm approved by Lender in its sole discretion, together with complete copies of all existing environmental and hazardous material studies and reports, and any disclosure document required pursuant to the laws of the State where the Property is located.

 

(r)            Licenses and Permits .  A certificate of occupancy for the Property.  Prior to the Closing Date, Borrower shall provide Lender with satisfactory evidence that Borrower has obtained all Permits and Governmental Approvals necessary for conversion of the Project, except for Permits required for the Upgrades to each Unit, including appropriate building permits, and application for Permits for the Project issued by the appropriate Governmental Authorities.

 

(s)           Zoning .  Evidence, in the form of a zoning endorsement and letters or approvals from any Governmental Authorities having jurisdiction over the zoning of the Property, confirming that the development and planned use of the Project is in compliance with all applicable zoning Laws and other applicable Governmental Approvals.

 

(t)            Utilities .  Evidence that all sewer, water, electrical, telephone and any other utility services are available at the Property in adequate supply for the Project.  This evidence shall include letters from the applicable utility providers.

 

(u)           Management Agreement .  A true correct and complete copy of the Management Agreement, together with a subordination of the Management Agreement in form and substance acceptable to Lender.

 

(v)           Agreements . Copies of all Basic Agreements and any other development, redevelopment, reciprocal easement or other material agreements relating to the Property certified by Borrower.

 

(w)          Wetlands Compliance . Evidence that any “wetlands” on the Land have been identified, and that any such wetlands will be preserved, replaced or otherwise dealt with in compliance with all Governmental Approvals.

 

(x)            Tax Bill .  A copy of the most recent real estate tax bills for the Property.

 

(y)           IRS Form .  An Internal Revenue Service tax return verification form (Form 4506T) executed by Borrower and Guarantor.

 

(z)            Form of Condominium Contract .  Lender shall have received and approved the form of Condominium Contract to be used for the Property, which shall be attached hereto as Exhibit G .

 

(aa)         Borrower’s Equity .  Evidence that Borrower has invested Borrower’s Minimum Equity Investment.

 

(bb)         Project Budget .  The Project Budget.   The Project Budget shall not contain any line items payable to Borrower, Guarantor or any Affiliate of Borrower or Guarantor, except for

 

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the Production Overhead line item in the amount of $392,000.  Borrower warrants that, except as set forth in the preceding sentence, no other Advances of the Loan shall be made to any Affiliates of Borrower or Guarantor.

 

(cc)         Price List .  Borrower shall have provided Lender with the Price List, which must be acceptable to Lender in its reasonable discretion. Approval of the Price List will be predicated on Lender’s evaluation and opinion, in its reasonable discretion, of the reasonableness of the proposed prices, provided that the proposed prices must average at least $300 per net saleable square foot, excluding any Upgrades and/or extras, in the Project.  No reduction to the Price List shall be made without Lender’s prior written approval if the result of such decreases would be to reduce the average price of the Units to less than $300 per net saleable square foot.

 

(dd)         Patriot Act .  All documents and information deemed necessary by Lender to comply with Section 326 of the USA Patriot Act and regulations promulgated pursuant to such Law.

 

(ee)         Ownership, Management and Capital Structure .  T he ownership, management and capital structure of Borrower must be acceptable to Lender and any material change to the ownership, management or capital structure of Borrower or any material modification to the ownership or management of the members of Borrower (whether direct or indirect) following the Closing Date shall be subject to Lender’s prior written approval; provided however, Lender acknowledges that the sole member of Borrower is a publicly traded company and hereby approves of its securities being traded on the NASDAQ market.

 

(ff)           Project Schedule .  Lender has received and approved the Project Schedule.

 

(gg)         Conditions for Advances .  Borrower has satisfied all conditions for Advances set forth in Section 5.1 and Section 5.2 .

 

ARTICLE V

 

OTHER PROVISIONS CONCERNING ADVANCES

 

This Article contains terms, conditions and delivery requirements which pertain to Advances under this Agreement other than the Initial Disbursement.  These terms, conditions and delivery requirements are in addition to those set forth elsewhere in this Agreement.

 

SECTION 5.1                   General Terms and Conditions for Advances .  Each Advance shall be subject to the following general terms and conditions:

 

(a)           No Event of Default .  The representations, warranties and covenants of the Guarantor in the Guaranty, the Environmental Indemnity and each other Loan Document to which it is a party and of Borrower in this Agreement and the other Loan Documents to which it is a party shall be true and correct in all material respects on and as of the date of such Advance and no Event of Default or Default shall have occurred and be continuing.  Each request for an Advance by Borrower shall, except as otherwise disclosed to Lender in writing, be deemed to be a certification of the foregoing.

 

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(b)           Article IV Conditions .  All requirements set forth in Article IV of this Agreement as a condition precedent to the Closing Date shall have been satisfied, including, but not limited to, the delivery of evidence satisfactory to Lender that Borrower has invested Borrower’s Minimum Equity Investment and any required Borrower’s Additional Equity into the Project.

 

(c)           Notice, Frequency and Amounts .  Lender shall use commercially reasonably efforts to fund requests for Advances within ten (10) Business Days; provided, however, that all requests for Advances must be orderly, complete and in writing and must include all submissions required under this Agreement before the ten (10) Business Day period begins to run.  Advances shall not be made more frequently than once a month.  Borrower shall pay Lender a processing fee of $500 for each Advance, which shall be payable from Loan proceeds.

 

(d)           Purposes and Payees .  All disbursements of Loan proceeds must be approved by Lender in its sole but reasonable discretion based on costs expended on the condominium conversion as contained in the Project Budget.  Provided no Default or Event of Default then exists, Lender will allow monthly Advances of the Production Overhead up to $16,333 per month until the Production Overhead line item is exhausted. The amount of the requested Advance shall not exceed the cost of work in place and other amounts actually paid or payable by Borrower for Project Costs.  Upon confirmation of all requirements specified herein and upon receipt of the Title Insurer’s commitment to issue a date down to the Title Policy insuring the funds about to be disbursed, Lender shall wire transfer the Advance directly to Borrower at such location as Borrower may direct, who will then disburse directly to the general contractors or subcontractors as applicable.  After a Default or Event of Default, if, in Lender’s reasonable opinion, its position will be impaired if it does not make the Advance, Lender may (but shall not be obligated to make) make Advances from any Project Budget category (whether or not such Advances are consistent with the Project Budget) to or for any of the following parties or purposes:  (a) directly to any Person or Persons, including Lender, who in Lender’s reasonable judgment is entitled to payment for Project Costs, (b) for payment or performance of any of Borrower’s Secured Obligations under any of the Loan Documents, including fees, costs, expenses owing to Lender or its consultants, or (c) to the Title Insurer or any Lien claimant for the indemnity over or settlement of any claim for Lien other than a Permitted Exception.  Lender may make Advances under the prior sentence without further authorization by Borrower, but Lender will use reasonable efforts to give Borrower notice of such an Advance within ten (10) Business Days after making such an Advance.  Lender’s failure to give such notice shall not be regarded as a default by Lender or impair any of Lender’s rights.  Such Advances shall be treated as an Advance of the Loan as set forth in Section 12.8 below.  This paragraph shall not limit Lender’s rights to make Advances under other provisions of the Loan Documents.

 

(e)           Balancing Compliance .  The Loan must be In Balance as required under Section 6.3 below, and the Loan proceeds must be for the purposes set forth in and must be applied in compliance with the Project Budget.

 

(f)            Title Insurance Endorsements .  Lender shall have received a “datedown” endorsement to the Title Policy extending the coverage to include the date and amount of the requested Advance.  The datedown endorsement shall show no exceptions to title other than the Permitted Exceptions.  Any new exceptions must be approved by Lender in writing, acting reasonably.  Upon such approval, such new exception shall be considered a Permitted Exception.

 

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Lender shall also be furnished a mechanic’s lien endorsement to the Title Policy in the form and substance acceptable to Lender.

 

(g)           NOI .  It is expressly understood and agreed that Borrower shall use all available NOI from the Project for Project Costs within the Project Budget prior to the use of any Loan proceeds.  Each request for an Advance by Borrower shall be deemed to be a certification from Borrower that NOI is insufficient to cover the Project Costs set forth in any requested Advance.

 

(h)           Casualty or Condemnation .  No casualty has occurred or condemnation proceeding has been initiated, which in Lender’s sole and absolute discretion, could have a Material Adverse Effect.

 

(i)            Material Adverse Effect .  No event or series of events shall have occurred which has resulted in a Material Adverse Effect.

 

SECTION 5.2                   Payout Conditions and Deliveries .  Prior to each Advance other than the Initial Disbursement, Borrower shall submit to Lender or Lender shall have received by the time required in Section 5.1(c) the following documents, each of which must be approved by Lender:

 

(a)           For each request for an Advance, a complete set of the “ Request for Advance Documents ” which shall include:

 

(i)                                      A written request for Advance from Borrower which shall cover and address all work for which disbursement is to be made to a date specified therein;
 
(ii)                                   Following the occurrence of an Event of Default, with respect to Advances for Hard Costs only, Contractor’s, subcontractors’, architect’s, engineer’s, material supplier’s and other design professional’s waivers of liens, subordinations of liens and all other statements and forms required for compliance with the mechanics’ lien or similar laws of the State where the Property is located through the date such contractor, subcontractor, architect, engineer, material supplier or other design professional has been paid, substantiating each draw request; provided, however, that in the event conditional lien waivers are provided to substantiate such draw request, then Borrower shall also provide an unconditional lien waiver covering all prior draw requests made;
 
(iii)                                A statement, in form reasonably prescribed by Lender, executed by Borrower stating among other things: (1) the names and addresses of all contractors with whom Borrower has contracted, (2) the amount of each contract, (3) amounts paid to date under each contract and (4) the amounts of current payment under each contract, retainage and balances due, broken down in a consistent manner (“ Sworn Owner’s Statement ”), together with copies of all subcontracts and proof of payment under such subcontracts as may be required by Lender; and
 
(iv)                               With respect to Advances for Hard Costs only, a statement, in form reasonably prescribed by Lender, executed by the contractor of the Project stating among other things: (1) the names and addresses of all suppliers, contractors and its own

 

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forces contracted to work, (2) the amount of each contract, (3) amounts paid to date under each contract, (4) change orders  and (5) the amounts of current payment under each contract and balances due, broken down in a consistent manner (“ Sworn Contractor’s Statement ”; the Sworn Owner’s Statement and the Sworn Contractor’s Statement are collectively referred to herein as the “ Sworn Statement ”); and
 
(v)                                  Borrower’s application and certification for payment executed by Borrower.
 

(b)           Title Insurer Documents .  Borrower shall have furnished, and covenants and agrees to furnish, to the Title Insurer the sworn statements, lien waivers and all other documents required by the Title Insurer for it to furnish the endorsements referred to in Section 5.1(f) above, including, but not limited to, a written certification by Borrower of the work completed to date on the Project which will be covered by such title endorsement.  Upon request by Lender, Borrower shall furnish copies of these items to Lender.

 

(c)           Soft Cost Backup .  For each request for an Advance for Soft Costs, copies of bonafide third party invoices, contracts and other documents and verification of such expenses in Lender’s reasonable discretion.

 

(d)           Site Inspection .  Lender may rely on the advice of Lender’s Project Consultant, who shall be retained by Lender at Borrower’s expense.  Lender, through Lender’s Project Consultant or its own employees, may perform a site inspection to confirm that progress with the conversion of the Project to a condominium property conforms to the Sworn Statement and is progressing within the Project Budget.  In no event, however, shall the opinion of Lender’s Project Consultant be binding on Lender.

 

(e)           Change Orders .  All change orders (including pending change orders), regardless of whether or not Lender’s approval is required under Section 6.2 .

 

(f)            Other Items .  Such other documents and information as Lender may reasonably request.  These may include copies of any new contracts or subcontracts which Borrower may have entered into respecting the Project; bonds pertaining to these subcontracts as may be required by Lender; and certifications from the structural, mechanical and electrical engineers.

 

SECTION 5.3                   Final Advance .  Lender shall make the final Advance for costs of construction for the Project upon Borrower’s delivery to Lender of the following items, each to be reasonably satisfactory to Lender.  These conditions shall be in addition to those set forth in Section 5.1 and Section 5.2 and elsewhere in this Agreement.

 

(a)           Request for Advance Documents, which include certifications from Borrower that the Project has been completed;

 

(b)           A final mechanic’s lien endorsement for the current Advance and deletion of the pending construction exception to the Title Policy, together with such other endorsements as may be reasonably requested by Lender;

 

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(c)           Following the occurrence of an Event of Default, final lien waivers from any contractor and all subcontractors and materialmen; provided, however, that in the event conditional lien waivers are provided to substantiate such draw request, then Borrower shall also provide an unconditional lien waiver covering all prior draw requests made and shall provide a final unconditional lien waiver no later than 30 days following the final Advance; and

 

(d)           An update of the tax, judgment lien and Uniform Commercial Code financing statement searches obtained pursuant to Section 4.1(b) showing no matters which are not Permitted Exceptions.

 

SECTION 5.4                   Payment of Interest; Interest Reserve .

 

(a)           A portion of the proceeds of the Loan in the amount of One Million Seven Hundred Thirty-One Thousand and No/100 Dollars ($1,731,000) shall be designated in the Project Budget as the Interest Reserve for the payment of interest on the Note.  In the event the Property, in any month, achieves a positive NOI, then such monthly NOI shall be applied to cover the Monthly Payment under the Note prior to the use of any Advances from the Interest Reserve line item of the Project Budget, and Lender is hereby authorized to apply any funds in the Operating Account to cover the Monthly Payment.  Either upon Borrower’s delivery of a request for an Advance from the Interest Reserve or, if such request is not timely delivered by Borrower, then upon Lender’s determination, in its discretion, that NOI held in the Operating Account is insufficient to cover the Monthly Payment, then, provided that no Event of Default shall have occurred and be continuing, Lender shall disburse to itself from the Interest Reserve an amount sufficient to pay all such accrued but unpaid interest.  Borrower hereby acknowledges that Lender is authorized to charge interest monthly against the Interest Reserve line item of the Project Budget, irrespective of whether Borrower has made a request for such advance.  Nothing contained in this Section shall relieve Borrower of the absolute and unconditional obligation to pay accrued interest on Note as provided herein and in the Note and other Loan Documents.  If the funds under the Interest Reserve are insufficient or are otherwise unavailable for disbursement (as the result of positive NOI for such month or an Event of Default), then Borrower shall pay or cause to be paid, directly to Lender the accrued interest then due and payable from Borrower’s funds and not from the proceeds of the Loan.

 

ARTICLE VI

 

PROJECT BUDGET, BORROWER’S EQUITY,
LOAN BALANCING, AND CHANGE ORDERS

 

SECTION 6.1                   Project Costs and Project Budget .

 

(a)           Project Costs .  The proceeds of the Loan shall be used solely for the costs of acquiring the Property and the payment of Project Costs in accordance with the Project Budget.  Borrower shall hold all Advances in trust to be spent for the Project Costs for which such Advance was made.  For the purposes of this Agreement, “ Project Costs ” shall mean all Hard Costs and Soft Costs of the Project which have been or will be incurred in connection with this Agreement and consistent with the Project Budget, as approved by Lender in its sole discretion.  Borrower shall pay all Project Costs as they become due and owing, notwithstanding that Lender

 

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may not be obligated to make an Advance hereunder or that the amount of any particular Advance may be insufficient to pay such costs and Borrower shall pay from its own funds any deficiency as Borrower’s Additional Equity hereunder.

 

(b)           Project Budget .  The Project Budget is attached as Exhibit B . Borrower must obtain Lender’s prior written approval before any modifications or amendments are made to the Project Budget.  The amount which Lender shall be obligated to disburse for any item of Project Costs shall not be in excess of the amount shown for that item on the Project Budget.  In the event the total actual Project Costs are less than the amount set forth in the Project Budget, the Loan shall be reduced by the amount of the savings.

 

SECTION 6.2                   Change Orders and Changes to the Project Budget .

 

(a)           Modifications and Changes Orders Borrower shall promptly notify Lender of any anticipated changes in Hard Costs or Soft Costs line items, which if approved by Lender, would result in a net increase in the total amount of the Hard Costs or Soft Costs line items (collectively, “ Change Orders ”). Any agreement between Borrower and any contractor regarding Change Orders shall be made only after the Lender’s prior written approval, which approval shall not be unreasonably withheld.  If as a result of any such change, when taken together in the aggregate with any prior changes, the Loan will be Out of Balance, then Borrower must also comply with the requirements of Section 6.3 .

 

(b)           Interest Reserve and Production Overhead . There shall be no reallocations to or from the Interest Reserve line item of the Project Budget and no reallocations to or from the Production Overhead line of the Project Budget, without the prior written consent of Lender.

 

(c)           Soft Cost Contingency .  The Soft Cost Contingency line item of the Project Budget may be reallocated to pay other Soft Costs, subject to Lender’s prior written approval, to be determined in its reasonable discretion.

 

(d)           Reduction Based on Savings . In the event the final cost to renovate and convert the Project is less than the amount set forth in the Project Budget, the Loan amount shall be reduced by the amount of such reduction in cost.

 

SECTION 6.3                   Loan Balancing .

 

(a)           In Balance; Out of Balance .  Notwithstanding anything to the contrary contained herein, it is expressly understood and agreed that the Loan shall at all times be in “In Balance”.  The Loan shall be deemed to be “ In Balance ” only at such time, and from time to time, as Lender may determine, in its reasonable discretion, that the remaining amount available under the Loan equals or exceeds the Total Project Costs. Conversely, the Loan shall be deemed to be “ Out of Balance ” at such time, and from time to time, as Lender may determine, in its reasonable discretion, that the remaining amount available under the Loan does not equal or exceed the Total Project Costs.

 

(b)           Reallocation of Line Items . In determining whether the amount of the undisbursed Loan proceeds are sufficient to pay Total Project Costs, line items of the Project Budget shall be reallocated only in strict compliance with Section 6.2 and any surplus funds in line items which

 

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are not available for reallocation shall not be considered.  For greater certainty, and not in limitation of the foregoing, in determining whether the Loan is In Balance, Borrower shall not be permitted to make any reallocation to or from the Interest Reserve line item or the Production Overhead line item of the Project Budget to or from any other line items of the Project Budget.

 

(c)           Deficiency Deposit .  If Lender determines that the Loan is Out of Balance, then, within ten (10) days after written notice thereof from Lender to Borrower, Borrower shall deposit, in immediately available funds, an amount of cash equal to the amount Lender reasonably estimates will be sufficient to place the Loan In Balance (the “ Deficiency Deposit ”). Thereafter, the Deficiency Deposit will be disbursed by Lender prior to any further Advances of Loan proceeds and shall be used for Project Costs, subject to Borrower’s compliance with all conditions which would be applied to an Advance for the same Project Budget items to which the Deficiency Deposit will be applied. Any Deficiency Deposits shall be added to and made a part of Borrower’s Equity in the Project and no interest shall be paid to Borrower with respect to any such amounts.  Failure to deposit the Deficiency Deposits shall constitute an Event of Default.  Lender shall make no further disbursements of the Loan at any time the Loan is Out of Balance.

 

SECTION 6.4                   Accounts .

 

(a)           Project Account .  As and when required by Lender during the time of the Loan, Borrower covenants and agrees to establish and thereafter (until the Secured Obligations have been paid in full) shall maintain with Lender, one or more (as determined by Lender) deposit accounts into which all of Borrower’s Additional Equity, Deficiency Deposits and Real Estate Tax Deposits shall be deposited (collectively, the “ Project Account ”); provided however, Lender acknowledges that Advances of the Loan may be made from the Real Estate Taxes line item of the Project Budget to pay Real Estate Taxes in accordance with Section 6.5 .

 

(b)           Operating Account .  Borrower covenants and agrees to establish the Operating Account with Lender on or before the Closing Date.  Borrower covenants and agrees to deposit, or cause to be deposited, all NOI with respect to the Property into the Operating Account and the failure to deposit all NOI into the Operating Account shall constitute an Event of Default. All available NOI in the Operating Account shall be used by Borrower first for the payment of monthly interest due on the Loan in accordance with Section 5.4 , and then shall be used for other Project Costs prior to any further Advances of Loan proceeds. Disbursements from the Operating Account will be subject to Lender’s approval based upon Borrower’s compliance with all conditions which would be applied to an Advance for the same Project Budget items to which the NOI will be applied.

 

(c)           Pledge of Accounts .  To secure the payment and performance of the Secured Obligations, Borrower hereby pledges and assigns to Lender, all of Borrower’s right, title and interest in, and hereby grants to Lender, a security interest in and right of set-off against (said right of set-off shall not be exercised until the occurrence of and during the continuance of an Event of Default): (i) the Project Account and the Operating Account; (ii) all cash, instruments, securities, investments and other property from time to time transferred or credited to, contained in or comprising the Operating Account and the Project Account; (iii) all statements, certificates, passbooks and instruments representing the Project Account and the Operating Account or any

 

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of the foregoing; (iv) any and all substitutions or additions of or with respect to any of the foregoing; and (v) any and all proceeds and products of any of the foregoing, whether now owned and existing or hereafter acquired or arising, including, without limitation (A) interest, principal, dividends and other amounts or distributions received with respect to any of the foregoing and (B) property received upon the sale, exchange or other disposition of any of the foregoing.  All amounts held in the Accounts shall be held by Lender to be irrevocably applied for the purposes for which made as herein provided, and shall not be subject to the direction or control of Borrower.

 

(d)                                  No Other Accounts .  Borrower covenants and agrees that, except for the Operating Account, the Project Account and any other account maintained with Lender pursuant to the terms hereof, it will not maintain or permit any property manager to maintain any bank or deposit accounts (of any kind or nature) with respect to the Property.  Notwithstanding he foregoing, the Manager shall be allowed to maintain an independent operating account.

 

(e)                                   Default .  Upon the occurrence of a Default or Event of Default hereunder, and in addition to all other rights, powers and remedies of Lender under this Agreement or under any other Loan Document, Lender may, at its option, without being required to do so and to the extent permitted by Law, apply any amounts in the Accounts on hand to any of the Secured Obligations, in such order and manner as Lender may elect in its discretion.  When the Secured Obligations have been fully paid and performed, as the case may be, amounts held in the Accounts shall be paid to Borrower.

 

SECTION 6.5                                                        Deposits for Real Estate Taxes .

 

(a)                                   All Real Estate Taxes shall be paid from Advances from the Real Estate Taxes line item in the Project Budget, provided such line item has not been exhausted.  After the Real Estate Taxes line item in the Project Budget has been depleted, Borrower shall thereafter on the first (1st) day of each and every month during the term of the Loan deposit an amount equal to one-twelfth (1/12) of 100% of the annual Real Estate Taxes next to become due upon the Property to be held in the Project Account for the payment of Real Estate Taxes when due; provided that in the case of the first such deposit there shall be deposited, in addition, an amount which, when added to the aggregate amount of monthly sums next payable under this Section 6.5 , will result in a sufficient reserve to pay the Real Estate Taxes next becoming due one month prior to the date when such Real Estate Taxes are, in fact, due and payable pursuant to applicable Law.  If Lender determines at any time that monthly payments are not adequate to fund the next installment of Real Estate Taxes due, Borrower shall make an additional deposit in an amount equal to the expected deficiency.  The amount of the deposits described in this paragraph (herein generally called “ Real Estate Tax Deposits ”) shall be based upon Lender’s reasonable estimate as to the amount of Real Estate Taxes next to be payable.  Failure of Borrower to make the monthly Real Estate Deposits shall constitute an Event of Default.

 

(b)                                  Subsequent to the Mass Closing, if required pursuant to Section 6.5(a) Borrower shall continue to make monthly Real Estate Tax Deposits equal to one-twelfth of one hundred percent (100%) of the annual estimated Real Estate Taxes due with respect to the unsold Units in the Project into the Project Account.  Provided an escrow balance is built up which in Lender’s sole but reasonable discretion is sufficient to pay Borrower’s future Real Estate Tax obligations with

 

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respect to the Project, the Real Estate Tax Deposits may cease.  However, if Lender subsequently determines at any time that the remaining tax escrow balance is not sufficient to pay Borrower’s future Real Estate Tax obligations with respect to the Project, Borrower shall make one or more additional Real Estate Tax Deposit in amounts equal to the expected deficiency in the manner required by Lender.  Failure of Borrower to make such Real Estate Tax Deposits shall constitute an Event of Default.

 

(c)                                   The aggregate of the monthly Real Estate Tax Deposit, if required, together with monthly payments of interest and/or principal and interest payable on the Note shall be paid in a single payment each month, to be applied, so long as no Default or Event of Default has occurred hereunder and is continuing, to payment of Real Estate Taxes subject to the provisions of Section 6.5(d) below.

 

(d)                                  It shall be the responsibility of Borrower to furnish Lender with the bills for the Real Estate Taxes not later than the date that is thirty (30) days (or such later date if Borrower does not receive the tax bill from the taxing authority by such date) prior to the date on which the same are due and payable without penalty or premium of any kind.  If the total Real Estate Tax Deposits on hand shall not be sufficient to pay all of the Real Estate Taxes when the same shall become due, then Borrower shall deliver to Lender at the time of the submission of the bills to Lender as described above an amount equal to the deficiency.  If the total of such Real Estate Tax Deposit exceeds the amount required to pay the Real Estate Taxes, such excess shall be credited against subsequent payments to be made for such deposits.

 

ARTICLE VII

 

CERTAIN COVENANTS BY BORROWER

 

SECTION 7.1                                                        Inspection .  Borrower will permit Lender and Lender’s consultants to inspect the Property and all matters relating to the development and operation of the Property.  Borrower will cooperate and will cause its agents and contractors to cooperate to give Lender and its consultants full access to the Property.  Lender will endeavor to minimize interference with the activities at the Property in connection with any such inspection.  All inspections by Lender and its consultants shall be for the sole benefit of Lender for its Loan administration purposes only.  Neither Lender nor its consultants assumes any liability to Borrower or any other Person by reason of Lender’s or its consultant’s inspections, except as a result of such party’s gross negligence or willful misconduct.  Neither Borrower nor any other Person may rely on Lender’s inspections for any purpose (including stage of completion, adequacy or workmanship, compliance with Governmental Approvals, or other matters related to design, construction and operation).  Lender’s inspection of an item shall not result in any waiver of Lender’s rights in the event such item does not conform with this Agreement.  Borrower shall keep books and records fairly reflecting all of its business affairs and transactions.  Borrower shall grant Lender access to Borrower’s books and records during normal business hours and will permit Lender to make copies of Borrower’s books and records.

 

SECTION 7.2                                                        Mechanics’ Liens, Real Estate Taxes and Condominium Homeowner’s Association Dues .  Borrower shall keep the Property free from all Liens, including mechanics’ and materialmen’s liens. Borrower shall pay before delinquent all Real Estate Taxes

 

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and its portion of the condominium homeowner’s association dues against the Property. Failure of Borrower to pay its portion of condominium homeowner’s association dues prior to delinquency at any time shall constitute an Event of Default. Upon request, Borrower will furnish Lender with receipts indicating that all Real Estate Taxes have been paid currently.

 

SECTION 7.3                                                        Compliance; Construction; Operation .  Borrower shall cause all construction to be done free of defects in a good and workmanlike manner with materials which are new and of high quality. Borrower will promptly correct any defects in construction. The Project will be equipped with furnishings, fixtures and equipment which are new and of high quality. Borrower shall comply with all Governmental Approvals pertaining to the construction of the Project and the use and operation of the Property. Borrower will not commence any phase of construction or operation until it has secured all required Permits, licenses or other authorizations from the applicable Governmental Authorities. All materials and labor purchased and employed for the Project shall be used solely for the Project and for no other purpose.   Borrower shall perform all of its obligations under the Basic Agreements, all Leases, all covenants, conditions and restrictions of record and all other material agreements affecting the Property.  Except as otherwise provided elsewhere in this Agreement, Borrower shall not make or permit any material modification to or termination of any of the Basic Agreements without Lender’s consent.  Prior to the conversion of the Property, the Project shall be operated in a first-class manner as a residential apartment building and following conversion of the Project the Project shall be operated in a first-class manner as a residential condominium building. Borrower shall not apply for or permit to occur any material annexation, zoning or subdivision change respecting the Property.

 

SECTION 7.4                                                        Transfers; Changes in Organization .

 

(a)                                   Borrower shall not cause or permit any Transfer of (i) any of its rights under this Agreement or any other Loan Documents, (ii) any of its interest, legal or beneficial, in any part of the Property, except as otherwise permitted by this Agreement or the other Loan Documents or as may be consented to by Lender in writing.

 

(b)                                  Borrower shall not permit any Borrower Party to cause or permit any Transfer of any of its interest as a Borrower Party in Borrower.

 

(c)                                   Borrower shall not permit any shareholder or other owner of an interest in any Borrower Party to cause or permit any Transfer of any of its shares or other ownership interests in such Borrower Party; provided however, Lender acknowledges that the sole member of Borrower is a publicly traded company and hereby approves of its securities being traded on the NASDAQ.

 

(d)                                  Borrower shall not, nor shall Borrower permit its members or Guarantor, to make any material amendments to its respective Organizational Documents, without Lender’s prior written consent.

 

SECTION 7.5                                                        Leases .

 

(a)                                   Borrower shall not enter into any Lease that is not for a market rent and that is not terminable on 90 days notice or less, without Lender’s prior written consent.

 

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(b)                                  Borrower shall, at its own cost and expense: (a) except as otherwise consistent with prudent residential apartment management practices, faithfully abide by, perform and discharge each and every obligation, covenant and agreement under any Lease to be performed by the landlord thereunder; (b) except as otherwise consistent with prudent residential apartment management practices, enforce or secure the performance of each and every obligation, covenant, condition and agreement in any Lease by the tenant thereunder to be performed; (c) not borrow against, pledge or further assign any rentals due under any Lease; (d) not permit the prepayment of any rents due under any Lease for more than ninety (90) days in advance nor for more than the next accruing installment of rents, nor anticipate, discount, compromise, forgive or waive any such rents; (e) except as otherwise consistent with prudent residential apartment management practices, not waive, excuse, condone or in any manner release or discharge any tenant of or from the obligations, covenants, conditions and agreements by said tenants to be performed under any Lease, unless in connection with the exercise of remedies against such tenant; (f) except as otherwise consistent with prudent residential apartment management practices, not terminate any Lease or accept a surrender thereof or a discharge of the tenant, unless in connection with the exercise of remedies against such tenant; and (g) not consent to a subordination of the interest of any tenant to any party other than Lender, and then only if specifically consented to by Lender.

 

(c)                                   Should Borrower fail to perform, comply with or discharge any obligations of Borrower under any Lease, or should Lender become aware of or be notified by any tenant under any Lease, of a failure on the part of Borrower to so perform, comply with or discharge its obligations under said Lease, Lender may, but shall not be obligated to, remedy such failure.  Any such action by Lender shall not waive or release Borrower from any obligation contained in this Agreement.  Any amount expended by Lender in such performance or attempted performance shall be deemed to be Costs.

 

SECTION 7.6                                                        Management Agreement .  (a) Borrower covenants and agrees as follows:

 

(i)             Borrower shall duly perform and observe all of the terms and conditions on its part to be performed and observed under the Management Agreement.
 
(ii)            Borrower shall use commercially reasonable efforts to cause Manager to manage and operate the Property in accordance with the Management Agreement.
 
(iii)           Without the prior written consent of Lender which shall not be unreasonably withheld or delayed, Borrower will not terminate, materially modify or amend (or permit to be terminated, materially modified or amended) the Management Agreement.
 

(b)            Without limitation of the provisions of paragraph (a) above, if the Management Agreement terminates or is terminated, Borrower shall promptly enter into a replacement Management Agreement with a replacement Manager, which Management Agreement and Manager shall be subject to Lender’s prior written approval (which approval shall not be unreasonably withheld, conditioned or delayed).  Borrower shall also cause such replacement Manager to enter into a subordination agreement satisfactory to Lender.

 

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SECTION 7.7                                                        Financial and Other Reports and Deliveries .  Borrower shall furnish (or cause to be furnished) to Lender, the following financial statements and information at the following times:

 

(a)                                   Financial Statements .  Within 90 days of the end of each fiscal year, completed, signed and dated, internally prepared, annual financial statements (including income statements and balance sheets and such verifications, supporting schedules or additional statements necessary to substantiate any information contained in such financial statements), for Borrower, Guarantor and the Property, certified by an officer of Borrower or Guarantor, as applicable, as being accurate. Within 30 days of the end of each month, an internally prepared statement of income and expenses for the Project indicating sources and uses of funds, and such other statements as Lender may reasonably require, certified by an officer of Borrower or Guarantor, as applicable, as being complete, true and correct in all material respects.

 

(b)                                  Required Notices .  Borrower shall promptly notify Lender in writing of the occurrence of:  (i) any Event of Default or Default; (ii) any event which materially and adversely affects the ability of Borrower, any Borrower Party or Guarantor to perform any of its respective Secured Obligations hereunder or under any of the Loan Documents; (iii) any event which adversely affects the priority of Lender’s first lien on the Property; (iv) any judgments, litigation or other proceeding filed or threatened against any Borrower, Guarantor or the Property; (v) any material change in the financial condition of Borrower or Guarantor not previously described in the financial reports delivered to Lender pursuant to this Section 7.7 ; (vi) the institution of any steps by Borrower, any Borrower Party, Guarantor or any other person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under Section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that Borrower, any Borrower Party or Guarantor furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by Borrower, any Borrower Party or Guarantor of any material liability, fine or penalty, or any material increase in the contingent liability of Borrower, any Borrower Party or Guarantor with respect to any post-retirement Welfare Plan benefit; (vii) as soon as possible after Borrower shall have received knowledge thereof, notice that an amendment shall be required or desirable to the Project Budget; or (viii) any notices alleging a material default (by any party thereto) under any of the Basic Agreements or the Management Agreement.

 

(c)                                   Furnishing Reports and Notices .  Upon request by Lender, Borrower shall provide Lender with copies of: (i) all inspections, reports, test results and other information received by Borrower from time to time from its employees, agents, representatives, architects, engineers, contractors and any other parties involved in the Project and (ii) any notices pertaining to the Project which Borrower has received from any Governmental Authorities or any insurance company providing insurance in connection with the Project.

 

(d)                                  Tax Returns . On or before April 30 of each year during the term of the Loan, true, correct and complete copies of Borrower’s federal and state income tax returns, Guarantor’s federal and state income tax returns and the federal and state tax returns for all entities reporting income and expenses on the Project; provided, that if an extension is filed by any such party with the Internal Revenue Service or applicable state revenue department, then if Lender is provided a

 

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true, correct and complete copy of such extension, Borrower may deliver such income tax returns to Lender simultaneously upon the filing thereof.

 

(e)                                   Sales Reports .  The Sales Report as and when required by the terms of Section 8.4 .

 

(f)                                     Condominium Contracts .  Upon execution thereof, complete copies of all Condominium Contracts.

 

(g)                                  Homeowner’s Association Dues .  Within 15 days of the end of each month,  evidence reasonably satisfactory to Lender verifying that Borrower’s portion of the condominium homeowner’s association dues have been paid.

 

(h)                                  Books and Records .  Borrower shall maintain complete books of account and other records for the Property, and the same shall be made available for audit, inspection and copying by Lender and its agents at reasonable times and upon reasonable prior notice.

 

(i)                                      Other .  Borrower shall also furnish Lender such other material financial information or verifications concerning the Property, Borrower, any Borrower Party or Guarantor as Lender may reasonably request from time to time. Lender may retain an investigator to research the public records and reputation of any principal of Borrower or Guarantor.

 

SECTION 7.8                           Insurance Requirements .

 

SECTION 7.8.1                  Insurance .  Borrower, at its sole cost and expense, shall insure and keep the Property insured against such perils and hazards, and in such amounts and with such limits, as Lender may from time to time reasonably require at all times during the term of the Loan, including, but not limited to the insurance coverage set forth below.  Unless otherwise expressly defined herein, capitalized terms set forth in this Section are terms of art, as used in and understood in the insurance industry or are defined terms elsewhere in this Agreement.

 

(a)                                   Casualty/ “All Risk” .  Borrower shall maintain or obtain insurance against loss customarily included under standard “All Risk” insurance policies including Flood, Earthquake and such other insurable hazards as, under good insurance practices are insured against for other property and buildings similar to the Property in nature, use, location, height, and type of construction (the “ All Risk Insurance ”).  The amount of such insurance shall be not less than one hundred percent (100%) of the replacement cost of the improvements of the Property.  Such insurance policy shall contain an agreed amount endorsement. Flood and Earthquake sublimits shall be at least 25% of the replacement cost of the Property, but not less than $5,000,000 each per occurrence and in the annual aggregate, unless the risk is located in a Mercalli Zone VII or greater or a Flood Zone “A”, as defined by the National Insurance Flood Plan.  If the Property is located in an Earthquake Mercalli Zone VII or greater, Borrower shall maintain Earthquake limits providing for 75% of the replacement cost, with a deductible not greater than 5% of the replacement cost.  If the Property is located in a Flood Zone “A”, Borrower shall maintain Flood limits providing for 20% of the replacement cost, with a deductible not greater than 3% of replacement costs.  Such insurance shall cover increased cost of law or ordinance insurance, costs of demolition and increased cost of construction, with a sublimit of not less than

 

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$1,000,000. If coverage is provided under a blanket policy, Lender shall be named as sole Loss Payee and Mortgagee for the Property.

 

(b)                                  Intentionally Deleted .

 

(c)                                   Commercial General Liability . Commercial General Liability Insurance, including, but not limited to, coverage for Owned (if any), Hired and Non-Owned Auto Liability, and Umbrella Liability coverage for Personal Injury, Bodily Injury, Death, Accident and Property Damage, providing in combination no less than $10,000,000 per occurrence and in the annual aggregate, per location .  The policies described in this paragraph shall cover, without limitation: elevators, escalators, independent contractors, contractual liability and Products and Completed Operations Liability coverage.

 

(d)                                  Worker’s Compensation . Worker’s compensation insurance covering Borrower and its employees at the Property to the extent required, and in the amounts required by applicable Laws.

 

(e)                                   Business Interruption . Upon Lender’s reasonable request, business income and extra expense insurance, against the perils insured by the All Risk Insurance, for a period of indemnity of twelve months.

 

(f)            Dram Shop . Upon Lender’s reasonable request or prior to any tenant selling alcoholic beverages on any part of the Property, Borrower either itself or through the tenant shall provide evidence of so-called “Dram Shop” insurance against claims or liabilities arising directly or indirectly to Persons or property on account of the sale or dispensing of alcoholic beverages.  Coverage shall include loss of means of support.  Limits shall equal those limits as may be required by applicable Laws or as Lender may reasonably specify.  If state Law allows, Lender shall be named as an additional insured on such policy.

 

(g)           Other . Such other insurances as may be reasonably requested by Lender.

 

SECTION 7.8.2                  Policy Requirements .

 

(a)           All insurance policies shall be issued by an insurer or insurers with an A.M. Best rating of A:IX or better or a Standard and Poor’s rating of “AA”, or equivalent rating from another agency acceptable to Lender and be authorized in the State where the Property is located.  All insurance acquired pursuant to this Agreement shall be in form, amounts and with coverage and deductibles satisfactory to Lender, in Lender’s sole discretion.

 

(b)                                  The All Risk insurance required pursuant to Section 7.8.1(a) and (b) shall name Borrower as the insured and shall also name Lender as Loss Payee and Mortgagee, under a non-contributing standard mortgagee clause.  Without Lender’s prior written consent, Borrower shall not name any Person other than Lender as loss payee under any property insurance policies that Borrower is required to insure pursuant to any Lease.

 

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(c)                                   The Commercial General Liability, Auto Liability and “Dram Shop” insurance set forth in Sections 7.8.1(c) and (f) , shall name Lender, its directors, officers and employees as an Additional Insured.

 

(d)                                  The amount of any deductible under any insurance policy must be reasonably acceptable to Lender.

 

(e)                                   Borrower may provide required insurance under blanket policies.  Borrower shall not maintain any insurance on the Property that does not name Lender as Loss Payee.

 

(f)                                     Borrower shall pay the premiums for the insurance policies as the same become due and payable.  Borrower shall deliver to Lender certified copies of the insurance policies required to be maintained pursuant to this Agreement within sixty (60) days after the Closing Date, or ten (10) days after the issuance of the policies by the insurer, whichever is later, but in all events, no later than ninety (90) days after the Closing Date, and failure to do so will be an immediate Event of Default.  Notwithstanding the foregoing, Lender shall not be deemed by reason of the custody of such insurance policies to have knowledge of the contents thereof.  Borrower also shall deliver to Lender, within ten (10) days of Lender’s request, a certificate of Borrower or Borrower’s insurance agent setting forth the particulars as to all such insurance policies, that all premiums due thereon have been paid currently and that the same are in full force and effect.  BORROWER SHALL DELIVER A CERTIFICATE OR OTHER EVIDENCE OF INSURANCE ACCEPTABLE TO LENDER EVIDENCING THE INSURANCE REQUIRED HEREUNDER ON THE CLOSING DATE, TOGETHER WITH RECEIPTS FOR THE PAYMENT OF PREMIUMS THEREON.  ALL CERTIFICATES FOR PROPERTY INSURANCE MUST BE ON ACCORD FORM 27 or the equivalent;  ACCORD 25 certificates are acceptable for liability insurance.  Not later than fifteen (15) days prior to the expiration date of each of the insurance policies Borrower shall deliver to Lender a certificate of insurance evidencing renewal of coverage as required herein.  Within ten (10) days after such renewal, Borrower shall deliver to Lender evidence of payment of premium satisfactory to Lender.  Not later than ninety (90) days after the renewal of each of the insurance policies, Borrower shall deliver to Lender an original or certified copy (as required pursuant to this Section) of a renewal policy or policies.

 

(g)                                  Each insurance policy shall contain a provision whereby the insurer agrees that so long as the Loan is outstanding, such policy shall not be canceled or fail to be renewed, lapsed or materially changed without, in each case, at least thirty (30) days prior written notice to Lender, except ten (10) days prior written notice to Lender of non-payment of premium.

 

(h)                                  In the event any insurance policy (except for general and other liability and Workers Compensation insurance) shall contain breach of warranty provisions, such policy shall provide that with respect to the interest of Lender, such insurance policy shall not be invalidated by and shall insure Lender regardless of: (A) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured; (B) the occupancy or use of the Property for purposes more hazardous than permitted by the terms thereof; or (C) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of this Agreement or the other Loan Documents.

 

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(i)                                      Any insurance maintained pursuant to this Agreement may be evidenced by blanket insurance policies covering the Property and other properties or assets of Borrower or its Affiliates; provided that any such policy shall in all other respects comply with the requirements of this Section.  Lender, in its reasonable discretion, shall determine whether such blanket policies contain sufficient limits of insurance.

 

(j)                                      Any insurance carried by Lender shall be for its sole benefit and shall not inure to the benefit of Borrower and insurance required from Borrower shall be primary to any available, if any, to Lender.

 

(k)                                   All required policies, other than professional liability, shall provide that insurers have waived rights of subrogation against Lender.  The required insurance shall be primary without right of contribution from any insurance which may be carried by Lender.

 

(l)                                      The required limits are minimum limits established by Lender and nothing contained herein shall be construed to mean the required limits are adequate or appropriate to protect Borrower from greater loss.

 

SECTION 7.8.3                  Notice of Policies .  Any notice pertaining to insurance and required pursuant to this Section 7.8 shall be given in the manner provided in Section 12.10 below at Lender’s address stated above.

 

SECTION 7.8.4                  Insurance Review .  At Lender’s option, but not more often than annually, Borrower shall provide Lender with a report from an independent insurance consultant of regional or national prominence, acceptable to Lender, certifying that Borrower’s insurance is in compliance with this Section 7.8 .

 

SECTION 7.9                                                        Borrower’s Indemnities .  Borrower shall indemnify, protect, defend Lender and each of its stockholders, directors, officers, employees and agents (each, a “ Lender Party ” and collectively the “ Lender Parties ”) and hold Lender Parties harmless from and against any and all actions, suits, losses, liabilities, damages, claims, costs and expenses of any kind whatsoever (including reasonable attorney’s fees and disbursements) actually paid, incurred or suffered by or asserted against the relevant Lender Party (irrespective of whether such Lender Party is a party to the action for which indemnification is sought) (collectively, “ Losses ”) as a result of or arising out of:

 

(a)                                   any matter financed or expected to be financed with the proceeds of the Loan;

 

(b)                                  the entering into and performance of this Agreement and any other Loan Document by any of Lender Parties (including any action brought by or on behalf of Borrower or any other party as the result of any determination by Lender pursuant to this Agreement not to fund any Advance);

 

(c)                                   any injury, damage or liability to persons or property at or about the Property or otherwise occurring in connection with the construction of the Project or the ownership, operation or maintenance of the Property;

 

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(d)                                  the construction of the relationship between Lender and Borrower contrary to Section 12.13 below; and

 

(e)                                   any claim of a broker’s or finder’s fee against Lender by any person or entity in connection with any of the transactions herein contemplated, except for any such indemnified liabilities arising for the account of a particular Lender Party by reason of the relevant Lender Party’s gross negligence or willful misconduct.  If and to the extent that the foregoing undertaking may be unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law. Borrower acknowledges that the indemnified Lender Parties may defend any matter covered by the above indemnification by counsel of the relevant Lender Party’s choice, and the costs of such defense (including reasonable attorney’s fees) are part of the costs covered by the indemnity;

 

provided, that the foregoing indemnification obligations set forth in (a)-(e) above shall not include any obligation to indemnify any Lender Party for Losses sustained or incurred by such Lender Party as a result of such Lender Party’s gross negligence or willful misconduct.

 

The foregoing indemnification obligations shall survive repayment of the Loan as set forth in Section 12.15 below.

 

SECTION 7.10                                                  Single Purpose Entity .  Borrower will at all times remain a Single Purpose Entity.

 

SECTION 7.11                                                  Further Assurances .  Borrower shall, from time to time, upon Lender’s request, execute, deliver, record and furnish such documents and do such other acts as Lender may reasonably deem necessary or desirable to: (i) perfect and maintain valid liens upon the security contemplated by the Loan Documents, (ii) correct any errors of a typographical or other manifest nature which may be contained in any of the Loan Documents, (iii) evidence Borrower’s compliance with the Loan Documents, and (iv) consummate fully and carry out the intent of the transactions contemplated under this Agreement.

 

SECTION 7.12                                                  ERISA .  Borrower hereby covenants to Lender for so long as the Note remains unpaid, Borrower will not be an “employee benefit plan” (within the meaning of Section 3(3) of ERISA) to which ERISA applies and Borrower’s assets will not constitute assets of any such plan.

 

SECTION 7.13                                                  New Appraisals .  Borrower acknowledges Lender’s right to obtain a new appraisal (or update of an existing appraisal) at any time while the Loan or any portion thereof remains outstanding (a) when, in Lender’s reasonable judgment, such an appraisal is warranted (at a minimum, a reappraisal will be required three years from the date of value cited in the original appraisal report), and/or (b) to comply with statutes, rules, regulations, or directives of Governmental Authorities having jurisdiction over Lender.  Borrower hereby agrees to pay, upon demand, all reasonable appraisers’ fees and related expenses incurred by Lender from time to time in obtaining appraisal reports.

 

SECTION 7.14                                                  Contract Maintenance; Other Agreements .  Borrower will, for the benefit of Lender, fully and promptly keep, observe, perform and satisfy each obligation,

 

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condition, covenant and restriction affecting the Property or imposed on it under any agreement between Borrower and a third party relating to the Collateral or the Secured Obligations, so that there will be no default thereunder and so that the Persons (other than Borrower) obligated thereon shall be and remain at all times obligated to perform for the benefit of Borrower and Lender.  Except as expressly contemplated in the Loan Documents, Borrower will not permit to exist any condition, event or fact which could allow or serve as a basis or justification for any such Person to avoid such performance.

 

SECTION 7.15                                                  Liens .  Neither Borrower nor Guarantor shall take any action that would impair the Liens created under this Agreement or any other Loan Document.  Borrower shall not be permitted to have any Liens on the Property other than the Liens created by the Loan Documents, and Permitted Exceptions without the prior written consent of Lender, which prior consent may be granted or withheld in Lender’s sole but reasonable discretion.

 

ARTICLE VIII

 

CONDOMINIUM MATTERS

 

SECTION 8.1                                                        Condominium Contracts .  Except as set forth in the immediately following sentence, without the prior written consent of Lender, Borrower shall not, and shall not cause, permit or suffer any other Person acting on behalf of or as agent for Borrower, to enter into a contract for the sale of any Unit (each a “ Condominium Contract ” and collectively, “ Condominium Contracts ”).  Notwithstanding the foregoing, provided no Event of Default has occurred, Borrower may enter into a bonafide, third party Condominium Contract if each of the following conditions is satisfied (each such Condominium Contract which satisfies such conditions is referred to as an “ Approved Condominium Contract ” and collectively as the “ Approved Condominium Contracts ”):

 

(a)                                   Such agreement shall be evidenced by a form of purchase agreement, together with form riders or approved modification language, which are attached hereto as Exhibit G (the “ Form Condominium Contract ”);

 

(b)                                  The Contract Buyer must be a third party not related to or affiliated, directly or indirectly, with Borrower, Guarantor or any principal of Borrower and which has no direct or indirect interest in the Property, unless said Condominium Contract is approved by Lender and meets or exceeds all release requirements contained herein, and is purchasing the Unit for his own use and not for investment, unless approved by Lender;

 

(c)                                   Unless consented to by Lender, the Contract Buyer under said Condominium Contract has (in the aggregate with all its Affiliates) not contracted to purchase more than two (2) Residential Units;

 

(d)                                  The earnest money deposit required thereunder is no less than one percent (1%) of the Base Purchase Price of such Unit;

 

(e)                                   There are no unexpired contingencies thereunder, including a mortgage contingency;

 

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(f)                                     The Base Purchase Price for each Unit shall be greater than or equal to the following calculations, as applicable to such Unit: (1) if Upgrades are required for such Unit and such Unit is included in the Mass Closing, then the Base Purchase Price for such Unit shall be greater than or equal to the Minimum Unit Sales Price for such Unit; (2) if such Unit is included in the Mass Closing but the Unit is to be sold “as-is” with no required Upgrades, then the Base Purchase Price for such Unit shall be greater than or equal to 95% of the Minimum Unit Sales Price for such Unit; or (3) if such Unit is not included in the Mass Closing, then the Base Purchase Price for such Unit shall be greater than or equal to 95% of the Minimum Unit Sales Price for such Unit; and

 

(g)                                  All  conditions of applicable Laws to the contracting for the sale of such Unit have been satisfied.

 

Borrower will cooperate fully with Lender as to any verification Lender requires with respect to an Approved Condominium Contract.  It is expressly understood and agreed that each Approved Condominium Contract shall provide for the sale and conveyance of one Parking Unit in connection with the sale and conveyance of each Residential Unit.

 

SECTION 8.2                                                        No Modification or Termination of Condominium Contracts .  Borrower shall not, and shall not cause, suffer or permit any Borrower Party or any other Person acting on behalf of or as agent for Borrower to: (i) modify or amend any Approved Condominium Contract other than non-material modifications; or (ii) cancel, terminate or surrender any Approved Condominium Contract except, if no Event of Default shall have occurred, upon the default of the Contract Buyer thereunder.  Any default, breach or violation of this Section 8.2 shall be an automatic Event of Default (without any notice, grace or cure period).

 

SECTION 8.3                                                        Performance under Condominium Contracts .  Borrower shall: (i) observe and perform all the obligations imposed upon the seller under the Approved Condominium Contracts and applicable Laws and not do or permit to be done anything to impair the value of any of the Approved Condominium Contracts; (ii) promptly send copies to Lender of all notices of default which Borrower or its agents or representatives shall send or receive thereunder; (iii) enforce all of the terms, covenants and conditions contained in the Approved Condominium Contracts upon the part of the Contract Buyer thereunder to be observed or performed; provided, however, without the prior written consent of Lender, Borrower shall not (A) cancel, terminate or surrender any Approved Condominium Contract except as set forth in Section 8.2 above or (B) execute any other assignment of the seller’s interest in any of the Approved Condominium Contracts or the purchase price payable thereunder, except pursuant to the Loan Documents.

 

SECTION 8.4                                                        Sale Activity .  Borrower shall use commercially reasonable efforts to market and sell all Units in the Project for a Base Purchase Price not less than the Minimum Unit Sales Price.  Borrower shall provide Lender within ten (10) days of the end of each month a current certified Sales Report. Within ten (10) days after written request from Lender, Borrower shall also provide Lender with any information reasonably requested by Lender regarding sales activity at the Project.

 

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SECTION 8.5                                                        Minimum Unit Sales Price .  Attached hereto as Exhibit E is a price list that provides a detailed breakdown of the size, type, location and Minimum Unit Sales Price for each Residential Unit and/or Parking Unit (the “ Price List ”).

 

SECTION 8.6                                                        Condominium Documents .  Without the prior written consent of Lender, Borrower shall not, and shall not cause, suffer or permit any Borrower Party or any other Person acting on behalf of or as agent for Borrower to: (i) enter into any Condominium Document; (ii) record any Condominium Document; (iii) modify or amend, in any material respect any Condominium Document or the form thereof submitted to and approved by Lender in accordance with Section 8.8 ; or (iv) cancel, terminate or surrender any Condominium Document.  Notwithstanding the foregoing, this Section shall not apply to any Condominium Contract, the subject matter of which is governed by Sections 8.1, 8.2 and 8.3 . Any default, breach or violation of this Section shall be an automatic Event of Default (without any notice, grace or cure period).  It is expressly understood and agreed that the Declaration of Condominium may not be recorded other than immediately prior to the sale and conveyance of the first Residential Unit.

 

SECTION 8.7                                                        Condominium Sales; Release of Units .

 

(a)                                   Initial Condominium Closing Conditions . Prior to the transfer of title of the first Residential Units or Parking Units, Borrower shall, in addition to and not in limitation of any other requirements set forth herein, and the requirements of applicable Laws, satisfy each of the following conditions (“ Initial Condominium Closing Conditions ”):

 

(i)                                      All Offering Materials shall have been approved by Lender and shall contain all documents and instruments by which Residential Units and Parking Units will be transferred to Contract Buyers, including, without limitation, the Declaration of Condominium pursuant to which the Property shall be converted to condominium ownership; the bylaws and other governing instruments pursuant to which the Association shall be created and governed; and the form of the deed by which the Units shall be conveyed to Contract Buyers.
 
(ii)                                   Borrower shall have filed and recorded the Declaration of Condominium and the Plat of Condominium immediately prior to the first conveyance of a Unit, and Lender shall have executed a document or documents, prepared by Borrower at Borrower’s expense but subject to Lender’s approval in its reasonable discretion, subordinating the lien of the Deed of Trust and the UCC Financing Statements to the Declaration of Condominium, the condominium bylaws and the Plat of Condominium.
 
(iii)                                Borrower shall have obtained a temporary or permanent certificate of occupancy or other evidence reasonably acceptable to Lender that a certificate of occupancy shall be issued, covering the Residential Units or the Residential Unit proposed to be transferred.
 
(iv)                               If required by Lender, at Borrower’s expense, Lender shall have received from the Title Insurer or another title insurance company duly licensed to do business and

 

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in good standing in the Commonwealth of Virginia a copy of a written bulk commitment from such title insurance company to prospective purchasers of the Residential Units committing to insure title of purchasers of such Units who desire such insurance.
 
(v)                                  Borrower shall have satisfied any other conditions required to be satisfied prior to such transfer of title pursuant to the Loan Documents and applicable Laws.
 
(vi)          Borrower must provide proof acceptable to Lender in its sole discretion that (i) Borrower has received fully executed Approved Condominium Contracts for at least 100 Units comprising at least 77,000 net sellable square feet and constituting minimum aggregate gross sale proceeds (excluding Upgrades) of at least $23,000,000 and (ii) Borrower will be able to close on at least 90 of the foregoing Units over a 90 day period (“ Mass Closing ”).  Each and every Residential Unit involved in the Mass Closing must:  (A) have a gross selling price of at least the Minimum Unit Sales Price for such Residential Unit as set forth in Exhibit E (exclusive of any extras and/or Upgrades) and (B) generate proceeds satisfying the Unit Release Payment criteria set forth in Section 8.7(c) .
 

(b)                                  Mass Closing Timeframe .  Borrower covenants and agrees that it will complete the Mass Closing within the Mass Closing Timeframe.  In the event the Mass Closing is not achieved by the earlier of the expiration of the Mass  Closing Timeframe or the twelve (12) month anniversary of the Closing Date, Borrower shall immediately make a principal reduction payment on the Loan in an amount equal to (a) $4,000,000 multiplied by (b) (one (1) minus (the number of Units closed during the Mass Closing Timeframe divided by 90), from additional cash equity and not from any proceeds derived from the Property together with payment of the Prepayment Fee applicable to such prepayment.

 

(c)                                   Condominium Closings .  No less than ten (10) Business Days prior to the sale of each Residential Unit or Parking Unit pursuant to an Approved Condominium Contract, Borrower shall deliver notice to Lender (a “ Closing Notice ”) which Closing Notice shall: (i) specifically identify the Residential Unit(s) and Parking Units to be conveyed; (ii) state the purchase price to be paid therefor, specifically identifying the portion thereof applicable to the Residential Unit, Upgrades, if any, and the Parking Units and specifically stating if such purchase price is less than the Minimum Unit Sales Price; (iii) be accompanied by a copy of the draft closing statement indicating the amount, if any, of any proposed holdback and the provisions pursuant to which such holdback shall be released to Lender; and (iv) be accompanied by the form of the partial release to be executed by Lender in order to release its security interest under the Deed of Trust in the applicable Residential Unit and/or Parking Units to be sold and containing a description of the Residential Unit and/or Parking Units, as applicable, to be released, which partial release shall be prepared by Borrower at Borrower’s sole cost and expense (“ Unit Releases ”). Notwithstanding the foregoing, Lender is willing, so long as the same is acceptable to the Title Insurer, to deliver groups of partial releases in arrears. In no event shall the consideration payable to Lender from the proceeds of such closing be less than the Unit Release Payments.  Lender shall approve or disapprove the adequacy of the items identified in the Closing Notice within five (5) Business Days after receipt thereof.

 

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(d)                                  Release of Units .  Upon receipt of a Closing Notice and satisfaction of all conditions precedent set forth in Section 8.7(a) and this Section 8.7(c) and upon the confirmation of the closing of a sale of a Residential Unit and Parking Units pursuant to an Approved Condominium Contract, Lender shall release the applicable Residential Unit, Parking Units and its appurtenant undivided interest in the common elements, from the lien of the Deed of Trust and the other Loan Documents on the condition that Lender shall have received payment of the Unit Release Payment for each Unit so sold.  As used herein, “ Unit Release Payment ” means the greatest of: (i) 100% of the Net Sales Price for such Residential Unit and/or Parking Unit(s), as the case may be, (ii) 93% of the Base Purchase Price for such Residential Unit and its Parking Units, plus 100% of any Upgrade Profits, or (iii) 90% of the Minimum Unit Sales Price.  Borrower shall cause the Title Insurer, as escrowee, to pay the proceeds of sale in an amount of not less than the Unit Release Payment directly to Lender by wire-transfer of immediately available funds. The proceeds of sale shall be applied in accordance with the provisions of Section 8.9 of this Agreement.

 

SECTION 8.8                                                        Establishing the Condominium Regime .

 

(a)                                   Condominium Documents . Borrower hereby covenants and agrees to cause to be prepared the Declaration of Condominium, the Plat of Condominium, the Association bylaws, and all other documents and instruments required to convert the Property to a condominium form of ownership under the Laws of the Commonwealth of Virginia (the “ Condominium Regime ”) and to prepare the offering of the Residential Units and Parking Units to the public in conformance with the requirements of all applicable Laws.  At least twenty (20) days prior to the Mass Closing, Borrower shall furnish to Lender, for Lender’s approval, the Condominium Documents, which include, without limitation, the proposed Declaration of Condominium and all other declarations of covenants, conditions, restrictions or easements that affect the Property. All of the Condominium Documents are subject to the approval of Lender. Borrower hereby covenants to include in the Offering Materials all disclosures regarding the Property required by all applicable Laws. To secure payment and performance of all Secured Obligations, and to the extent permitted by applicable Law, Borrower hereby collaterally assigns to Lender and grants a security interest to Lender in: (i) Borrower’s interest as declarant under the Declaration of Condominium and all other Condominium Documents and (ii) all Condominium Contracts. Once all of the Condominium Documents have been approved by Lender, the Declaration of Condominium, the other Condominium Documents and all other documents shall not be revised or amended without Lender’s prior written approval, except for such non-material modifications as may be necessary to comply with applicable Law.

 

(b)                                  Reciprocal Easements . Borrower shall deliver to Lender, for Lender’s review and approval, in Lender’s reasonable discretion: (i) a plan of subdivision and declaration of reciprocal easements for party wall rights, access, ingress, egress, support, encroachment, utilities, common usage, and such other matters for all portions of the Property, as Lender shall deem necessary or desirable, in Lender’s reasonable discretion; and (ii) evidence that said plan of subdivision complies with all requirements of Law.

 

(c)                                   Recording of Condominium Documents . Notwithstanding the foregoing, Borrower shall not permit or cause: (x) the Declaration of Condominium, (y) the Plat of Condominium, or (z) all other documents, and instruments required by applicable Laws to be

 

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duly recorded in the appropriate office in the Commonwealth of Virginia without the prior written approval of Lender. Borrower shall not be entitled to record the foregoing documents prior to the Mass Closing and if an Event of Default has occurred and is continuing at the time of such proposed recording.  Not later than the date of the Mass Closing (or on such earlier date as may be required by applicable Laws and approved in writing by Lender) Borrower shall cause: (x) the Declaration of Condominium, (y) the Plat of Condominium and (z) all other documents, and instruments required by applicable Laws to be duly recorded in the appropriate office in the Commonwealth of Virginia.

 

(d)                                  Interstate Land Sales Full Disclosure Act .  In connection with the conversion of the Property to a Condominium Regime, Borrower will comply with the Interstate Land Sales Full Disclosure Act (15 U.S.C. § 1701, et seq. ) and the rules and regulations associated therewith (in this Section only collectively, the “ Land Act ”), and will deliver to the U.S. Department of Housing and Urban Development (“ HUD ”) two (2) copies of the final printed version of the Offering Materials upon preparation thereof and will at all times thereafter during the term hereof, file the Annual Report of Activity and all amendments and supplements thereto, as required pursuant to 24 CFR 1710.310, and will thereafter take all action necessary or desirable to comply with the Land Act.  Borrower shall deliver copies of all such filings to Lender within ten (10) days after the filing thereof, together with all notices, requests, correspondence, and demands delivered by HUD to Borrower.  Failure by Borrower to comply at all times with the Land Act, when applicable, shall constitute an Event of Default.  Notwithstanding anything to the contrary contained in this Section, Borrower shall not be required to comply with the provisions of this Section in the event Borrower is exempt from the requirements of the Land Act.

 

SECTION 8.9                                                        Application of Unit Release Payments; Cash Collateral Account .  Upon Lender’s receipt of Unit Release Payments, so long as no Event of Default exists, such funds shall be applied by Lender as follows: (i) first, to pay Lender the Individual Unit Exit Fee for each Unit released, (ii) second, to repay the principal balance of the Loan outstanding from time to time, (iii) third, to pay all of Lender’s costs and expenses which may be outstanding from time to time, (iv) fourth, to pay accrued but unpaid interest on the Loan, and (v) fifth, to all other Secured Obligations, until the Loan is paid in full.  In the event that a Unit is sold and the proceeds thereof are paid on a date when Lender has a commitment to fund additional Loan proceeds, but there are no Secured Obligations then due and owing, an amount equal to such Unit Release Payment shall be deposited into a cash collateral account. Borrowers grant to Lender a first, perfected security interest in such cash collateral account to secure all Secured Obligations. Provided no Event of Default or Default shall have occurred and be continuing, Borrowers shall have the right, as part of any request for an Advance, to direct Lender to disburse funds in the cash collateral account to pay Project Costs set forth in the Project Budget, in lieu of disbursements of Loan proceeds to pay said Project Costs. Any amounts so disbursed by Lender shall be disbursed in the manner and subject to the satisfaction of the conditions precedent set forth herein for disbursements of Loan proceeds and the Loan shall be reduced by the amount of any disbursements from such cash collateral account.

 

SECTION 8.10                                                  Upgrades .  Borrower may enter into Approved Condominium Contract (or amendments thereto) requiring Upgrades which are in addition to those contemplated to be funded by the Unit Upgrades line item of the Project Budget (“ Additional

 

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Upgrades ”) on the condition that all Upgrades shall be paid for by the Contract Buyer as consideration payable in addition to the Minimum Unit Sales Price.  Additional Upgrades shall be subject to Lender’s prior approval, which shall not be unreasonably withheld.  In the event the sum of any deposit for the cost of Additional Upgrades made by the Contract Buyer plus available funds in the Unit Upgrades line item of the Project Budget (provided that the available funds in the Unit Upgrades line item shall be allocated in an amount of $8,021 per Residential Unit) is insufficient to cover the cost of the total Upgrades for such Units, then the Loan shall be deemed Out of Balance by an amount equal to such shortfall and Borrower shall be required to make a Deficiency Deposit in the amount of such shortfall no later than 45 days after the date of execution of the Approved Condominium Contract containing such Upgrade.  Thereafter, the Deficiency Deposit will be disbursed by Lender prior to any further Advances of Loan proceeds and shall be used for Project Costs, subject to Borrower’s compliance with all conditions which would be applied to an Advance for the same Project Budget items to which the Deficiency Deposit will be applied. Failure to deposit said funds within said 45 day period shall be an Event of Default.

 

ARTICLE IX

 

CASUALTY AND CONDEMNATION

 

SECTION 9.1                                                        Insurance and Condemnation Proceeds .  (a) Borrower covenants and agrees that Borrower shall pay or cause to be paid to Lender the following:  (i) all awards of damages and all other compensation payable directly or indirectly by reason of a condemnation affecting the Property, (ii) all other claims and awards for damages to, or decrease in value of, the Property, (iii) all proceeds of any insurance policies payable by reason of a loss sustained to the Property and (iv) all interest which may accrue on any of the foregoing (collectively, the “ Property Proceeds ”).  Borrower agrees to execute and deliver from time to time such further instruments as may be reasonably requested by Lender to confirm the foregoing assignment to Lender of the Property Proceeds.  Lender is hereby irrevocably constituted and appointed the attorney-in-fact of Borrower (which power of attorney shall be irrevocable so long as any indebtedness secured hereby is outstanding, shall be deemed coupled with an interest, shall survive the voluntary or involuntary dissolution of Borrower and shall not be affected by any disability or incapacity suffered by Borrower subsequent to the date hereof), with full power of substitution, subject to the terms of this Article IX , to collect and receive any such awards, damages, insurance proceeds, payments or other compensation from the parties or authorities making the same, to appear in any proceedings therefor and to give receipts therefore.  Borrower covenants and agrees to notify Lender within five (5) Business Days of the occurrence of any event that may result in Property Proceeds.  Subject to applicable Law, Lender may (at its discretion) apply all or any portion of the Property Proceeds that it receives to its reasonable expenses in settling, prosecuting and defending any claim related thereto and may apply the balance of the Property Proceeds to the Secured Obligations in any order, and/or Lender may release all or any part of the Property Proceeds to Borrower upon any conditions Lender may reasonably impose. Lender may commence, appear in, defend and prosecute any action related to the Property Proceeds and may adjust, compromise, settle and collect all Property Proceeds, provided that, prior to the occurrence of an Event of Default, any adjustment, compromise and settlement shall only be with Borrower’s reasonable consent.

 

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SECTION 9.2                   Disbursement of Property Proceeds .  Notwithstanding anything to the contrary contained in Section 9.1 , if the loss or damage due to a casualty or condemnation is less than 25% of the outstanding Loan balance, as determined by Lender in its reasonable discretion, Lender shall permit Property Proceeds held by Lender to be used for repair or restoration but may impose such conditions thereon as Lender may determine to be appropriate, including, without limitation: (i) that no Event of Default exists (and no event has occurred that with the giving of notice or the passage of time (or both) would constitute an Event of Default); (ii) the deposit with Lender of such additional funds which Lender determines are needed to pay all costs of the repair or restoration; (iii) the establishment of an arrangement for lien releases and disbursement of funds reasonably acceptable to Lender; (iv) the delivery to Lender of plans and specifications for the work, a contract for the work signed by a contractor acceptable to Lender, a cost breakdown for the work and a payment and performance bond for the work, all of which shall be acceptable to Lender; (v) the delivery to Lender of evidence reasonably acceptable to Lender that the reconstruction of the Property will be completed at least six (6) months prior to the Maturity Date; (vi) evidence that, upon completion of the work, the size, quality and functionality of the Property will be at least as great as those which existed immediately before the damage or condemnation occurred; (vii) all of the then executed Approved Condominium Contracts remain in full force and effect and will remain in full force and effect notwithstanding any delays resulting from such casualty; (viii) the Initial Condominium Closings have not occurred; and (ix) the delivery to Lender of evidence reasonably acceptable to Lender (A) that after completion of the work the income from the Property will be sufficient to pay all expenses for the Property, (B) that upon completion of the work, the size, quality and functionality of the Property will be at least as great as it was before the damage or condemnation occurred, and (C) of the satisfaction of any additional conditions that Lender may reasonably establish and that are customarily imposed by Lender.  In addition to the conditions set forth above, if Lender permits Property Proceeds to be used by Borrower to restore or repair the Property after the occurrence of a casualty or a taking as provided above, the disbursement of all insurance proceeds or condemnation awards by Lender to Borrower shall be conditioned upon the same general terms and conditions as those set forth in Article V respecting the funding of Advances. If the loss or damage due to a casualty or condemnation is greater than 25% of the outstanding Loan balance, as determined by Lender in its reasonable discretion, then release of the Property Proceeds held by Lender shall be at Lender’s sole discretion. Borrower acknowledges that the conditions described above are reasonable.

 

SECTION 9.3                                                        Reduction in Secured Obligations .  Any reduction in the Secured Obligations resulting from Lender’s application of any sums received by it hereunder shall take effect only when Lender actually receives such sums and applies such sums to the Secured Obligations and, in any event, the unpaid portion of the Secured Obligations shall remain in full force and effect and Borrower shall not be excused in the payment thereof.  If Lender requires Borrower to restore or repair the Property after the occurrence of a casualty or the occurrence of a taking, Borrower shall promptly and diligently, at Borrower’s sole cost and expense and regardless of whether the Property Proceeds shall be sufficient for the purpose, restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to such casualty or taking in accordance with the provisions of this Article and Borrower shall pay to Lender all reasonable out-of-pocket costs and expenses of Lender incurred in administering payments on account of said rebuilding, restoration or repair, provided that Lender makes the Property Proceeds available for such purpose.

 

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ARTICLE X

 

EVENTS OF DEFAULT

 

SECTION 10.1                                                  Events of Default .  Below are listed the events which constitute an Event of Default under this Agreement.  The notice and/or cure periods, if any, applicable to each item of Default is listed with the subparagraph pertaining to such item of Default.  If no notice or cure period is listed, then no notice or cure period shall apply.  The notice and/or cure period provided for any specific item of Default shall control over the notice and/or cure period provided for any more general category of Defaults even though the general category includes the Default that is specifically listed separately.  Each of the following shall constitute an “ Event of Default ” under this Agreement:

 

(a)                                   Non-Payment .  Borrower fails to pay when due, whether by acceleration or otherwise, (i) the principal, any installment of interest (except for the failure of Lender to advance available funds from the Interest Reserve line item of the Project Budget (to the extent available for use by Borrower pursuant to the terms and conditions of this Agreement and the other Loan Documents)), or any other charge or amount due under the Note, or (ii) any other monetary obligation to Lender under this Agreement or the other Loan Documents (including, without limitation, any obligation to contribute Borrower’s Equity or the Real Estate Tax Deposits as and when required under this Agreement or the other Loan Documents) and, in the case of (i) or (ii), such failure continues for fifteen (15) days after Borrower’s receipt of notice of such failure;

 

(b)                                  Representations .  Any representation, warranty or certification made by Borrower, any Borrower Party or Guarantor in or pursuant to any of Loan Documents is or becomes materially false or misleading at any time when such representation, warranty, or certification is required to be operative;

 

(c)                                   Other Breaches .  Borrower, any Borrower Party or Guarantor breaches or defaults under any other term or provision in any of the Loan Documents, and such breach or default continues for thirty (30) days after receipt of notice thereof by Lender;

 

(d)                                  Other Events of Default .  The occurrence of any other matter designated as an Event of Default or Default under any of the Loan Documents;

 

(e)                                   Balancing; Deficiency Deposits .  Borrower fails to contribute all or any portion of any Deficiency Deposit in accordance with the terms hereof;

 

(f)                                     Bankruptcy, Insolvency, etc .  Any of Borrower, its members or Guarantor shall: (i) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (ii) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for itself or a substantial part of its property, or make a general assignment for the benefit of creditors; (iii) in the absence of such application, consent or acquiesce, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for itself or for a substantial part of its property, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that Lender is

 

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hereby expressly authorized to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents; (iv) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of any of Borrower or Guarantor, and, if any such case or proceeding is not commenced by Borrower or Guarantor, such case or proceeding shall be consented to or acquiesced in by Borrower or Guarantor, or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that Lender is hereby expressly authorized to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents; or (v) take any corporate, partnership, trust or other similar action authorizing or in furtherance of any of the foregoing;

 

(g)                                  Attachment .  There is an attachment, execution or other judicial seizure of any portion of Borrower’s or Guarantor’s assets and such seizure is not discharged within thirty (30) days of such attachment, execution or other judicial seizure, as the case may be;

 

(h)                                  Suspension of Business; Death; Dissolution .  Borrower or Guarantor suspends the transaction of business, dissolves, terminates its existence, or (if a natural Person) dies;

 

(i)                                      Material Adverse Change .  There is a material adverse change in the financial position of Guarantor or Borrower;

 

(j)                                      Basic Agreements .  There is a default by Borrower under any of the Basic Agreements which is not cured within any applicable cure period, or any of the Basic Agreements are terminated or amended without obtaining the approval of Lender, if such approval is required by the Loan Documents;

 

(k)                                   Due on Sale; Insurance; Condominium Documents .  Borrower breaches or defaults under Sections 7.4 , 7.8 , or 8.6 of this Agreement;

 

(l)                                      Destruction .  Any material part of the Project is damaged or destroyed by fire or other casualty, and, in the reasonable judgment of Lender, the loss is not adequately covered by insurance actually collected or in the process of collection, and Borrower fails to deposit with Lender the deficiency (or provide acceptable security for the deficiency) within ten (10) Business Days of Lender’s written request for such deposit, or if Lender agrees to disburse insurance proceeds for Borrower to rebuild and restore pursuant to Article IX and, within ten (10) days after the giving of notice that Borrower is failing to satisfy the conditions for disbursement, Borrower otherwise continues to fail to satisfy the conditions for rebuilding or restoring the Property;

 

(m)                                Condemnation .  Proceedings are commenced by any public or quasi-public body to acquire the Property, or any portion of the Property by eminent domain, condemnation or other power, which acquisition would materially jeopardize the economic viability of the Project or would otherwise materially impair Lender’s security, and such proceedings are not dismissed within sixty (60) days and Lender determines that the anticipated award together with any Borrower Equity is not sufficient to satisfy all of the Secured Obligations;

 

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(n)                                  Lien .  Any Lien or notice of Lien of any kind (whether for the performance of work, the supplying of materials, a judgment lien, a tax lien, or otherwise) is filed or served against any part of the Property, and Borrower fails either to satisfy or cause such Lien to be released as a lien against the Land or bonded over to the satisfaction of Lender within the earlier of the time necessary to stay enforcement of the Lien or thirty (30) days after the date of filing or serving of such Lien or notice of Lien;

 

(o)                                  Other Debt .  If Borrower  or Guarantor shall fail to pay any debt owed by it to Lender or any other party or is in default under any agreement with Lender or any other party (other than a failure or default for which such party’s maximum liability does not exceed $10,000.00) and such failure or default continues after any applicable grace period specified in the instrument or agreement relating thereto;

 

(p)                                  Judgments .  Any judgment or order for the payment of money in excess of $100,000.00 not otherwise covered by insurance (with deductibles not to exceed $100,000) shall be rendered against Borrower or Guarantor and either: (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (ii) there shall be any period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect;

 

(q)                                  ERISA .  If at any time during the term of the Loan Documents: (i) Borrower is in breach of any of its representations and warranties in Section 3.18 or (ii) Borrower is in breach or fails to perform any of its covenants, agreements and obligations in Section 7.12 , or (iii) upon delivery of written notice to Borrower of a determination by Lender that it is more likely than not Borrower is or will be in breach of any such representations, warranties or covenants; provided however, there shall be no default if (i) Borrower can demonstrate to Lender, within thirty (30) days of delivery of such notice based upon the opinion of Borrower’s counsel satisfactory to Lender, that such representations, warranties or covenants have not been and will not be breached, and (ii) Borrower provides to Lender such additional representations, warranties and covenants to be made a part of this Agreement which are reasonably satisfactory to Lender; or

 

(r)                                     Impairment of Security; Loss of Priority .  Any Loan Document, or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any obligor party thereto; or Borrower, any Borrower Party, Guarantor, or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien securing the Loan shall, in whole or in part, cease to be a perfected first Lien, subject only to the Permitted Exceptions.

 

ARTICLE XI

 

REMEDIES

 

Upon the happening of any Event of Default, Lender shall have the power, in addition to all the remedies conferred upon Lender by law or equity or the terms of any of the Loan

 

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Documents, to exercise any or all of the following remedies concurrently or successively without notice to Borrower:

 

SECTION 11. 1                                                  Accelerate the Note .  Lender may declare the Note and all other amounts payable under the Loan Documents to be, and the Note and all other amounts payable under the Loan Documents shall thereupon become, immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived.  If any Event of Default described in Section 10.1(f) shall occur, the Note and all other amounts payable under the Loan Documents shall automatically be and become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived.

 

SECTION 11.2                                                  Terminate Lender’s Obligations .  Lender may terminate at any time its obligation to make Advances and all of Lender’s other obligations under this Agreement.  If any Event of Default described in Section 10.1(f) shall occur, then the obligations of Lender to make Advances and all of Lender’s other obligations under this Agreement shall automatically terminate.

 

SECTION 11.3                                                  Take Possession of the Property and Complete the Project (Borrower’s Power of Attorney) .  Lender may, on its own behalf, or as attorney-in-fact for Borrower, enter upon, take possession of and use the Property and all material at the Property and elsewhere ordered for or appropriated to the construction of the Project, for the purpose of completing the Project, and otherwise satisfying all of Borrower’s Secured Obligations under this Agreement and the Loan Documents.  Borrower hereby grants to Lender such power of attorney, with full power of substitution, to perform those items set forth above and below in this Section 11.3 , which power shall be deemed to be coupled with an interest and shall be irrevocable until all of Borrower’s Secured Obligations under the Loan Documents are paid and satisfied in full.

 

To accomplish the foregoing purposes, Lender may without limitation:  (a) act by itself or through its designees, representatives, agents, licensees or contractors; (b) pay or settle all bills and expenses incurred to accomplish the foregoing purposes; (c) use any funds of Borrower, including any undisbursed balance of the Loan; (d) procure the performance of any construction contract and each subcontract, or let new contracts with such contractors, subcontractors, employees, agents, architects, engineers, watchmen, managers, consultants and inspectors as Lender may deem appropriate; (e) execute all applications, certificates or instruments in the name of Borrower which in the opinion of Lender may be or are required by any Governmental Authority or any contract; (f) enter into or enforce Leases of the Project; (g) take such action and require such performance under any surety bond or other obligation, and execute in the name of Borrower such further bonds or obligations, as may be reasonably required in connection with the work; (h) prosecute and defend all actions or proceedings affecting the Property; (i) do any and every act which Borrower might do in its own behalf; and (j) do any and every act which Lender deems reasonably necessary or desirable to accomplish the completion of the Project.

 

All funds advanced by Lender pursuant to this Section 11.3 shall be expenditures to which the terms of Section 12.8 below apply.

 

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SECTION 11.4                                                  Offset .  Lender may apply to payment of the Note or other amounts due under any of the Loan Documents any and all balances, credits or funds of Borrower, any Borrower Party or Guarantor then or thereafter held by Lender.

 

SECTION 11.5                                                  Default Interest .  Lender may charge interest at the Default Rate if permissible pursuant to the terms as set forth in the Note, whether or not Lender has accelerated the Note.

 

ARTICLE XII

 

MISCELLANEOUS PROVISIONS

 

SECTION 12.1                                                  Agreement Binding Only Upon Execution by Lender .  The submission of the Loan Documents to Borrower for examination or execution does not constitute a commitment (or an offer to make a commitment) by Lender for a Loan to Borrower.  The Loan Documents shall become effective as a commitment by Lender only upon execution and delivery by both Lender and Borrower.

 

SECTION 12.2                                                  Entire Agreement .  The Loan Documents when and as executed constitute the entire agreement of Borrower and Lender with respect to the Loan.  There are no oral or written representations or agreements which modify or purport to modify the terms of such documents.  The Loan Documents supersede all prior agreements and understandings, written or oral, relating to the Loan including the Commitment Letter.

 

SECTION 12.3                                                  No Waiver .  No waiver, consent or approval of any kind by Lender shall be effective unless contained in a writing signed and delivered by Lender.  Lender’s waiver of any condition or covenant hereunder shall not be construed as a continuing waiver.  No waiver will be implied from any delay or failure by Lender to take action on account of any Event of Default or Default by Borrower.  Lender’s consent to any act or omission of Borrower will not be construed to be a consent to any other or subsequent act or omission or to waive the requirement for Lender’s consent to be obtained in any future or other instance.  In addition, the closing of the Loan or Lender’s making of any Advance prior to the fulfillment by Borrower of one or more of the conditions set forth in the Loan Documents shall not constitute a waiver by Lender of any such condition, and Lender reserves the right to require the fulfillment of each such condition prior to making any subsequent Advance.  No failure by Lender to exercise, or delay by Lender in exercising, any right, power or privilege under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any such Loan Documents preclude any other or further exercise thereof, or the exercise of any other right, power or privilege.  The rights and remedies provided to Lender in the Loan Documents are cumulative and not exclusive of any right or remedy provided by law.  Without limiting the foregoing, no Advance by Lender after an Event of Default or an Default shall constitute a waiver of any of Lender’s remedies or shall oblige Lender to make any further Advances nor shall any such Advance preclude Lender from declaring an Event of Default and pursuing its remedies under the Loan Documents and at law.

 

SECTION 12.4                                                  Amendments .  No amendment, modification, discharge or other change in the terms of any of the Loan Documents shall be valid unless in writing and signed by

 

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the party against which enforcement is sought, and then only to the extent specifically set forth therein.

 

SECTION 12.5                                                  No Third Party Benefits .  By their execution of the Loan Documents, Lender and Borrower do not intend to create any rights of any kind in any third parties (other than any participants and successors and assignees of Lender).  Lender shall not be deemed to be in privity of contract with any contractor, subcontractor or other provider of services or materials to the Project, nor shall any payment of funds directly to any such Person be deemed to create any third-party beneficiary status or recognition of the same by Lender.  Without limiting the foregoing, Lender shall not owe any duty whatsoever (i) to any claimant for labor performed or material furnished in connection with the construction of the Project to apply any undisbursed portion of the Loan to the payment of any such claim or to exercise any right or power of Lender under the Loan Documents, or (ii) to any purchaser, licensee, tenant, invitee or user of all or any part of the Project.  Any approval or inspection of the Construction Documents or any other documents or any part of the construction of the Project or any other action taken by Lender or its consultants shall be made exclusively for the benefit of Lender, and no third party shall have any right to rely thereon in any way.  Lender shall not in any way be estopped or prejudiced by any approval or inspection from requiring reconstruction of any portion of the Project where construction does not conform to any requirements of the Loan Documents.

 

SECTION 12.6                                                  Successors and Assigns .  Subject to the restrictions on Transfers contained in Section 7.4 above and elsewhere in the Loan Documents, the Loan Documents shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (including any participants or assignees of Lender).

 

SECTION 12.7                                                  Participations and Assignments .  Lender may, at any time and from time to time, sell, transfer or assign this Agreement, the Note, the Deed of Trust and the other Loan Documents, or grant participations therein, or issue certificates or securities evidencing a beneficial interest therein in a rated or unrated public offering or private placement, and Lender may forward to any purchaser, transferee, assignee, service, participant, investor or credit rating agency rating such securities (collectively, an “ Investor ”) or prospective Investor all documents and information in Lender’s possession with respect to Borrower, any members or partners of Borrower, any Borrower Party, Guarantor, the Property and the Loan Documents as such Investor or prospective Investor may request.  Upon any such sale, transfer or assignment, Lender shall be automatically released from any liability hereunder.

 

SECTION 12.8                                                  All Advances Obligatory and Secured .  Any and all disbursements, payments and amounts reasonably expended by Lender pursuant to the Loan Documents, and all other Lender Loan expenses shall as and when advanced or incurred:  (a) be deemed obligatory for Lender, regardless of the Person to whom such amounts are furnished, (b) satisfy dollar for dollar the obligations of Lender hereunder, (c) be evidenced by the Note (except to the extent that such amounts exceed the full amount of principal and interest thereunder), (d) be secured by the Deed of Trust and the other applicable Loan Documents, whether or not the aggregate of such indebtedness shall exceed the face amount of the Note or the principal amount of the indebtedness set out in the Deed of Trust and such other applicable Loan Documents and (e) bear interest at the rate provided in the Note (including the Default Rate if an Event of Default has occurred under any of the Loan Documents).  A statement on behalf of Lender signed by an

 

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officer as to the amount of such disbursements, payments and expenditures and the reasons for the same shall be presumptive evidence of the same in any court or other proceeding.  The burden of proving to the contrary shall be upon Borrower.

 

SECTION 12.9                                                  Publicity .  Lender shall have the right to publicly announce in print or otherwise that Lender has made the Loan to Borrower.  In connection therewith, Lender shall have the right to describe the Loan, including the Borrower’s name, the type of the Loan (i.e., construction, bridge, mini-perm, etc.), and the amount of the Loan and to identify the Property and the location thereof, by way of description and/or photographs of the Property.  Borrower shall cooperate with Lender in the erection of appropriate signage at the Property advertising the financing of the Project by Lender.

 

SECTION 12.10                                            Notices .  Except for any notice required under applicable law to be given in another manner, any notice that Lender or Borrower may desire or be required to give under this Agreement to any other party hereto shall be in writing and shall be deemed to have been properly given, served and received: (i) if delivered by hand, when delivered; (ii) if sent by reputable overnight courier, the Business Day following delivery to such courier; and (iii) if mailed by United States certified or registered mail, postage prepaid, return receipt requested, on the third Business Day after mailing, to the following addresses:

 

If to Borrower:

 

 

c/o Comstock Homebuilding Companies, Inc.

 

11465 Sunset Hills Road, Suite 510

 

Reston, Virginia 20910

 

Attention: Christopher Clemente

 

Facsimile Number: (703) 760-1520

 

 

with a copy to:

 

 

Bankert & Associates, P.C.

 

3025 Hamaker Court, Suite 501

 

Fairfax, Virginia

 

Attention: Joseph E. Bankert, Esq.

 

Facsimile Number: (703) 876-4628

 

 

If to Lender:

 

 

CORUS Bank, N.A.

 

3959 N. Lincoln Avenue

 

Chicago, Illinois 60613

 

Attention: David H. Krischke, Assistant Vice President

 

Facsimile Number: (773) 832-3553

 

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with a copy to:

 

 

 

 

CORUS Bank, N.A.

 

3959 N. Lincoln Avenue

 

Chicago, Illinois 60613

 

Attention: Joel C. Solomon, Esq.,

 

General Counsel

 

Facsimile Number: (773) 832-3626

 

 

and:

 

 

 

 

Andrea J. Cummings, Esq.

 

Sidley Austin Brown & Wood LLP

 

1501 K Street, N.W.

 

Washington, D.C. 20005

 

Facsimile Number: (202) 736-8711

 

Any party may change the address to which notices may be sent by notice to the other party or parties as provided herein.  Except as may be otherwise specifically required herein, notice to Borrower of the exercise of any right or option granted to Lender by this Agreement is not required.

 

Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, except as expressly directed in a writing addressed to Borrower after the date hereof, any and all communications or notices by Borrower or any other loan party to Lender concerning disputed debts, obligations or liabilities, whether arising under this Agreement or otherwise, including without limitation any instrument tendered as full satisfaction of a debt, shall be delivered to Cor us Bank, Department 311, Attention Rosa Paz, 3959 N. Lincoln, Chicago Illinois 60613 in addition to the aforementioned parties.

 

SECTION 12.11                                            Form of Documents .  All documents and other matters required by any of the provisions of the Loan Documents to be executed by Borrower or Lender or to be submitted or furnished to Lender shall be in form and substance satisfactory to Lender and its counsel.

 

SECTION 12.12                                            Severability .  Invalidation of any one or more clauses in any provision or any entire provision of any of the Loan Documents by judgment, order or decree of State or federal court shall in no way affect any other clause or provision in any of the Loan Documents, all of which shall remain in full force and effect.

 

SECTION 12.13                                            Lender Not Partner of Borrower .  Neither the execution nor the performance of any of the Loan Documents by Lender, nor the exercise by Lender of any of its rights, privileges or remedies conferred under the Loan Documents or under applicable Law shall be deemed to render Lender a partner or a joint venturer with Borrower, any guarantor of the Loan or any other Person, or to render Borrower an agent of Lender for any purposes.  Borrower shall indemnify and hold Lender harmless from any and all damages resulting from such a construction of the parties and their relationship.  All of such actions will be exercised by Lender solely in furtherance of its role as a secured lender advancing funds for use by Borrower as provided in the Loan Documents.

 

SECTION 12.14                                            Joint and Several Obligations .  If Borrower, Guarantor or any other signator of any of the Loan Documents shall be more than one Person, each Secured Obligation

 

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of such signators shall be the joint and several Secured Obligation of all of the Persons constituting such signators.

 

SECTION 12.15                                            Survival .  All agreements, representations, warranties and covenants made in the Loan Documents shall survive the execution and delivery of the Loan Documents and the making of the Loan, and shall remain in full force and effect until the Note is paid in full and all Secured Obligations under the Loan Documents are satisfied, or until such other time as specified in any relevant provision of such Loan Documents.  Notwithstanding the foregoing or anything else contained in the Loan Documents, the Secured Obligations of Borrower under Section 7.9 shall survive any termination of the Loan Documents, the repayment of the Loan and the satisfaction of all of the other Secured Obligations under the Loan Documents.

 

SECTION 12.16                                            Time of the Essence .  Time is of the essence for Borrower’s and Guarantor’s performance of each provision of this Agreement and the Loan Documents.

 

SECTION 12.17                                            Conflicts .  In the event of a conflict or inconsistency between the provisions of this Agreement and the provisions of any other Loan Document, the provisions of this Agreement shall govern, unless any such provision in any Loan Document provides that such provision governs regardless of any other terms in this Agreement or the other Loan Documents.  This Agreement supersedes the Commitment Letter.  In the event another Loan Document addresses a particular issue and this Agreement does not address such issue, or in the event that they both address a particular issue but do not directly conflict, such event is not to be construed as a conflict between the provisions of this Agreement and those of such other Loan Document.

 

SECTION 12.18                                            Waiver of Subrogation .  Borrower, until the Loan is paid in full and all funding obligations under the Loan Documents are terminated, hereby waives any and all rights of subrogation to Lender’s rights or claims to the extent affecting the Property or any other security for the Loan.

 

SECTION 12.19                                            Governmental Regulation .  Notwithstanding anything in the Loan Documents to the contrary, Lender shall not be obligated to lend money to Borrower in violation of any limitation or restriction contained in any applicable Law, statute or regulation.

 

SECTION 12.20                                            Counterparts; FAX .  This Agreement may be executed by different parties in separate counterparts.  Each counterpart when so executed shall be deemed to be an original.  All counterparts taken together shall constitute a complete agreement. For purposes of negotiating and finalizing this Agreement and the other Loan Documents (including any subsequent amendments thereto), any executed or certified document, including the Commitment Letter, the Loan Documents and all other statements and verifications transmitted by facsimile machine (“ FAX ”) shall be treated in all manner and respects as an original document.  The signature of any party by FAX shall be considered for these purposes as an original signature.  Any such FAX document shall be considered to have the same use, force and binding legal effect as an original document.  In addition, Borrower agrees to provide Lender with the original of all executed or certified documents within a reasonable time following the FAX transmittal.  At the request of either party, any FAX document subject to this Agreement shall be re-executed by both parties in an original form.  The undersigned parties hereby agree that neither shall raise the

 

46



 

use of the FAX or the fact that any signature or document was transmitted or communicated through the use of a FAX as a defense to the formation of this Agreement.

 

SECTION 12.21                                            Partial Release .  Lender shall from time to time deliver Unit Releases pursuant to and in accordance with the provisions of Section 8.7 of this Agreement.

 

SECTION 12.22                                            Governing Law; Jurisdiction; Venue; and Service of Process .

 

(a)                                   CHOICE OF LAW .  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE COMMONWEALTH OF VIRGINIA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

 

(b)                                  CONSENT TO JURISDICTION . THE PARTIES TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR VIRGINIA STATE COURT SITTING IN THE COMMONWEALTH OF VIRGINIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS AND SUCH PARTIES HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.  NOTHING HEREIN SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER, ANY BORROWER PARTY AND/OR GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  ANY JUDICIAL PROCEEDING BY BORROWER, ANY BORROWER PARTY AND/OR GUARANTOR AGAINST LENDER OR ANY OTHER LENDER PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN THE COMMONWEALTH OF VIRGINIA. BORROWER HEREBY IRREVOCABLY DESIGNATES AS AGENT FOR SERVICE OF PROCESS CHRISTOPHER CLEMENTE WITH OFFICES PRESENTLY AT 11465 SUNSET HILLS ROAD, SUITE 510, RESTON, VIRGINIA 20190 AS ITS AGENT TO RECEIVE SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS ON ITS BEHALF IN ANY LEGAL PROCEEDING IN THE COMMONWEALTH OF VIRGINIA

 

(c)                                   WAIVER OF JURY TRIAL .  THE PARTIES TO THIS AGREEMENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS OR ACTIONS OF THE OTHER PARTY TO THIS AGREEMENT.

 

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(d)           INCORPORATION OF PROVISIONS . BORROWER ACKNOWLEDGES THAT BORROWER’S AGREEMENT TO COMPLY WITH THE PROVISIONS SET FORTH IN THIS SECTION 12.22 IS A MATERIAL INDUCEMENT FOR LENDER TO ENTER INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT, AND THAT THESE PROVISIONS SHALL BE EFFECTIVE AS TO EACH OF THE OTHER LOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

 

SECTION 12.23               Waiver of Punitive and Consequential Damages .  In no event shall Lender be liable to Borrower for punitive, exemplary or consequential damages, including, without limitation, lost profits, whatever the nature of a breach by Lender of its obligations under this Agreement or any of the Loan Documents, and Borrower, for itself and Guarantor, waives all claims for punitive , exemplary or consequential damages.

 

SECTION 12.24               Written Credit Agreements .  Borrower expressly agrees that for purposes of this Agreement and each and every other Loan Document: (i) as a debtor, Borrower may not maintain an action on or in any way related to a credit agreement unless the credit agreement is in writing, expresses an agreement or commitment to lend money or extend credit or delay or forbear repayment of money, sets forth the relevant terms and conditions, and is signed by the creditor and the debtor; (ii) no creditor shall be liable to a person not in privity of contract with the creditor for civil damages arising out of a credit agreement, or any conditions precedent thereto, except for acts or conduct by the creditor that constitute fraud against the person; (iii) this Agreement and each and every other Loan Document shall be a “credit agreement” for purposes of interpreting the foregoing clauses, (iv) the provisions of this Section apply to this transaction including, but not limited to, the execution of this Agreement and each and every other Loan Document; and (v) any action on or in any way related to this Agreement and each and every other Loan Document shall be governed by the provisions of this Section.

 

SECTION 12.25               Accord and Satisfaction; Disputed Debt.   Borrower hereby expressly waives any and all rights to effect an accord and satisfaction of any secured obligation or any other debt of Borrower to Lender in accordance with section 3-311 of the UCC.  Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, except as expressly directed in a writing addressed to Borrower after the date hereof, any and all communications or notices by Borrower or any Guarantor to Lender concerning disputed debts, obligations or liabilities, whether arising under this Agreement or otherwise, including without limitation any instrument tendered as full satisfaction of a debt, shall be delivered to Cor us Bank, Department 311, Attention Rosa Paz, 3959 N. Lincoln Avenue, Chicago Illinois 60613.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement, as of the date first above written, pursuant to proper authority duly granted.

 

 

BORROWER :

 

 

 

COMSTOCK PENDERBROOK, L.C.,

 

a Virginia limited liability company

 

 

 

 

By:

Comstock Homebuilding Companies, Inc.,

 

 

a Delaware corporation,

 

 

Its Manager

 

 

 

 

 

By:

/s/ Christopher Clemente

 

 

 

Name:

Christopher Clemente

 

 

Title:

Chief Executive Officer

 

 

 

 

 

LENDER :

 

 

 

COR US BANK, N.A.

 

 

 

 

 

By:

/s/ David H. Krischke

 

 

Name:

David H. Krischke

 

Title:

Assistant Vice President

 

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TABLE OF EXHIBITS

 

Appendix A - Definitions and Interpretatio n

 

Exhibit A - The Lan d

 

Exhibit B - Project Budge t

 

Exhibit C - Pending Litigatio n

 

Exhibit D - Ownership Char t

 

Exhibit E - Minimum Sales Guideline s

 

Exhibit F – Certification of Surveyo r

 

Exhibit G – Form of Condominium Contrac t

 

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APPENDIX A

 

DEFINITIONS AND INTERPRETATION

 

INTERPRETATION

 

In this Agreement and in each other Loan Document which incorporates or uses the definitions set forth in this Appendix A , unless a clear contrary intention appears, the following rules of interpretation shall apply:

 

A.            Amendments Included .  Definitions contained in this Agreement or any other Loan Documents which identify documents, including this Agreement or any other Loan Documents, shall be deemed to include all amendments, modifications, supplements, restatements, renewals, and replacements to such documents which may be entered into from time to time in compliance with the requirements of this Agreement or otherwise with the consent of Lender.

 

B.            Use of “Including” .  When the term “include” or “including” is used in this Agreement, it shall be construed to mean “include” or “including but not limited to” the things specifically mentioned.

 

C.            Captions .  Captions and headings used in this Agreement and the other Loan Documents are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or the other Loan Documents.

 

D.            Gender, Number, Etc .  Any word in this Agreement which is expressed in the masculine, feminine or neuter gender shall be deemed to include the masculine, feminine and neuter genders.  Any word herein which is expressed in the singular or plural number shall be deemed, whenever appropriate in the context, to include the singular and the plural.  Any Exhibit, Schedule or other item referred to herein as being “attached” to this Agreement shall be construed to mean “attached to and made a part of this Agreement”.

 

E.             Laws .  Reference to any Law means such Law as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder and reference to any section or other provision of any Law means that provision of such Law from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision.

 

DEFINITIONS

 

Account ” means, collectively and individually as the context may require, with such determination made in the sole discretion of Lender, the Project Account and Operating Account.

 

ADA ” means the Americans with Disabilities Act of 1990, 42 U.S.C. 12101, as from time to time amended, together with any and all comparable Laws of any Governmental Authority.

 

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Advance ” means any advance or disbursement of Loan proceeds made by Lender pursuant to this Agreement.

 

Affiliate ” means any Person directly or indirectly controlling, controlled by, or under common control with the identified Person or any Person owning a material interest in such identified Person, either directly or indirectly.

 

Agreement ” means this Loan Agreement by and between Borrower and Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

All Risk Insurance ” shall have the meaning ascribed thereto in Section 7.8.1(a) .

 

Application Fee ” shall have the meaning ascribed thereto in Section 2.3 .

 

Application Letter ” means that certain application letter between Lender and Borrower dated January 12, 2005, respecting the terms and conditions under which Lender is prepared to make the Loan; it being agreed that in the event of any conflict between the terms and conditions of the Loan Documents and the terms and conditions of the Commitment Letter, the terms and conditions of the Loan Documents shall govern and control.

 

Approved Condominium Contracts ” shall have the meaning ascribed to such term in Section 8.1 of this Agreement.

 

Association ” means the condominium association for the Property formed pursuant to the Declaration of Condominium.

 

Bankruptcy Code ” means the Bankruptcy Reform Act of 1978 (11 USC § 101-1330) as now or hereafter amended or recodified.

 

Base Purchase Price ” means the price (after deducting therefrom the costs of any Upgrade or extras) to be paid by a Contract Buyer under a Condominium Contract for a Residential Unit and/or a Parking Unit.

 

Basic Agreements ” shall have the meaning ascribed thereto in Section 3.1 .

 

Borrower ” means the entity defined as the “Borrower” in the introductory paragraph of this Agreement and any of its permitted successors and assigns.

 

Borrower Party ” means Comstock and any of its permitted successors and assigns.

 

Borrower’s Additional Equity ” shall have the meaning ascribed to such term in Section 2.6 .

 

Borrower’s Equity ” shall have the meaning ascribed thereto in Section 2.6 .

 

Borrower’s Minimum Equity Investment ” shall have the meaning ascribed to such term in Section 2.6 of this Agreement.

 

Building ” shall have the meaning ascribed thereto in Recital III of this Agreement.

 

ii



 

Business Day ” means any day other than Saturday or Sunday that Lender is open for business.

 

Change Orders ” shall have the meaning ascribed to such term in Section 6.2(a) .

 

Closing Date ” means the date that all conditions precedent to the closing of the Loan set forth in Section 4.1 of this Agreement have been satisfied and Lender has authorized the Title Insurer to record the Deed of Trust.

 

Closing Fee ” shall have the meaning ascribed thereto in Section 2.3 .

 

Closing Notice ” shall have the meaning ascribed thereto in Section 8.7(b) .

 

Collateral ” means the Property and any and all other property (real, personal or intangible) in which a security interest has been granted to secure the Secured Obligations.

 

Collateral Assignment of Developer’s Rights ” means that certain Collateral Assignment of Developer’s Rights and Agreement with Respect to Condominium Documents, dated as of the date hereof, made by Borrower in favor of Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

Commitment Fee ” shall have the meaning ascribed thereto in Section 2.3 .

 

Commitment Letter ” means that certain commitment letter between Lender and Borrower dated on or about the date hereof, respecting the terms and conditions under which Lender is prepared to make the Loan; it being agreed that in the event of any conflict between the terms and conditions of the Loan Documents and the terms and conditions of the Commitment Letter, the terms and conditions of the Loan Documents shall govern and control.

 

Completion Guaranty ” means that certain Completion Guaranty, dated as of the date hereof, made by Guarantor in favor of Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

Comstock ” shall have the meaning ascribed thereto in Recital I of this Agreement.

 

Condominium Act ” means the Virginia Condominium Act, and all amendments and modifications thereof.

 

Condominium Contract ” shall have the meaning ascribed to such term in Section 8.1 .

 

Condominium Documents ” mean, collectively and individually, the Plat of Condominium, the Declaration of Condominium, all plans, schedules and other details defining the Units and the general common elements and the limited common elements, the bylaws of the condominium unit owner’s association or board of managers, the rules and regulations, the management agreement between the condominium unit owner’s association or board of managers and the firm that will be managing the Property, the sales agency agreement, the form of purchase agreement(s) to be used for the sale of Units and, all sales and promotional materials

 

iii



 

to be used in connection with the sale of condominium Units, and each exhibit thereto, together with any amendments and attachments to any of the foregoing.

 

Condominium Regime ” shall have the meaning ascribed to such term in Section 8.8(a) .

 

Construction Documents ” means any contract, agreement, warranty, service agreements, maintenance contracts or other agreement entered into by Borrower, any Borrower Party, Guarantor or any Affiliate of Borrower, any Borrower Party or Guarantor providing for the design, development, engineering, construction, provisioning, equipping, furnishing, use, occupancy, repair and service of the Project, whether presently existing or entered into after the date hereof.

 

Contract Buyer ” means a purchaser of a Unit.

 

Contributor ” shall have the meaning ascribed to such term in Section 2.6 .

 

Costs ” means any and all costs, fees or expenses which Borrower or Guarantor is obligated to pay pursuant to this Agreement or any of the other Loan Documents, including, but not limited to, those costs and expenses described in Section 2.4(a) and Section 2.4(b) of this Agreement.

 

Declaration of Condominium ” means the form of condominium declaration for the Property and all related formation, organization and operation documents, which shall be in form and substance reasonably acceptable to Lender.

 

Deed of Trust ” means that certain Deed of Trust with Absolute Assignment of Leases and Rents and Security Agreement and Fixture Filing, of even date, by Borrower in favor of Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

Default ” means any occurrence which, with notice or the passage of time or both, would constitute an Event of Default under this Agreement or any other Loan Document.

 

Default Rate ” means the rate of interest designated in the Note as the Default Rate.

 

Deficiency Deposit ” shall have the meaning ascribed thereto in Section 6.3(c) .

 

Environmental Indemnity Agreement ” means the Environmental Indemnity Agreement, dated as of the date hereof, made by Borrower and Guarantor, jointly and severally, for the benefit of Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

EO13224 ” shall have the meaning ascribed to such term in Section 3.27 .

 

ERISA ” means Employee Retirement Income Security Act of 1974, as amended from time to time.

 

Event of Default ” shall have the meaning ascribed to such term in Section 10.1 .

 

iv



 

Exit Fee ” shall have the meaning ascribed to such term in Section 2.8 .

 

FAX ” shall have the meaning ascribed to such term in Section 12.20 .

 

Financial Statements ” means the financial statements of Borrower and Guarantor delivered to Lender pursuant to Section 4.1(f) of this Agreement and relied upon by Lender in making this Loan, as well as those statements subsequently delivered in connection with Section 7.7 of this Agreement.

 

Form Condominium Contract ” shall have the meaning ascribed to such term in Section 8.1(a) .

 

GAAP ” means generally accepted accounting principles.

 

Governmental Approval ” means any Law of any Governmental Authority, including, without limitation, any zoning, subdivision or building ordinance or environmental protection law or regulation or any requirement of any kind which must be complied with in connection with the construction or operation of the Property or for the issuance or continuing effectiveness of any Permit of any kind required by any Governmental Authority in connection with the transactions contemplated by this Agreement and the other Loan Documents.

 

Governmental Authority ” means the United States of America, any State, including the State where the Property is located and the State of Borrower’s organization, any political subdivision of the United States of America or any State, including any city or county in such States, and any department, commission, board, bureau, court or administrative, regulatory, adjudicatory, or arbitrational body or other instrumentality or agency of any kind or any of them having jurisdiction in any way over the Property, Borrower, any Borrower Party or Guarantor or any of the other parties or documents referred to in this Agreement or the other Loan Documents.

 

Gross Operating Income ” means, for any period of time, all receipts, revenues, income and proceeds of sales of every kind actually received in connection with the operation of the Property as a rental apartment complex, and shall include, without limitation: rent or other payments received from tenants, licensees, and occupants of commercial, office, retail or residential space; the proceeds of insurance with respect to use and occupancy or business interruption insurance; deposits forfeited and not refunded; and any amount recovered in any legal action or proceeding or settlement thereof pertaining to rents or other income which arose out of the operation of the Property.  Gross Operating Income shall exclude all sales and excise taxes and any similar taxes collected as direct taxes payable to taxing authorities; gratuities or service charges collected for payment to and paid to employees; proceeds of insurance (except for proceeds of insurance with respect to use and occupancy or business interruption insurance); proceeds of sales of depreciable property; and proceeds of condemnation.

 

Guarantor ” means Comstock Homebuilding Companies, Inc., a Delaware Corporation. Each singular reference to “Guarantor” shall jointly and severally refer to Guarantor if there is more than one.

 

Guaranty ” shall mean, collectively and individually, the Completion Guaranty and the Limited Guaranty.

 

v



 

 “ Hard Costs ” means any and all costs directly related to and incurred in connection with the construction of the Project, including, without limitation, the cost of all labor, materials and equipment incurred pursuant to any construction contract and any subcontracts, but excluding any fees for architectural and engineering services, marketing fees, financing costs and other similar fees and costs.

 

HUD ” shall have the meaning ascribed to such term in Section 8.8(d) .

 

In Balance ” shall have the meaning ascribed to this term in Section 6.3(a) .

 

Indebtedness ” means with respect to any Person, at a particular time: (i) all obligations on account of money borrowed by, or credit extended to or on behalf of, or for or on account of deposits with or advances to, such Person; (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments; (iii) all obligations of such Person for the deferred purchase price of property or services other than trade payables incurred in the ordinary course of business and on terms customary in the trade; (iv) all obligations secured by a lien on property owned by such Person (whether or not assumed), and all obligations of such Person under capitalized leases (without regard to any limitation of the rights and remedies of the holder of such lien or the lessor under such capitalized lease to repossession or sale of such property); (v) the face amount of all letters of credit issued for the account of such Person and, without duplication, the unreimbursed amount of all drafts drawn thereunder, and all other obligations of such Person associated with such letters of credit or draws thereon; (vi) all obligations of such Person in respect of acceptances or similar obligations issued for the account of such Person; (vii) all obligations of such Person under a product financing or similar arrangement; (viii) all obligations of such Person under any interest rate or currency protection agreement, interest rate or currency future, interest rate or currency option, interest rate or currency swap or cap or other interest rate or currency hedge agreement; and (ix) all obligations and liabilities with respect to unfunded vested benefits under any “employee benefit plan” or with respect to withdrawal liabilities incurred under ERISA by Borrower or any ERISA Affiliate to a “multiemployer plan”, as such terms are defined under the Employee Retirement Income Security Act of 1974.

 

Individual Unit Exit Fee ” shall have the meaning ascribed to such term in Section 2.8 .

 

Initial Condominium Closing ” shall mean the closing of the first Approved Condominium Contract following satisfaction of the Initial Condominium Closing Conditions.

 

Initial Condominium Closing Conditions ” shall have the meaning ascribed to such term in Section 8.7(a) of this Agreement.

 

Initial Disbursement ” means an amount equal to $57,000,000.

 

Interest Rate ” means the rate of interest designated in the Note as the Interest Rate.

 

Interest Reserve ” means a reserve for the payment of interest on the Loan, set forth as a line item in the Project Budget and to be established and applied as set forth herein and in the Note.

 

Investor ” shall have the meaning ascribed thereto in Section 12.7 .

 

vi



 

IRC ” means Internal Revenue Code of 1986, as amended from time to time.

 

Land ” shall have the meaning ascribed thereto in Recital II of this Agreement.

 

Land Act ” shall have the meaning ascribed to such term in Section 8.8(d) .

 

Laws ” means collectively, all federal, State and local laws, statutes, codes, ordinances, orders, rules and regulations which have been duly authorized and are currently in effect and/or hereinafter enacted, including judicial opinions or precedential authority in the applicable jurisdiction, and including, without limitation, all environmental laws, the Condominium Act, all rules and regulations relating to life safety and the ADA.

 

Leases ” means all leases, tenancies, licenses or occupancy agreements relating to the Property.

 

Lender ” means the entity defined as the “Lender” in the introductory paragraph of this Agreement and any of its successors and assigns.

 

Lender Parties ” shall have the meaning ascribed thereto in Section 7.9 .

 

Lender’s Estimate of Construction Costs ” means Lender’s estimate (in Lender’s reasonable discretion), from time to time, of the cost to complete the marketing and conversion of the Project to condominiums.  Initially, Lender’s Estimate of Construction Costs shall be based upon the Project Budget; provided , that Lender may make such allowances for reserves and contingencies as Lender shall deem appropriate in its reasonable discretion. Thereafter, Lender’s Estimate of Construction Costs will take into account all Change Orders approved by Lender, other contracts and purchase orders entered into by Borrower and other considerations which Lender, in its reasonable judgment deems relevant or likely to have an impact upon the cost to convert the Project into a condominium building.

 

Lender’s Project Consultant ” means the Person or firm employed by Lender to review and report to Lender on the progress of construction of the Project.

 

Lien ” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or other security interest, security agreement or preferential arrangement of any kind (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction).

 

Limited Guaranty ” means that certain Carve-Out Guaranty dated of even date herewith made by Guarantor in favor of Lender, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

Loan ” means a loan to be made by Lender to Borrower and to be disbursed in accordance with the terms hereof in an amount not to exceed $67,000,000.

 

vii



 

Loan Documents ” means this Agreement, the Note, the Deed of Trust, the Environmental Indemnity Agreement, the Limited Guaranty, the Completion Guaranty, the Collateral Assignment of Developer’s Rights, the UCC Financing Statements, and any other document evidencing, pertaining to or securing the Loan which Lender may require to be executed and delivered by Borrower, any Borrower Party, Guarantor or any Affiliate thereof from time to time, as each of the same shall be amended, restated, modified, replaced or supplemented from time to time.

 

Loan Fees ” shall have the meaning ascribed in Section 2.3 .

 

Loan Maturity ” shall mean the time at which Borrower is required to pay the Loan in full, whether by acceleration or by expiration of the term of the Loan.

 

Losses ” shall have the meaning ascribed to such term in Section 7.9 .

 

Management Agreement ” means any property management, leasing, development services or other similar agreement respecting the development, marketing, leasing, sale, management or operation of the Project entered into between Borrower or any Borrower Party, Guarantor or their respective Affiliates (as the case may be) and any other Person, whether presently existing or entered into after the date of this Agreement.

 

Manager ” means Legum & Norman Realty, Inc., together with any subsequent property managers which have been approved by Lender in accordance with the terms of this Agreement.

 

Mass Closing ” shall have the meaning ascribed to such term in Section 8.7(a)(vi) .

 

“Mass Closing Timeframe ” means the time period commencing with the sale and conveyance of the first Residential Unit, subject to the satisfaction of the Initial Condominium Closing Conditions, and ending on the date which is 89 calendar days following the sale and conveyance of the first Residential Unit.

 

Material ”, “ material ”, “ Materially ” and “ materially ” mean material to: (i) the financial position, business, assets or results of operations of Borrower or Guarantor, (ii) the ability of Borrower, any Borrower Party, Guarantor or any Affiliate of such party to observe and perform its obligations under the Loan Documents to which it is a party, or (iii) the value, condition, use or useful life of the Property.

 

Material Adverse Effect ” means an event which has the effect of: (i) materially adversely affecting Borrower’s ability to perform its obligations under this Agreement or any other Loan Document to which it is a party; (ii) materially adversely affecting Guarantor’s ability to perform its obligations under any Guaranty, Environmental Indemnity Agreement or any other Loan Document to which it is a party; (iii) materially adversely affecting Borrower’s ability to construct, develop and market the Property in accordance with the Project Budget, or to own, manage, sell or lease the Property upon the completion of the construction of the Project; (iv) impairing or reducing the value of the Property by an amount greater than Two Hundred Fifty Thousand Dollars ($250,000); (v) impairing the validity of the security interest in the Property or any other Collateral; or (vi) materially adversely affecting the rights or remedies of Lender under the Loan Documents.

 

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Maturity Date ” shall mean the twenty-four (24) month anniversary of the Closing Date.

 

Minimum Unit Sales Price ” means, with respect to each Unit, the amount in U.S. dollars shown on Exhibit E for such Unit (exclusive of any Upgrades or extras).

 

Monthly Payment ” shall mean the monthly payment of interest due and payable in accordance with the provisions of the Note.

 

Net Sales Price ” means with respect to the sale of any Unit (A) the Base Purchase Price for such Unit, less (B) customary closing costs, reasonable warranty reserves, brokerage commissions, expenses and prorations paid by Borrower as shown on the RESPA statement for such sale and approved by Lender.  The Net Sales Price for any Unit shall not include the amount of any assessments or working capital paid to the Association.

 

NOI means, for any applicable period, Gross Operating Income minus Operating Expenses.

 

Note ” means the Promissory Note of even date herewith made by Borrower to Lender in the original principal amount of the Loan, as may be amended, extended, restated, replaced, modified or supplemented from time to time.

 

OFAC ” shall have the meaning ascribed to such term in Section 3.27 .

 

Offering Materials ”  means any public report required to be filed with Fairfax County, Virginia or other Governmental Authority in the Commonwealth of Virginia pursuant to the Condominium Act and any other disclosure materials required by applicable Law to be made available to prospective purchasers of a Unit.

 

Operating Account ” means a non-interest bearing account to be established with Lender, in the name of Borrower or Borrower’s designee, into which all Gross Operating Income will be deposited.

 

Operating Expenses ” means, for any period of time, the normal and customary expenses incurred operating the Property for said period of time. Said expenses shall include: (a) management fees in an amount not to exceed three percent (3%) of the Gross Operating Income for such period and (b) reasonable prorated reserves for Real Estate Taxes and insurance premiums, but said expenses shall not include (i) any payment of principal or interest on the Loan, (ii) amortization, depreciation, income taxes or any other similar expense of a noncash nature or (iii) income taxes.

 

Organizational Documents ” means all documents, instruments and other papers constituting the entire organizational documents of Borrower, all Borrower Parties, all Guarantors and any and all amendments thereto including without limitation, Borrower’s, each Borrower Party’s and Guarantor’s respective certificates of formation, incorporation or limited partnership, articles of organization or incorporation and such party’s respective partnership agreement, operating agreement, bylaws, code of regulations or other governing documents.

 

Out of Balance ” shall have the meaning ascribed to such term in Section 6.3(a) .

 

ix



 

Parking Unit ” shall have the meaning ascribed to such term in Recital III of this Agreement.

 

Pension Plan ” means a “pension plan”, as such term is defined in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a “multiemployer plan” as defined in section 4001(a)(3) of ERISA), and to which Borrower or any corporation, trade or business that is, along with Borrower, a member of a “Controlled Group”, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA.

 

Permits ” mean all building permits, certificates of occupancy and other governmental or quasi-governmental permits, licenses and authorizations, including, without limitation, all State, county and local occupancy certificates, and other licenses, in any way applicable to the Property or any part thereof or to the development, construction, ownership, use, occupancy, operation, maintenance and leasing of the Property.

 

Permitted Exceptions ” means those matters acceptable to Lender in its sole discretion listed in the Title Policy to which the interest of Borrower in the Property may be subject as of the Closing Date and any other title exceptions or objections, if any, as Lender, or its counsel, may approve in writing after the Closing Date, including matters over which the Title Insurer has agreed to insure Lender pursuant to endorsements to Lender’s Title Policy (which endorsements shall be in form and substance satisfactory to Lender), if the latter matters are approved in writing by Lender.

 

Person ” means any natural person, partnership, limited liability company, corporation, firm, association, trust, Governmental Authority, or any other entity, whether acting in an individual, fiduciary or other capacity.

 

Plan Asset Regulations ” means regulations promulgated by the Department of Labor in 29 C.F.R. Section 2510.3-101, as amended from time to time.

 

Plat of Condominium ” means the plat of condominium to be recorded as part of the Initial Condominium Closing Conditions.

 

Prepayment Fee ” shall have the meaning ascribed to such term in Section 2.7 .

 

Price List ” shall have the meaning ascribed to such term in Section 8.5 .

 

Production Overhead ” means an amount equal to $392,000 payable to Comstock Homes of Washington, L.C., as set forth in the Production Overhead line item of the Project Budget.

 

Prohibited Person ” shall have the meaning ascribed to such term in Section 3.27 .

 

Project ” shall have the meaning ascribed thereto in Recital III of this Agreement.

 

Project Account ” shall have the meaning ascribed to such term in Section 6.4(a) .

 

x



 

Project Budget ” means the Project Budget attached as Exhibit B , showing all sources of funds to be used (including Borrower’s Equity), all costs and expenses to be incurred, and all reserves to be maintained in connection with the Project during the term of the Loan.

 

Project Costs ” shall have the meaning ascribed thereto in Section 6.1(a) .

 

Project Schedule ” means a schedule for the completion of conversion of the Project, including, without limitation, a trade-by-trade breakdown of the estimated periods of commencement and completion of the specific work to be completed on the Project.

 

Property ” shall have the meaning ascribed thereto in Recital IV of this Agreement.

 

Property Proceeds ” shall have the meaning ascribed to such term in Section 9.1 .

 

Real Estate Tax Deposits ” shall have the meaning ascribed thereto in Section 6.5(a) .

 

Real Estate Taxes ” means all taxes and assessments, general or special, and any and all levies, claims, charges, expenses and liens, ordinary or extraordinary, governmental or non-governmental, statutory or otherwise  that may be levied, assessed, made, imposed or charged on or against the Property.

 

 “ Request for Advance Documents ” shall have the meaning ascribed thereto in Section 5.2(a) .

 

Residential Unit ” means a unit which is designed and intended for a single-family dwelling, or such other uses permitted by the Declaration of Condominium, but specifically excluding a Unit constituting a Parking Unit, as more particularly described in Recital III of this Agreement.

 

Sales Report ” means a report certified by Borrower disclosing information requested by Lender concerning sales activity for each Unit, including (i) the Residential Unit number and the Parking Unit number and whether the Unit has been conveyed to a Contract Buyer or is under contract, (ii) the Minimum Unit Sales Price for such Unit, (iii) the square footage for such Unit, and (iv) with respect to completed sales or Units under contract, (A) the date of the associated Condominium Contract, (B) the date such Condominium Contract was closed (or is scheduled to be closed), (C) the Person to whom such Unit was sold (or is to be sold), (D) Upgrades selected by such purchaser, (E) the Base Purchase Price for such Unit plus the Upgrade prices for Upgrades selected by the Contract Buyer; and (F) the amount of the earnest money deposit for such Unit(s).

 

Secured Obligations ” means (i) the principal of and interest on the Note and/or this Agreement; (ii) all other Indebtedness of any kind arising under, and all amounts of any kind which at any time become due or owing to Lender under or with respect to any Loan Document; (iii) all of the covenants, obligations and agreements of Borrower, Guarantor or any other Borrower Party in, under or pursuant to any Loan Document; (iv) all Costs (including without limitation, Costs incurred by Lender to protect any or all of the Collateral, perform any obligation of Borrower, Guarantor or any Borrower Party or under any Loan Document, or collect any amount owing to Lender); (v) all fees due and payable by Borrower to Lender,

 

xi



 

including, without limitation, the Exit Fee, the Prepayment Fee and any other fees payable pursuant to the Loan Documents; (vi) any and all other liabilities, obligations and Indebtedness, howsoever created, arising or evidenced, direct or indirect, absolute or contingent, recourse or nonrecourse, now or hereafter existing or due or to become due, owing by Borrower to Lender; and (vii) interest on all of the foregoing to the extent it accrues under this Agreement or the Note, including, without limitation, interest accruing after an Event of Default, acceleration and/or judgment at the Default Rate.

 

Single Purpose Entity ” means that Borrower shall: (a) not own any asset or property other than (i) the Property and all improvements thereon, and (ii) incidental personal property relating to the ownership or operation of the Property; (b) not enter into any contract, agreement or other undertaking to provide services to any Person; (c) in its organizational documents, limit its purpose to the acquiring, constructing, owning, operating, maintaining and leasing the Project and other lawful activities incidental thereto; (d) not engage in any business other than the acquisition, construction, ownership, operation, maintenance and leasing of the Property, and other lawful activities incidental thereto; (e) not make any loans or advances to any Person; provided however, that nothing shall prohibit Borrower from managing it payables and other monetary obligations (other than Secured Obligations) in a prudent manner and paying such obligations in the ordinary course; (f) shall not own a subsidiary and shall not acquire obligations or securities of any other Person, other than certificates of deposit, money market accounts or similar short-term investments; (g) pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) only from its own assets as the same shall become due, or as may be prepayable; (h) do all things necessary to observe organizational formalities and preserve its existence, and shall not, and shall not permit any member to, amend, modify or otherwise change any of the Organizational Documents of Borrower or such member in any manner not permitted by the provisions of this Agreement without the prior written consent of Lender, such consent to not be unreasonably withheld, conditioned or delayed; (i) maintain all of its books, records and bank accounts separate from those of any other Person; (j) be, and at all times shall hold itself out to the public as, a legal entity separate and distinct from any other entity, shall correct any known misunderstanding regarding its status as a separate entity from that of its members and any other Person, and shall conduct business in its own name, shall not identify itself as a division or part of any other Person; (k) maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; (l) not seek the dissolution, winding up, liquidation, consolidation or merger in whole or in part, of Borrower, nor transfer or otherwise dispose of all or substantially all of its assets, nor change its legal structure, without, in each case, Lender’s prior written consent; (m) not commingle the funds and other assets of Borrower with those of any other Person; (n) maintain its assets in such a manner that it shall not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person; (o) not hold itself out to be responsible for the debts or obligations of any other Person and shall not assume, guarantee or pay the debts or obligations of any other Person; (p) prepare separate tax returns and financial statements, or if part of a consolidated group, then Borrower shall be shown as a separate member of such group; (q) allocate and charge fairly and reasonably any common employee or overhead shared with any other Person; and (r) transact all business with Affiliates on an arm’s length basis, provided that Lender acknowledges that the management fees contained in the Management Agreement as of the date hereof shall be deemed in compliance with the foregoing requirement.

 

xii



 

Soft Costs ” means all costs incurred or to be incurred in connection with the Project other than Hard Costs, including, without limitation, interest on the Loan, all fees incurred in connection with the Loan and payable to Lender, commissions, appraisal fees, architectural and engineering fees, title and recording charges, counsel fees, real estate tax reserves and interest reserves, real estate taxes and special assessments becoming due and payable during the period of construction, Real Estate Taxes, marketing fees and those costs (other than Hard Costs) set forth in the Project Budget.

 

State ” means any state or commonwealth in the United States of America.

 

Survey ” means a current survey of the Land, prepared by a surveyor licensed in the State where the Property is located and reasonably acceptable to Lender and the Title Insurer as having been prepared in accordance with the “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,” jointly established and adopted by ALTA, NSPS and ACSM  in 1999, including items 1, 2, 3, 4, 6, 7(a), 7(b-1), 7(c), 8, 9, 10, 11(a), 13, 14, 15 and 16 of Table A thereof, which shall include a certification from the surveyor preparing the survey as set forth in Exhibit F to this Agreement.  Without limitation of the foregoing, t he Survey shall show (i) the legal description of the Project; (ii) dimensions and locations of buildings, fences, and other improvements; (iii) locations of all visible or recorded easements (and recording numbers, to the extent recorded), setback lines, rights of way, water courses, drains, sewers, utility lines, public and private roads (including the names and widths thereof and recording numbers for the dedications thereof); (iv) if the Project comprises more than one parcel, interior lines and other data sufficient to insure contiguity; (v) if the Project is located in a flood plain; and (vi) such additional information which may be reasonably required by Lender or the Title Insurer.

 

Sworn Contractor’s Statement ” shall have the meaning ascribed to this term in Section 5.2(a)(iii) .

 

Sworn Owner’s Statement ” shall have the meaning ascribed to this term in Section 5.2(a)(ii) .

 

Sworn Statement ” shall have the meaning ascribed to this term in Section 5.2(a)(iii) .

 

Title Commitment ” means a commitment from the Title Insurer to issue to the Title Policy. The Title Commitment shall include all underlying documents referenced therein.

 

Title Insurer ” means Lawyers Title Insurance Corporation or any other nationally recognized title insurance company approved by Lender.

 

Title Policy ” means an ALTA Mortgagee’s Policy (1992) of title insurance, with extended coverage, issued by the Title Insurer in the maximum amount of the Loan, containing, to the extent such endorsements are available under the laws of the State where the Property is located: (i) extended coverage, (ii) Lender’s comprehensive, (iii) access, (iv) creditors’ rights, (v) survey (accuracy of survey), (vi) location (survey legal matches title legal), (vii) separate tax lot, (viii) plat act/subdivision or legal lot, (ix) zoning 3.0, (x) contiguity (if applicable), (xi) special restrictions (if applicable), (xii) utility facility endorsement, (xiii) street address, (xiv) variable rate, (xv) usury, (xvi) pending construction disbursement, (xvii) doing business, (xviii) foundation, (xix) condominium endorsement, and (xx) such other endorsements as Lender may

 

xiii



 

require based upon its counsel’s review of the Title Commitment and Survey, insuring the Deed of Trust on the Property as a valid first priority mortgage lien thereon, subject only to the Permitted Exceptions, and naming Lender as the mortgagee insured.

 

Total Project Costs ” means the sum of, without duplication (and specifically excluding all costs of construction already paid for): (A) all Hard Costs for work done and not theretofore paid for or to be done through completion of the Project in accordance with the Project Budget, based upon Lender’s Estimate of Construction Costs; (B) all Soft Costs and other costs and expenses payable by Borrower through completion of the Project, including, but not limited to, those costs to equip, fixture, furnish, develop, market and operate the Project prior to the Maturity Date (including, but not limited broker’s fees, marketing fees, and condominium association dues); (C) all other unpaid costs set forth in the Project Budget; (D) all condominium assessments (not theretofore paid for) with respect to unsold Residential Units or Parking Units; (E) all amounts due to Lender under the terms of this Agreement, including, without limitation, Costs, and interest due or to become due and payable (and not theretofore paid for) prior to the completion of the Project, but excluding payment of principal due on the Maturity Date; (F) all Real Estate Taxes to be due and payable prior to the Maturity Date, as estimated and determined by Lender, in its reasonable discretion; and (G) all other amounts as Lender, in its reasonable discretion, deems necessary or reasonable to complete the Project in accordance with the Construction Documents, and to pay all liabilities and perform all obligations of Borrower under the Loan Documents.

 

Transfer ” means any sale, lease, exchange, assignment (either outright or collateral), conveyance, transfer, pledge, mortgage, trade, or other encumbrance of any right, title or interest in all or any portion of the Property (whether legal or equitable), or any interest therein, or all or any part of the direct or indirect legal or beneficial ownership interest in Borrower (or any other Person as specifically referenced in this Agreement), whether voluntarily, by operation of law or otherwise.

 

UCC Financing Statements ” means the UCC Financing Statements naming Borrower, as debtor, and Lender, as secured party, to be filed in: (a) the county in which the Property is located, but only if the Deed of Trust alone does not constitute a fixture filing in such jurisdiction or if local counsel so advises, (b) the office of the Secretary of State of the State of Borrower’s organization and (c) in such other jurisdictions as Lender may determine, as the case may be, in connection with the personal property described in the Deed of Trust and other Loan Documents.

 

Uniform Commercial Code ” and “ UCC ” each mean the Uniform Commercial Code as in effect in any applicable jurisdiction, as amended from time to time.

 

Unit ” means a Residential Unit or a Parking Unit.

 

Unit Release Payment ” shall have the meaning ascribed to such term in Section 8.7(c) .

 

Unit Releases ” shall have the meaning ascribed to such term in Section 8.7(b) .

 

Upgrade ” means any alteration, additional or extra work or change in or to the applicable Residential Unit, including changes or alterations to fixtures, appliances, equipment,

 

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hardware, the basic floor plan or other base construction standard with respect to the applicable Residential Unit.

 

Upgrade Profit ” means an amount equal to the difference between the consideration payable by a Contract Buyer for an Upgrade and the actual cost to Borrower to construct such Upgrade.

 

Welfare Plan ” means a “welfare plan”, as such term is defined in Section 3(1) of ERISA.

 

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EXHIBIT A

 

THE LAND

 

All that certain lot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the County of Fairfax and the Commonwealth of Virginia and being more particularly described as follows:

 

Beginning at a point on the easterly right-of-way line of West Ox Road (Route 608), said point marking the P.C. of a 55 foot radius return at the southeasterly intersection of the said West Ox Road and Penderbrook Drive (Route 6558); thence with the said return, a curve to the right, whose chord is N 43°l0’OO”E, 81.21 feet, an arc distance of 91.36 feet to a point on a southerly right-of-way line of the said Penderbrook Drive; thence with the said right-of-way line of the said Penderbrook Drive the following courses: with a curve to the right, whose radius is 729.95 feet and whose chord is S64°26’02”E, 612.64 feet, an arc distance of 632.22 feet; S39°37’20”E, 395.59 feet; with a curve to the left, whose radius is 576.00 feet and whose chord is S57°32’30”E, 354.44 feet, an arc distance of 360.29 feet to a point marking the P.C. of a 25 foot radius return at the southwesterly intersection of the said Penderbrook Drive and South Penderbrook Drive (Route 7963); thence with the said return, a curve to the right, whose chord is S33°24’42”E, 33.49 feet, an arc distance of 36.69 feet to a point on the westerly right-of-way line of the said South Penderbrook Drive; thence with the said right-of-way line of South Penderbrook Drive with a curve to the left, whose radius is 476.00 feet and whose chord is S02° 1 6’57”E, 180.35 feet, an arc distance of 181.45 feet and S 13° 12’ 1 0”E, 483.33 feet to a point marking the northeasterly corner of Penderbrook, Section 7-A; thence running with the northerly and westerly lines of Penderbrook, Section 7-A the following courses: with a curve to the left, whose radius is 28.50 feet and whose chord is N68°08’37”W, 18.32 feet, an arc distance of 18.65 feet; with a curve to the right, whose radius is 121.50 feet and whose chord is N78°32’30”W, 35.28 feet, an arc distance of 35.40 feet; N70°l 1 ‘36”W, 43.08 feet; N84°49’33”W, 73.50 feet; N71°38’22”W, 36.91 feet; with a curve to the right, whose radius is 936.00 feet and whose chord is N67°19’29”W, 93.69 feet, an arc distance of 93.72 feet and S28°55’50”W, 188.50 feet to a point on a northerly boundary of Fairfax County Board of Supervisors; thence with the said boundary of Fairfax County Board of Supervisors N84°32’18”W, 122.85 feet and with a curve to the right, whose radius is 300.00 feet and whose chord is N74°l6’20”W, 106.93 feet, an arc distance of 107.51 feet to a point on an easterly right-of-way line of West Ox Road (Rt. 608); thence with the easterly right-of-way line of West Ox Road (Rt. 608) and continuing with the easterly and northerly lines of Fairfax County Board of Supervisors N13°09’12”W, 885.23 feet and S62°09’05”W, 236.69 feet to a point on the aforementioned right-of-way line of West Ox Road; thence with the said right-of-way line of West Ox Road the following courses: with a curve to the left, whose radius is 2919.79 feet and whose chord is N28°55’18”W, 83.50 feet, an arc distance of 83.50 feet; N29°44’27”W, 251.91 feet; with a curve to the right, whose radius is 899.93 feet and whose chord is N18°01’27”W, 365.50 feet, an arc distance of 368.06 feet and N06°l5’OO”W, 29.66 feet to the point of beginning, containing 19.38373 acres of land.

 



 

EXHIBIT B

 

PROJECT BUDGET

 

PURCHASE PRICE

 

$

75,000,000

 

 

 

 

 

SOFT COSTS

 

 

 

Appraisal, Environmental, Market Study

 

15,000

 

Insurance

 

14,000

 

Title

 

125,000

 

Recordation & Tax Stamp Costs

 

405,000

 

Legal, Organizational & Condo Docs

 

50,000

 

Marketing

 

715,000

 

Production Overhead

 

392,000

 

Real Estate Taxes

 

103,000

 

Sales Management

 

51,000

 

Loan Fee

 

670,000

 

Other Fees/Costs

 

196,000

 

Interest Reserve

 

1,731,000

 

Soft Cost Contingency

 

140,000

 

TOTAL SOFT COSTS

 

4,607,000

 

 

 

 

 

HARD CONSTRUCTION COSTS

 

 

 

Unit Upgrades

 

3,400,837

 

Common Area Upgrades

 

2,127,163

 

TOTAL HARD COSTS

 

5,528,000

 

 

 

 

 

TOTAL PROJECT BUDGET

 

$

85,135,000

 

 



 

EXHIBIT C

 

PENDING LITIGATION

 

Open Matters as of 1/24/05

 

1.                                        Kosarski v. Comstock Homes of North Carolina, L.L.C.

- Litigation filed by purchaser of one of our homes alleging failure to complete punchlist items post settlement.  Amount in controversy is approximately $9000 plus claimed attorneys fees and costs.

 

2.                                        Ken Hinkle Associates, Inc. v. Comstock Homes, Inc.

- We have been served with a motion to compel arbitration as a result of withholding payment from subcontractor whose work we deemed inferior.  Withheld payment is in the amount of $67,656.30.

 



 

EXHIBIT D

 

OWNERSHIP CHART

 

 

Borrower is 100% owned by Comstock Homebuilding Companies, Inc.

 



 

EXHIBIT E

 

MINIMUM SALES GUIDELINES

 

[See attached]

 



 

EXHIBIT F

 

CERTIFICATION OF SURVEYOR

 

To:                               [BORROWER]; CORUS BANK, N.A., together with its successors and assigns; and
[TITLE INSURANCE COMPANY]

 

I hereby certify that:

 

(a)   this survey was prepared by me or under my supervision in accordance with the “Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys,” jointly established and adopted by ALTA and ACSM and NSPS in 1999 and includes Items 1 through 4, 6 though 11 and 13 through 16 of Table A thereof and was prepared pursuant to the accuracy standards (adopted by ALTA and ACSM) of a Class A Survey, as defined therein;

 

(b)   this survey which was established by a transit-tape (instrument) field survey actually made on the ground pursuant to the record description is true, correct and accurate as to the boundaries and areas of the subject property and the location and number of parking spaces, size, location, dimension and type of buildings and improvements thereon (if any), and as to the other matters shown hereon, it shows the location and dimension of all improvements, rights-of-way, easements and any other matters affecting the subject property;

 

(c)   there are no party walls or encroachments on adjoining Property, streets or alleys by any buildings, structures, or other improvements located on the subject property and there are no encroachments on the subject property by buildings, structures or other improvements situated on adjoining property, except as shown on the survey and set forth as a Field Note;

 

(d)   adequate ingress to and egress from the subject property is provided by [NAME OF STREETS], the same being paved, dedicated public right(s)-of-way maintained by [NAME OF MAINTAINING AUTHORITY];

 

(e)   the subject property does not serve any adjoining property for drainage, ingress and egress or any other purpose except as shown on the survey and set forth as a Field Note;

 

(f)    the undersigned has received and examined a copy of Title Insurance Commitment No.           , issued by                                      Title Insurance Company, and of each instrument listed therein; the location of each such easement, right-of-way, servitude and other matter affecting title, to the extent it can be located, has been shown on the survey with appropriate recording reference; and all matters that cannot be located have been listed hereon as a Field Note; the subject property shown on the survey is the property described in the Title Insurance Commitment;

 

(g)   all required building setback lines on the subject property are located as shown hereon and the location of all improvements (if any) on the subject property are in accordance with minimum setback provisions and restrictions of record referenced in the Title Insurance Commitment and required by zoning and building ordinances applicable in the State, City and County in which the subject property is situated;

 

(h)   the survey correctly shows: (i) the zoning classification for the subject property, (ii) the permitted uses within such classification; and (iii) the sources of such information;

 



 

(i)    I have consulted the U.S. Department of Housing and Urban Development, Federal Insurance Administration Flood Hazard Boundary Map, Community Number                       , Sheet Number                        revised                     , and found that the subject property is not located in a special flood hazard area according to the map;

 

(j)    the undersigned expressly understands and agrees that: (a) this Certificate is made to induce COR US BANK, N.A. (together with its successors and assigns, “Lender”) to extend credit secured by a deed of trust, deed to secure debt or mortgage lien covering the subject property and to induce [TITLE INSURANCE COMPANY] (“Title Insurer”) to issue a policy of title insurance insuring the validity and priority of such lien; (b) both Lender and Title Insurer are entitled to rely upon this plat of survey as being true and accurate in all respects and upon this Certificate as being true and accurate; and (c) the consideration paid to the undersigned for the preparation and certification of such survey has been paid, in part, for the benefit of Lender and Title Insurer and in anticipation of their reliance hereon.

 

 

(Signature of Surveyor)

(Surveyor’s Seal)

Registered Surveyor,

 

State of:

 

 

 

 

Registered No.

 

 

 

 

 

 

 

Date of Survey:

 

Date of Last Revision:

 



 

EXHIBIT G

 

FORM OF CONDOMINIUM CONTRACT

 

[See attached]

 


Exhibit 10.11

 

COMPLETION GUARANTY

 

THIS COMPLETION GUARANTY (this “ Completion Guaranty ) dated as of January 27, 2005, is made by COMSTOCK HOMEBUILDING COMPANIES, INC., a Delaware corporation (“ Guarantor ), in favor of COR US BANK, N.A. (“ Lender ).

 

R E C I T A L S:

 

A.             COMSTOCK PENDERBROOK, L.C., a Virginia limited liability company (“ Borrower ”), and Lender have entered into a loan in the maximum principal sum of $67,000,000 (the “ Loan ”) pursuant to a loan agreement of even date herewith (the “ Loan Agreement ”) and certain other documents.

 

B.             In connection with the Loan, Borrower has executed and delivered to Lender a promissory note, dated the date hereof (said note, together with any extensions thereof or modifications or amendments thereto and any notes issued in substitution or exchange therefor, being hereinafter referred to collectively as the “ Note ”).

 

C.             To secure the payment of the obligations and liabilities of Borrower to Lender under the Loan Agreement and the Note, Borrower has executed and delivered to Lender a deed of trust and certain other documents and instruments evidencing and securing the Loan, including but not limited to a Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing for the Loan, dated as of the date hereof (the “ Deed of Trust ”), which is a lien on the Property.

 

D.             Lender has required, as a condition precedent to making the Loan, that Guarantor execute and deliver this Completion Guaranty.

 

E.              Guarantor has a financial interest in Borrower and it will be to the direct financial interest and benefit of Guarantor to assist Borrower to obtain the Loan from Lender.

 

F.              Guarantor hereby acknowledges that this Completion Guaranty is required by Lender as a condition precedent and inducement to Lender to make the Loan.

 

NOW, THEREFORE, FOR VALUE RECEIVED, in consideration of the foregoing Recitals, each of which is an integral part hereof and this Completion Guaranty shall be construed in light thereof, and in consideration of Lender making the Loan to Borrower and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Guarantor agrees as follows:

 



 

1.              Definitions .

 

(a)            Except as otherwise set forth herein, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Deed of Trust or, if not defined therein, in the Loan Agreement, which definitions are incorporated herein by reference as if fully set forth herein.

 

(b)            As used herein, the term “ Loan Party ” shall mean any one or more of Borrower, Guarantor and any other Person which is a party to this Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, or the Loan Documents, other than Lender.

 

(c)            All references in this Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, and every other Loan Document to the Loan Agreement, the Note, the Deed of Trust, the Environmental Indemnity Agreement, the Limited Guaranty, and each and every other Loan Document shall mean the Loan Agreement, the Note, the Deed of Trust, the Environmental Indemnity Agreement, the Limited Guaranty, and each and every other Loan Document and all modifications, amendments, supplements, extensions, replacements or restatements thereof or thereto.

 

2.              Guaranty of Completion .

 

(a)            Guarantor hereby absolutely, irrevocably, and unconditionally guarantees, as a principal obligor and not as a surety, to Lender (collectively, the “ Guaranteed Obligations ”): (1) the payment of all costs and the performance of the completion of the Project free and clear of all claims for mechanic’s and materialmen’s Liens and in accordance with:  (i) all applicable Laws, (ii) the Project Budget, (iii) the Construction Documents, (iv) the Project Schedule and (iv) and the terms and conditions of the Loan Agreement (whether before or after any foreclosure or deed-in-lieu thereof and whether executed by Borrower, Lender or a receiver); (2) to pay all amounts required to maintain the Loan In Balance through the completion of the Project, as required pursuant to the terms of the Loan Agreement, including amounts to pay interest at the Interest Rate or Default Rate (each as defined in the Note), as applicable; (3) to pay all Enforcement Costs (as hereinafter defined); and (4) the payment of all losses, costs, expenses, liabilities and damages incurred by Lender arising from any failure of Guarantor to complete the Project in accordance with clause (1) above.  Guarantor hereby expressly acknowledges that after the date hereof the Project Budget may be modified, amended, and supplemented in accordance with the terms of the Loan Agreement in material respects without notice to or the approval of Guarantor and Guarantor hereby expressly waives such notice and opportunity to approve.  The Guaranteed Obligations shall include all amendments, modifications and supplements to the Project Budget, the Project Schedule and the Construction Documents, whether or not made with Guarantor’s knowledge or consent.

 

(b)            In the event that:

 

(i)             Borrower fails to proceed diligently and make regular progress toward completion of the Project, as determined by Lender in its reasonable determination;

 

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(ii)            in Lender’s reasonable determination, Borrower is likely to be unable to complete the Project free of mechanic’s and materialmen’s Liens and claims therefor, in compliance and in accordance with all Laws and Permits, the Project Budget, and the terms and conditions of the Loan Agreement that pertain to the construction of the Project;

 

(iii)           Lender, its agents or a receiver takes possession of the Project prior to the completion of construction thereof by reason of any Event of Default under the Loan Agreement or any other Loan Document;

 

(iv)           there is a written disapproval by Lender at any time of any construction at the Project for failure to comply with the Loan Agreement, and Borrower fails to cause the same to be corrected to the reasonable satisfaction of Lender in accordance with the provisions of the Loan Agreement;

 

(v)            an Event of Default shall occur under the Loan Agreement or any other Loan Document; or

 

(vi)           the Loan is not In Balance and the Loan is not made to be In Balance in accordance with the provisions of the Loan Agreement within the time period provided therefor,

 

then, in any such event, Guarantor agrees, on written demand by Lender:  (1) to commence and timely pay and perform the Guaranteed Obligations in accordance with the terms of the Loan Agreement and the other Loan Documents; (2) to assume all responsibility for and to cause the Project to be completed free of mechanic’s and materialmen’s Liens and claims therefor, in accordance with all applicable Laws and in accordance with the terms and conditions of the Loan Agreement, the Construction Documents and the Project Budget; (3) to pay any and all costs and expenses necessary for said timely and lien-free completion of the Project, even if said costs and expenses are in excess of the Project Budget or any amendments thereto; (4) to deposit with Lender any amount then required pursuant to the terms of the Loan Agreement to cause the Loan to be In Balance, in accordance with the terms of the Loan Agreement;  and (5) to indemnify and hold Lender harmless from and against any and all loss, damage, injury, liability or cost or expense Lender may suffer or incur in connection with the completion of the Project, except to the extent caused by Lender’s gross negligence or willful misconduct.

 

(c)            If Guarantor fails to commence and pursue diligently the performance of the Guaranteed Obligations within ten (10) Business Days after its receipt of written notice from Lender demanding the performance of Guarantor, then, either before or after pursuing any other remedy of Lender against Guarantor, Borrower or any other Loan Party, and regardless of whether Lender shall ever pursue any such other remedy, Lender shall have the right, but not the obligation, to complete the Project or call upon any other reputable parties to complete the Project (including the right to replace any contractor and any or all material subcontractors), with such changes or modifications to the Construction Documents or the Project Budget as Lender deems necessary in Lender’s reasonable discretion, and Lender shall have the right to expend such sums as Lender in its sole and exclusive discretion deems proper in order to complete the

 

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Project and to receive reimbursement from Guarantor.  During the course of any construction undertaken by Lender or by any other party on behalf of Lender, Guarantor shall pay within ten (10) Business Days after demand any and all amounts due to contractors, subcontractors and material suppliers and for permits, licenses, entitlements, bonds, taxes, assessments and other items necessary or desirable in connection therewith, subject to the rights to contest granted to Borrower pursuant to the Loan Agreement. Lender may at any time require Guarantor to perform or supervise the performance of such work in lieu of Lender or any party engaged by Lender.  In the event Guarantor does not complete the Project and Lender does not complete the Project as set forth above, and Lender, any affiliate of Lender, or a third party acquires title to the Property by foreclosure or deed in lieu thereof, then Guarantor shall pay to Lender, on the date such Person acquires title to the Property (the “ Acquisition Date ”), on demand an amount (the “ Post-Acquisition Liability Amount ”) equal to the difference between: (a) the then outstanding Secured Obligations and (b) the net proceeds accepted by Lender, in its reasonable discretion, minus actual (including in-house reasonable attorney fees) costs to foreclose upon the Property (either through a deed in lieu of foreclosure or pursuant to a sale occurring as part of a judicial or non-judicial foreclosure) as a result of sale of the Property: (1) to a third party after Lender receives title to the Property from a deed-in-lieu of foreclosure, (2) to a third party pursuant to a sale occurring as part of a judicial foreclosure, or (3) based on Lender’s bid at a judicial sale. If Guarantor fails to pay the Post-Acquisition Liability Amount in full within ten (10) Business Days after demand by Lender, Guarantor shall pay interest at the Default Rate set forth in the Note on any unpaid portion of the Post-Acquisition Liability Amount beginning from the period beginning on the Acquisition Date and ending on the date of Guarantor’s payment thereof. Payment of the Post-Acquisition Liability Amount will not affect any surviving Secured Obligations or Guarantor’s liability under any other Loan Document. The Guaranteed Obligations shall be deemed to include the Post-Acquisition Liability Amount. Lender may at all times accept a deed to the Property in lieu of foreclosure or may refuse to accept a deed to the Property in lieu of foreclosure, without in any way affecting the obligations of Guarantor under this Completion Guaranty.

 

(d)            The Guaranteed Obligations shall not be affected by any errors or omissions of Borrower, any contractor, any architect, any subcontractor or any agent or employee of any of them in the design, supervision or performance of the work described in the Loan Agreement, it being understood that such risk is assumed by Guarantor. All amounts required to be paid by the terms hereof and all obligations required to be performed by the terms hereof shall be included in the Guaranteed Obligations and are payable by Guarantor within fifteen (15) Business Days after demand therefor.  Neither the completion of the Project nor failure of said parties to complete the Project shall relieve Guarantor of any liability hereunder, rather such liability shall be continuing and may be enforced by Lender to the end that the Project shall timely be completed as contemplated by the Loan Agreement and the Construction Documents, lien-free, without loss, expense, injury or liability of any kind to Lender, except to the extent caused by Lender’s gross negligence or willful misconduct.

 

Upon the occurrence of any event set forth in Section 2(b) , Guarantor agrees immediately after receipt of notice and demand by Lender, to pay and perform the Guaranteed Obligations regardless of any defense, right of set-off or claims which Borrower, Guarantor or any other Loan Party may have against Lender.  Lender may apply any and all such payments to the Secured Obligations in any order of priority as Lender shall, in its sole discretion, determine.  No

 

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payment made pursuant to this Completion Guaranty shall reduce or limit the amount payable by Guarantor hereunder.  Nothing contained in this Section 2 shall be deemed to limit Guarantor’s liability under the Environmental Indemnity Agreement, the Limited Guaranty or any other Loan Document to which Guarantor is a party.

 

3.              Irrevocable Guaranty .

 

(a)            This is an absolute, irrevocable, present and continuing guaranty of payment and performance of the Guaranteed Obligations and not of collection.

 

(b)            The obligations of Guarantor hereunder are independent of and in addition to the obligations of Guarantor, Borrower and any other Loan Party under the Environmental Indemnity Agreement, the Limited Guaranty, or any other Loan Document and a separate action or actions may be brought or prosecuted against Guarantor, whether any action is brought against Borrower or any other Loan Party or whether Borrower or any other Loan Party is joined in any action or actions.  In any action to enforce this Completion Guaranty, Lender, at its election, may proceed against Guarantor, with or without:  (i) joining Borrower or any other Loan Party in any such action; (ii) commencing any action against or obtaining any judgment against Borrower or any other Loan Party; or (iii) commencing any proceeding to enforce the Note or the Loan Agreement or to realize upon all or any part of the Property; provided, however , nothing herein contained shall preclude Lender from suing on the Note and the Loan Agreement or foreclosing the Loan Documents or from exercising any other rights, remedies or power under the Environmental Indemnity Agreement, the Limited Guaranty, or any Loan Document, and if such foreclosure or other rights, powers or remedies are availed of, only the net proceeds therefrom, after deduction of all charges and expenses of every kind and nature whatsoever, shall be applied in reduction of the Secured Obligations.  Lender shall not be required to institute or prosecute proceedings to recover any deficiency as a condition of any payment hereunder or enforcement hereof.  At any sale of the Property, whether by foreclosure or otherwise, Lender may, at its discretion, purchase all or any part of such the Property, offered for sale for its own account, and may apply against the amount bid therefor the unpaid balance or any part thereof to the Secured Obligations.

 

(c)            The obligations and liabilities of Guarantor hereunder shall not be diminished or offset by any payment by Guarantor under any other agreement, document, or instrument entered into by Guarantor in favor of Lender, including, without limitation, the Limited Guaranty and the Environmental Indemnity Agreement.

 

4.              Return of Payments .  Guarantor agrees that, if at any time all or any part of the payments theretofore applied by Lender to any of the Secured Obligations, but only to the extent of the Guaranteed Obligations, is rescinded or returned by Lender or Lender is required to pay any amount thereof to any other Person for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any party or the determination that such payment is held to constitute a preference under the bankruptcy laws):  (i) such Secured Obligations, but only to the extent of the Guaranteed Obligations, shall, for the purposes of this Completion Guaranty, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by Lender, and this Completion Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Secured Obligations, but only to the

 

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extent of the Guaranteed Obligations, all as though such application by Lender had not been made and Guarantor agrees to pay such amount to Lender upon demand; and (ii) any security interest granted by Guarantor to Lender to secure Guarantor’s performance under this Completion Guaranty shall be deemed to be reinstated notwithstanding any release by Lender of such security interest or pledge.  Guarantor shall execute any document, instrument or financing statement necessary or desirable to effect this provision.

 

5.              No Discharge .  Guarantor agrees that the obligations, covenants and agreements of Guarantor under this Completion Guaranty shall not be discharged, affected or impaired by:

 

(a)            the renewal or extension of time for the payment and/or performance of the obligations under the Environmental Indemnity Agreement, the Limited Guaranty or any of the Secured Obligations under any other Loan Document, whether made or performed with or without notice to or the knowledge or consent of Guarantor;

 

(b)            any modification or amendment of the Loan Documents, with or without notice to or the knowledge or consent of Guarantor, including but not limited to any further or future extensions of credit which shall become a part of the Secured Obligations, any change or modification of the interest rate, payment terms, maturity date or any other covenant of any agreement of Borrower or any other Loan Party;

 

(c)            any transfer, waiver, compromise, settlement, modification, surrender, or release of the Note, the Loan Agreement, the Environmental Indemnity Agreement, the Limited Guaranty, or any of the other Loan Documents;

 

(d)            the release or agreement not to sue without reservation of rights of Borrower or any other Loan Party;

 

(e)            the existence of any defenses to enforcement of the Note, the Loan Agreement, the Environmental Indemnity Agreement, the Limited Guaranty or any of the other Loan Documents, other than payment in full of all the Secured Obligations;

 

(f)             any failure, omission, delay or inadequacy, whether entire or partial, of Lender to exercise any right, power or remedy regarding the Loan or to enforce or realize upon (or to make Guarantor party to the enforcement or realization upon) any of Lender’s security for the Loan, including, without limitation, the Property;

 

(g)            the existence of any set-off, claim, reduction, or diminution of the Secured Obligations, or any defense of any kind or nature, which Guarantor may have against Borrower, Borrower’s members or any other Loan Party or which Borrower, Guarantor or any other Loan Party has against Lender;

 

(h)            the application of payments received from any source to the payment of any obligation other than the Secured Obligations, even though Lender might lawfully have elected to apply such payments to any part or all of the Secured Obligations;

 

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(i)             the addition of any and all other endorsers, guarantors, obligors and other persons liable for the payment and/or performance of the Secured Obligations, and the acceptance of any other security for the payment and/or performance of the Secured Obligations;

 

(j)             the power or authority or lack of power or authority of Borrower to execute and deliver the Note or the Loan Agreement, or of Borrower or any other Loan Party to execute, acknowledge or deliver any one or more of the Loan Documents;

 

(k)            the validity or invalidity of the Note, the Loan Agreement, the Environmental Indemnity Agreement, the Limited Guaranty, or the other Loan Documents;

 

(l)             the existence or non-existence of Borrower or any other Loan Party as a legal entity;

 

(m)           the transfer by Borrower or any other Loan Party of all, or any part of, or any interest in all or any part of the Property;

 

(n)            the institution by or against Borrower, Borrower’s members or any other Loan Party of bankruptcy, reorganization, readjustment, receivership or insolvency proceedings of any nature, or the disaffirmation of the Environmental Indemnity Agreement, the Limited Guaranty, or any one or more of the Loan Documents in any such proceedings or otherwise;

 

(o)            any irregularity or the unenforceability (by reason of any Governmental Authority’s purporting to reduce or amend or otherwise affect the Secured Obligations), or the release or discharge of Borrower or Borrower’s members in any receivership, bankruptcy, winding-up or other creditor proceedings;

 

(p)            the determination by a court of competent jurisdiction that Borrower or any other Loan Party is not required to pay and/or perform the Secured Obligations pursuant to operation of law;

 

(q)            the acceptance by Lender of payment of a part of the Secured Obligations, or any failure, neglect or omission on the part of Lender to realize on or protect any of the Secured Obligations or any real estate, personal property, or mortgage or lien security given as security therefor, or to exercise any lien upon, or right of appropriation of, any monies, credits or property of Borrower toward liquidation of the Secured Obligations;

 

(r)             the failure by Lender or anyone acting on behalf of Lender to perfect or maintain perfection of any lien or security interest upon any part of the Property given at any time to secure repayment of the Secured Obligations; or

 

(s)            any right or claim whatsoever which Guarantor may have against Borrower, Borrower’s members, any other Loan Party or Lender or the successors or assigns of any of them;

 

all whether or not Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (s) of this Section.

 

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Guarantor intends that Guarantor shall remain liable hereunder as a principal obligor for the performance of the Guaranteed Obligations until the Guaranteed Obligations shall have been indefeasibly paid in full and all the Guaranteed Obligations performed in accordance with the terms and conditions of this Completion Guaranty, the Note and the other Loan Documents, notwithstanding any fact, act, event or occurrence which might otherwise operate as a legal or equitable discharge of a surety or guarantor.

 

6.              Application Of Amounts Received .  Any amounts received by Lender from whatever source on account of the Secured Obligations may be applied by Lender toward the payment of the Guaranteed Obligations, and in such order of application, as Lender may from time to time elect, in accordance with the provisions of the Loan Documents.  Notwithstanding the foregoing, any amounts received by Lender from whatever source on account of the Guaranteed Obligations shall be applied by Lender toward the payment of the Guaranteed Obligations (provided that in no event shall lender’s receipt and application of NOI or Unit Release Payments be considered received on account of or applied to the Guaranteed Obligations), and in such order of application, as Lender may from time to time elect, in accordance with the provisions of the Loan Documents.

 

7.              Waiver .

 

(a)            Guarantor expressly waives:

 

(i)             notice of the acceptance by Lender of this Completion Guaranty;

 

(ii)            notice of the existence, creation, payment or nonpayment of the Secured Obligations or any modification, extension, or amendment thereof;

 

(iii)           presentment, demand, protest, notice of protest, notice of presentment, notice of dishonor, default, non-payment, maturity, release, compromise, settlement, extension, renewal of the Loan or any obligation under the Loan Documents, notice of maturity, release, compromise or settlement of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by Lender with respect to the transactions contemplated in the Loan Documents, and all other notices whatsoever;

 

(iv)           any failure by Lender to inform Guarantor of any facts Lender may now or hereafter know about Borrower, any other Loan Party, the Property, the Secured Obligations or the transactions contemplated by the Loan Documents;

 

(v)            notice of any and all changes in the terms, covenants or conditions of the Note or of the other Loan Documents, including extension and renewal;

 

(vi)           any and all substitutions, exchanges or releases of all or any part of the Property;

 

(vii)          the release or agreement not to sue without reservation of rights of anyone liable in any way for the repayment of the Secured Obligations;

 

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(viii)         all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon the Property;

 

(ix)            any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender’s remedies;

 

(x)             the release or agreement not to sue without reservation of rights of anyone liable in any way for repayment of the Loan; and

 

(xi)            the benefit of all valuation, appraisement, extension and exemption laws;

 

it being understood and agreed that Lender has no duty to so inform and that Guarantor is fully responsible for being and remaining informed by Borrower of all circumstances bearing on the existence or creation of the risk of nonpayment and/or nonperformance of the Secured Obligations.

 

(b)            Credit may be granted or continued from time to time by Lender to Borrower without notice to or authorization from Guarantor, including but not limited to making additional loans or other financial accommodations by Lender to Borrower or any other Loan Party regardless of the financial or other condition of Borrower, any other Loan Party or the Property and Guarantor agrees that the obligations, covenants and agreements of Guarantor under this Completion Guaranty shall not be discharged, affected or impaired thereby.

 

(c)            No modification or waiver of any of the provisions of this Completion Guaranty shall be binding upon Lender or Guarantor except as expressly set forth in a writing duly signed and delivered on behalf of Lender.

 

(d)            Guarantor further agrees that any exculpatory language pertaining to Borrower or to any other Loan Party contained in the Note, the Loan Agreement or any other Loan Document shall in no event apply to this Completion Guaranty, and will not prevent Lender from proceeding against Guarantor to enforce this Completion Guaranty.

 

(e)            Guarantor hereby waives the benefit of any law that would otherwise restrict or limit Lender in the exercise of its right, which is hereby acknowledged, to appropriate without notice at any time hereafter any indebtedness or obligation matured or unmatured owing from Lender to Guarantor.  Lender may, from time to time, without demand or notice of any kind, appropriate and apply toward the payment of such of the Guaranteed Obligations, and in such order of application, as Lender may, from time to time, elect any and all such balances, credits, deposits, accounts, moneys, cash equivalents and other assets, or in the name of Guarantor, then or thereafter held by or under the control of Lender.  Guarantor hereby assigns and transfers to Lender any and all cash, negotiable instruments, documents of title, chattel paper, securities, certificates of deposit, deposit accounts, other cash equivalents and other assets of Guarantor, in the possession or control of Lender for any purpose.

 

(f)             Guarantor hereby waives the filing of a claim with a court in the event of receivership or bankruptcy of Borrower and waives every defense, cause of action, counterclaim

 

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or setoff which Guarantor may now have or hereafter may have to any action by Lender in enforcing this Completion Guaranty, including, without limitation, every defense, counterclaim or setoff which Guarantor may now have, or hereafter may have, against Borrower, any other Loan Party or any other party liable to Lender in any manner.  Guarantor ratifies and confirms whatever Lender may do pursuant to the terms hereof and with respect to all or any part of the Property and agrees that Lender shall not be liable for any error in judgment or mistakes of fact or law; provided that nothing contained herein shall be deemed to limit Lender’s liability for gross negligence or willful misconduct.  Guarantor hereby agrees that Guarantor may be joined as a party defendant in any legal proceeding (including, but not limited to, a foreclosure proceeding) instituted by Lender against Borrower or any other Loan Party.

 

8.              Enforcement Costs :  If:

 

(a)            this Completion Guaranty, the Loan Agreement, the Note, the Environmental Indemnity Agreement, the Limited Guaranty or any other Loan Document is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding;

 

(b)            an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Completion Guaranty, the Note, the Environmental Indemnity Agreement, the Limited Guaranty or any Loan Document;

 

(c)            an attorney is retained to protect or enforce the security interest created by any one or more of the Loan Documents; or

 

(d)            an attorney is retained to represent Lender in any other proceedings whatsoever in connection with a default by Guarantor under this Completion Guaranty, or a default by Borrower or any other Loan Party in connection with the Loan, any of the other Loan Documents, the Environmental Indemnity Agreement, the Limited Guaranty or the Property, or to protect or preserve any property which is collateral for the Loan,

 

then Guarantor shall pay to Lender upon demand all reasonable attorneys’ fees, costs and expenses, including without limitation, court costs, filing fees, recording costs, expenses of foreclosure, title insurance premiums, minutes of foreclosure and all other costs and expense incurred in connection therewith (all of which are referred to herein as “ Enforcement Costs ”), in addition to all other amounts due hereunder. Any Enforcement Costs, together with interest thereon at the Interest Rate (as defined in the Note), shall be a part of the Secured Obligations, secured by the Property, payable by Guarantor to Lender in accordance with the provisions of this Completion Guaranty and the Loan Documents.  Any reference to attorney’s fees in this Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty or in any other Loan Document shall include fees of any separate law firm or in-house counsel employed by Lender in connection with the Loan.  Notwithstanding anything to the contrary contained herein, fees of in-house counsel shall be charged at rates of medium to large sized law firms in the City of Chicago, Illinois for attorneys of comparable expertise and experience.

 

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9.              Transfer Of Secured Obligations .  Notwithstanding any assignment or transfer of the Secured Obligations or any interest therein by Lender, all portions of such Secured Obligations which are Guaranteed Obligations, including those assigned or transferred, shall be and remain Guaranteed Obligations for the purposes of this Completion Guaranty, and each and every immediate and successive assignee or transferee of the Secured Obligations or interest shall, to the extent of the Guaranteed Obligations or interests assigned or transferred, be entitled to the benefits of this Completion Guaranty to the same extent as if such assignee or transferee were Lender; provided however , that unless the assignor or transferor shall otherwise consent in writing, the assignor or transferor shall have an unimpaired right, prior to and superior to that of its assignee or transferee, to enforce this Completion Guaranty for its benefit as to such portions of the Guaranteed Obligations or interests therein not assigned or transferred.

 

10.            Subordination .    Any indebtedness or other obligation of Borrower, now or hereafter held by or owing to Guarantor, is hereby subordinated to the payment and performance in full of the Secured Obligations. Guarantor hereby covenants and agrees that it will not accept payment of principal, interest or any other amount of any indebtedness or other obligation of Borrower to Guarantor. Such indebtedness or obligation of Borrower to Guarantor shall, at the option of Lender, be collected, enforced and received by Guarantor as trustee for Lender, and shall be paid over to Lender on account of the Secured Obligations, but without impairing or affecting in any manner the liability of Guarantor under the other provisions of this Completion Guaranty.  Nothing in this Section or elsewhere in this Completion Guaranty shall be construed as Lender’s authorization of or consent to the creation or existence of any such indebtedness of Borrower to Guarantor.

 

11.            Governing Law; Interpretation .

 

(a)            This Completion Guaranty has been negotiated, executed and delivered in Fairfax County, Virginia and shall be governed by and construed in accordance with the internal laws of the Commonwealth of Virginia, without reference to the conflicts of law principles of that state.  In any controversy, dispute or question arising hereunder, under the Environmental Indemnity Agreement, the Limited Guaranty or under the other Loan Documents, Guarantor consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the Commonwealth of Virginia (whether it be a court of such State, or a court of the United States of America situated in such State), and in connection therewith, agrees to submit to and be bound by, the jurisdiction of such court upon Lender’s mailing of process by registered or certified mail, return receipt requested, postage repaid, to Guarantor at its address for receipt of notices under this Completion Guaranty.

 

(b)            The headings of sections and paragraphs in this Completion Guaranty are for convenience only and shall not be construed in any way to limit or define the content, scope, or intent of the provisions hereof.  As used in this Completion Guaranty, the singular shall include the plural, and masculine, feminine, and neuter pronouns shall be fully interchangeable, where the context so requires.  If any provision of this Completion Guaranty or any paragraph, sentence, clause, phrase, or word, or the application thereof, in any circumstances, is adjudicated by a court of competent jurisdiction to be invalid, the validity of the remainder of this Completion Guaranty shall be construed as if such invalid part were never included herein.

 

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(c)            Time is of the essence of this Completion Guaranty.

 

(d)            All payments to be made hereunder shall be made in currency and coin of the United States of America which is legal tender for public and private debts at the time of payment.

 

(e)            Wherever possible each provision of this Completion Guaranty shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Completion Guaranty shall be prohibited by or invalid under such Law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Completion Guaranty.

 

(f)             It is agreed that Guarantor’s liability is independent of any other guaranties at any time in effect with respect to all or any part of Borrower’s indebtedness to Lender, including, but not limited to, the Limited Guaranty, and that Guarantor’s liability hereunder may be enforced regardless of the existence of any such other guaranties.

 

12.            Singular and Plural; Joint and Several Liability . If there is more than one Borrower entity, all references to Borrower herein shall be Borrower or any one or more of them.  All obligations and liabilities of Guarantor hereunder are in addition to, not in lieu of and are independent of:  (a) all obligations of Borrower under any other Loan Document, including the Note and the Loan Agreement; and (b) any obligation of Guarantor under the Environmental Indemnity Agreement, the Limited Guaranty, or any other Loan Document to which Guarantor is a party.  All obligations of Guarantor hereunder shall be joint and several.

 

13.            Entire Agreement .  This Completion Guaranty, the Note, the Environmental Indemnity Agreement, the Limited Guaranty, and the other Loan Documents constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior such agreements and understandings, both written and oral.  This Completion Guaranty may not be modified or amended except by a written instrument signed by Lender and Guarantor.  If this Completion Guaranty is executed in several counterparts, each of those counterparts shall be deemed an original, and all of them together shall constitute one and the same instrument.

 

14.            Termination . Lender agrees that the obligations of Guarantor under this Completion Guaranty shall terminate, subject to the provisions of Section 4 hereof, on the earliest of (i) the completion of the Project; or (ii) in the alternative, when Lender shall have received indefeasible payment in full of all the Secured Obligations and all other sums due and owing under this Completion Guaranty and all the Guaranteed Obligations shall have been fully performed; or (iii) in the alternative, upon payment of the Post-Acquisition Liability Amount.

 

15.            Successors and Assigns; Miscellaneous .  This Completion Guaranty shall inure to the benefit of and may be enforced by Lender and any subsequent holder of the Note, the Loan Agreement, the Environmental Indemnity Agreement, the Limited Guaranty, or the other Loan Documents, and all of the covenants, agreements and obligations of Guarantor hereunder shall extend to and be binding upon and enforceable against Guarantor and the heirs, administrators, legal representatives, successors and assigns of Guarantor.  This Completion Guaranty and the

 

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obligations hereunder shall not be discharged, affected, or impaired, in whole or in part, upon the bankruptcy, insolvency or death of Guarantor.

 

16.            Further Assurances; Representation by Counsel .

 

(a)            Guarantor further covenants and agrees that Guarantor shall at any time and from time to time, upon the reasonable request of Lender, take, or cause to be taken, any action and execute and deliver any further documents which, in the reasonable opinion of Lender, may be necessary, required or desirable in order to carry out the intent and purposes of this Completion Guaranty.

 

(b)            Guarantor hereby represents and warrants that it has consulted and conferred with competent legal counsel of its choice before executing this Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, and all other Loan Documents.  Guarantor further represents and warrants that it has read and understood the terms of this Completion Guaranty and intends to be bound hereby.  In the event of an ambiguity or conflict in the terms hereof, the rule of construction requiring resolution against the drafter of the document shall not be applied.

 

17.            Notices .  Any and all notices given in connection with this Completion Guaranty shall be deemed adequately given only if in writing and addressed to the party for whom such notices are intended at the address set forth below.  All notices shall be delivered in accordance with the notice provisions of the Loan Agreement.  Any and all notices referred to in this Completion Guaranty, or which either party desires to give to the other, shall be addressed as follows:

 

To Guarantor:

 

Comstock Homebuilding Companies, Inc.

 

 

11465 Sunset Hills Road

 

 

Suite 510

 

 

Reston, Virginia  20190

 

 

Attention:  Christopher Clemente

 

 

Telecopy Number:  (703) 760-1520

 

 

 

with a copy to:

 

 

 

 

 

Bankert & Associates, P.C.

 

 

3025 Hamaker Court

 

 

Suite 501

 

 

Fairfax, Virginia  22031

 

 

Attention:  Joseph E. Bankert, Esq.

 

 

Telecopy Number:  (703) 876-4628

 

 

 

To Lender:

 

Cor us Bank, N.A.

 

 

3959 N. Lincoln Avenue

 

 

Chicago, IL 60613

 

 

Attn:  David Krischke, Assistant Vice President

 

 

Telecopy Number:  (773) 832-3553

 

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with a copy to:

 

Cor us Bank, N.A.
3959 N. Lincoln Avenue
Chicago, IL 60613
Attn:  Joel Solomon, General Counsel
Telecopy Number:  (773) 832-3536

 

with a copy to:

 

Sidley Austin Brown & Wood LLP
1501 K Street, N.W.
Washington, D.C.  20005
Attn:  Andrea J. Cummings, Esq.
Telecopy Number:  (202) 736-8711

 

Any party hereto may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

 

18.            Additional Representations and Warranties .  In addition to and independent of any other obligation or liability under this Completion Guaranty, Guarantor hereby represents and warrants to Lender as follows:

 

(a)            Execution and Binding Effect .  This Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, and each other Loan Document to which Guarantor is a party and which is executed and delivered or required to be executed and delivered on or before the date of which this representation and warranty is made, or deemed made, has been duly and validly executed and delivered by Guarantor.  This Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, and each such other Loan Document constitutes, and the Environmental Indemnity Agreement, the Limited Guaranty, and each other Loan Document when executed and delivered by Guarantor will constitute, the legal, valid and binding obligations of Guarantor, jointly and severally, enforceable against Guarantor in accordance with its terms, subject to bankruptcy, insolvency and other laws affecting creditor’s rights generally.  This Completion Guaranty shall continue to be effective with respect to any guaranteed obligations arising or created after any attempted revocation by Guarantor and after Guarantor’s death, in which event this Completion Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs.

 

(b)            Violation of Agreements .  To the best of Guarantor’s knowledge, neither the execution and delivery of this Completion Guaranty, nor consummation of the transactions herein or therein contemplated, nor performance of or compliance with the terms and conditions hereof or thereof, does or will at any time during the term hereof:

 

(i)             violates or conflicts with any Laws, or

 

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(ii)            violates, conflicts with or will result in a breach of any term or condition of, or constitute a default under, or result in (or give rise to any right, contingent or otherwise, of any Person to cause) any termination, cancellation, prepayment or acceleration of performance of, or result in the creation or imposition of (or give rise to any obligation, contingent or otherwise, to create or impose) any lien upon any property of Guarantor (except for any lien in favor of Lender securing the Secured Obligations) pursuant to, or otherwise result in (or give rise to any right, contingent or otherwise, of any Person to cause) any change in any right, power, privilege, duty or obligation of Guarantor under or in connection with:

 

(a)            any agreement or instrument creating, evidencing or securing any indebtedness or guaranty equivalent to which Guarantor is a party or by which it or any of their properties (now owned or hereafter acquired) may be subject or bound, or

 

(b)            any other agreement or instrument or arrangement to which Guarantor is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound.

 

(c)            Government Approvals and Filings .  To the best of Guarantor’s knowledge, no approval, order, consent, authorization, certificate, license, permit or validation of, or exemption or other action by, or filing, recording or registration with, or notice to, any governmental authority (collectively, “ Governmental Action ”) is or will be necessary in connection with the execution and delivery of this Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, or any other Loan Document to which Guarantor is a party, the consummation of the transactions herein or therein contemplated, the performance of or compliance with the terms and conditions hereof or thereof, or to ensure the legality, validity, binding effect, enforceability or admissibility in evidence hereof or thereof.

 

(d)            Violation of Laws .  To the best of Guarantor’s knowledge, Guarantor is not in violation of any applicable statute, regulation or ordinance of the United States of America, of any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof (including, but not limited to any Hazardous Materials Laws (as defined in the Environmental Indemnity Agreement)).

 

(e)            Solvency .  Guarantor (i) is now and at all times during the term hereof shall be generally paying its debts as they mature; (ii) now owns, and at all times during the term hereof shall own, property which, at a fair valuation, is greater than the sum of its debts, and (iii) now has and at all times during the term hereof shall have capital sufficient to carry on its business and personal affairs and any such affairs in which it is about to engage.

 

(f)             Proceeding .  There is no condition, event or circumstance existing, or any litigation, arbitration, governmental or administrative proceedings, actions, examinations, claims or demands pending nor, to Guarantor’s knowledge, threatened affecting Guarantor which are likely to result in a Material Adverse Effect, and Guarantor knows of no basis therefor.

 

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(g)            Tax Returns .

 

(i)             All tax and informational returns required to be filed by or on behalf of Guarantor have been properly prepared, executed and filed.  All taxes, assessments, fees and other charges upon Guarantor, or upon any of its properties or incomes, which are due and payable have been paid other than those not yet delinquent and payable without premium or penalty, and except for those being diligently contested in good faith by appropriate proceedings, and in each case adequate funds and provisions for such taxes have been made by Guarantor.

 

(ii)            Guarantor does not know of any proposed additional assessment or basis for any material assessment for any additional taxes (whether or not reserved against).

 

(iii)           Guarantor has paid all charges shown to be due and payable on said tax returns or on any assessments made against it or any of its property, and all other charges imposed on it or any of its properties by any governmental authority.

 

(h)            Default Under Other Agreements .  Guarantor has not received any written notice of a default with respect to any indenture, loan agreement, mortgage, deed or other similar agreement relating to the borrowing of monies to which it is a party, and by which it is bound.

 

(i)             Insurance .  Guarantor maintains with financially sound and reputable insurers, not related to or affiliated with Guarantor, insurance with respect to its properties and assets and against at least such liabilities, casualties and contingencies and in at least such types and amounts as is customary in the case of individuals having similar properties and assets similarly situated.

 

(j)             Adverse Conditions .  No condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceeding (or to Guarantor’s knowledge, threatened litigation or proceeding or basis therefor) relating to Guarantor exists, (i) which are likely to result in a Material Adverse Effect; (ii) which would constitute an Event of Default under this Completion Guaranty, the Environmental Indemnity Agreement, the Limited Guaranty, or any of the Loan Documents; or (iii) which would constitute such an Event of Default with the giving of notice or lapse of time or both.

 

19.            Additional Covenants Of Guarantor .

 

(a)            Guarantor shall deliver or cause to be delivered to Lender those reports and financial statements set forth below.  All such financial statements shall be internally prepared and shall fairly and accurately present in all material respects the assets, liabilities and financial conditions of Guarantor and such other Persons, if any, described therein as of and for the periods ending of such dates set forth therein.

 

(i)             A disclosure of any judgments and pending or threatened material litigation against Guarantor, Borrower or the Property promptly upon Guarantor’s awareness of such litigation;

 

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(ii)            On or before April 30 of each year during the term of the Loan, federal and state income tax returns of Guarantor, all certified to be true, complete and correct by an authorized representative of Guarantor, as appropriate; provided, that if an extension is filed by Guarantor with the Internal Revenue Service or applicable state revenue department, then if Lender is provided a true, correct and complete copy of such extension, Guarantor may deliver such income tax returns to Lender simultaneously upon the filing thereof;

 

(iii)           Within ninety (90) days of the end of each fiscal year, completed, signed and dated annual financial statements, including income statements and balance sheets, of Guarantor, with such verifications, supporting documentation or additional statements as Lender may reasonably request, certified by an officer of Guarantor as being true, correct and complete; and

 

(iv)           Guarantor shall provide, from time to time during the term hereof, such other information and reports, financial and otherwise, concerning Borrower, Guarantor and the Property as Lender may reasonably request.

 

(b)            Upon demand by Lender, at any time and from time to time, whether or not an Event of Default has occurred under the Note, the Loan Agreement or any other Loan Document, Guarantor shall execute a reaffirmation of and shall remake this Completion Guaranty as of such date.  Failure of Guarantor to reaffirm and remake this Completion Guaranty at any time, on demand, shall be an Event of Default hereunder and under the Note, the Loan Agreement and the other Loan Documents, without notice or opportunity to cure.

 

20.            Jurisdiction and Venue .

 

(a)            TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS COMPLETION GUARANTY BE TRIED AND DETERMINED IN A FEDERAL COURT OR STATE COURT LOCATED IN THE COMMONWEALTH OF VIRGINIA.

 

(b)            TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS OF THE COMMONWEALTH OF VIRGINIA FOR THE PURPOSE OF SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.  GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, POSTAGE

 

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PREPAID, OR BY PERSONAL SERVICE AT THE ADDRESS OF GUARANTOR STATED ABOVE OR ANY OTHER METHOD PERMITTED BY LAW.  TO THE EXTENT THAT GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS COMPLETION GUARANTY.

 

21.            Waiver of Jury Trial .  TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY KNOWINGLY VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR PROCEEDING ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS COMPLETION GUARANTY, THE ENVIRONMENTAL INDEMNITY AGREEMENT, THE LIMITED GUARANTY,  OR ANY OTHER LOAN DOCUMENT, OR IN ANY WAY CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER WITH RESPECT TO THIS COMPLETION GUARANTY, THE ENVIRONMENTAL INDEMNITY AGREEMENT, THE LIMITED GUARANTY, OR ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE.  TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER HEREBY AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN EXECUTED COPY OF THIS COMPLETION GUARANTY WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.  NO PARTY SHALL SEEK TO CONSOLIDATE, BY COUNTER CLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

 

[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

 

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IN WITNESS WHEREOF, Guarantor has executed this Completion Guaranty as of the date first above written.

 

GUARANTOR:

 

COMSTOCK HOMEBUILDING COMPANIES, INC.,

a Delaware corporation

 

 

By:

/s/ Christopher Clemente

 

Name: Christopher Clemente

Title: Chief Executive Officer

 


Exhibit 10.12

 

CARVE-OUT GUARANTY

 

THIS CARVE-OUT GUARANTY (this “ Guaranty ”) dated as of January 27, 2005, is made by COMSTOCK HOMEBUILDING COMPANIES, INC., a Delaware corporation (“ Guarantor ”), in favor of COR US BANK, N.A. (“ Lender ”).

 

R E C I T A L S:

 

A.                                    COMSTOCK PENDERBROOK, L.C., a Virginia limited liability company (“ Borrower ”), and Lender have entered into a loan in the maximum principal sum of $67,000,000 (the “ Loan ”) pursuant to a loan agreement of even date herewith (the “ Loan Agreement ”) and certain other documents.

 

B.                                      In connection with the Loan, Borrower has executed and delivered to Lender a promissory note, dated the date hereof (said note, together with any extensions thereof or modifications or amendments thereto and any notes issued in substitution or exchange therefor, being hereinafter referred to collectively as the “ Note ”).

 

C.                                      To secure the payment of the obligations and liabilities of Borrower to Lender under the Loan Agreement and the Note, Borrower has executed and delivered to Lender a deed of trust and certain other documents and instruments evidencing and securing the Loan, including but not limited to a Deed of Trust with Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing for the Loan, dated as of the date hereof (the “ Deed of Trust ”), which is a lien on the Property.

 

D.                                     Lender has required, as a condition precedent to making the Loan, that Guarantor execute and deliver this Guaranty.

 

E.                                       Guarantor has a financial interest in Borrower and it will be to the direct financial interest and benefit of Guarantor to assist Borrower to obtain the Loan from Lender.

 

F.                                       Guarantor hereby acknowledges that this Guaranty is required by Lender as a condition precedent and inducement to Lender to make the Loan.

 

NOW, THEREFORE, FOR VALUE RECEIVED, in consideration of the foregoing Recitals, each of which is an integral part hereof and this Guaranty shall be construed in light thereof, and in consideration of Lender making the Loan to Borrower and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Guarantor agrees as follows:

 

1.                                        Definitions .

 

(a)                                   Except as otherwise set forth herein, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Deed of Trust or, if not

 



 

defined therein, in the Loan Agreement, which definitions are incorporated herein by reference as if fully set forth herein.

 

(b)                                  As used herein, the term “ Loan Party ” shall mean any one or more of Borrower, Guarantor and any other Person which is a party to this Guaranty,  the Completion Guaranty, the Environmental Indemnity Agreement or the Loan Documents, other than Lender.

 

(c)                                   All references in this Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement and every other Loan Document to the Loan Agreement, the Note, the Deed of Trust, the Completion Guaranty, the Environmental Indemnity Agreement and each and every other Loan Document shall mean the Loan Agreement, the Note, the Deed of Trust, the Completion Guaranty, the Environmental Indemnity Agreement and each and every other Loan Document and all modifications, amendments, supplements, extensions, replacements or restatements thereof or thereto.

 

2.                                        Guaranty .

 

(a)                                   Guarantor absolutely, unconditionally and irrevocably guarantees, as a principal obligor and not as a surety, to Lender any loss (including principal), cost, damage or expense suffered by Lender due to:

 

(i)                                      fraud of Borrower or Guarantor;

 

(ii)                                   the willful misconduct of Borrower or Guarantor and/or material misrepresentations by Borrower or Guarantor in connection with the Loan;

 

(iii)                                the commission of intentional waste with regard to the Property;

 

(iv)                               the intentional misconduct of Borrower or Guarantor causing the cancellation of any insurance required under the Loan Agreement or any other Loan Document;

 

(v)                                  the failure of Borrower or Guarantor after the occurrence of an Event of Default to apply any income generated by the Property (including, but not limited to, rental receipts and/or security deposits) to any expenses of the Property and/or payments of the Secured Obligations due to Lender, or to deliver such income to Lender upon demand;

 

(vi)                               the transfer or conveyance of the Property or any material portion thereof in violation of the provisions of the Deed of Trust, the Loan Agreement or any other Loan Document;

 

(vii)                            Borrower’s failure to construct, operate or market the Property or utilize the Loan proceeds in accordance with the Loan Agreement in any material way; or

 



 

(viii)                         Borrower’s acceptance of rental payments, if any, more than thirty (30) days in advance of the due date.

 

(b)                                  Guarantor absolutely, unconditionally and irrevocably guarantees, as a principal obligor and not as a surety, to Lender any loss (including principal), cost, damage or expense suffered by Lender upon the occurrence of any of the following, whether or not the loss, cost, damage or expense suffered by Lender is caused by any of the following:

 

(i)                                      if Borrower, Guarantor or any other Person now or hereafter liable for the Loan files a voluntary bankruptcy petition under any section or chapter of the Bankruptcy Code or any similar law or regulation or is a party to a collusive involuntary bankruptcy petition or any receivership proceedings, in which Borrower, Guarantor or any other Person now or hereafter liable for the Loan is the debtor, or the making of an assignment for the benefit of its creditors by Borrower, Guarantor or any other Person now or hereafter liable for the Loan or the filing of a case or proceeding by Borrower for its dissolution or liquidation;

 

(ii)                                   if Borrower, Guarantor or any other Person now or hereafter liable for the Loan becomes a party to any case, action, suit or proceeding which suspends, reduces, impedes, or impairs Lender’s right of recourse to the Property or any part thereof, provided however, that: (1) the bringing of a good faith counterclaim which if not raised in an enforcement action would be barred, and which does not seek to enjoin the enforcement action of Lender; or (2) the good faith denial of facts alleged by Lender in an enforcement action, shall not give rise to liability under this subsection (ii); or

 

(iii)                                if Borrower or Guarantor engages in any intentional act, omission, or misrepresentation, which has the effect of suspending, delaying, reducing, impeding, or impairing Lender’s right of recourse to the Property or any part thereof.

 

Payments made pursuant to this Guaranty shall be made regardless of any defense, right of set-off or claims which Borrower, Guarantor or any other Loan Party may have against Lender.  Lender may apply any and all such payments to the Secured Obligations in any order of priority as Lender shall, in its sole discretion, determine.

 

3.                                        Irrevocable Guaranty .

 

(a)                                   This is an absolute, irrevocable, present and continuing guaranty of payment and not of collection.

 

(b)                                  The obligations of Guarantor hereunder are independent of and in addition to the obligations of Borrower and any other Loan Party under the Completion Guaranty, the Environmental Indemnity Agreement or any other Loan Document and a separate action or actions may be brought or prosecuted against Guarantor, whether any action is brought against

 



 

Borrower or any other Loan Party or whether Borrower or any other Loan Party is joined in any action or actions.  In any action to enforce this Guaranty, Lender, at its election, may proceed against Guarantor, with or without:  (i) joining Borrower or any other Loan Party in any such action; (ii) commencing any action against or obtaining any judgment against Borrower or any other Loan Party; or (iii) commencing any proceeding to enforce the Note or the Loan Agreement or to realize upon all or any part of the Property; provided, however , nothing herein contained shall preclude Lender from suing on the Note and the Loan Agreement or foreclosing the Loan Documents or from exercising any other rights, remedies or power under the Completion Guaranty, the Environmental Indemnity Agreement or any Loan Document, and if such foreclosure or other rights, powers or remedies are availed of, only the net proceeds therefrom, after deduction of all charges and expenses of every kind and nature whatsoever, shall be applied in reduction of the Secured Obligations.  Lender shall not be required to institute or prosecute proceedings to recover any deficiency as a condition of any payment hereunder or enforcement hereof.  Nevertheless, in the event Lender elects to pursue its remedies under any one or more of the other Loan Documents and any disposition of the Property or any part thereof results in a deficiency, Guarantor hereby further promises and agrees to immediately pay to Lender the amount of such deficiency.  At any sale of the Property, whether by foreclosure or otherwise, Lender may, at its discretion, purchase all or any part of such the Property, offered for sale for its own account, and may apply against the amount bid therefor the unpaid balance or any part thereof to the Secured Obligations.

 

(c)                                   The obligations and liabilities of Guarantor hereunder shall not be diminished or offset by any payment by Guarantor under any other agreement, document, or instrument entered into by Guarantor in favor of Lender.

 

4.                                        Return of Payments .  Guarantor agrees that, if at any time all or any part of the payments theretofore applied by Lender to any of the Secured Obligations is rescinded or returned by Lender or Lender is required to pay any amount thereof to any other Person for any reason whatsoever (including, without limitation, the insolvency, bankruptcy, liquidation or reorganization of any party or the determination that such payment is held to constitute a preference under the bankruptcy laws):  (i) such Secured Obligations shall, for the purposes of this Guaranty, be deemed to have continued in existence to the extent of such payment, notwithstanding such application by Lender, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Secured Obligations, all as though such application by Lender had not been made and Guarantor agrees to pay such amount to Lender upon demand; and (ii) any security interest granted by Guarantor to Lender to secure Lender’s performance under this Guaranty shall be deemed to be reinstated notwithstanding any release by Lender of such security interest or pledge.  Guarantor shall execute any document, instrument or financing statement necessary or desirable to effect this provision.

 

5.                                        No Discharge .  Guarantor agrees that the obligations, covenants and agreements of Guarantor under this Guaranty shall not be discharged, affected or impaired by:

 

(a)                                   the renewal or extension of time for the payment and/or performance of the obligations under the Completion Guaranty, the Environmental Indemnity Agreement or any of the Secured Obligations under any other Loan Document, whether made or performed with or without notice to or the knowledge or consent of Guarantor;

 



 

(b)                                  any modification or amendment of the Loan Documents, with or without notice to or the knowledge or consent of Guarantor, including but not limited to any further or future extensions of credit which shall become a part of the Secured Obligations, any change or modification of the interest rate, payment terms, maturity date or any other covenant of any agreement of Borrower or any other Loan Party;

 

(c)                                   any transfer, waiver, compromise, settlement, modification, surrender, or release of the Note, the Loan Agreement, the Completion Guaranty, the Environmental Indemnity Agreement or any of the other Loan Documents;

 

(d)                                  the release or agreement not to sue without reservation of rights of Borrower or any other Loan Party;

 

(e)                                   the existence of any defenses to enforcement of the Note, the Loan Agreement, the Completion Guaranty, the Environmental Indemnity Agreement or any of the other Loan Documents, other than payment in full of all the Secured Obligations;

 

(f)                                     any failure, omission, delay or inadequacy, whether entire or partial, of Lender to exercise any right, power or remedy regarding the Loan or to enforce or realize upon (or to make Guarantor party to the enforcement or realization upon) any of Lender’s security for the Loan, including, without limitation, the Property;

 

(g)                                  the existence of any set-off, claim, reduction, or diminution of the Secured Obligations, or any defense of any kind or nature, which Guarantor may have against Borrower,  Borrower’s members or any other Loan Party or which Borrower, Guarantor or any other Loan Party has against Lender;

 

(h)                                  the application of payments received from any source to the payment of any obligation other than the Secured Obligations, even though Lender might lawfully have elected to apply such payments to any part or all of the Secured Obligations;

 

(i)                                      the addition of any and all other endorsers, guarantors, obligors and other persons liable for the payment and/or performance of the Secured Obligations, and the acceptance of any other security for the payment and/or performance of the Secured Obligations;

 

(j)                                      the power or authority or lack of power or authority of Borrower to execute and deliver the Note or the Loan Agreement, or of Borrower or any other Loan Party to execute, acknowledge or deliver any one or more of the Loan Documents;

 

(k)                                   the validity or invalidity of the Note, the Loan Agreement, the Completion Guaranty, the Environmental Indemnity Agreement or the other Loan Documents;

 

(l)                                      the existence or non-existence of Borrower or any other Loan Party as a legal entity;

 

(m)                                the transfer by Borrower or any other Loan Party of all, or any part of, or any interest in all or any part of the Property;

 



 

(n)                                  the institution by or against Borrower, Borrower’s members or any other Loan Party of bankruptcy, reorganization, readjustment, receivership or insolvency proceedings of any nature, or the disaffirmation of the Completion Guaranty, the Environmental Indemnity Agreement or any one or more of the Loan Documents in any such proceedings or otherwise;

 

(o)                                  any irregularity or the unenforceability (by reason of any Governmental Authority’s purporting to reduce or amend or otherwise affect the Secured Obligations), or the release or discharge of Borrower or Borrower’s members in any receivership, bankruptcy, winding-up or other creditor proceedings;

 

(p)                                  the determination by a court of competent jurisdiction that Borrower or any other Loan Party is not required to pay and/or perform the Secured Obligations pursuant to operation of law;

 

(q)                                  the acceptance by Lender of payment of a part of the Secured Obligations, or any failure, neglect or omission on the part of Lender to realize on or protect any of the Secured Obligations or any real estate, personal property, or mortgage or lien security given as security therefor, or to exercise any lien upon, or right of appropriation of, any monies, credits or property of Borrower toward liquidation of the Secured Obligations;

 

(r)                                     the failure by Lender or anyone acting on behalf of Lender to perfect or maintain perfection of any lien or security interest upon any part of the Property given at any time to secure repayment of the Secured Obligations; or

 

(s)                                   any right or claim whatsoever which Guarantor may have against Borrower, Borrower’s members, any other Loan Party or Lender or the successors or assigns of any of them;

 

all whether or not Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing clauses (a) through (s) of this Section.

 

Guarantor intends that Guarantor shall remain liable hereunder as a principal obligor until the Secured Obligations shall have been indefeasibly paid in full and all the Secured Obligations performed in accordance with the terms and conditions of the Note and the other Loan Documents, notwithstanding any fact, act, event or occurrence which might otherwise operate as a legal or equitable discharge of a surety or guarantor.

 

6.                                        Application Of Amounts Received .  Any amounts received by Lender from whatever source on account of the Secured Obligations may be applied by Lender toward the payment of the Secured Obligations, and in such order of application, as Lender may from time to time elect, in accordance with the provisions of the Loan Documents.

 

7.                                        Waiver .

 

(a)                                   Guarantor expressly waives:

 

(i)                                      notice of the acceptance by Lender of this Guaranty;

 



 

(ii)                                   notice of the existence, creation, payment or nonpayment of the Secured Obligations or any modification, extension, or amendment thereof;

 

(iii)                                presentment, demand, protest, notice of protest, notice of presentment, notice of dishonor, default, non-payment, maturity, release, compromise, settlement, extension, renewal of the Loan or any obligation under the Loan Documents, notice of maturity, release, compromise or settlement of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guarantees at any time held by Lender with respect to the transactions contemplated in the Loan Documents, and all other notices whatsoever;

 

(iv)                               any failure by Lender to inform Guarantor of any facts Lender may now or hereafter know about Borrower, any other Loan Party, the Property, the Secured Obligations or the transactions contemplated by the Loan Documents;

 

(v)                                  notice of any and all changes in the terms, covenants or conditions of the Note or of the other Loan Documents, including extension and renewal;

 

(vi)                               any and all substitutions, exchanges or releases of all or any part of the Property;

 

(vii)                            the release or agreement not to sue without reservation of rights of anyone liable in any way for the repayment of the Secured Obligations;

 

(viii)                         all rights to notice and a hearing prior to Lender’s taking possession or control of, or to Lender’s replevy, attachment or levy upon the Property;

 

(ix)                                 any bond or security which might be required by any court prior to allowing Lender to exercise any of Lender’s remedies;

 

(x)                                    the release or agreement not to sue without reservation of rights of anyone liable in any way for repayment of the Loan; and

 

(xi)                                 the benefit of all valuation, appraisement, extension and exemption laws;

 

it being understood and agreed that Lender has no duty to so inform and that Guarantor is fully responsible for being and remaining informed by Borrower of all circumstances bearing on the existence or creation of the risk of nonpayment and/or nonperformance of the Secured Obligations.

 



 

(b)                                  Credit may be granted or continued from time to time by Lender to Borrower without notice to or authorization from Guarantor, including but not limited to making additional loans or other financial accommodations by Lender to Borrower or any other Loan Party regardless of the financial or other condition of Borrower, any other Loan Party or the Property and Guarantor agrees that the obligations, covenants and agreements of Guarantor under this Guaranty shall not be discharged, affected or impaired thereby.

 

(c)                                   No modification or waiver of any of the provisions of this Guaranty shall be binding upon Lender or Guarantor except as expressly set forth in a writing duly signed and delivered on behalf of Lender.

 

(d)                                  Guarantor further agrees that any exculpatory language pertaining to Borrower or to any other Loan Party contained in the Note, the Loan Agreement or any other Loan Document shall in no event apply to this Guaranty, and will not prevent Lender from proceeding against Guarantor to enforce this Guaranty.

 

(e)                                   Guarantor hereby waives the benefit of any law that would otherwise restrict or limit Lender in the exercise of its right, which is hereby acknowledged, to appropriate without notice at any time hereafter any indebtedness or obligation matured or unmatured owing from Lender to Guarantor.  Lender may, from time to time, without demand or notice of any kind, appropriate and apply toward the payment of such of the Secured Obligations, and in such order of application, as Lender may, from time to time, elect any and all such balances, credits, deposits, accounts, moneys, cash equivalents and other assets, or in the name of Guarantor, then or thereafter with Lender.  Guarantor hereby assigns and transfers to Lender any and all cash, negotiable instruments, documents of title, chattel paper, securities, certificates of deposit, deposit accounts, other cash equivalents and other assets of Guarantor, in the possession or control of Lender for any purpose.

 

(f)                                     Guarantor hereby waives the filing of a claim with a court in the event of receivership or bankruptcy of Borrower and waives every defense, cause of action, counterclaim or setoff which Guarantor may now have or hereafter may have to any action by Lender in enforcing this Guaranty, including, without limitation, every defense, counterclaim or setoff which Guarantor may now have, or hereafter may have, against Borrower, any other Loan Party or any other party liable to Lender in any manner, other than mandatory counterclaims.  Guarantor ratifies and confirms whatever Lender may do pursuant to the terms hereof and with respect to all or any part of the Property and agrees that Lender shall not be liable for any error in judgment or mistakes of fact or law; provided that nothing contained herein shall be deemed to limit Lender’s liability for gross negligence or willful misconduct.  Guarantor hereby agrees that Guarantor may be joined as a party defendant in any legal proceeding (including, but not limited to, a foreclosure proceeding) instituted by Lender against Borrower or any other Loan Party.

 

8.                                        Enforcement Costs :  If:

 

(a)                                   this Guaranty, the Loan Agreement, the Note, the Completion Guaranty, the Environmental Indemnity Agreement or any other Loan Document is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding;

 



 

(b)                                  an attorney is retained to represent Lender in any bankruptcy, reorganization, receivership, or other proceedings affecting creditors’ rights and involving a claim under this Guaranty, the Note, the Completion Guaranty, the Environmental Indemnity Agreement or any Loan Document;

 

(c)                                   an attorney is retained to protect or enforce the security interest created by any one or more of the Loan Documents; or

 

(d)                                  an attorney is retained to represent Lender in any other proceedings whatsoever in connection with a default by Guarantor under this Guaranty, or a default by Borrower or any other Loan Party in connection with the Loan, any of the other Loan Documents, the Completion Guaranty, the Environmental Indemnity Agreement or the Property, or to protect or preserve any property which is collateral for the Loan,

 

then Guarantor shall pay to Lender upon demand all reasonable attorneys’ fees, costs and expenses, including without limitation, court costs, filing fees, recording costs, expenses of foreclosure, title insurance premiums, minutes of foreclosure and all other costs and expense incurred in connection therewith (all of which are referred to herein as “ Enforcement Costs ”), in addition to all other amounts due hereunder. Any Enforcement Costs, together with interest thereon at the Interest Rate (as defined in the Note), shall be a part of the Secured Obligations, secured by the Property, payable by Guarantor to Lender in accordance with the provisions of this Guaranty and the Loan Documents.  Any reference to attorney’s fees in this Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement or in any other Loan Document shall include fees of any separate law firm or in-house counsel employed by Lender in connection with the Loan.  Notwithstanding anything to the contrary contained herein, fees of in-house counsel shall be charged at rates of medium to large sized law firms in the City of Chicago, Illinois for attorneys of comparable expertise and experience.

 

9.                                        Transfer Of Secured Obligations .  Notwithstanding any assignment or transfer of the Secured Obligations or any interest therein, all portions of such Secured Obligations, including those assigned or transferred, shall be and remain Secured Obligations for the purposes of this Guaranty, and each and every immediate and successive assignee or transferee of such Secured Obligations or interest shall, to the extent of the Secured Obligations or interests assigned or transferred, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were Lender; provided however , that unless the assignor or transferor shall otherwise consent in writing, the assignor or transferor shall have an unimpaired right, prior to and superior to that of its assignee or transferee, to enforce this Guaranty for its benefit as to such portions of the Secured Obligations or interests therein not assigned or transferred.

 

10.                                  Subordination .  Any indebtedness or other obligation of Borrower, now or hereafter held by or owing to Guarantor, is hereby subordinated to the payment and performance in full of the Secured Obligations.  Guarantor hereby covenants and agrees that it will not accept payment of principal, interest or any other amount of any indebtedness or other obligation of Borrower to Guarantor.  Such indebtedness or obligation of Borrower to Guarantor shall, at the option of Lender, be collected, enforced and received by Guarantor as trustee for Lender, and shall be paid over to Lender on account of the Secured Obligations, but without impairing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty.

 



 

Nothing in this Section or elsewhere in this Guaranty shall be construed as Lender’s authorization of or consent to the creation or existence of any such indebtedness of Borrower to Guarantor.

 

11.                                  Governing Law; Interpretation .

 

(a)                                   This Guaranty has been negotiated, executed and delivered in Fairfax County, Virginia and shall be governed by and construed in accordance with the internal laws of the Commonwealth of Virginia, without reference to the conflicts of law principles of that state.  In any controversy, dispute or question arising hereunder, under the Completion Guaranty, the Environmental Indemnity Agreement or under the other Loan Documents, Guarantor consents to the exercise of jurisdiction over its person and property by any court of competent jurisdiction situated in the Commonwealth of Virginia (whether it be a court of such State, or a court of the United States of America situated in such State), and in connection therewith, agrees to submit to and be bound by, the jurisdiction of such court upon Lender’s mailing of process by registered or certified mail, return receipt requested, postage repaid, to Guarantor at its address for receipt of notices under this Guaranty.

 

(b)                                  The headings of sections and paragraphs in this Guaranty are for convenience only and shall not be construed in any way to limit or define the content, scope, or intent of the provisions hereof.  As used in this Guaranty, the singular shall include the plural, and masculine, feminine, and neuter pronouns shall be fully interchangeable, where the context so requires.  If any provision of this Guaranty or any paragraph, sentence, clause, phrase, or word, or the application thereof, in any circumstances, is adjudicated by a court of competent jurisdiction to be invalid, the validity of the remainder of this Guaranty shall be construed as if such invalid part were never included herein.

 

(c)                                   Time is of the essence of this Guaranty.

 

(d)                                  All payments to be made hereunder shall be made in currency and coin of the United States of America which is legal tender for public and private debts at the time of payment.

 

(e)                                   Wherever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty.

 

(f)                                     It is agreed that Guarantor’s liability is independent of any other guaranties at any time in effect with respect to all or any part of Borrower’s indebtedness to Lender, including, but not limited to, the Completion Guaranty, and that Guarantor’s liability hereunder may be enforced regardless of the existence of any such other guaranties.

 

12.                                  Singular and Plural; Joint and Several Liability . If there is more than one Borrower entity, all references to Borrower herein shall be Borrower or any one or more of them.  All obligations and liabilities of Guarantor hereunder are in addition to, not in lieu of and are independent of:  (a) all obligations of Borrower under any other Loan Document, including the

 



 

Note and the Loan Agreement; and (b) any obligation of Guarantor under the Completion Guaranty, the Environmental Indemnity Agreement or any other Loan Document to which Guarantor is a party.  All obligations of Guarantor hereunder shall be joint and several.

 

13.                                  Entire Agreement .  This Guaranty, the Note, the Completion Guaranty, the Environmental Indemnity Agreement and the other Loan Documents constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior such agreements and understandings, both written and oral.  This Guaranty may not be modified or amended except by a written instrument signed by Lender and Guarantor.  If this Guaranty is executed in several counterparts, each of those counterparts shall be deemed an original, and all of them together shall constitute one and the same instrument.

 

14.                                  Payment and Performance of Secured Obligations . Lender agrees that the obligations of Guarantor under this Guaranty shall terminate, subject to the provisions of Section 4 hereof, when Lender shall have received indefeasible payment in full of all the Secured Obligations and all other sums due and owing under this Guaranty and all the Secured Obligations shall have been fully performed.

 

15.                                  Successors and Assigns; Miscellaneous .  This Guaranty shall inure to the benefit of and may be enforced by Lender and any subsequent holder of the Note, the Loan Agreement, the Completion Guaranty, the Environmental Indemnity Agreement or the other Loan Documents, and all of the covenants, agreements and obligations of Guarantor hereunder shall extend to and be binding upon and enforceable against Guarantor and the heirs, administrators, legal representatives, successors and assigns of Guarantor.  This Guaranty and the obligations hereunder shall not be discharged, affected, or impaired, in whole or in part, upon the bankruptcy, insolvency or death of Guarantor.

 

16.                                  Further Assurances; Representation by Counsel .

 

(a)                                   Guarantor further covenants and agrees that Guarantor shall at any time and from time to time, upon the reasonable request of Lender, take, or cause to be taken, any action and execute and deliver any further documents which, in the reasonable opinion of Lender, may be necessary, required or desirable in order to carry out the intent and purposes of this Guaranty.

 

(b)                                  Guarantor hereby represents and warrants that it has consulted and conferred with competent legal counsel of its choice before executing this Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement and all other Loan Documents.  Guarantor further represents and warrants that it has read and understood the terms of this Guaranty and intends to be bound hereby.  In the event of an ambiguity or conflict in the terms hereof, the rule of construction requiring resolution against the drafter of the document shall not be applied.

 

17.                                  Notices .  Any and all notices given in connection with this Guaranty shall be deemed adequately given only if in writing and addressed to the party for whom such notices are intended at the address set forth below.  All notices shall be delivered in accordance with the

 



 

notice provisions of the Loan Agreement.  Any and all notices referred to in this Guaranty, or which either party desires to give to the other, shall be addressed as follows:

 

To Guarantor:

Comstock Homebuilding Companies, Inc.

 

11465 Sunset Hills Road, Suite 510

 

Reston, Virginia 20190

 

Attention: Christopher Clemente

 

Telecopy Number: (703) 760-1520

 

 

with a copy to:

Bankert & Associates, P.C.

 

3025 Hamaker Court

 

Suite 501

 

Fairfax, Virginia 22031

 

Attention: Joseph E. Bankert, Esq.

 

Telecopy Number: (703) 876-4628

 

 

To Lender:

Cor us Bank, N.A.

 

3959 N. Lincoln Avenue

 

Chicago, IL 60613

 

Attn: David Krischke, Assistant Vice President

 

Telecopy Number: (773) 832-3553

 

 

with a copy to:

Cor us Bank, N.A.

 

3959 N. Lincoln Avenue

 

Chicago, IL 60613

 

Attn: Joel Solomon, General Counsel

 

Telecopy Number: (773) 832-3536

 

 

with a copy to:

Sidley Austin Brown & Wood LLP

 

1501 K Street, N.W.

 

Washington, D.C. 20005

 

Attn: Andrea J. Cummings, Esq.

 

Telecopy Number: (202) 736-8711

 

Any party hereto may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent.

 

18.                                  Additional Representations and Warranties .  In addition to and independent of any other obligation or liability under this Guaranty, Guarantor hereby represents and warrants to Lender as follows:

 

(a)                                   Execution and Binding Effect .  This Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement and each other Loan Document to which Guarantor is a party and which is executed and delivered or required to be executed and delivered on or before the date of which this representation and warranty is made, or deemed made, has been duly and

 



 

validly executed and delivered by Guarantor.  This Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement and each such other Loan Document constitutes, and the Completion Guaranty, the Environmental Indemnity Agreement and each other Loan Document when executed and delivered by Guarantor will constitute, the legal, valid and binding obligations of Guarantor, jointly and severally, enforceable against Guarantor in accordance with its terms, subject to bankruptcy, insolvency and other laws affecting creditor’s rights generally.  This Guaranty shall continue to be effective with respect to any guaranteed obligations arising or created after any attempted revocation by Guarantor and after Guarantor’s death, in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs.

 

(b)                                  Violation of Agreements .  To the best of Guarantor’s knowledge, neither the execution and delivery of this Guaranty, nor consummation of the transactions herein or therein contemplated, nor performance of or compliance with the terms and conditions hereof or thereof, does or will at any time during the term hereof:

 

(i)                                      violates or conflicts with any Laws, or

 

(ii)                                   violates, conflicts with or will result in a breach of any term or condition of, or constitute a default under, or result in (or give rise to any right, contingent or otherwise, of any Person to cause) any termination, cancellation, prepayment or acceleration of performance of, or result in the creation or imposition of (or give rise to any obligation, contingent or otherwise, to create or impose) any lien upon any property of Guarantor (except for any lien in favor of Lender securing the Secured Obligations) pursuant to, or otherwise result in (or give rise to any right, contingent or otherwise, of any Person to cause) any change in any right, power, privilege, duty or obligation of Guarantor under or in connection with:

 

(A)                               any agreement or instrument creating, evidencing or securing any indebtedness or guaranty equivalent to which Guarantor is a party or by which it or any of their properties (now owned or hereafter acquired) may be subject or bound, or

 

(B)                                 any other agreement or instrument or arrangement to which Guarantor is a party or by which it or any of its properties (now owned or hereafter acquired) may be subject or bound.

 

(c)                                   Government Approvals and Filings .  To the best of Guarantor’s knowledge, no approval, order, consent, authorization, certificate, license, permit or validation of, or exemption or other action by, or filing, recording or registration with, or notice to, any governmental authority (collectively, “ Governmental Action ”) is or will be necessary in connection with the execution and delivery of this Guaranty, the Completion Guaranty, the

 



 

Environmental Indemnity Agreement or any other Loan Document to which Guarantor is a party, the consummation of the transactions herein or therein contemplated, the performance of or compliance with the terms and conditions hereof or thereof, or to ensure the legality, validity, binding effect, enforceability or admissibility in evidence hereof or thereof.

 

(d)                                  Violation of Laws .  To the best of Guarantor’s knowledge, Guarantor is not in violation of any applicable statute, regulation or ordinance of the United States of America, of any state, city, town, municipality, county or of any other jurisdiction, or of any agency thereof (including, but not limited to any Hazardous Materials Laws (as defined in the Environmental Indemnity Agreement)).

 

(e)                                   Solvency .  Guarantor: (i) is now and at all times during the term hereof shall be generally paying its debts as they mature; (ii) now owns, and at all times during the term hereof shall own, property which, at a fair valuation, is greater than the sum of its debts, and (iii) now has and at all times during the term hereof shall have capital sufficient to carry on its business and personal affairs and any such affairs in which it is about to engage.

 

(f)                                     Proceeding .  There is no condition, event or circumstance existing, or any litigation, arbitration, governmental or administrative proceedings, actions, examinations, claims or demands pending nor, to Guarantor’s knowledge, threatened affecting Guarantor which are likely to result in a Material Adverse Effect, and Guarantor knows of no basis therefor.

 

(g)                                  Tax Returns .

 

(i)                                      All tax and informational returns required to be filed by or on behalf of Guarantor have been properly prepared, executed and filed.  All taxes, assessments, fees and other charges upon Guarantor, or upon any of its properties or incomes, which are due and payable have been paid other than those not yet delinquent and payable without premium or penalty, and except for those being diligently contested in good faith by appropriate proceedings, and in each case adequate funds and provisions for such taxes have been made by Guarantor.

 

(ii)                                   Guarantor does not know of any proposed additional assessment or basis for any material assessment for any additional taxes (whether or not reserved against).

 

(iii)                                Guarantor has paid all charges shown to be due and payable on said tax returns or on any assessments made against it or any of its property, and all other charges imposed on it or any of its properties by any governmental authority.

 

(h)                                  Default Under Other Agreements .  Guarantor has not received any written notice of a default with respect to any indenture, loan agreement, mortgage, deed or other similar agreement relating to the borrowing of monies to which it is a party, and by which it is bound.

 



 

(i)                                      Insurance .  Guarantor maintains with financially sound and reputable insurers, not related to or affiliated with Guarantor, insurance with respect to its properties and assets and against at least such liabilities, casualties and contingencies and in at least such types and amounts as is customary in the case of individuals having similar properties and assets similarly situated.

 

(j)                                      Adverse Conditions .  No condition, circumstance, event, agreement, document, instrument, restriction, litigation or proceeding (or to Guarantor’s knowledge, threatened litigation or proceeding or basis therefor) relating to Guarantor exists (i) which are likely to result in a Material Adverse Effect; (ii) which would constitute an Event of Default under this Guaranty, the Completion Guaranty, the Environmental Indemnity Agreement or any of the Loan Documents; or (iii) which would constitute such an Event of Default with the giving of notice or lapse of time or both.

 

19.                                  Additional Covenants Of Guarantor .

 

(a)                                   Guarantor shall deliver or cause to be delivered to Lender those reports and financial statements set forth below.  All such financial statements shall be internally prepared and shall fairly and accurately present in all material respects the assets, liabilities and financial conditions of Guarantor and such other Persons, if any, described therein as of and for the periods ending of such dates set forth therein.

 

(i)                                      A disclosure of any judgments and pending or threatened material litigation against Guarantor, Borrower or the Property promptly upon Guarantor’s awareness of such litigation;

 

(ii)                                   On or before April 30 of each year during the term of the Loan, federal and state income tax returns of Guarantor certified to be true, complete and correct by an authorized representative of Guarantor, as appropriate; provided, that if an extension is filed by Guarantor with the Internal Revenue Service or applicable state revenue department, then if Lender is provided a true, correct and complete copy of such extension, Guarantor may deliver such income tax returns to Lender simultaneously upon the filing thereof;

 

(iii)                                Within ninety (90) days of the end of each fiscal year, completed, signed and dated annual financial statements, including income statements and balance sheets, of Guarantor, with such verifications, supporting documentation or additional statements as Lender may reasonably request, certified by an officer of Guarantor as being true, correct and complete; and

 

(iv)                               Guarantor shall provide, from time to time during the term hereof, such other information and reports, financial and otherwise, concerning Borrower, Guarantor and the Property as Lender may reasonably request.

 



 

(b)                                  Upon demand by Lender, at any time and from time to time, whether or not an Event of Default has occurred under the Note, the Loan Agreement or any other Loan Document, Guarantor shall execute a reaffirmation of and shall remake this Guaranty as of such date.  Failure of Guarantor to reaffirm and remake this Guaranty at any time, on demand, shall be an Event of Default hereunder and under the Note, the Loan Agreement and the other Loan Documents, without notice or opportunity to cure.

 

20.                                  Jurisdiction and Venue .

 

(a)                                   TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS GUARANTY BE TRIED AND DETERMINED IN A FEDERAL COURT OR STATE COURT LOCATED IN THE COMMONWEALTH OF VIRGINIA.

 

(b)                                  TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS OF THE COMMONWEALTH OF VIRGINIA FOR THE PURPOSE OF SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.  GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE AT THE ADDRESS OF GUARANTOR STATED ABOVE OR ANY OTHER METHOD PERMITTED BY LAW.  TO THE EXTENT THAT GUARANTOR HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS GUARANTY.

 

21.                                  Waiver of Jury Trial .  TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER EACH HEREBY KNOWINGLY VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR PROCEEDING ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS GUARANTY, THE COMPLETION GUARANTY, THE ENVIRONMENTAL INDEMNITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR IN ANY WAY CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE DEALINGS OF GUARANTOR AND LENDER WITH RESPECT TO THIS GUARANTY, THE COMPLETION GUARANTY, THE ENVIRONMENTAL

 



 

INDEMNITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE.  TO THE MAXIMUM EXTENT PERMITTED BY LAW, GUARANTOR AND LENDER HEREBY AGREE THAT ANY SUCH ACTION, CAUSE OF ACTION, CLAIM, DEMAND OR PROCEEDING SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT GUARANTOR OR LENDER MAY FILE AN EXECUTED COPY OF THIS GUARANTY WITH ANY COURT OR OTHER TRIBUNAL AS WRITTEN EVIDENCE OF THE CONSENT OF GUARANTOR AND LENDER TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY.  NO PARTY SHALL SEEK TO CONSOLIDATE, BY COUNTER CLAIM OR OTHERWISE, ANY ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

 

 

[THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]

 



 

IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date first above written.

 

GUARANTOR:

 

COMSTOCK HOMEBUILDING COMPANIES, INC.,

a Delaware corporation

 

By:

/s/ Christopher Clemente

 

Name: Christopher Clemente

Title: Chief Executive Officer

 


Exhibit 10.18

 

COMSTOCK HOMEBUILDING COMPANIES, INC.

 

RESTRICTED STOCK AGREEMENT

 

FOR

 

[Insert name of Recipient]

 

This RESTRICTED STOCK AGREEMENT (the “ Agreement ”) is made and entered into effective as of                                               . 200    , by and between COMSTOCK HOMEBUILDING COMPANIES, INC. a Delaware corporation (the “ Company ”), and                                          (the “ Recipient ”).

 

RECITALS

 

The Committee has determined that it is in the best interests of the Company to recognize the Recipient’s performance and to provide incentive to the Recipient to remain with the Company and its Related Entities by making this grant of Restricted Stock in accordance with the terms of this Agreement; and

 

The Restricted Stock is granted pursuant to the Company’s 2004 Long-Term Incentive Compensation Plan (the “ Plan ”) which is incorporated herein for all purposes.  The Recipient hereby acknowledges receipt of a copy of the Plan.  Unless otherwise provided herein, terms used herein that are defined in the Plan and not defined herein shall have the meanings attributable thereto in the Plan.

 

NOW, THEREFORE , for and in consideration of the mutual premises, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1 .                                        Award of Restricted Stock .  The Committee hereby grants, as of                                    (the “ Date of Grant ”), to the Recipient,                    shares of Class A Common Stock, par value $.01 per share, of the Company (collectively the “ Restricted Stock ”), which shares are and shall be subject to the terms, provisions and restrictions set forth in this Agreement and in the Plan.  As a condition to entering into this Agreement, and as a condition to the issuance of any shares of Restricted Stock (or any other securities of the Company), the Recipient agrees to be bound by all of the terms and conditions herein and in the Plan.

 

2 .                                        Vesting of Restricted Stock .

 

(a)                                   Except as otherwise provided in this Section 2 and in Section 4 hereof, the shares of Restricted Stock shall become vested in the following amounts, at the following times and upon the following conditions, provided that the Continuous Service of the Recipient continues through and on the applicable Vesting Date:

 



 

Number of Shares of Restricted Stock

 

Vesting Date

 

 

 

 

 

 

There shall be no proportionate or partial vesting of shares of Restricted Stock in or during the months, days or periods prior to each Vesting Date, and all vesting of shares of Restricted Stock shall occur only on the applicable Vesting Date.  Upon the termination or cessation of Recipient’s Continuous Service, for any reason whatsoever, any portion of the Restricted Stock which is not yet then vested, and which does not then become vested pursuant to this Section 2, shall automatically and without notice terminate, be forfeited and be and become null and void.

 

(b)                                  Notwithstanding any other term or provision of this Agreement, in the event of any merger, consolidation or other reorganization in which the Company does not survive, or in the event of any Change in Control, as defined in Section 9(b) of the Plan, the Restricted Stock may be dealt with in accordance with any of the following approaches, as determined by the agreement effectuating the transaction or, if and to the extent not so determined, as determined by the Committee: (a) the continuation of the grant of the Restricted Stock by the Company, if the Company is a surviving corporation, subject to the terms and conditions set forth herein, (b) the assumption or substitution for, as those terms are defined in Section 9(b)(iv) of the Plan, the Restricted Stock by the surviving corporation or its parent or subsidiary, (c) full vesting of the Restricted Stock, or (d) settlement of the value of the Restricted Stock in cash or cash equivalents or other property followed by cancellation of the Restricted Stock.

 

(c)                                   Notwithstanding the foregoing, if, within twelve months after a Change in Control of the Company, the Recipient’s Continuous Service is terminated (i) by the Company or a Related Entity without Cause, (ii) by the Recipient for Good Reason, or (iii) by reason of the Optionee’s death or Disability, then, the shares of Restricted Stock subject to this Agreement shall become immediately vested as of the date of the termination of the Optionee’s Continuous Service.

 

(d)                                  For purposes of this Agreement, the following terms shall have the meanings indicated:

 

(i)                                      Non-Vested Shares ” means any portion of the Restricted Stock subject to this Agreement that has not become vested pursuant to this Section 2.

 

2



 

(ii)                                   Vested Shares ” means any portion of the Restricted Stock subject to this Agreement that is and has become vested pursuant to this Section 2.

 

3 .                                        Delivery of Restricted Stock .

 

(a)                                   One or more stock certificates evidencing the Restricted Stock shall be issued in the name of the Recipient but shall be held and retained by the Records Administrator of the Company until the date (the “ Applicable Date ”) on which the shares (or a portion thereof) subject to this Restricted Stock award become Vested Shares pursuant to Section 2 hereof, subject to the provisions of Section 4 hereof.  All such stock certificates shall bear the following legends, along with such other legends that the Board or the Committee shall deem necessary and appropriate or which are otherwise required or indicated pursuant to any applicable stockholders agreement:

 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SUBSTANTIAL VESTING AND OTHER RESTRICTIONS AS SET FORTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER.  SUCH RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES, AND INCLUDE VESTING CONDITIONS WHICH MAY RESULT IN THE COMPLETE FORFEITURE OF THE SHARES.

 

(b)                                  The Recipient shall deposit with the Company stock powers or other instruments of transfer or assignment, duly endorsed in blank with signature(s) guaranteed, corresponding to each certificate representing shares of Restricted Stock until such shares become Vested Shares.  If the Recipient shall fail to provide the Company with any such stock power or other instrument of transfer or assignment, the Recipient hereby irrevocably appoints the Secretary of the Company as his attorney-in-fact, with full power of appointment and substitution, to execute and deliver any such power or other instrument which may be necessary to effectuate the transfer of the Restricted Stock (or assignment of distributions thereon) on the books and records of the Company.

 

(c)                                   On or after each Applicable Date, upon written request to the Company by the Recipient, the Company shall promptly cause a new certificate or certificates to be issued for and with respect to all shares that become Vested Shares on that Applicable Date, which certificate(s) shall be delivered to the Recipient within fifteen (15) business days of the date of receipt by the Company of the Recipient’s written request.  The new certificate or certificates shall continue to bear those legends and endorsements that the Company shall deem necessary or appropriate (including those relating to restrictions on transferability and/or obligations and restrictions under the applicable securities laws).

 

4 .                                        Termination of Continuous Service .    Except as otherwise provided in Section 2, if the Recipient’s Continuous Service with the Company is terminated, any Non-Vested Shares shall be forfeited immediately upon such termination of Continuous Service and revert back to

 

3



 

the Company without any payment to the Recipient.  The Committee shall have the power and authority to enforce on behalf of the Company any rights of the Company under this Agreement in the event of the Recipient’s forfeiture of Non-Vested Shares pursuant to this Section 4.

 

5 .                                        Rights with Respect to Restricted Stock .

 

(a)                                   Except as otherwise provided in this Agreement, the Recipient shall have, with respect to all of the shares of Restricted Stock, whether Vested Shares or Non-Vested Shares, all of the rights of a holder of shares of common stock of the Company, including without limitation (i) the right to vote such Restricted Stock, (ii) the right to receive dividends, if any, as may be declared on the Restricted Stock from time to time, and (iii) the rights available to all holders of shares of common stock of the Company upon any merger, consolidation, reorganization, liquidation or dissolution, stock split-up, stock dividend or recapitalization undertaken by the Company; provided , however , that all of such rights shall be subject to the terms, provisions, conditions and restrictions set forth in this Agreement (including without limitation conditions under which all such rights shall be forfeited).   Any Shares issued to the Recipient as a dividend with respect to shares of Restricted Stock shall have the same status and bear the same legend as the shares of Restricted Stock and shall be held by the Company, if the shares of Restricted Stock that such dividend is attributed to is being so held, unless otherwise determined by the Committee.  In addition, notwithstanding any provision to the contrary herein, any cash dividends declared with respect to shares of Restricted Stock subject to this Agreement shall be held in escrow by the Committee until such time as the shares of Restricted Stock that such cash dividends are attributed to shall become Vested Shares, and in the event that such shares of Restricted Stock are subsequently forfeited, the cash dividends attributable to such portion shall be forfeited as well.

 

(b)                                  If at any time while this Agreement is in effect (or shares granted hereunder shall be or remain unvested while Recipient’s Continuous Service continues and has not yet terminated or ceased for any reason), there shall be any increase or decrease in the number of issued and outstanding Shares of the Company through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of such shares, then and in that event, the Board or the Committee shall make any adjustments it deems fair and appropriate, in view of such change, in the number of shares of Restricted Stock then subject to this Agreement.  If any such adjustment shall result in a fractional share, such fraction shall be disregarded.

 

(c)                                   Notwithstanding any term or provision of this Agreement to the contrary, the existence of this Agreement, or of any outstanding Restricted Stock awarded hereunder, shall not affect in any manner the right, power or authority of the Company to make, authorize or consummate: (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business; (ii) any merger, consolidation or similar transaction by or of the Company; (iii) any offer, issue or sale by the Company of any capital stock of the Company, including any equity or debt securities, or preferred or preference stock that would rank prior to or on parity with the Restricted Stock and/or that would include, have or possess other rights, benefits and/or preferences superior to those that the Restricted Stock includes, has

 

4



 

or possesses, or any warrants, options or rights with respect to any of the foregoing; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the stock, assets or business of the Company; or (vi) any other corporate transaction, act or proceeding (whether of a similar character or otherwise).

 

6 .                                        Transferability .   The shares of Restricted Stock are not transferable until and unless they become Vested Shares in accordance with this Agreement. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Recipient.  Any attempt to effect a Transfer of any shares of Restricted Stock prior to the date on which the shares become Vested Shares shall be void ab initio.  For purposes of this Agreement, “ Transfer ” shall mean any sale, transfer, encumbrance, gift, donation, assignment, pledge, hypothecation, or other disposition, whether similar or dissimilar to those previously enumerated, whether voluntary or involuntary, and including, but not limited to, any disposition by operation of law, by court order, by judicial process, or by foreclosure, levy or attachment.

 

7 .                                        Tax Matters; Section 83(b) Election .

 

(a)                                   If the Recipient properly elects, within thirty (30) days of the Date of Grant, to include in gross income for federal income tax purposes an amount equal to the fair market value (as of the Date of Grant) of the Restricted Stock pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended (the “ Code ”), the Recipient shall make arrangements satisfactory to the Company to pay to the Company any federal, state or local income taxes required to be withheld with respect to the Restricted Stock.  If the Recipient shall fail to make such tax payments as are required, the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to the Recipient any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.

 

(b)                                  If the Recipient does not properly make the election described in Subsection 7(a) above, the Recipient shall, no later than the date or dates as of which the restrictions referred to in this Agreement hereof shall lapse, pay to the Company, or make arrangements satisfactory to the Committee for payment of, any federal, state or local taxes of any kind required by law to be withheld with respect to the Restricted Stock (including without limitation the vesting thereof), and the Company shall, to the extent permitted by law, have the right to deduct from any payment of any kind otherwise due to Recipient any federal, state, or local taxes of any kind required by law to be withheld with respect to the Restricted Stock.

 

(c)                                   Tax consequences on the Recipient (including without limitation federal, state, local and foreign income tax consequences) with respect to the Restricted Stock (including without limitation the grant, vesting and/or forfeiture thereof) are the sole responsibility of the Recipient.  The Recipient shall consult with his or her own personal accountant(s) and/or tax advisor(s) regarding these matters, the making of a Section 83(b) election, and the Recipient’s filing, withholding and payment (or tax liability) obligations.

 

8 .                                        Amendment & Modification .  This Agreement may only be modified or amended in a writing signed by the parties hereto.  No promises, assurances, commitments, agreements,

 

5



 

undertakings or representations, whether oral, written, electronic or otherwise, and whether express or implied, with respect to the subject matter hereof, have been made by either party which are not set forth expressly in this Agreement.

 

9 .                                        Complete Agreement .  This Agreement (together with those agreements and documents expressly referred to herein, for the purposes referred to herein) embody the complete and entire agreement and understanding between the parties with respect to the subject matter hereof, and supersede any and all prior promises, assurances, commitments, agreements, undertakings or representations, whether oral, written, electronic or otherwise, and whether express or implied, which may relate to the subject matter hereof in any way.

 

10 .                                  Miscellaneous .

 

(a)                                   No Right to (Continued) Employment or Service .  This Agreement and the grant of Restricted Stock hereunder shall not shall confer, or be construed to confer, upon the Recipient any right to employment or service, or continued employment or service, with the Company or any Related Entity.

 

(b)                                  No Limit on Other Compensation Arrangements .  Nothing contained in this Agreement shall preclude the Company or any related Entity from adopting or continuing in effect other or additional compensation plans, agreements or arrangements, and any such plans, agreements and arrangements may be either generally applicable or applicable only in specific cases or to specific persons.

 

(c)                                   Severability .  If any term or provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or under any applicable law, rule or regulation, then such provision shall be construed or deemed amended to conform to applicable law (or if such provision cannot be so construed or deemed amended without materially altering the purpose or intent of this Agreement and the grant of Restricted Stock hereunder, such provision shall be stricken as to such jurisdiction and the remainder of this Agreement and the award hereunder shall remain in full force and effect).

 

(d)                                  No Trust or Fund Created .  Neither this Agreement nor the grant of Restricted Stock hereunder shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and the Recipient or any other person.  To the extent that the Recipient or any other person acquires a right to receive payments from the Company pursuant to this Agreement, such right shall be no greater than the right of any unsecured general creditor of the Company.

 

(e)                                   Law Governing .  This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware (without reference to the conflict of laws rules or principles thereof).

 

(f)                                     Interpretation .  The Recipient accepts the Restricted Stock subject to all of the terms, provisions and restrictions of this Agreement and the Plan.  The undersigned Recipient

 

6



 

hereby accepts as binding, conclusive and final all decisions or interpretations of the Board or the Committee upon any questions arising under this Agreement.

 

(g)                                  Headings .  Section, paragraph and other headings and captions are provided solely as a convenience to facilitate reference.  Such headings and captions shall not be deemed in any way material or relevant to the construction, meaning or interpretation of this Agreement or any term or provision hereof.

 

(h)                                  Notices .  Any notice under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, registered, postage prepaid, and addressed, in the case of the Company, to the Company’s President at                                                                                             , or if the Company should move its principal office, to such principal office, and, in the case of the Recipient, to the Recipient’s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section.

 

(i)                                      Non-Waiver of Breach .  The waiver by any party hereto of the other party’s prompt and complete performance, or breach or violation, of any term or provision of this Agreement shall be effected solely in a writing signed by such party, and shall not operate nor be construed as a waiver of any subsequent breach or violation, and the waiver by any party hereto to exercise any right or remedy which he or it may possess shall not operate nor be construed as the waiver of such right or remedy by such party, or as a bar to the exercise of such right or remedy by such party, upon the occurrence of any subsequent breach or violation.

 

(j)                                      Counterparts .  This Agreement may be executed in two or more separate counterparts, each of which shall be an original, and all of which together shall constitute one and the same agreement.

 

7



 

IN WITNESS WHEREOF , the parties hereto, intending to be legally bound, have executed this Agreement as of the date first written above.

 

 

COMSTOCK HOMEBUILDING
COMPANIES, INC., a Delaware
corporation

 

 

 

 

 

By:

 

 

 

Name:

 

Title:

 

 

Agreed and Accepted:

 

 

 

 

 

RECIPIENT:

 

 

 

 

 

By:

 

 

 

 

[Insert name of Recipient]

 

 

8


Exhibit 10.21

 

 

 

PURCHASE AND SALE AGREEMENT

 

 

FAIR OAKS PENDERBROOK APARTMENTS L.L.C.,

 

Seller

 

and

 

 

COMSTOCK HOMES, INC.

 

 

Purchaser

 

 

Premises:

Penderbrook Apartments

 

Fairfax, Virginia

 

 

Date:

As of November 9, 2004

 

 

 



 

TABLE OF CONTENTS

 

1

Definitions And Usage

 

 

 

 

2

Agreement Of Purchase And Sale; Conveyancing Instruments

 

 

 

 

3

Purchase Price

 

 

 

 

4

Title

 

 

 

 

5

Closing

 

 

 

 

6

Representations Of The Purchaser

 

 

 

 

7

Representations Of The Seller

 

 

 

 

8

Purchaser’s Due Diligence

 

 

 

 

9

Operation Of The Buildings And Other Improvements

 

 

 

 

10

Environmental Liabilities

 

 

 

 

11

Closing Documentation

 

 

 

 

12

Closing Adjustments; Closing Costs; And Transfer Taxes

 

 

 

 

13

Risk Of Loss

 

 

 

 

14

Escrow

 

 

 

 

15

Default; Conditions To Closing

 

 

 

 

16

No Assignment

 

 

 

 

17

Brokers

 

 

 

 

18

Notices

 

 

 

 

19

Exchange Provisions

 

 

 

 

20

Miscellaneous

 

 



 

PURCHASE AND SALE AGREEMENT made as of the 9th day of November, 2004, between FAIR OAKS PENDERBROOK APARTMENTS L.L.C., a limited liability company organized and existing under the laws of the State of Delaware having its principal office c/o W&M Properties, L.L.C., 60 East 42 nd Street, New York, New York 10165; and COMSTOCK Homes, Inc., a corporation organized and existing under the laws of the Commonwealth of Virginia having its principal office at 11465 Sunset Hills Road, Suite 510, Reston, Virginia 20190.

 

W I T N E S S E T H

 

In consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

 

1.     Definitions and Usage .

 

1.01         The following terms used herein shall have the meanings hereinafter ascribed to them:

 

(a)   “Acceptable Title” shall mean such title to the fee simple to the Premises as any reputable title insurance company licensed to conduct business in the Commonwealth of Virginia would be willing to insure (without an extra risk premium) in a fee owner’s title insurance policy without exception other than the Permitted Title Exceptions.

 

(b)   “Buildings” shall mean the buildings situated on the Premises.

 

(c)   “Buildings and other Improvements” shall mean the Buildings, structures, parking lots, and all other physical improvements constructed on any portion of the Premises.

 

(d)   “Business Days” shall mean all days, excluding Saturdays, Sundays, and all days observed by the courts of the Commonwealth of Virginia sitting in Fairfax County as legal holidays.

 

(e)   “Closing” shall mean the settlement conference at which the conveyance of the Property by the Seller to the Purchaser shall be made pursuant to the terms and provisions of this Agreement.

 

(f)    “Closing Date” shall mean the date on which the Closing shall occur as specified in Article 5 of this Agreement.

 

(g)   “Contract Deposit” shall mean the sums deposited with the Escrow Agent pursuant to paragraphs (a) and (b) of Section 3.02 and 5.01 hereof.

 

(h)   “Contract Period” shall mean the period from the date of this Agreement through the Closing Date, inclusive.

 

(i)    “Contracts” shall mean any and all service contracts and cable service and telecom agreements to which the Real Property or any portion thereof, the Seller or the Seller’s managing agent may be subject, affecting any portion of the Real Property.  Contracts do not include the Seller’s management agreement with the Seller’s managing agent.

 

(j)    “Conveyancing Instruments” shall mean the deed, assignments, and bill of sale referred to in Sections 2.02 through 2.06 hereof.

 



 

(k)   “Cure Amount” shall mean one hundred thousand and no/100 ($100,000.00) dollars.

 

(l)    “Damage or destruction” shall have the meaning ascribed in paragraph (a) of Section 13.01.

 

(m)  “Due Diligence Fee” shall mean seventy-five thousand and no/100 ($75,000.00) dollars payable pursuant to section 8.01 hereof.

 

(n)   “Due Diligence Period” shall mean the period specified in the first sentence of Section 8.01.

 

(o)   “Eastdil” shall mean Eastdil Realty Company, L.L.C.

 

(p)   “Environmental Laws” shall mean all (and “Environmental Law” shall mean any of the) federal, state and municipal laws, statutes, codes and ordinances, now or hereafter enacted or promulgated, pertaining to (i) the production, generation, release, discharge, emission, disposal, transportation, containment or storage, clean-up or remediation of any condition involving any Hazardous Substance, (ii) the licensing or permitting of any of the activities referred to in clause (i) or (iii) the regulation of any of such activities or any Hazardous Activity; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. , as amended by the Superfund Amendments and Reauthorization Act of 1986; the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq .; the Federal Water Pollution Control Act, 33 U.S.C. §§ 1251 et seq .; the Clean Air Act, 42 U.S.C. §§ 7401 et seq .; the Clean Water Act, 33 U.S.C. §§ 1251 et seq .; the National Environmental Policy Act, 42 U.S.C. § 4321; the Hazardous Materials Transportation Act of 1975, 49 U.S.C. §§ 1801-1812; the Toxic Substances Control Act, 15 U.S.C. §§ 2601 et seq .; the Refuse Act, 33 U.S.C. §§ 401 et seq .; any state or municipal environmental protection or environmental conservation statute or ordinance; or any law amending or superseding any of the foregoing; and any law of like or similar import to any of the foregoing, and the rules and regulations promulgated pursuant to such laws, statutes, codes and ordinances and all executive, administrative and judicial orders and decrees issued in connection with the enforcement of the foregoing, whether foreseen or unforeseen, ordinary or extraordinary, whether applying retroactively or prospectively.

 

(q)   “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended the Employee Retirement Income Security Act of 1974, as amended.

 

(r)    “Escrow Agent” shall mean Premier Title Insurance Company.

 

(s)   “Escrow Fund” shall mean the sum of (i) the Contract Deposit and (ii) any and all interest and dividends that may be earned on or paid with respect to the Contract Deposit.

 

(t)    “Hazardous Activity” shall mean any activity, process, procedure or undertaking, whether occurring before, on or after the date hereof, which directly or indirectly (i) produces, generates or creates any Hazardous Substance; (ii) causes or results (or threatens to cause or result) in the release of any Hazardous Substance into the environment (including the air, ground water, watercourses or water systems); (iii) involves the production, generation, release, discharge, emission, disposal, transportation or storage, clean-up or remediation of any Hazardous Substance; or (iv) causes or tends to cause the Real Property or any portion to become a hazardous waste treatment, storage or disposal facility within the meaning of any Environmental Law.

 

(u)   “Hazardous Condition” shall mean any condition which would be the basis for (i) any claim for damages, clean-up costs, remediation costs, fines or penalties under any Environmental Law or applicable common law or (ii) the imposition of any lien on any property pursuant to any Environmental Law.

 

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(v)   “Hazardous Substance” shall mean any hazardous substance as defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601 et seq. , as amended by the Superfund Amendments and Reauthorization Act of 1986; hazardous waste as defined in the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§ 6901 et seq. , as any of the foregoing may be amended or superseded; oil; petroleum products, derivatives, compounds or mixtures; minerals, including asbestos; chemicals; gasoline; medical waste; polychlorinated  biphenyls (pcb’s); methane; radon; radioactive material, volatile hydrocarbons; or other material, whether naturally occurring, man-made or the by-product of any process, which is toxic, harmful or hazardous or acutely hazardous to the environment or public health or safety; or any other substance the existence of which on or at any property would be the basis for a claim for damages, clean-up costs or remediation costs, fine, penalty or lien under any Environmental Law or applicable common law.

 

(w)  “Insubstantial damage or destruction” shall have the meaning ascribed in paragraph (b) of Section 13.01.

 

(x)    “Intangibles” shall mean, to the extent under the control of the Seller and transferable by their terms, any and all (a) permits, licenses, approvals, utility rights, development rights, guaranties, warranties, security codes, access codes, post office boxes, telephone exchange numbers and systems (including “800” and “888” numbers for the Premises), (b) copyrights, trademarks, service marks, trade logos and other marks and trade names, all domain names and the content of all web pages relating solely to the ownership, use, operation and management of the Premises, including without limitation, the right to use the name “Penderbrook”, (c) existing surveys, blueprints, drawings, plans and specifications for or with respect to the Premises or any part thereof in the Seller’s possession or control; and (d) tenant lists and marketing, promotional and advertising drawings, brochures, booklets, manuals and other materials concerning the Property or any part thereof, including electronic versions thereof.

 

(y)   “Intended Use” shall mean the use of the Buildings and other Improvements for the uses permitted by the Certificate(s) of Compliance or Occupancy or Residential Use Permits issued for the Buildings and other Improvements in effect on the date of this Agreement or for condominium ownership of the residential apartment units.

 

(z)    “Leases” shall mean all leases, subleases, licenses, and other occupancy agreements affecting the Premises.

 

(aa) “Permitted Title Exceptions” shall mean the following, to the extent that any one or more of the same pertain to any portion of the Real Property:

 

(i)        the title exceptions referred to in Schedule B annexed hereto and made part hereof;

 

(ii)       real estate taxes, unpaid installments of assessments, water and sewer charges, which are or may become liens upon the Real Property and which are not due and payable as of the Closing Date;

 

(iii)      any state of facts shown on that certain survey of the Real Property dated November 19, 1995 prepared by Dewberry & Davis (the “Survey”) and any subsequent state of facts that an accurate survey of the Real Property would reveal, provided that such subsequent state of facts does not prevent the Intended Use of the Buildings and other Improvements or render title unmarketable;

 

(iv)      the Leases and the rights of tenants thereunder as tenants only;

 

(v)       zoning resolutions, ordinances and regulations and other statutes, codes and regulations regulating the use and occupancy of real estate, including building, fire and safety codes, Environmental Laws, and the Federal Fair Housing Act and any state or municipal equivalent;

 

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(vi)      standard exclusions to coverage and conditions to such coverage set forth in a standard ALTA owner’s title insurance policy customarily used in Virginia without endorsement as would be issued on the Closing Date by any reputable title insurance company licensed to conduct business in the Commonwealth of Virginia.

 

(bb) “Personal Property” shall mean to the extent located at the Premises and owned by the Seller, all items of personal property, including, without limitation, the following: refrigerators, stoves, ovens, ranges, dishwashers, clothes washers and dryers, air conditioning units, light fixtures, mirrors, fixtures, computers, computer software applications, licenses and programs that are transferable by their terms, boilers, and the supplies (not consumed prior to Closing), office machines and apparatus, Intangibles, and the items referred to on Schedule H annexed hereto and made part hereof, which Personal Property is to be conveyed in their “as is” condition on the Closing Date to the Purchaser.

 

(cc) “Premises” shall mean the land described by metes and bounds in Schedule A annexed hereto and made part hereof.

 

(dd) “Property” shall mean (i) the fee simple estate in the Premises, (ii) the Real Property, (iii) all right, title and interest of the Seller, if any, in and to the land lying in the bed of each street or highway in front of or adjoining the Premises to the center line of such street or highway, (iv) the Leases and the rents therefrom from and after the Closing Date, (v) any unpaid award for any Taking by eminent domain or any damage to the Premises by the change of grade of any street or highway, (vi) the ways, easements, rights, privileges, and appurtenances in and to the Premises, and (vii) the Personal Property.  The Property specifically excludes all claims and causes of action of Seller against former and current tenants of the Buildings.

 

(ee) “Purchase Price” shall mean the aggregate sum payable by the Purchaser to the Seller as specified in Section 3.01 of this Agreement in consideration of the conveyances of the Property to be made by the Seller pursuant to Article 2 hereof.

 

(ff)   “Purchaser” shall mean Comstock Homes, Inc.

 

(gg) “Real Property” shall mean the Premises and the Buildings and other Improvements.

 

(hh) “Seller” shall mean Fair Oaks Penderbrook Apartments L.L.C.

 

(ii)   “Substantial damage or destruction” shall have the meaning ascribed in paragraph (c) of Section 13.01.

 

(jj)   “Taking” shall have the meaning ascribed in paragraph (d) of Section 13.01.

 

1.02         The words “herein,” “hereof,” “hereto,” “hereunder” and variants thereof shall be interpreted as being references to this Agreement as a whole and not merely the clause, paragraph, Section or Article in which such word appears.  Lists following words such as  “include” and “including” shall be deemed to be examples only and not exhaustive of all possible items of similar nature that could otherwise have been set forth and the words “include” and “including” shall be read to mean “to include or including, without limiting the generality of the foregoing.”

 

1.03         Where any representation made herein by the Seller is made “to the best of the Seller’s knowledge,” it is understood and agreed that such representation is made based solely upon the actual knowledge, without investigation, of the person who is, on the date hereof, the manager of the Real Property.

 

1.04         Wherever appropriate in this Agreement, personal pronouns shall be deemed to include the other genders and the singular or plural of any defined term or other word shall, as the context may require, be deemed to include, as the case may be, either the plural or the singular.  All Article,

 

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Section, Schedule and Exhibit references set forth herein shall, unless the context otherwise specifically requires, be deemed references to the Articles, Sections, Schedules, and Exhibits of this Agreement.

 

2.     Agreement of Purchase and Sale; Conveyancing Instruments.

 

2.01         The Seller shall sell and the Purchaser shall purchase the Property upon the terms and subject to the conditions hereinafter set forth.

 

2.02         The Seller shall on the Closing Date convey and the Purchaser shall accept Acceptable Title to the Real Property by a special warranty deed in the form annexed hereto and made part hereof as Exhibit 1.

 

2.03         The Seller shall on the Closing Date assign without representation or warranty (except as set forth herein) to the Purchaser all of the Seller’s right title and interest in and to the Leases, and the Purchaser shall accept the same and assume all of the Seller’s obligations under the Leases, by an assignment and assumption agreement in the form annexed hereto and made part hereof as Exhibit 2.

 

2.04         The Seller shall on the Closing Date convey to the Purchaser the Personal Property, in its “as is” condition on such day, by a bill of sale in the form annexed hereto and made part hereof as Exhibit 3.

 

2.05         The Seller shall on the Closing Date assign without representation or warranty (except as set forth herein) to the Purchaser all of the Seller’s right, title and interest under each of the Contracts, and the Purchaser shall accept the same and assume all of the Seller’s obligations under the Contracts, by an assignment and assumption agreement in the form annexed hereto and made part hereof as Exhibit 4.

 

2.06         The Seller shall on the Closing Date assign without representation or warranty (except as set forth herein) to the Purchaser all of the Seller’s right, title and interest under each transferable license and permit in the Seller’s possession for the use and operation of any items constituting Intangibles, and any equipment and apparatus for the Buildings and other Improvements, and the Purchaser shall accept the same and assume all of the Seller’s obligations under such licenses and permits, by an assignment and assumption agreement in the form annexed hereto and made part hereof as Exhibit 5.

 

3.     Purchase Price.

 

3.01         The Purchase Price to be paid by the Purchaser to the Seller for the Property is seventy-five million and no/100 ($75,000,000.00) dollars.

 

3.02         The Purchase Price shall be paid by the Purchaser to the Seller in the lawful currency of the United States of America, as follows:

 

(a)   Four hundred twenty-five thousand and no/100 ($425,000.00) dollars within one (1) business day after the execution of this Agreement by Seller and Purchaser by immediately available funds wired to the Escrow Agent’s designated account in accordance with wiring instructions provided by the Escrow Agent, time being of the essence;

 

(b)   Five hundred thousand and no/100 ($500,000.00) dollars upon the expiration of the Due Diligence Period by immediately available funds wired to the Escrow Agent’s designated account in accordance with wiring instructions provided by the Escrow Agent, time being of the essence; and

 

(c)   The balance of the Purchase Price (as adjusted pursuant to Article 12 hereof) upon the Closing on the Closing Date by federal funds wired to the Escrow Agent and then to one or more accounts designated by the Seller two (2) Business Days prior to the Closing Date.  Notwithstanding anything herein set forth to the contrary, the Due Diligence Fee shall be applied to the payment of this portion of the Purchase Price.

 

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3.03         If the Purchaser shall fail to make the payment (or deliver a permitted letter of credit in lieu thereof) pursuant to paragraph (b) of Section 3.02 within two (2) Business Days following notice from the Seller that the Purchaser failed to make such payment or three (3) Business Days following the due date of such payment, whichever is earlier, the same shall constitute a default of the Purchaser hereunder, and the Seller may terminate this Agreement and retain any Escrow Fund as liquidated damages.

 

3.04         No portion of the Purchase Price has been allocated to any Personal Property that may be conveyed pursuant hereto.  If any governmental authority shall assess any sales tax (or similar tax) in connection with the conveyance of such Personal Property, the Purchaser shall pay such tax and any interest or penalties or both which may be payable with respect to the same and indemnify and hold the Seller harmless for any such taxes, interest and penalties which the Seller may become obligated to pay.  The obligations of the Purchaser pursuant to this Section 3.04 shall survive the Closing.

 

3.05         The Seller may use any portion of the proceeds of the Purchase Price at the Closing to satisfy and discharge any lien or other title defect affecting the Real Property or any other, property, estate or interest to be conveyed pursuant hereto.

 

3.06         Funds wired in connection with the Closing (including the Contract Deposit) by the Escrow Agent and the Seller’s designated recipient shall be unable to confirm receipt of such funds by 2:00 p.m. Eastern Standard Time, then there shall be added to (and deemed to be included in the definition of) the Purchase Price a sum equal to the product which results from multiplying (i) the amount of the Purchase Price by (ii) 0.00023 by (ii) the number of days (including the Closing Date) from the Closing Date to the first Business Day when such funds have been received by the Seller and the Seller’s designated recipient.  No conveyance to be made by the Seller pursuant hereto shall be deemed effective until the entire Purchase Price shall have been received by the Seller and the Seller’s designated recipient(s) thereof and such receipt has been confirmed by the Seller or the Seller’s recipient(s), as the case may be.

 

3.07         For the purposes hereof, the term “immediately available funds” shall mean United States dollars, which require no further clearance to be invested immediately by the Seller and earn interest thereon from the time of such investment.  Notwithstanding anything herein set forth to the contrary, the Purchaser may, in lieu of the payments under paragraph (a) or paragraph (b) of Section 3.02 or both of them, deliver to the Escrow Agent one or more irrevocable, unconditional letters of credit payable on sight issued (or confirmed for payment) by Branch Banking and Trust Company or another New York Clearinghouse Association member bank having capital and surplus of at least $10 billion, payable to the Seller as the sole beneficiary.  Any such letter of credit shall be payable upon presentation of only said letter of credit and a sight draft and shall have an expiry date not earlier than November 9, 2005.

 

4.     Title.

 

4.01         The Purchaser shall promptly order a title report of the Real Property from a national title insurance company licensed to do business in the Commonwealth of Virginia or such company’s agent.  The Purchaser shall promptly inform the Seller and its counsel of any title defect (including any defect disclosed by a survey of the Premises) not among the Permitted Title Exceptions after learning of the same and deliver a copy of such title report (and any survey prepared on behalf of or obtained by the Purchaser) to the Seller promptly after the receipt of the same, but not later than the last day of the Due Diligence Period.  If the Purchaser shall fail to notify the Seller and its counsel of the existence of any title exception or defect not among the Permitted Title Exceptions by the expiration of the Due Diligence Period, then objection to such title exceptions and defects shall be deemed to have been waived by the Purchaser, and such title exceptions and defects shall be deemed to be Permitted Title Exceptions.  If any title exception or defect not among the Permitted Title Exceptions shall arise after the Due Diligence Period, the Purchaser shall notify the Seller thereof within two (2) Business Days of the Purchaser’s becoming aware of the same or such title exceptions and defects shall likewise be deemed to have been waived by the Purchaser and such title exceptions and defects shall be deemed to be Permitted Title Exceptions.

 

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4.02         The Seller shall not be obligated to cure any title defect or to remove any exception to title not among the Permitted Title Exceptions (including any violation noted or issued, of any building, fire, safety, Environmental Law, or other law, code, ordinance or regulation affecting the Real Property), if the aggregate cost of curing all such title defects and removing such exceptions not among the Permitted Title Exceptions (including any violation noted or issued, of any building, fire, safety, Environmental Law or other law, code, ordinance or regulation affecting the Real Property) shall exceed the Cure Amount, except that the Seller shall cause any mortgage (or deed of trust) of the Real Property securing indebtedness for borrowed money, and any judgment against the Seller and mechanics’ or other statutory liens, encumbering the Real Property to be discharged of record irrespective of the amount.  If the Seller elects to cure any title defect or to remove any exception to title not among the Permitted Title Exceptions (including any violations noted or issued, of any or all building, fire, safety and other laws, codes, ordinances and regulations affecting the Real Property), (which election shall be made by the Seller within five (5) Business Days after receipt of the Purchaser’s objections), it shall be entitled to adjourn the Closing Date for up to sixty (60) days to attempt to cure such defect or remove such exception.  Notwithstanding anything herein contained to the contrary, the Seller shall not be obligated to institute or prosecute any legal proceeding to cure or discharge any title defect or exception to title.

 

4.03         If the Seller shall have notified the Purchaser of the Seller’s unwillingness or inability to cure title defects or remove exceptions not among the Permitted Title Exceptions or among those title exceptions that the Seller has agreed to discharge pursuant to Section 4.02 hereof, because the cost of curing such title defects or removing such exceptions will exceed the Cure Amount, or if, as of the Closing Date (as the same may have been adjourned as provided in this Agreement), the Seller is unable to convey Acceptable Title to the fee simple of the Premises to the Purchaser, then the Purchaser may, upon notice to the Seller, terminate this Agreement.  The Purchaser may elect to consummate this transaction subject to such title defects or exceptions upon all of the terms and provisions and subject to all of the conditions set forth in this Agreement (except the obligation of the Seller to convey Acceptable Title) by giving notice to the Seller within five (5) Business Days after the effective date of the Seller’s notice.  If the Purchaser shall elect to consummate this transaction as provided in the Purchaser’s notice, the Seller shall convey the Property to the Purchaser without diminution of the Purchase Price, subject to the Permitted Title Exceptions and such additional title exceptions as the Seller shall have elected not to cure or remove except that Purchaser shall be entitled to a credit against the Purchase Price equal to the Cure Amount and subject to the Seller’s obligations to satisfy mortgages and liens pursuant to Section 4.02.  If the Purchaser shall have elected to terminate this Agreement pursuant to this Section 4.03 and such election shall not have been canceled as provided above in this Section 4.03, then the Seller and the Purchaser shall instruct the Escrow Agent to disburse the Escrow Fund to the Purchaser, and no party shall have any further rights or obligations hereunder.  Such rights to terminate this Agreement and to receive the Escrow Fund shall be the Purchaser’s sole remedies if the Seller is unwilling or unable to cure or remove any such title defect or exception.

 

5.     Closing.

 

5.01         The Closing shall take place on December 29, 2004.  The Purchaser may adjourn the Closing once until not later than January 14, 2004 by (i) the depositing with the Escrow Agent not later than December 27, 2004, the sum of five hundred thousand and no/100 ($500,000.00) dollars (or a letter of credit conforming to the requirements of Section 3.07), which sum shall be added to the Contract Deposit and applied, upon Closing, to the Purchase Price, and (ii) giving the Seller notice of such adjournment simultaneously with making such deposit.

 

5.02         The Seller and the Purchaser shall endeavor to agree upon preliminary estimates of the closing adjustments and prorations to be made in accord with Article 12 hereof at least three (3) Business Days prior to the Closing Date and the final adjustments and prorations not less than one (1) Business Day prior to the Closing Date.  At least one (1) Business Day prior to the Closing Date the Seller and the Purchaser shall deliver to the Escrow Agent the documents to be executed and delivered at the Closing pursuant to Article 11 hereof and the balance of the Purchase Price (as adjusted pursuant to Article 12).  Upon confirmation by the Escrow Agent that it is prepared to issue an owner’s form of title insurance policy to the Purchaser insuring Acceptable Title to the Purchaser and all other conditions precedent to its

 

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disbursement of the Purchase Price, the Escrow Agent shall wire the entire Purchase Price (as so adjusted) and all other moneys that the Escrow Agent is holding in immediately available funds to the Seller and its designees, if any.  Upon confirmation by the Seller that the funds have been received, the Escrow Agent shall then distribute the documents it is holding to the applicable parties and issue the Purchaser’s title insurance policy.

 

6.     Representations of the Purchaser.

 

6.01         The Purchaser represents and warrants to the Seller that:

 

(a)   THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT HAS BEEN NEGOTIATED BETWEEN THE SELLER AND THE PURCHASER.  THIS AGREEMENT REFLECTS THE MUTUAL AGREEMENT OF THE SELLER AND THE PURCHASER, AND THE PURCHASER HAS CONDUCTED OR SHALL CONDUCT ITS OWN INDEPENDENT EXAMINATION OF THE PROPERTY.  OTHER THAN THE MATTERS SPECIFICALLY REPRESENTED HEREIN, BY WHICH ALL OF THE FOLLOWING PROVISIONS OF THIS PARAGRAPH ARE LIMITED, THE PURCHASER HAS NOT RELIED UPON AND SHALL NOT RELY UPON ANY REPRESENTATION OR WARRANTY OF THE SELLER OR ANY OF THE SELLER’S AGENTS OR REPRESENTATIVES NOT SPECIFICALLY SET FORTH HEREIN, AND THE PURCHASER HEREBY ACKNOWLEDGES THAT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, NO SUCH REPRESENTATION HAS BEEN MADE.  THE PURCHASER ACKNOWLEDGES AND AGREES THAT EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, BY EXECUTING THIS AGREEMENT THE SELLER SPECIFICALLY DISCLAIMS, AND NEITHER IT NOR ANY OF ITS AFFILIATES NOR ANY OTHER PERSON IS MAKING, ANY REPRESENTATION, WARRANTY OR ASSURANCE WHATSOEVER TO THE PURCHASER, AND NO WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EITHER EXPRESS OR IMPLIED, EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT, ARE MADE BY THE SELLER OR RELIED UPON BY THE PURCHASER WITH RESPECT TO THE STATUS OF TITLE TO OR THE MAINTENANCE, REPAIR, CONDITION, DESIGN OR MARKETABILITY OF ANY OF THE PROPERTY INCLUDING (I) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, (II) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, (III) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, (IV) ANY RIGHTS OF PURCHASER UNDER APPROPRIATE STATUTES TO CLAIM DIMINUTION OF CONSIDERATION, (V) ANY CLAIM BY PURCHASER FOR DAMAGES BECAUSE OF DEFECTS, WHETHER KNOWN OR UNKNOWN, WITH RESPECT TO THE BUILDINGS AND OTHER IMPROVEMENTS OR THE PERSONAL PROPERTY, (VI) THE FINANCIAL CONDITION OR PROSPECTS OF THE REAL PROPERTY, AND (VII) THE COMPLIANCE OR LACK THEREOF OF ANY OF THE BUILDINGS OR THE OTHER IMPROVEMENTS WITH GOVERNMENTAL REGULATIONS, IT BEING THE EXPRESS INTENTION OF THE SELLER AND THE PURCHASER THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE PROPERTY SHALL BE CONVEYED AND TRANSFERRED TO THE PURCHASER IN ITS PRESENT CONDITION AND STATE OF REPAIR, “AS IS” AND “WHERE IS”, WITH ALL FAULTS.  The Purchaser is a knowledgeable, experienced and sophisticated purchaser of real estate, and it is relying solely on its own expertise and that of Purchaser’s consultants in purchasing the Property.  Prior to the date hereof and during the Due Diligence Period, the Purchaser has conducted or shall conduct such inspections, investigations and other independent examinations of the Property and related matters as the Purchaser deemed or deems necessary, including but not limited to the physical and environmental conditions thereof, and shall rely upon same and not upon any statements of the Seller (excluding the limited matters specifically represented by the Seller herein) or of any member officer, director, employee, agent or attorney of the Seller.  The Purchaser acknowledges that all information obtained by the Purchaser was or shall be obtained from a variety of sources, and the Seller shall not be deemed to have represented or warranted the completeness, truth, or accuracy of any of the documents or other such information heretofore or hereafter furnished to the Purchaser.  Upon Closing, the Purchaser will assume the risk that adverse matters, including, but not limited to,

 

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adverse physical and environmental conditions, that may not have been revealed by the Purchaser’s inspections and investigations.  The Purchaser further acknowledges and agrees that there are no oral agreements, warranties or representations, collateral to or affecting the Property, by the Seller, any agent of the Seller or any third party, except as specifically set forth herein.  The Seller is not liable or bound in any manner by any oral or written statements, representations, collateral to or relating to the Property, by the Seller, any agent of the Seller or any third party, except to the extent specifically provided herein.  The Seller is not liable or bound in any manner by any oral or written statements, representations or information pertaining to the Property furnished by any real estate broker, agent, employee, servant or other person, unless the same are specifically set forth or referred to herein.  The Purchaser acknowledges that the Purchase Price reflects the “as is, where is” nature of this sale and any faults, liabilities, defects or other adverse matters that may be associated with the Property.  The Purchaser (with the Purchaser’s counsel) as fully reviewed the disclaimers and waivers set forth in this Agreement and understands the significance and effect thereof.  The Purchaser acknowledges and agrees that the disclaimers and other agreements set forth herein are an integral part of this Agreement, and that the Seller would not have agreed to sell the Property to the Purchaser for the Purchase Price without this disclaimer and other agreements set forth in this Agreement.  The terms and conditions of this paragraph (a) shall expressly survive the Closing, shall not merge with the provisions of any Conveyancing Instruments or other documents delivered in connection with the sale of the Property and shall be deemed to be incorporated into the deed conveying title to the Real Property.

 

(b)   Neither the Seller nor any broker or other person purporting to represent or speak on behalf of the Seller has made any representation respecting the financial condition or position of the Real Property or the Seller, any projected income from the Real Property, the marketability of the same, the state of the real estate market or any other matter respecting the financial or economic viability of the Real Property, except as may be specifically set forth in the Schedules hereto.

 

(c)   The Purchaser is not relying upon any statements made by or on behalf of the Seller concerning (i) the condition or operation or maintenance of the Real Property, or (ii) any other matter concerning any of the Property, not specifically stated in the body of this Agreement or in any Schedule hereto.

 

(d)   The Purchaser is not and shall not be as of the Closing Date an employee benefit plan as defined in Section 3(30) of ERISA, which is subject to Title I of ERISA, nor a plan as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended, and the assets of the Purchaser shall not constitute “plan assets” of one or more of such plans within the meaning of Department of Labor Regulation Section 2510.3-101.

 

(e)   The persons executing this Agreement on behalf of the Purchaser have been duly authorized to do so by the appropriate governing or managing authority of the Purchaser, and this Agreement constitutes the valid and binding obligation of the Purchaser, enforceable in accordance with its terms.

 

6.02         Each of the representations and warranties made by the Purchaser in Section 6.01 is material and may only be waived by the Seller and only by means of a writing signed by it.

 

7.     Representations of the Seller.

 

7.01         The Seller represents and warrants to the Purchaser, that on the date hereof:

 

(a)   The persons executing this Agreement on behalf of the Seller have been duly authorized to do so by the appropriate governing or managing authority of the Seller, and this Agreement constitutes the valid and binding obligation of the Seller, enforceable in accordance with its terms.

 

(b)   The information with respect to the Real Property set forth in the following Schedules annexed hereto and made part hereof is, as of the date hereof, true and complete information

 

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respecting each of the sets of matters referred to in such Schedules: Schedules C (current rent roll of the Building), Schedule D (Contracts), Schedule F (employees of the Buildings), Schedule G (insurance coverage for the Buildings and Other Improvements), Schedule H (Personal Property as of the date thereon set forth), Schedule I (unpaid costs of improvements and allowances owed to Tenants under Leases), and Schedule J (unpaid commissions owed to brokers in connection with Leases).  Schedule E has been intentionally omitted.

 

(c)   The Seller has not received notice of violation of any zoning, building, fire or safety code, Environmental Law, the Federal Fair Housing Act or any state or municipal equivalent, or other applicable law that has not been discharged.

 

(d)   To the best of the Seller’s knowledge, it is not in material breach of any Lease and it has not received notice from any tenant of such a material breach that has not been cured;

 

(e)   It has not received notice of any material breach of any material obligation to any third party under any of the documents listed among the Permitted Title Exceptions or under any Contract that has not been cured.

 

(f)    No real estate tax contests are pending.

 

(g)   No apartment units comprising the Property are occupied by persons other than bona fide tenants, and no employees of Seller or its property manager are in possession of any apartments, except two employees under Leases that provide that any such Lease may be terminated upon ten (10) days’ notice if the relevant employee’s employment is terminated.

 

7.02         The Seller shall update and revise each of the Schedules referred to in paragraph (b) of Section 7.01 so that the same shall be accurate as of a date not earlier later than two (2) Business Days preceding the Closing Date, but no such updated and revised Schedule shall be deemed to be a representation (or contain representations) which shall survive the delivery of the Conveyancing Instruments at the Closing except as provided in Section 7.08 hereof.

 

7.03         No representation is made with respect to the existence of any Lease, tenancy, or Contract on the Closing Date, and the existence of any of the foregoing on the Closing Date is not a condition precedent to the Purchaser’s obligation to consummate this transaction.  Notwithstanding the foregoing, the updated rent roll shall be true, correct and complete as of the date made.

 

7.04         A representation of the Seller shall be deemed untrue or incomplete only if (i) the Purchaser did not know that such representation is untrue, (ii) such representation is factually untrue and (iii) such representation is material.  Notwithstanding the provisions of the preceding sentence, if the Purchaser shall discover any of the Seller’s representations to be untrue factually, the Purchaser shall give the Seller notice thereof promptly after discovering such fact and the Seller shall have the opportunity (not to exceed thirty (30) days) to correct any such untrue factual representation.  If the Seller is able to correct such conditions that made the representation untrue factually so that it is true as of the date of such correction, the representation shall be deemed true as if made accurately on the date hereof.  If the Purchaser fails to afford the Seller the opportunity to correct such condition, then the Purchaser shall be deemed to have waived any rights and remedies arising by reason of such untrue representation.

 

7.05         Subject to the terms and provisions of Section 7.04, the Purchaser’s sole right and remedy arising by reason of any untrue or incomplete representation discovered by the Purchaser prior to Closing shall be to terminate this Agreement and have the Escrow Fund paid to the Purchaser together with the Purchaser’s reasonable costs of due diligence up to $75,000.

 

7.06         All of the Seller’s representations hereunder shall be deemed merged in the Conveyancing Instruments and shall not survive the conveyances of the Property to the Purchaser, except as provided in Section 7.07.  The acceptance by the Purchaser of the Conveyancing Instruments by the Purchaser shall constitute conclusive proof that the Seller shall have performed all of its obligations under

 

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this Agreement and shall have no further or continuing obligations or liabilities to the Purchaser arising under or by virtue of this Agreement or out of the transactions contemplated by the parties hereto, except as may be expressly set forth in this Agreement or the closing documents.

 

7.07         The Seller’s representations set forth in Section 7.01 shall survive the Closing for one hundred eighty (180) days.  Following the Closing, if any such representation shall prove to be untrue or incomplete as defined in Section 7.04, the Purchaser may commence an action for the actual damages suffered thereby, provided that such action shall have been commenced within such 180-day period, time being of the essence.

 

8.     Purchaser’s Due Diligence.

 

8.01         In consideration of the Purchaser simultaneously herewith depositing with the Escrow Agent the Due Diligence Fee (which shall be payable to the Seller in accordance with Sections 3.02, 8.03, and 14.01), commencing on the date of this Agreement and expiring on December 1, 2004 or such earlier date as the Purchaser shall have waived its rights to terminate this Agreement under Section 8.03 (which right shall conclusively be deemed to have been waived by making the Contract Deposit pursuant to paragraph (b) of Section 3.02) (the “Due Diligence Period”), the Purchaser (and the Purchaser’s accountants, engineers and other consultants) may, subject to the terms and provisions of this Article 8 and upon at least two Business Days’ notice to the Seller,  (i) subject to the rights of tenants of the Premises, enter upon the Real Property for the purpose of making such inspections and surveys thereof as the Purchaser may desire, (ii) review the Leases and (iii) inspect, during regular business hours at the offices of the managing agent of the Real Property, the Contracts and the other books and records of such managing agent relating to the operation, leasing and maintenance of the Real Property.  Nothing in this Section 8.01 shall be construed to permit the Purchaser or any other person on behalf of the Purchaser to inspect or review any (x) income tax returns or files relating to income taxes of the Seller or any partner, officer, member, agent or other principal of the Seller or (y) reports, correspondence, memoranda or compendia of information prepared by counsel for the Seller which may be the subject of any privilege or by any other persons in contemplation of litigation or any other official proceeding or hearing, except real estate tax certiorari (or equivalent) proceedings.  The Seller reserves the right to have one or more representatives present at any such inspection, test, examination or walk-through of the Real Property and at any examination of the Leases, Contracts or books and records.  No test or physical penetration of any portion of the Real Property may be conducted without the prior approval of the Seller, which approval shall not be unreasonably withheld.  The Purchaser shall maintain and deliver to Seller certificates of comprehensive liability and property damage insurance in a coverage amount of not less than one million ($1,000,000) dollars per occurrence and underwritten by a carrier reasonably acceptable to the Seller, naming the Seller, its members and managing agent as insureds against any damage, injury, expenses and other liabilities which the undersigned may incur arising out of any negligence or misconduct by any of the Purchaser’s representatives while present at the Real Property to perform any activity permitted under this Section 8.01.  The Purchaser shall promptly pay the Seller the Seller’s cost to repair any damage to any Buildings and other Improvements caused by or resulting from activities associated with such representatives (excluding, however, conditions merely discovered by the Purchaser) and restore the damaged property to its condition immediately prior to such activities and shall indemnify Seller against any related costs.   During the Due Diligence Period, the Seller shall make available to the Purchaser and its representatives copies of the Leases, the Contracts, such Certificate(s) of Compliance or Occupancy and Residential Use Permits for the Buildings and other Improvements as are in the possession of the Seller and its managing agent, the most recent real estate tax bills for the Real Property, such plans and drawings of the Buildings and other Improvements as are in the possession of the Seller and its managing agent and, subject to the foregoing provisions of this Section 8.01, such other books and records of the Property, including, without limitation, the items set forth in Schedule K attached hereto, as are in the possession of the Seller and its managing agent.

 

8.02         (a)   All information respecting the Real Property obtained pursuant to Section 8.01 or other source not in the public domain prior to the Closing by the Purchaser or any other person acting on behalf of the Purchaser shall be held in the strictest confidence and shall not be revealed to any person (other than persons retained or employed by Purchaser, the Purchaser’s consultants and lenders, who have a

 

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need to know such information) except pursuant to subpoena or court or other competent authority’s order.  If the Purchaser or any person acting on behalf of the Purchaser shall be made the subject of a subpoena or the order of any court or other competent authority’s directing the Purchaser or such other person to divulge any such information, the Purchaser shall notify the Seller of such subpoena or order promptly after being served with the same to permit the Seller to contest such subpoena or court order or to seek such other protective relief as the Seller may deem desirable.  The Purchaser shall instruct each person to whom the Purchaser imparts any such information about the Real Property pursuant to this Article 8 to be bound by the terms and provisions of this Section 8.02.

 

(b)   All duly authorized representatives of the Purchaser who may participate in the Purchaser’s inspections and other due diligence shall be instructed by the Purchaser to be bound by the terms and provisions of this Section 8.02.

 

(c)   Provided that the Seller is not in material breach of this Agreement and the Purchaser has terminated this Agreement in accord with Section 8.03, the Purchaser shall deliver to the Seller, promptly after receipt by the Purchaser, copies of all title abstracts and reports, surveys, inspection and test reports and environmental and engineering reports with respect to the Real Property that may be prepared for the Purchaser by third-party engineers, providers, consultants or contractors.  All such copies shall be delivered without representation or warranty and may not be relied upon by the Seller.

 

(d)   The Purchaser shall not request any governmental authority to inspect any portion of the Real Property but the Purchaser may request from appropriate agencies information concerning zoning, compliance with codes or other ordinances and certificates of occupancy.

 

8.03         The Purchaser may terminate this Agreement for any reason on or before the expiration of the Due Diligence Period, time being of the essence, by giving the Seller notice of such termination, time being of the essence.  If the Purchaser shall so terminate this Agreement pursuant to this Section 8.03 and the Seller shall not have made an untrue or incomplete representation (as defined in Section 7.04) or other breach or default hereunder which shall have formed the basis of such termination, then the Purchaser shall direct the Escrow Agent to disburse the Due Diligence Fee of seventy-five thousand and no/100 ($75,000.00) dollars to the Seller in consideration of the Seller’s having removed the Property from the market for the duration of the Due Diligence Period and the balance of the Escrow Fund to the Purchaser (without the requirement of obtaining consent of the Seller and notwithstanding contrary instruction from the Seller) and neither party shall have any further obligation or claim against the other arising out of this Agreement (except for such claims as the Seller may have by reason of any covenant or condition set forth in Sections 8.01 or 8.02).  If the Purchaser shall not have given such notice of termination in a timely manner under this Section 8.03, then the right to terminate this Agreement pursuant to this Section 8.03 shall be deemed waived for all purposes, the right to terminate this Agreement pursuant to this Section 8.03 shall be of no force or effect, and the balance of the Contract Deposit (as specified in paragraph (b) of Section 3.02) hereof shall be unconditionally due and payable.  If this Agreement is not terminated pursuant to this Section 8.03, the Contract Deposit shall not be refundable to the Purchaser for any reason not specifically set forth herein.

 

8.04         Pursuant to the provisions of Section 8.01 and 8.02, the Purchaser may inspect the Real Property during the Contract Period subsequent to the Due Diligence Period.

 

9.     Operation of the Buildings and Other Improvements.

 

        During the Contract Period, the Seller shall (i) continue to manage, maintain, repair and operate the Real Property in accordance with the Seller’s customary practices, including, evicting tenants, making repairs, hiring and firing employees, entering into, modifying, and terminating Leases and Contracts, and applying security deposits under the Leases as permitted thereunder (provided, however, that without Purchaser’s prior written consent, Seller shall not enter into any Lease with a term in excess of one (1) year or with renewal options in favor of the tenant thereunder); (ii) not apply security deposits, except in connection with evicting a tenant or with respect of a tenant who has vacated his apartment; (ii) operate the Real Property in accordance with applicable laws; (iv) not enter into Contracts to which the

 

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Purchaser shall be subject following the Closing, (v) operate the Real Property in accord with applicable laws and (vi) not enter into Leases except at arms-length, at fair market rents for terms customary in the market, on the Seller’s standard form of lease.  The Seller shall maintain insurance coverage for the Buildings and other Improvements comparable to the insurance referred to on Schedule G hereto.

 

10.  Environmental Liabilities.

 

10.01       Except in connection with the Seller’s breach of an express representation or warranty set forth herein, the Purchaser hereby waives any claim against the Seller, its partners, employees, and agents and affiliates arising out of any Hazardous Activity conducted or any Hazardous Substance or Hazardous Condition existing at, in or about the Real Property; provided, however, that such waiver shall not extend to third party claims for which the Purchaser may be liable as a result of any act or failure to act on the part of the Seller.

 

10.02       From and after the Closing, the Purchaser shall indemnify and hold the Seller, its partners, employees and agents and affiliates harmless against any cost, claim, or liability (including attorneys’ fees) arising by virtue of the existence at any time of any Hazardous Activity conducted at or any Hazardous Substance or Hazardous Condition first arising or occurring at, in or about the Real Property from and after the Closing Date caused or suffered by the Purchaser.

 

10.03       The obligations of the Purchaser pursuant to this Article 10 shall survive the delivery of the Conveyancing Instruments at the Closing.

 

11.  Closing Documentation.

 

11.01       At the Closing, the Seller shall deliver to the Purchaser:

 

(a)   the deed as heretofore described in Section 2.02;

 

(b)   an assignment and assumption agreement as heretofore described in Section 2.03 with respect to each of the Leases which shall provide that the Purchaser is assuming all of the obligations of the Seller under the Leases from and after the Closing Date;

 

(c)   a bill of sale, for any Personal Property being conveyed incidental to the Real Property as heretofore described in Section 2.04;

 

(d)   an assignment and assumption agreement as heretofore described in Section 2.05 of the Contracts which shall provide that the Purchaser is assuming all of the obligations of the Seller under the Contracts (including any obligations to union personnel and other persons who may be beneficiaries under any such agreements) from and after the Closing Date;

 

(e)   an assignment and assumption agreement as heretofore described in Section 2.06 of the licenses and permits and other items constituting Intangibles which shall provide that the Purchaser is assuming all of the obligations of the Seller under such licenses and permits from and after the Closing Date;

 

(f)    updated and revised Schedules pursuant to Section 7.02 hereof;

 

(g)   such instruction manuals, warranties and guarantees with respect to the Building’s systems, equipment and apparatus as are in possession of the Seller or the Seller’s managing agent;

 

(h)   all Leases and tenants files in the possession of the Seller or its managing agent as then are in effect;

 

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(i)    the Contracts in the possession of the Seller or its managing agent as then are in effect;

 

(j)    any licenses and permits referred to herein and on any Schedule, the items referred to on Schedule H, and other items of Intangibles in the possession or control of the seller or its managing agent as then are in effect;

 

(k)   letters addressed to each of the tenants under the Leases, including statements to the effect that their respective security deposits under the Leases have been delivered to and received by the Purchaser (and containing such other statements and information as may be required pursuant to law to relieve the Seller of further liability for the maintenance and return of the security deposits under the Leases);

 

(l)    letters addressed to service providers informing them of either (i) the assumption of their Contracts by the Purchaser or (ii) the termination of their Contracts, provided, however, that the Contracts designated as “Cannot be Cancelled” on Schedule D shall be assumed by the Purchaser;

 

(m)  the Building’s managing agent’s records (excluding those deemed to be confidential by reason of any privilege asserted by the Seller) pertaining to the operation of the Building;

 

(n)   any and all plans, specifications, and drawings of the Buildings and other Improvements as are in the possession or control of the Seller or its managing agent;

 

(o)   a certification to the effect that the Seller is not a “foreign person” as defined in the Foreign Investment in Real Property Tax Act;

 

(p)   evidence of the authority of the Seller to consummate this transaction and proof of its legal subsistence as an entity as reasonable required by the Purchaser’s title insurance company;

 

(q)   an updated rent roll certified as accurate as of the Closing Date by the Seller;

 

(r)    records and correspondence in the possession of the Seller or the Seller’s managing agent in respect of the Contracts being assumed by the Purchaser;

 

(s)   a certification that the representations and warranties made in Section 7.01 (as updated pursuant to Section 7.02) are true and complete as of the Closing Date;

 

(t)    evidence of the termination of the management agreement between the Seller and its managing agent;

 

(u)   evidence of payment of Eastdil’s commission or Eastdil’s written agreement not to look to the Purchaser for payment of Eastdil’s commission; and

 

(v)   a customary owner’s affidavit in favor of the title insurance company insuring the Purchaser’s title (but no such affidavit shall impose liability upon the Purchaser for events or acts occurring after the Closing).

 

11.02       At the Closing, the Purchaser shall, as applicable, deliver or execute and deliver to the Seller:

 

(a)   the balance of the Purchase Price as adjusted for net closing adjustments between the Seller and the Purchaser as hereinafter provided;

 

(b)   the agreement of assignment and assumption of the Leases as heretofore described in Section 2.03;

 

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(c)   the aforesaid assignment and assumption agreement of the Contracts as heretofore described in Section 2.05;

 

(d)   the aforesaid assignment and assumption agreement of the licenses and permits as heretofore described in Section 2.06;

 

(e)   the letters heretofore described in paragraph (k) of Section 11.01; and

 

(f)    evidence of the authority of the Purchaser to consummate this transaction and proof of its legal subsistence as an entity as reasonably required by the Purchaser’s title insurance company.

 

11.03.   Each of the parties shall execute such transfer tax and other tax returns incidental to this transaction as required by law and such other title affidavits documents as may be reasonably required to consummate the transactions under this Agreement in accordance with its Terms.

 

12.  Closing Adjustments; Closing Costs; and Transfer Taxes.

 

12.01       Subject to the terms and provisions of Section 12.02 and Section 12.03, the following items shall be adjusted at the Closing as of 11:59 p.m. of the day immediately preceding the Closing Date and the net amount of such closing adjustments shall be applied, as the case may be, as a credit to or debit against the balance of the Purchase Price payable at the Closing:

 

(a)   real estate taxes, assessments, vault fees, if any, and any other ad valorem taxes, provided that if a final bill for any of such real estate taxes, assessments, vault fees, or other ad valorem taxes has not been rendered as of the Closing Date for the then current or any prior fiscal period, then the adjustment for such real estate tax, assessment, vault fee or other ad valorem tax shall be made on the basis of the then available tax bills for the then most recent period, and such taxes and other items shall be prorated after the Closing when such final tax bill has been rendered and any amount owed by reason of such proration shall be paid promptly by the applicable party;

 

(b)   water charges and sewer rents (to the extent feasible, the Seller shall supply meter readings as close as possible to the Closing Date or if there are no such meters, then adjustments shall be based on the most recent bills therefor), to be reconciled, if necessary, after the Closing when bills for the period since the most recent meter readings or bills have been issued;

 

(c)   special district impositions, if any;

 

(d)   Contract fees or charges and fees and charges with respect to the Intangibles, if any;

 

(e)   license and permit fees for the licenses and permits being assigned and assumed as herein provided;

 

(f)    rents and other charges under the Leases (based on actual collections with no adjustment for concessions or abatements), provided that rents received by the Seller or the Purchaser following the Closing shall first be applied (and adjusted) to the month in which the Closing occurs, then to the then current month, and then to all periods following the then current month.  The Purchaser shall collect, report semi-annually through and including the first anniversary of the Closing Date, in writing to Seller, and hold in trust for the Seller’s benefit any such rents received after the Closing that are payable to the Seller hereunder.

 

(g)   gas and other fuel (if applicable) pursuant to a reading of the supplier of the same not earlier than forty-eight (48) hours prior to the Closing Date;

 

(h)   electricity charges based upon the last available electrical reading;

 

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(i)    any other utilities including electricity services (to the extent feasible, the Seller shall supply meter readings as close as possible to the Closing Date or if there are no such meters, then adjustments shall be based on the most recent bills therefor), to be reconciled, if necessary, after the Closing when bills for the period since the most recent meter readings or bills have been issued;

 

(j)    all assessments and charges under the agreements recorded in Deed Book 6808 page 1706, Deed Book 6836 page 1792, Deed Book 6912 page 1925, and any amendments thereto entered into prior to the Closing Date, provided that any refund due to the Seller thereunder shall be credited to it at the Closing and Seller’s rights to such refund shall be assigned to the Purchaser; and

 

(k)   If adjusted pursuant to customary practice, Fairfax County Business, Professional and Occupation Tax for the (fiscal) year in which the Closing occurs.

 

12.02       To the extent that any rent or other charge or any other matter to be adjusted or apportioned at the Closing is based upon estimates or if complete information is not available at the Closing to make the final calculations as of the Closing Date or any rent or charge under any of the Leases is not payable by the tenants as of such date, then the Purchaser shall pay to the Seller that portion of such rents or charges applicable to all periods through the Closing Date (as are then calculable and, if not so calculable, then estimated based upon the most recent information available), provided, that if the Seller shall have collected any such rents, charges and other matters for any period occurring on and after the Closing Date, the Seller shall credit the Purchaser with the amount thereof.  If the information necessary to compute any closing adjustment is not available at the Closing or if any adjustment is based upon an estimate, then such adjustment shall be made as promptly as feasible following the Closing.

 

12.03       If either party shall discover any error in the computation of any closing adjustment, such error shall be corrected promptly following notification thereof by the discovering party to the other (provided, that such notification shall be given within thirty (30) days following the discovery thereof but not later than one (1) year following the Closing Date), and an appropriate payment to correct the same shall then be made.

 

12.04       If, at Closing, any then tenant of the Real Property, is delinquent in the payment of rent payable for any period expiring prior to the month in which the Closing occurs, the Purchaser shall purchase and the Seller shall sell, without representation or warranty, the Seller’s claims for such delinquencies for one-half (1/2) of the amount thereof (but the Purchaser’s maximum payment therefor shall not exceed ten thousand and no/100 ($10,000.00) dollars).

 

12.05       [Intentionally deleted].

 

12.06       At the Closing, the Purchaser shall assume any unpaid tenant referral fees (not to exceed $1,500), of which the Seller represents that as of the date hereof there are none.  The Seller shall, upon the Closing, terminate all utility company accounts and seek the return of all utility deposits the Seller shall have made with the utility companies and agencies servicing the Real Property.  The Purchaser shall open new accounts in its own name with the appropriate utility companies and agencies and shall indemnify the Seller for all liabilities sustained by the Seller for third party claims arising out of any failure of the Purchaser to open any such account timely.  This obligation shall survive the Closing.

 

12.07       At the Closing, the Seller shall, (i) credit the Purchaser with the amounts of security deposits and interest thereon and (ii) assign to the Purchaser at the Closing all non-cash security deposits under the Leases.  If any of such security deposits shall be in the form of certificates of deposit, letters of credit or other non-cash instruments, the Purchaser shall bear any transfer fees that may be levied in connection with any such assignment.  For the purposes of this Section 12.07, the amount of any such security deposits (whether in cash or other form) shall be that amount still retained by the Seller after applying, in accordance with Section 9.01, any such security deposit under the relevant Lease and retention by the Seller of any portion of interest earned on any security deposit, which under law a landlord under any lease may retain as a service fee or otherwise.

 

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12.08       The Seller shall pay the State Grantor’s Tax imposed upon the conveyance of the Real Property by the Commonwealth of Virginia and one-half (1/2) of any fee charged by the Escrow Agent for its services pursuant to any provision of this Agreement.

 

12.09       The Purchaser shall pay the following expenses with respect to the conveyance of The Property pursuant to this Agreement.

 

(a)   premiums for its owner’s title insurance policy, any endorsements thereto, and any lender’s title insurance policy;

 

(b)   the cost of obtaining any update to any existing survey or a new survey of the Real Property;

 

(c)   any taxes imposed upon debt instruments imposed by the Commonwealth of Virginia or any political subdivision thereof and all fees and other charges payable to any lender to the Purchaser;

 

(d)   all other State and County transfer taxes;

 

(e)   one-half (1/2) of any fees charged by the Escrow Agent for its services pursuant to any provision of this Agreement; and

 

(f)  any transfer and/or license fees associated with software applications, licenses, and programs to be conveyed to the Purchaser pursuant hereto.

 

12.10       Each party hereto shall bear its own attorney’s legal charges with respect to the transactions to be consummated pursuant hereto.

 

12.11       The obligations of the parties under this Article 12 shall survive the Closing.

 

13.          Risk of Loss.

 

13.01       For the purposes of this Article 13, the following terms used herein shall have the meanings ascribed to them:

 

(a)   “Damage or destruction” shall mean any damage to or the destruction in whole or in part of any of the Buildings and other Improvements on the Premises;

 

(b)   “Insubstantial damage or destruction” shall mean any damage or destruction the estimated cost of repair or restoration made in good faith by any independent contractor retained by the Seller does not exceed $1,000,000.

 

(c)   “Substantial damage or destruction” shall mean any damage or destruction the estimated cost of repair or restoration made in good faith by any independent contractor retained by the Seller exceeds $1,000,000.

 

(d)   “Taking” shall mean the vesting of title of any estate or interest in any portion of the Real Property in any governmental or quasi -governmental authority or any other person or entity by virtue of the exercise of the power of eminent domain.

 

13.02       If there shall occur prior to the Closing any insubstantial damage or any Taking of a portion of the Real Property the estimated value of which (as determined by the Seller’s casualty insurer) does not exceed $1,000,000, or, in the case of a Taking, does not result in (i) the loss of reasonable access to the Premises, (ii) the loss of any apartment unit or parking spaces, or (iii) that would cause the Real Property to be non-conforming under any applicable zoning or land use law, ordinance, permit, or approval so that it could not be converted to condominium ownership, this Agreement shall continue in full force

 

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and effect and the Purchaser shall receive an assignment of all of the Seller’s right, title and interest to the insurance proceeds or condemnation award, as applicable, to be paid (or theretofore paid) accruing to the owner of the Premises for such damage or Taking, plus a credit against the Purchase Price in amount equal to Seller’s deductible.  Notwithstanding the foregoing, if the Seller’s insurance company has not admitted liability by the Closing Date for an amount to restore any insubstantial damage or destruction, the Seller may adjourn the Closing for up to sixty (60) days to obtain the insurance company’s agreement to cover such loss and if at the expiration of such 60-day period, such agreement has not been obtained and the Seller has not agreed to reduce the Purchase Price by the estimated value of such loss, the Purchaser may elect, by notice given within ten (10) Business Days after the expiration of such 60-day period, to consummate this transaction without diminution of the Purchase Price (except for the amount of any insurance deductible) or terminate this Agreement.  If the insurer has agreed to liability for such loss or if the Seller shall have agreed to reduce the Purchase Price by such amount, this Agreement shall not be terminated.  If the Purchaser does not timely make any election under this Section 13.02 a right to which it is granted, then this Agreement shall be deemed terminated.  Upon a termination of this Agreement pursuant to this Section 13.02, the Escrow Fund shall be paid to the Purchaser as its exclusive remedy.

 

                        13.03       If there shall occur prior to the Closing any substantial damage or any Taking of a portion of the Real Property the estimated value of which (as determined by the Seller’s casualty insurer) exceeds $1,000,000, or, in the case of a Taking, results in (i) the loss of reasonable access to the Premises, (ii) the loss of any apartment unit or parking spaces, or (iii) that would cause the Real Property to be non-conforming under any applicable zoning or land use law, ordinance, permit, or approval so that it could not be converted to condominium ownership, then the Purchaser may elect to (i) terminate this Agreement by giving notice of such election to the Seller within ten (10) Business Days after receiving notice of such event (with the estimate of the value of such loss), whereupon this Agreement shall be terminated and the Seller and the Purchaser shall instruct the Escrow Agent to disburse the Escrow Fund to the Purchaser or (ii) accept an assignment of the Seller’s insurance proceeds payable on account of such damage or destruction and purchase the Property in accordance with the terms hereof without diminution of the Purchase Price, except the amount of any deductible under the Seller’s insurance policy, which shall be credited to the Purchaser.  Notwithstanding the provisions of the preceding sentence, the Seller may negate any such notice of termination in the case of a substantial damage or destruction by giving the Purchaser notice of the Seller’s intent to restore or replace the portions of the Property so damaged or destroyed and if such portions of the Property are restored or replaced by the Closing Date (which the Seller may adjourn up to sixty (60) days to effect), then the Property shall be conveyed in accordance with the terms hereof without diminution of the Purchase Price.  If such restoration or replacement is not completed by the Closing Date (as the same may have been adjourned), then the Purchaser may terminate this Agreement and, as its sole remedy, either (a) receive payment of the Escrow Fund or (b) purchase the Property in accordance with the terms of this Agreement without diminution of the Purchase Price (except for insurance deductibles) and with Seller’s assignment of all insurance proceeds with respect to such damage or destruction.

 

14.  Escrow.

 

14.01       (a)   The Escrow Agent shall deposit the Contract Deposit in an interest-bearing account with a bank or other institution reasonably satisfactory to the Seller and the Purchaser, but the Escrow Agent shall be under no duty to maximize the rate of return on the Escrow Fund or to insure against any reduction in the value of the Escrow Fund by reason of any loss in value of any security in which the Escrow Fund is invested.  Any decrease in the value of the Escrow Fund shall be at the Purchaser’s risk.

 

(b)   If the Property is conveyed to the Purchaser in accordance with the terms of this Agreement or if this Agreement shall be terminated for any reason other than the default of the Seller, Seller’s inability (through no fault of the Purchaser) or unwillingness to convey the Property to the Purchaser in accordance with the terms of this Agreement or the Purchaser’s termination hereof pursuant to Section 8.03, then the Escrow Fund and Due Diligence Fee shall be disbursed to the Seller, except that any interest earned on the Contract Deposit shall be disbursed to the Purchaser.  If the Property is not conveyed to the Purchaser in accordance with the terms of this Agreement and this Agreement shall be terminated due to the default of the Seller or its inability (through no fault of the Purchaser) or unwillingness to convey

 

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Acceptable Title to the Real Property or if the Purchaser terminates this Agreement pursuant to Section 8.03, then the Escrow Fund shall be disbursed to the Purchaser.  Notwithstanding the foregoing, if the Purchaser shall have delivered one or more letters of credit pursuant to Section 3.07, then at Closing, the Purchaser shall pay to the Seller in immediately available funds the principal amount(s) of such letter(s) of credit and the letter(s) of credit shall be returned to the Purchaser.

 

(c)   Prior to delivering the Escrow Fund to the Seller or the Purchaser pursuant to paragraph (b) above (except at the Closing or pursuant to Section 8.03), the Escrow Agent shall deliver to the Seller and the Purchaser notice of the Escrow Agent’s intention to deliver the Escrow Fund.  If, within five (5) Business Days after tendering such notice, the Escrow Agent shall not have received a notice from either party instructing the Escrow Agent not to deliver the Escrow Fund as specified in the Escrow Agent’s notice, the Escrow Agent shall deliver the Escrow Fund to the party so specified.  If, however, the Escrow Agent receives within such five (5) Business Day period written instructions from either party that the Escrow Agent should not so deliver the Escrow Fund, the Escrow Agent shall continue to hold the Escrow Fund (subject to the Escrow Agent’s right to commence an action by way of interpleader, in which case the Escrow Fund shall be delivered to the Clerk of the Supreme Court of the State of New York, New York County) until it receives a notice executed by the Seller and the Purchaser instructing the Agent to whom the Escrow Fund should be disbursed or delivery of a copy of any final judicial order to the Escrow Agent, whereupon the Escrow Agent shall disburse the Escrow Fund as provided in such joint instructions or order.  The Seller and the Purchaser hereby agree to submit themselves to the jurisdiction of the courts of the State of New York sitting in New York County, and service upon them may be effected by the Escrow Agent in any way provided by statute.  If the Escrow Fund (or portion thereof) is represented by one or more letters of credit, and the Escrow fund is to continue to be held by the Escrow Agent is not authorized to release the Escrow Fund, then the Purchaser shall substitute cash in lieu of such letter(s) of credit within five (5) Business Days of notice to do so again by the Purchaser and if cash is not so substituted, then the Escrow Agent shall forthwith, and hereby is irrevocably instructed to, deliver the letter(s) of credit to the Seller.

 

14.02       (a)   The Escrow Agent has agreed not to charge a fee for performing its duties hereunder.  The Seller and the Purchaser shall jointly and severally indemnify and hold the Escrow Agent harmless from all expenses, including legal fees and charges (including legal fees and charges at the Escrow Agent’s standard fees and charges if the Escrow Agent shall elect to represent itself, either with or without outside counsel) and other liabilities incurred by the Escrow Agent arising out of this Agreement, except to the extent that such expenses or liabilities result from the Escrow Agent’s willful misconduct.  The provisions of this Article 14 shall survive the delivery of the Conveyancing Instruments at the Closing or the termination of this Agreement.

 

(b)   The Escrow Agent may resign upon ten (10) days’ prior notice to each of the Seller and the Purchaser and (i) depositing the Escrow Fund with the Clerk of the County of Fairfax, Virginia or (ii) transferring the Escrow Fund to a bank or other institution acceptable to the Seller and the Purchaser which shall have assumed in writing the obligations of the Escrow Agent pursuant to this Agreement.  Upon the effective date of such resignation, the Escrow Agent shall have no further obligations arising hereunder and shall be released from all liability arising out of this Agreement, except its willful misapplication of any portion of the Escrow Fund.

 

(h)   The Escrow Agent shall have no liability for its failure to perform any obligation hereunder, except arising by reason of its willful misconduct.  Notwithstanding the foregoing, the Escrow Agent is hereby released from liability for any act performed or omitted to be performed in good faith in its performance of its duties hereunder.  The Escrow Agent shall not be required to inquire into the authority of any person purporting to give a notice on behalf of the Seller or the Purchaser and may assume that all signatures are genuine.  It is understood and agreed that the persons and firms referred to in Article 18 as counsel for each of the Seller and the Purchaser are authorized to give notices to the Escrow Agent pursuant to this Article 14.

 

(i)    The Seller and the Purchaser acknowledge that the Escrow Agent is acting solely as a stakeholder hereunder and not the agent of either party in connection with its escrow obligations

 

20



 

hereunder.  The escrow created hereunder and the obligations of the Escrow Agent as an escrow agent hereunder are for the benefit of the parties to this Agreement only, and no other person shall have any rights hereunder nor shall the Escrow Agent have any obligations or duties to any other person other than a party to this Agreement by reason or arising out of this Article 14.

 

14.03       The Escrow Agent is executing this Agreement solely for the purpose of agreeing to the terms of this Article 14, Section 7.08, and Section 8.03.  The provisions of Section 14.02 shall apply to the conduct of the Escrow Agent pursuant to Section 7.08 and Section 8.03.

 

14.04       The Escrow Agent shall be a beneficiary of the terms of this Article 14.

 

15.  Default; Conditions to Closing.

 

15.01       If the Purchaser shall default hereunder, the parties agree that the Seller shall sustain damages that shall be difficult or impossible to measure.  The parties agree that the Seller shall retain the Escrow Fund as liquidated damages as its exclusive remedy if the Purchaser defaults hereunder and that such amount represents a fair and reasonable estimation of the damages to Seller from such default.

 

15.02       If the Seller shall be unable to perform ( i.e. , fails to perform for reasons beyond the Seller’s control) any of its material obligations hereunder or if any representation made by the Seller, subject to the foregoing provisions of Article 7, shall be proven to be untrue and incomplete (as understood pursuant to Article 7), the Purchaser’s sole remedy shall be to terminate this Agreement and be paid the proceeds in the Escrow Fund, the cost of the Purchaser’s examination of title at the rate imposed by the Purchaser’s title insurance company for performing such examination without issuing a title insurance policy and up to $75,000 for the costs of the Purchaser’s due diligence.  If the Seller shall default ( i.e. , willfully and intentionally fails to perform notwithstanding that it is within the Seller’s power to do so) in its obligation hereunder to convey the Property as herein required, the Purchaser’s sole remedy shall be (i) to bring an action for specific performance or (ii) at Purchaser’s election, to receive the sum of five hundred thousand  ($500,000) dollars as liquidated damages (it being difficult or impossible to measure the Purchaser’s damage and such amount representing a fair and reasonable estimation of the Purchaser’s damages from such a default) and the return of the Escrow Fund.  The Purchaser hereby waives the right to attach or lien any property (real or personal) of the Seller or to file a lis pendens (or equivalent attachment) against any portion of the Real Property, the Personal Property, or any other asset of the Seller, for any purpose under this Agreement, including any enforcement of any right or remedy arising out of any claimed breach of this Agreement by the Seller, except in connection with any proper action for specific performance permitted hereunder.

 

15.03       The obligation of the Purchaser to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by the Purchaser in its sole discretion:

 

(a)   The Seller shall have delivered to the Purchaser all of the items required to be delivered to the Purchaser pursuant to the terms of this Agreement, including but not limited to, those provided for in Section 4.2 hereof;

 

(b)   All of the representations and warranties of the Seller contained in this Agreement shall be true in all material respects (but shall be deemed to have been made on the Closing Date with appropriate modifications permitted under this Agreement);

 

(c)   The Seller shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by the Seller as of the Closing Date, including, without limitation, conveying to the Purchaser Acceptable Title to the Real Property;

 

(d)   No material change has occurred in (i) the zoning designation applicable to the Real Property or (ii) the status of any approval, license or permit applicable to the Real Property; and

 

21



 

(e)   No governmental action (such as but not limited to the imposition of a sewer or water moratorium or permit allocation scheme) shall have been taken, by any applicable governmental authority, which would prevent the occupancy or use of the apartments or condominium units comprising or to comprise the Real Property.

 

15.04       The obligation of the Seller to consummate the transaction hereunder shall be subject to the fulfillment on or before the Closing Date of all of the following conditions, any or all of which may be waived by the Seller in its sole discretion:

 

(a)   The Seller shall have received the Purchase Price as adjusted as provided herein, pursuant to and payable in the manner provided for in this Agreement;

 

(b)   The Purchaser shall have delivered to the Seller all of the items required to be delivered to the Seller pursuant to the terms of this Agreement;

 

(c)   All of the representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on the Closing Date; and

 

(d)   The Purchaser shall have performed and observed, in all material respects, all covenants and agreements of this Agreement to be performed and observed by the Purchaser as of the Closing Date.

 

15.05       Except in connection with (a) a failure to tender (i) funds required hereunder or (ii) documents required hereunder for Closing or (b) where a cure period is already provided for herein, neither party shall be in breach or default hereunder, nor shall the remedies in this Section 15 be exercised by either party, until written notice of the alleged breach or default has been provided to the other party, and such party has failed to cure such breach or default within five (5) days; provided, however, that if the alleged breach or default is of a nature that it cannot be cured by exercise of reasonable diligence within such five (5) day period, then the foregoing cure period shall be extended for the period of time reasonably necessary to cure such alleged breach or default not to exceed sixty (60) days.

 

16.  No Assignment.

 

Neither this Agreement nor any of the rights or obligations of the Purchaser under this Agreement may be assigned by the Purchaser to any party not affiliated with the Purchaser without the prior written consent of the Seller.  The transfer, directly or indirectly, of the record or beneficial ownership of a majority of the equity interests of the Purchaser, whether in a single transaction or a series of transactions shall constitute an assignment of this Agreement.

 

17.  Brokers.

 

The Seller and the Purchaser hereby each mutually represents and warrants to the other that Eastdil is the sole broker instrumental in negotiating and/or effecting this Agreement.  The Seller agrees to pay any commission Eastdil may have earned pursuant to separate agreements between the Seller and Eastdil.  The Purchaser shall indemnify and hold the Seller harmless from and against any claim, action, cause of action or other liability or expense (including, without limitation, attorneys’ fees) that the Seller may incur by reason of any claim for a commission in connection herewith by any person or entity other than Eastdil with whom the Purchaser may have dealt.  The provisions of this Article 17 shall not constitute a third-party beneficiary contract.  The provisions of this Article 17 shall survive the Closing or the sooner termination of this Agreement.

 

18.  Notices.

 

All notices and other communications required to be given under this Agreement shall be in writing, signed by the party (or such party’s counsel) serving the notice or other communication, and sent by reputable overnight courier service (such as Federal Express, DHL, United Parcel Service) or facsimile transmission, to the address of the party to whom given as set forth below or to such other address as either

 

22



 

party may designate in writing in the manner herein prescribed, and all such notices and other communications shall be deemed effective on (i) the Business Day following such notice as communication having been delivered to such overnight courier or (ii) upon the receipt of a facsimile transmission, provided that such transmission is received by 5:00 p.m. (local time at such addressee’s office) at the addressee’s offices as set forth below and if not so received, shall be effective as of the Business Day next following the successful transmission thereof.  Addresses (offices) to which notices shall be sent are as follows:

 

To the Seller:

 

Fair Oaks Penderbrook Apartments L.L.C.

c/o W&M Properties, L.L.C.

60 East 42 nd Street

New York, New York  10165-0015

Attention:  Vincent M. Sultana

Telefax Number:  (212) 986-7679

 

with a copy to counsel:

 

Wien & Malkin LLP

60 East 42 nd Street – 48 th Floor

New York, New York  10165-0015

Attention:  Jack K. Feirman

Telefax Number:  (212) 986-8795

 

To the Purchaser:

 

Comstock Penderbrook, L.C.

c/o Comstock Homes, Inc.

11465 Sunset Hills Road, Suite 510

Reston, Virginia 20190

Attention:  Christopher Clemente

Telefax Number:  (703) 760-1520

 

with a copy to:

 

Comstock Penderbrook, L.C.

c/o Comstock Homes, Inc.

11465 Sunset Hills Road, Suite 510

Reston, Virginia 20190

Attention:  Jubal Thompson, Esq.

Telefax Number:  (703) 760-1520

 

with a copy to counsel:

 

Hunton & Williams, LLP

1751 Pinnacle Drive, Suite 1700

McLean, Virginia 22102

Attention:  Sean H. Curtin, Esq.

Telefax Number:  (703) 714-7410

 

23



 

To the Escrow Agent:

 

8221 Old Courthouse Road

Suite 300

Vienna, Virginia 22182

Attention: Julie Grant

Telefax Number:  (      )           -            

 

19.  Exchange Provisions.

 

19.01       The Seller intends, for the benefit of the Seller, that the conveyance of the Real Property may be a part of a tax deferred exchange pursuant to §1031 of the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder, at no cost to the Purchaser.  In connection with such tax deferred exchange, the Seller shall have the right to assign the right, title and interest of the Seller in and to this Agreement to a “qualified intermediary” (as defined in Reg. §1.1031(k)-1(g)(4)(iii)).  If the Seller shall so assign this Agreement, the Purchase Price (or any portion as prescribed by the Seller) shall be paid to such qualified intermediary.

 

19.02       The Purchaser shall cooperate with the Seller in connection with effecting such tax-deferred exchange and shall execute such documents (including an assignment of this Agreement) as the Seller, the Seller’s counsel, the qualified intermediary, and such qualified intermediary’s counsel (or any of them) shall deem necessary or desirable to consummate such exchange transaction; provided that (i) the Purchaser shall be reimbursed by the Seller for any costs and expenses which the Purchaser would not otherwise have incurred but for its participation in such exchange program by reason of this Section; (ii) the Purchaser shall not be required to incur any liability, risk, cost or expense in connection with the exchange including, but not limited to, attorneys’ fees and recordation costs, or taking title to any property; (iii) the exchange does not delay Closing; and (iv) any assignment of this Agreement to the qualified intermediary is done pursuant to a written agreement, which expressly permits the Purchaser to pursue the original Seller hereunder for defaults and breaches hereunder.  The Seller shall indemnify and hold the Purchaser harmless from and against all costs, expenses, and liabilities that the Purchaser may incur by reason of its participation in such exchange program.

 

20.  Miscellaneous.

 

20.1         Confidentiality.     The Purchaser has heretofore executed a confidentiality agreement with respect to the dissemination of information respecting the Real Property and other matters which may be or may have been learned in connection with the Purchaser’s extending an offer to purchase the same and in connection with its due diligence.  Such confidentiality agreement continues to be in full force and effect and shall remain so during the Contract Period, and any default thereunder shall constitute a material default under this Agreement.  In this respect, any information not in the public domain respecting any of the Property or the Seller or its members or agents hereafter acquired by the Purchaser or any representative of the Purchaser by reason of any inspection of any portion of the Premises, the Buildings and Other Improvements to any person or entity shall be deemed to be confidential and shall not be disseminated to any person or entity without the consent of the Seller, except as expressly permitted under paragraph (a) of Section 8.02 prior to Closing.  The Purchaser shall not release or suffer the release of any information regarding the execution of this Agreement, the terms hereof or any other publicity or information to any person, except as specifically permitted by this Agreement.  The obligations under this Section 20.01 shall survive the termination of this Agreement without the occurrence of a Closing.

 

20.2         Captions and Headings.     Article and Section captions and headings are inserted only as a matter of convenience and for reference and they shall not be construed to define, limit or describe the scope of this Agreement nor the intent of any provision hereof.

 

20.3         Parties Bound.      The covenants, conditions and agreements contained in this Agreement bind and inure to the benefit of the Seller and the Purchaser and their respective legal representatives, successors, and, except as otherwise provided in this Lease, their assigns.

 

20.4        No Recording.     Neither this Agreement nor any memorandum or short form hereof may be recorded.

 

24



 

20.5         Entire Agreement.     This Agreement contains the entire agreement between the parties and all prior negotiations and agreements are merged into this Agreement.

 

20.6         No Oral Modifications.      This Agreement may not be changed, modified, terminated or discharged, in whole or in part, except by a writing, executed by the party against whom enforcement of the change, modification, termination or discharge is to be sought.

 

20.7         Partial Invalidity.      If any term, covenant, condition or provision of this Agreement, or the application thereof to any person or circumstance, shall ever be held to be invalid or unenforceable, then in each such event the remainder of this Agreement or the application of such term, covenant, condition or provision to any other person or any other circumstance (other than those as to which it shall be invalid or unenforceable) shall not be thereby affected, and each term, covenant, condition and provision hereof shall remain valid and enforceable to the fullest extent permitted by law.

 

20.8         Submission of Agreement.     It is understood and agreed that this Agreement is being submitted to the Purchaser on the understanding that it shall not be considered an offer and shall not bind the Seller in any way until (i) the Purchaser has duly executed and delivered duplicate originals hereof to the Seller and the Contract Deposit to the Escrow Agent and (ii) the Seller has executed and delivered one of said originals to the Purchaser.

 

20.9         Survival of Obligations.      Notwithstanding anything herein set forth to the contrary, the termination or cancellation of this Agreement pursuant to any provision hereof or by operation of law shall not be construed to include any obligation specifically stated to survive the termination or cancellation of this Agreement.

 

20.10       Governing Law.     This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Virginia without regard to the application of conflicts of laws doctrines.

 

20.11       Counterparts.      This Agreement may be executed in any number of counterparts each of which when executed and delivered shall constitute an original, and all such counterparts, when taken together shall be deemed to be but one and the same Agreement.

 

20.12       Facsimile Counterparts.     The exchange of counterparts of this Agreement among the parties by means of facsimile transmissions which shall contain accurate reproductions of the signatures hereto shall constitute a valid exchange of this Agreement and it shall be binding upon the parties hereto.

 

 

IN WITNESS WHEREOF, the Seller and the Purchaser have respectively executed this Lease as of the day and year first above written.

 

 

FAIR OAKS PENDERBROOK APARTMENTS L.L.C.

 

By:

Malkin Penderbrook L.L.C., Managing Member

 

 

 

 

By:

/s/ Peter Malkin

 

 

 

 

Name: Peter L. Malkin

 

 

 

Title: Managing Member

 

 

 

 

 

 

By:

/s/ Anthony Malkin

 

 

 

 

Name: Anthony E. Malkin

 

 

 

Title: Managing Member

 

 

 

 

 

 

Taxpayer/Employer Identification No: *******

 

25



 

 

COMSTOCK HOMES, INC.

 

 

 

 

By:

/s/ Christopher Clemente

 

 

 

 

Name:    Christopher Clemente

 

 

 

Title: Chief Executive Officer

 

 

 

 

 

 

 

Taxpayer/Employer Identification No: *********

 

 

 

Solely as to the Article 14 and Section 8.03 escrow provisions:

 

 

 

PREMIER TITLE

 

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

Title:

 

26



 

SCHEDULE A

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Metes and Bounds Description of the Premises

 

 

Beginning at a point on the Easterly R/W line of West Ox Road, Route 608 said point marking the P.C. of a 55 foot radius return at the Southeasterly intersection of the said West Ox Road and Penderbrook Drive, as dedicated in D.B. 6613 at Pg. 963 on the land records of Fairfax County, Virginia; thence with the said return a curve to the right whose chord is N 43° 10’ 00” E, 81.21 feet, an arc distance of 91.36 feet to a point on a Southerly R/W line of the said Penderbrook Drive; thence with the said R/W line of the said Penderbrook Drive the following courses: with a curve to the right whose radius is 729.95 feet (and whose chord is S 64° 26’ 02” E, 612.64 feet) an arc distance of 632.22 feet; S 39° 37’ 20” E, 395.59 feet with a curve to the left whose radius is 576.00 feet (and whose chord is S 57° 32’ 30” E, 354.44 feet) an arc distance of 360.29 feet to a point marking the P.C. of a 25 foot radius return at the Southwesterly intersection of the said Penderbrook Drive and South Penderbrook Drive; thence with the said return a curve to the right whose chord is S 33° 24’ 42” E, 33.49 feet, an arc distance of 36.69 feet to a point on the Westerly R/W line of the said South Penderbrook Drive; thence with the said R/W line of South Penderbrook Drive with a curve to the left whose radius is 476.00 feet (and whose chord is S 02° 16’ 57” E, 180.35 feet) an arc distance of 181.45 feet and S 13° 12’ 10” E, 483.33 feet to a point marking the Northeasterly corner of the Fairfax County Housing Authority; thence running with the Northerly and Westerly lines of the property of the Fairfax County Housing Authority the following courses: with a curve to the left whose radius is 28.50 feet (and whose chord is N 68° 08’ 37” W, 18.32 feet) an arc distance of 18.65 feet; with a curve to the right whose radius is 121.50 feet (and whose chord is N 78° 32’ 30” W, 35.28 feet) an arc distance of 35.40 feet; N 70° 11’ 36” W, 43.08 feet; N 84° 49’ 33” W, 73.50 feet; N 71° 38’ 22” W, 36.91 feet with a curve to the right whose radius is 936.00 feet (and whose chord is N 67° 19’ 29” W, 93.69 feet) an arc distance of 93.72 feet and S 28° 55’ 50” W, 188.50 feet to a point on a Northerly Boundary of Penderbrook LTD.; thence with the said Boundary of Penderbrook LTD. N 84° 32’ 18” W, 122.85 feet and with a curve to the right whose radius is 300.00 feet (and whose cord is N 74° 16’ 20” W, 106.93 feet) an arc distance of 107.51 feet to a point on an Easterly Boundary of the property of the Fairfax County Board of Supervisors; thence with the Easterly and Northerly boundaries of the said Board of Supervisors N 13° 09’ 12” W, 885.23 feet and S 62° 09’ 05” W, 236.69 feet to a point on the aforementioned R/W line of West Ox Road; thence with the said R/W line of West Ox Road the following courses:  with a curve to the left whose radius is 2919.79 feet (and whose chord is N 28° 55’ 18” W, 83.50 feet) and arc distance of 83.50 feet; N 29° 44’ 27” W, 251.91 feet with a curve to the right whose radius is 899.93 feet (and whose chord is N 18° 01’ 27” W, 365.50 feet) an arc distance of 368.06 feet and N 06° 15’ 00” W, 29.66 feet to the point of beginning.

 



 

SCHEDULE B

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Permitted Title Exceptions

 

 

1.                Restrictive Covenants appearing of record in Deed Book 6808 at Page 1704, Deed Book 6836 at Page 1792 and in Deed Book 6912 at Page 1925, but omitting any restrictions based on race, color, religion or national origin.

 

2.                Easements granted unto Virginia Electric and Power Company by instrument recorded in Deed Book 990 at Page 507; Deed Book 6558 at Page 1013; Deed Book 6795 at Page 1752; Deed Book 6828 at Page 987; Deed Book 6828 at Page 1023 and in Deed Book 6953 at Page 1976.

 

3.                Easement granted unto Fairfax County Water Authority by instrument recorded in Deed Book 6783 at Page 718.

 

4.                Easement granted unto Chesapeake and Potomac Telephone Company by instrument recorded in Deed Book 6857 at Page 771.

 

5.                Easement granted unto Fairfax County Water Authority and Fairfax County Board of Supervisors by instrument recorded in Deed Book 6613 at Page 955.

 

6.                Easement granted unto Fairfax County Board of Supervisors granted in Deed Book 6905 at Page 819.

 

7.                Easements and agreements to and with Penderbrook Community Association, Inc., in Deed Book 7116 at Page 595.

 

8.                Storm water detention agreement recorded in Deed Book 6607 at Page 1553.

 

9.                Cable service and telecom agreements, if any.

 



 

SCHEDULE C

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Rent Roll

 

 

Rent Roll follows this page.

 



 

SCHEDULE D

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Contracts

 

 

Contracts follow this page.

 



 

SCHEDULE E

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

[Intentionally Omitted]

 



 

SCHEDULE F

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Employees

 

 

Schedule of Employees follows this page.

 



 

SCHEDULE G

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Insurance Coverage for the Buildings and other Improvements

 

 

Schedule of Insurance follows this page.

 



 

SCHEDULE H

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Personal Property

 

 

Schedule of Personal Property follows this page.

 



 

SCHEDULE I

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Unpaid Tenant Improvement Costs

 

 

None

 



 

SCHEDULE J

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Brokerage Commissions Owed

 

 

None

 



 

SCHEDULE K

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

1.                The Survey;

 

2.                Log (together with reasonable back-up information) of all work orders and tenant complaints relating to the Property for the past two (2) years; and

 

3.                Zoning and residential use permits information

 



 

EXHIBIT 1

to

Purchase and Sale Agreement, dated as of November 9, 2004

between

Fair Oaks Penderbrook Apartments L.L.C., Seller,

and

Comstock Penderbrook, L.C., Purchaser

 

 

Deed to the Real Property

 


Exhibit 10.22

 

REAL ESTATE PURCHASE CONTRACT

 

 

THIS REAL ESTATE PURCHASE CONTRACT (this “Contract”) is made as of the “Effective Date” defined in Section 1 below.

 

1.             Defined Terms :  When used in this Contract, the following capitalized terms shall have the indicated meanings:

 

Seller:

 

Westwick Apartments LLC, a Maryland limited liability company, which is the owner of the Property.

 

 

 

Purchaser:

 

Comstock Countryside, L.C., a Virginia limited liability company formed by Guarantor for the purpose of purchasing the Property.

 

 

 

Guarantor:

 

Comstock Homebuilding Companies, Inc., a Delaware corporation

 

 

 

Purchase Price:

 

Sixteen Million Dollars ($16,000,000), to be paid as follows: Cash at settlement.

 

 

 

Cash Payment:

 

One Hundred Thousand ($100,000), pursuant to Section 3.

 

 

 

Deposit:

 

Four Hundred Thousand Dollars ($400,000), pursuant to Section 3.

 

 

 

Feasibility Period:

 

None.

 

 

 

Closing:

 

Full settlement hereunder, including recordation of the deed of conveyance for the Property.

 

 

 

Closing Date:

 

February 28, 2005.

 

 

 

Property:

 

The premises located in the Town of Sterling (Loudoun County), Virginia known as “The Villas at Countryside” and more particularly described on Exhibit A attached hereto and made a part hereof, and all improvements, utilities, rights and easements appurtenant.

 

 

 

Escrow Agent:

 

Premier Title and Escrow.

 

 

 

Intermediary:

 

Continental Intermediary Corporation

 

 

 

Effective Date:

 

The last date that each party has in its possession fully-executed, counterpart originals of this Contract.

 

Other capitalized terms shall have the meanings ascribed to them elsewhere in this Contract.

 



 

2.             Agreement .  Seller agrees to sell and Purchaser agrees to purchase the Property on the terms provided in this Contract.

 

3.             Cash Payment and Deposit .  Purchaser has delivered $100,000 (the “Cash Payment”) to the Intermediary and Purchaser has delivered $400,000 (the “Deposit”) to Escrow Agent.

 

3.1          Cash Payment .   The Cash Payment has been earned by Seller in consideration for the execution and delivery of this Contract by Seller.  The Cash Payment shall not be refundable to Purchaser under any circumstances except for the willful failure of Seller to close .   In the event that the Closing does not timely occur for any reason whatsoever, the Intermediary shall act solely on the instructions of the Purchaser as to the disposition of the Cash Payment.  If the Closing does occur, however, the Cash Payment (together with the Deposit as provided in Section 3.2 below), shall be credited to the Purchase Price.

 

3.2          Deposit .   The Deposit shall be refunded to the Purchaser only if a default by Seller has occurred and Purchaser elects, pursuant to Sections 7, 8.3 or 11.3, to terminate this Contract.

 

4.             Payment of Purchase Price .  Subject to adjustments hereafter provided, the balance of the Purchase Price shall be delivered to Escrow Agent at Closing. Escrow Agent shall disburse the Purchase Price in accordance with Seller’s instructions, subject to adjustment as hereafter provided, at Closing, notwithstanding that the deed of conveyance may not have been recorded, it being understood by the parties that the Purchaser will procure “gap” coverage insuring title from and after the time of Closing, not the time of recording the deed.

 

5.             Termination During Feasibility Period .  There is no Feasibility Period or right of termination.

 

6.             Entry on the Property .  Subject to the rights of tenants at the Property and without unreasonable interference or disturbance of such tenants, Purchaser or its agents may enter on the Property from time to time upon at least two (2) business days oral notice to a designated representative of Seller to perform non-intrusive studies, tests or evaluations (a customary phase-I environmental review shall not be considered intrusive).  Seller shall have the right to have a representative present at all times during such studies, tests or evaluations and shall have the right to confirm that Purchaser has adequate insurance prior to Purchaser’s entry onto the Property.  Purchaser acknowledges that it or others on its behalf have completed most, if not all, tests on the Property which Purchaser desires to perform, and that any further tests to be performed by or on behalf of

 



 

Purchaser shall be minimal.  Purchaser shall promptly repair any damage to the Property caused by such entries and shall indemnify Seller against all loss, cost, damage or expense (including reasonable attorneys’ fees and costs of litigation) suffered by Seller as a result of such entries. The foregoing indemnification shall survive Closing or earlier termination of this Contract.

 

7.             Title .  Purchaser acknowledges that it has reviewed title to the Property and that Purchaser accepts the condition of title as it exists on the date (the “Title Examination Date”) of the title report already procured by or on behalf of Purchaser; provided, however, that Seller shall convey title to the Property in such condition at Closing; and provided, further that Seller shall remove at or before Closing any financing encumbrances incurred by Seller on the Property.  If the status of title on the Closing Date is not in the same condition as existed at Title Examination Date, Purchaser may (i) accept title in its current form and proceed to Closing or (ii) terminate this Contract, whereupon the Deposit shall be returned to Purchaser and both parties shall be relieved from all further liability hereunder except for Purchaser’s indemnification obligations under Sections 6 and 25 hereof.

 

8.             Representations, Warranties and Covenants of Seller .  Seller hereby represents, warrants and covenants to Purchaser that:

 

8.1          No Changes .  Seller shall maintain the Property in the same physical condition as existed on the Effective Date (reasonable wear, tear and casualty excepted) and shall not denude, excavate or otherwise commit waste on the Property.

 

8.2          Authority .  Seller has full right, power and authority to enter into, execute, acknowledge and deliver this Contract and to perform Seller’s obligations hereunder.

 

8.3          Representation or Warranty Untrue If any of the representations or warranties contained in this Section 8 shall be materially untrue on the Closing Date, Purchaser may (i) waive any objection thereto and proceed to Closing, or (ii) terminate this Contract, whereupon the Deposit shall be returned to Purchaser and both parties shall be relieved from all further liability hereunder except for Purchaser’s indemnification obligations under Sections 6 and 25 hereof.

 

8.4          DISCLAIMER .   EXCEPT AS SET FORTH ABOVE IN THIS SECTION 8, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, and pursuant to the provisions of Section 16 hereof, the property is being sold in its “AS and WHERE IS” condition, all as more specifically described in Section 16.

 



 

9.             Representations and Warranties of Purchaser .  Purchaser hereby represents, warrants and covenants to Seller that:

 

9.1          Authority .  Purchaser has full right, power and authority to enter into, execute, acknowledge and deliver this Contract and to perform Purchaser’s obligations hereunder.

 

9.2          No Bankruptcy No proceedings or actions are pending or threatened which might limit or impair Purchaser’s power to consummate the transactions contemplated by this Contract.  Without limiting the generality of the foregoing, there has not been filed by or against Purchaser a petition in bankruptcy or insolvency proceedings or for reorganization or the appointment of a receiver or trustee under state or Federal law.

 

9.3          Representation or Warranty Untrue If any of the representations or warranties contained in this Section 9 shall be materially untrue on the Closing Date, Seller may (i) waive any objection thereto and proceed to Closing, or (ii) terminate this Contract, whereupon the Deposit shall be paid to Seller as liquidated damages (the parties hereby acknowledging that the precise amount of damages suffered by Seller in the event of such a default by Purchaser would be difficult or impossible to determine) and both parties shall be relieved from all further liability hereunder except for Purchaser’s indemnification obligations under Sections 6 and 25 hereof.

 

10.          Closing; Closing Costs; Adjustments; Possessions .

 

10.1        Closing Date .   Closing shall occur on the Closing Date.

 

10.2        Closing Deliveries .

 

10.2.1   At Closing hereunder, Seller shall deliver to Purchaser (or to Escrow Agent for the benefit of Purchaser):

 

(1)           A good and sufficient special warranty deed duly executed and acknowledged by Seller conveying the Property to Purchaser;

 

(2)           An assignment and assumption of all of the service and maintenance contracts applicable to the Property in a form reasonably acceptable to Purchaser (the “Assignment and Assumption of Contracts”), assigning to Purchaser all service, maintenance and other contracts applicable to the Property and continuing in force in accordance with the respective terms thereof after the Closing Date (such assignment to contain mutual indemnification provisions for obligations under the respective service, maintenance and other contracts, with Seller indemnifying Purchaser for matters occurring prior to the Closing Date and with Purchaser indemnifying Seller

 



 

for matters occurring from and after the Closing Date); provided, however, that, at the time of settlement, any and all property management agreements between Seller and any property manager shall, at the election of Seller or Purchaser, be terminated by Seller effective on or before the Closing Date, and provided further that Seller shall not be obligated to assign to Purchaser any such contract which, by its terms, cannot be assigned or which cannot be assigned without the consent of the other party thereto if Purchaser has not obtained such party’s consent;

 

(3)           An assignment and assumption of all of the leases applicable to the Property in a form reasonably acceptable to Purchaser (the “Assignment and Assumption of Leases”), assigning to Purchaser all leases and other occupancy agreements applicable to the Property (such assignment to contain mutual indemnification provisions for obligations under the respective leases with Seller indemnifying Purchaser for matters occurring prior to the Closing Date and with Purchaser indemnifying Seller for matters occurring from and after the Closing Date);

 

(4)           A sworn statement of Seller made under oath and under penalties of perjury that such party is not a “Foreign Person” and containing such information as shall be required by Internal Revenue Code Section 1445(b)(2) and the regulations issued thereunder, such statement to be in a form acceptable to Purchaser;

 

(5)           A certification that Seller’s representations and warranties provided in Section 8 hereof are accurate and complete as of the date of Closing in all material respects;

 

(6)           Such customary affidavits as Purchaser’s title company shall reasonably require; and

 

(7)           Any other documents reasonably required by this Contract.

 

10.2.2     At Closing hereunder, Purchaser shall deliver to Seller (or to Escrow Agent for the benefit of Seller):

 

(1)                                   The Purchase Price;

 

(2)                                   The Assignment and Assumption of Contracts;

 

(3)                                   The Assignment and Assumption of Leases; and

 

(4)                                   A certification that Purchaser’s representations and warranties provided in Section 9 hereof are accurate and complete as of the date of Closing in all material respects; and

 



 

(5)                                   Any other documents reasonably required by this Contract.

 

10.3        Tender of Performance .  The delivery to the Intermediary of the Cash Payment and to the Escrow Agent of the Deposit (without condition except as provided herein) and the delivery to the Escrow Agent of the balance of the Purchase Price and such other funds and/or documents as are required of Purchaser to effect the terms of this Contract shall be deemed good and sufficient tender of performance of the terms hereof by Purchaser. Delivery to Escrow Agent (without condition except as provided herein) of a duly executed and acknowledged special warranty deed with a covenant of further assurances conveying the Property to Purchaser, an affidavit in such form as is reasonably required by the applicable title company for issuance of a title policy meeting the requirements of Section 7, a certification that Seller’s representations and warranties provided in Section 8 hereof are accurate and complete as of the date of Closing, except as otherwise expressly disclosed therein, and such other documents as are required of Seller to effect the terms of this Contract shall be deemed good and sufficient tender of performance of the terms hereof by Seller.  Seller’s Closing proceeds shall be used to satisfy any financing encumbrances against the Property which are not satisfied at the time of Closing.

 

10.4        Closing Costs .  All transfer and recordation taxes, however characterized, shall be shared equally (50/50) by Seller and Purchaser.  All other expenses of Closing shall be the sole obligation of Purchaser, provided that each party shall pay its own legal fees.

 

10.5        Adjustments .

 

10.5.1   Taxes, general and special, and assessments for public improvements or utilities are to be apportioned as of the date of Closing according to a certificate of taxes issued by the taxing authority in the jurisdiction in which the Property is situated, or if no such certificate is available, in accordance with such other method of apportionment as is customary.

 

10.5.2   There shall be an adjustment at Closing for all rents and other income generated by the Property through the Closing Date; utility deposits; charges for sewer, water and other utilities; charges under any service, maintenance or other contracts applicable to the Property (excluding, however, any management agreements) and continuing in force after the Closing Date; and tenant security deposits (including statutory interest or other accrued interest under any applicable lease).

 

10.5.3   Such other charges, fees and expenses, if any, customarily prorated and adjusted in similar transactions shall be so prorated and adjusted at Closing.

 



 

10.6        Possession .  Seller agrees to give possession and occupancy of the Property to Purchaser at the time of Closing, subject to the rights of tenants and other occupants.

 

11.          Default .

 

11.1        Declaration of Default .  Upon any breach by either party in its performance of its obligations under this Contract, the non-defaulting party, may, by giving written notice to the defaulting party thereof, declare a default and exercise its rights under the following provisions under this Section 11.

 

11.2        Purchaser’s Default .  If Purchaser is the defaulting party, Seller’s sole and exclusive remedy shall, (i) in addition to the right to enforce Purchaser’s indemnification obligations under Sections 6 and 25 hereof and (ii) in addition to Seller’s rights under Section 12 hereof, be the right to terminate this Contract and declare a forfeiture of the Deposit as agreed upon liquidated damages, the parties hereby acknowledging that the precise amount of damages suffered by Seller in the event of a default by Purchaser would be difficult or impossible to determine. Except as provided in this Section 11.2; Seller hereby waives any and all other rights and remedies, at law or in equity, to which Seller may otherwise be entitled by reason of Purchaser’s default, including, but not limited to, any right at equity to seek specific performance of this Contract by Purchaser and any right at law to seek damages from Purchaser for its breach hereof.

 

11.3        Seller’s Default .  If Seller is the defaulting party, Purchaser shall, in addition to Purchaser’s rights under Section 12 hereof, be entitled to elect to either: (i) pursue an action for specific performance, or (ii) terminate this Contract, whereupon the Deposit shall be immediately returned to Purchaser and both parties shall have no further liability hereunder except for Purchaser’s indemnification obligations under Sections 6 and 25.

 

12.           Litigation .  Notwithstanding Section 11 or any other provision of this Contract, if any party resorts to litigation to enforce its rights under this Contract or if Escrow Agent initiates an interpleader action, Seller and Purchaser agree that (i) any judgment awarded to the prevailing party shall include all litigation expenses of the prevailing party, including, without limitation, actual attorney’s fees and court costs, and  (ii) Escrow Agent shall be entitled to recover from the party against whom judgment is entered its litigation expenses, including, without limitation, actual attorney’s fees and court costs.

 

13.          Brokerage .  Purchaser represents and warrants to Seller that, except with respect to Builder’s 1 st Choice, engaged by Purchaser in connection with this transaction, who shall be paid by Purchaser at Closing in accordance with the terms of a

 



 

separate agreement, it has not authorized any broker, agent or finder to act on its behalf nor does it have any knowledge of any broker, agent or finder purporting to act on its behalf in respect of this transaction.  Seller represents and warrants to Purchaser that it has not authorized any broker, agent or finder to act on its behalf nor does it have any knowledge of any broker, agent or finder purporting to act on its behalf in respect of this transaction. Seller and Purchaser hereby agree to indemnify, defend and hold harmless each other from and against any cost, expense, claim, liability or damage resulting from a breach of the representation and warranty contained in this Section 13.

 

14.          Notices .  All notices hereunder shall be in writing and shall be deemed given when delivered by facsimile with confirmation of receipt, or when delivered by hand, or upon delivery (or refusal to accept delivery) by national overnight delivery service, or upon receipt (or refusal to accept delivery) after mailing by certified U.S. mail, return receipt requested, first-class postage prepaid, to the parties hereto at their respective facsimile numbers and/or addresses set forth on Schedule 14, or at such other numbers or addresses of which either party may notify the other in accordance with the provisions hereof.

 

15.          Time .  Time is of the essence of all matters set forth in this Contract.

 

16.          Property Condition .  Purchaser agrees that the Property is being sold, and the Purchase Price reflects the sale of the Property in, its “AS IS” and “WHERE IS” condition and with all faults as of the Closing Date.  SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE PROPERTY, ITS NATURE, ITS PHYSICAL CONDITION, ITS ENVIRONMENTAL CONDITION, ITS SUITABILITY, USEFULNESS OR FITNESS FOR PURCHASER’S PURPOSES OR ANY PARTICULAR PURPOSE WHATSOEVER, ITS COMPLIANCE WITH, OR ITS OPERATION’S COMPLIANCE WITH, ANY LAWS, ORDINANCES, OR REGULATIONS, OR ANY OTHER MATTER WITH RESPECT TO THE PROPERTY.

 

17.          Casualty/Risk of Loss .  In the event that the Property is damaged or destroyed by fire or other casualty, Seller shall promptly notify Purchaser in writing.  If the value of such damage or destruction, as reasonably estimated by Seller, is in excess of $320,000, then Purchaser may, by giving written notice to Seller within five (5) days after receipt of such notice from Seller, terminate this Contract, whereupon the Deposit shall be immediately returned to Purchaser and both parties shall have no further liability hereunder except for Purchaser’s indemnification obligations under Sections 6 and 25.  In the event that Purchaser shall fail to give notice of termination as and when required hereby or such casualty is estimated to be equal to or less than $320,000, then Purchaser shall be required to proceed to Closing under this Contract without reduction of the Purchase Price and all insurance proceeds, as well as all unpaid claims and rights in

 



 

connection with such casualty, will be assigned to Purchaser at Closing.  Except as provided in this Section 17, Seller shall bear the risk of loss until Closing, regardless of whether the deed of conveyance is not recorded until later.

 

18.          Exhibits and Schedules .  Each of the exhibits and schedules attached to this Contract is incorporated herein by reference and made a substantive part hereof.

 

19.          Entire Agreement .   This Contract, together with all Exhibits and Schedules attached hereto, contains the entire agreement between the parties hereto and is intended to be an integration of all prior or contemporaneous agreements, conditions or undertakings between them; there are no promises, agreements, conditions, undertakings, warranties or representations (whether oral or written, express or implied) between them other than as herein set forth.

 

20.          Modification in Writing .    No change or modification of this Contract shall be valid unless in writing signed by both Seller and Purchaser; and no purported or alleged waiver of any provision hereof shall be valid or effective unless in writing signed by the party against whom it is sought to be enforced.

 

21.          Binding on Successors .     This Contract shall run with the Property and shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.  Either party may assign its rights under the Contract provided that (i) with respect to Purchaser, the assignee is controlling, controlled by or under common control with Purchaser, and (ii) the assignee of such rights assumes all of the obligations under this Contract of the assignor in a writing for the benefit of the other party to this Contract.  Any assignment of this Contract shall not operate to release the assignor.

 

22.          Survival   Except as otherwise expressly provided herein, the provisions hereof shall not survive the execution, delivery and recordation of the deed of conveyance and shall be merged therein.

 

23.          Saturdays, Sundays, Holidays and Traveler’s Advisories In the event the last day for giving notice or taking any action under this Contract falls on a Saturday, Sunday or Federal holiday or a day on which a travelers’ advisory shall have been issued for the Washington, D.C. Metropolitan Area by the United States Weather Service, then the last day for giving such notice or taking such action shall be extended until the next business day.

 

24.          Counterparts .  This Contract may be executed in multiple counterparts, each of which shall be deemed an original but all of which shall constitute but one Contract.

 



 

25.          Confidentiality .   Purchaser agrees that it will use and will cause its representatives, agents, and contractors to use all information and materials provided to Purchaser by Seller relating to the Property exclusively for the purpose of evaluating the purchase of the Property and will not, and will cause its representatives, agents and contractors to not, disclose any such information or materials to anyone other than those who need to know in order to assist Purchaser in evaluating its purchase of the Property.  Purchaser agrees to indemnify Seller from and against any liabilities, losses, claims, demands, costs or expenses (including reasonable attorney’s fees) incurred by Seller as a result of a breach by Purchaser or by its representatives, agents and contractors of this Section.  This Section shall survive the termination of this Contract.

 

26.          Section 1031 Exchange .   Seller and/or Purchaser (the “Exchanging Party”) may elect to consummate the sale or purchase of the Property as part of a so-called like kind exchange (the “Exchange”) pursuant to §1031 of the Internal Revenue Code of 1986, as amended (the “Code”), subject to the terms and conditions below.

 

26.1        Terms and Conditions .   In the event the Seller or Purchaser elects to consummate the sale of the Property as part of an Exchange:

 

26.1.1      the Exchanging Party shall effect the Exchange through an assignment of all the Exchanging Party’s rights (but not its obligations) under this Contract to a qualified intermediary;

 

26.1.2      the other party (the “Non-Exchanging Party”) shall not be required to take an assignment of the purchase agreement for the replacement or relinquished property or be required to acquire or hold title to any real property for purposes of consummating the Exchange;

 

26.1.3      the Exchanging Party shall pay any additional costs that would not otherwise have been incurred by the parties had the Exchanging Party not consummated its purchase through the Exchange; and

 

26.1.4      the Non-Exchanging Party shall not incur any expense, loss, liability or obligation as a result of or in connection with the Exchange.

 

26.2        No Affect on Rights of Non-Exchanging Party .   The Non-Exchanging Party shall not by this Contract or acquiescence to the Exchange have its rights under this Contract affected or diminished in any manner or be responsible for compliance with or be deemed to have warranted to the Exchanging Party that the Exchange in fact complies with §1031 of the Code.

 



 

27.           Indemnification Relating to Jade .   The parties acknowledge that Seller entered into a Real Estate Purchase Contract (the “Prior Contract”) with Jade Realty Company (“Jade”) pursuant to which Seller agreed to sell and Jade agreed to purchase the Property on the terms and conditions provided in the Prior Contract, and that simultaneously with the execution and delivery of this Contract the Prior Contract is being terminated by the mutual agreement of the Seller and Jade.  In consideration for the Seller’s willingness to terminate the Prior Contract and to enter into this Contract instead, and for other valuable consideration, the Purchaser agrees to indemnify and hold harmless Seller against and from any loss, cost, damage or expense (including reasonable attorneys’ fees and costs of litigation) suffered by Seller as a result of a breach by Jade of, or Jade’s failure to perform any or all of Jade’s indemnification obligations set forth in, Sections 6, 13 and 25 of the Prior Contract.  The provisions of this Section 27 shall survive the Closing or the earlier termination of this Contract.

 

 

[Signatures appear on following two pages.]

 



 

IN WITNESS WHEREOF , and intending to be legally bound the undersigned parties have duly executed this Contract under seal on the dates indicated below beneath their respective signatures.

 

 

SELLER

 

 

 

WESTWICK APARTMENTS LLC, a

 

Maryland limited liability company

 

 

 

 

By:

EQUITY INVESTMENTS, INC., a

 

 

Maryland corporation

 

 

 

 

By:

/s/ Douglas Margerum

 

 

 

Douglas Margerum

 

 

President

 

 

 

Date:

2/4/2005

 

 

 

[Signatures continue on the next page.]

 



 

 

PURCHASER

 

 

 

COMSTOCK COUNTRYSIDE, L.C.

 

A Virginia limited liability company

 

 

 

 

By:

Comstock Homebuilding Companies, Inc.

 

 

A Delaware corporation

 

 

It’s Manager

 

 

 

 

By:

/s/ Christopher Clemente

 

 

 

Christopher Clemente

 

 

Chief Executive Officer

 

 

 

Date:

2/4/2005

 

 



 

Exhibits

 

A

Legal Description of the Property

 

Schedules

 

14

Notice Addresses

 



 

SCHEDULE 14

 

NOTICE ADDRESSES

 

To Seller:

 

c/o Mr. Douglas Margerum

 

 

Equity Properties, Inc.

 

 

13900 Laurel Lakes Avenue, Suite 240

 

 

Laurel, Maryland 20707

 

 

301.953.2366

 

 

301.953.2866 (fax)

 

 

 

To Purchaser:

 

Mr. Christopher Clemente

 

 

Comstock Countryside, L.C.

 

 

11465 Sunset Hills Road, Suite 510

 

 

Reston, Virginia 20190

 

 

703 883-1700

 

 

703-760-1520 (fax)

 

 

 

To Escrow Agent:

 

Premier Title and Escrow

 

 

Attn: Julie Grant

 

 

8221 Old Courthouse Road, Suite 300

 

 

Vienna, Virginia 22182

 

 

703-442-0001

 

 

704-790-8665 (fax)

 

 

 

To Intermediary:

 

Continental Intermediary Corporation

 

 

Attn: Julie Gibison

 

 

913 S. Charles St.

 

 

Baltimore, Maryland 21230

 

 

410-837-0022

 

 

410-625-4725 (fax)

 



 

EXHIBIT A

[Legal Description]

 

 

All that certain lot or parcel of land situate and lying in Loudoun County, Virginia, and more particularly described as follows:

 

Beginning at an iron pipe set in the westerly right-of-way of Triple Seven Road, Route 777, said pipe being in the southerly line of Parcel A, Section T-2-B, CountrySide.

 

THENCE, departing Parcel A, Section T-2-B, CountrySide and running with said westerly right-of-way of Triple Seven Road, S 16 degrees 35’ 38” E, 215.28 feet to an iron pipe set at the convergence of Route 777 and Westwick Court (50’ wide).

 

THENCE, departing Route 777 and running with Westwick Court the following courses and distances:

 

39.27 feet along the arc of a curve to the right, said curve having a radius of 25 feet, a central angle of 90 degrees 00” 00” a chord which bears S 28 degrees 24’ 22” W, 35.36 feet to an iron pipe set;

 

S 73 degrees 24’ 22” W, 62.55 feet to an iron pipe set;

 

22.39 feet along the arc of a curve to the right, said curve having a radius of 25 feet, a central angle of 51 degrees 19’ 04” a chord which bears N 80 degrees 56’ 06” W, 21.65 feet to an iron pipe set;

 

271.31 feet along the arc of a curve to the left, said curve having a radius of 55 feet a central angle of 282 degrees 38’ 08” a chord which bears S 16 degrees 35’ 38” E, 68.75 feet to an iron pipe set;

 

22.39 feet along the arc of a curve to the right, said curve having a radius of 25 feet, a central angle of 51 degrees 19’ 04” a chord which bears N 47 degrees 44’ 50” E, 21.65 feet to an iron pipe set;

 

N 73 degrees 24’ 22” E, 62.55 feet to an iron pipe set;

 

39.27 feet along the arc of a curve to the right, said curve having a radius of 25 feet, a central angle of 90 degrees 00’ 00” a chord which bears S 61 degrees 35’ 38” E, 35.36 feet to an iron pipe set in the westerly right-of-way line of Triple Seven Road, Route 777.

 

THENCE, leaving Westwick Court and running with the westerly right-of-way line of Triple Seven Road, Route 777, S 16 degrees 35’ 38” E, 20.03 feet to an iron pipe set in the line of N/F Davis.

 

THENCE, departing the said westerly right-of-way line of Triple Seven Road, Route 777 and running with N/F Davis, S 37 degrees 42’ 06” W, 536.04 feet to an iron pipe found, said point being a corner to Parcel M-1, Countryside.

 



 

THENCE, departing N/F Davis and running with said Parcel M-1, and with the same line extended, a portion of Parcel C-2A1, CountrySide N 61 degrees 43’ 34” W, 309.83 feet to a point, a corner to Parcel C-2A1, CountrySide Commercial.

 

THENCE, continuing with said Parcel C-2A1, CountrySide Commercial, the following courses and distances:

 

N 06 degrees 07’ 24” W, 253.75 feet to a Chiseled Crow’s Foot on the concrete base of a Light Pole;

 

N 18 degrees 26’ 06” E, 41.11 feet to an iron pipe found;

 

N 11 degrees 18’ 35” W, 149.03 feet to an iron pipe set in the line of CountrySide, Section T-2-A.

 

THENCE, departing said Parcel C-2A1, CountrySide Commercial and running with CountrySide Section T-2-A, and with the same line extended, Section T-2-B, CountrySide, N 73 degrees 36’ 35” E, 571.44 feet to the point of beginning.

 

Containing 6.8728 acres of land more  or less.

 

Tax Map Nos.

 

PIN:

 

Tax Map Nos.

 

PIN:

/64/A12////P1/

 

029-40-6765-000

 

/64/A12////P2/

 

029-40-5243-000

/64/A12////P3/

 

029-40-3852-000

 

/64/A12////P4/

 

029-40-3364-000

/64A12////P5/

 

029-40-3475-000

 

/64/A12////P6/

 

029-40-3690-000

/64/A12////P7/

 

029-40-5394-000

 

/64/A12////P8/

 

029-40-7293-000

/64/A12////P9/

 

029-40-4780-000

 

/64/A12////P10/

 

029-40-4765-000

 


Exhibit 10.23

 

SERVICES AGREEMENT

 

THIS SERVICES AGREEMENT (the “Agreement”) is made as of the 1st day of October, 2004, by and between COMSTOCK HOMEBUILDING COMPANIES, INC., a Delaware corporation (“Comstock”), and COMSTOCK ASSET MANAGEMENT, L.C., a Virginia limited liability company (“CAM”).

 

WITNESSETH:

 

WHEREAS, CAM as agent for the record owner or contract owner of those certain real Loudoun Station Properties located in the County of Loudoun, Commonwealth of Virginia, that comprise the Loudoun Station development and as more particularly identified on the Concept Development Plan for Loudoun County ZMAP #2002-0005 hereto, attached hereto as Exhibit A (the “Loudoun Station Properties”); and

 

WHEREAS, the Loudoun Station Properties  were the subject of a successful rezoning application of the Loudoun Station development that rezoned the collective Loudoun Station Properties to a PD-TRC (Planned Development-Transit Related Center) Zoning District in December, 2003; and

 

WHEREAS, Comstock is experienced in providing such services and CAM desires to formally engage and hire Comstock to carry out certain management services for the purpose of securing development approvals, additional entitlements, processing plans and developing certain portions of the Loudoun Station Properties; and

 

WHEREAS, Comstock desires to assume such responsibilities, on and in accordance with the terms and conditions of this Agreement;

 

NOW, THEREFORE, for and in consideration of the premises and mutual covenants and agreement of the parties contained herein, and of other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:

 

ARTICLE I

Scope of the Work

 

1.01         Acting as a consultant for CAM and at its request, Comstock will undertake and perform for CAM the following responsibilities (the “Work”), provided however, it is agreed by the parties hereto that Comstock shall not be guaranteeing that the Work will be prosecuted within any timelines that may be delivered as part of its Work.  Comstock shall manage the site configuration, design and layout of product to be incorporated into the development plan for the Loudoun Station Properties at the direction of CAM. All work shall comply with the approved Proffer Agreement dated December 15, 2003 and adopted by Loudoun County as a condition of the rezoning approval of the Loudoun Station Properties.

 

A.            Plan/Product Design and Management .  In conjunction with land planners, architects and engineers, Comstock shall review and comment upon any and all design drawings, product specifications and shop drawings submitted by such professionals and by other Contractors for the  Loudoun Station Properties or portions thereof.

 

B.            Governmental Approvals . Based on conceptual plans approved by CAM, Comstock shall coordinate and submit engineering plans for the Loudoun Station Properties or portions thereof, monitor the approval processes with the applicable governmental authority in order to seek final approvals for lot or unit yield and F.A.R. densities, provide for vested rights regarding the intended uses of the Loudoun Station Properties and prepare and submit bonding applications required as a prerequisite to development of the Loudoun Station Properties.  Comstock shall seek to maintain the proper pro-rata allocation of development F.A.R. upon the parcels that  comprise the Loudoun Station Properties in accordance with the applicable site area of each parcel, all as directed by CAM.

 

C.            Solicit and Evaluate Development Bids . Comstock shall solicit and evaluate bids for the development of the Loudoun Station Properties, or portions thereof, from qualified contractors and make recommendations to CAM regarding the selection of the Contractors.

 

D.            Development of Loudoun Station Properties . Comstock agrees to perform and complete all functions attendant to the management of the following items for the Loudoun Station

 



 

Properties:  (i) installation of all road infrastructure over time required to service the Loudoun Station Properties; and (ii) installation of all utilities over time reasonably necessary to commence construction of improvements on the Loudoun Station Properties as directed by CAM.

 

E.             Financial Services .  Comstock, on behalf of CAM, agrees to negotiate and make arrangements for agreements with lending institutions related to the development of the Loudoun Station Properties, as requested by CAM, and shall be responsible for the administration of any such agreements and compliance by CAM with requirements imposed on CAM under any such agreements, provided however, Comstock shall not be required to enter into or otherwise guaranty the repayment of any sums advanced as a result of said arrangements.

 

F.             Legal Services .  Comstock, on behalf of CAM, shall assist in the performance of requisite legal services required as a result of the prosecution of the Work, including but not limited to formation of master and neighborhood property owners associations reasonably required for the Loudoun Station Properties development.

 

ARTICLE II

Exclusions from Scope of the Work

 

2.01         The scope of the Work listed in Article I is not an exhaustive list but the Work shall in no event include the following items:

 

A.            Procurement of leasing agreements related to the retail or commercial space for the Loudoun Station Properties development or the administration of any such agreements for the Loudoun Station Properties development.

 

B.            Management duties associated with a master or neighborhood property owners associations for the Loudoun Station Properties development.

 

C.            Management duties associated with completed commercial or investment properties within the Loudoun Station Properties development.

 

ARTICLE III

Personnel Assigned to Agreement

 

3.01.        [Reserved]

 

ARTICLE IV
Compensation

 

4.01         Management Fees.   In partial consideration for the performance of Comstock’s prosecution of the Work under this Agreement, CAM agrees to pay to Comstock, or any designated affiliate, and Comstock agrees to accept payment from CAM, the following amounts:

 

A.                                    Upon commencement of this Agreement, $20,000.00 per month for payment of services related to Work for the Loudoun Station Properties or any portion thereof (the “Management Fee”).

 

B.                                      Upon commencement of site development of the Loudoun Station Properties development, or any portion thereof, if requested by CAM, Comstock will assign a full time on-site project superintendent and in such event the fee for Management Services will be increased accordingly and paid by CAM (the “Project Superintendent Fee”).

 

Collectively, the Management Fee and the Project Superintendent Fee shall be known as the “Management Fees” and shall commence as aforementioned, shall continue on a monthly basis thereafter until the earlier of the completion of the Work or termination of the Agreement in accordance with the terms hereof and shall be reviewed on a regular basis by the parties hereto.

 

4.02         Additional Consideration

 

As additional consideration for Comstock’s entry into this Agreement and faithful performance of the Work, CAM does hereby agree to assign over to Comstock, or its designee, all of CAM’s rights to purchase any portion of the Loudoun Station Properties that Comstock Loudoun Station, L.C. (“CLS”), in its capacity as owner of the Loudoun Station Properties, in

 

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CLS’s sole discretion, determines to develop as for-sale residential property (in the form of condominium units) and will not accept any offer for the purchase of the subject for-sale residential property from any third party without first providing Comstock the opportunity to purchase the subject for-sale residential property (the “Purchase Opportunity”). The foregoing rights of CAM arise from that certain Development Management and Related Service Agreement entered into by and between CLS and CAM on the same date as this Agreement. Comstock will be provided a thirty (30) day period (the Opportunity Period”) to consider the Purchase Opportunity without incurring any obligation to purchase the subject for-sale residential property.  At such time as CAM determines such for-sale residential property will be made available for sale it will notify Comstock which commences the Opportunity Period. During the Opportunity Period, the parties shall negotiate in good faith regarding a fair and reasonable purchase price for the subject for-sale residential property and the terms and conditions of the purchase and sale agreement.  If the parties cannot come to agreement upon a reasonable purchase price or agree to the terms and conditions of a purchase and sale agreement during the Opportunity Period, the Purchase Opportunity shall automatically expire and the parties hereto shall have no further obligations to each other in that regard. The Purchase Opportunity shall be granted for a period of five (5) years from the date hereof unless extended by mutual agreement.

 

4.03         Third Party Vendors and Reimbursements

 

A.            CAM and Comstock hereby acknowledge and agree certain services related to the Loudoun Station Properties shall be provided by third party vendors, (the “Vendors”), under the management of Comstock.  Wherever practical, the fees incurred and invoiced by the Vendors shall be billed to and payable by CLS and in no event deducted from the Project Fees.  The Vendors shall include, but are not limited to, land planners, civil engineers, architects, consultants, contractors and sub-contractors.

 

B.            CAM shall be responsible for the reimbursement of all of Comstock’s out of pocket expenses incurred in the prosecution of the Work, including but not limited to authorized travel and lodging expenses, payment of which shall occur within fifteen (15) days from the end of the month in which an invoice is received by CAM.  Comstock shall be responsible for the payment of the salaries of its officers and employees from the Services Fees except that in the event a new employee(s) is hired for the exclusive purpose of prosecuting the Work hereunder or an existing employee is reassigned to prosecute the Work on an exclusive basis, the salary of such employee(s) shall become an expense payable by CAM, subject to the prior approval of CAM.

 

ARTICLE V

Term of Agreement

 

5.01.        Expiration

 

This Agreement shall be effective as of October 1, 2004 (the “Effective Date”) and shall remain in effect until the earlier of the following:

 

A.                                    Substantial completion of the Work.

B.                                      Five (5) years from the date hereof.

C.                                      Termination as provided for herein.

 

5.02.        Termination Due to Breach or Default Prior to Expiration

 

A.            Notice of Default and Cure . In the event of the breach or default by either party of its obligations under this Agreement, the non-defaulting party shall send written notice to the defaulting party of the action or failure to act constituting such breach or default, and providing a period of forty-five (45) days from receipt of the Notice of Default within which to cure such breach or default (the “Cure Period”).  If the defaulting party notifies the non-defaulting party of its intention not to cure the claimed breach or default, or fails, within the Cure Period, to cure the alleged breach or default to the reasonable satisfaction, of the non-defaulting party, the non-defaulting party may send the defaulting party a notice of termination, terminating this Agreement as of the date specified in the Notice.

 

B.            Termination by CAM . If CAM terminates this Agreement by reason of the breach or default by Comstock of its obligations under this Agreement, the parties agree that it would be difficult to compute the actual damages incurred by CAM as a result thereof.  Consequently, CAM and Comstock agree that, in the event of such breach, CAM’s sole remedy shall be the retention by CAM of the Project Fees not yet paid to Comstock by CAM at the time of such breach and the termination of the Purchase Opportunity, such remedies representing

 

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reasonable compensation to CAM for any such breach.  In any event, CAM shall remain responsible for the payment of Vendor fees set forth in 4.03.

 

C.            Termination by Comstock . In the event Comstock terminates this Agreement by reason of the breach or default by CAM of its obligation under this Agreement, the Project Fees remaining unpaid plus future Project Fees for a period of six months from the time of the issuance of the Notice of Termination shall accelerate and become immediately due and payable. In addition, the Purchase Opportunity shall remain an obligation of CAM and shall survive termination of the Agreement as provided for herein.

 

5.03         Termination Due to Convenience Prior to Expiration

 

A.            CAM termination for convenience Prior to Expiration On ninety (90) days written notice (the “CAM Notice Period”) to Comstock, CAM may terminate this Agreement at any time, for its convenience.  In the event of termination of the Agreement under this Section 5.03(A), CAM shall pay within thirty (30) days of the date of the termination notice to Comstock and Comstock agrees to accept; (i) all unpaid Project Fees calculated through the end of the CAM Notice Period, and (ii) reimbursement of all expenses as set forth in Section 4.03 of this Agreement.  In addition, the Purchase Opportunity shall remain in effect as provided for herein.

 

B.            Comstock Termination for Convenience Prior to Expiration.   At any time after six (6) months from the Effective Date, Comstock may terminate this Agreement at any time, for its convenience, on ninety (90) days written notice to CAM (the “Comstock Notice Period”), in which event Comstock shall accept in full compensation of all claims by it against CAM the amounts to be paid by CAM to Comstock through the actual date of termination.  Comstock shall continue to perform its services under this Agreement during the Comstock Notice Period. In such event the Purchase Opportunity shall be void at the option of CAM.

 

ARTICLE VI

Assignment and Sub-Contracting

 

6.01         Comstock may assign or transfer this Agreement to a parent or affiliated entity provided all rights and obligations are transferred therewith.

 

ARTICLE VII

Independent Contractor Status

 

7.01         The parties to this Agreement agree that the relationship of Comstock to CAM is that of independent contractor.  Except as otherwise stated in this Agreement, no agency is created by this Agreement, and the employees and agents of Comstock are not to be considered as employees or agents of CAM, and shall not enter into any vendor agreements without the prior consent of CAM.

 

ARTICLE VIII

Compliance with Non-Discrimination Laws

 

8.01         Comstock shall comply with all federal, State and County laws, codes, ordinances and regulations requiring non-discrimination in employment and in the provision of services.

 

ARTICLE IX

Entire Agreement

 

9.01         Except as otherwise stated in this Agreement, this Agreement constitutes the entire agreement of the parties with respect to the matters dealt with herein.

 

ARTICLE X

Indemnification

 

10.01       Comstock shall hold CAM harmless from, and indemnify CAM against loss, personal injury or death resulting from the gross negligence or willful act of any employee or agent or Contractor of Comstock, but not from the gross negligence or willful act of any employee, agent or Contractor of CAM.  CAM shall hold Comstock harmless from, and indemnify Comstock against, any claims made by third parties under any agreements with CAM.  The protections agreed to under this section shall include, without limitation, all costs of litigation, including court costs, arbitration and mediation costs and attorneys’ fees.

 

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ARTICLE XI

Notices

 

11.01       All notices, demands and requests which may be given or which are required to be given by either party to the other must be in writing. Notices, demands or requests shall be deemed to have been properly given for all purposes if (i) delivered against a written receipt of delivery, (ii) mailed by express, registered or certified mail of the United States Postal Service, return receipt requested, postage prepaid, or (iii) delivered to a nationally recognized overnight courier service for next business day delivery to the receiving party’s address as set forth above or (iv) delivered via telecopier or facsimile transmission to the facsimile number listed below, with an original counterpart of such communication sent concurrently as specified in subsection (ii) or (iii) above and with written confirmation of receipt of transmission provided.  Each such notice, demand or request shall be deemed to have been received upon the earlier of the actual receipt or refusal by the addressee or three (3) business days after deposit thereof at any main or branch United States post office if sent in accordance with subsection (ii) above, and the next business day after deposit thereof with the courier if sent pursuant to subsection (iii) above. Notices shall be sent to the following addresses:

 

To CAM:

 

Comstock Asset Management, L.C.

11465 Sunset Hills Road, Suite 501

Reston, Virginia 20190

Attention: Christopher Clemente

Fax No: 703/935-1178

 

To Comstock:

 

Comstock Homebuilding Companies, Inc.

11465 Sunset Hills Road, Suite 501

Reston, Virginia 20190

Attention: Gregory Benson

Fax No: 703/760-1520

 

[SIGNATURES FOLLOW]

 

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IN WITNESS WHEREOF, CAM and Comstock have executed this Agreement as of the date indicated below.

 

 

CAM:

COMSTOCK:

 

 

 

 

COMSTOCK ASSET MANAGEMENT, L.C.

COMSTOCK HOMEBUILDING
COMPANIES, INC.

a Virginia limited liability company

a Delaware corporation

 

 

 

 

By:

/s/ Christopher Clemente

 

By:

/s/ Gregory Benson

 

 

Christopher Clemente

 

Gregory Benson

 

Manager

 

President

 

 

 

 

 

 

Dated:

March 4, 2005

 

6



 

Exhibit A:  The Loudoun Station Properties

 

7


Exhibit 10.30

 

Description of Arrangements with William Bensten

 

Mr. Bensten serves as the Senior Vice President of Comstock Homebuilding Companies, Inc. (the “Company”).  For the year ended December 31, 2004, Mr. Bensten received $200,000 in base salary and $200,000 in incentive bonus payment.  In addition, Mr. Bensten received an additional bonus of approximately $845,000 resulting from an arrangement he entered into with the Predecessor Company.  Under this arrangement Mr. Bensten was entitled to receive bonuses in an amount equal to 4% of distributions to stockholders including our distribution payable to our pre-initial public offering stockholders.  This agreement terminated with respect to any new bonus obligations immediately upon execution of our initial public offering.  Pursuant to the Company’s 2004 Long-Term Incentive Compensation Plan, on December 14, 2004, Mr. Bensten received a restricted stock grant of 112,500 shares of the Company’s Class A common stock, which shares have a four year vesting period.

 


Exhibit 10.31

 

Description of Arrangements with David Howell

 

Mr. Howell serves as Vice President – Market Development of Comstock Homebuilding Companies, Inc. (the “Company”).  For the year ended December 31, 2004, Mr. Howell received $150,000 in base salary.  Furthermore, he received incentive bonus in the amount of $150,000, tied to his meeting specific performance objectives.  Pursuant to the Company’s 2004 Long-Term Incentive Compensation Plan, on December 14, 2004, Mr. Howell received a restricted stock grant of 12,500 shares of the Company’s Class A common stock, which shares have a two year vesting period.

 


Exhibit 10.33

 

PURCHASE AGREEMENT BETWEEN

COMSTOCK POTOMAC YARD, L.C. AND

COMSTOCK ASSET MANAGEMENT, L.C.

November 12, 2004

 

TABLE OF CONTENTS

 

Paragraph

 

 

 

 

Article I - Commercial Units, Purchase Price, Payment

 

 

 

 

1.01

Commercial Units

 

1.02

Purchase Price

 

1.03

Payment

 

 

 

 

Article II - Deposit

 

 

 

 

2.01

Amount

 

2.02

Reserved

 

 

 

 

Article III - Title

 

 

 

 

3.01

Title

 

 

 

 

Article IV - Feasibility and Engineering

 

 

 

 

4.01

Feasibility Study Period

 

4.02

Seller Documents

 

 

 

 

Article V - Pre-Conditions of Settlement

 

 

 

 

5.01

Pre-Conditions

 

 

 

 

Article VI - Closing and Possession

 

 

 

 

6.01

Preclosing Inspection

 

6.02

Conveyance

 

6.03

Deed of Conveyance

 

6.04

Taxes and Assessments

 

6.05

Future Encumbrances

 

6.06

FIRPTA

 

6.07

Performance

 

6.08

Temporary Use and Occupancy

 

 

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Paragraph

 

 

 

 

Article VII - Declaration of Condominium

 

 

 

 

7.01

Declaration of Condominium

 

 

 

 

Article VIII - Purchaser’s Improvements

 

 

 

 

8.01

Improvements

 

8.02

Maintenance of Construction Site

 

8.03

Purchaser’s Construction Activities

 

8.04

Compliance with Laws

 

 

 

 

Article IX - Default

 

 

 

 

9.01

Purchaser

 

9.02

Seller

 

 

 

 

Article X - Agents and Commission

 

 

 

 

10.01

Liability

 

 

 

 

Article XI - Condemnation

 

 

 

 

11.01

Notice and Award

 

 

 

 

Article XII - Seller’s Representations

 

 

 

 

12.01

General

 

12.02

Specific

 

12.03

Mechanic’s Liens

 

12.04

Indemnification

 

12.05

Affidavit

 

12.06

Survival

 

 

 

 

Article XIII - Purchaser’s Representations

 

 

 

 

13.01

General

 

13.02

Indemnification

 

13.03

Survival

 

 

 

 

Article XIV - Miscellaneous

 

 

 

 

14.01

Notice

 

14.02

Survival

 

 

ii



 

Paragraph

 

 

 

 

14.03

Assignment

 

14.04

Construction of Agreement

 

14.05

Duration and Acceptance of Offer

 

14.06

Continuing Rights and Obligations

 

14.07

Validity

 

14.08

Litigation

 

14.09

Effective Date

 

 

 

 

Exhibit A

Description of the Project

 

Exhibit B-1

Description of Commercial Unit #1-#5

 

Exhibit C

Temporary Use and Occupancy Agreement

 

Exhibit D

Deposit Deed of Trust

 

Exhibit E

Unit Finishing Specifications

 

 

iii



 

PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT , entered into this 12 th day of November, 2004 (the “Effective Date”) between COMSTOCK POTOMAC YARD, L.C. , a Virginia limited liability company, hereinafter known as “Seller”, and COMSTOCK ASSET MANAGEMENT, L.C. , a Virginia limited liability company, hereinafter known as “Purchaser”.

 

WHEREAS , the Seller is the owner of a certain parcel of real property located in Arlington County, Virginia containing 4.8313 acres, more or less, known as Potomac Yard- Landbay “F”, as more particularly identified on Exhibit A attached hereto (the “Project”); and

 

WHEREAS , the Seller has submitted a Condominium Registration Application (the “Application”) to the Commonwealth of Virginia Real Estate Board (the “Board”) which, upon approval, would allow for the development and sale of the Project as a condominium (“Condominium”) containing both residential units (“Residential Units”) and retail commercial units (“Commercial Units”); and

 

WHEREAS , the Condominium will be developed in no less than two (2) major phases, one phase being referred to as the “West Tower” which will contain up to two hundred forty four (244) Residential Units and up to two (2) Commercial Units (Commercial Unit #1 and Commercial Unit #2.  The second major phase being referred to as the “East Tower”, will contain up to two hundred twenty eight (228) Residential Units and up to three (3) Commercial Units (Commercial Unit #3, Commercial Unit #4 and Commercial Unit #5).  Commercial Units #1-5 are more particularly identified on Exhibit B hereto; and

 

WHEREAS , Seller is primarily a residential builder and lacks the personnel to adequately and professionally lease and administer retail space and in consideration of Purchaser providing the Seller with a deposit which may be utilized to satisfy in part Seller’s equity requirements for the Project, Purchaser has been given, after recordation of the appropriate declaration of condominium (“Declaration of Condominium”) forming the Condominium, the right to occupy and lease on a temporary basis the five (5) Commercial Units and thereafter to purchase the five (5) Commercial Units from the Seller upon the terms and conditions as are more specifically hereinafter set forth.

 

NOW, THEREFORE, WITNESSETH: For and in consideration of the mutual promises and covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller hereby grants to Purchaser the right to purchase and the Purchaser hereby agrees to purchase in fee simple the Commercial Units on the following terms and conditions:

 

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ARTICLE I

COMMERCIAL UNITS, PURCHASE PRICE, PAYMENT

 

1.01                            Commercial Units .     Purchaser agrees to purchase the Commercial Units and Seller agrees to sell and convey all of Seller’s right, title and interest in and to the Commercial Units together with any and all improvements, appurtenances, rights, privileges and easements benefiting, belonging, or pertaining to the Commercial Units (all of which shall be deemed part of the Commercial Units for the purposes of this Agreement), pursuant to the terms and conditions hereof.

 

1.02                            Purchase Price .     Subject to all of the terms and conditions of this Agreement, Seller agrees to sell and Purchaser agrees to purchase the Commercial Units for a total price (the “Purchase Price”) of FOURTEEN MILLION FIVE HUNDRED THOUSAND AND NO\100THS DOLLARS ($14,500,000.00) .  For tax valuation and assessment purposes only, the Purchase Price has been allocated to each Commercial Unit based on the approximate square footage contained within each Commercial Unit as it relates to the total square footage of all of the Commercial Units.  The allocable Purchase Price for the Commercial Units are as follows:

 

Commercial Unit #1

 

41,000 square feet

 

$

9,034,500.00

 

Commercial Unit #2

 

11,427 square feet

 

$

2,518,000.00

 

Commercial Unit #3

 

10,197 square feet

 

$

2,247,500.00

 

Commercial Unit #4

 

1,370 square feet

 

$

301,500.00

 

Commercial Unit #5

 

1,809 square feet

 

$

398,500.00

 

Total

 

65,803 square feet

 

$

14,500,000.00

 

 

The parties hereto agree and acknowledge the square footages of the Commercial Units may increase or decrease when constructed and the Purchase Price shall not increase or decrease based on such fluctuations unless specifically agreed to by the parties in writing.

 

1.03                            Payment .     The applicable portion of the Purchase Price shall be paid by Purchaser in cash, certified check, bank cashier’s check or by wire transfer of funds at settlement and closing on each Commercial Unit.

 

ARTICLE II

DEPOSIT

 

2.01                            Amount .

 

a.                                        On or before the later of (i) the expiration of the Feasibility Study Period (as hereinafter defined); or (ii) concurrent with the release of the existing deed of trust recorded as a second lien against the Project and securing a loan to the Seller from Comstock Capital Partners, L.C. (the “Junior Loan”); the Purchaser shall deliver to Premier Title, Inc. (the “Escrow Agent”), cash in the sum of EIGHT MILLION AND NO/100THS DOLLARS ($8,000,000.00) , hereinafter referred to as the “Deposit”.  The Deposit shall be released by the Escrow Agent to the Seller upon the Seller’s execution and recordation a temporary deed of trust encumbering the Project in favor of Purchaser, the form of which is attached hereto as Exhibit        (the “Deposit Deed of Trust”), which Deposit Deed of Trust shall secure the return of the Deposit to Purchaser

 

2



 

in the event of any occurrence which gives rise to Purchaser’s right to a refund of the Deposit pursuant to the terms of this Agreement pending the Seller’s closing of a permanent acquisition and construction loan for the Project (the Project Loan”).  Purchaser agrees the lien of such Deposit Deed of Trust is fully subordinate to any existing liens on the Project and concurrent with the closing of the Project Loan, Purchaser shall deliver to Escrow Agent in escrow, a release of the Deposit Deed of Trust.

 

b.                                       Should the Purchaser fail to timely deliver the Deposit to the Seller, the Seller shall have the right, upon written notice to the Purchaser, to terminate this Agreement whereupon the parties shall have no further obligation one to the other hereunder, except for Purchaser’s indemnification obligations pursuant to Paragraph 4.01 hereof.

 

2.02.                         Release .     The Deposit, unless previously returned to the Purchaser or released to the Seller pursuant to the default terms of this Agreement, shall be credited to the Purchase Price at settlement and closing.

 

ARTICLE III

TITLE

 

3.01                            Title .     The Seller covenants that it is, or will be, the fee simple owner of the Commercial Units, subject to all instruments forming the chain of title to the Commercial Units, that it has full legal, beneficial, and equitable ownership of the Commercial Units and that it has the right and power to convey the Commercial Units.  The Commercial Units are to be sold and conveyed free of liens, and title is to be good of record, merchantable and insurable.  Title shall be fully insurable under a full coverage owner’s title policy issued by a recognized title insurance company of Purchaser’s choice, at standard rates and without requirement or exception subject, however, to the Declaration of Condominium, to all standard pre-printed exceptions and to any easements, covenants, rights-of-way or declaration of covenants of record.  On or before sixty (60) days after the Effective Date, Purchaser will cause an examination of title to the Commercial Units to be made (the “Title Examination”).  Purchaser shall advise Seller in writing on or before such sixty (60) day period (hereinafter referred to as the “Title Notice”) of any item other than the Permitted Exceptions that, in Purchaser’s sole discretion, will impede, hinder use of, or unreasonably interfere with Purchaser’s intended buildout and use of the Commercial Units (hereinafter referred to as “Objections”).  Any item contained in the Title Examination not set forth on the Title Notice shall be considered a Permitted Exception.  If any such Objection shall be of such a nature that it can be corrected by proper and efficient action, including legal action, by Seller, then Seller, at Seller’s sole option, may take appropriate action, legal or otherwise, to promptly cure said defect.  Seller shall advise Purchaser in writing within five (5) business days of receipt of the Title Notice of any Objections which Seller determines it will be unwilling and/or unable to so cure at or prior to the initial settlement and closing; and it shall be a condition precedent to such closing that all Objections that Seller is obligated to cure shall be cured by Seller at or prior to such closing.  In the event Seller advises Purchaser of its unwillingness and/or inability to so cure one or more Objections, Purchaser may, at its

 

3



 

option, within five (5) days from receipt of Seller’s response, elect to either (i) waive such Objections and proceed with this Agreement; or (ii) terminate this Agreement.

 

Notwithstanding anything to the contrary above, any deeds of trust, judgments, unpaid state or federal taxes, inheritances taxes, unpaid real estate taxes, or any other liens against the Commercial Units that can be cured by the payment of money shall be first paid and released of record by the settlement agent or attorney at settlement (if not sooner paid and released of record by Seller), utilizing the proceeds paid by Purchaser at settlement.

 

The state of title at date of each settlement and closing shall be the same as is disclosed by the Title Examination, except for recordation of the Declaration of Condominium and those other matters which are approved by Purchaser, or Seller shall be in default and Purchaser may exercise its remedies pursuant to this paragraph or Paragraph 9.02 hereof.

 

ARTICLE IV

FEASIBILITY AND ENGINEERING

 

4.01.                         Feasibility Study Period .     Purchaser and its agents, representatives employees and consultants have had the right, during normal business hours to enter upon the Project for the purpose of performing environmental and engineering surveys and to make feasibility, zoning, marketing and economic tests and studies of the Commercial Units in order to determine whether the Commercial Units to be constructed at the Project are suitable for Purchaser’s needs and Purchaser has largely satisfied its due diligence inquiry.

 

As such, in the event the final results of the aforesaid architectural, engineering, zoning, feasibility, marketing and other tests and studies performed by or on behalf of Purchaser are not, in Purchaser’s sole, exclusive, and nonereviewable discretion, satisfactory to Purchaser, Purchaser may at any time prior to Project Loan Closing (the “Feasibility Study Period”) upon written notice to Seller, terminate this Agreement, after which event neither party shall have any further liability to the other hereunder except as required by this Paragraph.

 

In the event Purchaser, its agents, representatives, employees or consultants, enter upon the Project for the purpose contained herein, Purchaser agrees to promptly pay for all expenses thereof and further agrees to indemnify Seller from and against any and all loss, damage or claim resulting from the negligence or willful acts of this Purchaser, its agents, representatives, employees or consultants.

 

4.02                            Seller Documents .     In addition to any other documents Seller is obligated to deliver to Purchaser under this Agreement, Seller shall, upon written request by Purchaser, deliver to Purchaser without cost to Purchaser, within seven (7) days after the written request, copies of any of the following which are in Seller’s possession or control (collectively, “Documents”):  (a)  title report for the Project; (b) the architectural and

 

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engineering plans (“Plans”) for the construction of the Commercial Units as cold dark shells (as hereinafter defined); (c)  level one environmental assessment for the Project; (d) the Declaration of Condominium, and (e) a complete copy of the $100 million dollar environmental coverage policy of insurance issued by the Chubb Group of insurance companies and under which Seller has been identified as a named insurance through an appropriate endorsement or rider and Purchaser shall be added to that policy as a named insured.  Should the Seller fail to timely deliver the Documents to the Purchaser, the Feasibility Study Period shall be extended day for day until such time as all of the Documents have been delivered to the Purchaser.

 

ARTICLE V

PRE-CONDITIONS OF SETTLEMENT

 

5.01                            Pre-Conditions .     Should all settlements not be completed on or before three years from the date of Project Loan Closing, as a result of any of the following pre-conditions of settlement (“Preconditions”) not being satisfied, Purchaser, at its sole discretion, may by written notice to Seller (i) terminate this Agreement; or (ii) waive such pre-condition and proceed to settlement on the remaining Commercial Units. Should this Agreement be terminated pursuant to this paragraph, the Purchaser shall return any portion of the Deposit not credited against previous settlements to the Purchaser and thereafter the parties shall have no further obligation pursuant to this Agreement, except for the indemnification obligations set forth in Paragraph 4.01 and as otherwise provided in Paragraph 14.06.  The Pre-Conditions are as follows:

 

a.                                        The Application shall have been approved by the Board and the Declaration of Condominium shall have been recorded among the land records of Arlington County, Virginia creating the Commercial Units as separate and individual units within the Project.  In connection with this requirement, Seller is entitled to an shall receive a legally and fully approved condominium unit under Virginia law.

 

b.                                       Construction of the Commercial Unit then to be settled upon shall be completed so that such Commercial Unit shall be considered a warm vanilla shell.  For the purpose of this Agreement, a “warm vanilla shell” shall be defined as the full and complete completion of the Commercial Unit pursuant to the Plans and in accordance with Exhibit E attached hereto.  Provided however, Purchaser and its brokers shall have utilized all commercially reasonable efforts available to negotiate leases with prospective tenants in such a manner as to reduce the amount of construction required to meet these requirements with all cost savings realized to be credited against Seller’s obligations pursuant hereto.

 

c.                                        No governmental action or inaction (such as but not limited to the imposition of a sewer moratorium) shall have been taken, or shall have been publicly announced to be taken, by any applicable governmental authority, which would increase the cost of, or materially increase the processing time for obtaining all necessary permits or utilities required for the construction, occupancy use of each Commercial Unit as a

 

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retail establishment or would materially increase the cost of or materially delay the buildout of the Commercial Units.

 

d.                                       Title to the Commercial Units is as required by Paragraph 3.01 hereof.

 

e.                                        The representations, warranties and covenants of Seller contained within this Agreement are true and correct.

 

ARTICLE VI

CLOSING AND POSSESSION

 

6.01                            Preclosing Inspection .  Within five (5) days after the request of either party to do so or immediately prior to each settlement, whichever is sooner, Purchaser shall accompany Seller on an inspection of the Commercial Units which are ready for settlement.  Upon completion of each such inspection, an Inspection Report shall be completed jointly by Purchaser and Seller, indicating thereon any noncompliance with the provisions of this Agreement and/or noting any incomplete or defective work performed or to be performed by Seller.  Failure for the non-requesting party to participate in such inspections will be considered an acceptance of the Inspection Report as prepared by the requesting party.  Any defective or uncompleted work shall be corrected or completed by Seller within sixty (60) days of said inspection.  Unless Seller has begun and is progressing with all reasonable diligence toward completion at the end of said sixty (60) day period, Purchaser may perform the work and Seller shall compensate Purchaser (in cash or by credit on future settlements) for its actual costs to complete or correct plus ten percent (10%) for overhead and profit.  Upon acceptance of any work by Purchaser, as indicated by the Inspection Report, Seller will be deemed for all purposes of this Agreement to have completed such work.

 

6.02                            Conveyance .     Settlement and closing hereunder on each Commercial Unit shall be held and conducted on or before the later of (i) fifteen (15) days after satisfaction of the Pre-Conditions (see Paragraph 5.01) for such Commercial Unit, or (ii) thirty-six months from the effective date of this Agreement or (iii) at such earlier time as Purchaser may designate upon fifteen (15) days prior notice.  Settlement and closing shall be held at the offices of Premier Title, Inc., or by such other agent or attorney designated by Purchaser and reasonably satisfactory to Seller.  Purchaser shall provide written notice to Seller of the exact time, date and place of settlement at least five (5) days prior thereto.  In the absence of such notice of settlement, it shall be presumed that settlement shall take place at 10:00 a.m. on the latest date for such settlement and closing pursuant to the terms hereof.

 

6.03                            Deed of Conveyance .     At each settlement, Seller shall execute and deliver into settlement a Special Warranty Deed in proper form for recording among the land records of Arlington County, Virginia.  Seller’s attorney’s fees, costs pertaining to payoff and release of existing trusts and liens, and the state Grantor’s Tax, shall be paid by the Seller.  Purchaser shall pay all expenses of examination of title, all other applicable

 

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state, county or city (if any) transfer and recordation taxes and stamps or similar transfer tax imposed by any governmental authority, all other fees, charges and expenses of the settlement agent or attorney, title insurance premiums, if any, and all other recording fees and closing expenses.

 

6.04                            Taxes and Assessments .     Seller shall pay or credit against the Purchase Price (a) all delinquent real estate taxes or similar charges (the “Real Estate Taxes”), together with penalties and interest thereon, (b) all assessments which are a lien against the Commercial Units then to be closed upon as of the date of closing, both current and reassessed, which are due and payable on or before closing, (c) all use recoupment taxes (agricultural or otherwise) for years through the year of closing, if any, and (d) all real estate taxes for years prior to the closing.  The proration of undetermined taxes shall be based on a 365-day year and on the last available tax rate and valuations, giving effect to applicable exemptions, recently voted millage, change in tax rate or valuation, etc., whether or not officially certified.  It is the intention of the parties in making this tax proration for Purchaser to pay to Seller at closing the amount which Seller remitted, or will be required to remit, to the appropriate collector of taxes for the period of time after the closing date hereof.  Should the Commercial Units be taxed as part of a larger parcel, the proration shall be based on the acreage of each Commercial Units versus the acreage of the larger parcel.  Upon making the proration provided for herein, Seller and Purchaser agree that the amount so computed shall be subject to later adjustment should the amount credited at closing be incorrect based upon actual tax bills received by Purchaser after closing.  Seller hereby represents and warrants to Purchaser that (i) all assessments now a lien are shown on the public records of the collector of real property taxes, (ii) no improvements have been installed by public authority or Seller, the costs of which are to be assessed against the Commercial Units in the future, and (iii) Seller has not been notified orally or in writing of possible future improvements by public authority, any part of the cost of which would or might be assessed against the Commercial Units.

 

Recognizing that there will be a period of time during which Purchaser shall be and is authorized to use, occupy and lease to others all or parts of the Commercial Units, it is agreed that during any such period of authorized use, the Purchaser shall pay or reimburse Seller for any real estate taxes applicable to the Commercial Units which are in use or have been occupied by Purchaser or its authorized assigns.

 

6.05                            Future Encumbrances .     Seller agrees that from the date of execution hereof by Seller, Seller may not further encumber the Commercial Units, except for the recordation of the Declaration of Condominium, without the written consent of the Purchaser, which consent will not be unreasonably withheld.

 

6.06                            FIRPTA .     Seller hereby represents and warrants to Purchaser that Seller is not a “foreign person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, and Seller further agrees, at closing, if requested, to furnish Purchaser an affidavit to this effect complying with the provisions of Section 1445 of the Internal Revenue Code.

 

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6.07                            Performance .     The delivery to settlement attorney or agent of the cash payment, the executed deed of conveyance, and all other documents and instruments required to be delivered by either party to the other by the terms of this Agreement shall be deemed to be good and sufficient tender of performance of the terms hereof.  Seller shall give possession of each Commercial Unit at the time of payment of Purchase Price and delivery of the appropriate deed of conveyance for such Commercial Unit.

 

6.08         Temporary Use and Occupancy .     The Seller hereby agrees Purchaser and its tenants, if any, shall be permitted to use and occupy the Commercial Units prior to their legal conveyance to Purchaser in accordance with the terms and provisions of a “AGREEMENT FOR TEMPORARY USE AND OCCUPANCY OF COMMERCIAL UNITS”, the form of which is attached hereto as Exhibit C .

 

ARTICLE VII

DECLARATION OF CONDOMINIUM

 

7.01.                         Declaration of Condominium .  Prior to settlement and closing on each Commercial Unit, each Commercial Unit shall be subjected to the Declaration of Condominium, all other related documents and to all of the terms and conditions related thereto (jointly the “Condominium Documents”).  The Purchaser acknowledges that it has been provided with a copy of the Application and that it has fully reviewed the Application and understands the terms and conditions contained therein as they relate to the Commercial Units.  The Commercial Units shall be constructed, occupied, used and/or sold subject to the terms and conditions of the Condominium Documents as they relate to the Commercial Units.

 

ARTICLE VIII

PURCHASER’S IMPROVEMENTS

 

8.01.                         Improvements .

 

a.                                        The design and location of all improvements to be constructed by Purchaser on the exterior of Commercial Units shall be subject to the prior review and approval by the Seller (in addition to and not in lieu of any review and approval required by the Condominium Documents).  Purchaser agrees to adhere to all design standards as may be imposed by the Seller and shall adhere to all revisions thereto that are known to Purchaser submitting an application for building permit for each commercial unit.

 

b.                                       Applications for approvals under this Paragraph are to be submitted in duplicate.  All approvals or disapprovals shall be in writing and shall not be unreasonably withheld.  The Seller shall approve or disapprove submissions within fifteen (15) calendar days of receipt, subject to reasonable extensions.  If no approval or disapproval is communicated in writing within said fifteen (15) calendar days, requests shall be deemed approved.  Reasons will be stated to Purchaser in writing for any disapprovals.

 

c.                                        Governmental approval of Purchaser’s construction plans for any

 

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Commercial Unit is not a condition precedent to Purchaser’s obligation to close on such Commercial Unit.

 

d.                                       Seller agrees that as to all plans for the design and configuration of the Commercial Units it shall not permit the control of any architectural or design review process to be provided to any other party prior to Purchaser being provided the plans and approving the same.

 

8.02.                         Maintenance of Construction Site .     Purchaser shall maintain its construction site in an orderly fashion, and shall remove all debris and equipment daily.  Purchaser shall keep roads and pedestrian access ways free from storage of equipment, building materials, and dirt both on the Project and on all roads daily.  Parking of vehicles for workmen must be provided off the publicly dedicated rights-of-way.

 

8.03.                         Purchaser’s Construction Activities .     Purchaser shall complete all improvements in the Commercial Units in a timely and workmanlike manner.

 

8.04.                         Compliance with Laws .     All improvements constructed by Purchaser in the Commercial Units shall conform to the Condominium Documents and all applicable laws, codes, ordinances, and regulations, and shall also comply with all development conditions applicable to the Project.

 

ARTICLE IX

DEFAULT

 

9.01                            Purchaser .

 

a.                                        In the event Purchaser shall default with respect to its obligations to proceed to full and final settlement on any Commercial Unit, then Seller shall give written notice to Purchaser that said default shall be cured within ninety (90) days of Purchaser’s receipt of such notice.  If Purchaser fails to cure the default within such ninety (90) day cure period, then Seller shall be entitled to terminate this Agreement and to retain, as Seller’s fixed, agreed and liquidated damages, and as Seller’s sole remedy, the Deposit (or the remaining balance thereof) delivered to the Seller by the Purchaser and thereafter the parties shall be relieved of all liability and obligation under this Agreement excluding, however, the indemnification of obligations under Paragraph 4.01, which shall survive termination.  The parties hereto agree that if Purchaser defaults on its obligations as described above the actual damages thereby incurred by Seller would be difficult to measure and the retention of the Deposit by Seller would in such circumstances represent reasonable compensation to Seller on account thereof.

 

b.                                       In the event Purchaser shall default with respect to any other obligation to be performed in accordance with the terms hereof, and if Seller is ready, willing and able to perform, then Seller shall give written notice to Purchaser that said default shall be cured within thirty (30) days of Purchaser’s receipt of such notice.  If Purchaser fails to cure the default within such thirty (30) day cure period, to Seller’s

 

9



 

reasonable satisfaction, then the Seller shall be entitled to act on the benefit of Purchaser, to cure or remedy any breach by Purchaser, and to charge to Purchaser all costs related to such remediation.

 

9.02                            Seller .

 

a.                                        In the event Purchaser shall default with respect to its obligations to proceed to full and final settlement on any Commercial Unit, then Seller shall give written notice to Purchaser that said default shall be cured within thirty (30) days of Purchaser’s receipt of such notice.  If Purchaser fails to cure the default within such thirty (30) day cure period, then as Purchaser’s sole option and remedy, Purchaser may seek to enforce the remedy of specific performance.  Notwithstanding the preceding sentence, if an only if the remedy of specific performance is unavailable to the Purchaser as a result of the Purchaser having previously conveyed the Commercial Unit at issue to a third party, then Purchaser may pursue all other remedies available to Purchaser at law or in equity.  At Purchaser’s option, should Purchaser elect to proceed to closing and there remain deficiencies in the Commercial Units which are the result of Seller’s breach, Purchaser shall have the right, but not the option, to initiate reasonable cure and remedy of all such Seller caused breaches and charge Seller or otherwise receive credit for all such cures at closing or by other means.

 

b.                                       In the event Seller shall default with respect to any other obligation to be performed in accordance with the terms hereof, and if Purchaser is ready, willing and able to perform, then Purchaser shall give written notice to Seller that such default shall be cured within thirty (30) days of Seller’s receipt of such notice.  If Seller fails to cure the default within such thirty (30) day cure period, to Purchaser’s reasonable satisfaction, then, at Purchaser’s sole option, Purchaser may either (i) terminate this Agreement, whereupon the Seller shall return the Deposit (or the then remaining balance thereof) to the Purchaser, after which event neither party shall have any further liability hereunder, or (ii) enforce only the remedy of specific performance.  Notwithstanding the preceding sentence, if and only if the remedy of specific performance is unavailable to the Purchaser as a result of the Purchaser having previously conveyed the Commercial Unit at issue to a third party, then Purchaser may pursue all other remedies available to Purchaser at law or in equity.

 

ARTICLE X

AGENTS AND COMMISSION

 

10.01                      Liability .     Seller and Purchaser each warrant to the other that neither has dealt with any agent, broker or finder with respect to the transaction contemplated by this Agreement.  In the event that any other claim for commission or finder’s fee is brought by any person or entity as a consequence of the transaction contemplated hereby, then the party whose acts gave rise to such claim shall hold harmless the other party against any loss, cost or expense of any nature, including, but not limited to, court costs and reasonable attorney’s fees arising as a consequence of the claim for the commission or fee.

 

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ARTICLE XI

CONDEMNATION

 

11.01                      Notice and Award .     Seller agrees to give Purchaser prompt notice of any actual or threatened taking of all or any portion of the Commercial Units by condemnation or eminent domain prior to the date of closing hereunder.  In the event that prior to closing hereunder there shall occur a taking by condemnation or eminent domain or a proposed conveyance to a condemning authority in lieu of condemnation, of all or any material portion of the Commercial Units, then Purchaser, at its option, may either (i) terminate this Agreement by written notice to Seller whereupon the Seller shall return the Deposit (or the then remaining balance thereof) to Purchaser and the parties shall not be further obligated to each other pursuant to this Agreement, except for the indemnification obligations set forth in Paragraph 4.01 and their obligations pursuant to Paragraph 14.06, or (ii) proceed to closing hereunder, without reduction in the Purchase Price, in which event Seller shall assign to Purchaser at closing all interest of Seller in and to any condemnation proceeds (but not exceeding the amount of the Purchase Price) that may be payable to Seller on account of such condemnation with respect to the Commercial Units; Purchaser shall receive a credit at closing in the amount of any condemnation proceeds paid to Seller with respect to the Commercial Units prior to the date of closing (to the extent that such amount does not exceed the Purchase Price thereof).

 

ARTICLE XII

SELLER’S REPRESENTATIONS

 

12.01                      General .     Seller hereby represents, warrants and covenants to Purchaser that Seller is a duly organized and validly existing limited liability company under the laws of the Commonwealth of Virginia, qualified to do business in the Commonwealth of Virginia, and in good standing; that Seller has the power as a limited liability company to execute and perform this Agreement; that all necessary consents and approvals from the Seller have been obtained; and that the person executing this Agreement on behalf of Seller is duly empowered to bind Seller to perform its obligations hereunder.  Copies of any necessary approvals are to be furnished by Seller upon written request by Purchaser.

 

12.02                      Specific .     In addition to any other warranty made in connection with this Agreement, the Seller warrants and agrees that as of the date of settlement (a) the Seller is the fee simple owner of the Commercial Units, and the Commercial Units are free and clear of all liens and encumbrances except as otherwise provided herein; (b) that to the best of Seller’s knowledge and belief, the Commercial Units do not contain any hazardous substance other than trace amounts usually and customarily created as a result of the construction of improvements similar to the Commercial Units, the Seller has not conducted or authorized the generation, transportation, storage, treatment or disposal at the Project of any hazardous substance other than as is customary resulting from development of improvements similar to the Project or development of surrounding properties; that the Seller has not received any notice of, and has no knowledge that, any government authority or any employee or agent thereof, or any private citizen, has determined, or threatens to determine, or has made any claim in any form, that there is a presence, release, threat of release, placement on or in the Project, or the generation,

 

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transportation, storage, treatment or disposal at the Project, of any hazardous substance; nor has any “clean-up” of the Project occurred pursuant to the Environmental Laws (as hereinafter defined) which could give rise to liability on the part of Purchaser to reimburse any governmental authority for the costs of such clean-up or a lien or encumbrance on the Project.  For purposes of this paragraph, “hazardous substance” means any materials in violation of any applicable environmental laws or regulations including, but not limited to, Section 103 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq. , any “superlien” laws, any “superfund” laws, or similar federal, state or local laws, or any successor statutes thereto (the “Environmental Laws”); (c) no suit, actions, arbitration or legal, administrative or other proceeding is pending or has been threatened against the Commercial Units, or against Seller with respect to the Commercial Units, or any part thereof; (d) no bankruptcy, insolvency, rearrangement, or similar action or proceeding, whether voluntary or involuntary, is pending or threatened against Seller, or any parent, partner or person or entity with a controlling interest of the Seller, and Seller has no intention of filing or commencing any such action or proceeding; (e) that Seller has granted no person any contract right or other legal right to the use of any portion of the Commercial Units or to the furnishing or use of any facility or amenity on or relating solely to the Commercial Units other than as may be set forth in the Condominium Documents; and (f) that the execution of this Agreement will not conflict with or result in a breach of any of the terms or provisions of, constitute a default under, or cause or allow an acceleration of any note, mortgage, deed of trust, loan agreement or other document, instrument or agreement to which Seller is a party or by which the Commercial Units are encumbered or affected.  Notwithstanding the foregoing, Purchaser acknowledges that Seller has disclosed and Purchaser is aware as a matter of public record that the Commercial Units will be located in a Project which will be built upon formerly contaminated industrial property which property has been fully remediated under applicable state and federal environmental laws and certified for use which use expressly includes the uses contemplated by Purchaser and authorized under all applicable environmental and zoning laws.

 

12.03                      Mechanic’s Liens .     All contractors, subcontractors, laborers, and materialmen who are or did perform work upon or furnish labor or materials at Seller’s request to improve or benefit the Commercial Units prior to settlement have been or will be paid in full by Seller in the ordinary course of business.  Seller will execute at closing the necessary affidavits and other documents reasonably required by Purchaser’s title insurance company to eliminate from its title policy any exception to filed or unfiled mechanic’s liens arising from any act of Seller or its subcontractors.  Should at any time after settlement and closing a notice of intent to file a mechanic’s lien or a mechanic’s lien be filed against the Commercial Units arising from any act of Seller or its contractors, subcontractors, laborers or materialmen, Seller shall, within thirty (30) days of written notification from Purchaser to Seller of the filing of such notice or lien, cause said notice or lien to be withdrawn or released of record, either by payment in full of all sums represented by said lien or by statutory bonding.  Seller shall indemnify and hold Purchaser harmless against all costs and expenses (including reasonable attorney’s fees) incurred by Purchaser for Seller’s failure to do so.

 

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12.04                      Indemnification .     Seller shall, and hereby does indemnify, protect and hold harmless the Purchaser of, and from, any and all liability and all loss, damage and expense including judgments, costs and attorney’s fees by reason of injuries to or death of any person or persons, expressly including therein employees of Seller, its subcontractors, employees and agents, or loss of or damage to their property or that of any person, firm, association or corporation, however the same shall occur or be caused or by reason of claim of any and every character whatsoever in any manner resulting from, arising out of, or connected with any work, or undertaking, or acts or omissions of Seller or its employees and agents, whether such acts or omissions be claimed to be negligent or not, except that this indemnification provision shall not cover the gross negligence or intentional wrong doing of the Purchaser or its subcontractors, employees and agents.

 

12.05                      Affidavit .     All of the foregoing covenants, warranties and representations will be effective, repeated and true at the time of settlement and closing and Seller will provide an affidavit to that effect.

 

12.06                      Warranty of Workmanship .     Seller warrants that all conditions and improvements in the Commercial Units, including but not limited to the elements required by Exhibit E , are and shall be complete and Seller warrants all such work for a period of one year from the date the Commercial Unit is made available for use, occupancy or leasing by the Purchaser.

 

12.07                      Survival .     The warranties set forth above will survive for a period of one (1) year after the conveyance of the last Commercial Unit to the Purchaser and will be for the benefit of the Purchaser and its successors and/or assignees.  In addition to other remedies available to the Purchaser at any time, the Seller will indemnify the Purchaser for, and will save it harmless from, all claims for damages, suits for injunctive relief and other proceedings and attorney’s fees and costs of any kind which may be asserted or incurred at any time hereafter by reason of any allegation or occurrence which (if true) would involve a material breach of any of the warranties provided above.

 

ARTICLE XIII

PURCHASER’S REPRESENTATIONS

 

13.01                      General .     Purchaser hereby represents, warrants and covenants to Seller that Purchaser is a duly organized and validly existing limited liability company under the laws of the Commonwealth of Virginia, qualified to do business in the Commonwealth of Virginia, and in good standing; that Purchaser has the power to execute and perform this Agreement; that all necessary consents and approvals from the Purchaser have been obtained; and that person executing this Agreement on behalf of Purchaser is duly empowered to bind Purchaser to perform its obligations hereunder.  Copies of any necessary approvals are to be furnished by Purchaser upon written request by Seller.

 

13.02                      Indemnification .     Purchaser shall, and hereby does indemnify, protect and hold harmless the Seller of, and from, any and all liability and all loss, damage and

 

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expense including judgments, costs and attorney’s fees by reason of injuries to or death of any person or persons, expressly including therein employees of Purchaser, its subcontractors, employees and agents, or loss of or damage to their property or that of any person, firm, association or corporation, however the same shall occur or be caused or by reason of claim of any and every character whatsoever in any manner resulting from, arising out of, or connected with any work, or undertaking, or acts or omissions of Purchaser or its employees and agents, whether such acts or omissions be claimed to be negligent or not, except that this indemnification provision shall not cover the gross negligence or intentional wrong doing of the Seller or its subcontractors, employees and agents.

 

13.03                      Survival .     The warranties set forth above will survive for a period of one (1) year after the conveyance of the last Commercial Unit to the Purchaser and will be for the benefit of the Seller and its successors and/or assignees. In addition to other remedies available to the Seller at any time, the Purchaser will indemnify the Seller for, and will save it harmless from, all claims for damages, suits for injunctive relief and other proceedings and attorney’s fees and costs of any kind which may be asserted or incurred at any time hereafter by reason of any allegation of occurrence which (if true) would involve a breach of any of the warranties provided above.

 

ARTICLE XIV

MISCELLANEOUS

 

14.01                      Notice .     All notices and other communications hereunder shall be in writing and be deemed duly given if personally delivered, telecopied with proof of receipt or mailed by certified mail, return receipt requested, postage prepaid;

 

if to Seller to:

 

Comstock Potomac Yard, L.C.

 

 

11465 Sunset Hills Road, Suite 510

 

 

Reston, Virginia 20190

 

 

Attn: Gregory V. Benson/Jubal R. Thompson

 

 

telecopier #(703) 760-1520

 

 

 

with a copy to:

 

Bankert & Associates, P.C.

 

 

3025 Hamaker Court, Suite 501

 

 

Fairfax, Virginia 22031

 

 

Attn: Joseph E. Bankert, Esquire

 

 

telecopier #(703) 876-4628

 

 

 

and if to Purchaser to:

 

Comstock Asset Management, L.C.

 

 

11465 Sunset Hills Road, Suite 510

 

 

Reston, Virginia 20190

 

 

Attn: Christopher D. Clemente

 

 

telecopier #(703) 760-1520

 

The parties hereto shall be responsible for notifying each other of any change of

 

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address.

 

14.02                      Survival .     The provisions hereof shall survive the execution and delivery of the deed(s) executed hereunder and shall not be merged therein.

 

14.03                      Assignment .     The principals to the Agreement mutually agree that with the benefits hereunder are not assignable by either party without the written consent of the other party.  Such consent may be granted or withheld at either party’s sole discretion and option without applying the standard of reasonableness.

 

14.04                      Construction of Agreement .

 

a.                                        This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument.  .  Each party shall become bound by this Agreement immediately upon affixing its signature hereto independently of the signature of any other party.  Any signature or acknowledgement page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures or acknowledgments thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature or acknowledgment pages.

 

b.                                       Titles to paragraphs and subparagraphs are for convenience only and are not intended to limit or expand the covenants and obligations expressed thereunder.

 

c.                                        Time shall be of the essence with regard to all terms and conditions of this Agreement.

 

d.                                       This Agreement contains the entire agreement among the parties hereto with respect to the Commercial Units.  No change or modification of this Agreement, or any waiver of the provisions hereof, shall be valid unless same is in writing and signed by the parties hereto.

 

e.                                        Waiver of performance or satisfaction of timely performance or the satisfaction of any condition, covenant, requirement, obligation or warranty by one party shall not be deemed a waiver of the performance or satisfaction of any other condition, covenant, requirement, obligation or warranty unless specifically consented to in writing.

 

f.                                          In the event any moratorium which has a materially adverse effect on the Commercial Units are imposed by any governmental entity, either the Purchaser or Seller shall be entitled to extend all time periods imposed in this Agreement by a period equal to the length of the moratorium, provided, that if such moratorium shall extend beyond nine (9) months either party hereto may terminate this Agreement, in which event the Deposit (or the remaining balance thereof) shall be forthwith returned to Purchaser and both parties shall be released of all further liability or obligation hereunder.

 

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g.                                       It is the intention of the parties hereto that all questions with respect to the construction of this Agreement and the rights or liabilities of the parties hereunder shall be determined in accordance with the laws of the Commonwealth of Virginia.

 

h.                                       Any date specified in this Agreement which is a Saturday, Sunday or legal holiday, shall be extended to the first regular business day after such date which is not a Saturday, Sunday or legal holiday.  Any reference herein to the singular shall include the plural and vice versa and reference to the male, female or neuter gender shall include reference to all other genders.

 

i.                                           This Agreement represents the result of bargaining and negotiations between the parties and of a combined draftsmanship effort.  Consequently, Seller and Purchaser expressly waive and disclaim, in connection with the interpretation of this Agreement, any rule of law requiring that ambiguous or conflicting terms be construed against the party whose attorney prepared this Agreement or any earlier draft hereof.

 

j.                                           Nothing contained herein is intended to create, nor shall it ever be construed to make, Seller and Purchaser partners or joint venturers.

 

k.                                        In the event that full performance under this Agreement has not occurred within ten (10) years of the date hereof, this Agreement shall terminate and be of no further force and effect, with the Deposit being returned to Purchaser.

 

l.                                           Each of the exhibits attached hereto (if any) is incorporated herein by reference.  Any exhibit not available at the time this Agreement is executed and signed shall be agreed upon, initialed and attached by the parties as soon after execution as practical.  The failure to attach any exhibits shall not effect the validity of this Agreement unless the parties are in material disagreement as to the contents thereof.

 

14.05                      Duration and Acceptance of Offer .     Should this Agreement be ratified by one party prior to submission to the other party, Purchaser’s offer to purchase or Seller’s offer to sell, as the case may be, shall remain open for fifteen (15) days after ratification by the first party to do so.  Should the other party not ratify this Agreement within said fifteen (15) day period, the offer to purchase or sell, as the case may be, is withdrawn and this Agreement shall be null and void.

 

14.06                      Continuing Rights and Obligations .     Notwithstanding anything otherwise contained herein to the contrary, in the event that this Agreement terminates for any reason whatsoever after Purchaser has acquired one or more of the Commercial Units but prior to Purchaser acquiring all of the Commercial Units, then this Agreement shall be deemed to have terminated with respect to, but only with respect to, those rights and obligations of Seller and Purchaser which relate to those Commercial Units not yet acquired by Purchaser at the time of such termination.  All rights and obligations hereunder of Seller and Purchaser which relate to those Commercial Units acquired by Purchaser prior to such terminations shall remain in full force and effect.

 

16



 

14.07                      Validity .     If any term, covenant or condition of this Agreement or the application thereof to any party shall be invalid or unenforceable, the remaining terms, covenants and conditions or circumstances shall not be affected thereby, and each term shall be valid and enforceable to the fullest extent permitted by law.

 

14.08                      Litigation .     In the event any party is required to resort to litigation to enforce its rights hereunder, the parties hereto agree that any judgment awarded to the substantially prevailing party shall include all litigation expenses, including reasonable attorney’s fees and costs.  EACH PARTY HERETO WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING, CLAIM OR COUNTERCLAIM BROUGHT BY ANY PARTY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE RELATIONSHIP OF PURCHASER AND SELLER HEREUNDER OR THE COMMERCIAL UNITS.

 

14.09                      Effective Date .     The date on which this Agreement is accepted by the last party to accept and sign this Agreement shall be inserted as the effective date of this Agreement under the first paragraph hereof.

 

WITNESS the following signatures and seals:

 

 

[SIGNATURES FOLLOW]

 

17



 

 

SELLER:

 

 

 

COMSTOCK POTOMAC YARD, L.C.

 

a Virginia limited liability company

 

 

 

 

 

by

 

Comstock Holding Company, Inc.

 

 

 

a Virginia corporation

 

 

 

its manager

 

 

 

 

Acknowledgement:

 

 

 

 

 

 

 

/s/ JAT

 

By:

/s/ Gregory Benson

 

 

 

Name:

Gregory V. Benson

 

 

Title:

President

 

 

 

 

 

 

 

 

 

PURCHASER:

 

 

 

 

 

COMSTOCK ASSET MANAGEMENT, L.C.

 

a Virginia limited liability company

 

 

 

 

Acknowledgement:

 

 

 

 

 

 

 

 

 

By:

/s/ Christopher Clemente

 

 

 

Name:

Christopher Clemente

 

 

Title:

Manager

 

18



 

EXHIBIT A

 

Attached hereto as Exhibit A shall be a description of the Project.

 

19



 

EXHIBIT B

 

Attached hereto as Exhibit B shall be a description of Commercial Units #1-#5

 

20



 

EXHIBIT C

 

Attached hereto as Exhibit C- shall be a AGREEMENT FOR TEMPORARY USE AND OCCUPANCY OF COMMERCIAL UNITS.

 

21



 

EXHIBIT D

 

Attached hereto as Exhibit D shall be form of the Deposit Deed of Trust

 

22



 

EXHIBIT E

 

Attached hereto as Exhibit E shall be the general specifications for fit out of the Commercial Units as referenced in Section 5.01(b).

 

23


Exhibit 14.1

 

COMSTOCK HOMEBUILDING COMPANIES, INC.

 

CODE OF ETHICS FOR THE CEO AND SENIOR FINANCIAL OFFICERS

 

Comstock Homebuilding Companies, Inc. (the “Company”) has a Code of Conduct applicable to all directors and employees of the Company.  The Chief Executive Officer and all senior financial officers, including the Chief Financial Officer and the Chief Accounting Officer, are bound by the provisions set forth therein relating to ethical conduct, conflicts of interest, and compliance with law.  In addition to the Code of Conduct, the Chief Executive Officer and senior financial officers are subject to the following additional specific policies:

 

1.                                        The Chief Executive Officer and all senior financial officers are responsible for full, fair, accurate, timely, and understandable disclosure in the periodic reports required to be filed by the Company with the SEC.  Accordingly, it is the responsibility of the Chief Executive Officer and each senior financial officer promptly to bring to the attention of the Audit Committee any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings or otherwise assist the Audit Committee in fulfilling its responsibilities.

 

2.                                        The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls that could adversely affect the Company’s ability to record, process, summarize, and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.

 

3.                                        The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Audit Committee any information he or she may have concerning any violation of this Code or the Company’s Code of Conduct, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in the Company’s financial reporting, disclosures, or internal controls.

 

4.                                        The Chief Executive Officer and each senior financial officer shall promptly bring to the attention of the Audit Committee any information he or she may have concerning evidence of a material violation of the securities or other laws, rules, or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof, or of violation of the Code of Conduct or of these additional procedures.

 



 

5.                                        The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of the Code of Conduct or of these additional procedures by the Chief Executive Officer and the Company’s senior financial officers.  Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to the Code of Conduct and to these additional procedures, and may include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board), and termination of the individual’s employment.  In determining the appropriate action in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action, and whether or not the individual in question had committed other violations in the past.

 

2


Exhibit 21.1

 

List of Subsidiaries

 

Name

 

State of incorporation or organization

1.   Comstock Acquisitions, L.C.

 

Virginia

2.   Comstock Aldie, L.C.

 

Virginia

3.   Comstock Barrington Park, L.C.

 

Virginia

4.   Comstock Belmont Bay 5, L.C.

 

Virginia

5.   Comstock Belmont Bay 89, L.C.

 

Virginia

6.   Comstock Blooms Mill II, L.C.

 

Virginia

7.   Comstock Brandy Station, L.C.

 

Virginia

8.   Comstock Capital Partners, L.C.

 

Virginia

9.   Comstock Carter Lake, L.C.

 

Virginia

10. Comstock Cascades, L.C.

 

Virginia

11. Comstock Communities, L.C.

 

Virginia

12. Comstock Countryside, L.C.

 

Virginia

13. Comstock Culpeper, L.C.

 

Virginia

14. Comstock Delta Ridge II, L.L.C.

 

Virginia

15. Comstock Emerald Farm, L.C.

 

Virginia

16. Comstock Fairfax I, L.C.

 

Virginia

17. Comstock Flynn’s Crossing, L.C.

 

Virginia

18. Comstock Gainesville I, L.C.

 

Virginia

19. Comstock Hamlets of Blue Ridge, L.C.

 

Virginia

20. Comstock Holland Road, L.L.C.

 

Virginia

21. Comstock Homes of North Carolina, L.L.C.

 

North Carolina

22. Comstock Homes of Raleigh, L.L.C.

 

North Carolina

23. Comstock Homes of Washington, L.C.

 

Virginia

24. Comstock Investors III, L.P.

 

Virginia

25. Comstock Investors V, L.C.

 

Virginia

26. Comstock Investors VI, L.C.

 

Virginia

 



 

27. Comstock Kelton II, L.C.

 

Virginia

28. Comstock Lake Drive, L.C.

 

Virginia

29. Comstock Landing, L.L.C.

 

Virginia

30. Comstock North Carolina, L.L.C.

 

North Carolina

31. Comstock Penderbrook, L.C.

 

Virginia

32. Comstock Potomac Yard, L.C.

 

Virginia

33. Comstock Summerland, L.C.

 

Virginia

34. Comstock Ventures X, L.C.

 

Virginia

35. Comstock Ventures XII, L.C.

 

Virginia

36. Comstock Wakefield, L.L.C.

 

Virginia

37. North Shore Investors, L.L.C.

 

Virginia

38. North Shore Raleigh, L.L.C.

 

Virginia

39. Settlement Title Services, L.L.C.

 

Virginia

40. TCG Fund I, L.C.

 

Virginia

41. TCG Debt Fund II, L.C.

 

Virginia

 


Exhibit 24.1

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors of Comstock Homebuilding Companies, Inc. (the “Company”), which is about to file with the Securities and Exchange Commission, (i) its Annual Report on Form 10-K for the fiscal year ended December 31, 2004, under the provisions of the Securities Exchange Act of 1934, as amended, and (ii) a Registration Statement on Form S-8, under the provisions of the Securities Act of 1933, as amended, hereby constitutes and appoints Bruce Labovitz or Jubal Thompson his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign each of the Annual Report on Form 10-K, the Registration Statement on Form S-8 and any and all amendments and documents related thereto, and to file the same and any and all exhibits, financial statements and schedules related thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and substitute or substitutes, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all things that said attorneys-in-fact and agents, or any of them or his or their substitute or substitutes, may lawfully do and seek to be done by virtue hereof.

 

IN WITNESS WHEREOF, each of the undersigned has caused this Power of Attorney to be executed as of the date indicated next to his signature.

 

 

Date:

March 30, 2005

/s/ Clayton Perfall

 

 

A. Clayton Perfall

 

 

 

 

 

 

 

 

 

Date:

March 30, 2005

/s/ David Guernsey

 

 

David Guernsey

 

 

 

 

 

 

 

 

 

Date:

March 30, 2005

/s/ James MacCutcheon

 

 

James MacCutcheon

 

 

 

 

 

 

 

 

 

Date:

March 30, 2005

/s/ Gary Martin

 

 

Gary Martin

 

 


EXHIBIT 31.1

 

CERTIFICATION

 

I, Christopher Clemente, certify that:

 

1.              I have reviewed this annual report on Form 10-K of Comstock Homebuilding Companies, Inc.;

 

2.              Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.              The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)             Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

c)              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.              The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

/s/ Christopher Clemente

 

 

Christopher Clemente

 

Chairman and Chief Executive Officer

 

 

Date: March 31, 2005

 

 


EXHIBIT 31.2

 

CERTIFICATION

 

I, Bruce J. Labovitz, certify that:

 

1.              I have reviewed this annual report on Form 10-K of Comstock Homebuilding Companies, Inc.;

 

2.              Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.              The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)             Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

c)              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.              The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

/s/ Bruce J. Labovitz

 

 

Bruce J. Labovitz

 

Chief Financial Officer

Date: March 31, 2005

 

 


EXHIBIT 31.3

 

CERTIFICATION

 

I, Jason Parikh, certify that:

 

1.              I have reviewed this annual report on Form 10-K of Comstock Homebuilding Companies, Inc.;

 

2.              Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.              Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.              The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

 

b)             Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

c)              Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.              The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

 

/s/ Jason Parikh

 

 

Jason Parikh

 

Chief Accounting Officer

Date: March 31, 2005

 

 


EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Comstock Homebuilding Companies, Inc. (the “Company”) for the year ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Christopher Clemente, Chairman and Chief Executive Officer of the Company, Bruce Labovitz, Chief Financial Officer of the Company and Jason Parikh, Chief Accounting Officer of the Company, certify, to our best knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)            The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and

 

(2)            The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: March  31, 2005

/s/ Christopher Clemente

 

 

Christopher Clemente

 

Chairman and Chief Executive Officer

 

 

Date: March  31, 2005

/s/ Bruce Labovitz

 

 

Bruce Labovitz

 

Chief Financial Officer

 

 

Date: March  31, 2005

/s/ Jason Parikh

 

 

Jason Parikh

 

Chief Accounting Officer

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Comstock Homebuilding Companies, Inc. and will be retained by Comstock Homebuilding Companies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.