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PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT ("Agreement"), dated as of August ,
1997, is by and among Hanover Capital Mortgage Holdings, Inc., a Maryland
corporation ("HCHI"), and Xxxx X. Xxxxxxxx, Xxxxx X. Xxxxxxx, Xxxxxx X.
Xxxxxxxxx and Xxxx X. Xxxxxxx (collectively, the "Principals").
RECITALS
A. HCHI intends to effect an initial public offering (the
"Offering") of Units comprised of one share of its Common Stock, par value $.01
per share, and one Warrant to acquire one share of its Common Stock, par value
$.01 per share), as described in a Registration Statement substantially in the
form attached hereto as Exhibit 1 (the "Registration Statement").
B. The Principals hold all of the issued and outstanding shares of
capital stock of Hanover Capital Partners Ltd., a New York corporation ("HCP").
C. Pursuant to an Agreement and Plan of Recapitalization (the "Plan
of Recapitalization") to be effected before the closing of the Offering, the
Principals will exchange 166.424 shares of HCP's Class A Common Stock, $.01 par
value per share, constituting all of the issued and outstanding shares of HCP's
capital stock, for shares of HCP's Common Stock, $.01 par value per share,
representing 3% of the economic interest in HCP (the "HCP Common"), and shares
of HCP's Series A Preferred Stock, $.01 par value per share, representing 97% of
the economic interest in HCP (the "HCP Preferred").
D. HCHI and the Principals formed Hanover Capital Mortgage Holdings,
L.P., a Delaware limited partnership (the "Partnership"), pursuant to an
Agreement of Limited Partnership of Hanover Capital Mortgage Holdings, L.P.,
dated as of June 12, 1997 (the "Partnership Agreement"), to which the
Registration Statement in the form initially filed with the United States
Securities and Exchange Commission was attached as an exhibit.
E. By executing the Partnership Agreement, (i) the Principals agreed
to effect the transactions contemplated by the Plan of Recapitalization, (ii)
HCHI and the Principals agreed to execute and deliver an Amended and Restated
Agreement of Limited Partnership for the Partnership, effective upon the closing
of the Offering, pursuant to which HCHI would contribute the net proceeds of the
Offering, and the Principals would contribute the HCP Preferred, to the
Partnership, and (iii) HCHI and the Principals agreed to do other acts and
things required to effect the transactions described in the Registration
Statement.
F. Due to recent changes in the federal income tax laws, HCHI and
the Principals no longer desire to utilize the Partnership in connection with
the formation and operations of HCHI. Instead, the Principals will contribute
the HCP Preferred directly to HCHI in exchange for shares of Common Stock in
HCHI pursuant to a Contribution Agreement substantially in the form attached
hereto as Exhibit 2 (the "Contribution Agreement").
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G. Although the Partnership will not be utilized in connection with
the formation and operations of HCHI, HCHI and the Principals nevertheless
desire to affirm in writing their commitments and obligations to proceed with
the transactions contemplated by the Contribution Agreement and the Registration
Statement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration the receipt and
legal sufficiency of which are hereby acknowledged, the parties hereto confirm
their agreement as follows:
1. Consummation of Certain Transactions.
1.1 Prior to the closing of the Offering, the Principals shall
exchange their shares of capital stock of HCP for the HCP Common and the HCP
Preferred pursuant to the Plan of Recapitalization.
1.2 On or before the closing of the Offering, HCHI and the
Principals shall execute and deliver the Contribution Agreement and perform such
of their obligations thereunder as are required to be performed by the closing
of the Offering. In addition, HCHI and the Principals shall execute and deliver
such other agreements, documents, instruments and other writings (including but
not limited to Employment Agreements, a Registration Rights Agreement and a
Shareholders' Agreement of HCP) as are necessary or appropriate to effect the
transactions described in the Registration Statement to which they are to be
parties.
2. Replacement of Partnership Agreement. This Agreement supersedes
and replaces the Partnership Agreement in all respects.
3. Amendments. This Agreement may not be amended without the express
written consent of each of the parties hereto.
4. Notices.
4.1 Any notice to a party hereto shall be at the address of
such party set forth on the attached Schedule 1 or at such other mailing address
of which such party shall prospectively notify the other parties in writing.
4.2 Any notice shall be deemed to have been duly given if
personally delivered or sent by United States mail or express mail service or by
telecopy or telegram confirmed by letter and will be deemed given, unless
earlier received, (i) if sent by certified or registered mail, return receipt
requested, or by first-class mail, five calendar days after being deposited in
the United States mails, postage prepaid, (ii) if sent by United States Express
Mail or other express mail service, two calendar days (other than Sundays and
federal holidays) after being deposited therein, (iii) if sent by telegram or
telecopy, on the date sent provided
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confirmatory notice is sent by first-class mail, postage prepaid, and (iv) if
delivered by hand, on the date of receipt.
5. BINDING PROVISIONS. The covenants and agreements contained herein
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, successors and assigns of the respective parties hereto, and no
other person shall have any rights or benefits hereunder except to the extent
expressly provided by applicable law.
6. COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto notwithstanding that all the parties have not signed the same
counterpart.
7. APPLICABLE LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of
Maryland without regard to principles of conflicts of law. In the event of a
conflict between any provision of this Agreement and any non-mandatory provision
of the Act, the provisions of this Agreement shall control and take precedence.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
HCHI: THE PRINCIPALS:
Hanover Capital Mortgage Holdings, Inc.
_____________________________________ _________________________________
By: Xxxx X. Xxxxxxxx
Its:
_________________________________
Xxxxx X. Xxxxxxx
_________________________________
Xxxxxx X. Xxxxxxxxx
_________________________________
Xxxx X. Xxxxxxx
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Schedule 1
PARTIES
Hanover Capital Mortgage Holdings, Inc.
00 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: President
Xxxx X. Xxxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Xxxxx X. Xxxxxxx
00 Xxxxxxx Xxx
Xxxxxxxx Xxx., XX 00000
Xxxxxx X. Xxxxxxxxx
000 Xxxxxxxx Xxxxxx
Xxxxxxxxx Xxxxxxx, XX 00000
Xxxx X. Xxxxxxx
0 Xxxxx Xxxx
Xxxxxx Xxxxxx, XX 00000
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