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SHAREHOLDERS' AGREEMENT OF
HANOVER CAPITAL PARTNERS LTD.
THIS SHAREHOLDERS' AGREEMENT OF HANOVER CAPITAL PARTNERS LTD. (the
"Agreement"), dated as of the ___ day of ___________, 1997 (the "Effective
Date"), is entered into by and among (i) Hanover Capital Partners Ltd., a New
York corporation having its principal place of business at 00 Xxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000 (the "Company"), (ii) Hanover Capital Mortgage
Holdings, Inc., a Maryland corporation having its principal place of business at
00 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000 ("HCHI"), (iii) Xxxx X.
Xxxxxxxx ("Xxxxxxxx"), (iv) Xxxxx X. Xxxxxxx ("Xxxxxxx"), (v) Xxxxxx X.
Xxxxxxxxx ("Xxxxxxxxx") and (vi) Xxxx X. Xxxxxxx ("Xxxxxxx"). Burchett, Mizerak,
Xxxxxxxxx and Xxxxxxx are collectively referred to as the "Initial
Shareholders."
RECITALS
A. The Company and the Initial Shareholders entered into an
Agreement of Shareholders, dated as of May 26, 1992 (the "Original Agreement"),
which they amended and restated pursuant to an Amended and Restated
Shareholders' Agreement of Hanover Capital Partners Ltd. dated as of January 1,
1996 (the "First Amended Agreement").
B. Pursuant to an Agreement and Plan of Recapitalization dated as of
__________, 1997 (the "Plan of Recapitalization"), the Initial Shareholders
exchanged 166.424 shares of the Company's Class A Common Stock, $.01 par value
per share, constituting all of the issued and outstanding shares of the
Company's Class A Common Stock, for 3,000 shares of the Company's Class A Common
Stock, $.01 par value per share (the "Common Shares"), and 97,000 shares of the
Company's Series A Preferred Stock, $.01 par value per share (the "Preferred
Shares").
C. Pursuant to the Contribution Agreement, dated as of the date hereof,
among the Initial Shareholders and HCHI (the "Contribution Agreement"), the
Initial Shareholders contributed all of the Preferred Shares to HCHI in exchange
for (i) 716,667 shares of common stock, $.01 par value per share, of HCHI, (ii)
loans by HCHI to the Initial Shareholders in an aggregate principal amount not
to exceed $1,750,000 and (iii) if certain conditions related to the financial
performance of HCHI are satisfied, (a) up to 216,667 additional shares of common
stock, $.01 par value per share, of HCHI and (b) the forgiveness of the loans of
up to $1,750,000 made by HCHI to the Initial Shareholders.
D. The Initial Shareholders and HCHI hold the Common Shares and
Preferred Shares, respectively, set forth opposite their names on the attached
SCHEDULE 1.
E. The Company, HCHI and the Initial Shareholders desire to amend and
restate the First Amended Agreement in its entirety in an effort to ensure that
(i) HCHI maintains its qualification as a real estate estate investment trust
("REIT") for Federal income tax purposes, and (ii) the Common Shares continue to
be owned by persons whose interests coincide with the interests of
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HCHI to the extent provided in this Agreement. The Original Agreement and the
First Amended Agreement have been superseded in every respect by this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement and for other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties to this Agreement hereby agree
that the Original Agreement and the First Amended Agreement shall be amended and
restated as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall be defined as follows:
AFFILIATE. "Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or under common
control with such Person.
BUSINESS DAY. "Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized or
required by law to be closed.
CLASS B SHAREHOLDER. "Class B Shareholder" shall mean any holder of
Class B Shares.
CLASS B SHARES. "Class B Shares" shall mean shares of the Company's
Class B Common Stock, $.01 par value, that the Company may be authorized to
issue from time to time and any other securities of the Company for which such
Class B Shares may be exchanged (by way of reorganization, recapitalization,
merger, consolidation or otherwise).
COMMON SHAREHOLDER. "Common Shareholder" shall mean any holder of
Common Shares.
COMMON SHARES. "Common Shares" shall mean shares of the Company's Class
A Common Stock, $.01 par value, that the Company may be authorized to issue from
time to time, any other securities of the Company for which such Common Shares
may be exchanged (by way of reorganization, recapitalization, merger,
consolidation or otherwise) and shall also include any shares of common stock of
the Company (other than Class B Shares) hereafter authorized and of any capital
stock of the Company of any other class (except Class B Shares) hereafter
authorized which is not preferred as to dividends or distribution of assets in
liquidation over any other class of capital stock of the Company or which has
ordinary voting power for the election of directors of the Company.
CONTRIBUTION AGREEMENT PRICE. "Contribution Agreement Price" shall
mean, as of any time of determination, (a) the aggregate Fair Market Value of
the shares of capital stock of HCHI that have been issued to the Initial
Shareholders pursuant to the Contribution Agreement (measured, in the case of
each such issuance, as of the date of such issuance) plus (b) the aggregate
principal amount of any indebtedness of the Initial Shareholders to HCHI that
has been forgiven pursuant to the Contribution Agreement.
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CONTRIBUTION AGREEMENT VALUE. "Contribution Agreement Value" shall mean
(a) the Contribution Agreement Price divided by (b) ninety-seven percent (97%).
CONTROL. "Control" (including the terms "controlling," "controlled by,"
and "under common control with") shall mean the direct or indirect possession of
the power to direct or cause the direction of the management and policies of a
Person, corporation, partnership, limited liability company or other entity,
whether through the ownership of voting securities, by contract, or otherwise.
EVENT OF BANKRUPTCY. With respect to any Person, "Event of Bankruptcy"
shall mean any of the following events:
(a) the making by such Person of an assignment for the
benefit of creditors;
(b) the filing by such Person of a voluntary petition under
any bankruptcy, insolvency or similar law which is not dismissed within ninety
(90) days after the filing thereof;
(c) the adjudication of such Person by a court of competent
jurisdiction as a bankrupt or insolvent, or the entry against such Person of an
order for relief under any bankruptcy, insolvency or similar proceeding within
ninety (90) days after the filing thereof;
(d) the filing by such Person of a petition or answer
seeking for himself or herself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any bankruptcy or
insolvency statute, law or regulation;
(e) the filing by such Person of an answer or other
pleading admitting or failing to contest the material allegations of a petition
filed against him or her in any bankruptcy or insolvency proceeding;
(f) such Person's written request for, consent to or
acquiescence in the appointment of a trustee, receiver or liquidator of such
Person or of all or any substantial part of such Person's properties; or
(g) the passage of (i) one hundred twenty (120) days after
the commencement of any proceeding against such Person seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any bankruptcy or insolvency statute, law or regulation without
such proceeding having been dismissed, (ii) ninety (90) days after the
appointment, without such Person's consent or acquiescence, of a trustee,
receiver or liquidator of such Person or of all or any substantial portion of
such Person's properties without such appointment having been vacated or stayed,
or (iii) ninety (90) days after the expiration of any stay of an appointment
referred to in the foregoing clause (ii) without such appointment having been
vacated.
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FAIR MARKET VALUE. "Fair Market Value" means, with respect to any share
of capital stock of HCHI issued to an Initial Shareholder pursuant to the
Contribution Agreement, (a) if such share was issued to such Initial Shareholder
upon the closing of HCHI's initial underwritten public offering, the IPO Price,
or (b) if such share was issued to such Initial Shareholder on or after
September 30, 1998, the average of the daily market price for the ten (10)
consecutive trading days immediately preceding the date on which such share was
issued or, if such date was not a Business Day, the immediately preceding
Business Day. The market price for each such trading day shall be: (i) if such
shares are listed or admitted to trading on any securities exchange or the
Nasdaq National Market, the closing price, regular way, on such day, or if no
such sale takes place on such day, the average of the closing bid and asked
prices on such day, (ii) if such shares are not listed or admitted to trading on
any securities exchange or the Nasdaq National Market, the last reported sale
price on such day or, if no sale takes place on such day, the average of the
closing bid and asked prices on such day, as reported by a reliable quotation
source designated by HCHI, or (iii) if such shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market and no such
last reported sale price or closing bid and asked prices are available, the
average of the reported high bid and low asked prices on such day, as reported
by a reliable quotation source designated by HCHI, or if there shall be no bid
and asked prices on such day, the average of the high bid and low asked prices,
as so reported, on the most recent day (not more than ten (10) days prior to the
date in question) for which prices have been so reported; provided that, if
there are no bid and asked prices reported during the ten (10) days prior to the
date in question, the Fair Market Value of such shares shall be determined by
HCHI acting on the basis of such quotations and other information as it
considers appropriate.
IMMEDIATE FAMILY. "Immediate Family" shall mean, with respect to any
natural Person, (a) such Person's current or former spouse, descendants (by
blood or adoption), parents, parents-in-law, siblings and descendants of
siblings (by blood or adoption) and (b) any trust all of the beneficiaries of
which consist of such Person and/or Persons included in (a) immediately above.
IPO PRICE. "IPO Price" means the initial public offering price of a
Unit in HCHI's initial underwritten public offering.
OPTION EVENT. "Option Event" shall mean, with respect to any Common
Shareholder (other than HCHI or any Affiliate or Subsidiary of HCHI), any of the
following events:
(a) in the case of an Initial Shareholder, any event
following which (i) such Initial Shareholder is not employed by at least one of
HCHI, the Company and their respective Affiliates and Subsidiaries (in the case
of disability, for a period of at least two (2) consecutive months or a total of
sixty (60) days during any twelve-month period due to a condition that, in the
opinion of a physician who is mutually acceptable to the Company, HCHI and such
Initial Shareholder or his or her legal representatives, is likely to continue
for at least one year from the time of inception) or (ii) neither such Initial
Shareholder nor a member of the Immediate Family or an Affiliate of such Initial
Shareholder owns an equity interest in HCHI;
(b) an Event of Bankruptcy with respect to such Common
Shareholder;
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(c) the death of such Common Shareholder;
(d) the agreement by, or requirement of, such Common
Shareholder to transfer all or any portion of his or her Common Shares to a
spouse or former spouse in connection with a legal separation or dissolution of
marriage;
(e) the Transfer of all or any portion of such Common
Shareholder's Common Shares by operation of law; or
(f) in the case of a Common Shareholder who was a member of
the Immediate Family or an Affiliate of an Initial Shareholder upon acquiring
his, her or its Common Shares, (i) any event described in subparagraph (a)
immediately above with respect to such Initial Shareholder or (ii) any event
that causes such Common Shareholder to no longer be a member of the Immediate
Family or an Affiliate of such Initial Shareholder.
OPTION EVENT VALUE. "Option Event Value" shall mean the amount (per
share) payable hereunder for the Common Shares of a Common Shareholder who
suffers an Option Event, which amount shall be determined by dividing (a) the
Contribution Agreement Value by (b) the number of Shares outstanding as of the
effective date of this Agreement (100,000). In determining the Option Event
Value of the Common Shares of a Common Shareholder hereunder, appropriate
adjustments shall be made for stock dividends and distributions, stock splits
and subdivisions, reverse stock splits and combinations, recapitalizations and
transactions having like effect.
PERMITTED TRANSFER. A "Permitted Transfer" shall mean a Transfer of
Common Shares by a Common Shareholder (a) to (i) a member of such Common
Shareholder's Immediate Family, (ii) an Affiliate of such Common Shareholder, or
(iii) another Shareholder, or (b) with the consent, in writing, of Shareholders
holding a majority of the issued and outstanding Shares (not held by such Person
or Affiliates of such Person).
No Permitted Transfer shall be effective unless and until the Permitted
Transferee of the Common Shares so transferred executes and delivers to the
Company an executed counterpart of this Agreement, which shall evidence such
Permitted Transferee's agreement that the Common Shares intended to be
transferred shall continue to be subject to this Agreement and that as to such
Common Shares the Permitted Transferee shall be bound by the restrictions of
this Agreement.
PERSON. "Person" shall mean any individual or any corporation,
partnership, trust, limited liability company or other entity.
PREFERRED SHAREHOLDER. "Preferred Shareholder" shall mean any holder of
Preferred Shares.
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PREFERRED SHARES. "Preferred Shares" shall mean shares of the Company's
Series A Preferred Stock, $.01 par value, that the Company may be authorized to
issue from time to time, any other securities of the Company for which such
Preferred Shares may be exchanged (by way of reorganization, recapitalization,
merger, consolidation or otherwise) and shall also include any shares of capital
stock of the Company hereafter authorized which are not Common Shares or Class B
Shares.
SHAREHOLDER. "Shareholder" shall mean any Common Shareholder, Class B
Shareholder or Preferred Shareholder.
SHARES. "Shares" shall mean any Common Shares, Class B Shares or
Preferred Shares.
SUBSIDIARY. "Subsidiary" with respect to any entity (the "parent")
shall mean any corporation, partnership, limited liability company, firm,
association, trust or other entity of which such parent, at the time in respect
of which such term is used, (a) owns directly or indirectly more than 50% of the
equity or beneficial interest, on a consolidated basis, or (b) owns directly or
indirectly more than 50% of the shares of capital stock or beneficial interest
having the power to vote for the election of directors, trustees, managers or
other officials having powers analogous to those of directors of a corporation.
Unless otherwise specifically indicated, when used herein the term Subsidiary
shall refer to a direct or indirect Subsidiary.
TRANSFER. "Transfer" shall mean to transfer, sell, assign, pledge,
hypothecate, give, create a security interest in or lien on, place in trust
(voting or otherwise), assign or in any other way encumber or dispose of,
directly or indirectly and whether or not by operation of law or for value, any
Shares.
2. RESTRICTIONS ON TRANSFER OF COMMON SHARES. Except as otherwise
provided in this Agreement, no Common Shareholder (other than HCHI or any
Affiliate or Subsidiary of HCHI) may Transfer all or any part of the Common
Shares owned by him or her other than by a Permitted Transfer without complying
with the following procedures:
(a) NOTICE TO COMPANY AND OTHER SHAREHOLDERS. If at any
time a Common Shareholder (other than HCHI or any Affiliate or Subsidiary of
HCHI) (the "Offeror") desires or otherwise proposes to Transfer Shares to any
Person other than by a Permitted Transfer (a "Third Party Offeree"), such
Offeror shall give notice of such Transfer (the "Transfer Notice") to the
Company, the other Common Shareholders (the "Common Offerees") and the Preferred
and Class B Shareholders (collectively, the "Preferred Offerees"). The Transfer
Notice shall include the terms and conditions of such Transfer, including the
name of the Third Party Offeree, the proposed purchase price, if any, per share
of such Shares (the "Offer Price"), the payment terms (including a description
of any proposed non-cash consideration), and the type of disposition and the
number of such Shares to be transferred (the "Offered Shares"). The Transfer
Notice shall further state that the Company, the Common Offerees and the
Preferred Offerees may acquire, in accordance with the provisions of this
Agreement, any of the Offered Shares for the Offer Price and upon the other
terms and conditions set forth in the Transfer Notice; PROVIDED, that if such
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Transfer does not involve a sale, the Offer Price for purposes of this Section 2
shall be the Option Event Value of such Offered Shares.
(b) COMPANY'S RIGHT OF FIRST REFUSAL. For a period of
twenty (20) days from the receipt of the Transfer Notice (the "Company Offer
Period"), the Company may, by written notice to the Offeror, the Common Offerees
and the Preferred Offerees, elect to purchase all or any portion of the Offered
Shares at the Offer Price per share.
(c) COMMON OFFEREES' RIGHT OF FIRST REFUSAL. If the Company
does not elect to purchase all of the Offered Shares, the Common Offerees shall
have a period of ten (10) additional days beyond the Company Offer Period (the
"Common Offer Period") to elect, by written notice to the Offeror, to purchase
the Offered Shares not purchased by the Company (the "Refused Shares") at the
Offer Price per share in such proportions as they may agree upon. If the Common
Offerees are unable to agree within the Common Offer Period on the proportions
in which they will purchase the Refused Shares, each of the Common Offerees
shall be entitled to purchase his or her PRO RATA portion (based on the number
of Common Shares such Common Offeree owns in relation to the total number of
Common Shares owned by all of the Common Offerees) of the Refused Shares not
purchased by the Company by notifying the Offeror in writing, within an
additional ten (10) day period after the close of the Common Offer Period and
with copies to the Company and the other Shareholders, of his or her election to
make such purchase. The Common Offerees shall have a right of oversubscription
such that if any Common Offeree does not elect to purchase his or her PRO RATA
portion of the Refused Shares, the other Common Offerees shall, among them, have
the right to purchase up to the balance of the Refused Shares not so purchased.
Such right of oversubscription may be exercised by a Common Offeree by
specifying in his or her notice to the Offeror his or her election to purchase
more than his or her PRO RATA portion of the Refused Shares. If, as a result
thereof, such oversubscriptions exceed the number of Refused Shares available in
respect of such oversubscription privilege, the oversubscribing Common Offerees
shall be reduced with respect to their oversubscriptions in accordance with
their respective PRO RATA portions of the Refused Shares.
(d) PREFERRED OFFEREES' RIGHT OF FIRST REFUSAL. If the
Company and the Common Offerees do not elect to purchase all of the Offered
Shares, the Preferred Offerees shall have a period of ten (10) additional days
beyond the Common Offer Period (plus any extension thereof) (the "Preferred
Offer Period") to elect, by written notice to the Offeror, to purchase the
Refused Shares not purchased by the Common Offerees (the "Twice Refused Shares")
at the Offer Price per share in such proportions as they may agree upon. If the
Preferred Offerees are unable to agree within the Preferred Offer Period on the
proportions in which they will purchase the Twice Refused Shares, each of the
Preferred Offerees shall be entitled to purchase its PRO RATA portion (based on
the number of Preferred and Class B Shares such Preferred Offeree owns in
relation to the total number of Preferred and Class B Shares owned by all of the
Preferred Offerees) of the Twice Refused Shares by notifying the Offeror in
writing, within an additional ten (10) day period after the close of the
Preferred Offer Period and with copies to the Company and the other
Shareholders, of its election to make such purchase. The Preferred Offerees
shall have a right of oversubscription such that if any Preferred Offeree does
not elect to purchase his or her PRO RATA portion of the Twice Refused Shares,
the other Preferred Offerees shall, among
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them, have the right to purchase up to the balance of the Twice Refused Shares
not so purchased. Such right of oversubscription may be exercised by a Preferred
Offeree by specifying in its notice to the Offeror its election to purchase more
than its PRO RATA portion of the Twice Refused Shares. If, as a result thereof,
such oversubscriptions exceed the number of Twice Refused Shares available in
respect of such oversubscription privilege, the oversubscribing Preferred
Offerees shall be reduced with respect to their oversubscriptions in accordance
with their respective PRO RATA portions of the Twice Refused Shares.
(e) CLOSING. A closing of the purchase of Offered Shares
pursuant to Sections 2(b), 2(c) or 2(d) immediately above shall take place at
the principal office of the Company within thirty (30) days after the close of
the Preferred Offer Period (plus any extension thereof). At such closing, each
Person purchasing Offered Shares shall deliver to the Offeror against delivery
of certificates duly endorsed and stock powers representing the Offered Shares
being acquired by such Person the Offer Price per share payable in respect of
such Offered Shares; PROVIDED, HOWEVER, that the amount payable by any such
Person shall in no event be payable on terms, or on a schedule, less favorable
to such Person than those specified in the Transfer Notice if such Transfer
involves a sale. All of the foregoing deliveries shall be deemed to be made
simultaneously and none shall be deemed completed until all have been completed.
(f) ADDITIONAL RIGHTS OF PREFERRED OFFEREES.
Notwithstanding any other provision of this Section 2, and in addition to any
and all rights it may have under this Agreement, a Preferred Offeree may (i)
assign its rights under this Section 2 to purchase Offered Shares or cause any
Offered Shares that it may purchase pursuant to this Section 2 to be issued in
the name of any such Person as it may designate, and (ii) require the Company to
issue to it in exchange for any Offered Shares purchased by it pursuant to this
Section 2 an equal number of Class B Shares. The Company shall maintain a number
of authorized but unissued Class B Shares equal to the number of Common Shares
that are issued and outstanding.
(g) NO RIGHTS OF OFFEROR TO PURCHASE. During the period
that a Common Shareholder's Common Shares are subject to repurchase under this
Section 2 as a result of a proposed Transfer by such Common Shareholder, such
Common Shareholder shall have no right to participate in the purchase of the
Common Shares of any other Common Shareholder whose Common Shares are also then
subject to purchase under this Section 2 or Section 3. If the Common Shares of
two or more Common Shareholders are subject to purchase at any time under this
Agreement, the Company, the Common Shareholders whose Common Shares are not then
subject to purchase and the Preferred Optionees may exercise their rights to
purchase the Common Shares of all of such Common Shareholders or any combination
of them in any amounts or proportions.
(h) SHARES NOT PURCHASED BY COMPANY OR OTHER SHAREHOLDERS.
If the Company and/or the Common and Preferred Offerees do not elect to purchase
all of the Offered Shares, then the remaining Offered Shares may be Transferred
to the Third Party Offeree, on the terms and conditions (including for the
price, if any) specified in the Transfer Notice, within thirty (30) days after
the close of the Preferred Offer Period plus any extension thereof pursuant to
Section 2(d), after which, if such Offered Shares have not been Transferred to
such Third
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Party Offeree, all restrictions contained herein shall again be in full force
and effect. As a condition to the effectiveness of any Transfer of Common Shares
to a Third Party Offeree, such Third Party Offeree shall execute and deliver to
the Company, with copies to each of the Shareholders, a counterpart of this
Agreement (including appropriate amendments to the SCHEDULES attached hereto),
which shall evidence such Third Party Offeree's agreement that the Common Shares
so Transferred to him or her shall continue to be subject to this Agreement and
that as to such Common Shares the Third Party Offeree shall be bound by the
restrictions of this Agreement.
(i) TRANSFERS PURSUANT TO SECTION 3. This Section 2 shall
not apply to any Transfer made pursuant to Section 3 of this Agreement.
3. OPTION EVENTS.
(a) NOTICE. Within thirty (30) days after the occurrence of
an Option Event with respect to any Common Shareholder (other than HCHI or any
Affiliate or Subsidiary of HCHI) (the "Optionor"), such Optionor shall notify
the Company, the other Common Shareholders (the "Common Optionees") and the
Preferred and Class B Shareholders (collectively, the "Preferred Optionees") of
such occurrence. Any notice delivered pursuant to this Section 3(a) shall
specify the number of Common Shares owned by such Optionor.
(b) RIGHT OF COMPANY TO PURCHASE. After the occurrence of
an Option Event with respect to an Optionor, the Company shall have the right to
purchase all or any portion of such Optionor's Common Shares (the "Option
Shares") at a price equal to the Option Event Value per share of such Option
Shares. To exercise its right to purchase Option Shares of an Optionor, the
Company shall provide written notice of its election to make such purchase,
within the ninety (90) day period (the "Company Option Period") after the
occurrence of such Option Event, to such Optionor, the Common Optionees and the
Preferred Optionees.
(c) RIGHT OF COMMON OPTIONEES TO PURCHASE. If the Company
does not elect to purchase all of the Option Shares it may purchase pursuant to
Section 3(b) following the occurrence of an Option Event with respect to an
Optionor, the Common Optionees shall have a period of thirty (30) additional
days beyond the Company Option Period (the "Common Option Period") to elect, by
written notice to the Optionor, to purchase the Option Shares not purchased by
the Company (the "Remaining Shares") at a price equal to the Option Event Value
per share in such proportions as they may agree upon. If the Common Optionees
are unable to agree within the Common Option Period on the proportions in which
they will purchase the Remaining Shares, each of the Common Optionees shall be
entitled to purchase his or her PRO RATA portion (based on the number of Common
Shares such Common Optionee owns in relation to the total number of Common
Shares owned by all of the Common Optionees) of the Remaining Shares by
notifying such Optionor in writing, within an additional ten (10) day period
after the close of the Common Option Period and with copies to the Company and
the other Shareholders, of his or her election to make such purchase. The Common
Optionees shall have a right of oversubscription such that if any Common
Optionee does not elect to purchase his or her PRO RATA portion of the Remaining
Shares, the other Common Optionees shall, among them, have the right
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to purchase up to the balance of the Remaining Shares not so purchased. Such
right of oversubscription may be exercised by a Common Optionee by specifying in
his or her notice to the Optionor his or her election to purchase more than his
or her PRO RATA portion of the Remaining Shares. If, as a result thereof, such
oversubscriptions exceed the number of Remaining Shares available in respect of
such oversubscription privilege, the oversubscribing Common Optionees shall be
reduced with respect to their oversubscriptions in accordance with their
respective PRO RATA portions of the Remaining Shares.
(d) RIGHT OF PREFERRED OPTIONEES TO PURCHASE. If the
Company and the Common Optionees do not elect to purchase all of the Option
Shares, the Preferred Optionees shall have a period of thirty (30) additional
days beyond the Common Option Period (plus any extensions thereof) (the
"Preferred Option Period") to elect, by written notice to the Optionor, to
purchase the Remaining Shares not purchased by the Common Optionees (the "Twice
Remaining Shares") at a price equal to the Option Event Value per share in such
proportions as they may agree upon. If the Preferred Optionees are unable to
agree within the Preferred Option Period on the proportions in which they will
purchase the Twice Remaining Shares, each of the Preferred Optionees shall be
entitled to purchase its PRO RATA portion (based on the number of Preferred and
Class B Shares such Preferred Optionee owns in relation to the total number of
Preferred and Class B Shares owned by all of the Preferred Optionees) of the
Twice Remaining Shares by notifying such Optionor in writing, within an
additional ten (10) day period after the close of the Preferred Option Period
and with copies to the Company and the other Shareholders, of its election to
make such purchase. The Preferred Optionees shall have a right of
oversubscription such that if any Preferred Optionee does not elect to purchase
its PRO RATA portion of the Twice Remaining Shares, the other Preferred
Optionees shall, among them, have the right to purchase up to the balance of the
Twice Remaining Shares not so purchased. Such right of oversubscription may be
exercised by a Preferred Optionee by specifying in its notice to the Optionor
its election to purchase more than its PRO RATA portion of the Twice Remaining
Shares. If, as a result thereof, such oversubscriptions exceed the number of
Twice Remaining Shares available in respect of such oversubscription privilege,
the oversubscribing Preferred Optionees shall be reduced with respect to their
oversubscriptions in accordance with their respective PRO RATA portions of the
Twice Remaining Shares.
(e) CLOSING AND PAYMENT. A closing of the purchase of
Option Shares to be purchased pursuant to Section 3(b), 3(c) or 3(d) immediately
above as a result of an Option Event shall take place at the principal office of
the Company within thirty (30) days after the close of the Preferred Option
Period (plus any extension thereof). At such closing, each Person purchasing
Option Shares shall deliver to the Optionor against delivery of certificates
duly endorsed and stock powers representing the Option Shares being acquired by
such Person the Option Event Value per share payable in respect of such Option
Shares. All of the foregoing deliveries shall be deemed to be made
simultaneously and none shall be deemed completed until all have been completed.
The price to be paid for any Option Shares purchased pursuant to this Section 3
may be paid, at the option of the purchaser, with a promissory note of the
purchaser that (i) is fully recourse to the purchaser, (ii) is secured by the
purchased Option Shares, (iii) has a term not longer than three (3) years, (iv)
provides for level, annual payments of principal over its term, (v) may be
prepaid in full or part at any time without penalty and (vi) provides for
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monthly payments of interest on its outstanding principal balance at a rate,
adjusted annually on each anniversary of the date of its issuance, at least
equal to the prime rate of interest as published from time to time in the Wall
Street Journal plus 1%.
(f) ADDITIONAL RIGHTS OF PREFERRED OPTIONEES.
Notwithstanding any other provision of this Section 3, and in addition to any
and all rights it may have under this Agreement, a Preferred Optionee may (i)
assign its rights under this Section 3 to purchase Option Shares or cause any
Option Shares that it may purchase pursuant to this Section 3 to be delivered in
the name of any such Person as it may designate, and (ii) require the Company to
issue to it in exchange for any Option Shares purchased by it pursuant to this
Section 3 an equal number of Class B Shares. The Company shall maintain a number
of authorized but unissued Class B Shares equal to the number of Common Shares
that are issued and outstanding.
(g) NO RIGHTS OF OPTIONOR TO PURCHASE. During the period
that a Common Shareholder's Common Shares are subject to repurchase under this
Section 3 as a result of an Option Event with respect to such Common
Shareholder, such Common Shareholder shall have no right to participate in the
purchase of the Common Shares of any other Common Shareholder whose Common
Shares are also then subject to purchase under Section 2 above or this Section
3. If the Common Shares of two or more Common Shareholders are subject to
purchase at any time under this Agreement, the Company, the Common Shareholders
whose Common Shares are not then subject to purchase and the Preferred Optionees
may exercise their rights to purchase the Common Shares of all of such Common
Shareholders or any combination of them in any amounts or proportions.
(h) SHARES NOT PURCHASED. If all of the Common Shares of an
Optionor are not purchased pursuant to this Section 3 after the occurrence of an
Option Event with respect to such Optionor, then the remaining Common Shares of
such Optionor may be retained by such Optionor or, if such Option Event involves
a Transfer, by the recipient of such Transfer, subject to all of the
restrictions contained herein. As a condition to the effectiveness of any
Transfer that occurs in connection with an Option Event, the recipient of such
Transfer shall execute and deliver to the Company, with copies to each of the
Shareholders, a counterpart of this Agreement (with appropriate amendments to
the SCHEDULES attached hereto), which shall evidence such recipient's agreement
that the Shares so Transferred to him or her shall continue to be subject to
this Agreement and that as to such Common Shares such recipient shall be bound
by the restrictions of this Agreement.
(i) ESTATES AND REPRESENTATIVES. In the case of any
Optionor who has died or become incompetent, any reference in this Section 3 to
such Optionor shall be a reference to such Optionor's estate or other legal
representatives or successors, as the context may require.
4. PREEMPTIVE RIGHTS.
(a) PREEMPTIVE RIGHTS. The Company hereby grants to each
Shareholder so long as he, she or it shall hold any Shares the right to purchase
up to a PRO RATA portion of New Securities (as defined in Section 4(b) below)
which the Company, from time to time, proposes to
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sell or issue. A Shareholder's PRO RATA portion, for purposes of this Section 4,
is the ratio of the number of Shares then owned by such Shareholder to the total
number of Shares then outstanding on a fully diluted basis after giving effect
to the exercise of all options, warrants and the like and the conversion of all
securities convertible into or exchangeable for Shares. The Shareholders shall
have a right of oversubscription such that if any Shareholder does not elect to
purchase his, her or its PRO RATA portion of any New Securities, the other
Shareholders shall, among them, have the right to purchase up to the balance of
the New Securities not so purchased. Such right of oversubscription may be
exercised by a Shareholder by specifying in its notice pursuant to Section 4(c)
below its election to purchase more than its PRO RATA portion of the New
Securities. If, as a result thereof, such oversubscriptions exceed the number of
New Securities available in respect of such oversubscription privilege, the
oversubscribing Shareholders shall be reduced with respect to their
oversubscriptions in accordance with their respective PRO RATA portions of the
New Securities.
(b) NEW SECURITIES. "New Securities" shall mean any capital
stock of the Company whether now authorized or not, any rights, options or
warrants to purchase capital stock and any indebtedness or preferred stock of
the Company which is convertible into capital stock (or which is convertible
into a security which, in turn, is convertible into capital stock); PROVIDED,
that the term "New Securities" does not include (i) shares of capital stock
issued as a stock dividend to all holders of capital stock PRO RATA or upon any
subdivision or combination of shares of capital stock, or (ii) any employee
stock options approved by the Board of Directors of the Company.
(c) NOTICE FROM THE COMPANY. In the event the Company
proposes to issue New Securities, the Company shall give each Shareholder
written notice of such proposal, describing the type of New Securities and the
price and the terms upon which the Company proposes to issue such New
Securities. For a period of twenty (20) days following the delivery of such
notice by the Company, the Company shall be deemed to have irrevocably offered
to sell to each Shareholder its PRO RATA share of such New Securities for the
price and upon the terms specified in the notice. Each Shareholder may exercise
his, her or its preemptive rights hereunder by giving written notice to the
Company stating therein the quantity of New Securities to be purchased by such
Shareholder. Notwithstanding any other provision of this Section 4, and in
addition to any and all rights it may have hereunder, a Preferred Shareholder
may (i) assign its rights under this Section 4 to purchase New Securities or
cause any New Securities that it may purchase pursuant to this Section 4 to be
delivered in the name of any such Person as it may designate and (ii) require
that any New Securities that it purchases hereunder be nonvoting to the extent
necessary to preserve HCHI's status as a REIT for federal income tax purposes.
(d) SALE BY THE COMPANY. In the event any Shareholder fails
to exercise in full his, her or its preemptive right within the twenty (20) day
period described in Section 4(c) immediately above, the Company shall have sixty
(60) days thereafter to sell the New Securities with respect to which such
preemptive right was not exercised at a price and upon terms no more favorable
to the purchasers thereof than specified in the Company's notice pursuant to
Section 4(c) immediately above.
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(e) CLOSING. The closing for any issuance under this
Section 4 shall take place as proposed by the Company with respect to the shares
to be issued, at which closing the Company shall deliver certificates for such
shares in the respective names of the purchasing Shareholders against receipt of
payment therefor. All such shares shall be held by such Shareholders subject in
all respects to the terms of this Agreement.
5. CORPORATE GOVERNANCE. No Shareholder shall grant any proxy or
enter into or agree to be bound by any voting trust with respect to his, her or
its Shares nor shall any Shareholder enter into any shareholders agreements or
arrangements of any kind with any person with respect to the Shares on terms
which conflict with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Shareholders), including, but not
limited to, agreements or arrangements with respect to the acquisition,
disposition or voting of Shares inconsistent herewith.
6. TERMINATION. This Agreement shall terminate upon the earlier
to occur of (a) dissolution or complete liquidation of the Company, (b) an
assignment for the benefit of creditors by, or an adjudication of bankruptcy or
appointment of a receiver for the Company or (c) a merger or consolidation of
the Company pursuant to which the Common Shareholders do not Control the
surviving corporation; provided, however, that no such termination shall have
any effect on the obligations herein set forth of the Company or the
Shareholders which have accrued as of such termination and to the extent
applicable to such obligations, this Agreement shall continue in effect until
all such obligations have been satisfied in full.
7. FAILURE TO DELIVER SHARES. If a Shareholder becomes obligated
to sell any Shares to the Company or to other Shareholders under this Agreement
and fails to deliver such Shares in accordance with the terms of this Agreement,
the Company or the other Shareholders (whichever the case may be) may, in
addition to all other remedies it or they may have, send to such Shareholder the
purchase price for such Shares as herein specified. Thereupon, the Company upon
written notice to the obligated Shareholder, (a) shall cancel on its books the
certificate or certificates representing the Shares to be sold and (b) shall
issue, in lieu thereof, in the name of the Company or the other Shareholders
(whichever the case may be) a new certificate or certificates representing such
Shares, and thereupon all of the obligated Shareholder's rights in and to such
Shares shall terminate.
8. REMEDIES; DISPUTES.
(a) SPECIFIC PERFORMANCE. If a Shareholder makes or
attempts to make a Transfer of Shares contrary to the provisions of this
Agreement, the Company and the other Shareholders may enforce their respective
rights under this Agreement by actions for specific performance (to the extent
permitted by law) in addition to pursuing any other legal or equitable remedies
they may have. In addition, the Company may refuse to recognize any Person who
receives shares of stock in the Company contrary to the provisions of this
Agreement as a shareholder for any purpose, including, without limitation, for
purposes of dividend and voting rights, until all applicable provisions of this
Agreement have been complied with.
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(b) DISPUTE RESOLUTION. All disputes, differences and
controversies arising hereunder shall be settled and finally determined by
arbitration in the City of New York under the then existing rules of the
American Arbitration Association.
9. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth
the entire understanding of the parties, and supersedes all prior agreements and
all other arrangements and communications, whether oral or written, with respect
to the subject matter of this Agreement, including, without limitation, the
Original Agreement, the First Amended Agreement and the Plan of
Recapitalization. Neither this Agreement nor any provision of this Agreement may
be waived, modified, amended or terminated except by a written agreement signed
by the parties to this Agreement. Waiver by a party to this Agreement of any
breach of or failure to comply with any provision of this Agreement by any other
party shall not be construed as, or constitute, a continuing waiver of such
provision, or a waiver or any other breach of, or failure to comply with, any
other provision of this Agreement.
10. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions of
this Agreement, and this Agreement shall be construed in all respects as if the
invalid or unenforceable provision were omitted.
11. NOTICES. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be deemed to
have been duly given or made if personally delivered or sent by United States
mail or express mail service or by telegram confirmed by letter or telecopy to
the respective addresses set forth below:
(a) THE COMPANY. For notices and communications to the
Company:
Hanover Capital Partners Ltd.
00 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
(b) THE SHAREHOLDERS. For notices and communications to the
Shareholders, to the respective addresses set forth on SCHEDULE 1 attached
hereto.
All notices and other communications will be deemed to have been duly given,
unless earlier received, (i) if sent by certified or registered mail, return
receipt requested, or by first-class mail, five (5) 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 confirmatory notice is sent by
first-class mail, postage prepaid, and (iv) if delivered by hand, on the date of
receipt.
By notice complying with the foregoing provisions of this Section 11, each party
shall have the right to change the mailing address for future notices and
communications to such party.
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12. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and to their
respective heirs, executors, administrators, legal representatives, successors
and permitted assigns; provided, however, that the rights under this Agreement
may not be assigned except as expressly provided herein. This Agreement shall
apply to all stock and equity securities of the Company now or hereafter
acquired by the Shareholders or any of their successors in interest.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the principles relating to conflicts of law, as to all matters,
including, but not limited to, matters of validity, construction, effect,
performance and remedies.
14. RECAPITALIZATION, EXCHANGES, ETC. Except upon termination of
this Agreement pursuant to Section 6(c) above, the provisions of this Agreement
shall apply, to the full extent set forth in this Agreement with respect to
Shares, to any and all shares of capital stock of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Shares, by reason of a stock dividend, stock split, stock
issuance, reverse stock split, combination, recapitalization, reclassification,
merger, consolidation or otherwise. Upon the occurrence of any such events,
amounts set forth on SCHEDULE 1 shall be appropriately adjusted and this
Agreement shall be amended to reflect the same within ten (10) days.
15. PURCHASE FOR INVESTMENT; LEGEND. Each of the parties to this
Agreement acknowledges that he, she or it holds the Shares shown opposite his,
her or its name on the attached SCHEDULE 1, that all of the Shares held by such
party as shown on SCHEDULE 1 to this Agreement are being (or have been) acquired
for investment and not with a view to the distribution thereof and that no
transfer, hypothecation or assignment of Shares may be made except in compliance
with applicable federal and state securities laws. All the certificates of
Shares of the Company which are now or hereafter owned by the Common
Shareholders and which are subject to the terms of this Agreement shall have
endorsed in writing, stamped or printed, thereon, the following legend:
THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS, INCLUDING RESTRICTIONS ON TRANSFER, OF A
SHAREHOLDERS' AGREEMENT, DATED AS OF ,
1997, A COPY OF WHICH IS ON FILE WITH THE SECRETARY
OF THE COMPANY AND WILL BE MAILED TO ANY PROPERLY
INTERESTED PERSON WITHOUT CHARGE WITHIN FIVE (5)
DAYS AFTER THE COMPANY'S RECEIPT OF A WRITTEN
REQUEST THEREFOR.
All Shares shall also bear all legends required by federal and state
securities laws.
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16. HEADINGS. All headings and captions in this Agreement are for
purposes of reference only and shall not be construed to limit or affect the
substance of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and all signatures need
not appear on any one counterpart. The Company agrees that a copy of this
Agreement shall be kept at the principal office of the Company for inspection by
the Shareholders. Any Shareholder shall have the right to inspect said copy of
this Agreement and the books and records of the Company at reasonable times
after reasonable notice.
18. NO EMPLOYMENT RIGHTS; NO DISCLOSURE. Each Shareholder agrees
and acknowledges that (a) neither the holding of Shares by such Shareholder nor
any provision of this Agreement shall give any Shareholder the right to be
retained in the employ of the Company or otherwise affect his or her employment
relationship with the Company, and (b) neither the Company nor any other
Shareholder shall have any duty affirmatively to disclose to a Shareholder, and
no Shareholder shall have any right to be advised of, any material information
regarding the Company or its business or prospects at any time prior to, upon or
in connection with any mandatory transfer of Shares under this Agreement.
19. WAIVER OF CLAIMS; INDEMNIFICATION. Each Shareholder hereby
waives any claims he, she or it might otherwise have had against the Company or
any other Shareholder under the Original Agreement, the First Amended Agreement
or the Plan of Recapitalization. The Initial Shareholders (the "Indemnitors")
shall indemnify the Company and the other Shareholders (the "Indemnitees") for,
and hold them harmless from and against, any losses, expenses or damages the
Indemnitees may suffer or incur as a result of any actions or claims arising
under the Original Agreement, the First Amended Agreement or the Plan of
Recapitalization.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the date first above written.
"COMPANY"
HANOVER CAPITAL PARTNERS LTD.
By:_________________________________
Name:
Title:
"HCHI"
By:_________________________________
Name:
Title:
"XXXXXXXX"
____________________________________
Xxxx X. Xxxxxxxx
"XXXXXXX"
____________________________________
Xxxxx X. Xxxxxxx
"XXXXXXXXX"
____________________________________
Xxxxxx X. Xxxxxxxxx
"XXXXXXX"
____________________________________
Xxxx X. Xxxxxxx
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SCHEDULE 1
Shareholder Number and Class of Shares
----------- --------------------------
Xxxx X. Xxxxxxxx 1,650 Shares of Class A Common
000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Xxxxx X. Xxxxxxx 450 Shares of Class A Common
00 Xxxxxxx Xxx Xxxxx
Xxxxxxxx Xxxxxxxx, XX 00000
Xxxxxx X. Xxxxxxxxx 450 Shares of Class ACommon
000 X. Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxx Xxxxxxx, XX 00000
Xxxx X. Xxxxxxx 450 Shares of Class A Common
0 Xxxxx Xxxx Xxxxx
Xxxxxx Xxxxxx, XX 00000
Hanover Capital Mortgage Holdings, L.P. 97,000 Shares of Series A Preferred
000 Xxxxxxxxx Xxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
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