INDEMNITY AGREEMENT
AGREEMENT dated April 24, 1998 among WINSTAR COMMUNICATIONS, INC., a
Delaware corporation ("WinStar"), WINSTAR LHC1 LLC, a New York limited liability
company of which WinStar is the sole member ("WinLLC1"), WINSTAR LHC2 LLC, a New
York limited liability company of which WinStar is the sole member ("WinLLC2"
and, together with WinLLC1, the "LLCs"), LANDOVER HOLDINGS CORPORATION, a
Delaware corporation ("LHC"), and XXXXXXXX X. XXXXXXXXX, residing at 000 Xx
Xxxxxx Xxxx, Xxxx Xxxxx, Xxxxxxx 00000 ("Xxxxxxxxx" and, together with LHC, the
"LHC Parties").
RECITALS:
A. The parties hereto, concurrently with the execution of this
Agreement, have entered into an Agreement and Plan of Reorganization
("Reorganization Agreement") relating to the acquisition by the LLCs of the
Historic Business and Historic Business Assets of LHC.
B. Capitalized terms used herein and not otherwise defined have the
meanings ascribed to them in the Reorganization Agreement.
IT IS AGREED:
(a) The LHC Parties, jointly and severally, shall indemnify and hold
harmless the WinStar Parties from and against, and shall reimburse the WinStar
Parties for, any Damages (as hereinafter defined) which may be sustained,
suffered or incurred by any of the WinStar Parties, whether as a result of
third-party claims or otherwise, and which arise from or in connection with or
are attributable to (i) the breach of any of representations, warranties or
covenants of the LHC Parties contained in the Reorganization Agreement, (ii) any
liabilities or obligations of LHC, whether arising before, on or after the
Closing Date, other than the Assumed Liabilities and (iii) the ownership of the
Shares and Other Assets on or before the Closing Date. This indemnity shall
survive the Closing for a period of one year after the Closing Date except that
with respect to claims arising as a result of a breach or alleged breach of the
representations and warranties in Sections 3(c) and 3(j) of the Reorganization
Agreement and the covenants contained in Sections 5(h) and 5(i) of the
Reorganization Agreement, it shall survive without limitation as to time. Any
claim for indemnity asserted within the relevant period shall survive until
resolved.
(b) The WinStar Parties, jointly and severally, shall indemnify and hold
harmless the LHC Parties from and against, and shall reimburse the LHC Parties
for, any Damages which may be sustained, suffered or incurred by any LHC Party,
whether as a result of third-party claims or otherwise, and which arise from or
in connection with or are attributable to (i) the breach of any of the
representations, warranties and covenants of the WinStar Parties contained in
the Reorganization Agreement, (ii) the ownership of the Shares after the Closing
Date, and (iii) any of the following occurring within the eighteen month period
after the Closing Date: (A) the acquisition by WinStar (separately or with one
or more of its affiliates (as defined under Regulation D promulgated under the
1933 Act)) of any voting securities of ARTT or options, warrants or securities
convertible into or exercisable or exchangeable for voting securities of ARTT
(other than the Shares and the Additional ARTT Shares), (B) the making or
participation in any manner by WinStar in any "solicitation" of "proxies" (as
such terms are used in the proxy rules of the Commission promulgated under the
Exchange Act) to vote securities of ARTT or the seeking by WinStar to advise or
influence any person or entity with respect to the voting of any voting
securities of ARTT, (C) WinStar otherwise seeking representation on the Board of
Directors ("Board") of ARTT or to control or influence the management, Board or
policies of ARTT, (D) an executive officer or director of WinStar disclosing to
any third party any intention, plan or arrangement to effectuate any of the
foregoing or (E) WinStar advising, assisting or encouraging any other person in
connection with the foregoing, other than Damages sustained, suffered or
incurred by a LHC Party as a result of (x) in the case of the foregoing clause
(A), a claim (other than by a WinStar Party or a stockholder of WinStar) that
the consideration paid by the WinStar Parties for the Shares is excessive in
relation to the consideration paid for such other shares and (y) in the case of
any of the foregoing clauses (A) through (E), a breach or alleged breach by any
LHC Party (or any affiliate thereof) of any obligation to ARTT arising from
activities or agreements of a LHC Party (or any affiliate thereof) prior to the
Closing Date; provided that the WinStar Parties shall have no obligation to
indemnify the LHC Parties hereunder, or any other liability to the LHC Parties,
with respect to a breach of the representations, warranties and covenants in
Sections 4(h) or 5(m) of the Reorganization Agreement unless there is also a
breach of the covenant in Section 5(n) of the Reorganization Agreement occurring
on or before the later of one year from the Closing Date or June 30, 1999 as a
result of actions or omissions attributable to the WinStar Parties (for which
purpose actions or omissions of the consultant under the JPW Agreement not done
at the direction of a WinStar Party will not be attributable to the WinStar
Parties). Subject to the proviso of the immediately preceding sentence, this
indemnity shall survive the Closing for a period of one year after the Closing
Date except that with respect to claims arising (A) as a result of a breach or
alleged breach of the representations, warranties or covenants in Sections 1(c),
4(f), 4(h), 5(g), 5(m) and 5(n) of the Reorganization Agreement, it shall
survive without limitation as to time, and (B) under clause (iii) above, it
shall survive for a period of 20 months after the Closing Date. Any claim for
indemnity asserted within the relevant period shall survive until resolved.
(c) If, on the date ("Determination Date") which is the later of one year
from the Closing Date or June 30, 1999, the net asset value of the Transferred
Accounts (after deducting therefrom all expenses of the WinStar Parties under
the JPW Agreement) (the "1999 Asset Value") is less than $900,000, other than as
a result of actions or omissions attributable to the WinStar Parties (for which
purpose actions or omissions of the consultant under the JPW Agreement not done
at the direction of a WinStar Party will not be attributable to the WinStar
Parties), the LHC Parties shall reimburse WinLLC2, in cash, in an amount equal
to the difference between $900,000 and the 1999 Net Asset Value. Such
reimbursement shall be treated as a reduction in the value of the consideration
paid by the WinStar Parties for the Shares and the Other Assets. Any claim for
payment by the WinStar Parties pursuant to this Paragraph (c) shall be made no
later than 30 days after the Determination Date or, if such date is not a
business day, the next succeeding business day.
(d) As security for the payment of amounts which may be due to the WinStar
Parties pursuant to the obligations of LHC in Paragraphs (a) and (c) of this
Agreement, on the Closing Date LHC shall deliver to Xxxx & Hessen LLP, as escrow
agent, 139,000 of the WinStar Shares, to be held and disposed of by such escrow
agent pursuant to the terms of the Escrow Agreement.
(e) As used herein, the term "Damages" means the dollar amount of any loss,
damage, expense or liability, including, without limitation, reasonable
attorneys' fees and disbursements incurred by an indemnified party in any action
or proceeding between the indemnified party and the indemnifying party or
between the indemnified party and a third party, which is determined to have
been sustained, suffered or incurred by a party and to have in arisen from or in
connection with an event or state of facts which is subject to indemnification
under this Agreement. The amount of Damages shall be the amount finally
determined by a court of competent jurisdiction (after the exhausting of all
appeals) or the amount agreed to upon settlement in accordance with the terms of
this Agreement, if a third-party claim, or by the parties, if a direct claim of
one party against another.
(f) A party required to make an indemnification payment pursuant to this
Agreement ("Indemnifying Party") shall have no liability to make such payment
unless the party entitled to receive such indemnification payment ("Indemnified
Party") gives notice to the Indemnifying Party specifying (i) the covenant,
representation or warranty contained in the Reorganization Agreement which it
asserts has been breached, (ii) in reasonable detail, the nature and dollar
amount of any claim the Indemnified Party may have against the Indemnifying
Party by reason thereof under this Agreement, and (iii) whether the claim is a
third-party claim or a direct claim of the Indemnified Party against the
Indemnifying Party.
(g) If an Indemnified Party becomes aware of a third-party claim for which
an Indemnifying Party would be liable to an Indemnified Party hereunder, the
Indemnified Party shall, with reasonable promptness, notify in writing the
Indemnifying Party of such claim, identifying the basis for such claim and the
amount or the estimated amount thereof to the extent then determinable which
estimate shall not be conclusive of the final amount of such claim (the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced by such failure.
The Indemnifying Party, upon request of the Indemnified Party, shall retain
counsel (who shall be reasonably acceptable to the Indemnified Party) to
represent the Indemnified Party and shall pay the reasonable fees and expenses
of such counsel with regard thereto; provided, however, that any Indemnified
Party is hereby authorized, prior to the date on which it receives written
notice from the Indemnifying Party designation such counsel, to retain counsel,
whose reasonable fees and expenses shall be at the expense of the Indemnifying
Party, to file any motion, answer or other pleading and take such other action
which it reasonably shall deem necessary to protect its interests or those of
the Indemnifying Party until the date on which the Indemnified Party receives
such notice from the Indemnified Party. After the Indemnifying Party shall
retain such counsel, the Indemnified Party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties of any such proceeding (including any impleaded parties) included
both the Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any claim or demand which the Indemnifying Party defends.
A claim or demand may not be settled by any party without the prior written
consent of the other party (which consent will not be unreasonably withheld)
unless, as part of such settlement, the Indemnified Party shall receive a full
and unconditional release reasonably satisfactory to it. Notwithstanding the
foregoing, the Indemnifying Party may settle any third-party claim without the
prior written consent of the Indemnified Party if such claim is exclusively for
monetary damages.
(h) If any Indemnified Party shall have a direct claim against any
Indemnifying Party hereunder, the Indemnified Party shall send a Claim Notice
with respect to such claim to the Indemnifying Party.
(i) No Indemnifying Party shall be required to indemnify an Indemnified
Party pursuant to this Agreement unless the aggregate of all amounts for which
indemnity would otherwise be due against it exceeds $50,000 and then only to the
extent such amounts exceed $50,000 and do not exceed (i) $3,000,000 in the case
of a breach of the representations, warranties and covenants of the WinStar
Parties in Sections 4(h), 5(m) and 5(n) of the Reorganization Agreement, and
(ii) $8,500,000 in any other case. For purposes of this Paragraph (i),
"Indemnified Party" means the LHC Parties collectively or the WinStar Parties
collectively, as the case may be. The provisions of this Paragraph (i) shall not
apply with respect to a claim for indemnification based on a breach or alleged
breach of the covenants of the LHC Parties in Sections 5(h) and 5(i) of the
Reorganization Agreement.
(j) The LHC Parties shall promptly notify WinStar if the Internal Revenue
Service examines LHC's or Xxxxxxxxx'x respective Federal income tax returns in
which the transactions contemplated by the Reorganization Agreement are reported
as qualifying as a "reorganization" within the meaning of IRC ss.368(a)(1)(C)
and shall keep WinStar reasonably and currently informed of the status of any
such examination, in each case solely to the extent that it relates to LHC's or
Xxxxxxxxx'x reporting of such transactions as so qualifying.
(k) The provisions of this Agreement shall be the sole recourse of the
parties for Damages with respect to breaches of the representations, warranties
and covenants of the parties under the Reorganization Agreement, except in the
case of fraud and provided that the parties shall not be precluded from seeking
equitable remedies, including without limitation specific performance. If the
Reorganization Agreement is terminated prior to the Closing, this Agreement
shall also terminate.
(l) The provisions of Section 8 of the Reorganization Agreement shall apply
to this Agreement as if fully set forth herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
WINSTAR COMMUNICATIONS, INC.
/s/ X. X. Xxxxxx
By:_________________________________
Name: X. X. Xxxxxx
Title: Executive Vice President
WINSTAR LHC1 LLC
By: WINSTAR COMMUNICATIONS, INC., Member
/s/ X. X. Xxxxxx
By:_________________________________
Name: X. X. Xxxxxx
Title: Executive Vice President
WINSTAR LHC2 LLC
By: WINSTAR COMMUNICATIONS, INC., Member
/s/ X. X. Xxxxxx
By:_________________________________
Name: X. X. Xxxxxx
Title: Executive Vice President
LANDOVER HOLDINGS CORPORATION
/s/ Xxxxxxxx X. Xxxxxxxxx
By:_________________________________
Name: Xxxxxxxx X. Xxxxxxxxx
Title: President
/s/ Xxxxxxxx X. Xxxxxxxxx
___________________________________
XXXXXXXX X. XXXXXXXXX