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EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
AMONG
ALLIED RISER COMMUNICATIONS HOLDINGS, INC.,
EGI-ARC INVESTORS, L.L.C.,
TELECOM PARTNERS II, L.P.,
CRESCENDO WORLD FUND, LLC,
EAGLE VENTURES WF, LLC,
CRESCENDO III, L.P.,
XXXXXXXX EQUITY GROUP, LLC,
AND THE
INDIVIDUALS IDENTIFIED ON SCHEDULE 1 ATTACHED HERETO
NOVEMBER 23, 1998
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TABLE OF CONTENTS
ARTICLE I .........................................................................................................2
DEFINITIONS .......................................................................................................2
Section 1.1 Defined Terms .................................................................................2
Section 1.2 Headings, etc. ................................................................................4
ARTICLE II ........................................................................................................5
INDEMNIFICATION AND SECURITY INTEREST .............................................................................5
Section 2.1 Indemnification by the Original Shareholders ..................................................5
Section 2.2 Representations, Warranties, Covenants and Deliveries .........................................6
Section 2.3 Grant of Security Interest ....................................................................6
Section 2.4 Claims for Indemnification ....................................................................6
Section 2.5 Payment of Indemnity Amount ...................................................................7
Section 2.6 Application of Indemnification Payments .......................................................8
Section 2.7 Expiration of Indemnification Obligations .....................................................8
Section 2.8 SOL Claims ....................................................................................8
Section 2.9 Collection of Indemnification Payments ........................................................9
ARTICLE III .......................................................................................................9
MISCELLANEOUS PROVISIONS ..........................................................................................9
Section 3.1 Further Assurances ............................................................................9
Section 3.2 Notices ......................................................................................10
Section 3.3 Amendments ...................................................................................12
Section 3.4 Inconsistent Agreements ......................................................................12
Section 3.5 Successors and Assigns .......................................................................12
Section 3.6 Severability .................................................................................12
Section 3.7 Counterparts .................................................................................12
Section 3.8 Governing Law ................................................................................12
Section 3.9 Consent to Jurisdiction and Service of Process; Appointment of Agent for Service of Process...13
Section 3.10 Entire Agreement; Nonwaiver ..................................................................13
Section 3.11 No Third-Party Beneficiaries .................................................................13
Section 3.12 Action of Original Shareholders ..............................................................13
Section 3.13 New Indemnitees ..............................................................................13
SCHEDULE 1 ORIGINAL SHAREHOLDERS .................................................................................17
SCHEDULE 2 TRANSACTION DOCUMENTS .................................................................................18
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INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of November 23,
1998, is made and entered into by and among (i) each of the individuals listed
on Schedule 1 attached hereto, who as a shareholder of RCH Holdings, Inc., a
Texas corporation ("RCH"), will, in connection with the ARC Holdings Issuance
and RCH Liquidation (as such terms are defined below), become shareholders of
Allied Riser Communications Holdings, Inc., a Delaware corporation ("ARC
Holdings") (each such Person being an "Original Shareholder" or "Indemnitor"
and, collectively, the "Original Shareholders" or "Indemnitors"; provided,
however, that Mr. Xxxxx Xxxxxxxx and Xx. Xxx Xxxxx shall be "Original
Shareholders" or "Indemnitors" only in respect of and to the extent that the
circumstances or events giving rise to the applicable Loss (as defined below),
transpired subsequent to July 15, 1998); (ii) ARC Holdings; (iii) EGI-ARC
Investors, L.L.C., a Delaware limited liability company ("EGI-ARC"); (iv)
Telecom Partners II, L.P., a Delaware limited partnership ("TP"); (V) Crescendo
World Fund, LLC, a Delaware limited liability company ("CWF"); (vi) Eagle
Ventures WF, LLC, a Minnesota limited liability company ("EVW"); (vii) Crescendo
III, LP, a Delaware limited partnership ("CIII"); (viii) Xxxxxxxx Equity Group,
LLC, a California limited liability company ("LEG"), and and together with,
EGI-ARC, TP, CWF, EVW, CIII, LEG, ARC Holdings, each other Person (as defined
below) afforded the status of Financial Sponsor pursuant to Section 3.13 below,
and, with respect to clauses (iii), (iv), (v), (vi), (vii) (viii) and (ix)
above, and any such additional Financial Sponsors (as defined below), their
respective officers, directors, shareholders, members, employees, agents, and
affiliates and their respective successors, heirs and legal representatives, but
excluding in every case, the Original Shareholders, the "Indemnitees").
WHEREAS, pursuant to that certain Plan of Liquidation adopted by the
respective board of directors and shareholder of Carrier Direct, Inc., a Texas
corporation ("CD") and Allied Riser Communications, Inc., a Texas corporation
formerly known as RiserCorp, Inc. ("ARC," and, together with CD, the "Former
Subsidiaries"), dated as of November 20, 1998 (the "Former Subsidiary Plan of
Liquidation"), each of CD and ARC has liquidated into RCH (the "Subsidiary
Liquidations"); and
WHEREAS, pursuant to an Asset Transfer Agreement to be entered into
concurrently with this Agreement: (i) RCH shall transfer to ARC Holdings, and
ARC Holdings shall acquire from RCH, all of the interest of RCH in substantially
all of the assets of RCH, subject to all of the liabilities of RCH (except for
certain assets and liabilities specifically excluded thereunder) (the "Asset
Transfer"); and (ii) ARC Holdings shall issue to RCH, 50,191,806 shares of
common stock of ARC Holdings, representing at the time of such issuance 100% of
ARC Holdings' common stock) (the "ARC Holdings Issuance"); and subsequent
thereto, and subject to compliance with all applicable Federal and State
securities and blue sky laws, RCH shall completely liquidate pursuant to Section
331 of the Code and shall distribute all ARC Holdings Common Stock held by RCH
to the stockholders of RCH (the "RCH Liquidation"); and
WHEREAS, immediately following the Asset Transfer, ARC Holdings shall
contribute to Allied Riser Communications, Inc., a Delaware corporation ("New
ARC"), substantially all of ARC Holdings' assets and liabilities in exchange for
1,000 shares of New ARC common stock, par value $1.00 per share (the "ARC
Contribution"), whereupon New ARC shall become a wholly-owned subsidiary of ARC
Holdings; and
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WHEREAS, promptly following the consummation of the Subsidiary
Liquidations, Asset Transfer and ARC Contribution, each of EGI-ARC, TP, CWF,
EVW, CIII and LEG, (together with each other Person afforded such status
pursuant to Section 3.13 below, the "Financial Sponsors"), propose to enter into
Investment Agreements with ARC Holdings, pursuant to which each Financial
Sponsor will acquire ARC Holdings Common Stock and Series A-1 or Series A-2
Preferred Stock (collectively, the "Company Preferred") of ARC Holdings (the
"Investment Agreements"); and
WHEREAS, to induce ARC Holdings to enter into the Asset Transfer Agreement
and to induce the Financial Sponsors to enter into the respective Investment
Agreements, each of the Original Shareholders has agreed to indemnify the
Indemnitees against certain liabilities of RCH and certain predecessor
corporations, including, without limitation, breaches of representations,
warranties and covenants set forth in the Asset Transfer Agreement, and to
secure such obligation to so indemnify pursuant to that certain Stockholders'
Pledge Agreement, dated as of the date hereof, made and entered into by and
among each of the Original Shareholders, ARC Holdings and EGI-ARC, as collateral
agent for the benefit of the Financial Sponsors, ARC Holdings, and the other
Indemnitees (the "Stockholders' Pledge Agreement").
In consideration of the foregoing, the representations and warranties set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as set forth
below.
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. As used in this Agreement, terms defined in the
heading and the recitals shall have their respective assigned meanings, and the
following capitalized terms shall have the meanings ascribed to them below:
(1) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(2) "Collateral" shall have the meaning set forth in the Stockholders'
Pledge Agreement.
(3) "Indemnified Party" shall have the meaning set forth in Section
2.4(1) hereof.
(4) "Indemnifying Party" shall have the meaning set forth in Section
2.4(1) hereof.
(5) "Indemnitees" shall have the meaning set forth in the first
paragraph of this Indemnification Agreement.
(6) "Loss" or "Losses" shall mean any and all liabilities, losses,
damages, costs and expenses incurred or to be incurred by an Indemnitee through
and after the date of a claim (including but not limited to diminution in the
value of securities and any and all amounts owing under and upon the occurrence
of a default under any Valuation Advance Note (as defined below)), interest,
penalties, attorneys', accounting and other fees and related disbursements
(including those incurred in connection with investigating or seeking
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indemnification hereunder or in obtaining appraisals of Pledged Share Value),
whether known, unknown, absolute, contingent or otherwise, including interest at
the Prime Rate per annum from the date such liability, loss, damage or expense
is incurred through the date of payment thereof.
(7) "Person" shall mean any individual, corporation, partnership,
limited liability company, trust, joint stock company, business trust,
unincorporated association, joint venture, governmental authority or other
entity of any nature whatsoever.
(8) "Pledged Shares" shall mean the securities pledged pursuant to the
Stockholders' Pledge Agreement.
(9) "Pledged Share Value" shall mean the aggregate value of Pledged
Shares then available as Collateral determined as follows: (i) with respect to
Pledged Shares which are of a class of securities which are publicly traded, the
average of their last sale price on the principal securities exchange on which
they are traded on each business day during the three-month period ending
immediately prior to the date of determination, or if no sales occurred on any
such date, the mean between the closing "bid" and "asked" prices on such day,
or, if traded in the over-the-counter market, their average closing "bid" price
on each day during such period, as published by the National Association of
Securities Dealers Automated Quotation System, or if such price is not
published, the mean between their closing "bid" and "asked" prices, if
available, on each day during such period, which prices may be obtained from any
reputable broker or dealer; and (ii) with respect to Pledged Shares which are
not of a class of securities which are publicly traded, such value as shall be
agreed between Indemnitees holding in the aggregate, in excess of 50% of the ARC
Holdings Common Stock held by all Indemnitees, on the one hand, and Original
Shareholders holding in the aggregate, in excess of 50% of the ARC Holdings
Common Stock held by all Original Shareholders (excluding unvested stock options
and restricted stock), on the other hand, after a 30-day period of good faith
negotiations, if such value can be so determined by mutual agreement. Absent
mutual agreement within such 30-day period as so provided, the "Pledged Share
Value" shall be determined by independent appraisal conducted by an appraiser
selected by mutual agreement of the Indemnitee holding the greatest number of
shares of ARC Holdings Common Stock and the Original Shareholder holding the
greatest number of shares of ARC Holdings Common Stock held by all Original
Shareholders (excluding unvested stock options and restricted stock); provided,
however, that if such parties cannot agree on an independent appraiser within
fifteen business days after expiration of the 30-day period, they shall each, on
such fifteenth day, select and promptly (and in any event within two business
days of the selection thereof), notify the other of the identity of their
respective selected appraiser skilled in the valuation of securities of
privately held companies who shall both endeavor in good faith to agree on such
value and, failing any such agreement within fifteen business days following
identification to the other party hereto of the selected appraiser, the two
selected appraisers shall, within 5 days, jointly select a third appraiser
skilled in the valuation of securities of privately held companies. In the event
that either party shall fail to designate an initial appraiser within the
fifteen business day period identified above, the party who shall have failed to
timely make such designation shall be deemed to have consented to the
determination of Pledged Share Value by the designee of the other party. If both
parties shall have timely designated a third appraiser, the third appraiser so
selected shall in good faith determine the Pledged Share Value within 15 days of
selection. In determining Pledged Share Value, the parties shall, and shall
instruct each appraiser designated as provided above to, ascribe no discount in
such valuation due to
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any (i) illiquidity of such Pledged Shares, or (ii) the lack of control
attendant to the number of Pledged Shares so valued. Pledged Shares shall be
valued to the extent feasible (whether by appraisal or otherwise), as of the
date conveyed (or anticipated date of conveyance) to the Indemnitees upon
exercise and foreclosure upon such Collateral. The parties shall promptly
provide and cause to be promptly provided to the designated appraisers, subject
to standard confidentiality agreements, such information as may reasonably be
requested in order to determine the Pledged Share Value. All such costs of
determining Pledged Share Value shall be borne equally by the Indemnitors party
hereto, on the one hand, and the Indemnitees party hereto, on the other hand,
who shall apportion their respective half of the costs among the beneficiaries
(or intended beneficiaries) of such valuation procedure on a pro rata basis). At
the written request of the Indemnitors, ARC Holdings shall advance to the
Indemnitors for payment to the appraiser(s), that portion of the fees and
expenses of the appraisers (but not amounts in respect of any indemnification
claims by or on behalf of any such appraiser(s)), payable by the Indemnitors;
provided, however, that such advance shall be evidenced by a Note in form and
substance satisfactory to the Company and bearing interest at the Prime Rate,
and executed by each Indemnitor (the "Valuation Advance Note"), which note shall
be recourse on a joint and several basis only against the Collateral, and;
provided further, that any defaults thereunder shall not be subject to the
limitations set forth in Section 2.1(3) below.
(10) "Predecessor Corporations" shall mean (i) the Former Subsidiaries
(ii) DPI Technology Resources, Inc., and (iii) Digital Packet Interface
Solutions, Inc.
(11) "Prime Rate" shall mean the rate published or announced from time
to time by Bank of America, Illinois (or any successor thereto) as its "prime"
rate or other similar rate.
(12) "Recourse Liabilities" shall have the meaning set forth in Section
2.1(2) hereof.
(13) "Reorganization Transaction" shall mean the November 17, 1998
Amendment to the RCH Certificate of Incorporation, the Subsidiary Liquidations,
the Asset Transfer, the ARC Holdings Issuance, the RCH Liquidation, the
transactions contemplated by the Financial Sponsor Investment Agreements, the
reallocation of equity (including dilution) attendant thereto in accordance
with, among other things, the RCH Subscription Agreements (as amended), and the
approval processes and documentation and any other communications required to be
or otherwise undertaken or used in connection therewith.
(14) "Transaction Documents" shall mean, collectively with this
Indemnification Agreement, the agreements and documents listed on Schedule 2
hereto, and any and all other agreements or other documents entered into or
delivered concurrently herewith or subsequent hereto in order to effectuate the
purpose and intent of any such documents and agreements, as the same may be
amended, restated, supplemented or otherwise modified from time to time in
accordance with the provisions thereof.
Section 1.2 Headings, etc. The headings in this Agreement are included for
convenience of reference only and shall not limit or otherwise affect the
meaning or interpretation of this Agreement. All pronouns and all variations
thereof shall be deemed to refer to the masculine, feminine or neuter, singular
or plural, as the identity of the Person may require.
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ARTICLE II
INDEMNIFICATION AND SECURITY INTEREST
Section 2.1 Indemnification by the Original Shareholders.
(1) Subject to the conditions set forth herein, each Original
Shareholder, jointly and severally, hereby agrees to indemnify and hold harmless
the Indemnitees from and against any Losses: (i) arising in respect of claims by
any shareholders or former shareholders (or Persons asserting the existence of
rights that entitle such Persons to be or to have been shareholders) of RCH or
any Predecessor Corporation, or any of their respective predecessor entities, as
a result of the Reorganization Transactions, who shall either (a) not have
approved such Reorganization Transactions, or (b) assert that the approval
process in respect of all or any portion of the Reorganization Transactions did
not comply with applicable law or that the disclosures made in connection
therewith were incomplete, inaccurate or misleading or failed to disclose all
material terms, facts and circumstances in accordance with applicable law, (ii)
arising from any breach (or any third-party allegation of facts that, if true,
would constitute such a breach) of any representations, warranties or covenants
of any party contained in the Asset Transfer Agreement, or in any documents,
certificates or agreements delivered in connection therewith or pursuant
thereto, and (iii) any Losses attributable to defaults under Valuation Advance
Notes, if any.
(2) The obligations of the Original Shareholders pursuant to this
Section 2.1, shall be nonrecourse to the Original Shareholders, and the
Indemnitees' only recourse with respect thereto shall be against the Collateral
pursuant to the terms of the Stockholders' Pledge Agreement, subject, however,
to the provisions of Section 2.5 and Section 2.8 hereof. Notwithstanding the
foregoing, the obligations of the Original Shareholders with respect to (i)
Losses arising from liabilities referred to in Section 2.1 above that were known
to an Original Shareholder but not explicitly disclosed to ARC Holdings and the
Financial Sponsors in writing in a disclosure schedule to the Asset Transfer
Agreement, (ii) any Losses arising from the fraud, willful misconduct, gross
negligence or criminal acts of any Original Shareholder, including in connection
with any intentional or grossly negligent breach of the representations,
warranties and covenants under the Asset Transfer Agreement, (the liabilities
described in the immediately preceding clauses (i) and (ii) being the "Recourse
Liabilities"), and (iii) any Losses arising from a breach of any SOL Claim, (as
defined below), shall not be limited to the Collateral pursuant to the terms of
the Stockholders' Pledge Agreement. In the event of a Recourse Liability, the
Original Shareholders shall be liable for a portion of such Recourse Liability
as provided in Section 2.9(a), and such portion shall be allocated to such
Original Shareholder or Original Shareholders whose knowledge or action (or
failure to act) created such Recourse Liability.
(3) The Original Shareholders shall not have any obligation to
indemnify the Indemnitees from and against any Loss that is not a Recourse
Liability (a) until the aggregate Losses suffered by all Indemnitees exceeds a
$500,000 aggregate "basket" (at which point the Original Shareholders shall be
obligated to indemnify the Indemnitees from and against all such Losses relating
back to the first dollar), and (b) to the extent that such Losses exceed
$9,000,000.
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Section 2.2 Representations, Warranties, Covenants and Deliveries. In order
to more effectively implement the intent and purpose of this Agreement, each
Original Shareholder hereby restates each representation, warranty and covenant
set forth in the Asset Transfer Agreement to and for the benefit of each
Indemnitee (including with respect to the delivery of documents) as though
represented, warranted, covenanted and delivered by each Original Shareholder to
each Indemnitee herein as of the date hereof. Each such representation, warranty
and covenant shall survive the date of this Agreement in accordance with Section
5.2 of the Asset Transfer Agreement.
Section 2.3 Grant of Security Interest. In order to secure the obligations
of each Original Shareholder created by this Indemnification Agreement, each
Original Shareholder hereby grants to EGI-ARC (as collaterla agent), on its own
behalf and on behalf of ARC Holdings and the other potential Indemnitees, a
first priority perfected security interest in the Collateral, on the terms set
forth in the Stockholders' Pledge Agreement.
Section 2.4 Claims for Indemnification.
(1) The parties intend that all indemnification claims be made as
promptly as practicable by the party seeking indemnification (the "Indemnified
Party"). Whenever any claim shall arise for indemnification, the Indemnified
Party shall promptly notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim, and the facts constituting the basis for
such claim. The failure to so notify the Indemnifying Party shall not relieve
the Indemnifying Party of any liability that it may have to the Indemnified
Party, except to the extent the Indemnifying Party demonstrates that the defense
of such action is materially prejudiced thereby. No conduct by, or knowledge of,
any of Xxxxx Xxxxxxxx, Xxx Xxxxx, or Xxx Xxxxxx shall be attributed to or be
ascribed to any Financial Sponsor or other Indemnitee, or be used in support of
any defense to any claimed Loss with respect thereto, nor shall this provision
be construed as implying that the conduct of any Financial Sponsor or other
Indemnitee could or should afford a defense to any claimed Loss.
(2) With respect to claims made by third parties, the Indemnifying
Party, upon acknowledgment in writing of its liability for the claim, shall be
entitled to assume control of the defense of such action or claim with counsel
reasonably satisfactory to the Indemnified Party, provided, however, that:
(a) An Indemnified Party shall be entitled to participate in
the defense of such claim and to employ counsel at its own expense (which
expense shall not be reimbursable by the Indemnitors) to assist in the
handling of such claim;
(b) No Indemnifying Party shall consent to the entry of any
judgment or enter into any settlement without the consent of each
Indemnified Party (A) if such judgment or settlement does not include as an
unconditional term thereof the giving by each claimant or plaintiff to each
Indemnified Party of a full release from all liability in respect to such
claim, or (B) if such judgment or settlement would result in the finding or
admission of any wrongdoing or violation of any law or (C) if as a result
of such consent or settlement, injunctive or other equitable relief would
be imposed against the Indemnified Party or such judgment or settlement
could interfere with or adversely affect the business, operations or assets
of the Indemnified Party;
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(c) If the Indemnifying Party does not acknowledge in writing
the liability for the claim and assume control of the defense of such claim
in accordance with the foregoing provisions within ten (10) days after
receipt of notice of the claim or, if having taken over such defense does
not in the reasonable, good faith opinion of an Indemnified Party proceed
diligently to defend such claim, then the Indemnified Party shall have the
right to defend such claim in such manner as it may deem appropriate at the
cost and expense of the Indemnifying Party pursuant to the terms of this
Agreement. The Indemnifying Party shall be bound by any defense or
settlement that the Indemnified Party shall make in good faith with respect
to such claim, and the Indemnifying Party will promptly reimburse the
Indemnified Party therefor in accordance with this Article II;
(d) Upon payment by an Indemnifying Party of any amounts due
in respect of a third-party claim, the Indemnified Party will, to the
extent of such payment, assign or cause to be assigned to the Indemnifying
Party the claims of the Indemnified Party, if any, against the third
parties in respect of which payment is made; and
(e) Each Indemnitor expressly agrees to cooperate and render
such assistance to each Indemnitee who shall request assistance in
investigating, defending or prosecuting any claim for which indemnification
is reasonably believed to be available or otherwise, regardless of whether
an Indemnitor or Indemnitee has primary responsibility for the defense or
prosecution thereof.
Section 2.5 Payment of Indemnity Amount.
Each Indemnifying Party shall pay to each Indemnified Party, within one
hundred and twenty (120) days of the date of written demand therefor (the "Due
Date"), the appropriate amount is determined as provided herein, as follows:
(1) Indemnification of a Loss which does not arise from a Recourse
Liability shall be paid, at the option of the Indemnifying Party either (i) in
cash, (ii) by transferring to the Indemnified Party Pledged Shares and other
Collateral (a) having an aggregate Pledged Share Value equal to the Loss, or (b)
with respect to Collateral which does not have a Pledged Share Value or a
Pledged Share Value not less than the dollar value (or anticipated dollar value)
of the applicable Losses, such number of Pledged Shares and other Collateral as
is deemed acceptable to the Indemnified Party; provided, however, that the
Indemnified Party shall be obligated to accept, as payment in full of such
indemnification obligation, a tender of all of the Collateral then subject to
the Stockholders' Pledge Agreement, or (iii) any combination of the foregoing.
(2) Payment of a Loss which arises from a Recourse Liability shall be
payable on the Due Date, (i) in cash, or (ii) with Pledged Shares having an
aggregate Pledged Share Value equal to the Loss or (iii) with any combination of
the foregoing.
(3) In the event the Original Shareholders shall fail to make payment
on the Due Date in respect of a Recourse Liability as required by this Section
2.5, then the Indemnitees may, in addition to pursuing remedies against the
Original Shareholders directly (subject to Section 2.9), exercise any and all
remedies with respect to the Collateral under the terms of the Stockholders'
Pledge Agreement, in which case, the Original Shareholders shall
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be liable, in accordance with Section 2.9, for the amount of the Loss which
exceeds the net proceeds realized for the Collateral after payment of all
amounts required by Section 7.5 of the Stockholders' Pledge Agreement, to be
allocated to the Original Shareholders whose knowledge or action (or failure to
act) created such Recourse Liability.
Section 2.6 Application of Indemnification Payments. Indemnification
payments shall be applied as follows:
(a) first, to the reasonable costs and expenses (including
reasonable attorneys' fees) of holding, processing and preparing for sale
or other transfer, selling, collecting and liquidating the Collateral, and
the like, to the extent not directly paid by, or recovered from the
Indemnitors;
(b) second, to the extent that any such proceeds remain after
the application described in the immediately preceding clause (a), to the
satisfaction of all obligations of each of the Indemnitors to ARC Holdings,
pursuant hereto; and
(c) third, to the extent that any such proceeds remain after
the application described in the immediately preceding clause (b), to the
satisfaction of the obligation of each of the Indemnitors to the Financial
Sponsors in the following manner: (i) if any Company Preferred is
outstanding at such time, pro rata based on the total number of shares of
Company Preferred that has been issued to the Financial Sponsors who are
Indemnites, regardless of whether some of the Company Preferred issued to
the Financial Sponsors who are Indemnites has been converted into ARC
Holdings Common Stock; or (ii) if no Company Preferred is outstanding at
such time, pro rata based on the ARC Holdings Common Stock held by the
Financial Sponsors who are Indemnites at that time.
Section 2.7 Expiration of Indemnification Obligations. The obligations of
any Indemnifying Party hereunder shall expire upon the expiration of two (2)
years from the date hereof, except that Losses in respect of breaches of any of
Sections 3.1(n), 3.1(s) and 3.1(t) of the Asset Transfer Agreement shall not
expire until the later of such two (2) year period and expiration of the
applicable statute of limitations (collectively, "SOL Claims"); provided,
however, that each such obligation shall continue beyond such two (2) year
period or applicable statute of limitation, with respect to any claim for
indemnification of which the Indemnified Party shall have transmitted written
notice within such two (2) year period, or such longer statute of limitations,
as applicable. Notwithstanding the foregoing or anything to the contrary
contained in this Agreement, in the event that the lien in respect of the
Collateral is released pursuant to Sections 10.2 of the Stockholders' Pledge
Agreement, all obligations hereunder shall be deemed Recourse Liabilities for
all purposes of this Agreement; provided, however, that such liabilities shall
(i) be joint and several obligations of each Original Shareholder, and (ii) if
such obligation relates to what otherwise would not have been a Recourse
Liability absent this sentence, be subject to the dollar limitations set forth
in Section 2.1(3) hereof (notwithstanding the express exclusion of the
application of that Section to "Recourse Liabilities").
Section 2.8 SOL Claims. In the event that an SOL Claim is timely raised
subsequent to the release of Collateral in accordance with the terms of the
Stockholders' Pledge Agreement, Losses attributable thereto shall, subject to
the limitations set forth in
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Section 2.1(3), if applicable, and, in accordance with Section 2.9, nonetheless
be recoverable from any and all assets of the Original Shareholders, on a joint
and several basis, notwithstanding such release of Collateral.
Section 2.9 Collection of Indemnification Payments.
(a) Claims in respect of Recourse Liabilities would be
satisfied:
(i) first, from the Collateral pledged by the relevant
Indemnitor(s);
(ii) second, from any and all other assets owned by the
relevant Indemnitor(s) (to the extent that full and uncontested title
thereto has been satisfactorily conveyed to the Indemnitees within one (1)
year from the date notice of the relevant claim is transmitted to the
Indemnitor(s) (it being understood that the expiration of such time period
shall not limit the Indemnitees' continued recourse thereto));
(iii) third, from any proceeds of insurance procured
pursuant to Section 4.3 of the Stockholders' Agreement (to the extent that
full and uncontested title to such proceeds has been satisfactorily
conveyed to the Indemnitees within one (1) year from the date notice of the
relevant claim is transmitted to the Indemnitor(s) (it being understood
that the expiration of such time period shall not limit the Indemnitees'
continued recourse thereto)); and
(iv) fourth, from the remaining Collateral, regardless of
the source thereof.
(b) Claims in respect of all other Losses would be satisfied;
(i) first, from any proceeds of insurance obtained
pursuant to Section 4.3 of the Stockholders' Agreement (to the extent that
full and uncontested title to such proceeds has been satisfactorily
conveyed to the Indemnitees within one (1) year from the date notice of the
relevant claim is transmitted to the Indemnitor(s) (it being understood
that the expiration of such time period shall not limit the Indemnitees'
continued recourse thereto));
(ii) second, by application against the "basket"
identified in Section 2.1(3) above (to the extent that availability
thereunder remains); and
(iii) third, from the Collateral pledged by the relevant
Indemnitors, and with respect to SOL claims, from such assets of the
Indemnitors as the Indemnitees elect to pursue.
ARTICLE III
MISCELLANEOUS PROVISIONS
Section 3.1 Further Assurances. Each Original Shareholder will cause to be
done, executed, acknowledged and delivered all such further acts, conveyances
and assurances as
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any other party hereto shall reasonably require for accomplishing the purposes
of this Agreement.
Section 3.2 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective (a)
when transmitted by telecopy (with an acknowledgment of receipt generated from
the transmitting telecopy machine reflecting the date, time and number of pages
successfully transmitted) or personally delivered on a business day during
normal business hours, (b) on the business day following the date of dispatch by
overnight courier or (c) on the fifth business day following the date of mailing
by registered or certified mail, with postage prepaid, return receipt requested,
in each case addressed to each Original Shareholder at the address set forth
opposite such Original Shareholder's name on Schedule 1 hereto and to each
Indemnitee at the respective address set forth below, or in any such case to
such other address as any Original Shareholder or any Indemnitee shall have last
designated to the other parties by notice given in accordance with this Section
3.2; provided, however, that a notice of a change of address shall not be deemed
to have been given until actually received by the addressee.
(1) Notice Address for ARC Holdings:
ARC Holdings, Inc.
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: President
and
ARC Holdings, Inc.
000 Xxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Chief Financial Officer
With copies to:
Xxxxxx & Xxxxxxx, L.L.P.
000 X. Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx
And with a copy to: each Financial Sponsor
(2) Notice Address for EGI-ARC:
EGI-ARC Investors, L.L.C.
c/o EGI Corporate Investments
Two Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
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Fax: (000) 000-0000
(000) 000-0000
Attention
to each of: Xxxxxx Xxxxxxxxxxx, and
Xxxxxxx X. Xxxxx III
With a copy to:
Xxxxxxxxx & Xxxxxxxxxxx, P.C.
Xxx Xxxxx Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxx Xxxxxxxxx
(3) Notice Address for TP:
Telecom Partners II, L.P.
0000 Xxxxxx Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxxx
With a copy to:
Holland & Xxxx LLP
000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
(4) Notice Address for CWF, EVW or CIII:
x/x Xxxxxxxxx Xxxxxxx
Management L.L.C.
000 XxXxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxx
With a copy to:
Xxxxxxxx & Xxxxxx
0000 Xxxxx Xxxxxx Tower
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxx
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(5) Notice Address for LEG:
Xxxxxxxx Equity Group, LLC
C/o Xxxxxx Xxxxxxx
0000 Xxxxxxx Xxxx Xxxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
Section 3.3 Amendments. This Agreement may, subject to Section 3.13 below,
be amended, and the observance of any term hereof may be waived, only by a
written instrument signed by each of the parties hereto.
Section 3.4 Inconsistent Agreements. No party hereto shall enter with any
Person into any agreement or other arrangement of any kind which is inconsistent
with the provisions of this Agreement or which may impair its ability to comply
with this Agreement.
Section 3.5 Successors and Assigns. The terms of this Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns permitted hereunder; provided, however, that
no indemnification obligation of any party hereunder shall be assumed by any
other Person without the prior written consent of ARC Holdings, EGI-ARC and TP.
Section 3.6 Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision which is not essential
to the effectuation of the basic purposes of this Agreement is determined by a
court of competent jurisdiction to be invalid, unenforceable or contrary to
existing or future applicable law, such invalidity, unenforceability or
illegality shall not impair the operation of or affect those provisions of this
Agreement which are valid, enforceable and legal. In that case, this Agreement
shall be construed so as to limit any term or provision to the minimum extent
necessary so as to make it valid, enforceable and legal within the requirements
of any applicable law, and, in the event such term or provision cannot be so
limited, this Agreement shall be construed to omit such invalid, unenforceable
or illegal provisions.
Section 3.7 Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute but one and the same
instrument.
Section 3.8 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware (other than its rules of conflicts of law to the extent
that the application of the laws of another jurisdiction would be required
thereby).
Section 3.9 Consent to Jurisdiction and Service of Process; Appointment of
Agent for Service of Process. The parties hereto each hereby consent to the
jurisdiction of any state or federal court located within the State of Delaware
and irrevocably agree that all actions or proceedings arising out of or relating
to this Agreement shall be litigated in such courts. Each of the parties hereto
accepts for itself and in connection with its respective properties, generally
and unconditionally, the exclusive jurisdiction and venue of the aforesaid
courts and waives any
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defense of forum non convenient, and irrevocably agrees to be bound by any
nonappealable judgment rendered thereby in connection with this Agreement. The
parties hereto agree to appoint and failing any such appointment, authorize any
other party to appoint on such Person's behalf and maintain the Corporation
Trust Company and such other persons, in each case within the State of Delaware,
as may hereinafter be selected by them who irrevocably agree in writing to so
serve as agent, to receive, on behalf of the parties hereto, service of all
process in any such proceedings in any such court, such service being hereby
acknowledged by the parties hereto to be effective and binding service in every
respect. A copy of any such process so served shall be mailed by registered mail
to the parties hereto, as provided herein, except that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of process. If any agent appointed by the parties hereto
refuses to accept service, the parties hereto agree that service upon the
respective party hereto by registered mail shall constitute sufficient service.
Nothing herein shall affect the right of the parties hereto to serve process in
any other manner permitted by law.
Section 3.10 Entire Agreement; Nonwaiver. This Agreement together with the
other Transaction Documents supersedes all prior agreements between the parties
with respect to the subject matter hereof and contains the entire agreement
between the parties with respect to such subject matter. No delay on the part of
any party in exercising any right hereunder shall operate as a waiver thereof,
nor shall any waiver, express or implied, by any party of any right hereunder or
of any failure to perform or breach hereof by any other party constitute or be
deemed a waiver of any other right hereunder or of any other failure to perform
or breach hereof by the same or any other party, whether of a similar or
dissimilar nature.
Section 3.11 No Third-Party Beneficiaries. Nothing contained in this
Agreement, express or implied, is intended to or shall confer upon anyone other
than the parties (and their successors and permitted assigns) any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement, except
that each Indemnitee shall be deemed to be a third-party beneficiary hereunder.
Section 3.12 Action of Original Shareholders. The approval of Original
Shareholders representing a majority of the Pledged Shares shall be sufficient
to agree to any amendment or other action required or permitted to be taken by
the Original Shareholders hereunder, including any action or agreement necessary
to determine Pledged Share Value.
Section 3.13 New Indemnitees. The Financial Sponsors shall have the
absolute right, by agreement of Financial Sponsors owning not less than 50% of
the shares of ARC Holdings Common Stock owned by all Financial Sponsors and
notice to the Indemnitors], to (a) admit additional Persons as Indemnitees and
"Financial Sponsors" hereunder, with the same or different rights as the initial
Financial Sponsors hereunder, provided, however, that no such action shall
modify any other term or provision of this Agreement; and provided, further,
that such absolute right shall extend only until the earlier of (x) January 1,
1999 (extended to the extent necessary to comply with any applicable regulatory
requirements being diligently pursued in good faith at such time), or (y) such
time as equity investments in ARC Holdings, including the investments in ARC
Holdings equity securities by the initial Financial Sponsors party to this
agreement equal or exceed, in the aggregate, $60,000,000. Notwithstanding the
foregoing, any Financial Sponsor or affiliate thereof who purchases Company
Preferred shall, subject to clause (x) and clause (y) above, automatically be
deemed a "Financial Sponsor".
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Section 3.14 Other Provisions. Each of the Original Shareholders agrees
that he will not make any claim against New ARC, ARC Holdings or any affiliate
thereof or investor therein (a) by reason of the fact that he or she was serving
as a director, officer, employee or agent for any such Person or any Predecessor
Corporation or was serving at the request of any such Person or Predecessor
Corporation as a partner, trustee, director or officer, employee or agent of
another Person (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter, document, bylaws, agreement or
otherwise) with respect to any action, suit, proceeding, complaint, claim or
demand brought by ARC Holdings, New ARC, or any of the respective shareholders
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise), and/or (b) relating to any
event or circumstance prior to the date of this Agreement, including, without
limitation, the Reorganization Transaction, but excluding rights arising under
agreements executed by such Persons as individuals in connection therewith.
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IN WITNESS WHEREOF, the parties have executed this Agreement or have caused
this Agreement to b executed by their respective, duly authorized officers as of
the date first above written.
ALLIED RISER COMMUNICATIONS HOLDINGS,
INC.
/s/ XXXX XXXXXXX
----------------------------------
By: Xxxx Xxxxxxx
Title: Chief Financial Officer
EGI-ARC INVESTORS, L.L.C.
By: GAMI Investments, Inc.,
It's Managing Member
/s/ XXXXXX X. XXXXXXXXXXX
----------------------------------
By: Xxxxxx X. Xxxxxxxxxxx
Title: Vice President
TELECOM PARTNERS II, L.P.
By: Telecom Management II, L.L.C.,
It's General Partner
/s/ XXXXXXX X. XXXXXXX
----------------------------------
By: Xxxxxxx X. Xxxxxxx
Title: Managing Member
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CRESCENDO WORLD FUND, LLC
By: Crescendo Ventures World Fund,
LLC, It's [General Partner]
/s/ XXXXXXX X. XXXXXXXXX
----------------------------------
By: Xxxxxxx X. Xxxxxxxxx
Title: Partner
EAGLE VENTURES WF, LLC
/s/ XXXXXXX X. XXXXXXXXX
----------------------------------
By: Xxxxxxx X. Xxxxxxxxx
Title: Vice President
CRESCENDO III, LP
By: Crescendo Ventures II, LLC,
Its General Partner
/s/ XXXXXXX X. XXXXXXXXX
----------------------------------
By: Xxxxxxx X. Xxxxxxxxx
Title: Partner
XXXXXXXX EQUITY GROUP, LLC
/s/ XXXXXX X. XXXXXXX
----------------------------------
By: Xxxxxx X. Xxxxxxx
Title: Vice President
/s/ XXXXX X. XXXXX
-----------------------------------------
Xxxxx X. Xxxxx
/s/ XXXXX X. XXXXXXXX
-----------------------------------------
Xxxxx X. Xxxxxxxx
/s/ XXXX XXXXXXX
-----------------------------------------
Xxxx Xxxxxxx
-----------------------------------------
Xxxxxxx Xxxx
/s/ XXXX XXXXXXX
-----------------------------------------
Xxxx Xxxxxxx
/s/ XXXXX XXXXXXXX
-----------------------------------------
Xxxxx Xxxxxxxx
-----------------------------------------
Xx Xxxxxx
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Schedule 1
List of Original Shareholders
Name Address
---- -------
Xxxxx X. Xxxxx 000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Xxxxx X. Xxxxxxxx 0000 X. Xxxxxxxx Xxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Xxxx Xxxxxxx 0000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxx
Xxxx Xxxxxxx 0000 Xxxxxxxxx
Xxxxxx, XX 00000
Xxxxx Xxxxxxxx 0000 Xxxxxxxx Xxxxx
Xxxx Xxxxx, Xxxxx
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Schedule 2
Transaction Documents
1. Amendment of RCH Holdings, Inc. Articles of Incorporation regarding
authorized stock and par value
2. Carrier Direct, Inc. and Allied Riser Communications, Inc. liquidation
documents (including Plan of Liquidation, dated immediately prior to the
Effective Date)
3. RCH Holdings, Inc. Recapitalization Documents (including Subscription
Agreements and Amendments No. 1 and No. 2 thereto)
4. RCH Holdings, Inc. Liquidation Documents (including the Plan of Liquidation
of RCH Holdings, Inc., dated immediately prior to the Effective Date)
5. Indemnification Agreement pursuant to which certain Persons indemnify
Allied Riser Communications Holdings, Inc. and Financial Sponsors
6. Stockholders' Pledge Agreement pursuant to which certain Persons pledge
certain collateral to EGI-ARC Investors, LLC (as collateral agent for the
beneficiaries thereof) to secure their indemnification obligations
7. Allied Riser Communications Holdings, Inc. Stockholders' Agreement and
Amendment No. 1 and Joinder to Allied Riser Communications Holdings, Inc.
Stockholders Agreement
8. Registration Rights Agreement
9. Employment Agreements (as specified on Exhibit H to the Investment
Agreements)
10. Investment Agreements between Allied Riser Communications Holdings, Inc.
and each Financial Sponsor
11. Certificate of Incorporation of Allied Riser Communications Holdings, Inc.
12. Bylaws of Allied Riser Communications Holdings, Inc. (Delaware)
13. Certificate of Incorporation of Allied Riser Communications, Inc.
14. Bylaws of Allied Riser Communications, Inc.
15. Allied Riser Communications Holdings, Inc. Contribution and Assumption
Documents
16. All Corporate Authorizations (Minutes, Resolutions, etc,) relating to all
of the foregoing other than by or on behalf of the Financial Sponsors
17. RCH Holdings, Inc. Proxy Statements and Related Correspondence and
Materials
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19. Asset Transfer and Assumption/Assignment Agreements delivered in connection
with this agreement (including with respect to intellectual property)
20. Documents Terminating Warrant rights of Zlogar, Doshier, Yeargain, Graham,
and Advest (including terminating co-management rights and rights to
related fees)
21. Indiana and California Blue Sky Filings and Qualifications (including
Federal Form D).
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