Exhibit 10.17
INDEMNIFICATION AND ESCROW
AGREEMENT
THIS INDEMNIFICATION AND ESCROW
AGREEMENT (this “Agreement”) is entered into as of the
1 st day of June, 2000 by and among
FrontLine Capital Group (formerly known as Reckson Services
Industries, Inc.), a Delaware corporation (“RSI”),
CarrAmerica Realty Corporation, a Maryland corporation
(“CarrAmerica”), Strategic Omni Investors LLC, a
Delaware limited liability company (“Strategic Omni”),
Security Capital Holdings S.A., a Luxembourg corporation
(“SC-USRealty”), The Oliver Carr Company, a District of
Columbia corporation (“OCCO”), Carr Holdings LLC, a
Maryland limited liability company (“Carr Holdings”),
and the additional persons who are shown on the signature page
hereto (the “Additional Indemnitors”) (CarrAmerica,
Strategic Omni, SC-USRealty, OCCO, Carr Holdings, and each of the
Additional Indemnitors, collectively the “Shareholders”
and individually a “Shareholder”; sometimes
collectively referred to herein with RSI as
“Depositors” and individually a
“Depositor”) and Citibank, N.A., a New York
corporation, as escrow agent hereunder (the “Escrow
Agent”).
W
I T N
E S S E T H
:
WHEREAS, RSI, CarrAmerica, VANTAS
Incorporated, a Nevada corporation (“VANTAS”), and HQ
Global Workplaces, Inc., a Delaware corporation
(“HQGW”), have entered into an Agreement and Plan of
Merger dated as of January 20, 2000, as amended as of
April 29, 2000 and as of May 31, 2000 (the “Merger
Agreement”) pursuant to which VANTAS will merge with and into
HQGW (“the Merger”);
WHEREAS, on the date hereof,
pursuant to an agreement among certain of the Shareholders and RSI
dated as of January 20, 2000 (the “Stock Purchase
Agreement”), certain of the Shareholders are selling to RSI,
and RSI is purchasing from such Shareholders, that number of the
shares of voting common stock, par value $.01 per share, and
non-voting common stock, par value $.01 per share, of Holdco as set
forth in, and subject to the terms and conditions of, the Stock
Purchase Agreement;
WHEREAS, on the date hereof,
pursuant to the Merger Agreement, each issued and outstanding share
of (A) common stock, par value $.01 per share (“VANTAS
Common Stock”), of VANTAS shall be converted into the right
to receive $8.00 per share in cash and (B) (i) Series A
Convertible Preferred Stock, par value $.01 per share, of VANTAS
(the “Series A Stock”), (ii) Series B Convertible
Preferred Stock, par value $.01 per share, of VANTAS (the
“Series B Stock”), (iii) Series C Convertible
Preferred Stock, par value $.01 per share, of VANTAS (the
“Series C Stock”), (iv) Series D Convertible
Preferred Stock, par value $.01 per share, of VANTAS (the
“Series D Stock”), and (v) Series E Convertible
Preferred Stock, par value $.01 per share of VANTAS (the
“Series E Stock”), other than shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock and Series E Stock
held in the treasury of VANTAS, are, by virtue of the Merger and
without any action on the part of the holder thereof, being
converted into the right to receive shares of voting common stock
of HQGW;
WHEREAS, as a condition to the
consummation by VANTAS and/or RSI, as applicable, of the
transactions contemplated by the Merger Agreement, the Stock
Purchase Agreement, and that certain Stock Purchase Agreement by
and among VANTAS, RSI, CarrAmerica, OmniOffices (UK) Limited
(“Omni UK”) and OmniOffices (Lux) 1929 Holding Company
S.A. (“LuxCo”) (the “UK Agreement”),
(i) the Shareholders have hereby agreed to indemnify and hold
harmless RSI from and against certain losses related to the Merger
Agreement and the Stock Purchase Agreement, and
(ii) CarrAmerica has hereby agreed to indemnify and hold
harmless RSI from and against certain losses related to the UK
Agreement, upon the terms and conditions provided
herein;
WHEREAS, as a condition to the
consummation by HQGW and the applicable Shareholders of the
transactions contemplated by the Merger Agreement, the Stock
Purchase Agreement and the UK Agreement, RSI has agreed to
indemnify and hold harmless certain Shareholders from and against
certain losses from certain matters upon the terms and conditions
provided herein;
WHEREAS, in connection with the
Shareholders’ indemnification obligations, the parties have
agreed that the Shareholders are depositing an aggregate of 706,612
shares of non-voting common stock of Holdco (the “Non-Voting
Common Stock”) (collectively, the “Shareholder
Indemnification Shares”) and $4,158,492 in cash (the
“Shareholder Cash Collateral”) with the Escrow Agent to
be held and disbursed by the Escrow Agent in accordance with this
Agreement, with such Shareholder Indemnification Shares and
Shareholder Cash Collateral having an aggregate initial value of
$30,000,000 as of the Closing;
WHEREAS, in connection with
RSI’s indemnification obligations, the parties have agreed
that RSI is depositing an aggregate of 820,322 shares of voting
common stock of Holdco (the “Voting Common Stock”) (the
“RSI Indemnification Shares,” and together with the
Shareholder Indemnification Shares, the “Indemnification
Shares”) with the Escrow Agent to be held and disbursed by
the Escrow Agent in accordance with this Agreement, with the RSI
Indemnification Shares having an aggregate initial value of
$30,000,000 as of the Closing;
WHEREAS, capitalized words and
phrases used and not defined herein shall have the meanings
ascribed to them in the Merger Agreement; and
WHEREAS, the Escrow Agent is willing
to establish and administer this escrow on the terms set forth in
this Agreement.
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NOW, THEREFORE, in consideration of
the premises, and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the parties
hereto do hereby agree as follows:
1. Certain Definitions . As
used in this Agreement, certain capitalized terms not otherwise
defined herein shall have the following respective
meanings:
“Cash Collateral” shall
mean the Shareholder Cash Collateral and any cash deposited by RSI
or any Shareholder in the Escrow Account in substitution of RSI
Indemnification Shares or Shareholder Indemnification Shares in
accordance with Section 2(b).
“Company Level Loss”
shall mean any loss, liability, claim, damage or expense (including
reasonable legal fees and expenses) directly or indirectly incurred
by HQGW or its Subsidiaries and VANTAS or its Subsidiaries
respectively; it being understood that a Company Level Loss shall
not include any consequential, incidental or punitive damages or
any Direct Loss.
“Escrow Property” shall
mean the Indemnification Shares and the Cash Collateral delivered
to the Escrow Agent, together with all interest, dividends and
other distributions and payments thereon received by Escrow Agent,
less any property and/or funds distributed or paid in accordance
with this Agreement.
“Loss” or
“Losses” shall mean a Company Level Loss or a Direct
Loss.
“Direct Loss” shall mean
any loss, liability, claim, damage or expense (including reasonable
legal fees and expenses) incurred by (i) any Shareholder
Indemnitee arising from, relating to or as a result of the
inaccuracy at the time made or deemed made of any of the
representations or warranties set forth in:
(a) Section 5(B) of the Merger Agreement; and
(b) Section 5 of the Stock Purchase Agreement; or
(ii) RSI Indemnitees arising from, relating to, or as a result
of the inaccuracy at the time made or deemed made of any of the
representations or warranties set forth in:
(a) Section 4(B) of the Merger Agreement;
(b) Section 4 of the Stock Purchase Agreement and
(c) Article II, Section (B) of the UK Agreement; it being
understood that a Direct Loss shall not include (x) any
consequential, incidental or punitive damages, (y) any loss or
damages suffered by such party as a result of the diminution in
value (either directly or indirectly) of the interest held by such
party in the Holdco, or (z) any Company Level Loss.
“Market Value” shall
mean $36.57 per share.
“Ownership Percentage”
shall mean, with respect to a Shareholder, the percentage set forth
opposite such Shareholder’s name on Schedule A
attached hereto.
“RSI Indemnitees” shall
mean RSI and its directors, officers, employees, shareholders,
agents and representatives.
“RSI’s Indemnification
Share” shall mean one (1) minus the Shareholder’s
Indemnification Share.
“Shareholder
Indemnitees” shall mean the Shareholder listed on Schedule
C attached hereto and its directors, officers, employees,
shareholders, agents and representatives.
“Shareholder Litigation”
shall mean the legal proceedings disclosed in Schedule 4(p) of the
Merger Agreement under the caption “Omni Offices, Inc. and
CarrAmerica Realty
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Corporation v. Joseph Kaidanow and Robert
Arcoro” and any and all other claims, counterclaims, causes
of actions or other proceedings threatened or initiated by or on
behalf of Robert Arcoro (“Arcoro”) or Joseph Kaidanow
(“Kaidanow”) that relate to facts or circumstances or
alleged facts or alleged circumstances arising on or prior to
May 31, 2000 (the “Closing Date”), other than any
such claims, causes of action or other proceedings with respect to
and only to the extent of allegations thereon that any information
supplied in writing by RSI to CarrAmerica for inclusion in
materials that HQGW delivers to Arcoro or Kaidanow in connection
with the Merger contains any untrue statement of a material fact
with respect to RSI or VANTAS or omits to state a material fact
necessary in order to make the statements therein with respect to
RSI or VANTAS not misleading.
“Shareholders’
Indemnification Share” shall mean the aggregate percentage
ownership interest of the Voting Common Stock and Non-Voting Common
Stock of Holdco owned by the Shareholders immediately after the
Closing.
2. Establishment of Escrow
Account .
(a) Each Shareholder and RSI are
contemporaneously with the execution and delivery of this Agreement
by each of the parties delivering the number of Indemnification
Shares (together with executed stock powers in respect thereof)
and/or the amount of Cash Collateral set forth opposite its name on
Schedule A hereto to the Escrow Agent for deposit into an
escrow account (the “Escrow Account”) by the Escrow
Agent and the Escrow Agent hereby acknowledges receipt of the same.
All Indemnification Shares and Cash Collateral in the Escrow
Account shall be available for distribution by the Escrow Agent,
subject to the provisions of this Agreement, to reimburse any RSI
Indemnitee or any Shareholder Indemnitee, as the case may be, in
respect of any Losses that are indemnifiable pursuant to this
Agreement. Notwithstanding the escrow of the Indemnification
Shares, dividends and other distributions declared and paid on
Indemnification Shares held in escrow shall continue to be paid by
Holdco to the respective Shareholders and RSI, all voting rights
with respect to such shares shall inure to the benefit of and be
enjoyed by the respective Shareholders and RSI, and such
Shareholders and RSI shall be the legal and beneficial owners of
such shares for all purposes subject to the terms of this
Agreement; provided, that the parties agree that (i) Holdco
shall deposit with the Escrow Agent any securities issued to the
Shareholders or RSI in respect of any Indemnification Shares held
in escrow as a result of a stock split or combination of shares of
Voting Common Stock or Non-Voting Common Stock, as the case may be,
payment of a stock dividend or other stock distribution made
without receipt of consideration therefor in or on the Voting
Common Stock or Non-Voting Common Stock, as the case may be, or
change of shares of the Voting Common Stock or Non-Voting Common
Stock, as the case may be, into any other securities pursuant to or
as part of a business combination or otherwise, in each case
together with specific written instructions to the Escrow Agent on
whose behalf the same should be credited, and (ii) such
securities shall be held by the Escrow Agent as, and shall be
included within the definition of, Indemnification Shares, as the
case may be; provided, however, notwithstanding the foregoing
proviso, to the extent that any such distribution of securities is
properly taxable as a dividend for federal income tax purposes,
Holdco shall instruct the Escrow Agent to distribute such
securities
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to the respective Shareholders and
RSI. The Escrow Agent agrees that it shall invest any Cash
Collateral in the HQ/VANTAS Indemnification Escrow Agreement
account (F/B/O 795012). The Escrow Agent shall not have any
liability for any loss sustained as a result of any investment made
pursuant to the preceding sentence or as a result of any
liquidation of any such investment prior to its maturity. Any
interest earned on any Cash Collateral shall not be used to
increase the amount of the Escrow Account of any party hereto and
shall be paid to the applicable depositor of the Escrow Account
from time to time upon written demand by such depositor, upon
specific written instructions to the Escrow Agent with respect
thereto. The Escrow Agent shall have no obligation to invest or
reinvest the Cash Collateral if deposited with the Escrow Agent
after 11:00 a.m. (E.S.T.) on such day of deposit. Instructions
received after 11:00 a.m.(E.S.T.) will be treated as if received on
the following business day. The Escrow Agent shall have the power
to sell or liquidate the foregoing investments whenever the Escrow
Agent shall be required to release the Escrow Property pursuant to
the terms hereof. Requests (or instructions) received after 11:00
a.m. (E.S.T.) by the Escrow Agent to liquidate the Escrow Property
will be treated as if received on the following business day. The
Escrow Agent shall have no responsibility for any investment losses
resulting from the investment, reinvestment or liquidation of the
Escrow Property. Any interest or other income received on such
investment and reinvestment of the Escrow Property shall become
part of the Escrow Property. If a selection is not made, the Escrow
Property shall remain uninvested with no liability for interest
therein. It is agreed and understood that the Escrow Agent may earn
fees associated with the investments outlined above.
(b) At any time and from time to
time after the Closing Date, any or all of the Indemnification
Shares deposited by any Shareholder or RSI in the Escrow Account on
the Closing Date may be withdrawn upon at least five
(5) business days’ prior notice by RSI or the
Shareholders, as applicable, to the other (with a copy to the
Escrow Agent), but if and only if simultaneously with such
withdrawal the withdrawing party delivers immediately available
funds to the Escrow Agent for deposit into the Escrow Account in an
amount equal to the aggregate Market Value of the number of
Indemnification Shares so withdrawn, which determination shall be
set forth in a written notice to the Escrow Agent signed by RSI or
the applicable Shareholder and upon which the Escrow Agent shall be
entitled to conclusively rely.
3. Tax Indemnification
.
(a) Tax Indemnification by
Shareholders . Subject to the limitations of indemnification
pursuant to Section 5, the Shareholders severally, based on
each such Shareholder’s Ownership Percentage, shall indemnify
the RSI Indemnitees against and hold them harmless from
(i) any Loss incurred by reason of any liability of HQGW and
its Subsidiaries for Taxes for any Pre-Closing Tax Period,
(ii) any Loss incurred by reason of any liability for Taxes of
the Shareholders or any other person (other than HQGW) which is or
has ever been affiliated with HQGW and its Subsidiaries, and
(iii) any Loss incurred by reason of any liability for
reasonable legal, accounting, appraisal, consulting or similar fees
and expenses for any item attributable to any item in clause
(i) or (ii) above.
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(b) Tax Indemnification by
RSI . Subject to the limitations of indemnification pursuant to
Section 5, RSI shall indemnify the Shareholder Indemnitees
against and hold them harmless from (i) any Loss incurred by
reason of any liability of VANTAS and its Subsidiaries for Taxes
for any Pre-Closing Tax Period, (ii) any Loss incurred by
reason of any liability for Taxes of RSI or any other person (other
than VANTAS and its Subsidiaries) which has ever been affiliated
with RSI and its Subsidiaries, and (iii) any Loss incurred by
reason of any liability for reasonable legal, accounting,
appraisal, consulting or similar fees and expenses for any item
attributable to any item in clause (i) or
(ii) above.
(c) Straddle Period . For
purposes of subparagraphs (a) and (b) above, in the case of
any taxable period that includes (but does not end on) the Closing
Date (a “Straddle Period”):
(i) real, personal and intangible
property Taxes (“Property Taxes”) of HQGW and its
Subsidiaries and VANTAS and its Subsidiaries, respectively, for any
Pre-Closing Tax Period (other than Taxes imposed in connection with
the Merger or otherwise in connection with this Agreement or the
transactions contemplated hereby) shall be equal to the amount of
such Property Taxes of HQGW and its Subsidiaries and VANTAS and its
Subsidiaries, respectively, for the entire Straddle Period
(limited, however, to those Taxes attributable to the assets of
HQGW and its Subsidiaries and VANTAS and its Subsidiaries,
respectively, owned prior to the Closing Date) multiplied by a
fraction, the numerator of which is the number of days during the
Straddle Period that are in the Pre-Closing Tax Period and the
denominator of which is the number of days in the Straddle Period;
and
(ii) the Taxes of HQGW and its
Subsidiaries and VANTAS and its Subsidiaries, respectively (other
than Property Taxes and other than Taxes referred to in
Section 6(e) of this Agreement, which Taxes will be governed
by such Section), for the Pre-Closing Tax Period shall be computed
as if such taxable period ended as of the close of business on the
Closing Date. The indemnity obligations of the Shareholders in
respect of Taxes for a Straddle Period shall, subject to the
limitations on indemnification pursuant to Section 5, equal
the excess of (x) such Taxes for the Pre-Closing Tax Period
over (y) the sum of (i) the amount of such Taxes for the
Pre-Closing Tax Period paid by the Shareholders or any of their
affiliates (other than HQGW) at any time and (ii) the amount
of such Taxes paid by HQGW and its Subsidiaries on or prior to the
Closing Date (which includes any payments of estimated taxes or
similar amounts made by HQGW and its Subsidiaries on or prior to
the Closing Date and any amounts of Taxes for which a reserve has
been reflected on the Company Balance Sheet, even though the amount
reflected for such reserve has not yet been paid, based on each
such Shareholder’s Ownership Percentage, to the applicable
taxing authority). The Shareholders severally, based on each such
Shareholder’s Ownership Percentage, shall initially pay such
excess to RSI upon the later of (A) five days prior to
the
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date on which the Tax Return
(including any Tax Return with respect to estimated Taxes) with
respect to the liability for such Taxes is required to be filed
(and if no such Tax Return is required to be filed, five days prior
to the date satisfaction of the Tax liability is required by the
relevant taxing authority) or (B) ten days after the receipt
from RSI of notice that such amount is required to be paid pursuant
hereto. The payments to be made pursuant to this paragraph by the
Shareholders with respect to a Straddle Period shall be
appropriately adjusted to reflect any final determination (which
shall include the execution of Form 870-AD or any successor form)
with respect to Taxes for the Straddle Period.
RSI shall cause Holdco to within 10
days of the receipt thereof, pay to each of the Shareholders an
amount equal to such Shareholder’s Ownership Percentage, an
amount equal to 100% of any refund of any Taxes of HQGW with
respect to any Pre-Closing Tax Period received by HQGW, any of its
Subsidiaries or Holdco at any time after the Closing Date
(including for this purpose any credit against Taxes owed for any
taxable period ending after the Closing Date, if such credit is
attributable to a taxable period ending on or prior to the Closing
Date, any refund of estimated tax payments made on or prior to the
Closing Date or any application of such payments to either a
taxable period commencing after the Closing Date or a portion of a
Straddle Period that is subsequent to the Closing Date, and any
interest received by HQGW, any of its Subsidiaries or Holdco with
respect to any of the foregoing from the applicable taxing
authority) unless (and only to the extent) that the amount of such
refund for Taxes was reflected as an asset on the Company Balance
Sheet.
(d) RSI shall indemnify each of the
Shareholder Indemnitees for any Extra Tax Costs incurred by such
Shareholder Indemnitees in connection with the HQ Merger, the
Second Step Merger, and/or the sale of shares by such Shareholder
Indemnitee pursuant to the Stock Purchase Agreement. For purposes
of this Section 3(d), “Extra -Tax Costs” shall be
defined as (i) all interest, penalties, and similar charges
actually payable by a Shareholder Indemnitee to any applicable
taxing authority with respect to Extra Taxes attributable to the
period ending on the earlier of January 1, 2003 or the date
all of such Shareholder Indemnitee’s shares of stock in HQGW
not sold pursuant to the Stock Purchase Agreement actually are sold
(in either case, the “Deemed Sale Date”), plus
(ii) in the event that such interest, penalties, and similar
charges have not been paid on or prior to the Deemed Sale Date, all
interest, penalties and similar charges accruing with respect to
such interest, penalties and similar charges until the earlier of
the actual date on which the interest, penalties, and similar
charges described in clause (i) are paid or thirty
(30) days following a “final determination” within
the meaning of Section 1313 of the Code that the Shareholder
Indemnitee is required to pay Extra Taxes, plus (iii) if and
to the extent that a Shareholder Indemnitee is required to pay any
Extra Taxes prior to the applicable Deemed Sale Date, interest on
such Extra Taxes from the date the Shareholder Indemnitee makes
such payment of Extra Taxes to and including the applicable Deemed
Sale Date, computed at a rate equal to the rate applicable under
Section 6621 of the Code with respect to underpayments of
federal income tax, plus (iv) an amount equal to all federal,
state and local
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income taxes (net of the federal
income tax benefit, if any, resulting to the Shareholder Indemnitee
from any deduction allowed to such Shareholder Indemnitee for any
such state and local income taxes) required to be paid by such
Shareholder Indemnitee with respect to the payment received
pursuant to this Section 3(d). For purposes of this
Section 3(d), “Extra Taxes” shall be defined as
the excess of (i) the amount of all Taxes (other than stock
transfer Taxes) payable (determined as described below) by a
Shareholder Indemnitee by reason of the Second Step Merger and/or
the sale of shares of stock by the Shareholder Indemnitee pursuant
to the Stock Purchase Agreement over (ii) the amount of Taxes
(other than stock transfer Taxes) that would have been payable by
such Shareholder Indemnitee by such reason if (a) the exchange
into Holdco Preferred Stock described on the Financing Exhibits
were not to have taken place and (b) the surviving corporation
in the Second Step Merger were the HQ Surviving Corporation rather
than M Sub. The amount of Extra Taxes and the Extra Tax Costs for
purposes of this Section 3(d) shall be determined and
certified to by an independent accountant selected by the
applicable Shareholder Indemnitee, as may be reasonably acceptable
to RSI. Extra Taxes and Extra Tax Costs shall be considered payable
for the purposes hereof on the earlier of (i) the date on
which the Shareholder Indemnitee notifies RSI in writing of any
assertion by the Internal Revenue Service, formal or informal, of a
position to the effect that such amounts might be required to be
paid, or (ii) the date on which the Shareholder Indemnitee
delivers to RSI a copy of an opinion of the tax advisor to such
Indemnitee providing that it is more likely than not that the
Shareholder Indemnitee is liable for such Extra Taxes and Extra Tax
Costs (in either case, a “Potential Adverse Determination
Date”), unless in either event RSI notifies such Shareholder
Indemnitee in writing within ten days of the Potential Adverse
Determination Date that, pursuant to the provisions of this
section, it will indemnify the Shareholder Indemnitee for
(a) all interest, penalties, and similar charges accruing with
respect to such Extra Taxes and Extra Tax Costs from the Potential
Adverse Determination Date until the earlier of thirty
(30) days following a “final determination” within
the meaning of Section 1313 of the Code that the Shareholder
is required to pay Extra Taxes and/or Extra Tax Costs or ten
(10) days following written notice from RSI to such
Shareholder Indemnitee to pay all such Extra Taxes and Extra Tax
Costs as to which a Potential Adverse Determination Date has
occurred (in either case, the “Delayed Payment Date”),
and (b) all legal and accounting costs and expenses incurred
in connection with any challenge or assertion by the Internal
Revenue Service (it being understood that the Shareholder
Indemnitee shall not in any event have any duty to contest any such
challenge except, and only to the extent that, RSI bears any and
all costs associated therewith), in which event Extra Taxes and
Extra Tax Costs shall be considered payable for purposes hereof on
the Delayed Payment Date. The obligations of RSI pursuant to this
Section 3(d) are in addition to, and not in lieu of, the
obligations of HQ Surviving Corporation and HQGW under
Section 7(j) of the Merger Agreement. The provisions of
Section 5(a), 5(b), 5(c) and 5(d) shall not apply with respect
to this Section 3(d).
4. Other Indemnification
.
(a) Other Indemnification by the
Shareholders . (W) The Shareholders severally, based on
each such Shareholder’s respective Ownership Percentage,
shall indemnify the RSI Indemnitees against and hold them harmless
from any Company Level Loss (other than
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any relating to Taxes, for which
indemnification provisions are set forth in Section 3(a), and
any relating to the Shareholder Litigation, for which
indemnification provisions are set forth in Section 4)(a)(X))
arising from, relating to or otherwise in respect of any inaccuracy
of any representation or warranty of HQGW contained in the Merger
Agreement (other than the representations set forth in Sections
4(A)(b) and 4(A)(ee) of the Merger Agreement, for which
indemnification provisions are set forth in Section 4(a)(X)
below) or in any certificate delivered pursuant thereto or in
connection therewith at the time made or deemed made (regardless of
whether or not VANTAS or RSI was aware of such failure on or prior
to the Effective Time).
(X) All Shareholders severally,
based on each such Shareholder’s respective Ownership
Percentage, shall indemnify the RSI Indemnitees against and hold
them harmless from RSI’s Indemnification Share of any Company
Level Loss and from any claims, causes of action or other
proceedings under which any RSI Indemnitee may be subject to
liability arising from, relating to, or otherwise in respect of any
inaccuracy of the representations set forth in Section 4(A)(b)
and 4(A)(ee) of the Merger Agreement. CarrAmerica shall indemnify
the RSI Indemnitees against and hold them harmless from RSI’s
Indemnification Share of any Company Level Loss and from any
claims, causes of action or other proceedings under which any RSI
Indemnitee may be subject to liability arising from, relating to,
or otherwise in respect of the Shareholder Litigation.
(Y) Each Shareholder severally with
respect to any Direct Loss attributable to itself only shall
indemnify the RSI Indemnitees against and hold them harmless from
any such Direct Loss directly or indirectly suffered or incurred by
any such RSI Indemnitee.
(Z) CarrAmerica shall indemnify the
RSI Indemnitees against and hold them harmless from any Company
Level Loss directly or indirectly suffered or incurred by any such
RSI Indemnitee arising from, relating to or otherwise in respect of
any inaccuracy of the representations and warranties of HQ UK and
HQ LuxCo contained in the UK Agreement or in any certificate
delivered pursuant thereto or in connection therewith at the time
made or deemed made (regardless of whether or not VANTAS or RSI was
aware of such failure on or prior to the Closing Date).
(b) Other Indemnification by
RSI . (Y) RSI shall indemnify the Shareholder Indemnitees
against and hold them harmless from any Company Level Loss or
Direct Loss (other than any relating to Taxes, for which
indemnification provisions are set forth in Section 3(a))
directly or indirectly suffered or incurred by them arising from,
relating to or otherwise in respect of any inaccuracy of any
representation or warranty of RSI or VANTAS contained in the Merger
Agreement (other than the representations set forth in
Section 5(A)(b) of the Merger Agreement, for which
indemnification provisions are set forth in Section 5(b)(Z)
below), the UK Agreement or the Stock Purchase Agreement or in any
certificate delivered pursuant to either of the foregoing or in
connection therewith at the time made or deemed made (regardless of
whether or not any Shareholders were aware of such failure on or
prior to the Effective Time).
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(Z) RSI shall indemnify the
Shareholder Indemnitees against and hold them harmless from the
Shareholders’ Indemnification Share of any Company Level Loss
and from any claims, causes of actions or other proceedings under
which any Shareholder Indemnitee may be subject to liability
(i) arising from, relating to, or otherwise in respect of the
matter disclosed in clause (ii) of Schedules 5(r) or 5(u) to
the Merger Agreement or any inaccuracy of the representations set
forth in Section 5(A)(b) of the Merger Agreement or
(ii) threatened or initiated by or on behalf of any holder of
VANTAS Common Stock or Preferred Stock that relate to the execution
and delivery of the Merger Agreement or to any of the transactions
contemplated therein, or (iii) arising from, relating to, or
otherwise in respect of the offer or sale of equity securities of
HQGW or Holdco to any third party in connection with the
transactions contemplated by the Merger Agreement, the Stock
Purchase Agreement or the UK Agreement; provided that , RSI
shall not be required to make any payment under this clause
(Z) to the extent of any amounts that the Shareholders are
required to pay under Section 4(a) hereof with respect to the
same facts and circumstances that give rise to a claim under this
clause (Z).
(ZZ) Except with respect to any
matter referred to in clause (ZZZ) below, in the event Holdco is
required to pay any amounts under (i) Section 11(a) of
that certain Exchange Agreement dated as of May 31, 2000 by
and between Holdco and RSI (the “Exchange Agreement”)
or otherwise as a result of a breach of the representations and
warranties of Holdco contained in Section 2 of the Exchange
Agreement, (ii) Section 11(a) of any of those certain
Purchase Agreements, each dated as of May 31, 2000, by and
between, in each case, RSI, on the one hand, and the Investor
specified in each such Agreement, on the other hand, or otherwise
as a result of a breach of representations and warranties of RSI
contained in Section 2 of the Purchase Agreements, or
(iii) Section 11(a) of the Purchase Agreement dated as of
May 31, 2000 by and among Holdco, RSI and Equity Office
Properties Trust or otherwise as a result of a breach of the
representations and warranties of Holdco contained in Sections 2
and 3 of such Purchase Agreement (all of the foregoing obligations
being hereinafter referred to as “Holdco Indemnification
Obligations”), RSI shall indemnify the Shareholder
Indemnitees and hold them harmless in an amount equal to the
product of any amounts paid by Holdco under the Holdco
Indemnification Obligations and the Shareholders’
Indemnification Share; provided that , RSI shall not be
required to make any payment under this clause (Z) to the
extent of any amounts that the Shareholders are required to pay
under Section 4(a) hereof with respect to the same facts and
circumstances that give rise to a claim under this clause
(ZZ).
(ZZZ) In the event Holdco pays any
Holdco Indemnification Obligations under Section 12(a) of any
Purchase Agreement arising from, relating to or otherwise in
respect of any act or failure to act of RSI or any breach of any of
RSI’s representations under Section 3 of any such
Purchase Agreement, then in lieu of the indemnification provisions
of clause (ZZ) above, RSI shall indemnify and hold Holdco harmless
from the entire amount of such payment.
5. Limitations on
Indemnification . Any claim brought under Section 3 or 4 is
subject in each case to the following limitations and
restrictions:
(a) Damages Net of Insurance,
etc . The amount of any Company Level Loss for which
indemnification is provided under this Agreement shall be net of
any amounts
10
actually recovered by the Second
Step Surviving Corporation under insurance policies with respect to
such Company Level Loss (which the Second Step Surviving
Corporation shall use commercially reasonable efforts to recover
under such policies) and the amount of any Loss shall be
(i) increased to take account of any net Tax cost incurred by
the indemnified party arising from the receipt of indemnity
payments hereunder (grossed up for such increase), and
(ii) reduced to take account of any net Tax benefit realized
by the Second Step Surviving Corporation arising from the
incurrence or payment of any such Loss. In computing the amount of
any such Tax cost or Tax benefit, the indemnified party or the
Second Step Surviving Corporation, as the case may be, shall be
deemed to recognize all other items of income, gain, loss,
deduction or credit before recognizing any item arising from the
receipt of any indemnity payment hereunder or the incurrence or
paymen
