Indemnity Agreement between US LEC Corp. and Ganatra Family & Super STAR Associates Limited Partnership

Summary

US LEC Corp. agrees to protect the Ganatra Family and Super STAR Associates Limited Partnership from certain tax liabilities that may arise from converting shares of Class B stock to Class A stock, as outlined in a related recapitalization agreement. If any tax issues occur, US LEC will cover the costs, provided the Ganatra parties notify the company promptly and meet certain conditions. Disputes will be resolved by arbitration in Charlotte, North Carolina. The agreement is binding on all parties and their successors, and can only be changed in writing with everyone's consent.

EX-10.6 8 dex106.txt IDEMNITY AGREEMENT Exhibit 10.6 GANATRA INDEMNITY AGREEMENT This Indemnity Agreement is made this 6th day of August, 2001, by and between US LEC Corp., a Delaware corporation (the "Company") and Tansukh V. Ganatra ("Ganatra"), Sarlaben T. Ganatra, Rajesh T. Ganatra (collectively, the "Ganatra Family") and Super STAR Associates Limited Partnership, a Georgia limited partnership ("Super STAR") RECITALS WHEREAS, the Company, Metacomm, LLC ("Metacomm"), Richard T. Aab ("Aab"), Melrich Associates, L.P. ("Melrich"), Ganatra and Super STAR entered into a Plan of Recapitalization on August 6, 2001 (the "Agreement"); and WHEREAS, in consideration of the performance by Ganatra and Super STAR of their respective obligations under the Agreement, the Company has agreed to indemnify and hold harmless Super STAR and the members of the Ganatra Family (Super STAR and each such family member is referred to herein as a "Covered Person") from and against certain tax liabilities, if any, as a result of the conversion by Super STAR of 3,750,000 shares of the Company's Class B Common Stock, par value $.01 per share ("Class B Stock"), into a like number of shares of the Company's Class A Common Stock, par value $.01 per share ("Class A Stock") as provided in the Agreement. NOW, THEREFORE, in consideration of the performance by Ganatra and Super STAR of their respective obligations under the Agreement, the parties hereto agree as follows: 1. Indemnification. The Company agrees to indemnify and hold harmless each Covered Person from and against any tax liability (including interest and penalties), including any tax liability arising from any amounts paid to a Covered Person pursuant to this Indemnity Agreement, under federal, North Carolina and Georgia income tax laws that a Covered Person is required to recognize as a result of the conversion by Super STAR pursuant to the Agreement of 3,750,000 shares of Class B Stock into 3,750,000 shares of Class A Stock pursuant to the elective conversion provisions applicable to the Class B Stock in the Company's Restated Certificate of Incorporation. 2. Notice and Defense. In case any audit or other proceeding shall be instituted by a federal or North Carolina taxing authority involving any Covered Person in respect of which indemnity may be sought pursuant to Section 1, such Covered Person shall notify the Company in writing within thirty (30) days of the commencement of any such proceeding and the Company, upon request of the Covered Person, shall retain counsel reasonably satisfactory to the Covered Person to represent the Covered Person in such proceeding and shall pay the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any Covered Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Covered Person. The failure of a Covered Person to provide the Company with the thirty (30)-day written notice required by this Section 2 shall relieve the Company of any obligations to a Covered Person under this Agreement. 3. Settlement. The Company shall not be liable for the settlement of any audit or other proceeding initiated by a taxing authority that is effected without the Company's written consent, but if settled with the Company's consent or if there is a final judgment entered in any such proceeding in favor of any such taxing authority against a Covered Person, the Company agrees to indemnify the Covered Person from and against any loss or liability by reason of such settlement or judgment. The Company shall not, without the prior written consent of the Covered Person, effect any settlement of any pending or threatened proceeding in respect of which any Covered Person is or could have been a party and indemnity could have been sought hereunder by such Covered Person, unless such settlement includes an unconditional release of such Covered Person from all liability for the claims that are the subject matter of such proceeding. 4. Tax Certificate. Ganatra and Super STAR represent and warrant to the Company that the factual statements relating to Ganatra and Super STAR in the Tax Certificate of the Ganatra Affiliates addressed to Deloitte & Touche LLP and executed in connection with the Agreement are true and correct. If this representation and warranty is not true and correct (an "Inaccuracy"), each Covered Person acknowledges and agrees that the Company shall be relieved of any obligations to a Covered Person under this Indemnity Agreement; provided that the Company shall not be relieved of any such obligations if it can be reasonable shown by a Covered Person that the inaccuracy was not material to the imposition of the income tax liability giving rise to a claim for indemnification hereunder. 5. Arbitration. (a) Any dispute, controversy, difference or claim arising out of, relating to or in connection with this Indemnity Agreement, any transaction hereunder, any agreement delivered pursuant to this Indemnity Agreement, or the breach hereof, shall be decided by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, except as otherwise agreed by the parties. Any such arbitration shall be conducted on the earliest possible date and conducted in Charlotte, North Carolina. The arbitrators' award shall be final and binding on the parties hereto and judgment upon the award may be entered in any court having jurisdiction thereof. Expenses in the arbitration shall be apportioned between the parties by the arbitrators. (b) Notwithstanding subsection (a), any party may, if it believes that is requires or is entitled to a temporary restraining order or preliminary injunctive relief to prevent irreparable injury, file a civil action in any court having jurisdiction seeking a restraining order or preliminary injunctive relief. Any claim or demand for monetary damages, a permanent injunction or other relief shall, however, be governed exclusively by the provisions for arbitration set forth in subsection (a). 2 6. Binding Effect. This Indemnity Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns; provided, however, neither this Indemnity Agreement nor any of the rights, interests or obligations of any party may be assigned without the prior written consent of the other parties. 7. Amendment. This Indemnity Agreement may not be modified, amended, altered or supplemented except upon the execution and delivery of a written agreement executed by all the parties. 8. Entire Agreement. This Indemnity Agreement contains the entire understanding of the parties with respect to the subject matter hereof, and supersedes all prior negotiations and understandings between the parties with respect to such subject matter. 9. Counterparts. This Indemnity Agreement may be executed in counterparts, each of which shall be an original, but which together shall constitute one and the same agreement. 10. Section Headings. The section headings herein are for convenience only and shall not affect the construction or interpretation of this Indemnity Agreement. 11. Governing Law. The laws of the State of North Carolina (irrespective of its choice of laws, rules or principles) will govern the validity of this Indemnity Agreement, the construction of its terms and the interpretation and enforcement of the rights and duties of the parties hereto. 3 IN WITNESS WHEREOF, this Indemnity Agreement has been executed as of the date first above written. US LEC Corp. By: /s/ Michael Robinson -------------------------------------- Title: Executive Vice President and Chief ---------------------------------- Financial Officer ---------------------------------- Super STAR Associates Limited Partnership By: /s/ Tansukh V. Ganatra -------------------------------------- Tansukh V. Ganatra, General Partner /s/ Tansukh V. Ganatra ----------------------------------------- Tansukh V. Ganatra /s/ Sarlaben T. Ganatra ----------------------------------------- Sarlaben T. Ganatra /s/ Rajesh T. Ganatra ----------------------------------------- Rajesh T. Ganatra