Exhibit 10.5
AAB INDEMNITY AGREEMENT
This Indemnity Agreement is made this 6th day of August, 2001, by and
among US LEC Corp., a Delaware corporation (the "Company"), Metacomm, LLC, a
North Carolina limited liability company ("Metacomm"), RTA Associates, LLC, a
New York limited liability company ("RTA"), Xxxxxxx X. Aab ("Aab") and Xxxxx X.
Aab.
RECITALS
WHEREAS, the Company, Metacomm, Aab, Melrich Associates, L.P. a New York
limited partnership ("Melrich"), Xxxxxxx X. Xxxxxxx ("Xxxxxxx") and Super STAR
Associates Limited Partnership, a Georgia limited partnership ("Super STAR")
entered into a Plan of Recapitalization on August 6,2001 (the "Agreement").
WHEREAS, the Company, solely for financial accounting purposes in its
first fiscal quarter of 2000, reduced additional paid-in capital by $36 million
representing amounts due from Metacomm to the Company for services, facilities
and commission advances and treated this amount as a deemed distribution to Aab
in his capacity as a stockholder of the Company (the "First Quarter Book
Classification"); and
WHEREAS, in consideration of the performance by Metacomm, Aab, and Melrich
of their respective obligations under the Agreement, the Company has agreed to
indemnify and hold harmless Metacomm, RTA, Aab and Xxxxx X. Aab (each, a
"Covered Person") from and against certain tax liabilities, if any, caused by
the First Quarter Book Classification;
NOW, THEREFORE, in consideration of the performance by Metacomm, Aab, and
Melrich of their respective obligations under the Agreement, the parties hereto
agree as follows:
1. Indemnification.
(a) 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, New
York and North Carolina income tax laws if a Covered Person is required to
recognize an actual or constructive dividend or a discharge of
indebtedness caused by the First Quarter Book Classification.
(b) If the Company is required to indemnify a Covered Person
pursuant to subsection (a), the amount of the indemnity will be equal to
(i) the Covered Person's Tax Amount (as defined below) for the years 2000
and 2001, minus (ii) the Covered Person's Tax Amount for the years 2000
and 2001 that would have applied if the Company had never made the
accounting entries for the First Quarter Book Classification. For purposes
of these calculations, any 2001 capital loss carryforwards will be valued
at the tax savings that would have resulted if they were fully utilized in
2001 to offset capital gains, and any 2001 net operating loss
carryforwards will be valued at the
tax savings that would have resulted if they were fully utilized in 2001
to offset ordinary income. The term "Tax "Amount" means the sum of a
Covered Person's federal, New York and North Carolina income tax
liabilities (including interest and penalties) for a specified year, plus
any income tax liabilities resulting from the payment of amounts to a
Covered Person pursuant to this Indemnity Agreement for any year in which
the payment is made.
2. Notice and Defense. In case any audit or other proceeding shall be
instituted by a federal, New York 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 any 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, calculated as provided in Section 1(b). 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. Metacomm and Aab represent and warrant to the Company
that the factual statements relating to Metacomm, Aab, RTA and Melrich in the
Tax Certificate of the Aab Affiliates addressed to Deloitte & Touche LLP and
executed in connection with the Agreement are true and correct. If the foregoing
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
reasonably 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. Metacomm and Aab further warrant and represent to the
Company that neither the Internal Revenue Service nor any state taxing authority
has notified Metacomm, RTA or Aab of any income tax liability claim involving
any of them arising out of or relating to the First Quarter Book Classification.
If this representation and warranty is untrue or incorrect, each Covered Person
acknowledges and
agrees that the Company shall be relieved of any obligations to a Covered Person
under this Indemnity Agreement.
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 it 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).
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.
IN WITNESS WHEREOF, this Indemnity Agreement has been executed as of the
date first above written.
US LEC Corp.
By: /s/ Xxxxxxx Xxxxxxxx
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Title: Executive Vice President and Chief Financial
Officer
/s/ Xxxxxxx X. Aab
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Xxxxxxx X. Aab, individually
/s/ Xxxxx X. Aab
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Xxxxx X. Aab, individually
Metacomm, LLC
By: /s/ Xxxxxxx X. Aab
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Title: Member
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RTA Associates, LLC
By: /s/ Xxxxxxx X. Aab
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Title: Member
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