FIRST AMENDMENT TO THE AMENDED AND RESTATED
TAX ALLOCATION AGREEMENT
THIS FIRST AMENDMENT TO THE AMENDED AND RESTATED TAX ALLOCATION AGREEMENT
("Amendment") dated as of this ____ day of September, 2000, by and among Horizon
Telcom, Inc. (hereinafter referred to as "Parent") and its Subsidiaries: The
Chillicothe Telephone Company, Horizon Personal Communications, Inc. ("PerCom"),
United Communications, Inc., Horizon Services, Inc. and Horizon, PCS, Inc.
("PCS") (hereinafter collectively referred to as "Subsidiaries" or individually
as "Subsidiary").
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group ("Affiliated
Group") as defined in Code Section 1504(a);
WHEREAS, the Affiliated Group was formed on January 1, 1996 and is a
successor to The Chillicothe Telephone Company affiliated group under Treasury
Regulation Section 1.1502-75(d);
WHEREAS, in 1997, Parent and certain of its subsidiaries entered into a Tax
Allocation Agreement (the "Initial Agreement");
WHEREAS, the Initial Agreement was amended and restated in its entirety in
the form attached hereto as Exhibit 1 (the "Restated Agreement");
WHEREAS, PerCom holds shares in Parent and intends to transfer certain of
such shares to PCS, who, in turn, will transfer such shares to its shareholders;
WHEREAS, PCS intends to issue preferred shares in PCS to certain investors
(the "Investors") pursuant to the terms of that certain Securities Purchase
Agreement dated as of the 25th day of September, 2000, which could (either alone
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or in connection with other transactions) result in PCS and PerCom no longer
being members of the Affiliated Group (the "Deconsolidation"); and
WHEREAS, the Parent and Subsidiaries wish to amend the Restated Agreement
to address certain matters implicated by the aforementioned transactions.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. The parties hereby acknowledge that the transfer of Parent shares from
PerCom to PCS, and from PCS to Parent, may be treated as a deemed sale
of such shares by PerCom to PCS and by PCS to its shareholders (the
"Deemed Sale") and that such Deemed Sale may trigger the recognition
of gain by PerCom or PCS resulting from the distribution of
appreciated property for federal, state and local income tax purposes.
The parties hereby agree that, notwithstanding any other provision in
the Restated Agreement but subject to the further limitations set
forth in this Amendment, federal, state and local income taxes
attributable to the Deemed Sale will be the responsibility of PCS. The
determination of the amount of income tax liability triggered as a
result of the Deemed Sale shall be determined by Arthur Andersen, LLP
and its determination shall be final, subject to any determination (as
defined in Code Section 1313 for federal tax purposes or under similar
circumstances for state or local tax purposes) to the contrary.
2. The parties acknowledge that there is an excess loss account (the
"ELA"), pursuant to Treasury Regulations 1.1502-19, with respect to
the PCS shares held by Parent and with respect to the PerCom shares
held by PCS. The parties hereby agree that, notwithstanding any
provision in the Restated Agreement to the contrary but subject to the
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further limitations set forth in this Amendment, federal, state and
local income taxes attributable to the recognition of the ELA as a
result of the Deconsolidation will be the responsibility of PCS. The
determination of the amount of income tax liability resulting from the
recognition of the ELA as a result of the Deconsolidation shall be
accomplished by Arthur Andersen, LLP and its determination shall be
final, subject to any determination (as defined in Code Section 1313
for federal tax purposes or under similar circumstances for state or
local tax purposes) to the contrary.
3. Notwithstanding the foregoing provisions of this Amendment, PCS and/or
PerCom shall only be responsible for amounts of federal, state or
local income tax liability (which liability shall not include any
liability for any federal, state or local penalties or interest)
attributable to the Deemed Sale, or the recognition of the ELA as a
result of the Deconsolidation, in an amount of up to eleven million
five hundred thousand dollars ($11,500,000) (the "PCS Liability Cap"),
and Parent shall, in accordance with the terms of the Restated
Agreement, be liable for, and responsible for, any tax liability
amounts attributable to the Deemed Sale, or the recognition of the ELA
as a result of the Deconsolidation, in excess of the PCS Liability
Cap. Parent shall, and hereby does, indemnify and hold harmless PCS
and PerCom for any amount of federal, state or local income tax
liability attributable to the Deemed Sale, or the recognition of the
ELA as a result of the Deconsolidation, in excess of the PCS Liability
Cap, and Parent will not seek contribution from PCS or PerCom to pay
any of such tax liability in excess of the PCS Liability Cap.
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4. Except as specifically set forth herein, the terms and conditions of
the Restated Agreement shall remain in full force and effect.
5. This Amendment shall be binding upon and inure to the benefit of any
successor, to any of the parties hereto, to the same extent as if the
successor had been an original party to the agreement.
6. References to the Code refer to the Internal Revenue Code of 1986, as
amended or superseded. References to a section of or tax under the
Code includes all amendments and successor provisions corresponding to
any such section or tax in force after the date of this Amendment.
References to tax terms which have defined meaning under the Code
shall have such defined meaning.
7. No person who is not a party hereto is intended to be a beneficiary of
this Amendment; provided however, that the parties hereby agree that
the Investors are intended third party beneficiaries of this Amendment
and that this paragraph shall create a right and cause of action under
this Amendment in and on behalf of the Investors, to enforce payment
by PCS of its obligations herein and to enforce indemnification by
Parent as provided for herein.
8. This Amendment shall be governed by the laws of the State of Ohio.
[SIGNATURES ON FOLLOWING PAGE.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representative on the date indicted above.
HORIZON TELCOM, INC. UNITED COMMUNICATIONS, INC.
_____________________________ _____________________________
By Peter M. Holland By Peter M. Holland
Its Financial Vice President Its Secretary and Treasurer
THE CHILLICOTHE TELEPHONE COMPANY HORIZON SERVICES, INC.
_____________________________ _____________________________
By Peter M. Holland By Peter M. Holland
Its Secretary and Treasurer Its Secretary and Treasurer
HORIZON PERSONAL COMMUNICATIONS, INC. HORIZON PCS, INC.
_____________________________ _____________________________
By William A. McKell By William A. McKell
Its President Its President
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EXHIBIT 1
TO THE FIRST AMENDMENT TO
THE AMENDED AND RESTATED TAX ALLOCATION AGREEMENT
Amended and Restated Tax Allocation Agreement
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