AMENDED AND RESTATED TAX ALLOCATION AGREEMENT
AGREEMENT dated as of this 1st day of May, 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
sometimes as "Subsidiary").
WITNESSETH
WHEREAS, the parties hereto are members of an affiliated group (Affiliated
Group) as defined in Code Section 1504(a); and 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); and
WHEREAS, in 1997, Parent and certain of the Subsidiaries entered into a Tax
Allocation Agreement (the "Agreement"); and WHEREAS, the Affiliated Group has
filed a U.S. consolidated income tax return for its 1996 tax year and for all
tax years thereafter; and
WHEREAS, pursuant to a Contribution and Exchange Agreement, Parent will
transfer its shares in PerCom to PCS in exchange for shares of PCS, and certain
holders of membership interests in Bright Personal Communications Services, LLC
("Bright") will transfer part of their interests in Bright to PCS in exchange
for PCS shares; and a public offering of PCS shares is contemplated; the
collective effect of all which could (either alone 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 and restate the
Agreement to contemplate the aforementioned transactions; and
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. A U.S. consolidated income tax return shall be filed by Parent for the
tax year ended December 31, 1996, and for each subsequent taxable
period in respect of which this Agreement is in effect and for which
the Affiliated Group is required or permitted to file a consolidated
tax return. Each Subsidiary, if not previously done, shall execute and
file such consent, elections, and other documents that may be required
or appropriate for the proper filing of such returns.
2. a. For each accounting period, each member of the Affiliated Group
shall allocate tax expenses or benefits to the members of the group
for financial reporting purposes based on each member's relative
contribution to the group's consolidated tax liability. Each member of
the Affiliated Group shall compute its deferred tax assets and
liabilities in the same manner. This method is known as the Pro Rata
Method under FASB Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
b. For each tax period, the earnings and profits of each member of the
Affiliated Group shall be determined by allocating the consolidated
tax liability among the members of the group in accordance with the
ratio which that portion of consolidated taxable income attributable
to each member of the group having taxable income bears to the sum of
the taxable income of such members pursuant to Code Section
1552(a)(1).
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c. No election to allocate tax liability under Treasury Regulation
Section 1.1502-33(d) has been made by the Affiliated Group.
d. To the extent that the tax allocation methods under Item "a" and
Item "b" are different, such differences shall be treated as a
distribution or capital contribution for income tax purposes.
3. Payment of the consolidated tax liability for a taxable period shall
include the payment of estimated tax installments due for such taxable
period, and each Subsidiary shall pay to Parent its share of each
payment within thirty days of receiving notice of such payment from
Parent, but in no event later than the due date for each such payment.
Any amounts paid by a Subsidiary on account of a separate return or
separate estimated tax payments that are credited against the
consolidated tax liability of the Affiliated Group shall be included
in determining the payments due from such Subsidiary. Any overpayment
of estimated tax should be refunded to the Subsidiary.
4. a. If for any taxable period the separate return liability of any
member of the Affiliated Group, including Parent, exceeds the
consolidated tax liability for such period as a result of any excess
losses or tax credits of one or more members, then Parent shall pay to
each such member its allocable portion of such excess amount within
thirty days after the date of filing on the consolidated return for
such period.
b. Notwithstanding the provisions of Paragraph 4(a) hereof, pursuant
to a Loan Agreement between the Rural Telephone Finance Cooperative
(the "RTFC") and PerCom dated May 31, 2000, Parent shall pass through
tax benefits in the form of cash payments to PerCom on the following
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dates equal to the lesser of (i) $4,522,000 by December 31, 2000;
$4,619,000 by December 31, 2001; and $1,196,000 by December 31, 2002;
or (ii) a positive dollar amount equivalent to 34% of PerCom's book
net loss for such year (if any). To the extent that PerCom and/or
Parent do not have final net income calculations by December 31st of
any given year, such parties shall use their best efforts to provide
an estimated cash payment in accordance with the payment schedule set
forth in this Paragraph 4(b) by December 31st of said year;
thereafter, based on the latest available tax information but in no
event later than March 31st of the following year, a "true-up"
calculation shall be made whereby Parent shall provide PerCom an
additional cash payment in accordance with the payment schedule set
forth in this Paragraph 4(b) (if the December 31st payment was
underestimated) or PerCom, at Parent's option, shall provide Parent a
refund payment (if the December 31st payment was overestimated).
Notwithstanding the timing of any true-ups and whenever the year's
final tax return is filed, Parent shall continue to be liable for any
necessary payments in accordance with the payment schedule set forth
in this Paragraph 4(b).
5. If part or all of an unused loss or tax credit is allocated to a
member of the Affiliated Group pursuant to Treasury Regulation
Sections 1.1502-79, 1.1502-79A or 1.1502-21(b) and is carried back or
forward to a year in which such member filed a separate return or a
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consolidated return with another affiliated group, any refund or
reduction in tax liability arising from the carryback or carryover
shall be retained by such member. Notwithstanding the above, Parent
shall determine whether an election shall be made not to carry back
part or all of a consolidated net operating loss for any tax year in
accordance with Code Section 172(b)(3).
6. If the consolidated tax liability is adjusted for any taxable period,
whether by means of an amended return, claims for refund, or after a
tax audit by the Internal Revenue Service, the liability of each
member shall be recomputed to give effect to such adjustments, and in
the case of a refund, Parent shall make payment to each member for its
share of the refund, determined in the same manner as in Paragraph 2
above, within thirty days after the refund is received by Parent, and
in the case of an increase in tax liability, each member shall pay to
Parent its allocable share of such increased tax liability within
thirty days after receiving notice of such liability from Parent.
7. If during a consolidated return period Parent or any Subsidiary
acquires or organizes another corporation that is required to be
included in the consolidated return, then such corporation shall join
in and be bound by this Agreement.
8. This Agreement shall apply to the tax year ended December 31, 1996,
and all subsequent taxable periods unless Parent and the Subsidiaries
agree to terminate this Agreement. Notwithstanding such termination,
this Agreement shall continue in effect with respect to any payment or
refunds due for all taxable periods prior to termination.
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9. The consolidated tax liability of the Affiliated Group shall be
determined in accordance with Treasury Regulation Section 1.1502-2 and
shall include any Alternative Minimum Tax pursuant to Proposed
Treasury Regulation Sections 1.1502-2(a)(ii) and 1.1502-55.
10. The parties acknowledge that there is an excess loss account (the
"ELA"), pursuant to Treasury Regulations 1.1502-19, with respect to
the shares held by Parent in PerCom and that the transfer of these
shares to PCS will result in Parent having an ELA with respect to its
PCS shares and PCS having an ELA with respect to its PerCom shares.
The parties hereby agree that notwithstanding any other provision in
this Agreement that the tax attributable to the recognition of any ELA
as a result of any Deconsolidation will be solely the responsibility
of Parent, and Parent will not seek contribution from PerCom or PCS to
pay any of the tax cost of the recognition of the ELA. Determination
of the amount and the tax cost of the ELA recognition shall be
accomplished by Xxxxxx Xxxxxxxx and Company and its determinations
shall be final.
11. In the event any Subsidiary (the "Deconsolidated Subsidiary") files a
separate return or participates in a consolidated return with a group
other than the Affiliated Group, Parent agrees to indemnify and hold
harmless the Deconsolidated Subsidiary from any liability imposed
pursuant to Treasury Regulation 1.1502-6, or any successor provision
having similar effect, which liability is not attributable to the
taxable income of the Deconsolidated Subsidiary recognized while it
was a member of the Affiliated Group. The taxable income of the
Deconsolidated Subsidiary for any year for which it was a member of
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the Group shall be determined based on the principles of Paragraph
2(b) of this Agreement.
12. This Agreement 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.
13. 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 Agreement.
References to tax terms which have defined meaning under the code
shall have such defined meaning.
14. No person who is not a party hereto is intended to be a beneficiary of
this Agreement; provided however, that the parties hereby agree that
Lender, the RTFC, under a Loan Agreement between the RTFC and PerCom
dated May 31, 2000, is an intended third party beneficiary of this
Agreement and that this paragraph shall create a right and cause of
action under this Agreement in and on behalf of the RTFC relating to
PerCom's obligation under such Loan Agreement, to enforce the payment
by Parent of its obligations to Borrower and/or PerCom, as provided
for in this Agreement.
15. This Agreement shall be governed by the laws of the State of Ohio.
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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 /s/ Xxxxxx XxXxxx By /s/ Xxxxxx X. XxXxxx
--------------------------------- ---------------------------------
Its President Its President
The Chillicothe Telephone Company Horizon Services, Inc.
By /s/ Xxxxxx XxXxxx By /s/ Xxxxxx X. XxXxxx
--------------------------------- ---------------------------------
Its President Its President
Horizon Personal Communications, Inc. Horizon PCS, Inc.
By /s/ Xxxxxx X. XxXxxx By /s/ Xxxxxx X. XxXxxx
--------------------------------- ---------------------------------
Its President Its President
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