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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED:
December 31, 2001

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _____

Commission File Number: 0-32167

Horizon Telcom, Inc.
(Exact name of registrant as specified in its charter)

Ohio 31-1449037
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)

68 East Main Street, Chillicothe, OH 45601-0480
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code): (740) 772-8200

Securities registered pursuant to Section 12(b) of the Act:
None.

Securities registered pursuant to Section 12(g) of the Act:
Class B common stock, without par value.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of March 1, 2002, there were 99,726 shares of class A common stock
outstanding and 299,301 shares of class B common stock outstanding.





HORIZON TELCOM, INC.

FORM 10-K

TABLE OF CONTENTS


Page No.

PART I
ITEM 1. Business......................................................2
ITEM 2. Properties...................................................37
ITEM 3. Legal Proceedings............................................38
ITEM 4. Submission of Matters to a Vote of Security Holders..........38


PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................38
ITEM 6. Selected Financial Data......................................41
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation.......................41
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk..............................................70
ITEM 8. Financial Statements and Supplementary Data..................71
ITEM 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure......................71

PART III
ITEM 10. Directors and Executive Officers of the Registrant............72
ITEM 11. Executive Compensation........................................74
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management...........................................81
ITEM 13. Certain Relationships and Related Transactions................83

PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..............................................84








PART I

As used herein and except as the context may otherwise require, "the
Company," "we," "us," "our" or "Horizon Telcom" means, collectively, Horizon
Telcom, Inc., and its subsidiaries: Horizon PCS, Inc., The Chillicothe Telephone
Company, Horizon Technology, Inc. and Horizon Services, Inc. References to
"Horizon PCS" refer to Horizon PCS, Inc., and its subsidiaries Horizon Personal
Communications, Inc. ("HPC") and Bright Personal Communications Services, LLC
("Bright PCS").

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as
amended (the Exchange Act), which can be identified by the use of
forward-looking terminology such as: "may," "might," "could," "would,"
"believe," "expect," "intend," "plan," "seek," "anticipate," "estimate,"
"project" or "continue" or the negative thereof or other variations thereon or
comparable terminology. All statements other than statements of historical fact
included in this annual report on Form 10-K, including without limitation, the
statements under "ITEM 1. Business" and "ITEM 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation" and located elsewhere
herein regarding our financial position and liquidity are forward-looking
statements. These forward-looking statements also include, but are not limited
to:

o changes in industry conditions created by the Federal
Telecommunications Act of 1996 and related state and federal
legislation and regulations;

o recovery of the substantial costs which will result from the
implementation and expansion of our new businesses;

o retention of our existing customer base and our ability to attract new
customers;

o rapid changes in technology;

o actions of our competitors;

o estimates of current and future population for our markets;

o forecasts of growth in the number of consumers and businesses using
personal communication services ("PCS");

o statements regarding our plans for and costs of the build-out of our
PCS network; and

o statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and projections of when we will launch
commercial PCS and achieve break-even or positive operating cash flow.

Although we believe the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance such expectations will prove
to have been correct. Important factors with respect to any such forward-looking
statements, including certain risks and uncertainties that could cause actual
results to differ materially from our expectations (Cautionary Statements), are
disclosed in this annual report on Form 10-K, including, without limitation, in
conjunction with the forward-looking statements included in this annual report
on Form 10-K. Important factors that could cause actual results to differ
materially from those in the forward-looking statements included herein include,
but are not limited to:

o our potential need for additional capital or the need for refinancing
existing indebtedness;

o our dependence on our affiliation with Sprint PCS and our dependence
on Sprint PCS' back office services;




o the need to successfully complete the build-out of our portion of the
Sprint PCS network on our anticipated schedule;

o changes or advances in technology;

o competition in the industry and markets in which we operate;

o changes in government regulation; and

o general economic and business conditions.

These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
Cautionary Statements. See "Risk Factors" under "ITEM 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation" included herein
for further information regarding risks and uncertainties related to our
businesses.

ITEM 1. Business

Overview

Horizon Telcom, Inc., is a holding company. Through its operating
subsidiaries, Horizon Telcom is a facilities-based telecommunications carrier
that provides (i) local and long distance telephone, Internet and network
services to residential and business customers located primarily in Ohio, and
(ii) wireless personal communications services to customers in Ohio, Indiana,
Kentucky, Maryland, Michigan, New Jersey, New York, North Carolina,
Pennsylvania, Tennessee, Virginia and West Virginia.

We began operations in 1895 as The Home Telephone Company. In 1929 this
company changed its name to The Chillicothe Telephone Company ("Chillicothe
Telephone"). After a reorganization in 1996, we became a holding company and
Chillicothe Telephone became a wholly-owned subsidiary. Chillicothe Telephone
supplies local area telephone service through its equipment and facilities to a
territory covering approximately 800 square miles in Ross, Pickaway, Pike,
Jackson, Hocking and Vinton Counties, Ohio, as an incumbent local exchange
carrier, commonly referred to as an "ILEC". In addition to local telephone
service, Chillicothe Telephone sells telephone equipment to businesses and
offers Internet access through high-speed digital subscriber line ("DSL")
technology over telephone lines. Chillicothe Telephone also offers high-speed
very-high digital subscriber line ("VDSL") services over telephone lines to
residences as an alternative to coaxial cable television services.

Our majority-owned subsidiary, Horizon PCS, Inc., is in the digital
wireless personal communications industry. Horizon PCS is one of the largest
Sprint PCS affiliates based on its exclusive right to market Sprint PCS products
and services to a total population of over 10.2 million people in portions of
twelve contiguous states. A Sprint PCS affiliate is an entity that has agreed to
act as Sprint PCS' exclusive agent to market its services and manage its
customers in a particular area. Our markets are located between Sprint PCS'
Chicago, New York and Raleigh/Durham markets and connect or are adjacent to 15
major Sprint PCS markets that have a total population of over 59 million people.
As a Sprint PCS affiliate, we market digital personal communications services,
or PCS, under the Sprint and Sprint PCS brand names. We offer the same national
pricing plans and use the same sales and marketing strategies and national
distribution channels as Sprint PCS. At December 31, 2001, we managed
approximately 194,100 Sprint PCS subscribers in our territory.

Through our wholly-owned subsidiary, Horizon Technology, Inc., formerly
known as United Communications, Inc., ("Horizon Technology") we offer dial-up
Internet and network services and resell long distance services. The Internet
and network services are provided under the "bright.net" brand through Horizon
Technology's contractual arrangement with Comnet, a consortium of small Ohio
telephone companies. Horizon Technology provides long distance services through
a reselling arrangement with a primary long distance carrier. Prior to December
1, 2000, Horizon Technology also operated a paging business in the state of


2


Ohio. On December 1, 2000, Horizon Technology sold the assets of its paging
business to an unrelated third party.

We also own 100% of Horizon Services, Inc. ("Horizon Services"), which
provides administrative services to our other subsidiaries. Administrative
services provided by Horizon Services generally include such functions as
insurance, billing services, accounting services, computer access and other
information technology services and human resources services.


The following chart illustrates our corporate structure:




[GRAPHIC OMITTED]



- ---------------------
(1) The ownership percentage for Horizon PCS excludes options granted under its
2000 Stock Option Plan, warrants issued to the initial purchasers of
Horizon PCS' discount notes and shares subject to Sprint PCS warrants.

(2) This percentage includes the 48% of Bright PCS which Horizon PCS owns
indirectly through Horizon Personal Communications.



3



The operations of Chillicothe Telephone, our landline telephone services,
and Horizon PCS, our wireless personal communications services, are our primary
business segments. Landline telephone services accounted for approximately 23%,
51% and 76% of our operating revenues, respectively, in 2001, 2000 and 1999.
Landline telephone services accounted for $16.1, $15.1 and $10.3 million
operating profit for 2001, 2000 and 1999, respectively. Horizon PCS accounted
for approximately 72%, 39%, and 10% of our operating revenues, and $82.2
million, $40.3 million and $12.7 million of operating losses, respectively, for
2001, 2000 and 1999.

Horizon Telcom is incorporated under the laws of Ohio and was organized in
1996 pursuant to the corporate reorganization of Chillicothe Telephone into a
holding company structure. Our principal executive offices are located at 68
East Main Street, Chillicothe, Ohio 45601-0480 (telephone number: (740)
772-8200).

Certain business, financial and competitive information about our
operations is discussed below. For additional information regarding our business
segments, see "Note 3 - Segment Information" in the Notes to Consolidated
Financial Statements at "ITEM 8. Financial Statements and Supplementary Data"
and "ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation" below.

Employees

At December 31, 2001, Horizon Telcom had approximately 928 employees, of
which 140 were represented by a union. We consider relations with our employees
to be good.


LOCAL TELEPHONE SERVICES

General

Chillicothe Telephone offers integrated telecommunications services as an
ILEC to customers served by more than 36,500 telephone lines, known as access
lines, which have access to telephone service through our local exchange
equipment, in Ross, Pickaway, Pike, Jackson, Hocking and Vinton Counties, Ohio.
Chillicothe Telephone network facilities include nearly 258 fiber miles, serving
ten exchanges, including a central office acting as host to nine remote
switches.

The number of access lines increased from 37,824 on December 31, 2000, to
38,892 on December 31, 2001. The following table details the changes in access
lines over the past three years:

At December 31,
----------------------------------------------------------
2001 2000 1999
------------------ ------------------ ------------------
ACCESS LINES

Residential........ 28,480 73% 28,820 76% 28,580 78%
Business........... 10,412 27% 9,004 24% 8,252 22%
--------- ------ -------- ------ -------- -------
TOTAL ILEC......... 38,892 100% 37,824 100% 36,832 100%


Customer satisfaction remains a top priority and our efforts are directed
accordingly. Since we serve our home town, it is important to our business
strategy that our employees concentrate on customer service, and our training
and orientation programs emphasize that concern.

The Chillicothe Telephone sales team is structured to provide maximum
flexibility for our customers. Residential customers may personally meet with a
sales and service representative in our business office or can alternatively
take advantage of the convenience of calling into our centralized customer care
center. Our sales team provides "one-stop" shopping; each residential customer
service representative is trained in all residential applications, including
Internet and data services, digital wireless services and telephone equipment
and will additionally address any follow-up sales and billing concerns.

Business customers are served by a specialized group trained to manage the
specialized products and services unique to business customers. Customers with
less complex needs are supported by a specialized telephone customer care group,


4


which develops solutions and schedules service installations. Major business
customers are assigned dedicated account executives that are familiar with their
complex applications and service requirements.

A centralized operations service center provides telephone service and
maintenance for all ILEC customers. In addition to receiving maintenance
requests, this center dispatches field personnel and monitors the status of all
service orders and maintenance requests. To ensure continued customer
satisfaction, the center is measured against targeted time intervals and the
ability to meet customer commitment dates.

Chillicothe Telephone operates a class 4/5 Siemens EWSD digital host as a
main switch, in a network with nine additional remote switches serving
population clusters throughout Ross County, Ohio. Chillicothe Telephone also has
an extensive fiber optic network, which now serves approximately one-third of
the access line base, and covers approximately 258 miles. Chillicothe Telephone
has deployed Integrated Services Digital Network ("ISDN"), Asymmetric Digital
Subscriber Line ("ADSL") and VDSL high-speed telephone line access service,
which brings broadband service capability to approximately 85% of the access
line base. We continue to upgrade our distribution network by moving fiber and
electronics closer to the customer through the use of remote switching units.
The customer care service center operations are supported by a service order,
trouble-ticketing, billing and collection system and automated call
distribution. At the heart of our network is a network operations center that
identifies problems as they occur and diagnoses potential network problems
before customers are impacted.

Chillicothe Telephone recently began offering high-speed video services
through its VDSL telephone lines under the name "Horizon View." The first
customer was connected on August 15, 2000. This quality digital video service
competes with cable and satellite television providers. It also provides
high-speed always-on Internet access and a voice path for regular telephone
service. As of December 31, 2001, we had 2,473 Horizon View customers.

Regulation of Chillicothe Telephone's Local Exchange Carrier Business

Chillicothe Telephone is subject to extensive regulation by various
federal, state and local governmental bodies. Federal laws and regulations, and,
specifically, the Telecommunications Act of 1996, which we refer to as the
Telecom Act, have sought to open the local service market to competition.

The Telecom Act has imposed burdensome obligations upon ILECs that are not
exempted as "rural telephone companies." These obligations include the duty:

o to negotiate agreements with competing local service providers for
interconnection of telephone equipment between providers;

o to obtain state commission approval of such agreements;

o to interconnect with competing local carriers at any technically
feasible point;

o to provide nondiscriminatory access to separate portions of the
telephone network at regulated prices;

o to furnish local competitors with local services at wholesale rates
for resale purposes; and

o to allow local competitors to collocate their equipment in ILEC
central offices.

Chillicothe Telephone takes the position that it is a "rural telephone
company" within the meaning established by the Telecom Act, and is therefore
presently exempt from these ILEC obligations. It will retain this exemption
unless and until the Public Utilities Commission of Ohio ("PUCO") terminates it
at the request of a competing local carrier.

The Telecom Act also imposes obligations upon all local exchange carriers
(ILECs and competitive local exchange carriers, also referred to as "CLECs,"
which also offer local telephone services utilizing in part the facilities of
the ILEC). These obligations include:

o the payment of reciprocal compensation for the transport and
termination of local calls;



5


o the ability of customers to change local telephone service carriers
while maintaining the same telephone number, known as "local number
portability" as well as dialing parity;

o affording access by competing local telephone service carriers to
poles, ducts, conduits and rights-of-way.

Small carriers may request suspension or modification by their state
commission of some or all of these requirements, but such suspensions or
modifications are extremely difficult to obtain. Chillicothe Telephone has not
sought or obtained suspension or modification of any of these local exchange
carrier obligations.

As a general matter, federal regulation increases Chillicothe Telephone's
business risks and may have a substantial impact on Chillicothe Telephone's
future operating results. The Federal Communications Commission ("FCC")
regulates two significant sources of Chillicothe Telephone's revenues - namely,
interstate access charges and Federal Universal Service Support. Federal
Universal Service Support is a program that provides funding to qualifying ILECs
such as Chillicothe Telephone.

The FCC currently has several proceedings pending that could materially
change the mechanisms for determining interstate access charges and the dollar
revenues received by Chillicothe Telephone from this source. For example, the
FCC recently adopted portions of an interstate access charge reform proposal
submitted by the Multi-Association Group comprised of four national telephone
trade associations. As adopted, the Multi-Association Group Plan increased the
monthly federal subscriber line charges paid by Chillicothe Telephone's business
and residential customers and reduced the per-minute access charges paid by
Chillicothe Telephone's interexchange carrier customers. There are several
portions of the proposed plan which the FCC did not adopt but are still under
consideration. The Multi-Association Group Plan has received substantial
opposition from interexchange carriers, state commissions, and consumer groups,
and the remaining portions of the plan may be rejected or adopted in
significantly modified form by the FCC.

The FCC also has initiated a proceeding to examine the feasibility of
replacing the current mechanisms of inter-carrier compensation, including the
access charge mechanism, with a "bill-and-keep" approach. Under a bill-and-keep
approach, each carrier is required to recover the costs of termination and
origination from its own end-user customers. Such an approach could result in
increased rates to Chillicothe's business and residential end-user customers.

The FCC recently adopted, in large part, a recommendation by the Rural Task
Force for reform of the Federal Universal Service Support mechanism presently
applicable to Chillicothe Telephone. The FCC's order retains the embedded cost
mechanism, a methodology presently used to determine and distribute Federal
support to rural telephone companies to enable them to cover the high cost of
specific new telephone network technology. It also recalculates and modifies the
indexed cap that limits Federal high-cost telephone service support, establishes
a new mechanism to enable rural telephone companies to obtain some universal
service support for exchanges that they acquire and upgrade, and permits rural
telephone companies facing potential competition to disaggregate their study
areas to discourage competitors from entering rural population centers in order
to seize disproportionate amounts of the universal service support received by
rural ILECs.

Chillicothe Telephone is required to contribute to the Federal Universal
Service Support program. States also have similar assessment mechanisms. At the
present time it is not possible to predict the extent of Chillicothe Telephone's
total Federal and state universal service assessments or the amount of dollars
it will receive from Federal and state universal service funds.

The FCC and the Federal Bureau of Investigation are responsible for the
implementation of the Communications Assistance for Law Enforcement Act. This
legislation obligates Chillicothe Telephone to upgrade its switching facilities
to give it the capabilities and capacity to install and operate wiretaps, pen
registers and similar surveillance activities in response to properly authorized
requests from Federal, state and local law enforcement. The Communications
Assistance for Law Enforcement Act statute and regulations also impose security
and administrative obligations and risks upon carriers such as Chillicothe
Telephone. Some of the more expensive and risky potential Communications
Assistance for Law Enforcement Act obligations - for example, those related to
the interception of packet-switched communications - are still subject to
litigation before the FCC and the courts.



6


Federal statutes and FCC rules and proceedings regarding the slamming of
local and long distance customers, the use of Customer Proprietary Network
Information and the conservation of telephone number resources can affect the
costs and risks of doing business of Chillicothe Telephone and other local
exchange carriers.

State laws and regulations require us to comply with Ohio pricing
regulations, file periodic reports, pay various fees and comply with rules
governing quality of service, consumer protection and similar matters. Local
regulations require us to obtain municipal franchises and to comply with various
building codes and business license requirements.

Chillicothe Telephone continues to provide local exchange service through
traditional rate base, rate of return regulation. The PUCO has proposed
alternative rate regulation and, when the regulation is finalized, Chillicothe
Telephone will have the right to elect this form of regulation. Generally, under
the proposed regulations, we would have greater flexibility to decrease prices,
but would have to petition the PUCO to increase rates. We have not decided
whether to elect the alternative rate regulation.

Competition

Several factors have resulted in rapid change and increased competition in
the local telephone market over the past 16 years, including:

o growing customer demand for alternative products and services,

o technological advances in transmitting voice, data and video,

o development of fiber optics and digital electronic technology,

o a decline in the level of access charges paid by interexchange
carriers to local telephone companies to access their local networks,
and

o legislation and regulations designed to promote competition.

To date, we have not faced competition for local telephone service in the
Chillicothe Telephone service territory from any competitive local exchange
carriers. It is possible, however, that we will face such competition in the
future. We believe that Adelphia Cable is preparing to upgrade its cable
television plant to be in a position to provide local telephone service.
Adelphia Cable is already offering long distance telephone services as a
reseller, as well as high-speed Internet access. No potential competitive local
exchange carrier has asked us to enter into agreements to connect its network
with our network. If competition develops, we may face pressure to match the
pricing and service offerings of these competitors.




7



LONG DISTANCE, INTERNET AND NETWORK SERVICES

Our wholly-owned subsidiary, Horizon Technology, Inc., offers long distance
service, Internet and data services and network consulting services to
customers.

Long Distance Service

The long distance market has become significantly more competitive since
1984, when AT&T was required to divest its local telephone system. Since that
time, new competitors have entered the market and prices have declined,
resulting in increased consumer demand and significant market growth. Increased
competition has also led to increased consolidation among long distance service
providers. Major long distance competitors include AT&T, Sprint and MCI
WorldCom, Inc. Furthermore, Verizon obtained approval to provide long distance
services in New York and Massachusetts, and SBC Communications, Inc. has
obtained approval in Texas, Kansas and Oklahoma. These competitors benefit from
established market share and from established trade names through nationwide
advertising. Internet-protocol telephony, a potential competitor for low cost
telephone service, is also developing.

Horizon Technology began offering long distance services as a reseller in
1996 and now provides that service to approximately 6,500 access lines. We
expect to continue to offer a competitively priced service to those customers
who are looking for a local supplier of long distance services.

Internet Access Service

Horizon Technology provides Internet and data services through our
affiliation with Comnet. Comnet is a consortium of 20 independent local exchange
carriers in Ohio, and one Ohio electric cooperative. We have the right to market
and sell Internet and data services using the "bright.net" brand in 27 counties
in southern Ohio, including Chillicothe Telephone's service territory. Comnet
provides wholesale gateway access, service, support and bandwidth services to
the Internet for retail internet service providers primarily in Ohio. Comnet
also provides advanced intelligent networking services to Ohio's rural areas via
special signaling networks. Horizon Technology owns a less than five percent
interest in Comnet. As of December 31, 2001, we had 14,929 subscribers to this
service.

We offer a variety of means to access the Internet through our telephone
network. We also offer a full range of customer premise equipment required to
connect to the Internet. Our access services include:

o Dial-up Access. Our dial-up services provide access to the Internet
through ordinary telephone lines at speeds of up to 56 Kbps and
through digital ISDN lines at speeds of up to 128 Kbps.

o Dedicated Access. We offer a broad line of high-speed dedicated access
utilizing frame relay and dedicated circuits, which provide business
customers with direct access to a full range of Internet applications.

o DSL Access. We began to offer several ILEC customers high-speed
Internet access service using ADSL technology in the first quarter of
2000. ADSL technology permits high-speed digital transmission over the
existing copper wiring of regular telephone lines. Our ADSL service is
available at speeds up to 768 Kbps. Our ADSL services are designed for
residential users and small-to-medium sized businesses to provide
high-quality Internet access at speeds faster than ISDN and at
flat-rate prices that are lower than traditional dedicated access
charges. As the local exchange carriers in other areas of southern
Ohio begin offering DSL technology, we will offer DSL in the rest of
our bright.net service territory.

We offer a variety of value-added services, including Web hosting, Web
design, co-location, virtual private networks or intranets, remote access and
security solutions and video conferencing.

We provide software solutions that enable companies to conduct electronic
commerce. We offer electronic data interchange and non-Internet based solutions
consisting of software and services that are designed to help businesses connect
to their suppliers and customers. We also provide Internet commerce software to
allow businesses to build Web applications for commerce-enabled Web sites,


8


intranets and extranets. Common features of this software include the ability to
build electronic catalogs to conduct transactions and to integrate with business
systems, including purchasing, accounting and inventory systems.

Account executives sell Internet and data services directly to business
customers in our service areas. Our technical support staff is available 24
hours a day, seven days a week. Our technicians design, order, configure,
install and maintain all of our equipment to suit the customer's needs. We have
a customer care group dedicated to Internet and data services.

In general, Internet and data services are not regulated at the Federal
level. An important regulatory issue currently pending before both the FCC and
Federal courts is how Internet traffic will be classified and treated for
purposes of interstate access charges and reciprocal compensation related to
local traffic. Internet service providers currently obtain access services from
local exchange carriers without having to pay the access charges that
interexchange carriers pay for equivalent service. This special exemption may be
withdrawn at any time, in which case Internet services could be subject to
access charges. As we provide Internet services directly to the ILECs' networks,
a change in the treatment of Internet traffic for purposes of reciprocal
compensation would likely have little effect on our operations.

The Internet and data services market is extremely competitive, highly
fragmented and has grown dramatically in recent years. The market is
characterized by the absence of significant barriers to entry and the rapid
growth in Internet usage among customers. Sources of competition are:

o access and content providers, such as AOL, the Microsoft Network and
Prodigy;

o local, regional and national Internet service providers, such as
EarthLink;

o the Internet services of regional, national and international
telecommunications companies, such as Verizon, AT&T, BellSouth, and
MCI WorldCom;

o online services offered by incumbent cable providers, such as Time
Warner; and

o DSL providers, such as COVAD.

The recent merger of AOL/Time Warner creates further, formidable
competitive threats in the Internet and data services markets. The merging
companies announced plans to leverage their combined assets and resources
post-merger to offer a wide variety of Internet and data-related services.

Network Consulting

Our Computer Solutions division offers network consulting services,
computer training and computer repair services.

WIRELESS PERSONAL COMMUNICATIONS SERVICES

The information set forth under this heading describes the business of our
subsidiary Horizon PCS, Inc., a Delaware corporation. Horizon Telcom owns 92.0%
of the outstanding class B common stock of Horizon PCS, representing 58.1% of
all classes of capital stock on a fully diluted basis, and 84.5% of the total
voting power of all classes of capital stock of Horizon PCS on a fully diluted
basis. References under this heading to "we," "us" and "our" are to Horizon PCS.

Overview

We are one of the largest Sprint PCS affiliates based on our exclusive
right to market Sprint PCS products and services to a total population of over
10.2 million in portions of twelve contiguous states. Our markets are located
between Sprint PCS' Chicago, New York and Raleigh/Durham markets and connect or
are adjacent to 15 major Sprint PCS markets that have a total population of over


9


59 million. As a Sprint PCS affiliate, we market digital personal communications
services, or PCS, under the Sprint and Sprint PCS brand names.


Our territory includes significant market coverage in Indiana, Ohio,
Pennsylvania, Tennessee, Virginia and West Virginia and selected markets in
Kentucky, Maryland, Michigan, New Jersey, New York and North Carolina. Our
markets are adjacent to or connect a number of major markets owned and operated
by Sprint PCS, including Buffalo, Chicago, Cincinnati, Cleveland, Columbus,
Detroit, Indianapolis, Knoxville, Lexington, New York, Philadelphia, Pittsburgh,
Raleigh/Durham, Richmond and Washington, DC. In addition, our territory contains
more than 2,600 heavily traveled interstate miles, including over 460 miles of
Interstate 80, a major east-west artery connecting New York to Chicago, and
numerous other Federal and major state highways. Our territory is also home to
more than 60 four-year colleges and universities with a student population of
over 240,000, as well as a number of smaller colleges and universities.

History and Background

The following are key milestones in Horizon PCS' business:

o In November 1996, we acquired PCS licenses in the FCC's C Block
auction giving us the right to provide service to five markets in
Ohio, West Virginia and Kentucky with a total population of
approximately 1.0 million.

o In June 1998, we returned all of our FCC licenses except for a portion
of the license covering our Chillicothe, Ohio, market and agreed to
become one of five charter Sprint PCS affiliates. Our initial grant of
markets from Sprint PCS consisted of seven markets in Ohio, West
Virginia and Kentucky with a total population of approximately 1.6
million. This grant included the five markets for which we originally
held licenses. We continued to use Horizon Personal Communications as
the primary brand for marketing our PCS service.

o In August 1999, Sprint PCS granted us 17 additional markets in
Virginia, West Virginia, Tennessee, Maryland, Kentucky and Ohio with a
total population of approximately 3.3 million. In conjunction with
this second grant, we also entered into a network services agreement
with the West Virginia PCS Alliance and Virginia PCS Alliance, which
we refer to as the Alliances. The Alliances are two related,
independent PCS providers offering services under the NTELOS brand,
and whose network is managed by CFW Communications. Under this
agreement, we obtained the right to use their wireless network to
provide Sprint PCS services to our customers in most of these new
markets.

o In September 1999, Horizon Telcom, sold its interest in the towers it
owned to SBA for $15.7 million and invested the net proceeds in
Horizon PCS. Prior to the sale, Horizon PCS had been leasing the
towers from Horizon Telcom. Horizon PCS now leases those towers from
SBA. Horizon PCS also has a build-to-suit agreement with SBA for the
construction of new towers as part of the network build-out. Horizon
PCS receives site development fees and reduced lease rates for
specified towers constructed by SBA and leased by Horizon PCS as an
anchor tenant of SBA.

o In September 1999, a Horizon PCS subsidiary became one of the founders
of Bright PCS, receiving a 26% equity stake in exchange for
approximately $3.1 million. Bright PCS became the exclusive Sprint PCS
affiliate for 13 markets in Indiana, Ohio and Michigan, with a total
population of approximately 2.4 million. We launched service in
substantially all of the Bright PCS markets in October 2000.

o In December 1999, we completed a two-month transition from a
co-branded marketing strategy to marketing and selling all of our
products and services exclusively under the "Sprint PCS" brand name,
which gave us full access to Sprint PCS' major national retailers.
Since that transition, we have experienced an accelerated growth in
our customer base.

10


o In May 2000, Sprint PCS granted us an additional 17 markets in
Pennsylvania, New York, Ohio and New Jersey with a total population of
approximately 2.9 million. In September 2000, we substantially
completed the purchase from Sprint PCS of the assets related to our
new markets.

o In June 2000, we acquired the remaining 74% of Bright PCS equity that
we did not already own. As consideration, we exchanged 4.7 million
shares of Horizon PCS' class B common stock equal to 8% of its
outstanding shares of all classes of its common stock prior to the
acquisition and 31,912 shares of Horizon Telcom common stock equal to
8% of the outstanding shares of Horizon Telcom, which Horizon PCS
acquired in February 2000.

o On September 26, 2000, an investor group led by Apollo Management
purchased $126.5 million of Horizon PCS convertible preferred stock in
a private placement. Concurrently, holders of Horizon PCS' $14.1
million short-term convertible note (including accrued interest of
$1.1 million) converted it into the same convertible preferred stock
purchased by the investor group. Concurrently, Horizon PCS received
$149.7 million from the issuance of $295.0 million of senior discount
notes due 2010 and $50.0 million of term loans from its $225.0 million
secured credit facility (later increased to a $250.0 million
facility).

o On December 7, 2001, the Company received $175.0 million from the
issuance of senior notes due on June 15, 2011. Approximately $48.7
million of the offering's proceeds were placed in an escrow account to
fund the first four semi-annual interest payments.

Sprint PCS

Sprint PCS, a wholly-owned subsidiary of Sprint, operates the only 100%
digital, 100% PCS wireless network in the United States. The digital technology
that Sprint PCS uses is code division multiple access technology, referred to as
CDMA. Sprint PCS has licenses to provide PCS service nationwide. Sprint PCS
operates its PCS network in major metropolitan markets throughout the United
States and has entered into agreements with affiliates, such as Horizon PCS, to
build and manage networks in smaller metropolitan areas and along major
highways.

Sprint first launched its commercial PCS network in the United States in
November 1995. By combining its brand name, national footprint, competitively
priced plans and extensive product offerings, Sprint PCS has experienced rapid
customer growth. In the fourth quarter of 2001, Sprint PCS reported its 14th
consecutive industry-leading quarter of customer growth, adding over 1.1 million
direct customers and 381,000 affiliate customers. As of December 31, 2001,
Sprint PCS had more than 13.6 million direct customers and, together with its
affiliates, provided service to 15.8 million customers on an all-digital network
covering almost 247 million people with licenses to provide coverage to 285
million people in all 50 states, Puerto Rico and the U.S. Virgin Islands.

Statements in this document regarding Sprint Corporation or Sprint PCS are
derived from information contained in the periodic reports and other documents
filed with the Securities and Exchange Commission by Sprint and Sprint PCS, or
press releases issued by Sprint and Sprint PCS.

Competitive Strengths

Our long-term strategic affiliation with Sprint PCS provides us with many
business, operational and marketing advantages including the following:

Sprint PCS' national brand name recognition and national advertising
support. We have the exclusive right to use the Sprint and Sprint PCS brand
names for the sale of Sprint PCS products and services in our territory. We
benefit from the strength and the reputation of the Sprint and Sprint PCS
brands. Sprint PCS' national advertising campaigns and developed marketing
programs are provided to us at little or no additional cost under our Sprint PCS
agreements. We offer the same strategic pricing plans, promotional campaigns and
handset and accessory promotions as Sprint PCS, and have the ability to add
pricing plans and marketing promotions that target local market needs.



11


Established and available distribution channels. We benefit from immediate
access to major national retailers under Sprint PCS' existing sales and
distribution agreements and other national sales and distribution channels,
including:

o a sales and distribution agreement with RadioShack, which provides us
with access to approximately 178 stores in our territory;

o the sales and distribution agreements with other major national
third-party retailers such as Best Buy, Circuit City, Office Depot and
Wal-Mart which collectively provide us with access to approximately
277 additional retail outlets in our territory;

o Sprint PCS' national inbound telemarketing sales force;

o Sprint PCS' national accounts sales team; and

o Sprint PCS' electronic commerce sales platform.

Sprint PCS' nationwide digital PCS network. As of December 31, 2001, Sprint
PCS, together with its affiliates, operated PCS systems providing service to
nearly 247 million people nationwide or 87% of Sprint PCS licensed population of
285 million people, including all of the 50 largest metropolitan markets. Our
network operates with Sprint PCS' national network and extends Sprint PCS'
coverage into our markets, which we believe is important to Sprint PCS' national
strategy. We believe our ability to provide our customers with access to Sprint
PCS' national network represents a competitive advantage over other nationwide
and regional providers of wireless services.

Sprint PCS Wireless Web. Our network supports and we market the Sprint PCS
Wireless Web. The Sprint PCS Wireless Web allows customers with data-capable or
web browser enabled handsets to connect to the Internet and browse specially
designed text-based Web sites, including AOL, Yahoo!, Amazon.com, Bloomberg.com,
CNN Interactive, MapQuest.com, Fox Sports, Ameritrade, InfoSpace.com and
Weather.com. For more information on the Sprint PCS Wireless Web, see "Products
and Services: Access to the Sprint PCS Wireless Web." below. Sprint PCS'
investment to upgrade its network to third generation wireless network services
("3G") is expected to result in up to a doubling of voice capacity nationwide
and dramatically increased data transmission speeds. The migration to 3G is also
expected to provide better economies for Sprint PCS and its affiliates through
improved spectrum efficiency.

Sprint PCS' extensive research and development. We benefit from Sprint PCS'
extensive research and development effort, which provides ongoing access to new
technological products and enhanced service features without significant
research and development expenditures of our own. We have prompt access to any
developments produced by Sprint PCS for use in our network.

Better equipment availability and pricing. We are able to acquire our
network equipment, handsets and accessories more quickly and at a significantly
lower cost than we would without our strategic relationship with Sprint PCS. We
purchase our network equipment, handsets and accessories under Sprint PCS'
vendor arrangements that provide volume discounts. These discounts significantly
reduce the overall capital required to build our network and significantly
reduce our costs of handsets and accessories.

Sprint PCS licenses and long-term commitments. We have the exclusive right
to use Sprint PCS' licensed spectrum to provide Sprint PCS products and services
in our territory. Sprint PCS has funded the purchase of the licenses covering
our territory at a cost of approximately $57.0 million and has incurred
additional expenses for microwave clearing. As a Sprint PCS affiliate, we did
not have to fund the acquisition of these licenses, thereby reducing our
start-up costs. The Sprint PCS agreements are for a total of 50 years, including
an initial term of 20 years, which will expire June 2018, and three 10-year
renewal terms. These agreements will automatically renew for each renewal period
unless at least two years prior to the commencement of any renewal period,
either party notifies the other party that it does not wish to renew the
agreement.



12


Sprint PCS' back office services. When we initially launched our
independent PCS operations, we provided our own back office services, such as
customer services and billing services. In May 2000, we amended the Sprint PCS
agreements so that Sprint PCS will provide these back office services to us. We
completed conversion of our existing customers to these services in June 2001.
We expect the cost of these services will be at or below the cost of providing
the services ourselves, due to anticipated rate reductions and Sprint PCS'
ability to economically manage the support of new services. We also believe this
arrangement will allow us to more quickly roll out new Sprint PCS products and
services in our markets.

Other Competitive Strengths of Our Business

In addition to the advantages provided by our strategic affiliation with
Sprint PCS, we have the following additional competitive strengths:

Attractive markets. Our markets, with a total population of approximately
10.2 million people, are in areas with attractive demographic characteristics,
including the following:

o Fewer competitors in our markets compared to major metropolitan areas.
We face fewer competitors in our markets than is the case in the
surrounding urban markets. In addition, we were the first or second
PCS provider in a majority of our markets.

o High volume of commuter and long-distance travel. Our territories
include more than 2,600 interstate miles and numerous other federal
and major state highways. We believe coverage along these highways
will generate significant roaming revenues.

o Significant overlap with Sprint PCS and Horizon Telcom local telephone
service areas. Approximately 20% of the people in our territory are
residents in Sprint Local Telephone Division markets. We believe that
we can take advantage of Sprint PCS' local telephone customers'
familiarity with Sprint PCS' brand and product quality when marketing
our wireless service. Similarly, we benefit from local brand awareness
of Horizon Telcom, the majority owner of Horizon PCS. Horizon Telcom
provides local telephone service in our Chillicothe, Ohio market where
we have a company record penetration of covered residents of
approximately 17%. The former owners of Bright PCS also offer local
telephone service in northwestern Ohio, and we expect to benefit
positively from their long-term relationships with their local
telephone customers.

o Large student population. There are over 240,000 students attending
more than 60 four-year colleges and universities located in our
territories, including Notre Dame, Penn State, Ohio University, the
University of Virginia, Virginia Tech and West Virginia University.
There are also numerous other colleges and universities throughout our
markets. We believe college students are among the heaviest users of
wireless services.

o Popular resorts and day-trip destinations. There are more than 25 ski
resorts, three major NASCAR speedways, popular resorts, state parks
and other tourist destinations in our service area.

Potential for significant roaming revenue. We receive Sprint PCS roaming
revenue from Sprint PCS subscribers based outside our territory who roam on our
network. Our territory is adjacent to or connects 15 major markets owned and
operated by Sprint PCS, including Buffalo, Chicago, Cincinnati, Cleveland,
Columbus, Detroit, Indianapolis, Knoxville, Lexington, New York, Philadelphia,
Pittsburgh, Raleigh/ Durham, Richmond and Washington D.C. These markets include
five of the ten largest metropolitan areas in the United States, which have a
total population of approximately 59 million residents. Our territory also
contains more than 2,600 interstate miles as follows:



13





Estimated Total Interstate Miles(1):
Between In Our
Interstate Major Destination Cities Destinations Territory
- -------------------- --------------------------------------- -----------------------------------------
I-80/I-90 Chicago, IL to New York, NY 787 478
I-90 Cleveland, OH to Buffalo, NY 188 117
I-75 Detroit, MI to Cincinnati, OH 264 57
I-77 Cleveland, OH to Charlotte, NC 510 314
I-79 Erie, PA to Charleston, WV 337 234
I-81 Syracuse, NY to Knoxville, TN 790 419
I-64 Lexington, KY to Richmond, VA 473 350
I-69 Indianapolis, IN to Lansing, MI 241 106
I-476 Scranton, PA to Philadelphia, PA 124 60
Other interstates -- 519
------- ------
3,714 2,654

- ---------
(1) Source: Rand McNally.

Our territory also includes numerous other Federal and major state
highways. The proximity of our markets to major Sprint PCS markets and the
concentration of major interstates and highways in our territory create
significant potential for roaming revenues.

High-capacity, spectrum efficient network. We have built an all-digital PCS
network that we believe is high-quality. Our strategy is to provide service to
the largest communities in our markets and the interstates and primary roads
connecting these communities to one another and to the adjacent major markets
owned and operated by Sprint PCS. We believe that our network design will allow
our network to handle more customers with fewer dropped calls and better clarity
than our competitors. In accordance with Sprint PCS' national plan, we are in
the process of upgrading most of our network to 1XRTT, a 3G technology, by
mid-year 2002. Because we believe our CDMA technology is more efficient than GSM
or TDMA, we believe that, unlike our GSM or TDMA competitors, we will not
require additional spectrum in order to operate our 3G network. We believe our
early deployment of 3G technology will provide us with a competitive advantage
in the market for wireless data services.

Fully-funded business plan. We are currently fully-funded under our revised
business plan, which includes completing the build-out of a network which will
cover 7.9 million residents and operating 50 company-owned retail stores. At
December 31, 2001, our network covered 6.9 million people and 38 company-owned
retail stores were in operation. We expect to achieve positive earnings before
interest, taxes, depreciation and amortization in the third quarter of 2003. Our
current projections of operating results are a function of a number of factors,
many of which are beyond our control.

Proven track record; strong management and sponsorship. We entered the
wireless industry in 1997 to capitalize on the strong growth opportunities that
we believed existed and launched independent PCS service before Sprint PCS was
offering affiliation opportunities. To successfully offer service as an
independent provider, we were required to finance, build and launch our initial
markets without any of the benefits of affiliation. As a result of our success
as an independent PCS provider we were able to become a charter Sprint PCS
affiliate. Since then we have expanded our territory from a total population of
less than 1.0 million in 1998 to a total population of 10.2 million today. We
have accomplished this by developing our relationship with the Alliances,
investing in and subsequently acquiring Bright PCS, and establishing a strategic
partnership with Sprint PCS.

Business Strategy

We believe the following elements of our business strategy will enable us
to rapidly complete our network, distinguish our wireless service offerings from
those of our competitors and compete successfully in the wireless communications
marketplace:



14


Taking full advantage of the benefits of our affiliation with Sprint PCS.
The benefits of our affiliation with Sprint PCS include:

o Sprint PCS brand awareness and national marketing programs;

o access to established Sprint PCS distribution channels and outlets,
national marketing plans and marketing strategies;

o Sprint PCS nationwide coverage;

o availability of discount prices for network and subscriber equipment
under Sprint PCS' vendor contracts;

o revenues from Sprint PCS subscribers traveling onto our network;

o use of Sprint PCS' back office including customer activation, billing
and customer care; and

o use of Sprint PCS' national network control center which is
responsible for continually monitoring the performance of our network
and providing rapid response for systems maintenance needs.

Rapidly completing the expanded build-out of our network. We have
successfully developed several key relationships which allow us to efficiently
launch our markets. For the build-out in our Bright PCS markets and for fill-in
coverage in our initial markets, we rely on our build-to-suit arrangements with
SBA Communications Corporation ("SBA"). These arrangements allow us to minimize
capital costs and take advantage of SBA's expertise in quickly completing the
site acquisition process. For markets with a high concentration of existing
towers or zoning challenges, we employ a co-location strategy. In our Virginia
and West Virginia markets, we use our network services agreement with the
Alliances (See "Alliances Network Services Agreement" below) to increase our
coverage to our markets with a total population of 2.9 million. For our new
markets in Pennsylvania, New York, Ohio, and New Jersey, we purchased network
assets currently under construction from Sprint PCS, enabling us to launch these
markets much earlier than if we had to complete the entire build-out of these
markets independently.

Executing an integrated local marketing strategy. Our marketing strategy is
to take full advantage of Sprint's and Sprint PCS' nationwide presence and brand
names while at the same time establishing a strong local presence in each of our
markets. We emphasize the improved clarity and quality, enhanced features and
favorable pricing of Sprint PCS products and services and replicate the
marketing strategies that have resulted in Sprint PCS becoming the fastest
growing wireless service providers in the country. In addition, on the local
level, we are or soon will be:

o establishing up to 50 Sprint PCS stores within our territory;

o establishing local third-party sales and distribution relationships on
an as-needed basis;

o directing our media efforts at the community level by advertising in
local publications and radio;

o sponsoring local and regional events; and

o using the local telephone offices of Sprint and the former owners of
Bright PCS which are located in our markets to offer our products and
services.

Continuing to explore opportunities to expand our territory and provide
complementary products and services. Since the initial grant of our markets, we
have significantly expanded the geographic scope of our territory through three
separate transactions. We expect to continually evaluate ways to strategically
expand our territory. Similarly, we expect to consider offering complementary
products and services.




15




Markets

Our territory covers 54 markets in parts of Indiana, Kentucky, Maryland,
Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee,
Virginia and West Virginia. Sprint PCS has launched service in 15 major
metropolitan areas that are adjacent to our markets and have a combined total
population of approximately 59 million. We believe that connecting or being
adjacent to existing Sprint PCS markets is important to Sprint PCS' strategy to
provide seamless, nationwide PCS service.

The following chart identifies our markets:

Sprint PCS MHz of Estimated
Market Grant(1) Spectrum Total Population(2)
- ------ -------- -------- -------------------
Fort Wayne, IN Bright 10 689,200
Kingsport (Tri-Cities), TN 2nd 20 689,100
Scranton, PA 3rd 30 664,700
Roanoke, VA 2nd 10 645,200
Charleston, WV 1st 20 492,700
Huntington, WV 1st 20 369,700
South Bend, IN Bright 10 348,800
Erie, PA 3rd 10 280,200
Elkhart, IN Bright 10 256,900
Lima, OH Bright 30 251,800
Olean, NY 3rd 30 240,200
Charlottesville, VA 2nd 30 218,600
Clarksburg, WV 2nd 30 195,600
Sunbury, PA 3rd 30 194,300
Zanesville, OH 1st 20 187,200
Kokomo, IN Bright 30 186,000
Williamson, WV 2nd 20 183,900
Parkersburg, WV 1st 20 182,000
Jamestown, NY 3rd 30 180,100
Bluefield, WV 2nd 20 176,200
New York, NY (Partial)(3) 3rd 30 169,673
Beckley, WV 2nd 20 169,500
Danville, VA 2nd 10 168,600
Williamsport, PA 3rd 30 161,200
Benton Harbor, MI Bright 10 160,100
Lynchburg, VA 2nd 10 160,100
Cumberland, MD 2nd 10 159,000
Findlay, OH Bright 30 152,900
Pottsville, PA 3rd 30 151,000
State College, PA 3rd 30 134,900
Athens, OH 1st 20 132,100
Stroudsburg, PA 3rd 30 128,100
Du Bois, PA 3rd 30 127,900
Cincinnati, OH (Partial)(3) 2nd 10 127,400
Sharon, PA 3rd 10 122,300
Michigan City, IN (Partial)(3) Bright 10 109,900
Marion, IN Bright 30 108,600
Morgantown, WV 2nd 30 107,800
Staunton, VA 2nd 10 107,600
Chillicothe, OH (4) 1st 35 104,700
Oil City, PA 3rd 30 104,500
Ashtabula, OH 3rd 10 103,500



16




Sprint PCS MHz of Estimated
Market Grant(1) Spectrum Total Population(2)
- ------ -------- -------- -------------------

Portsmouth, OH 1st 20 93,800
Martinsville, VA 2nd 10 90,400
Meadville, PA 3rd 10 90,000
Allentown, PA (Partial)(3) 3rd 30 59,094
Fairmont, WV 2nd 30 56,800
Knoxville, TN (Partial)(3) 3rd 10 54,201
Dayton, OH (Partial)(3) Bright 10 41,065
Logan, WV 2nd 10 40,900
Canton, OH (Partial)(3) 2nd 10 36,215
Toledo, OH (Partial)(3) Bright 30 30,066
Kalamazoo, MI (Partial)(3) Bright 30 20,009
Battle Creek, MI (Partial)(3) Bright 30 8,980
-----------
Estimated total population 10,225,303

- -----------------

(1) Indicates the grant from Sprint PCS in which we received our respective
markets. "Bright" indicates markets granted to Bright PCS in October 1999.
The following summarizes our other grants:
1st: June 1998
2nd: August 1999
3rd: May 2000
(2) Estimated total population is based on January 1, 1999 estimates compiled
by Rand McNally Commercial Atlas & Marketing Guide, 2000 Edition.
(3) The estimated total population in these markets represents the population
of the counties within the market granted to us in the Sprint PCS
agreements, not the total population of that market.
(4) Includes 15 MHz of spectrum owned directly by us.

Network Build-Out Plan

Overview. Our network build-out strategy is to provide service to the
largest communities in our markets and to cover interstates and primary roads
connecting these communities to each other, and to the adjacent major markets
owned and operated by Sprint PCS. We believe that our schedule for completing
the build-out is achievable based on our prior experience in network build-out,
the digital PCS technology we will use to build our PCS network and the
established standards of Sprint PCS. We have designed our build-out to exceed
the requirements of the Sprint PCS agreements.

Our markets have a total population of approximately 10.2 million people.
As of December 31, 2001, we had launched service in markets covering
approximately 6.9 million residents, or 68% of the total population in our
territory and had approximately 194,100 customers. According to our original
business plan, our network, when completed, would have covered 6.9 million
residents. We have decided to expand the coverage in our markets from 6.9
million to 7.9 million residents, increasing our planned coverage from 68% to
77% of the total population of our territory. We believe that our expanded
network will be substantially complete by December 31, 2002.

Network Build-Out Elements

As part of our network build-out strategy, we entered into outsourcing
relationships with the third parties described below to assist us in building
out our network. We believe that these relationships result in a more timely,
efficient and cost effective build-out process.

Radio frequency design. We have engaged an outside design firm to provide
radio frequency design, engineering and optimization services for our markets.
This firm assists us in determining the required number of cell sites needed to
operate the network and identifies the general geographic areas in which each of
the required cell sites will be located.

Site acquisition, project management and construction. We use a combination
of build-to-suit and co-location opportunities in the design and construction of
our network. We consider these arrangements to be preferable to building our own
towers.



17


Build-to-suit arrangements are contractual relationships whereby a tower
company constructs and owns a cell tower at a location which we approve and
leases the cell tower to us for use in our network. Co-location is an
arrangement whereby a wireless service provider, like us, is allowed to use
another party's cell tower as part of its network. Generally we prefer
build-to-suit opportunities because of the favorable development fees and
leasing terms associated with our arrangement with SBA. Under our build-to-suit
agreement, SBA acquires the site, builds the tower and leases it to us.

In situations where we determine that build-to-suit is not appropriate, we
use a co-location strategy. For sites where co-location leases are utilized,
zoning, permitting and surveying approvals and licenses have already been
secured, which minimizes our start-up costs and accelerates access to the
markets.

We expect that approximately 1,380 sites will be required to achieve our
planned coverage of the residents in our territory, including those provided to
us through our network services agreement.

Microwave relocation. At the time of the FCC's auction of PCS licenses,
other third parties were using portions of the same frequency bandwidths for the
operation of microwave facilities. The FCC has established procedures for PCS
licensees to relocate these existing microwave paths, generally at the PCS
licensee's expense. Sprint PCS relocates the microwave paths that use
frequencies owned by Sprint PCS, and is analyzing these relocations as we
continue the build-out of our network. Sprint PCS is also paying for a portion
of the relocation costs. Sprint PCS has substantially completed the necessary
relocation for the microwave paths in our markets.

Switching. We currently use two switching centers in Chillicothe, Ohio, and
Fort Wayne, Indiana, to provide services to our network. We also utilize the
Alliance's two switching centers under our network services agreement, (see
"Alliances Network Services Agreement" below) and use Sprint PCS switching
centers on an interim basis to more rapidly launch our markets in western
Pennsylvania and northern Ohio. A switching center serves several purposes,
including routing calls, managing call handoff, managing access to the public
telephone network and providing access to voice mail. As of December 31, 2001,
we are constructing two additional switching centers which we plan to complete
in 2002: one in Johnson City, Tennessee, and one in Erie, Pennsylvania, which we
plan to complete in 2002. The new Nortel switch in Johnson City will replace the
older Motorola switch in Chillicothe. We believe the capacity of our switching
centers is adequate to accommodate our planned growth.

Interconnection. Our network connects to the public telephone network
through local exchange carriers. Through our Sprint PCS agreements, we benefit
from Sprint PCS-negotiated agreements with local exchange carriers, which govern
the terms of the relationship between telephone service carriers which
interconnect in order to provide service between networks.

Long distance and back haul. We use Sprint and other third party providers
for long distance services and for back haul services. Back haul services are
the telecommunications services that other carriers provide to carry our voice
traffic from our cell tower sites to our switching facilities. When we use
Sprint, we receive the same preferred rates made available to Sprint PCS sites.

Network monitoring. We use Sprint PCS' Network Operations Control Center to
monitor continuously our owned and operated network. The Alliances operate a
comparable network operations control center that provides network monitoring in
our resale markets.

SBA Agreement

Prior to August 1999, Horizon Telcom owned the cell site towers we used in
our network. In August 1999, Horizon Telcom sold to SBA the towers we used in
our network; we subsequently entered into lease arrangements with SBA. We now
pay a fixed amount per month, per cell site, to SBA for the right to use their
towers in our markets. This fixed fee is subject to an annual percentage
increase for each site beginning on the third anniversary of the date we began
using the site. We believe the rates we pay under this agreement are generally
more favorable than average co-location rates available in our markets.

In August 1999, we also entered into a build-to-suit agreement with SBA.
Under this agreement, SBA acquires and develops the sites and installs the
towers at locations we approve. We receive a site development fee from SBA for


18


tower sites which SBA constructs on our behalf. We have agreed to lease space on
a number of existing SBA towers for which we pay a fixed amount per month, per
cell site. For some of the leases, we receive a one-year rent abatement on these
sites. Rent expense for the leases which include abatement will be recognized on
a straight-line basis over the life of the lease.

Motorola Product Supply Agreement

In December 1999, we entered into a product supply agreement with Motorola
for the purchase of the telecommunications products and services for our
network. Motorola also provides installation services for our network equipment.
We intend to use Motorola equipment for the build-out of our new markets in
Pennsylvania, New York, Ohio and New Jersey and the Bright PCS markets. Since
entering into the Sprint PCS agreements in June 1998, we have benefited from
Sprint PCS' volume pricing arrangements with Motorola on our equipment purchases
and expect to continue to benefit going forward.

Alliances Network Services Agreement

The Alliances are two related, independent PCS providers offering service
under the NTELOS brand name. In August 1999, we entered into a network services
agreement with the Alliances for 13 of our markets in Virginia and West
Virginia. Under this agreement, we are entitled to use the Alliances' wireless
network and equipment to provide services to our customers in these markets. The
Alliances are required to maintain their network to Sprint PCS technical
standards. We pay the Alliances a minimum monthly charge for a fixed number of
minutes and a per minute of use charge for minutes in excess of the fixed number
of minutes.

We believe this arrangement eliminates or defers capital costs, and reduces
network expenses while permitting a faster launch of service and preserving our
capital for other uses. In addition, this arrangement gives us access to
additional spectrum in markets where Sprint PCS has limited bandwidth and
reduces our risk of technological obsolescence in these markets. We are subject
to the risk that the Alliances will not satisfactorily build-out, operate,
maintain or upgrade their network. See "Risk Factors" under "ITEM 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation" included herein.

As of December 31, 2001, the Alliances had deployed 481 cell sites within
our markets in West Virginia and Virginia and had complied with their
contractual build-out requirements to date. At December 31, 2001, the Alliance
provided coverage to 62% of the total population of 2.9 million residents in the
markets covered by our network services agreement.

In the event we terminate our agreement with the Alliances because of the
Alliances' breach of the agreement, we have the right to continue to use the
Alliances' network for up to 36 months after the termination at rates which
reflect a significant discount from the standard pricing terms under our
agreement. This is intended to enable us to continue to provide services to our
customers while we build out our own network. In addition, after December 31,
2003, we have the right to overbuild the Alliances' markets, on a
market-by-market basis, at any time for any reason.

Products And Services

Our products and services mirror the service offerings of Sprint PCS and are
designed to integrate seamlessly with the Sprint PCS nationwide network. Sprint
PCS Wireless Services currently serve the majority of the nation's metropolitan
areas, including more than 4,000 cities and communities, providing customers
with affordable, reliable 100% digital, 100% PCS services. The Sprint PCS
service package we offer includes the following:

100% digital wireless mobility and nationwide service. Our primary service
is wireless mobility coverage. Our PCS network is part of the largest 100%
digital, 100% PCS network in the nation and our customers are able to use Sprint
PCS services in our markets and seamlessly throughout the Sprint PCS network. We
offer customers in our territory enhanced voice clarity, advanced features and
simple, affordable Sprint PCS pricing plans. These plans include free long
distance and wireless airtime minutes for use throughout the Sprint PCS network
at no additional charge. Our basic wireless service includes voice mail, caller
ID, enhanced call waiting, three-way calling, call forwarding, distinctive
ringing and call blocking.



19


Nationwide service. Dual-band/dual-mode handsets allow roaming on wireless
networks where Sprint PCS is not available and with which Sprint PCS has roaming
agreements. These handsets are designed to operate on analog and digital
cellular networks, as well as on Sprint PCS' digital PCS networks.

Advanced handsets. CDMA handsets offer significantly extended battery life
relative to earlier technologies, providing up to five days of standby time and
approximately two to four hours of talk time. Handsets operating on a digital
system are capable of saving battery life while turned on but not in use,
improving efficiency and extending the handset's use. We also offer
dual-band/dual-mode handsets that allow customers to make and receive calls on
both PCS and cellular frequency bands and both digital or analog technology.
These handsets allow roaming on cellular networks where Sprint PCS digital
service is not available through carriers with which Sprint PCS has roaming
agreements. All handsets are equipped with preprogrammed features such as speed
dial and last number redial, and are sold under the Sprint and Sprint PCS brand
names.

Improved voice quality. We believe the Sprint PCS CDMA technology offers
significantly improved voice quality compared to existing analog and TDMA
networks, more powerful error correction, less susceptibility to call fading and
enhanced interference rejection; all of which result in fewer dropped calls. See
"CDMA Technology" below for a discussion of the reasons CDMA technology offers
improved voice quality.

Privacy and security. Sprint PCS provides secure voice transmissions
encoded into a digital format to prevent eavesdropping and unauthorized cloning
of subscriber identification numbers.

Easy activation. Customers can purchase a Sprint PCS handset off the shelf
at a retail location and activate their service by calling customer service or
by visiting Sprint PCS' website. Either option allows the customer to activate
the handset over the air. We believe over-the-air activation will reduce the
training requirements for salespersons at retail locations.

Customer care. By using Sprint PCS' established back office services such
as customer care and billing services, we believe our operating costs will be
reduced. By using Sprint PCS' services, we also expect to more rapidly implement
new products and services offered by Sprint PCS. Sprint PCS offers customer care
24 hours a day, seven days a week. Our customers can call the Sprint PCS
toll-free customer care number from anywhere on the national Sprint PCS network.
All Sprint PCS phones are preprogrammed with a speed dial feature that allows
customers to easily reach customer care at any time.

Access to the Sprint PCS wireless web. We support and market the Sprint PCS
Wireless Web throughout our network. The Sprint PCS Wireless Web allows
subscribers with data-capable handsets to connect their portable computers or
personal digital assistants to the Internet. Sprint PCS subscribers with
data-capable handsets also have the ability to receive periodic information
updates such as stock prices, airline schedules, sports scores and weather
reports directly on their handsets. Sprint PCS subscribers with Web-browser
enabled handsets have the ability to connect to and browse specially designed
text-based Internet sites on an interactive basis. Sprint PCS has agreements
with Internet providers to provide services for the Sprint PCS Wireless Web.
Sprint PCS offers Sprint PCS Wireless Web as an add-on to existing Sprint PCS'
Free and Clear pricing plans.

Clear Pay pricing plan. We offer Sprint PCS' "Clear Pay" pricing plan in
our markets. The "Clear Pay" plan is a credit policy which is designed to enable
potential subscribers who may not have a credit history that qualifies for
standard Sprint PCS post-pay pricing plans to become subscribers without having
to pay high rates customarily associated with pre-paid plans or to provide a
large deposit. We believe the "Clear Pay" pricing plan allows us to obtain
subscribers which we would not be able to otherwise obtain if we used standard
post-pay credit policies.

Other services. We believe new features and services will be developed on
the Sprint PCS nationwide network to take advantage of CDMA technology. As a
leading wireless provider, Sprint PCS conducts ongoing research and development
to produce innovative services that give Sprint PCS a competitive advantage. We
intend to offer a portfolio of products and services developed by Sprint PCS to
accommodate the growth in, and the unique requirements of, high-speed data
traffic and demand for video services. We plan to provide, when available, a
number of applications for wireless data services including facsimile, Internet
access, wireless local area networks and point-of-sale terminal connections.



20


Marketing Strategies

Our marketing and sales strategy uses Sprint PCS' strategies and developed
national distribution channels that have helped Sprint PCS generate rapid
customer growth. We augment Sprint PCS' strategies with strategies tailored to
our specific territory.

Use of Sprint PCS' brand equity and marketing. We feature exclusively and
prominently the nationally recognized Sprint and Sprint PCS brand names in our
marketing effort. From the customers' point of view, they will use our PCS
network and the Sprint PCS national network seamlessly as a unified national
network. We are building on Sprint PCS' national distribution channels and
advertising programs.

Pricing. We believe our use of the Sprint PCS pricing strategy will offer
customers in our territory simple, easy-to-understand service plans. Sprint PCS'
consumer pricing plans are typically structured with competitive monthly
recurring charges and large local calling areas, service features such as
voicemail, enhanced caller ID, call waiting and three-way calling and what we
believe to be competitive per-minute rates. Lower per-minute rates relative to
analog cellular providers are possible in part because the CDMA system that both
we and Sprint PCS employ has greater capacity than current analog cellular
systems which we believe will enable us to market high usage customer plans at
lower prices. All of Sprint PCS' current national plans:

o include minutes in any Sprint PCS market with no roaming charges;

o offer a wide selection of phones to meet the needs of consumers and
businesses; and

o provide a limited-time money-back guarantee on Sprint PCS handsets.

In addition, Sprint PCS' national Free and Clear plans, which we believe
offer simple, affordable plans for every consumer and business customer, include
the option to choose free long distance calling from anywhere on its nationwide
network, a package of off-peak minutes or Sprint PCS Wireless Web.

Local focus. Our local focus enables us to supplement Sprint PCS' marketing
strategies with our own strategies tailored to each of our specific markets.
These include attracting local businesses to diversify our distribution and
using local radio and newspaper advertising to sell our products and services in
each of our launched markets. We have established a local sales force to execute
our marketing strategy through company-owned Sprint PCS stores, and also employ
a direct sales force targeted to business sales. In addition, Sprint PCS'
existing agreements with national retailers provide us with immediate access to
over 455 retail locations in our territory. The former owners of Bright PCS also
offer Sprint PCS products in their local telephone offices in northwestern Ohio.
Sprint-owned local exchange carriers provide local telephone service to
approximately 20% of the total population in our territory, which provides us
with an additional distribution channel through which we can market to an
established base of Sprint customers. Some of the Sprint local exchange markets
have a store for Sprint customers to pay their bills, which we use to sell
Sprint PCS products and services.

Advertising and promotions. Sprint PCS uses national and regional
television, radio, print, outdoor and other advertising campaigns to promote its
products. We benefit from this national advertising in our territory at no
additional cost to us.

Sponsorships. Sprint PCS is a sponsor of numerous selected, broad-based
national and regional events. These sponsorships provide Sprint PCS with brand
name and product recognition in high profile events, provide a forum for sales
and promotional events and enhance our promotional efforts in our territory.

Bundling of services. We intend to take advantage of the complete array of
communications services offered by bundling Sprint PCS services with other
Sprint products, such as long distance and Internet access.




21




Sales And Distribution

Our sales and distribution plan mirrors Sprint PCS' multiple channel sales
and distribution plan. Key elements of our sales and distribution plan consist
of the following:

Sprint store within a RadioShack store. Sprint has an arrangement with
RadioShack to install a "store within a store" for the sale of Sprint PCS
Service. RadioShack has approximately 178 stores in our territory.

Other national and regional third party retail stores. We also benefit from
the distribution agreements established by Sprint PCS with other national and
regional retailers which currently include Best Buy, Circuit City, Office Depot,
OfficeMax, Ritz Camera, Staples, Cord Camera, The Wiz, Wal-Mart and h.h. gregg
department stores. At present, these retailers operate approximately 277 retail
stores in our territory. We also believe that we benefit from stores located in
major Sprint PCS markets near our markets because residents of our territory who
buy PCS handsets at those stores become our subscribers.

Sprint PCS stores. At December 31, 2001, we owned and operated 38 Sprint
PCS stores. We plan to have up to 50 Sprint PCS stores in our territory by the
end of 2002. These stores will be located in larger markets within our
territory, which we believe will provide us with strong local presence and a
high degree of visibility. Following the Sprint PCS model, these stores will be
designed to facilitate retail sales, bill collection and customer service.

Local telephone stores. We also plan to offer Sprint PCS products and
services through the Sprint Local Telephone Division retail centers in our
service area and through local telephone service centers of the former owners of
Bright PCS and their affiliates located in our markets.

National accounts and direct selling. We participate in Sprint PCS'
national accounts program. Sprint PCS has a national accounts team which focuses
on the corporate headquarters of Fortune 500 companies. Once a representative
reaches an agreement with the corporate headquarters, we service the offices of
that corporation located in our territory. Our direct sales force will target
the employees of these corporations in our territory and cultivate other local
business clients.

Inbound telemarketing. Sprint PCS provides inbound telemarketing sales when
customers call from our territory. As the exclusive provider of Sprint PCS
products and services in our market, we use the national Sprint 1-800-480-4PCS
number campaigns that generate call-in leads. These leads are then handled by
Sprint PCS' inbound telemarketing group.

Electronic commerce. A visitor to Sprint PCS' Internet site can order and
pay for a handset and select a service plan. Customers visiting the site can
review the status of their account, including the number of minutes used in the
current billing cycle. We manage customers in our territory who purchase
products and services over the Sprint PCS Internet.

CDMA (Code Division Multiple Access) Technology

Sprint PCS' nationwide network and its affiliates' networks all use digital
CDMA technology. CDMA technology is fundamental to accomplishing our business
objective of providing high-volume, high-quality airtime at a low cost. We
believe CDMA provides important system performance benefits.

Voice quality. We believe CDMA systems offer less interference, more
powerful error correction and less susceptibility to fading than analog systems.
Using enhanced voice-coding techniques, CDMA systems achieve voice quality that
is comparable to that of the typical wireline telephone. This CDMA voice-coding
technology also filters annoying background noise more effectively than existing
wireline, analog cellular or other digital PCS phones.

Capacity. CDMA technology allows a greater number of calls within one
specific frequency and reuses the entire frequency spectrum in each cell. CDMA
systems provide capacity gains of up to seven times over current analog systems
and up to three times greater than TDMA and GSM systems used by some of our
competitors. Additional voice capacity improvements are expected for CDMA
networks over the next two years as new 3G standards are approved and


22


implemented. Additionally, 3G will allow higher data transmission speeds than
are currently available.

CDMA technology is designed to provide flexible or "soft" capacity that
permits networks like ours to temporarily increase the number of telephone calls
that can be handled within a cell. When capacity limitations in analog, TDMA and
GSM systems are reached, additional callers in a given cell must be given a busy
signal. Using CDMA technology, networks like ours can allow a small reduction in
voice quality to provide temporary increases in capacity. This reduces blocked
calls and increases the probability of a successful cell-to-cell hand-off.

Soft hand-off. As a subscriber travels from one cell site to another cell
site, the call must be "handed-off" to the next site. CDMA systems transfer
calls throughout the network using a technique referred to as a soft hand-off,
which connects a mobile customer's call with a new cell site while maintaining a
connection with the cell site currently in use. CDMA networks monitor the
quality of the transmission received by both cell sites simultaneously to select
a better transmission path and to ensure that the network does not disconnect
the call in one cell until it is clearly established in a new one. As a result,
fewer calls are dropped compared to analog, TDMA and GSM networks which use a
"hard hand-off" and disconnect the call from the current cell site as it
connects with a new one.

Integrated services. CDMA systems permit us to offer advanced features,
including voice mail, caller ID, enhanced call waiting, three-way calling, call
forwarding, Internet access, paging and text-messaging. These advanced features
may also be offered by companies utilizing competing technologies.

Privacy and security. Another benefit of CDMA technology is that it
combines a constantly changing coding scheme with a low-power signal to enhance
security and privacy. Vendors are currently developing additional encryption
capabilities which we believe will further enhance overall network security.

Frequency planning. Frequency planning is the process used to analyze and
test alternative patterns of frequency use within a wireless network to minimize
interference between one call and another call and to maximize capacity.
Currently, cellular service providers spend considerable money and time on
frequency planning. Since TDMA and GSM based systems have frequency reuse
constraints similar to present analog systems, frequency reuse planning for TDMA
and GSM based systems is expected to be comparable to planning for the current
analog systems. With CDMA technology, however, the same group of frequencies can
be reused in every cell, substantially reducing the need for costly frequency
reuse patterning and constant frequency plan management.

Battery life. Due to their greater efficiency in power consumption, CDMA
handsets provide up to three to five days of standby time and approximately two
to four hours of talk time availability. We believe this generally exceeds the
battery life of handsets using alternative digital or analog technologies.

Third generation technology. In addition, wireless carriers are beginning
to implement a new "third generation," or "3G," technology throughout the
industry. The 3G technology is intended to increase networks' capacity for voice
calls and enable better transmission of high-speed data. Sprint PCS has selected
a version of 3G technology, 1XRTT, for its own networks which requires us to
upgrade our network to provide it. We currently estimate this network upgrade
will cost approximately $35 million, but actual costs could exceed this
estimate. To date, this technology has not been deployed on a commercial basis
by Sprint PCS. Because we believe that our CDMS technology is more efficient
than GSM or TDMA, we believe that, unlike our GSM and TDMA competitors, we will
not require additional spectrum in order to operate our 3G network. We believe
that our early deployment of 3G technology will provide us with a competitive
advantage in the market for wireless data services.

Benefits of other technologies. While CDMA has the benefits discussed
above, TDMA networks are generally less expensive when overlaying existing
analog systems. In addition, the GSM technology standard, unlike CDMA, supports
a more robust interoperability standard which more easily allows a network
operator to use equipment from several different vendors in the same network.
This, along with the fact that the GSM technology is currently more widely
deployed throughout the world than CDMA, provides economies of scale for handset
and equipment purchases. A standards process is also underway which will allow
wireless handsets to support analog, TDMA and GSM technologies in a single unit.
Currently, there are no plans to have CDMA handsets that support either the TDMA
or GSM technologies.



23


Competition

Given the broad geographic coverage of our territory, the competition that
we face from other wireless providers is fragmented. We compete, to varying
degrees, with regional and national cellular, PCS and other wireless service
providers. Currently, we believe our strongest competition is from cellular
providers, many of which have been operating in our markets and building their
customer base for a number of years.

Our largest single cellular competitor is Verizon Wireless, which offers
service in the majority of our markets. We also face significant competition
from AT&T Wireless, which operates in conjunction with its affiliates in almost
all of our markets. After Verizon and AT&T Wireless, our strongest competitors
are regional wireless providers, ALLTEL, Centennial and NTELOS.

The following table lists the primary operational competitors known to us
within our various geographic areas:

PRIMARY TYPE OF
GEOGRAPHIC AREA OPERATING COMPETITORS SERVICE
- --------------- --------------------- -------

Ohio markets........................... ALLTEL Cellular
AT&T Wireless Cellular
Verizon Wireless Cellular
Nextel ESMR

Indiana markets........................ Centennial Cellular
CenturyTel Cellular
Verizon Wireless Cellular
VoiceStream PCS
Nextel EMSR

Pennsylvania and New York markets...... AT&T Wireless Cellular
Verizon Wireless Cellular
VoiceStream PCS
Nextel ESMR

Virginia and West Virginia markets..... ALLTEL Cellular
AT&T Wireless (1) Cellular/PCS
Verizon Wireless Cellular
NTELOS PCS

Tennessee markets...................... ALLTEL Cellular
Verizon Wireless Cellular
Cingular PCS
AT&T Wireless (1) PCS
Nextel ESMR

(1) Includes Triton PCS, an AT&T Wireless affiliate offering AT&T Wireless and
SunCom co-branded service.

Our primary competitors offer a wireless service that is generally
comparable to our PCS service. However, as a Sprint PCS affiliate, we believe we
are positioned to successfully compete with all of these wireless providers due
to the strength of the Sprint PCS brand name, distribution channels and Sprint
PCS' nationwide CDMA-only network. Verizon Wireless, in particular, lacks a
single technology throughout all of its markets. We also believe that our
primary competitors do not offer 100% digital technology.

Nextel Communications, together with its affiliate Nextel Partners, has
licenses to offer service in the vast majority of our markets and currently
offers service to less than half of our planned covered residents. We believe
Nextel's coverage in many of these markets is focused primarily on highway
coverage as opposed to community coverage.



24


Our ability to compete effectively with these other providers will depend
on a number of factors, including the continued success of CDMA technology in
providing better call clarity and quality as compared to analog cellular
systems, Sprint PCS' competitive pricing with various options suiting individual
customer's calling needs, the continued expansion and improvement of the Sprint
PCS nationwide network, our extensive direct and indirect sales channels, our
centralized Sprint PCS customer care systems, and our selection of handset
options.

Many of our competitors have access to more licensed spectrum than the 10
or 20MHz licensed to Sprint PCS in some of our markets. Many of our competitors
also have established infrastructures, marketing programs and brand names. Many
of our competitors may be able to offer coverage in areas not served by our
network, or, because of their calling volumes or their affiliations with, or
ownership of, other wireless providers, may be able to offer roaming rates that
are lower than those offered by Sprint PCS. PCS operators compete with us in
providing some or all of the services available through the Sprint PCS network
and may provide services that we do not. Additionally, we expect existing
cellular providers will continue to upgrade their systems to provide digital
wireless communication services competitive with Sprint PCS.

We also face limited competition from "resellers" which provide wireless
service to customers but do not hold FCC licenses or own facilities. Instead,
the reseller buys blocks of wireless telephone numbers and capacity from a
licensed carrier and resells service through its own distribution network to the
public. Thus, a reseller is both a customer of a wireless licensee's services
and a competitor of that and other licensees. The FCC requires all cellular and
PCS licensees to permit resale of carrier service to resellers. Although Sprint
PCS is required to resell PCS in our markets, currently there are no resellers
of Sprint PCS in our markets. Any reseller of Sprint PCS in our markets would be
required to pay us for the use of our capacity and their use of the Sprint PCS
service marks in our markets would be restricted to describing their handsets as
operational on the Sprint PCS network.

In addition, we compete with paging, dispatch and other mobile
telecommunications companies in our markets. Potential users of PCS systems may
find their communications needs satisfied by other current and developing
technologies. One or two-way paging or beeper services that feature voice
messaging and data display as well as tone-only service may be adequate for
potential customers who do not need immediate two-way voice communications.

In the future, we expect to face increased competition from entities
providing similar services using other communications technologies, including
satellite-based telecommunications and fixed wireless systems. While few of
these technologies and services are currently operational, others are being
developed or may be developed in the future.

Over the past several years the FCC has auctioned, and will continue to
auction large amounts of wireless spectrum that could be used to compete with
Sprint PCS service. Based upon increased competition, we anticipate that market
prices for two-way wireless services generally will decline in the future. We
will compete to attract and retain customers principally on the basis of:

o the strength of the Sprint and Sprint PCS brand names, services and
features;

o the location of our markets;

o the size of our territory;

o national network coverage and reliability;

o customer care; and

o pricing.




25




Intellectual Property

"Sprint," the Sprint diamond design logo, "Sprint PCS," "Sprint Personal
Communications Services," "The Clear Alternative to Cellular" and "Experience
the Clear Alternative to Cellular Today" are service marks registered with the
United States Patent and Trademark Office. These service marks are owned by
Sprint. Pursuant to the trademark and service mark license agreements, we have
the right to use, royalty-free, the Sprint and Sprint PCS brand names and the
Sprint diamond design logo and other service marks of Sprint in connection with
marketing, offering and providing licensed services to end-users and resellers,
solely within our territory.

Except in limited instances, Sprint PCS has agreed not to grant to any
other person a right or license to provide or resell, or act as agent for any
person offering, licensed services under the licensed marks in our market areas
except as to Sprint PCS' marketing to national accounts and the limited right of
resellers of Sprint PCS to sell their products and services in our market areas.
In all other instances, Sprint PCS reserves for itself and its affiliates the
right to use the licensed marks in providing its services, subject to its
exclusivity obligations described above, whether within or without our
territory.

The trademark license agreements contain numerous restrictions with respect
to the use and modification of any of the licensed marks. See "The Sprint PCS
Agreements: The Trademark and Service Mark License Agreements."

This annual report on Form 10-K includes product names, trade names and
trademarks of other companies. We do not have any rights with respect to these
product names, trade names and trademarks.

THE SPRINT PCS AGREEMENTS

The following is a summary of the material terms and provisions of the
Sprint PCS agreements. The summary applies to the Sprint PCS agreements for both
Horizon Personal Communications and Bright PCS except where otherwise indicated.
The Sprint PCS agreements, in their entirety, are included as exhibits to this
annual report of Form 10-K.

Overview of Sprint PCS relationship and agreements

We have eight major agreements with Sprint and Sprint PCS (collectively,
the "Sprint PCS Agreements"). Under the Sprint PCS agreements, we exclusively
market PCS services under the Sprint and Sprint PCS brand names in our markets.
The Sprint PCS agreements require us to interface with the Sprint PCS wireless
network by building our network to operate on PCS frequencies licensed to Sprint
PCS in the 1900 MHz range. The Sprint PCS agreements also give us access to
Sprint PCS' equipment discounts, roaming revenue from Sprint PCS customers
traveling into our territory, and various other back office services. The Sprint
PCS agreements provide strategic advantages, including avoiding the need to fund
up-front spectrum acquisition costs and the costs of maintaining billing and
other customer services infrastructure. The Sprint PCS agreements have initial
terms of twenty years with three ten-year renewals which would lengthen the
contracts to a total of fifty years. The Sprint PCS agreements will
automatically renew for each additional ten-year term unless we or Sprint PCS
provide the other with two years' prior written notice to terminate the Sprint
PCS agreements. The initial terms of the agreements will expire in 2018.

The agreements consist of one of each of the following for Horizon Personal
Communications and one of each for Bright PCS:

o the management agreement;

o the services agreement;

o the trademark and service mark license agreement with Sprint; and

o the trademark and service mark license agreement with Sprint PCS.



26


The Management Agreement

Under our Sprint PCS agreements, we have agreed to:

o construct and manage a network in our territory in compliance with
Sprint PCS' PCS licenses and the terms of the management agreement;

o distribute, during the term of the management agreement, Sprint PCS
products and services;

o conduct advertising and promotion activities in our territory; and

o manage that portion of Sprint PCS' customer base assigned to our
territory.

Sprint PCS will monitor our network operations and has unconditional access
to our network.

Exclusivity. We are designated as the only person or entity that can manage
or operate a PCS network for Sprint PCS in our territory. Sprint PCS is
prohibited from owning, operating, building or managing another wireless
mobility communications network in our territory while our management agreement
is in place and no event has occurred that would permit the agreement to
terminate. Sprint PCS is permitted under our agreement to make national sales to
companies in our territory, and as required by the FCC, to permit resale of the
Sprint PCS products and services in our territory. We accrue the financial
benefits of either of these activities.

Network build-out: The management agreement specifies the terms of the
Sprint PCS affiliation, including the required network build-out plan. We have
agreed to operate our network to provide for a seamless handoff of a call
initiated in our territory to a neighboring Sprint PCS network.

Under our original Sprint PCS agreements, we were required to complete the
build-out in several of our markets in Pennsylvania and New York by December 31,
2000. We and Sprint PCS agreed to an amendment of our build-out requirements,
which extended the date by which we were to launch coverage in several markets.

Under the amended Sprint PCS agreement, portions of the New York, Sunbury,
Williamsport, Oil City, Dubois, Erie, Meadville, Sharon, Olean, Jamestown,
Scranton, State College, Stroudsburg, Allentown and Pottsville markets were
required to be completed and launched by October 31, 2001. Although we have
launched service in portions of each of these markets, we have not completed all
of the build-out requirements. We notified Sprint PCS in November 2001 that it
is our position that the reasons for the delay constitute events of "force
majeure" as described in the Sprint PCS agreements and that, consequently, no
monetary penalties or other remedies would be applicable to missing the original
launch date. The delay has been primarily caused due to delays in obtaining the
required backhaul services from local exchange carriers and zoning and other
approvals from governmental authorities. On January 30, 2002, Sprint PCS
notified us that, as a result of these force majeure events, it does not
consider our build-out delay to be a breach of the Sprint PCS agreement. We have
agreed to continue to use commercially reasonable efforts to reach build-out
completion by either June 30, 2002 (for most of the affected markets) or April
30, 2002 (for a few of these markets). If we fail to launch a market by more
than 90 days after the extended deadlines and if our failure is ultimately
determined to be for non-force majeure reasons, Sprint PCS would have the right
to terminate our Sprint PCS agreements or enforce monetary penalties.

Products and services. The management agreement identifies the products and
services that we can offer in our territory. These services include Sprint PCS
consumer and business products and services available as of the date of the
agreements, or as modified by Sprint PCS. We are allowed to sell wireless
products and services that are not Sprint PCS products and services if those
additional products and services do not otherwise violate the terms of the
agreement, cause distribution channel conflicts, materially impede the
development of the Sprint PCS network, cause consumer confusion with Sprint PCS'
products and services or violate the trademark lease agreements. We may
cross-sell services such as Internet access, customer premise equipment and
prepaid phone cards with Sprint, Sprint PCS and other Sprint PCS affiliates. If
we decide to use third parties to provide these services, we must give Sprint
PCS an opportunity to provide the services on the same terms and conditions. We
cannot offer wireless local loop services specifically designed for the
competitive local exchange market in areas where Sprint owns the local exchange


27


carrier unless we name the Sprint owned local exchange carrier as the exclusive
distributor or Sprint PCS approves the terms and conditions. Subject to
agreements existing before we became a Sprint PCS affiliate, we are required to
use Sprint's long distance service which we can buy at wholesale rates.

Service pricing. We must offer Sprint PCS subscriber pricing plans
designated for regional or national offerings, including Sprint PCS' Free and
Clear plans. We are permitted to establish our own local price plans for Sprint
PCS' products and services offered only in our territory, subject to the terms
of the agreement, consistency with Sprint PCS' regional and national pricing
plans, regulatory requirements, capability and cost of implementing the rate
plans in Sprint PCS' systems and Sprint PCS' approval.

Fees. We are entitled to receive from Sprint PCS an amount equal to 92% of
collected revenues under the Sprint PCS agreements. Collected revenues include
revenue from Sprint PCS subscribers based in our territory, excluding outbound
roaming, and inbound non-Sprint PCS roaming. Except in the case of taxes, we are
entitled to 100% of the following revenues that are not considered collected
revenues:

o outbound non-Sprint PCS roaming revenue;

o inbound and outbound Sprint PCS roaming fees;

o proceeds from the sales of handsets and accessories through our
distribution channels;

o proceeds from sales not in the ordinary course of business; and

o amounts collected with respect to taxes.

Roaming. Although many Sprint PCS subscribers will purchase a bundled
pricing plan that allows roaming anywhere on the Sprint PCS' and affiliates'
network without incremental roaming charges, we will earn roaming revenues from
every minute that a Sprint PCS subscriber not based in our territory and any
non-Sprint subscriber uses our network. We will earn revenues from Sprint PCS
based on an established per-minute rate for Sprint PCS' or its affiliates'
subscribers roaming in our territory. Similarly, we will pay for every minute
our own subscribers use the Sprint PCS nationwide network outside our territory.
The analog roaming rate onto a non-Sprint PCS provider's network is set under
Sprint PCS' third-party roaming agreements.

Advertising and promotions. Sprint PCS is responsible for all national
advertising and promotion of the Sprint PCS products and services. We are
responsible for advertising and promotion in our territory, including the pro
rata cost of any promotion or advertising done by any third-party retailers in
our territory pursuant to a national cooperative advertising agreement with
Sprint. Sprint PCS' service area includes the urban markets around our
territory. Sprint PCS will pay for advertising in these markets. Given the
proximity of these markets to ours, we expect considerable spill-over from
Sprint PCS' advertising in surrounding urban markets.

Program requirements. We must comply with Sprint PCS' program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs to the extent that Sprint PCS meets
these requirements. Sprint PCS can adjust the program requirements from time to
time. We have the right to appeal to Sprint PCS' management adjustments which
could cause an unreasonable increase in cost to us if the adjustment: (1) causes
us to incur a cost exceeding 5% of the sum of our equity plus our outstanding
long-term debt, or (2) causes our long-term operating expenses to increase by
more than 5% (10% for Bright PCS) on a net present value basis. If Sprint PCS
denies our appeal, we must then comply with the program adjustment, or Sprint
PCS has the right to exercise the termination rights described below. There is
no cross-default provision between the Sprint PCS agreements for Horizon
Personal Communications and the Sprint PCS agreements for Bright PCS.

Non-competition. We may not offer Sprint PCS products and services outside
our territory without the prior written approval of Sprint PCS. Within our
territory we may offer, market or promote telecommunications products and
services only under the Sprint PCS brands, our own brand, brands of related
parties of ours or other products and services approved under the management
agreement, except that no brand of a significant competitor of Sprint PCS or its
related parties may be used for those products and services. To the extent we
have or obtain licenses to provide PCS services outside our territory, we may


28


not use the spectrum to offer Sprint PCS products and services without prior
written consent from Sprint PCS.

Termination of management agreement. The management agreement can be
terminated as a result of:

o termination of Sprint PCS' PCS licenses;

o an uncured breach under the management agreement;

o bankruptcy of a party to the management agreement;

o the management agreement not complying with any applicable law in any
material respect;

o the termination of either of the trademark and service mark license
agreements; or

o our failure to obtain the financing necessary for the build-out of our
network and for our working capital needs.

The termination or non-renewal of either of the management agreements
triggers our rights and those of Sprint PCS, as described below.

If we have the right to terminate the management agreement because of an
event of termination caused by a Sprint PCS breach under the management
agreement, we may generally:

o require Sprint PCS to purchase all of our operating assets used in
connection with our network for an amount equal to at least 80% of our
Entire Business Value as defined below;

o if Sprint PCS is the licensee for 20MHz or more of the spectrum on the
date the management agreement was executed, require Sprint PCS to sell
to us, subject to governmental approval, up to 10MHz of licensed
spectrum for an amount equal to the greater of (1) the original cost
to Sprint PCS of the license plus any microwave relocation costs paid
by Sprint PCS or (2) 9% of our Entire Business Value; or

o sue Sprint PCS for damages or submit the matter to arbitration and
thereby not terminate the management agreement.

If Sprint PCS has the right to terminate the management agreement because
of an event of termination caused by us, Sprint PCS may generally:

o require us to sell our operating assets to Sprint PCS for an amount
equal to 72% of our Entire Business Value;

o require us to purchase, subject to governmental approval, up to 10MHz
of licensed spectrum for an amount equal to the greater of (1) the
original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint or (2) 10% of our Entire Business
Value;

o take any action as Sprint PCS deems necessary to cure our breach of
the management agreement, including assuming responsibility for and
operating our network; or

o sue us for damages or submit the matter to arbitration and thereby not
terminate the management agreement.

Non-renewal. If Sprint PCS gives us timely notice that it does not intend
to renew the management agreement, we may:



29


o require Sprint PCS to purchase all of our operating assets used in
connection with our network for an amount equal to 80% of our Entire
Business Value; or

o if Sprint PCS is the licensee for 20MHz or more of the spectrum on the
date the management agreement was executed, require Sprint PCS to sell
to us, subject to governmental approval, up to 10MHz of licensed
spectrum for an amount equal to the greater of (1) the original cost
to Sprint PCS of the license plus any microwave relocation costs paid
by Sprint PCS or (2) 10% of our Entire Business Value.

If we give Sprint PCS timely notice of non-renewal, or we both give notice
of non-renewal, or the management agreement can be terminated for failure to
comply with legal requirements or regulatory considerations, Sprint PCS may:

o purchase all of our operating assets for an amount equal to 80% of our
Entire Business Value; or

o require us to purchase, subject to governmental approval, up to 10 MHz
of licensed spectrum for an amount equal to the greater of (1) the
original cost to Sprint PCS of the license plus any microwave
relocation costs paid by Sprint PCS or (2) 10% of our Entire Business
Value.

Determination of Entire Business Value. If the Entire Business Value is to
be determined, we and Sprint PCS will each select one independent appraiser and
the two appraisers will select a third appraiser. The three appraisers will
determine the Entire Business Value on a going concern basis using the following
guidelines:

o the Entire Business Value is based on the price a willing buyer would
pay a willing seller for the entire on-going business;

o then-current customary means of valuing a wireless telecommunications
business will be used;

o the business is conducted under the Sprint and Sprint PCS brands and
the Sprint PCS agreements;

o that we own the spectrum and frequencies presently owned by Sprint PCS
that we use and are subject to the Sprint PCS agreements; and

o the valuation will not include any value for businesses not directly
related to the Sprint PCS products and services, and these businesses
will not be included in the sale.

Indemnification. We have agreed to indemnify Sprint PCS and its directors,
employees and agents and related parties of Sprint PCS and their directors,
employees and agents against any and all claims against any of these parties
arising from our violation of any law, a breach by us of any representation,
warranty or covenant contained in the management agreement or any other
agreement between us and Sprint PCS, our ownership of the operating assets or
the actions or the failure to act of anyone who is employed or hired by us in
the performance of any work under this agreement, except we will not indemnify
Sprint PCS for any claims arising solely from their negligence or willful
misconduct. Sprint PCS has agreed to indemnify us and our directors, employees
and agents against all claims against any of these parties arising from Sprint
PCS' violation of any law, from Sprint PCS' breach of any representation,
warranty or covenant contained in the management agreement or any other
agreement between Sprint PCS and us, or the actions or the failure to act of
anyone who is employed or hired by Sprint PCS in the performance of any work
under the management agreement except Sprint PCS will not indemnify us for any
claims arising solely from our negligence or willful misconduct.

Sprint PCS warrants. In connection with Sprint PCS' grant to us of our
markets in Pennsylvania, New York, Ohio and New Jersey, Horizon PCS agreed to
grant to Sprint PCS warrants to acquire shares of Horizon PCS' class A common
stock. (See "Recent Sales of Unregistered Securities" under "ITEM 5. Market for
Registrant's Common Equity and Related Stockholder Matters" included herein).

30



The Services Agreements

The services agreements outline back office services provided by Sprint PCS
and available to us at established rates. Sprint PCS can change any or all of
the service rates one time in each twelve month period. Some of the available
services include: billing, customer care, activation, credit checks, handset
logistics, home locator record, voice mail, prepaid services, directory
assistance, operator services, roaming fees, roaming clearinghouse fees,
interconnect fees and inter-service area fees. Sprint PCS offers three packages
of available services. Each package identifies which services must be purchased
from Sprint PCS and which may be purchased from a vendor or provided in-house.
Essentially, services such as billing, activation and customer care must either
all be purchased from Sprint PCS or we may provide those services ourselves.
When we signed our original Sprint PCS agreements, we elected to provide
billing, activation and customer care services on our own. In connection with
the May 2000 grant by Sprint PCS of additional markets to us, we agreed to
change our arrangement under the services agreement so that Sprint PCS will
provide activation, billing and customer care. Accordingly, in June 2001, we
discontinued the use of our own activation, billing, and customer care
capabilities. We now purchase those services from Sprint PCS. For our Bright PCS
markets and our new markets in Pennsylvania, New York and New Jersey, we
launched these markets using Sprint PCS billing and customer care services.
Sprint PCS may contract with third parties to provide expertise and services
identical or similar to those to be made available or provided to us. We have
agreed not to use the services received under the services agreement in
connection with any other business or outside our territory. We may discontinue
use of any service upon three months' prior written notice. Sprint PCS may
discontinue a service provided that Sprint PCS provides us with nine months'
prior notice.

We have agreed with Sprint PCS to indemnify each other as well as officers,
directors, employees and other related parties and their officers, directors and
employees for violations of law or the services agreement except for any
liabilities resulting from the indemnitee's negligence or willful misconduct.
The services agreement also provides that no party to the agreement will be
liable to the other party for special, indirect, incidental, exemplary,
consequential or punitive damages, or loss of profits arising from the
relationship of the parties or the conduct of business under, or breach of, the
services agreement except as may otherwise be required by the indemnification
provisions. The services agreement automatically terminates upon termination of
the management agreement and neither party may terminate the services agreement
for any reason other than the termination of the management agreement.

The Trademark and Service Mark License Agreements

We have non-transferable, royalty-free licenses to use the Sprint and
Sprint PCS brand names and "diamond" symbol, and several other U.S. trademarks
and service marks such as "The Clear Alternative to Cellular" and "Clear Across
the Nation" on Sprint PCS products and services. We believe that the Sprint and
Sprint PCS brand names and symbols enjoy a very high degree of awareness,
providing us an immediate benefit in the market place. Our use of the licensed
marks is subject to our adherence to quality standards determined by Sprint and
Sprint PCS and use of the licensed marks in a manner which would not reflect
adversely on the image of quality symbolized by the licensed marks. We have
agreed to promptly notify Sprint and Sprint PCS of any infringement of any of
the licensed marks within our territory of which we become aware and to provide
assistance to Sprint and Sprint PCS in connection with Sprint's and Sprint PCS'
enforcement of their respective rights. We have agreed with Sprint and Sprint
PCS to indemnify each other for losses incurred in connection with a material
breach of the trademark license agreements. In addition, we have agreed to
indemnify Sprint and Sprint PCS from any loss suffered by reason of our use of
the licensed marks or marketing, promotion, advertisement, distribution, lease
or sale of any Sprint or Sprint PCS products and services other than losses
arising solely out of our use of the licensed marks in compliance with the
contractual guidelines.

Sprint and Sprint PCS can terminate the trademark and service mark license
agreements if we file for bankruptcy, materially breach the agreement or our
management agreement is terminated. We can terminate the trademark and service
mark license agreements upon Sprint's or Sprint PCS' abandonment of the licensed
marks or if Sprint or Sprint PCS files for bankruptcy, or the management
agreement is terminated.




31




Consent and Agreement for the Benefit of the Holders of the Secured Credit
Facility

On September 26, 2000, Horizon PCS entered into a senior secured credit
facility (the "secured credit facility") with a group of financial institutions
to provide an aggregate commitment, subject to certain conditions, of up to
$250.0 million. The secured credit facility is collateralized by a perfected
security interest in substantially all of the Company's tangible and intangible
current and future assets, including an assignment of Horizon PCS' affiliation
agreements with Sprint PCS and a pledge of all of the capital stock of Horizon
PCS and its subsidiaries.

Sprint PCS entered into a consent and agreement for the benefit of the
holders of the indebtedness under the secured credit facility. This agreement
was acknowledged by us, and modified Sprint PCS' rights and remedies under our
Sprint PCS agreements, for the benefit of the existing and future holders of
indebtedness under our secured credit facility and any refinancing of the
secured credit facility, which was a condition to the funding of any amounts
under our secured credit facility.

The senior secured consent principally provides for the following:

o Sprint PCS' consent to the pledge of substantially all of our assets,
including our rights in the Sprint PCS agreements;

o Sprint PCS' consent to the pledge of all our equity interests in
Horizon Personal Communications, Inc. and the pledge by Horizon
Personal Communications, Inc. of all of its equity interests in each
of its subsidiaries;

o for redirection of payments due to us under our Sprint PCS agreements
to the administrative agent during the continuation of our default
under our secured credit facility;

o for Sprint PCS to maintain 10 MHz of PCS spectrum in all of our
markets until our secured credit facility is satisfied or our
operating assets are sold after our default under our secured credit
facility;

o for Sprint PCS and the administrative agent to provide each other with
notices of default by us under the Sprint PCS agreements and the
secured credit facility, respectively; and

o the ability to appoint interim replacements, including Sprint PCS or a
designee of the administrative agent, to operate our portion of the
Sprint PCS network under the Sprint PCS agreements after an
acceleration of or event of default under our secured credit facility
or an event of termination under the Sprint PCS agreements.

Sprint PCS' right to purchase on acceleration of amounts outstanding under
our secured credit facility. Subject to the requirements of applicable law, so
long as our secured credit facility remains outstanding, Sprint PCS has the
right to purchase our operating assets or pledged equity of our operating
subsidiaries, upon its receipt of notice of an acceleration of our secured
credit facility upon the following terms:

o Sprint PCS elects to make such a purchase of our operating assets
within a specified period;

o the purchase price of our operating assets is the greater of an amount
equal to 72% of our "Entire Business Value" or the amount we owe under
our secured credit facility;

o if Sprint PCS has given notice of its intention to exercise the
purchase right for our operating assets, then the administrative agent
is prohibited from enforcing its security interest for a time period
after the acceleration or until Sprint PCS rescinds its intention to
purchase; and

o if we receive a written offer within a time period after acceleration
that is acceptable to us to purchase our operating assets or pledged
equity of our operating subsidiaries after the acceleration, then
Sprint PCS has the right to purchase our operating assets or pledged
equity of our operating subsidiaries on terms at least as favorable to
us as the offer we receive.



32


Sale of operating assets to third parties. If Sprint PCS does not purchase
our operating assets after an acceleration of the obligations under our secured
credit facility, then the administrative agent will be able to sell the
operating assets, subject to the requirements of applicable law, including the
law relating to foreclosures of security interests. The administrative agent
will have two options:

o to sell the assets to an entity that meets the requirements to be our
successor under the Sprint PCS agreements; or

o to sell the assets to any other third-party (including competitors of
Sprint PCS), principally subject to the condition that Sprint PCS does
not have to accept the third-party as a Sprint PCS affiliate and may
terminate our Sprint PCS agreements.

REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY

The FCC regulates the licensing, construction, operation, acquisition and
interconnection arrangements of wireless telecommunications systems in the
United States. As an FCC licensee in our Chillicothe, Ohio market, and as an
entity facilitating PCS operations on Sprint PCS' spectrum under our Sprint PCS
agreements, we must ensure that all of our operations comply with FCC
requirements.

The FCC has adopted, or is in the process of adopting, a series of rules,
regulations and policies to, among other things:

o grant or deny licenses for PCS frequencies;

o grant or deny PCS license renewals;

o rule on assignments and/or transfers of control of PCS licenses;

o govern the interconnection of PCS networks with the networks of other
wireless and wireline carriers;

o possibly facilitate the offering of a "calling party pays" service
which would require that a party who calls a subscriber would pay for
the call;

o establish access and universal service funding provisions in an effort
to raise funds to help defray the cost of providing telecommunications
services to rural and other high-cost areas;

o possibly permit commercial mobile radio service spectrum to be used
for transmission of programming material targeted to a limited
audience;

o impose fines and forfeitures for violations of any of the FCC's rules;
and

o regulate the technical standards of PCS networks.

The FCC currently prohibits a single entity from having a combined
attributable interest of 20% or greater in broadband PCS, cellular, and
specialized mobile radio service licenses totaling more than 55 MHz in any urban
areas or rural areas. This "spectrum cap" was raised from 45 MHz to 55 MHz in
urban areas as the result of recent FCC action. Interests held by passive
institutional investors, small companies and rural telephone companies are not
usually deemed attributable for purposes of this prohibition if these interests
do not exceed 40%. The FCC recently decided that this restriction will be
eliminated on January 1, 2003. We cannot predict whether these actions will lead
to more consolidation in the wireless telecommunication industry generally, or
in any of our PCS service areas.

Transfers and Assignments of PCS Licenses

The FCC must give prior approval to the assignment of, or transfers
involving, substantial changes in ownership or control of a PCS license.
Non-controlling interests in an entity that holds a PCS license or operates PCS
networks generally may be bought or sold without prior FCC approval. In


33


addition, a recent FCC order requires only post-consummation notification of
certain pro forma assignments or transfers of control.

Conditions of PCS Licenses

All PCS licenses are granted for ten-year terms conditioned upon timely
compliance with the FCC's build-out requirements. Pursuant to the FCC's
build-out requirements, all 30 MHz broadband PCS licensees must construct
facilities that offer coverage to one-third of the population within five years
and to two-thirds of the population within ten years, and all 10 MHz and 15 MHz
broadband PCS licensees must construct facilities that offer coverage to at
least one-quarter of the population within five years or make a showing of
"substantial service" within that five-year period. Failure to meet these build
out requirements can result in license cancellation without a hearing. Other
rule violations could result in license revocations and/ or monetary fines. The
FCC also requires licensees to maintain a certain degree of control over their
licenses. The Sprint PCS agreements reflect an arrangement that the parties
believe meets the FCC requirements for licensee control of licensed spectrum.
However, the FCC decides whether a licensee has maintained the requisite degree
of control on a case-by-case basis, upon consideration of the "totality of
circumstances." It is therefore difficult to predict in advance with absolute
certainty whether a particular arrangement will pass FCC muster. If the FCC were
to determine that our agreements with Sprint PCS need to be modified to increase
the level of licensee control, the Sprint PCS agreements may be modified to cure
any purported deficiency regarding licensee control of the licensed spectrum.
However the business arrangement between the parties may have to be
restructured.

PCS License Renewal

PCS licensees can renew their licenses for additional ten-year terms. PCS
renewal applications are not subject to auctions. However, under the FCC's
rules, third parties may oppose renewal applications and/or file competing
applications. If one or more competing applications are filed, a renewal
application will be subject to a comparative renewal hearing. The FCC's rules
afford PCS renewal applicants involved in comparative renewal hearings with a
"renewal expectancy." The renewal expectancy is the most important comparative
factor in a comparative renewal hearing and is applicable if the PCS renewal
applicant has: (1) provided "substantial service" during its license term; and
(2) substantially complied with all applicable laws and FCC rules and policies.
The FCC's rules define "substantial service" in this context as service that is
sound, favorable and substantially above the level of mediocre service that
might minimally warrant renewal.

Interconnection

The FCC has the authority to order interconnection between commercial
mobile radio providers and any other common carrier. The FCC has ordered
traditional telephone companies to provide compensation to commercial mobile
radio providers for the termination of traffic. Using these new rules, we have
negotiated interconnection agreements for the Sprint PCS network in our market
area with the major regional Bell operating companies, GTE, Sprint and several
smaller independent local exchange carriers. Interconnection agreements are
negotiated on a state-wide basis. If an agreement cannot be reached, parties to
interconnection negotiations can submit outstanding disputes to state
authorities for arbitration. Negotiated interconnection agreements are subject
to state approval. On July 18, 2000, the FCC adopted an order denying requests
for mandatory interconnection between resellers' switches and commercial mobile
radio providers' networks, and declining to impose general interconnection
obligations between these networks.

Allocation of Additional PCS and Other Wireless Licenses

The FCC from time to time re-auctions PCS licenses that it has re-claimed
from other carriers, or PCS licenses that carriers have voluntarily returned to
the agency. The FCC also periodically allocates and assigns new spectrum for the
provision of wireless services. It is possible that such actions could create
new competitors in our current PCS service areas, and we cannot predict the
effect that such actions would have on our business.




34




Other FCC Requirements

In June 1996, the FCC adopted rules that prohibit broadband PCS providers
from unreasonably restricting or disallowing resale of their services or
unreasonably discriminating against resellers. Resale obligations will
automatically expire on November 24, 2002. The FCC recently decided that these
prohibitions apply to services and not to equipment such as handsets, whether
alone or in bundled packages.

The FCC also adopted rules in June 1996 that require local exchange and
most commercial mobile radio carriers, to program their networks to allow
customers to change service providers without changing telephone numbers, which
is referred to as service provider number portability. The FCC currently
requires most commercial mobile radio carriers to implement nationwide roaming.
Most commercial mobile radio carriers are required to implement nationwide
roaming by November 24, 2002 as well. The FCC currently requires most commercial
mobile radio providers to be able to deliver calls from their networks to
numbers anywhere in the country, and to contribute to the Local Number
Portability Fund.

The FCC has adopted rules permitting broadband PCS and other commercial
mobile radio providers to provide wireless local loop and other fixed services
that would directly compete with the wireline services of local telephone
companies. In June 1996, the FCC adopted rules requiring broadband PCS and other
commercial mobile radio providers to implement enhanced emergency 911 (E911)
automatic location identification (ALI) capabilities within 18 months after the
effective date of the FCC's rules. Sprint PCS' initial compliance with these
rules occurred on or before October 1, 2001.

Additional compliance deadlines include: (1) ensuring that 25% of new
mobile phones activated after December 31, 2001 are ALI capable; (2) ensuring
that 50% of new mobile phones activated after June 30, 2002 are ALI capable; and
(3) ensuring that 95% of all customer mobile phones are ALI capable by December
31, 2005. On October 12, 2001, the FCC granted Sprint PCS an extension of the
December 31, 2001 deadline, valid until July 31, 2002. Sprint PCS was also given
more time in which to upgrade its E911 system software. Horizon's Chillicothe
PCS system, the licenses to which Horizon PCS owns, is currently exempt from
E911 ALI requirements.

On June 10, 1999, the FCC initiated a regulatory proceeding (the
competitive networks proceeding) seeking comment from the public on a number of
issues related to competitive access to multiple-tenant buildings, including the
following:

o the FCC's tentative conclusion that the Communications Act of 1934, as
amended, requires utilities to permit telecommunications carriers
access to rooftop and other rights-of-way in multiple tenant buildings
under just, reasonable and nondiscriminatory rates, terms and
conditions; and

o whether building owners that make access available to a
telecommunications carrier should be required to make access available
to all other telecommunications carriers on a nondiscriminatory basis,
and whether the FCC has the authority to impose such a requirement.

On October 25, 2000, the FCC issued an order that addressed certain of the
issues in the competitive networks proceeding. Notably, the FCC:

o prohibits carriers from entering into contracts that restrict owners
of commercial office buildings from permitting access from competing
carriers;

o clarifies the FCC's rules governing control of in-building wiring;

o concludes that utilities that own conduits or rights-of-way within a
building must give non-discretionary access thereto; and

o concludes that parties with a direct or indirect ownership or
leasehold interest in property, including building tenants, should
have the ability to place antennas one meter or less in diameter used
to receive or transmit any fixed wireless service in certain areas.



35


This proceeding could affect the availability and pricing of sites for our
antennae and those of our competitors.

Communications Assistance for Law Enforcement Act

The Communications Assistance for Law Enforcement Act, or CALEA, was
enacted in 1994 to preserve electronic surveillance capabilities by law
enforcement officials in the face of rapidly changing telecommunications
technology. CALEA requires telecommunications carriers, including us, to modify
their equipment, facilities, and services to allow for authorized electronic
surveillance based on either industry or FCC standards. The FCC has adopted
rules implementing this statute and has established various implementation
deadlines. Like other wireless carriers, Sprint PCs has sought certain
extensions of the deadlines, and these requests remain pending. We may be
subjected to fines of as much as $10,000 per day if we are unable to comply with
a surveillance request from law enforcement due to the lack of a required CALEA
capability for which we or Sprint PCS have not sought or received and extension.

Other Federal Regulations

Wireless systems must comply with FCC and Federal Aviation Administration
("FAA") regulations regarding the siting, lighting and construction of
transmitter towers and antennas. In addition, FCC environmental regulations may
cause some cell site locations to become subject to regulation under the
National Environmental Policy Act (NEPA). The FCC is required to implement this
Act by requiring carriers to meet land use and radio frequency standards.

In general, carriers are required to clear any tower or antenna structure
proposals with the FAA if the structure will be 200 feet or more in height, or
will be within 20,000 feet of an airport. Carriers must also ensure that antenna
structures will comply with NEPA-related regulations protecting wilderness
areas, wildlife preserves, endangered species habitats, Indian religious sites,
flood plains, wetlands, and historic places. In protecting historic places,
carriers must comply with the requirements of the National Historic Preservation
Act and the regulations of the National Council for Historic Preservation
(NCHP). This generally requires consultation with the appropriate "State
Historic Preservation Officer" (SHPO) prior to each site construction. However,
in March 2001, the FCC issued a programmatic agreement approved by the NCHP,
which allows carriers to avoid SHPO approval and other time-consuming historic
preservation measures, if the carrier proposes to use an existing tower, and
satisfies certain other conditions.

Carriers must comply with certain other FCC requirements:

o payment of annual regulatory user fees;

o submission of FCC Form 499A and 499Q reports, providing the FCC with
information needed to calculate universal service, local number
portability and other contribution amounts owed by the carrier;

o compliance with the FCC's 711 hearing-impaired access requirements by
October 1, 2001;

o compliance with the FCC's digital TTY (access for the deaf)
requirements, including purchase of necessary software and equipment
by December 31, 2001, implementation by June 30, 2002, and filing of
quarterly progress reports during the interim;

o submission of annual Form 395 employment report;

o periodic filing of Form 602 ownership report; and

o submission of other required reports, as applicable, including Form
502 Number Utilization and Forecast Report, Form 477 Local Competition
and Broadband Reporting Worksheet, From 478 Slamming Complaint Report,
International Traffic Data Report, and Annual Financial Report.


36

Review of Universal Service Requirements

The FCC and the states are required to establish a universal service
program to ensure that affordable, quality telecommunications services are
available to all Americans. Sprint PCS is required to contribute to the Federal
universal service program as well as existing state programs. The FCC has
determined that Sprint PCS' contribution to the Federal universal service
program is a variable percentage of "end-user telecommunications revenues."
Although many states are likely to adopt a similar assessment methodology, the
states are free to calculate telecommunications service provider contributions
in any manner they choose as long as the process is not inconsistent with the
FCC's rules. At the present time it is not possible to predict the extent of the
Sprint PCS total Federal and state universal service assessments or its ability
to recover from the universal service fund.

Wireless Facilities Siting

States and localities are allowed to apply zoning requirements to PCS
facility and tower proposals, but are not permitted to regulate the placement of
wireless facilities so as to prohibit the provision of wireless services or to
discriminate among providers of these services. In addition, so long as a
wireless system complies with the FCC's rules, states and localities are
prohibited from using radio frequency health effects as a basis to regulate the
placement, construction or operation of wireless facilities. The FCC is
considering numerous requests for preemption of local actions affecting wireless
facilities siting. The Federal courts have been inconsistent in deciding such
disputes.

State Regulation of Wireless Service

Section 332 of the Communications Act preempts states from regulating the
rates and entry of commercial mobile radio providers, like us. However, states
may attempt to regulate other aspects of our service provision. In addition,
states may petition the FCC to regulate these providers and the FCC may grant a
state's petition if the state demonstrates that (1) market conditions fail to
protect subscribers from unjust and unreasonable rates or rates that are
unjustly or unreasonably discriminatory, or (2) when commercial mobile radio is
a replacement for landline telephone service within the state. To date, the FCC
has granted no petition of this type. To the extent that we may provide fixed
wireless service, we may be subject to additional state regulation.

ITEM 2. Properties

Management believes that its property, plant and equipment are adequate for
its business at Chillicothe Telephone, Horizon Technology and Services, although
additional property, plant and equipment is being added. The Chillicothe
Telephone Company built a new 22,500 square foot operations and training
facility, which was completed in the summer of 2001. This building is leased by
Horizon Technology from Chillicothe Telephone and is used for their primary
offices. Our properties consist of land, buildings, central office equipment,
exchange and toll switches, data transmission equipment, underground conduits
and cable, aerial cable, poles, wires, telephone instruments and other
equipment. Our principal operations are conducted in a group of buildings we own
on East Main Street, Chillicothe, Ohio. These headquarters buildings have
approximately 40,000 square feet of floor space.

Chillicothe Telephone occupies several properties and buildings comprising
approximately 51,000 square feet in the aggregate, used for telephone switches,
warehouse and office space. Chillicothe Telephone installed new plant record,
mapping and billing software in 2000. Chillicothe Telephone also maintains over
100 vehicles used in servicing customers and maintaining the telephone
infrastructure for residential customers and business services. In addition,
Chillicothe Telephone has easements it uses in deploying its wireline network.

Horizon PCS leases its principal executive offices from Horizon Telcom and
are located at 68 E. Main Street, Chillicothe, Ohio 45601-0480, which is also
the location of its first PCS store. Horizon PCS also leases an additional 37
other retail stores throughout its territory. Horizon PCS owns two switching
facilities in Fort Wayne, Indiana, and Chillicothe, Ohio, and is in the process
of constructing two additional switching centers in Tennessee and Pennsylvania.
One of the new centers will replace the facility in Chillicothe, Ohio. As of
December 31, 2001, Horizon PCS leased space on 604 on-air towers; Horizon PCS
collocates with other wireless service providers on approximately 72% of them.
Horizon PCS believes that their facilities are adequate for its current
operations and are in good condition and additional leased space can be obtained
if needed on commercially reasonable terms.




37


ITEM 3. Legal Proceedings

We are not aware of any pending legal proceedings against us which,
individually or in the aggregate, if adversely determined, would have a material
adverse effect on our financial condition or results of operations.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of shareholders during the fourth
quarter of 2001.

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

To date, both our class A common stock and our class B nonvoting common
stock have traded principally in local transactions without the benefit of an
established public trading market, or an organized system for reporting prices
paid.

There is currently no market for the Company's common stock. The authorized
capital stock of Horizon Telcom consists of 200,000 shares of class A common
stock, without par value and 500,000 shares of class B common stock, without par
value. Class A common stock is exchangeable at a one to one ratio with class B
common stock. Holders of class A common stock are entitled to one vote per
share. Holders of class B common stock do not have voting rights, except as
otherwise required by law.

We paid the following quarterly cash dividends per share during the past
two calendar years, adjusted to reflect the stock split in 2000:

2001 2000
---- ----

First Quarter................... $ 1.15 $ 1.15
Second Quarter.................. 1.25 1.15
Third Quarter................... 1.25 1.15
Fourth Quarter.................. 1.25 1.15
-------- --------
Total.................. $ 4.90 $ 4.60
======== ========


Dividends are paid only as and when declared by our board of directors, in
its sole discretion, based on our financial condition, results of operations,
market conditions and such other factors as it may deem appropriate.

There were 348 holders of record of our class A common stock as of December
31, 2001. There were 684 holders of record of our class B common stock as of
December 31, 2001. This number does not include beneficial owners of common
stock whose shares are held in the name of various dealers, depositories, banks,
brokers or other fiduciaries.



38



Recent Sales of Unregistered Securities

(1) On November 17, 1999, the Registrant granted stock options to purchase
a total of 950 shares of the class B common stock of the Registrant at
an exercise price of $60.00 per share.

(2) On June 27, 2000, in connection with the acquisition of Bright PCS,
Horizon PCS issued an aggregate of 4,678,800 shares of its class B
common stock and distributed 31,912 shares of Horizon Telcom common
stock (7,978 shares of class A common stock and 23,934 shares of class
B common stock) to the former non-Horizon members of Bright PCS in
return for the contribution by the former members of approximately 70%
of their ownership interest in Bright PCS.

(3) On June 27, 2000, Horizon PCS granted incentive stock options to
purchase 3,874,047 shares of Horizon PCS' class B common stock at an
exercise price of $0.1209 per share, and nonqualified options to
purchase 322,837 shares of its class B common stock, at an exercise
price of $0.1209 per share. These options were granted in replacement
of stock options which had been granted by Horizon Personal
Communications, Inc. on November 16, 1999, prior to the incorporation
of Horizon PCS as a holding company for Horizon Personal
Communications, Inc. and Bright PCS.

(4) In connection with Sprint PCS' grant of Horizon PCS' new markets on
May 19, 2000, Horizon PCS agreed to grant warrants to Sprint PCS to
acquire 2,510,460 shares of Horizon PCS' class A common stock at an
exercise price equal to the initial public offering price per share.
The warrants will expire on the 3rd anniversary of the completion of
an initial public offering of Horizon PCS' common stock.

(5) On February 15, 2000, Horizon Personal Communications, Inc. borrowed
$13.0 million from First Union Investors, Inc. in connection with
Horizon Personal Communications, Inc.'s purchase of shares of the
outstanding common stock of Horizon Telcom. In connection with the
loan transaction, Horizon PCS and First Union Investors, Inc., agreed
that, upon the completion of certain types of offerings, the
outstanding principal amount, and accrued interest thereon, under the
note to First Union Investors, Inc. would be converted into shares of
the same class of Horizon PCS' capital stock as that issued in the
offering. In September 2000, the First Union note was converted into
convertible preferred stock as part of the transaction described in
item (8) below.

(6) On September 8, 2000, Horizon PCS effected a 1.1697 for 1 stock
dividend of its issued and outstanding class B common stock and made
corresponding adjustments to the outstanding options and warrants.

(7) On September 26, 2000, Horizon PCS issued 26,087,237 shares of its
convertible preferred stock at a weighted average purchase price of
$5.39 per share (consisting of 10,252,239 shares of Series A Preferred
Stock at $5.88 per share and 15,834,998 shares of Series A-1 Preferred
Stock at $5.07 per share). The purchasers of the preferred stock and
the amount purchased are listed in the table below.

Number of Shares
Name of Purchaser Series A Series A-1
----------------- -------- ----------
Apollo Investment Fund IV, L.P.............7,854,719 12,132,161
Apollo Overseas Partners IV, L.P.............436,097 673,582
Ares Leveraged Investment Fund, L.P..........467,687 722,375
Ares Leveraged Investment Fund II, L.P.......467,687 722,375
First Union Capital Partners, L.P..........1,026,049 1,584,505

(8) On September 26, 2000, Horizon PCS issued 295,000 units (Units)
consisting of $295.0 million principal amount of 14% Senior Discount
Notes due 2010 and warrants to purchase 3,805,500 shares of class A
common stock at an exercise price of $5.88 per share. The initial
purchasers of the Units and the amount purchased are listed in the
table below.





39




Initial Purchasers Number of Units
------------------ ---------------
Credit Suisse First Boston Corporation, (formerly Donaldson, Lufkin
& Jenrette Securities Corporation).................................. 206,500
First Union Securities, Inc......................................... 88,500
---------------

Total............................................. 295,000
===============



(9) During 2000, three persons holding options to acquire Horizon Telcom
class B common stock each exercised the vested portions of the options
(37 shares each at $60 per share). One person exercised in July 2000,
and the other two exercised in August 2000. Each optionee was an
executive officer or director. See "ITEM 11. Executive Compensation."

(10) In February 2001, Horizon PCS decided to distribute a total of 7,249
shares of Horizon Telcom common stock (1,819 shares of class A common
stock and 5,430 shares of class B common stock) to a group of Horizon
PCS' officers and employees in the form of a bonus.

(11) In May 2001 and November 2001, Horizon PCS issued an additional
1,163,051 and 1,021,882 shares, respectively, of its convertible
preferred stock as a dividend-in-kind to the holders of the
outstanding convertible preferred stock.

(12) In September 2001, a previous owner of Bright PCS gifted 26,646 shares
of Horizon PCS' class B common stock. This transaction resulted in the
conversion of the class B shares into 26,646 shares of Horizon PCS'
class A common stock.

(13) On December 7, 2001, the Company issued $175 million in principal
amount of 13.75% Senior Notes due June 15, 2011. The initial
purchasers of these notes are listed in the table below.

Amount
Initial Purchasers Purchased
------------------ ---------
Credit Suisse First Boston Corporation.................. $87,500,000
First Union Securities, Inc...............................52,500,000
Bear, Stearns & Co. Inc...................................17,500,000
Lehman Brothers Inc.......................................17,500,000
----------
Total.............................................$175,000,000
===========

Exemption from the registration provisions of the Securities Act for the
transaction described in paragraphs (6), (9), (10), (11) and (12) above was
claimed on the basis that such transactions did not constitute an "offer,"
"offer to sell," "sale," or "offer to buy" under Section 5 of the Securities
Act. Exemption from the registration provisions of the Securities Act for the
other transactions described above was claimed under Section 4(2) of the
Securities Act and the rules and regulations promulgated thereunder on the basis
that such transactions did not involve any public offering, the purchasers were
sophisticated with access to the kind of information registration would provide
and that such purchasers acquired such securities without a view towards
distribution thereof. In addition, exemption from the registration provisions of
the Securities Act for the transactions described in paragraphs 1 and 9 was
claimed under Section 3(b) of the Securities Act on the basis that such
securities were sold pursuant to a written compensatory benefit plan or pursuant
to a written contract relating to compensation and not for capital raising
purposes under Rule 701 of the Securities Act, and exemption from the
registration provisions of the Securities Act for the transactions described in
paragraphs 7 and 8 above was claimed under Rule 144A of the Securities Act.

Transfer Agent And Registrar

The registrar and transfer agent for Horizon Telcom common stock is
National City Bank of Ohio.

40



ITEM 6. Selected Financial Data

The following table sets forth our selected historical consolidated
financial data. We derived the data as of and for the five years ended December
31, 2001, 2000, 1999, 1998 and 1997 from our audited consolidated financial
statements and related notes. This data should be read in conjunction with our
audited consolidated financial statements and related notes for the years ended
December 31, 2001, 2000 and 1999 included under "ITEM 8. Financial Statements
and Supplementary Data" and "ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation."





FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------

Operating Revenues $ 170,140,016 $ 73,999,642 $ 49,406,480 $ 41,518,407 $ 37,493,461
Operating Income (Loss) (81,393,053) (37,142,923) (4,504,463) 2,038,267 3,372,840
Net Income (Loss) (118,820,602) (44,673,246) (4,481,098) (1,207,083) 1,853,184
Diluted Earnings (Loss)
Per Share of Common
Stock (1) (329.59) (129.03) (11.23) (3.03) 4.65
Cash Dividends on Common
Stock 1,767,088 1,793,038 1,815,014 1,815,014 1,815,014
Dividends Per Share on
Common Stock (1) 4.90 4.60 4.55 4.55 4.55
Capital Expenditures 132,506,210 101,491,729 17,799,773 15,984,218 39,794,525


AS OF DECEMBER 31,
-------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- --------------
Property, Plant and
Equipment in-service,
at cost $ 298,096,580 $170,960,204 $ 111,297,730 $ 112,026,207 $ 85,048,600
Total Assets 577,913,866 466,299,843 101,713,365 106,102,379 107,433,495
Long-Term Debt 402,055,643 205,283,104 45,557,965 53,180,442 26,711,248
Convertible Preferred
Stock of Subsidiary -
book value 145,349,043 134,421,881 -- -- --
Non-financial data:
Total Access Lines 38,892 37,824 36,832 36,554 34,918
Total Horizon PCS
Subscribers (2) 194,100 66,400 13,700 2,100 300
Total bright.net Subscribers 14,929 15,000 14,544 11,760 7,022




- ----------------
(1) Earnings (loss) and dividends per share have been adjusted to reflect the
change in number of shares caused by the three-for-one stock split in the
form of a stock dividend.

(2) Represents approximate number of subscribers.


ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation

Overview

This discussion reflects the operations of Horizon Telcom, Inc., and its
subsidiaries, The Chillicothe Telephone Company, Horizon PCS, Inc., Horizon
Services, Inc. and Horizon Technology, Inc. (formerly United Communications,
Inc.). This discussion and analysis should be read in conjunction with the
consolidated financial statements and the related notes. Note 1 of "Notes to
Consolidated Financial Statement" contains information related to the Company's
significant accounting policies.

Horizon Telcom operates primarily within two operating segments: landline
telephone services and wireless personal communications services. See Note 3 of
"Notes to Consolidated Financial Statements" for additional financial
information regarding Horizon Telcom's operating segments.



41


At December 31, 2001, Chillicothe Telephone serviced 38,892 access lines in
Chillicothe, Ohio and the surrounding area. Horizon Technology provided Internet
service to 14,929 customers through its bright.net Internet service. Horizon PCS
managed approximately 194,100 subscribers in its territories.

At December 31, 2001, Horizon PCS had launched service in 54 markets
covering approximately 6.9 million residents, or approximately 68% of the total
population in its territory, and managed approximately 194,100 customers.
According to our original business plan, our network, when completed, would have
covered 6.9 million residents. We decided to expand the coverage in our markets
from 6.9 million to 7.9 million residents, increasing our planned coverage from
68% to 77% of the total population of our territory. We believe that our
expanded network will be substantially complete by December 31, 2002.

Sprint PCS has invested approximately $57.0 million to purchase the PCS
licenses in our territory and has incurred additional expenses for microwave
clearing. Under the Sprint PCS agreements, we manage our network on Sprint PCS'
licensed spectrum and have the right to use the Sprint and Sprint PCS brand
names.

Results of Operation

The landline telephone services operating segment consists of basic local
and long-distance toll, network access services, and other telephone service
revenue.

IntraLATA (i.e., the area of southern Ohio, including Columbus originally
covered by area code 614), basic local exchange and long-distance service
revenue consists of flat rate services and measured services billed to customers
utilizing Chillicothe Telephone's telephone network. Long distance
intraLATA/interstate revenue consists of message services that terminate beyond
the basic service area of the originating wire center.

Network access revenue consists of revenue derived from the provision of
exchange access services to an interexchange carrier or to an end user beyond
the exchange carrier's network. Other revenue includes directory advertising
related to a telephone directory published annually.

The wireless personal communications services operating segment consists
primarily of PCS subscriber revenues, Sprint PCS roaming revenues, non-Sprint
PCS roaming revenues and PCS equipment sales. PCS subscriber revenues consist
primarily of monthly service fees and other charges billed to our customers for
Sprint PCS service in our territory under a variety of service plans. Roaming
revenues consist of Sprint PCS roaming and travel and non-Sprint PCS roaming and
travel. We receive Sprint PCS roaming revenues at a per minute rate from Sprint
PCS or another Sprint PCS affiliate when Sprint PCS subscribers based outside of
our territory use our portion of the Sprint PCS network. Non-Sprint PCS roaming
revenues include payments from wireless service providers, other than Sprint
PCS, when those providers' subscribers roam on our network. PCS equipment sales
consist of digital handsets and accessories sold to our customers.

We record 100% of PCS subscriber revenues from Sprint PCS customers based
in our territories, Sprint PCS roaming revenues from Sprint PCS subscribers
based outside our markets and non-Sprint PCS roaming revenues. Sprint PCS
retains 8% of all collected service revenue as a management fee. Collected
service revenues include PCS subscriber revenues and non-Sprint PCS roaming
revenues, but exclude Sprint PCS roaming revenues and revenues from sales of
equipment. We report the amounts retained by Sprint PCS as general and
administrative expenses.

Other revenues include Internet access services, equipment systems sales,
and information services. Internet access revenues for our bright.net services
are monthly service fees and other charges billed to our bright.net customers.
Service fees primarily consist of monthly recurring charges billed to customers.
Equipment system sales and other revenues consist of sales made by Chillicothe
Telephone to various businesses or other residential customers for equipment
used on the telephone system. Revenue also consists of paging services provided
by Horizon Technology until its divestiture of that business in December 2000.



42


The following tables set forth a breakdown of operating revenues by segment.




Years Ended December 31,
2001 2000 1999
------------------- ------------------- -----------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands, except PCS ARPU)


Landline telephone services $ 39,785 23% $ 37,597 51% $ 37,309 76%
Wireless personal communications
services 123,011 73% 29,171 39% 4,896 10%
Other revenues 7,344 4% 7,232 10% 7,201 14%
---------- ------ ---------- ---- ---------- ----
Total revenues $ 170,140 100% $ 74,000 100% $ 49,406 100%
========== ====== ========== ==== ========== ====

PCS ARPU (including roaming) (1) $ 83 $ 75 $ 64
PCS ARPU (excluding roaming) (1) 56 51 55



- ---------------

(1) ARPU, average revenue per unit, is an industry term that measures total PCS
service revenues per month from our subscribers divided by the average
number of digital subscriber units for that month. ARPU, including roaming,
is ARPU with Sprint PCS roaming and non-Sprint PCS roaming. ARPU excluding
roaming excludes Sprint PCS roaming and non-Sprint PCS roaming.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Operating Revenues

Landline telephone services




2001 2000 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)
Basic local, long-distance and other landline.. $ 19,587 $ 20,320 $ (733) (4%)
Network access................................. 20,198 17,276 2,922 17%



Basic local and long-distance service revenue was relatively flat to the
comparable prior year period. The increase in network access revenues was a
result of increased usage on our network.


Wireless Personal Communications Services





2001 2000 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)
PCS service revenues........................... $ 115,906 $ 26,110 $ 89,796 344%
PCS equipment revenues......................... 7,105 3,061 4,044 132%



The growth in service revenues is primarily the result of the growth in our
customer base as well as an increase in roaming revenue. Subscriber revenues
increased $59.7 million for the year ended December 31, 2001. We managed
approximately 194,100 customers at December 31, 2001, compared to approximately
66,400 at December 31, 2000. We believe our customer base has grown because we
have launched additional markets and increased our sales force.

Roaming revenues increased by $30.1 million primarily as a result of our
continued build out of our network. We expect continued volume increases in
Sprint PCS roaming revenues as we complete the remainder of our network
build-out.

PCS ARPU excluding roaming increased in 2001 to $56 from $51 in 2000,
primarily as a result of increased minutes of use by our customers. As our
customers exceed their allotted plan minutes, they incur additional charges for
their usage. ARPU including roaming increased from $75 to $83 for the year ended
December 31, 2000, and December 31, 2001, respectively. This increase primarily
resulted from the continued build out of our network, including highways
covering northwest Ohio, northern Indiana and Pennsylvania.



43


On April 27, 2001, Sprint PCS and its affiliates announced an agreement on
a new Sprint PCS roaming rate; the receivable and payable roaming rate decreased
from $0.20 per minute to $0.15 per minute effective June 1, 2001, and decreased
further to $0.12 per minute effective October 1, 2001. The Sprint PCS roaming
rate will be changed to $0.10 per minute in 2002. After 2002, the rate will be
changed to "a fair and reasonable return," which has not yet been determined.
This decrease in the rate will reduce our revenue and expense per minute, but we
anticipate this rate reduction will be offset by volume increases from continued
build-out of our network and subscriber growth, resulting in greater overall
roaming revenue and expense in the future.

PCS equipment revenues consist of handsets and accessories sold to
customers through Horizon PCS' stores and through its direct sales force. The
increase in equipment revenues is the result of our increase in the number of
handsets sold by Horizon PCS stores and direct sales force, somewhat offset by a
lower sales price per unit.

Other Revenues





2001 2000 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)
Internet access services....................... $ 3,131 $ 3,625 $ (494) (14%)
Equipment systems, information services and
other revenues............................... 4,213 3,607 606 17%



Other revenues were essentially flat from year end 2000 to 2001, increasing
by approximately $100,000. Other revenues were impacted by increased VDSL
revenue as we continue to build our customer base, offset by decreased revenues
from our bright.net Internet services. Our Internet access services saw a
decrease in customers during 2001, resulting in lower overall revenues.

Operating Expenses

Cost of goods sold. Cost of goods sold primarily includes the costs of
handsets and accessories sold to customers. Cost of goods sold also includes, to
a lesser extent, the cost of business system sales incurred by Chillicothe
Telephone. Cost of goods sold for the year ended December 31, 2001, was $15.6
million, compared to $10.5 million for the year ended December 31, 2000, an
increase of $5.1 million. The increase in the cost of goods sold is the result
of the growth in our wireless customers (approximately 66,400 customers at
December 31, 2000 compared to approximately 194,100 at December 31, 2001),
partially offset by the decreasing per unit cost of the handsets. For
competitive and marketing reasons, we have sold handsets to our customers below
our cost and expect to continue to sell handsets at a price below our cost for
the foreseeable future.

Cost of service. Cost of service for Chillicothe Telephone and Horizon
Technology includes the support, switching, access and circuitry expenses
utilized for maintaining telephone service. Cost of service also includes
expenses related to the startup and installation of Chillicothe Telephone's VDSL
service. Cost of service for Horizon PCS includes costs associated with
operating its network, including site rent, utilities, maintenance, engineering
personnel and other expenses related to operations. Cost of service also
includes interconnection expenses, customer care, Sprint charges, Sprint PCS
roaming fees and non-Sprint roaming fees. Horizon PCS pays Sprint PCS roaming
fees when Horizon PCS' customers use Sprint PCS' network outside of our
territory. Horizon PCS pays non-Sprint PCS roaming fees to other wireless
service providers when our customers use their networks.

Also included in cost of service are costs incurred under Horizon PCS'
network services agreement with the Alliances. In the third quarter of 2001,
Horizon PCS negotiated an amendment to its agreement with the Alliances and a
related amendment to its Sprint PCS agreements. Under the Alliances amendment,
Horizon PCS is obligated to pay a minimum monthly fee for a stated minimum
period. Horizon PCS expects to incur lower overall fees under this new
arrangement at expected usage levels as compared to the previous agreement that
was based on a per minute fee. The Alliances are also obligated to upgrade their
networks to provide 3G technology. In connection with this amendment, the
Alliances have agreed with Sprint PCS to modify their networks to cause Sprint
PCS to be in compliance with the FCC's construction requirements for PCS
networks. Horizon PCS will be responsible for completion of the network
modifications if the Alliances fail to comply.



44


Cost of service for the year ended December 31, 2001 was $115.2 million,
compared to $41.5 million for the year ended December 31, 2000, an increase of
$73.7 million. Chillicothe Telephone's cost of service increased $1.2 million
during the year ended December 31, 2001, compared to the year ended December 31,
2000. This increase was a result of increased costs related to the build-out of
the VDSL network and upgrading the landline network to fiber optic cable of $1.0
million and additional expenses of $200,000 to upgrade switching and other
central office equipment.

Horizon PCS' increase of $72.5 million, reflects the increase in roaming
fees of $29.9 million and an increase in costs incurred under our network
services agreement with the Alliances of $12.4 million, both as a result of our
subscriber growth during 2001. Additionally, cost of service in 2001 was higher
than 2000 due to the increase in network operations, including tower lease
expense, circuit costs and payroll expense, of $17.6 million, increased customer
care, activations and billing expense of $9.6 million, as a result of customer
growth and the increase in other variable expenses, including switching and
national platform expenses, of $3.0 million.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with operating Horizon PCS' 38 retail stores including
marketing, advertising, payroll and sales commissions. Selling and marketing
expense also includes salaries and commissions paid to our sales representatives
and sales support personnel, commissions paid to national and local third party
distribution channels and subsidies on handsets sold by third parties for which
we do not record revenue, and expenses related to Chillicothe Telephone and
Horizon Technology marketing and advertising programs.

Selling and marketing expenses rose to $50.5 million for the year ended
December 31, 2001, compared to $19.6 million for the year ended December 31,
2000, an increase of $30.9 million. Horizon PCS' increase was $31.0 million,
while Chillicothe Telephone and Horizon Technology were essentially flat.

Horizon PCS' increase reflects the increase in the costs of operating 38
retail stores, 22 of which were launched during 2001. The costs include
marketing and advertising in our sales territory of $17.6 million, the increase
in subsidies on handsets sold by third parties of $10.1 million and the increase
in commissions paid to third parties of $3.3 million. We expect selling and
marketing expense to increase in the aggregate as we expand our coverage, launch
additional stores and add customers.

General and administrative expenses. General and administrative costs
include the costs related to corporate support functions. These include finance
functions, billing and collections, accounting services, computer access and
administration, executive, supervisory, consulting, customer relations, human
resources and other administrative services. The Sprint management fee is also
included in general and administrative expenses.

General and administrative expenses rose by $17.4 million to $43.0 million
for the year ended December 31, 2001, compared to the year ended December 31,
2000. Horizon PCS' increase was $15.9 million which reflects an increase in the
provision of doubtful accounts of $5.0 million, an increase in the Sprint PCS
management fee of $4.6 million (as a result of higher subscriber revenues in
2001), increased professional fees, including non-recurring costs related to
pursuing strategic business alternatives of $1.3 million, increased headcount
and professional services at Horizon Services, needed to support Horizon PCS'
growth, of $1.8 million, and other general expenses, including property and
franchise taxes, of $3.2 million. Chillicothe Telephone, Horizon Services and
Horizon Technology saw an increase of $1.5 million related to an increase in
billing support services, information technology and Horizon Technology's
administrative services.

Non-cash compensation expense. For the years ended December 31, 2001 and
2000, we recorded stock-based compensation expense of approximately $1.1 million
and $853,000, respectively. This compensation expense includes the amortization
of the value of stock options granted in 2000 and 1999 and approximately
$725,000 of expense recorded in connection with Horizon PCS' distribution of its
shares of Horizon Telcom stock to Horizon PCS employees as a bonus in 2001 and
$179,000 recorded in 2000 related to a bonus distribution of Horizon Telcom
stock to Horizon Telcom employees. All of the 2001 compensation expense
represents general and administrative expense. Stock-based compensation expense
will continue to be recognized through the conclusion of the vesting period for
the Company's stock options. The annual non-cash compensation expense expected
to be recognized for these stock options is approximately $413,000 in 2002,
$389,000 in 2003, $193,000 in 2004, and $71,000 in 2005.



45


Depreciation and amortization expense. Depreciation and amortization
expenses increased by $13.0 million to a total of $26.1 million in 2001. The
increase reflects the continuing construction of our network as we funded
approximately $116.6 million of PCS-related capital expenditures during 2001, as
well as an additional $16.0 million capital additions for VDSL and other
landline telephone services. In addition, because our acquisition of Bright PCS
was accounted for as a purchase transaction, amortization has increased as a
result of amortizing the intangible assets. Goodwill amortization will cease as
of December 31, 2001 with the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142. See "Recent Accounting Pronouncements" below.

Amortization expense also includes amortization of an intangible asset
recorded in September 2000 related to the new markets granted to us by Sprint
PCS. We agreed to grant warrants to purchase shares of Horizon PCS' common stock
to Sprint PCS in exchange for the right to provide service in additional
markets. The warrants will be issued to Sprint PCS at the earlier of an initial
public offering of Horizon PCS' common stock or July 31, 2003. The intangible
asset is being amortized over the remaining term of the Sprint PCS management
agreement, resulting in $752,000 of amortization expense per year. Amortization
expense related to this intangible asset was approximately $752,000 and $188,000
for the years ended December 31, 2001 and 2000, respectively.

Interest expense, net. Interest expense for the year ended December 31,
2001, was $29.6 million, compared to $12.2 million in 2000. The increase in
interest expense is the result of our additional debt outstanding during the
year ended December 31, 2001, compared to 2000.

Interest expense on Chillicothe Telephone's line of credit and term loans
was $2.4 million during 2001. Additional draws on Chillicothe Telephone's line
of credit during 2001 is reflected in the increase in interest expense of
$700,000 compared to 2000. Chillicothe Telephone's line of credit accrues
interest on the outstanding balance at a fluctuating rate tied to the LIBOR rate
(3.63% at December 31, 2001, based on LIBOR plus 155 basis points) and is due
and payable monthly. The outstanding balance on the line of credit at December
31, 2001, was $19.2 million compared to $12.8 million at December 31, 2000. At
December 31, 2001, the balance on Chillicothe Telephone's term loans was $20.0
million including current maturities and the weighted average rate was 6.66%.

Interest on the outstanding balance of Horizon PCS' secured credit facility
accrues at LIBOR plus a specified margin. On June 29, 2001, Horizon PCS agreed
to several changes in the secured credit facility including a 25 basis point
increase in the annual interest rate. At December 31, 2001, the interest rate on
Horizon PCS' secured credit facility was approximately 6.16%. Interest expense
on the secured credit facility was $4.8 million and $1.2 million during 2001 and
2000 respectively.

Horizon PCS is required, and expects, to borrow an additional $105.0
million by March 26, 2002, under the terms of the secured credit facility. The
interest rate on the tranche that must be drawn by March 26, 2002, will be LIBOR
plus 375 basis points (5.66% at December 31, 2001).

Horizon PCS accrues interest at a rate of 14.00% per annum on its discount
notes through October 1, 2005, and will pay interest semi-annually in cash
thereafter. Unaccreted interest expense on the discount notes was $135.9 million
at December 31, 2001. Interest expense on the discount notes was $23.8 million
and $5.1 million during 2001 and 2000, respectively.

On June 15, 2002, Horizon PCS will begin making semi-annual interest
payments on its senior notes issued in December 2001 at an annual rate of
13.75%. Interest expense on the senior notes was $1.5 million during 2001.

Interest expense also includes approximately $1.1 million and $1.0 million
in 2001 and 2000, respectively, of amortization from the deferred financing fees
related to our secured credit facility, our discount notes and our senior notes.
Also contributing to the increase in interest expense during 2001 was $2.8
million in commitment fees we paid on the unused portion of our secured credit
facility.

The increase in interest expense as a result of our additional indebtedness
was somewhat offset by capitalized interest related to our network build-out.
Capitalized interest during 2001 and 2000 was $6.8 million and $1.7 million,
respectively. We expect our interest expense to increase in the future as we
borrow under our secured credit facility to fund our network build-out and
operating losses.



46


Subsidiary preferred stock dividends. Horizon PCS' convertible preferred
stock pays a stock dividend at the rate of 7.5% per annum, payable
semi-annually, commencing April 30, 2001. On May 1, 2001 we issued an additional
1,163,051 shares of preferred stock in payment of the stock dividend through
April 30, 2001. On November 1, 2001, we issued 1,021,882 shares of preferred
stock in payment of the stock dividend through October 31, 2001.

Interest income and other, net. Interest income and other in 2001 was $3.9
million and consisted primarily of interest income, offset by a loss on disposal
of Horizon PCS' assets. Interest income was generated from the short-term
investment of cash proceeds from Horizon PCS' private equity sales, discount
notes and drawings under the secured credit facility, all completed on September
26, 2000. Additionally, in conjunction with Horizon PCS' offering of $175.0
million in senior notes in December 2001, Horizon PCS was required to escrow
approximately $48.7 million of the proceeds (in an interest-bearing account) for
the first four interest payments due under the notes' terms. Horizon PCS
recorded $69,000 of interest income on the escrow funds.

During 2001, Horizon PCS incurred a loss of approximately $1.3 million
related to the upgrade of network equipment to 3G technology. The loss
represents the net book value of the assets disposed of, less proceeds received
for the equipment. We expect to incur additional expenses in 2002 as we continue
to upgrade our network.

Income tax (expense) benefit. We recorded an income tax expense from
continuing operations of approximately $1.8 million for the year ended December
31, 2001. Before September 26, 2000, Horizon PCS was included in the
consolidated Federal income tax return of Horizon Telcom. Horizon PCS provided
for Federal income taxes on a pro-rata basis, consistent with a consolidated
tax-sharing agreement. As a result of the sale of the convertible preferred
stock on September 26, 2000, Horizon PCS will not be able to participate in the
tax-sharing agreement nor will Horizon Telcom be able to recognize any net
operating loss benefits from Horizon PCS. Thus, Horizon PCS has filed a separate
Federal income tax return for the short period after deconsolidation through
December 31, 2000, and will file a separate return for all subsequent periods.
We expect to continue to record income tax expense as a result of this tax
deconsolidation, because the remaining members of the consolidated group
generate net taxable income.

Minority interest in loss. As part of the acquisition of Bright Personal
Communication Services, LLC (Bright PCS), the former members of Bright PCS have
approximately an 8% ownership in Horizon PCS, excluding the impact of the
possible conversion of convertible preferred stock and exercise of options and
warrants. Horizon Telcom accounts for this ownership by recording the portion of
net income (loss) attributable to the minority shareholders as minority interest
in earnings (loss) in the accompanying consolidated statement of operations. For
the year ended December 31, 2001, approximately $1.0 million of the net loss for
the year was allocated to the minority interest, reducing the minority interest
balance to zero. There will not be any further allocations to minority interests
until such time as Horizon PCS becomes profitable and any unallocated losses to
minority interests are offset with income in future periods.

Loss before extraordinary items. Our loss before extraordinary items for
the year ended December 31, 2001 was $118.8 million compared to $44.2 million
for the year ended December 31, 2000. The increase in our loss reflects the
continued expenses related to launching Horizon PCS' markets and building our
PCS customer base.

Extraordinary loss. As a result of the September 26, 2000, financings,
Horizon PCS retired long-term debt payable to financial institutions. As a
result of the debt extinguishment, we expensed the unamortized portion of the
related financing costs, as well as fees associated with the debt
extinguishments. These fees and expenses amounted to $748,000 and are shown on
the statement of operations net of a tax benefit of $262,000.

Other comprehensive income (loss). During 2001, the Company recorded an
unrealized gain, net of associated tax, of $2.2 million on its investment in
marketable securities classified as available-for-sale. This gain reflects the
increased market value at December 31, 2001, which exceeded its cost. This
investment can fluctuate in value.

In the first quarter of 2001, Horizon PCS entered into a two-year interest
rate swap effectively fixing $25.0 million of our term loan borrowed under the
secured credit facility at a rate of 9.4%. In the third quarter of 2001, Horizon
PCS entered into another two-year interest rate swap effectively fixing the
remaining $25.0 million of our term loan borrowed under the secured credit
facility at 7.65%. A loss of approximately $838,000 was recorded in other
comprehensive income (loss) during the year ended December 31, 2001. The Company
also recognized a loss in the consolidated statement of operations of


47


approximately $176,000 during 2001 related to the ineffectiveness of the hedge.
Other comprehensive income may fluctuate based on changes in the fair value of
the swap instrument.

Year Ended December 31, 2000, Compared to Year Ended December 31, 1999

Operating Revenues

Landline telephone services




2000 1999 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)
Basic local, long-distance and other landline.. $ 20,320 $ 19,800 $ 520 3%
Network access................................. 17,276 17,509 (233) (1%)

Landline telephone services were essentially flat to the comparable prior
year period.

Wireless Personal Communications Services






2000 1999 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)

PCS service revenues........................... $ 26,110 $ 4,295 $ 21,815 508%
PCS equipment revenues......................... 3,061 600 2,461 410%



The growth in service revenues is the result of the growth in our customer
base as well as an increase in travel revenue. Subscriber revenues increased
$14.0 million for the year ended 2000. We managed approximately 66,400 customers
at December 31, 2000, compared to approximately 13,700 at December 31, 1999. We
believe our customer base has grown because we have launched additional markets
and increased our sales force.

Roaming revenues increased $7.8 million in 2000 compared to 1999. This
increase primarily resulted from the launch of portions of our network covering
two heavily traveled interstate highways in western Virginia in the fourth
quarter of 1999, as well as our launch of our northwest Ohio and northern
Indiana markets in the fourth quarter of 2000. We expect continued increases in
Sprint PCS roaming revenues attributable to volume as we complete the remainder
of our network build-out, including completing other portions of our network
covering additional heavily traveled highways. These volume-based increases in
roaming revenues may be offset in large measure over the next two years by the
expected reduction in the per minute Sprint PCS roaming rate.

PCS ARPU excluding roaming decreased from the year ended December 31, 1999,
to the year ended December 31, 2000, primarily as a result of the change in the
mix of the packages our subscribers have selected. During 2000, our subscribers
selected packages with lower monthly recurring charges made available to our
subscribers as a result of our seasonal promotions. The decrease caused by the
change in the mix of packages was partially offset by the increase in the
charges to our subscribers for minute sensitive usage (long distance and
overage) and the growth in our Sprint PCS roaming revenues. PCS ARPU including
roaming increased in the year ended December 31, 2000 as compared to the same
period in 1999, as a result of the increase in roaming revenue from customers
other than our own on our network. We expect PCS ARPU including roaming to
decrease due to the reduction in the Sprint PCS roaming rate.

PCS equipment revenues consist of handsets and accessories sold to
customers. The increase in equipment revenues is the result of our increase in
customers.



48




Other Revenues




2000 1999 $ change % change
----------- ----------- ------------ ----------
(Dollars in thousands)
Internet access services....................... $ 3,625 $ 3,136 $ 489 16%
Equipment systems, information services and
other revenues............................... 3,607 4,066 (459) (11%)




Internet access services increased from $3.1 million in 1999 to $3.6
million in 2000, an increase of $500,000 or 16%. The number of bright.net
customers increased during 2000, accounting for the increase in revenue.

Other revenue at Chillicothe Telephone decreased as business systems sales
decreased due to four large account sales in 1999 that did not recur in 2000. In
addition, Chillicothe Telephone's maintenance contract revenue decreased by
approximately $100,000.

Operating Expenses

Cost of goods sold. Cost of goods sold for the year ended December 31,
2000, was $10.5 million compared to $3.5 million for the year ended December 31,
1999, an increase of $7.0 million. The increase in the cost of goods sold is the
result of the growth in our wireless customers, partially offset by the
decreasing unit cost of the handsets. For competitive and marketing reasons, we
have sold handsets to our customers below our cost and expect to continue to
sell handsets at a price below our cost for the foreseeable future.

Chillicothe Telephone experienced reduced revenue for business system
sales, resulting in a lower cost of goods sold. This resulted in a reduction to
cost of goods sold in 2000 of approximately $400,000. The increase in PCS
handset cost of goods sold accounted for $7.4 million of the total cost of goods
sold increase. This was partially offset by the reduction in cost of goods sold
for the Chillicothe Telephone business system sales.

Cost of service. Cost of service for the year ended December 31, 2000, was
$41.5 million, compared to $18.5 million for the year ended December 31, 1999,
an increase of $23.0 million. Chillicothe Telephone's and Horizon Technology's
cost of service increased $3.7 million from the year ended December 31, 1999 to
the year ended December 31, 2000. This was a result of increased telephone and
network costs of $700,000, additional expenses at Horizon Technology related to
startup services for its consulting business, including Web design, of $600,000,
VDSL expenses of $800,000 resulting from the installation and startup of the
VDSL product, $500,000 from increased access line fees for bright.net Internet
service, and other miscellaneous expenses, including operator service fees,
maintenance and labor, regular telephone installation, and other expenses, which
increased in the aggregate by $1.1 million for the year ended 2000.

Horizon PCS' increase of $19.3 million reflects the increase in roaming
fees of $5.8 million, an increase in costs incurred under our network services
agreement with the Alliances of $6.7 million, additional costs for rent expense
for the additional towers leased of $1.5 million, additional customer care
support of $2.7 million and network operational and payroll expenses of $2.6
million.

Selling and marketing expenses. Selling and marketing expenses rose to
$19.6 million for the year ended December 31, 2000, compared to $5.6 million for
1999, an increase of $14.0 million. Of the increase, $14.5 million was related
to Horizon PCS, while Chillicothe Telephone and Horizon Technology decreased by
$500,000. The $500,000 decrease relates primarily to lower advertising incurred
during 2000.

Horizon PCS' increase in selling and marketing of $14.5 million reflects
the increase in the costs of operating our 16 retail stores of $7.7 million, the
increase in subsidies on handsets sold by third parties of $4.0 million, and the
increase in commissions paid to third parties of $2.8 million.

General and administrative expenses. General and administrative expenses
rose by $8.8 million to $25.6 million for the year ended December 31, 2000,
compared to the year ended December 31, 1999. Horizon PCS' increase was $8.6
million. This increase reflects the 8% fee paid to Sprint PCS on our increased
collected service revenues of $1.2 million, increased headcount and professional


49


services at Horizon Services needed to support our growth of $3.6 million,
increased building and maintenance expenses of $1.4 million, consulting, legal
and bank fees of $900,000, an increase in the provision for doubtful accounts of
$1.0 million, and increased other general expenses of $500,000. The remaining
$200,000 increase from Chillicothe Telephone reflects increased consulting and
general and administrative expenses.

Non-cash compensation expense. For the years ended December 31, 2000 and
1999, we recorded stock-based compensation expense of $674,000 and $2,700,
respectively, for the amortization of the value of stock options granted in 2000
and 1999 and approximately $179,000 of expense recorded in conjunction with the
distribution of Horizon Telcom stock to its employees as a bonus in 2000.
Approximately $100,000 of this expense in 2000 was related to cost of services
and the remainder represents general and administrative expense. Stock-based
compensation expense will continue to be recognized through the conclusion of
the vesting period of the stock options.

Depreciation and amortization expense. Depreciation and amortization
expenses increased by $3.5 million to a total of $13.1 million in 2000. The
increase reflects the continuing construction of our PCS network as well as
capital additions for VDSL and other telephone services. Because our acquisition
of Bright PCS was accounted for as a purchase transaction, amortization will
increase as a result of amortizing the related goodwill and intangible assets.

At September 30, 2000, Horizon PCS recorded an intangible asset of $13.4
million for the value of warrants we agreed to grant to Sprint in exchange for
the right to provide service in additional markets. This intangible asset will
be amortized over the remaining term of the Sprint PCS management agreement,
resulting in $752,000 of amortization expense per year. Amortization expense
related to the intangible asset was approximately $188,000 for the year ended
December 31, 2000.

Interest expense, net. Aggregate interest expense for the year ended
December 31, 2000 was $12.2 million, compared to $3.6 million in 1999. The
increase in interest expense is the result of our additional debt outstanding
during the year ended December 31, 2000, compared to the same period in 1999. We
expect our interest expense to increase in the future as we borrow under our
senior credit facility to fund our network build out and operating losses.

Chillicothe Telephone's line of credit resulted in additional interest
expense of $100,000 in 2000. Chillicothe Telephone's line of credit accrues
interest on the outstanding balance at a fluctuating rate tied to the LIBOR rate
(8.3% as of December 31, 2000) and is due and payable monthly. The outstanding
balance at December 31, 2000, was $12.8 million.

Horizon PCS incurred approximately $2.0 million of interest expense from
the secured credit facility entered into in September 2000. Interest on the
Horizon PCS secured credit facility accrues at LIBOR plus a specified margin
(the rate was approximately 10.6% at December 31, 2000). Horizon PCS accrues
interest at a rate of 14% per annum on our discount notes through October 1,
2005, and will pay interest semi-annually in cash thereafter. Non-cash interest
expense also included the amortized amount of deferred financing fees related to
the Horizon PCS secured credit facility, the Horizon PCS discount notes and the
accretion of the discount related to the Horizon PCS discount notes. Total
non-cash interest expense for the year ended December 31, 2000, was $6.5 million
compared to $4,700 for the same period in 1999. In addition, the $13.0 million
short-term convertible note issued to obtain funds used to purchase common stock
of Horizon Telcom resulted in an increase in interest expense of $1.1 million.
This convertible note was converted into Horizon PCS preferred stock in
September 2000.

Subsidiary preferred stock dividend. Horizon PCS convertible preferred
stock pays a stock dividend at the rate of 7.5% per annum, payable semi-annually
commencing April 30. For the year ended December 31, 2000, we recorded the
accrual of a stock dividend payable in additional convertible preferred stock of
$2.8 million.

Interest income and other, net. Interest income and other in 2000 was $4.7
million and consisted primarily of interest income of approximately $4.4 million
and other miscellaneous income of approximately $300,000. Interest income was
generated from cash proceeds from Horizon PCS' private equity sales, discount
notes and drawings under Horizon PCS' secured credit facility, all completed on
September 26, 2000. In 2000, the proceeds were invested in short-term accounts


50


waiting to be deployed. As capital expenditures are made to complete the
build-out of our network, decreasing cash balances may result in lower daily
interest income in the future.

During 1999, in connection with entering the network services agreement
with the Alliances, we sold certain PCS ancillary and base station equipment to
the Alliances. The sale resulted in a gain of approximately $1.4 million,
representing the excess of cash proceeds over the historical net book value of
the assets sold.

Income tax benefit. We recorded an income tax benefit from continuing
operations of approximately $900,000 for the year. This benefit was primarily
the result of the Company's net operating loss offset by our recognition of an
excess loss account related to the deconsolidation of Horizon PCS from the
Horizon Telcom affiliated group and an increase in the valuation allowance. A
valuation allowance of $2.6 million was recorded in 2000 to the extent that
Horizon PCS' deferred tax assets exceeded its deferred tax liabilities at
December 31, 2000.

In connection with Horizon PCS' acquisition of Bright PCS, a tax of $3.7
million was generated based on the excess of the fair value of the Company's
stock over Horizon PCS' cost basis in the stock. The tax on the exchange of the
stock was charged directly to equity and not recorded as income tax expense.

We generated a tax of $4.6 million on a stock dividend of 10% of Horizon
Telcom stock held by Horizon PCS to Horizon Telcom. The tax on the stock
dividend was charged directly to equity and not recorded as an income tax
expense.

Minority interest in loss. As part of the acquisition of Bright Personal
Communication Services, LLC (Bright PCS), the former members of Bright PCS have
approximately an 8% ownership in Horizon PCS, excluding the impact of the
possible conversion of convertible preferred stock and the exercise of options
and warrants. Horizon Telcom accounts for this ownership by recording the
portion of net income (loss) attributable to the minority shareholders as
minority interest in earnings (loss) in the accompanying consolidated statement
of operations. For the year ended December 31, 2000, approximately $2.3 million
of the net loss for the year was allocated to the minority interest. As of
December 31, 2000, the minority interest in Horizon PCS in the consolidated
balance sheet was approximately $900,000. Horizon Telcom will continue to
allocate a portion of net losses to minority interest until it is reduced to
zero. There would be no further allocations to minority interests until such
time as Horizon PCS becomes profitable and any unallocated losses to minority
interests are offset with income in future periods.

Loss before extraordinary items. Our loss before extraordinary items for
the year ended December 31, 2000, was $44.2 million compared to $4.5 million for
the year ended December 31, 1999. The increase in our loss reflects the
continued expenses related to launching Horizon PCS' markets and building our
customer base.

Extraordinary loss. As a result of the September 26, 2000, financings
described earlier, we retired long-term debt payable to financial institutions.
As a result of this debt extinguishment, we expensed the unamortized portion of
the related financing costs as well as fees associated with the debt
extinguishments. These fees and expenses amounted to $748,000 and are shown on
the statement of operations net of a tax benefit of $262,000.

Liquidity and Capital Resources

In 1996, Horizon Telcom was formed as part of a reorganization of
Chillicothe Telephone and several of its affiliates. Since that time, Horizon
Telcom has met its needs for capital primarily by borrowing, by selling selected
businesses and assets, and by funds generated from operations. In 2000, Horizon
Telcom also formed Horizon PCS, to which it transferred its subsidiary Horizon
Personal Communications. In June 2000, Horizon PCS acquired the remaining 74% of
Bright PCS. Horizon PCS also entered into several major financing transactions
in September 2000 and December 2001.

On September 26, 2000, an investor group led by Apollo Management purchased
$126.5 million of Horizon PCS' convertible preferred stock in a private
placement. Concurrent with the closing, the holder of Horizon PCS' $14.1 million
short-term convertible note (including accrued interest of $1.1 million)
converted the note into the same convertible preferred stock purchased by the
investor group.



51


On September 26, 2000, Horizon PCS received $149.7 million from the
issuance of $295.0 million of senior discount notes due October 1, 2010 (the
"discount notes"). The discount notes accrete in value until October 1, 2005, at
a rate of 14.00% compounded semi-annually. The discount notes do not require us
to pay cash interest until the fifth year after they are issued, at which point
we will pay semi-annual interest until maturity. The discount notes are general
unsecured obligations and are guaranteed by our existing and future domestic
restricted subsidiaries. The guarantees are senior subordinated obligations of
our existing and future domestic restricted subsidiaries. The rights of the
holders of our discount notes to receive payments pursuant to the guarantees are
subordinated in right of payment to the holders of our existing and future
senior indebtedness, including our $250.0 million secured credit facility
described below.

Also on September 26, 2000, Horizon PCS received $50.0 million as part of a
$225.0 million secured credit facility with a bank group led by First Union
National Bank. The borrowing capacity of the secured credit facility was
increased to $250.0 million in November 2000. The secured credit facility
consists of the following two loans:

o a $155.0 million term loan, available in a $50.0 million tranche and a
$105.0 million tranche, under which we may borrow to finance (i) the
direct cost of the construction and operation of a regional digital
wireless telecommunications network on the Sprint PCS system; (ii)
transaction costs and expenses; and (iii) working capital and other
general corporate purposes; and

o a $95.0 million revolving credit facility, the proceeds of which may
be used to fund working capital.

The $50.0 million tranche was drawn on September 26, 2000, and had an
interest rate of 6.16% at December 31, 2001. As required, we drew the remaining
$105.0 million tranche in March, 2002. The interest rate on the $105.0 million
tranche, which had not been drawn as of December 31, 2001, was 5.66% at December
31, 2001.

On June 29, 2001, and December 7, 2001, Horizon PCS amended its secured
credit facility with the bank group. These modifications amended and restated
certain financial covenants, including EBITDA (earnings before interest, taxes,
depreciation and amortization) and revenue thresholds and imposed limitations on
capital expenditures. The June 2001 amendment also increased the base interest
rate by 25 basis points to LIBOR plus 375 to 425 basis points.

Horizon PCS' secured credit facility includes financial covenants that must
be met each quarter. Horizon PCS complied with these covenants at December 31,
2001. There is a likelihood, however, that it will not meet the covenant for
EBITDA for the first quarter of 2002. Although financial results for the end of
the first quarter are not final, subscriber information to date indicates
significantly higher than expected gross and net additions to Horizon PCS
subscribers for the quarter. Although Horizon PCS ultimately benefits from the
revenues generated by new subscribers, Horizon PCS incurs one-time expenses
associated with new subscribers, including commissions, handset subsidies, set
up costs for the network and marketing expenses. As a result, these new
subscriber costs negatively affect Horizon PCS' EBITDA in the short-term during
the period of the addition of new subscribers which could lead to non-compliance
with the EBITDA covenant for the first quarter of 2002.

We have initiated discussions with the lead bank in our lending group
concerning a possible non-compliance with the covenant. After quarter-end, if
the financial statements show a non-compliance, we intend to immediately enter
into negotiations with the bank group to obtain a waiver of the non-compliance
and amendments to the covenants.

The failure to comply with the covenant would be an event of default under
our secured credit facility, and would give the lenders the right to pursue
remedies. These remedies could include acceleration of amounts due under the
facility. If the lender elected to accelerate the indebtedness under the
facility, this would also represent a default under the indentures for our
senior notes and discount notes. If we fail to comply with the covenant, one
option available to us would be to prepay the indebtedness under the secured
credit facility, together with prepayment fees. If we prepaid the facility prior
to acceleration, we would avoid default under the indentures for our senior
notes and discount notes. In the event of such a prepayment, we believe that we
could obtain replacement financing to the extent necessary to fund our business
plan. There can be no assurance, however, that we could obtain adequate or
timely replacement financing on acceptable terms or at all.

On December 7, 2001, Horizon PCS received $175.0 million from the issuance
of unsecured senior notes (the "senior notes") due on June 15, 2011. Interest is
paid semi-annually on June 15 and December 15 at 13.75% annually, with interest


52


payments commencing June 15, 2002. Approximately $48.7 million of the offering's
proceeds were placed in an escrow account to fund the first four semi-annual
interest payments.

During the year ended December 31, 2000, Horizon PCS borrowed $13.0 million
in the form of a short-term convertible note to purchase 19.78% of the
outstanding capital stock of Horizon Telcom. The $14.1 million total of
principal and accrued interest on this note was converted into 2.6 million
shares of convertible preferred stock on September 26, 2000. In May 2000,
Horizon PCS exchanged 31,912 shares of Horizon Telcom common stock, which
Horizon PCS acquired in February 2000, along with 4.7 million newly issued
shares of Horizon PCS class B common stock, for the remaining 74% ownership
interest in Bright PCS which Horizon PCS did not previously own.

The following table summarizes contractual principal maturities of
long-term debt outstanding (which is recorded net of unaccreted interest on the
balance sheet) and minimum payments required under operating leases and other
long-term commitments as of December 31, 2001:




Long-Term
Debt and Alliances
Current Operating Network
Year Maturities Leases Agreement Total
- ---- --------------- ------------- --------------- -------------
2002................$..2,000,000 $ 15,031,000 $ 27,400,000 $ 44,431,000
2003...................2,000,000 14,177,000 38,600,000 54,777,000
2004...................2,375,000 12,689,000 -- 15,064,000
2005...................2,500,000 9,389,000 -- 11,889,000
2006.....................500,000 4,891,000 -- 5,391,000
Thereafter...........530,625,000 9,102,000 -- 539,727,000
----------- --------- --------------- ---------------
Total...........$.540,000,000 $ .65,279,000 $ 66,000,000 $ 671,279,000
============= ============= =============== ===============


At December 31, 2001, we had cash and cash equivalents of $127.2 million
and working capital of $100.8 million. At December 31, 2000, we had cash and
cash equivalents of $192.0 million and working capital of $153.3 million. The
decrease in cash and cash equivalents of $64.8 million is attributable to
funding our loss from continuing operations of $118.8 million (this loss also
includes certain non-cash charges) and funding our capital expenditures of
$132.5 million for the year ended December 31, 2001.

Net cash used in operating activities was $56.8 million for the year ended
December 31, 2001. This reflects the continuing use of cash for our operations
to build our Horizon PCS customer base, including but not limited to providing
service in our markets and the costs of acquiring a new customer. For the years
ended December 31, 2001 and 2000, our cost per gross additional customer was
approximately $339 and $373, respectively. The net loss of $118.8 million was
partially offset by various noncash charges, including depreciation, and noncash
interest.

Net cash used in investing activities was $178.3 million for the year ended
December 31, 2001, reflecting the continuing build-out of the Horizon PCS
network as well as the deployment of capital necessary to offer VDSL service. At
December 31, 2001, we operated approximately 604 cell sites in our PCS network.
This represents an addition of approximately 301 sites during 2001. In addition
to the sites, we have increased the number of switching stations in our
territory and have increased our number of retail stores from 16 at the end of
2000 to 38 at December 31, 2001. We will incur additional capital expenditures
as we complete the build-out of our networks, including the launch of additional
PCS retail stores, completing additional cell sites and expanding capacity at
our switches as needed. The investment of restricted cash of $48.7 million
relates to the escrow funds required by the terms of the senior notes discussed
above.

Net cash provided by financing activities for the year ended December 31,
2001, was $170.2 million consisting primarily of the $175.0 million raised in
the December 2001 senior notes offering and $6.4 million of additional
borrowings under Chillicothe Telephone's line of credit, offset by $2.0 million
of payments on Chillicothe Telephone's senior notes and dividends paid of $1.8
million. In addition, Horizon PCS paid approximately $7.4 million of financing
fees related to both their senior notes offering and the amendments to the
secured credit facility on June 29, 2001, and December 7, 2001.



53


From January 1, 2002, to December 31, 2002, we anticipate that our funding
needs requirements will be approximately $155.0 million, of which approximately
$70 million to $85 million will be used for capital expenditures; the remainder
will be utilized primarily to fund working capital, cash interest expense and
operating losses. The actual funds required to build-out our PCS network and to
fund operating losses, working capital needs and other capital needs may vary
materially from these estimates and additional funds may be required because of
unforeseen delays, cost overruns, unanticipated expenses, regulatory changes,
engineering design changes and required technological upgrades and other
technological risks.

Other future cash expenditures that may require additional borrowings
include:

o expanding the PCS coverage within our existing operating markets or
improving call quality with fill-in coverage;

o opening additional PCS retail stores, beyond our current plan of 50
stores;

o mergers or acquisitions of other Sprint PCS affiliates or other
compatible PCS carriers;

o the grant to us by Sprint PCS of additional markets under our Sprint
PCS agreements; and/or

o expanding our PCS network, if economically justifiable, by exercising
our right to build our own network in our markets which are covered by
our network services agreement with the Alliances under the terms of
that amended agreement.

If we are unable to obtain necessary additional funding and we are unable
to complete our PCS network build-out, this may result in the termination of
Horizon PCS' agreement with Sprint PCS. We will no longer be able to offer
Sprint PCS products and services. In this event, Sprint PCS may purchase Horizon
PCS' operating assets or capital stock for 72% of the "Entire Business Value" as
defined by the Sprint PCS agreements. Also, any delays in our build-out may
result in penalties under our Sprint PCS agreement, as amended.

The Company has significant related party transactions that are described
under "ITEM 13. Certain Relationships and Related Transactions."

Regulatory Developments

See "Local Telephone Services - Regulation of Chillicothe Telephone's Local
Exchange Carrier Business" and "Wireless Personal Communications Services -
Regulation of the Wireless Telecommunications Industry" under "ITEM 1. Business"
for discussions of regulatory developments that could have a future impact on
us.

Seasonality

Our local and long-distance telephone, Internet and data services
businesses are not subject to seasonal influences. Our wireless telephone
business is subject to seasonality because the wireless industry is heavily
dependent on calendar fourth quarter results. Among other things, that industry
relies on significantly higher customer additions and handset sales in the
calendar fourth quarter as compared to the other three calendar quarters. A
number of factors contribute to this trend, including:

o the increasing use of retail distribution, which is more dependent
upon the year-end holiday shopping season;

o the timing of new product and service announcements and introductions;

o competitive pricing pressures; and

o aggressive marketing and promotions.



54


Inflation

We believe that inflation has not had an adverse effect on our results of
operations.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 addresses financial accounting and reporting
for all business combinations and requires that all business combinations
entered into subsequent to June 2001 be recorded under the purchase method. This
statement also addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination at acquisition. SFAS
No. 142 addresses financial accounting and reporting for intangible assets
acquired individually or with a group of other assets at acquisition. This
statement also addresses financial accounting and reporting for goodwill and
other intangible assets subsequent to their acquisition. These statements will
be adopted by the Company on January 1, 2002.

Goodwill amortization will cease as of December 31, 2001, and the Company
will be required to complete an impairment test of the remaining goodwill
balance annually (or more frequently if impairment indicators arise). The
Company has not yet determined the financial impact the adoption of these
pronouncements will have on its financial position or results of operations. As
of December 31, 2001, Horizon PCS has goodwill of approximately $7.2 million net
of accumulated expense during 2001. The valuation of this goodwill would be
subject to an impairment test at the date of adoption. The Company will complete
the first step of the impairment test by June 30, 2002 and, if necessary, will
complete the second step by December 31, 2002.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirements of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset. The Company will adopt this statement effective January 1,
2003. The adoption is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets. The statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30. SFAS No. 144 removes goodwill from its scope,
as goodwill is addressed in the impairment test described above under SFAS No.
142. The Company will adopt SFAS No. 144 on January 1, 2002. The adoption is not
expected to have a material effect on the Company's financial position, results
of operations or cash flows.



55



RISK FACTORS

You should carefully consider the risks described below in evaluating our
businesses.

RISKS RELATED TO CHILLICOTHE TELEPHONE, LONG DISTANCE AND INTERNET BUSINESS

The information set forth under this heading describes risk factors
relating to the business of our wholly-owned subsidiaries the Chillicothe
Telephone Company, Horizon Technology and Horizon Services. References under
this heading to "we," "us" and "our" are to those subsidiaries.

Significant competition in telecommunications services in our markets may cause
us to lose customers.

We face, or will face, significant competition in the markets in which we
currently provide local telephone, long distance, data and Internet services.
Many of our competitors are substantially larger and have greater financial,
technical and marketing resources than we do. In particular, larger competitors
have certain advantages over us, which could cause us to lose customers and
impede our ability to attract new customers, including:

o long-standing relationships and greater name recognition with
customers;

o financial, technical, marketing, personnel and other resources
substantially greater than ours;

o more capital to deploy services; and

o potential to lower prices of competitive services.

These factors place us at a disadvantage when we respond to our
competitors' pricing strategies, technological advances and other initiatives.
Additionally, our competitors may develop services that are superior to ours or
that achieve greater market acceptance.

We face competition from other current and potential market entrants,
including:

o domestic and international long distance providers seeking to enter,
re-enter or expand entry into our local communications marketplace;

o other domestic and international competitive communications providers,
resellers, cable television companies and electric utilities; and

o providers of broadband and Internet services.

A continuing trend toward combinations and strategic alliances in the
communications industry could give rise to significant new competitors. This
could cause us to lose customers and impede our ability to attract new
customers.

We may not be able to successfully integrate new technologies or respond
effectively to customer requirements.

The communications industry is subject to rapid and significant changes in
technology, frequent new service introductions and evolving industry standards.
We cannot predict the effect of these changes on us or our industry.
Technological developments may reduce the competitiveness of our networks and
require unbudgeted upgrades or the procurement of additional products that could
be expensive and time consuming. If we fail to adapt successfully to
technological changes or obsolescence or fail to obtain access to important new
technologies, we could lose customers and be limited in our ability to attract
new customers.


56


If our back office and customer care systems are unable to meet the needs of our
customers, we may lose customers.

Sophisticated back office processes and information management systems are
vital to our anticipated growth and our ability to achieve operating
efficiencies. We are dependent on third-party vendors for billing, service and
customer support systems. We cannot assure you that these systems will perform
as expected as we increase our number of customers. If they fail to perform as
expected, we could lose customers. The following could prevent our back office
and customer care systems from meeting the needs of our customers:

o failure of third-party vendors to deliver products and services in a
timely manner at acceptable costs;

o our failure to identify key information and processing needs;

o our failure to integrate products or services effectively;

o our failure to upgrade systems as necessary; or

o our failure to attract and retain qualified systems support personnel.

Furthermore, as our suppliers revise and upgrade their hardware, software
and equipment technology, we could encounter difficulties in integrating this
new technology into our business or find that such new hardware, software and
technology is not appropriate for our business. In addition, our right to use
such hardware, software and technology depends upon license agreements with
third party vendors. Vendors may cancel or elect not to renew some of these
agreements, which may adversely affect our business.

Because we operate in a heavily regulated industry, changes in regulation could
have a significant effect on our revenues and compliance costs.

We are subject to significant regulation that could change in a manner
adverse to us. We operate in a heavily regulated industry, and the majority of
our revenues generally have been supported by regulations, including in the form
of support for the provision of telephone services in rural areas. Laws and
regulations applicable to us and our competitors may be, and have been,
challenged in the courts, and could be changed by Congress or regulators at any
time. In addition, any of the following have the potential to have a significant
impact on us:

Risk of loss or reduction of network access charge revenues. Approximately
12% of the Company's total revenues in 2001 came from network access
charges, which are paid to us by intrastate carriers and interstate long
distance carriers for originating and terminating calls in the regions we
serve. The amount of access charge revenues that we receive is calculated
based on guidelines set by federal and state regulatory bodies, and such
guidelines could change at any time. The FCC continues to reform the
federal access charge system. States often mirror these federal rules in
establishing intrastate access charges. It is unknown at this time how
changes to the FCC's access charge regime will affect us. Federal policies
being implemented by the FCC strongly favor access charge reform, and our
revenues from this source could be at risk. Regulatory developments of this
type could adversely affect our business.

Risk of loss or reduction of Universal Service Support. We receive
Universal Service Support Fund, or USSF, revenues to support the high cost
of our operations in rural markets. If Chillicothe Telephone were unable to
receive support from the Universal Service Support Fund, or if such support
was reduced, Chillicothe Telephone would be unable to operate as profitably
as before such reduction.

In addition, potential competitors generally cannot, under current laws,
receive the same universal service support enjoyed by Chillicothe
Telephone. Chillicothe Telephone therefore enjoys a significant competitive
advantage, which could, however, be removed by regulators at any time. The
Telecom Act provides that competitors could obtain the same support as we
do if the Public Utilities Commission of Ohio determines that granting such
support to competitors would be in the public interest. If such universal
service support were to become available to potential competitors, we might
not be able to compete as effectively or otherwise continue to operate as
profitably in our Chillicothe Telephone markets. Any shift in universal
service regulation could, therefore, have an adverse effect on our
business.

57



The method for calculating the amount of such support could change in 2002.
It is unclear whether the chosen methodology will accurately reflect the
costs incurred by Chillicothe Telephone, and whether it will provide for
the same amount of universal service support that Chillicothe Telephone
enjoyed in the past. The outcome of any of these proceedings or other
legislative or regulatory changes could affect the amount of universal
service support that we receive, and could have an adverse effect on our
business.

Risk of loss of protected status under interconnection rules. Chillicothe
Telephone takes the position that it does not have to comply with the
Telecom Act's more burdensome requirements governing the rights of
competitors to interconnect to our traditional telephone companies'
networks due to our status as a rural telephone company. If state
regulators decide that it is in the public's interest to impose these
interconnection requirements on us, more competitors could enter our
traditional telephone markets than are currently expected and we could
incur additional administrative and regulatory expenses as a result of such
newly imposed interconnection requirements.

Risks posed by costs of regulatory compliance. Regulations create
significant compliance costs for us. Our subsidiary that provides
intrastate services is also generally subject to certification, tariff
filing and other ongoing regulatory requirements by state regulators.
Challenges to these tariffs by regulators or third parties could cause us
to incur substantial legal and administrative expenses.

Regulatory changes in the telecommunications industry involve
uncertainties, and the resolution of these uncertainties could adversely affect
our business by facilitating greater competition against us, reducing potential
revenues or raising our costs.

The Telecom Act provides for significant changes in the telecommunications
industry, including the local telecommunications and long distance industries.
This federal statute and the related regulations remain subject to judicial
review and additional rulemakings of the FCC, thus making it difficult to
predict what effect the legislation will have on us, our operations and our
competitors. Several regulatory and judicial proceedings have recently
concluded, are underway or may soon be commenced, that address issues affecting
our operations and those of our competitors, which may cause significant changes
to our industry. We cannot predict the outcome of these developments, nor can we
assure that these changes will not have a material adverse effect on us.

RISKS RELATED TO HORIZON PCS, OUR WIRELESS PERSONAL COMMUNICATIONS SERVICES
BUSINESS

The information set forth under this heading describes risk factors
relating to the business of our majority-owned subsidiary Horizon PCS.
References under this heading to "we," "us" and "our" are to Horizon PCS.

We have not had any profitable years in the past five years and we may not
achieve or sustain operating profitability or positive cash flow from operating
activities.

At Horizon PCS, we expect to incur significant operating losses and to
generate significant negative cash flow from operating activities until 2003
while we continue to construct our network and grow our customer base. We have
already incurred a total of approximately $201.3 million in losses through
December 31, 2001. Our operating profitability will depend upon many factors,
including our ability to market our services, achieve our projected market
penetration and manage customer turnover rates. If we do not achieve and
maintain operating profitability and positive cash flow from operating
activities on a timely basis, we may not be able to meet our debt service
requirements, and Horizon Telcom could lose all or part of its investment in
Horizon PCS.

If we fail to complete the build-out of our network, Sprint PCS may terminate
the Sprint PCS agreements, and we would no longer be able to offer Sprint PCS
products and services from which we generate substantially all our revenues.

Our long-term affiliation agreements with Sprint PCS, which we refer to as
the Sprint PCS agreements, require us to build and operate the portion of the
Sprint PCS network located in our territory in accordance with Sprint PCS'
technical specifications and coverage requirements. The agreements also require
us to provide minimum network coverage to the population within each of the
markets which make up our territory by specified dates. Under the terms of our
Sprint PCS agreements, we are required to provide additional coverage in
specified markets by April 28, 2002.


58


We did not launch all of our Bright PCS markets by the date set forth in
the Sprint PCS agreements. We were unable to obtain the required backhaul from
local exchange carriers by that date, despite using commercially reasonable
efforts. We have subsequently obtained the required backhaul services and
launched these markets and Sprint PCS agreed in writing that we are in
compliance with the build-out requirements in these markets.

Under our original Sprint PCS agreements, we were required to complete the
build-out in several of our markets in Pennsylvania and New York by December 31,
2000. Sprint PCS and HPC agreed to an amendment of the build-out requirements,
which extended the dates by which we were to launch coverage in several markets.
The amended Sprint PCS agreement provides for monetary penalties to be paid by
us if coverage is not launched by these specified contract dates. The amounts of
the penalties range from $16,500 to $602,000 for each shortfall depending on the
market and length of delay (up to 180 days) in launch, and in some cases,
whether the shortfall relates to an initial launch in the market or completion
of the remaining build-out. The penalties must be paid in cash, or if both
Horizon PCS and Sprint PCS agree, in shares of Horizon PCS capital stock.

Under the amended Sprint PCS agreement, portions of the New York, Sunbury,
Williamsport, Oil City, Dubois, Erie, Meadville, Sharon, Olean, Jamestown,
Scranton, State College, Stroudsburg, Allentown and Pottsville markets were
required to be completed and launched by October 31, 2001. Although we have
launched service in portions of each of these markets, we have not completed all
of the build-out requirements. We notified Sprint PCS in November 2001 that it
is our position that the reasons for the delay constitute events of "force
majeure" as described in the Sprint PCS agreements and that, consequently, no
monetary penalties or other remedies would be applicable. The delay has been
primarily caused due to delays in obtaining the required backhaul services from
local exchange carriers and zoning and other approvals from governmental
authorities. On January 30, 2002, Sprint PCS notified us that, as a result of
these force majeure events, it does not consider our build-out delay to be a
breach of the Sprint PCS agreement. We have agreed to continue to use
commercially reasonable efforts to reach build-out completion by either June 30,
2002 (for most of the affected markets) or April 30, 2002 (for a few of these
markets).

We will require additional expenditures of significant funds for the
continued development, construction, testing, deployment and operation of our
network. These activities are expected to place significant demands on our
managerial, operational and financial resources. A failure to meet our build-out
requirements for any of our markets, or to meet Sprint PCS' technical
requirements, would constitute a breach of the Sprint PCS agreements that could
lead to their termination if not cured within the applicable cure period. If
Sprint PCS terminates these agreements, we will no longer be able to offer
Sprint PCS products and services. See "The Sprint PCS Agreements" under "ITEM 1.
Business" included herein.

Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our long-term debt obligations.

As of December 31, 2001, Horizon PCS' total debt outstanding was $520.0
million, comprised of $50.0 million borrowed under its secured credit facility,
$175.0 million due under its senior notes issued in December 2001 and $295.0
million represented by its discount notes (which are reported on the
consolidated balance sheet at December 31, 2001, net of a discount of
approximately $135.9 million). In addition, Horizon PCS was required to, and
did, borrow an additional $105.0 million under its secured credit facility in
March 2002.

Horizon PCS' secured credit facility includes financial covenants that must
be met each quarter. Horizon PCS complied with these covenants at December 31,
2001. There is a likelihood, however, that it will not meet the covenant for
EBITDA for the first quarter of 2002. Although financial results for the end of
the first quarter are not final, subscriber information to date indicates
significantly higher than expected gross and net additions to Horizon PCS
subscribers for the quarter. Although Horizon PCS ultimately benefits from the
revenues generated by new subscribers, Horizon PCS incurs one-time expenses
associated with new subscribers, including commissions, handset subsidies, set
up costs for the network and marketing expenses. As a result, these new
subscriber costs negatively affect Horizon PCS' EBITDA in the short-term during
the period of the addition of new subscribers which could lead to non-compliance
with the EBITDA covenant for the first quarter of 2002.

59


We have initiated discussions with the lead bank in our lending group
concerning a possible non-compliance with the covenant. After quarter-end, if
the financial statements show a non-compliance, we intend to immediately enter
into negotiations with the bank group to obtain a waiver of the non-compliance
and amendments to the covenants.

The failure to comply with the covenant would be an event of default under
our secured credit facility, and would give the lenders the right to pursue
remedies. These remedies could include acceleration of amounts due under the
facility. If the lender elected to accelerate the indebtedness under the
facility, this would also represent a default under the indentures for our
senior notes and discount notes. If we fail to comply with the covenant, one
option available to us would be to prepay the indebtedness under the secured
credit facility, together with prepayment fees. If we prepaid the facility prior
to acceleration, we would avoid default under the indentures for our senior
notes and discount notes. In the event of such a prepayment, we believe that we
could obtain replacement financing to the extent necessary to fund our business
plan. There can be no assurance, however, that we could obtain adequate or
timely replacement financing on acceptable terms or at all.

Our substantial debt will have a number of important consequences,
including the following:

o we may not have sufficient funds to pay interest on, and principal of,
our debt;

o we have to dedicate a substantial portion of any cash flow from
operations to the payment of interest on, and principal of, our debt,
which will reduce funds available for other purposes;

o we may not be able to obtain additional financing for currently
unanticipated capital requirements, capital expenditures, working
capital requirements and other corporate purposes;

o some borrowings likely will be at variable rates of interest, which
will result in higher interest expense in the event of increases in
market interest rates;

o due to the liens on substantially all of our assets and the pledges of
equity ownership of our subsidiaries that secure our secured credit
facility, our lenders may control our assets upon a default;

o our debt increases our vulnerability to general adverse economic and
industry conditions;

o our debt limits our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate and;

o our debt places us at a competitive disadvantage compared to our
competitors that have less debt.

To service our indebtedness, we will require a significant amount of cash. Our
ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, and to
fund our network build-out, anticipated operating losses and working capital
requirements will depend on our ability to generate cash in the future. This, to
a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control.

We cannot be certain that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under our
secured credit facility in an amount sufficient to enable us to pay our
indebtedness, or to fund our other liquidity needs. We may need to refinance all
or a portion of our indebtedness, including the notes on or before maturity. We
may not be able to refinance any of our indebtedness on commercially reasonable
terms, or at all.


60


If we fail to pay our debt, our lenders may sell our loans to Sprint PCS giving
Sprint PCS the rights of a creditor to foreclose on our assets.

If the lenders accelerate the amounts due under our secured credit
facility, Sprint PCS has the right to purchase our obligations under that
facility and become a senior lender. To the extent Sprint PCS purchases these
obligations, Sprint PCS' interests as a creditor could conflict with ours.
Sprint PCS' rights as a senior lender would enable it to exercise rights with
respect to our assets and Sprint PCS' continuing relationship in a manner not
otherwise permitted under the Sprint PCS agreements.

If Sprint PCS terminates the Sprint PCS agreements, the buy-out provisions of
those agreements may diminish the valuation of our company.

Provisions of the Sprint PCS agreements could affect the valuation of
Horizon PCS, and decrease our ability to raise additional capital. If Sprint PCS
terminates these agreements, Sprint PCS may purchase our operating assets or
capital stock for 80% of the Entire Business Value. If the termination is due to
our breach of the Sprint PCS agreements, the percent is reduced to 72% instead
of 80%. Under our Sprint PCS agreements, the Entire Business Value is generally
the fair market value of our wireless business valued on a going concern basis
as determined by an independent appraiser and assumes that we own the FCC
licenses in our territory. In addition, Sprint PCS must approve any change of
control of our ownership and consent to any assignment of the Sprint PCS
agreements. Sprint PCS also has a right of first refusal if we decide to sell
our operating assets in our Bright PCS markets. We are also subject to a number
of restrictions on the transfer of our business including a prohibition on
selling Horizon PCS or its operating assets to a number of identified and yet to
be identified competitors of Sprint PCS or Sprint. These and other restrictions
in the Sprint PCS agreements may limit the marketability of and reduce the price
a buyer may be willing to pay for Horizon PCS or its business and may operate to
reduce the Entire Business Value of Horizon PCS.

The termination of our strategic affiliation with Sprint PCS or Sprint PCS'
failure to perform its obligations under the Sprint PCS agreements would
severely restrict our ability to conduct our business.

Because Sprint PCS owns the FCC licenses which we use in our territory, our
ability to offer Sprint PCS products and services on our network is dependent on
the Sprint PCS agreements remaining in effect and not being terminated. Sprint
PCS may terminate the Sprint PCS agreements for breach by us of any material
terms. We also depend on Sprint PCS' ability to perform its obligations under
the Sprint PCS agreements. The termination of the Sprint PCS agreements or the
failure of Sprint PCS to perform its obligations under the Sprint PCS agreements
would severely restrict our ability to conduct our wireless digital
communications business.

If Sprint PCS does not complete the construction of its nationwide PCS network,
we may not be able to attract and retain customers, which would adversely affect
our revenues.

Sprint PCS' network may not provide nationwide coverage to the same extent
as its competitors' networks, which could adversely affect our ability to
attract and retain customers. Sprint PCS is creating a nationwide PCS network
through its own construction efforts and those of its affiliates. Today, neither
Sprint PCS nor any other PCS provider offers service in every area of the United
States. Sprint PCS has entered into affiliation agreements similar to ours with
companies in other territories pursuant to its nationwide PCS build-out
strategy. Our business and results of operations depend on Sprint PCS' national
network and, to a lesser extent, on the networks of its other affiliates. Sprint
PCS and its affiliate program are subject, to varying degrees, to the economic,
administrative, logistical, regulatory and other risks. Sprint PCS' and its
other affiliates' PCS operations may not be successful, which, in turn, could
adversely affect our ability to generate revenues.

We are dependent upon Sprint PCS' back office services and its third-party
vendors' back office systems, and problems with these systems, or termination of
these arrangements, could disrupt our business and possibly increase our costs.

Because Sprint PCS now provides our back office systems, our operations
could be disrupted if Sprint PCS is unable to maintain and expand its back
office services, or to efficiently outsource those services and systems through
third-party vendors. The rapid expansion of Sprint PCS' business will continue
to pose a significant challenge to its internal support systems. Additionally,
Sprint PCS has relied on third-party vendors for a significant number of
important functions and components of its internal support systems and may
continue to rely on these vendors in the future. We depend on Sprint PCS'
willingness to continue to offer these services to us and to provide these
services at competitive costs. The Sprint PCS agreements provide that, upon nine
months' prior written notice, Sprint PCS may elect to terminate any of these
services. If Sprint PCS terminates a service for which we have not developed a
cost-effective alternative, our operating costs may increase beyond our
expectations and restrict our ability to operate successfully.

61


We depend on other telecommunications companies for some services which, if
delayed, could delay our planned network build-out and delay our expected
increases in customers and revenues.

We depend on other telecommunications companies to provide facilities and
transport to interconnect portions of our network and to connect our network
with the landline telephone system. American Electric Power, Ameritech, AT&T,
Verizon, Sprint (long distance) and Qwest are our primary suppliers of
facilities and transport. Without these services, we could not offer Sprint PCS
services to our customers in some areas. From time to time, we have experienced
delays in obtaining facilities and transport from these companies, and in
obtaining local telephone numbers for use by our customers, which are sometimes
in short supply, and we may continue to experience delays and interruptions in
the future. Delays in obtaining facilities and transport could delay our
build-out plans and our business may suffer. Delays could also result in a
breach of our Sprint PCS agreements, subjecting these agreements to potential
termination by Sprint PCS.

If we do not meet all of the conditions under the Horizon PCS secured credit
facility, we may not be able to draw down all of the funds under the facility
and, as a result, we may not be able to complete the build-out of our network,
which may result in the termination of the Sprint PCS agreements.

Our secured credit facility provides for aggregate borrowings of $250.0
million of which $50.0 million was borrowed as of December 31, 2001.
Availability of future borrowings will be subject to customary credit conditions
at each funding date, including the following:

o the absence of any default or event of default;

o the continuing accuracy of all representations and warranties; and

o no material adverse change.

If we do not meet these conditions at each funding date, our senior secured
lenders may choose not to lend any or all of the remaining amounts, and if other
sources of funds are not available, we may not be in a position to complete the
build-out of our network. If we do not have sufficient funds to complete our
network build-out, we may be in breach of the Sprint PCS agreements and in
default under our secured credit facility.

Material restrictions in our debt instruments may make it difficult to obtain
additional financing or take other necessary actions to react to changes in our
business.

The indenture governing the senior notes contain various covenants that
limit our ability to engage in a variety of transactions. In addition, the
indenture governing our discount notes and the secured credit agreement both
impose additional material operating and financial restrictions on us. These
restrictions, subject to ordinary course of business exceptions, limit our
ability to engage in some transactions, including the following:

o designated types of mergers or consolidations;

o paying dividends or other distributions to our stockholders;

o making investments;

o selling assets;

o repurchasing our common stock;

o changing lines of business;

62


o borrowing additional money; and

o transactions with affiliates.

In addition, our secured credit facility requires us to maintain certain
ratios, including:

o leverage ratios;

o an interest coverage ratio; and

o a fixed charges ratio,

and to satisfy certain tests, including tests relating to:

o minimum covered population;

o minimum number of PCS subscribers in our territory; and

o minimum total revenues.

These restrictions could limit our ability to obtain debt financing,
repurchase stock, refinance or pay principal or interest on our outstanding
debt, consummate acquisitions for cash or debt or react to changes in our
operating environment.

The terms of the convertible preferred stock may affect our financial results.

The terms of the convertible preferred stock give the holders of the
preferred stock the following principal rights:

o to initially designate two members of our board of directors, subject
to reduction based on future percentage ownership;

o to approve or disapprove fundamental corporate actions and
transactions;

o to receive dividends in the form of additional shares of our
convertible preferred stock, which may increase and accelerate upon a
change in control; and

o to require us to redeem the convertible preferred stock in 2005.


If we become subject to the repurchase right or change of control
redemption requirements under the convertible preferred stock while our secured
credit facility, our discount notes or the senior notes are outstanding, we will
be required to seek the consent of the lenders under our secured credit
facility, the holders of the discount notes and the holders of the senior notes
to repurchase or redeem the convertible preferred stock, or attempt to refinance
the secured credit facility, the discount notes and the senior notes. If we fail
to obtain these consents, there will be an event of default under the terms
governing our secured credit facility. In addition, if we do not repurchase or
redeem the convertible preferred stock and the holders of the convertible
preferred stock obtain a judgment against us, any judgment in excess of $5.0
million would constitute an event of default under the indentures governing the
discount notes and the senior notes.


If we breach our agreement with SBA Communications Corp., ("SBA"), or it
otherwise terminates its agreement with us, our right to provide wireless
service from most of our cell sites will be lost.

We lease cell sites from SBA. We rely on our contract with SBA to provide
us with access to most of our cell sites and to the towers located on these
sites. If SBA were to lose its underlying rights to these sites, our ability to
provide wireless service from these sites would end, subject to our right to
cure defaults by SBA. If SBA terminates our agreement as a result of our breach,
we will lose our right to provide wireless services from most of our cell sites.

63


We may have difficulty in obtaining infrastructure equipment and handsets, which
could result in delays in our network build-out, disruption of service or loss
of customers.

If we cannot acquire the equipment required to build our network in a
timely manner, we may be unable to provide wireless communications services
comparable to those of our competitors or to meet the requirements of the Sprint
PCS agreements. The demand for the equipment required to construct our network
is considerable, and manufacturers of this equipment could have substantial
order backlogs. Accordingly, the lead time for the delivery of this equipment
may be longer than anticipated. In addition, the demand for specific types of
handsets is strong and the manufacturers of those handsets may have to
distribute their limited supply of products among their numerous customers. Some
of our competitors purchase large quantities of communications equipment and may
have established relationships with the manufacturers of this equipment.
Consequently, they may receive priority in the delivery of this equipment. If we
do not obtain equipment or handsets in a timely manner, we could suffer delays
in the build-out of our network, disruptions in service and a reduction in
customers.

If the West Virginia PCS Alliance and Virginia PCS Alliance fail to provide
their network to us in their markets, or if our network services agreement with
the Alliances is otherwise terminated, we will lose the ability to use the
Alliances' networks.

West Virginia PCS Alliance and Virginia PCS Alliance, which we refer to as
the Alliances, are two related, independent PCS providers whose network is
managed by NTELOS. Under our network services agreement, the Alliances provide
us with the use of and access to key components of their network in most of our
markets in Virginia and West Virginia. We directly compete with the Alliances in
the markets where we use their network. If the Alliances fail to maintain the
standards for their network as set forth in our network services agreement with
them or otherwise fail to provide their network for our use, our ability to
provide wireless services in these markets may be adversely affected, and we may
not be able to provide seamless service for our customers. If we breach our
obligations to the Alliances, or if the Alliances otherwise terminate the
network services agreement, we will lose our right to use the Alliances' network
to provide service in these markets. In that event, it is likely that we will be
required to build our own network in those markets and incur the substantial
costs associated with doing so.

Sprint PCS' vendor discounts may be discontinued, which could increase our
equipment costs and require more capital than we had projected to build out our
network.

We intend to continue to purchase our infrastructure equipment under Sprint
PCS' vendor agreements that include significant volume discounts. If Sprint PCS
were unable to continue to obtain vendor discounts for its affiliates, the loss
of vendor discounts could increase our equipment costs for our network
build-out.

Conflicts with Sprint PCS may not be resolved in our favor, which could restrict
our ability to manage our business and provide Sprint PCS products and services,
adversely affecting our relationships with our customers, increase our expenses
or decrease our revenues.

Under the Sprint PCS agreements, Sprint PCS has a substantial amount of
control over the conduct of our business. Conflicts between us may arise, and as
Sprint PCS owes us no duties except as set forth in the Sprint PCS agreements,
these conflicts may not be resolved in our favor. The conflicts and their
resolution may harm our business. For example:

o Sprint PCS may price its national plans based on its own objectives
and may set price level and customer credit policies that may not be
economically sufficient for our business;

o Sprint PCS may increase the prices we pay for our back office
services; and

o Sprint or Sprint PCS may make decisions that adversely affect our use
of the Sprint and Sprint PCS brand names, products or services.


64


We may not be able to compete with larger, more established wireless providers
who have resources to competitively price their products and services, which
could impair our ability to attract and retain customers.

Our ability to compete will depend in part on our ability to anticipate and
respond to various competitive factors affecting the telecommunications
industry, including new services that may be introduced, changes in consumer
preferences, demographic trends, economic conditions and discount pricing
strategies by competitors. In each market, we compete with at least two cellular
providers that have had their infrastructure in place and have been operational
for a number of years. They have significantly greater financial and technical
resources than we do, could offer attractive pricing options and may have a
wider variety of handset options. We expect that existing cellular providers
will continue to upgrade their systems and provide expanded digital services to
compete with the Sprint PCS products and services that we offer. Many of these
wireless providers generally require their customers to enter into long-term
contracts, which may make it more difficult for us to attract customers away
from them.


We will also compete with several PCS providers and other existing
communications companies in our markets and expect to compete with new entrants
as the FCC licenses additional spectrum to mobile services providers. A number
of our cellular, PCS and other wireless competitors have access to more licensed
spectrum than the amount licensed to Sprint PCS in most of our territory and
therefore will be able to provide greater network call volume capacity than our
network to the extent that network usage begins to reach or exceed the capacity
of our licensed spectrum. Our inability to accommodate increases in call volume
could result in more dropped or disconnected calls. In addition, any competitive
difficulties that Sprint PCS may experience could also harm our competitive
position and success.

We may not be able to offer competitive roaming capability, which could impair
our ability to attract and retain customers.

We rely on agreements with competitors to provide automatic roaming
capability to our PCS customers in many of the areas of the United States not
covered by the Sprint PCS network, which primarily serves metropolitan areas.
Some competitors may be able to offer coverage in areas not served by the Sprint
PCS network or may be able to offer roaming rates that are lower than those
offered by Sprint PCS and its affiliates. Some of our competitors are seeking to
reduce access to their networks through actions pending with the FCC. Moreover,
the standard for the dominant air interface upon which PCS customers roam is
currently being considered for elimination by the FCC as part of a streamlining
proceeding. If the FCC eliminates this standard, our Sprint PCS customers may
have difficulty roaming in some markets.

There is no uniform signal transmission technology and if we decide to use other
technologies in the future, this decision could substantially increase our
equipment expenditures to replace the technology used on our network.

The wireless telecommunications industry is experiencing evolving industry
standards. We have employed CDMA technology, which is the digital wireless
communications technology selected by Sprint PCS for its network. CDMA may not
provide the advantages expected by us and by Sprint PCS. In addition to CDMA,
there are two other principal signal transmission technologies, time division
multiple access, or TDMA, and global systems for mobile communications, or GSM.
These three signal transmission technologies are not compatible with each other.
If one of these technologies or another technology becomes the preferred
industry standard, we may be at a competitive disadvantage and competitive
pressures may require Sprint PCS to change its digital technology which, in
turn, may require us to make changes at substantially increased costs.

We may not receive as much Sprint PCS roaming revenue as we anticipate and our
non-Sprint PCS roaming revenue is likely to be low.

We are paid a fee from Sprint PCS or a Sprint PCS affiliate for every
minute that a Sprint PCS subscriber based outside of our territory uses our
network. Similarly, we pay a fee to Sprint PCS or a Sprint PCS affiliate for
every minute that our customers use the Sprint PCS network outside our
territory. Our customers may use the Sprint PCS network outside our territory
more frequently than we anticipate, and Sprint PCS subscribers based outside our
territory may use our network less frequently than we anticipate. The fee for
each Sprint PCS roaming minute used was decreased from $0.20 per minute before


65


June 1, 2001, to $0.15 per minute effective June 1, 2001, and further decreased
to $0.12 per minute effective October 1, 2001. The Sprint PCS roaming rate was
changed to $0.10 per minute in 2002. After 2002, the rate will be changed to "a
fair and reasonable return," which has not yet been determined. As a result, we
may receive less Sprint PCS roaming revenue in the aggregate, than we previously
anticipated or we may have to pay more Sprint PCS roaming fees in the aggregate
than we anticipate. Furthermore, we do not expect to receive substantial
non-Sprint PCS roaming revenue.

If Sprint PCS customers are not able to roam instantaneously or efficiently onto
other wireless networks, we may suffer a reduction in our revenues and number of
customers.

The Sprint PCS network operates at a different frequency and uses or may
use a different signal transmission technology than many analog cellular and
other digital systems. To access another provider's analog cellular, TDMA or GSM
digital system when outside the territory served by the Sprint PCS network, a
Sprint PCS customer is required to utilize a dual-band/dual-mode handset
compatible with that provider's system. Generally, because dual-band/dual-mode
handsets incorporate two radios rather than one, they are more expensive, larger
and heavier than single-band/single-mode handsets. The Sprint PCS network does
not allow for call hand-off between the Sprint PCS network and another wireless
network, so a customer must end a call in progress on the Sprint PCS network and
initiate a new call when outside the territory served by the Sprint PCS network.
In addition, the quality of the service provided by a network provider during a
roaming call may not approximate the quality of the service provided by Sprint
PCS. The price of a roaming call may not be competitive with prices of other
wireless companies for roaming calls, and Sprint PCS customers may not be able
to use Sprint PCS advanced features, such as voicemail notification, while
roaming. These roaming issues may cause us to suffer a reduction in our revenues
and number of customers.

Parts of our territories have limited licensed spectrum, which may adversely
affect the quality of our service.

In the majority of our markets, Sprint PCS has licenses covering 20 or 30
MHz of spectrum. However, Sprint PCS has licenses covering only 10 MHz in parts
of our territory covering approximately 3.8 million residents out of a total
population of over 10.2 million residents. In the future, as our customers in
those areas increase in number, this limited licensed spectrum may not be able
to accommodate increases in call volume and may lead to increased dropped calls
and may limit our ability to offer enhanced services.

Non-renewal or revocation by the FCC of the Sprint PCS licenses would
significantly harm our business because we would no longer have the right to
offer wireless service through our network.

We are dependent on Sprint PCS' licenses, which are subject to renewal and
revocation by the FCC. Sprint PCS' licenses in many of our territories will
expire as early as 2005 but may be renewed for additional ten-year terms. There
may be opposition to renewal of Sprint PCS' licenses upon their expiration and
the Sprint PCS licenses may not be renewed. The FCC has adopted specific
standards to apply to PCS license renewals. For example, if Sprint PCS does not
demonstrate to the FCC that Sprint PCS has met the five-year construction
requirements for each of its PCS licenses, it can lose those licenses. Failure
to comply with these standards in our territory could cause the imposition of
fines on Sprint PCS by the FCC or the revocation or forfeiture of the Sprint PCS
licenses for our territory, which would prohibit us from providing service in
our markets.

If the Sprint PCS agreements do not comply with FCC requirements, Sprint PCS may
terminate the Sprint PCS agreements, which could result in our inability to
provide service.

The FCC requires that licensees like Sprint PCS maintain control of their
licensed spectrum and not delegate control to third-party operators or managers
like us. Although the Sprint PCS agreements reflect an arrangement that the
parties believe meets the FCC requirements for licensee control of licensed
spectrum, we cannot be certain that the FCC will agree with us. If the FCC were
to determine that the Sprint PCS agreements need to be modified to increase the
level of licensee control, we have agreed with Sprint PCS to use our best
efforts to modify the Sprint PCS agreements to comply with applicable law. If we
cannot agree with Sprint PCS to modify the Sprint PCS agreements, they may be
terminated. If the Sprint PCS agreements are terminated, we would no longer be a
part of the Sprint PCS network and we would have extreme difficulty in
conducting our business.


66



We may need more capital than we currently anticipate to complete the build-out
of our network, and a delay or failure to obtain additional capital could
decrease our revenues.

The completion of our network build-out will require substantial capital.
Additional funds would be required in the event of:

o significant departures from our current business plan;

o unforeseen delays, cost overruns, unanticipated expenses; or

o regulatory, engineering design and other technological changes.

For example, it is possible that we will need substantial funds if we find
it necessary or desirable to overbuild the territory currently served through
our arrangements with the Alliances. Due to our highly leveraged capital
structure, additional financing may not be available or, if available, may not
be obtained on a timely basis or on terms acceptable to us or within limitations
permitted under our existing debt covenants. Failure to obtain additional
financing, should the need for it develop, could result in the delay or
abandonment of our development and expansion plans, and we may be unable to fund
our ongoing operations.

Because Sprint PCS has recently required us to upgrade our network to provide
"third generation" technology, we will face additional capital expenses.

The wireless industry is seeking to implement new "third generation," or
"3G," technology. Sprint PCS has recently selected a version of 3G technology
for its own networks and required us to upgrade our network to provide those
services. We currently estimate that this network upgrade will cost
approximately $35 million, but actual costs could exceed this estimate. The
current deadline for completion of our 3G upgrade generally is June 30, 2002. If
we fail to meet the upgrade deadline, we will be in breach of our Sprint PCS
agreements. If other wireless carriers implement their 3G upgrades on a more
rapid timetable, or on a more cost efficient basis, or on a more advanced
technology basis, we will likely suffer competitive disadvantages in our
markets. While there are potential advantages with 3G technology, such as
increased network capacity and additional capabilities for wireless data
applications, the technology has not been proven in the marketplace and has the
risks inherent in other technological innovations.

Unauthorized use of our network and other types of fraud could disrupt our
business and increase our costs.

We will likely incur costs associated with the unauthorized use of our
network, including administrative and capital costs associated with detecting,
monitoring and reducing the incidence of fraud. Fraud impacts interconnection
costs, capacity costs, administrative costs, fraud prevention costs and payments
to other carriers for unbillable fraudulent roaming. Although we believe that we
have a plan in place to implement appropriate controls to minimize the effect to
us of fraudulent usage, our efforts may not be successful.

Expanding our territory may have a material adverse effect on our business.

As part of our business strategy, we may expand our territory through the
grant of additional markets from Sprint PCS or through acquisitions of other
Sprint PCS affiliates. We will evaluate strategic acquisitions and alliances
principally relating to our current operations. These transactions may require
the approval of Sprint PCS and commonly involve a number of risks, including:

o difficulty assimilating acquired operations and personnel;

o diversion of management attention;

o disruption of ongoing business;

o inability to retain key personnel;

o inability to successfully incorporate acquired assets and rights into
our service offerings;



67



o inability to maintain uniform standards, controls, procedures and
policies; and

o impairment of relationships with employees, customers or vendors.

Failure to overcome these risks or any other problems encountered in these
transactions could have a material adverse effect on our business. In connection
with these transactions, we may also issue additional equity securities, incur
additional debt or incur significant amortization expenses related to intangible
assets.

The Sprint PCS agreements and our Horizon PCS restated certificate of
incorporation include provisions that may discourage, delay or restrict any sale
of Horizon PCS' operating assets or common stock to the possible detriment of
Horizon Telcom.

The Sprint PCS agreements restrict our ability to sell our operating assets
and common stock. Generally, Sprint PCS must approve a change of control of our
ownership and consent to any assignment of the Sprint PCS agreements. The Sprint
PCS agreements also give Sprint PCS a right of first refusal if we decide to
sell the operating assets of our Bright PCS markets to a third party. In
addition, provisions of our restated certificate of incorporation could also
operate to discourage, delay or make more difficult a change in control of
Horizon PCS. For example, our Horizon PCS restated certificate of incorporation
provides for:

o two classes of common stock, with our class B common stock having ten
votes per share;

o the issuance of preferred stock without stockholder approval; and

o a classified board, with each board member serving a three-year term.

The restrictions in the Sprint PCS agreements and the provisions of our
Horizon PCS restated certificate of incorporation could discourage any sale of
Horizon PCS' operating assets or common stock.

Horizon PCS will not be able to receive the tax benefit of future losses until
Horizon PCS begins to generate taxable income.

From our inception until September 2000, we were included in the
consolidated Federal income tax return of Horizon Telcom, Inc., which owns a
majority of our outstanding common stock. Under the tax-sharing agreement with
Horizon Telcom, Horizon Telcom filed a consolidated tax return and paid Horizon
PCS an amount equal to the tax savings realized by Horizon Telcom as a result of
our taxable operating losses being used to offset consolidated taxable income.
As a result of the sale of convertible preferred stock in September 2000,
Horizon PCS is no longer included in Horizon Telcom's consolidated tax return
and, as a result, will no longer be able to recognize any tax benefits from
Horizon PCS' operating losses until Horizon PCS generates taxable income.

Horizon Telcom will be able to control the outcome of significant matters
presented to stockholders as a result of its ownership position, which could
potentially impair Horizon PCS' attractiveness as a takeover target.

Horizon Telcom beneficially owns approximately 58.1% of Horizon PCS'
outstanding common stock on fully diluted basis as of December 31, 2001. In
addition, the shares held by Horizon Telcom are class B shares, which have ten
votes per share. The class A shares have only one vote per share. As a result,
Horizon Telcom holds approximately 84.5% of the voting power, on a fully diluted
basis. Horizon Telcom will have the voting power to control the election of
Horizon PCS' board of directors and it will be able to cause amendments to
Horizon PCS' restated certificate of incorporation or Horizon PCS' restated
bylaws. Horizon Telcom also may be able to cause changes in Horizon PCS'
business without seeking the approval of any other party. These changes may not
be to the advantage of Horizon PCS or in the best interest of Horizon PCS'
stockholders or the holders of Horizon PCS' notes. For example, Horizon Telcom
will have the power to prevent, delay or cause a change in control of Horizon
PCS and could take other actions that might be favorable to Horizon Telcom, but
not necessarily to other stockholders. This may have the effect of delaying or
preventing a change in control. In addition, Horizon Telcom is controlled by
members of the McKell family, who collectively own approximately 60.6% of the
voting interests of Horizon Telcom. Therefore, the McKell family, acting as a
group, may be able to exercise indirect control over Horizon PCS.

68



We may experience a high rate of customer turnover, which would increase our
costs of operations and reduce our revenue and prospects for growth.

Horizon PCS' strategy to minimize customer turnover, commonly known as
churn, may not be successful. As a result of customer turnover, we lose the
revenue attributable to these customers and increase the costs of establishing
and growing our customer base. The PCS industry has experienced a higher rate of
customer turnover as compared to cellular industry averages. The rate of
customer turnover is affected by the following factors, several of which are not
within our ability to address:

o extent of network coverage;

o reliability issues such as blocked calls, dropped calls and handset
problems;

o non-use of phones;

o change of employment;

o the decision not to require our customers to sign contracts, unlike
most cellular providers that do require contracts;

o a lack of affordability;

o price competition;

o Sprint PCS' customer credit policies;

o customer care concerns; and

o other competitive factors.

A high rate of customer turnover could adversely affect our competitive
position, results of operations and our costs of, or losses incurred in,
obtaining new customers, especially because we subsidize some of the cost of the
handsets purchased by our customers.

Because the wireless industry has experienced higher customer additions and
handset sales in the fourth calendar quarter as compared to the other three
calendar quarters, a failure by us to acquire significantly more customers in
the fourth quarter could have a disproportionate negative effect on our results
of operations.

The wireless industry is historically dependent on fourth calendar quarter
results. Our overall results of operations could be significantly reduced if we
have a worse than expected fourth calendar quarter for any reason including the
following:

o our inability to match or beat pricing plans offered by competitors;

o our failure to adequately promote Sprint PCS' products, services and
pricing plans;

o our inability to obtain an adequate supply or selection of handsets;

o a downturn in the economy of some or all of the markets in our
territory; or

o a generally poor holiday shopping season.

69


Regulation by government agencies may increase our costs of providing service or
require us to change our services, which could impair our financial performance.

The licensing, construction, use, operation, sale and interconnection
arrangements of wireless telecommunications systems are regulated to varying
degrees by the FCC, the FAA and, depending on the jurisdiction, state and local
regulatory agencies and legislative bodies. Adverse decisions regarding these
regulatory requirements could negatively impact our operations and our cost of
doing business.

Use of hand-held phones may pose health risks, real or perceived, which could
result in the reduced use of our services or liability for personal injury
claims.

Media reports have suggested that radio frequency emissions from wireless
handsets may be linked to various health problems, including cancer, and may
interfere with various electronic medical devices, including hearing aids and
pacemakers. Concerns over radio frequency emissions may discourage use of
wireless handsets or expose us to potential litigation. Any resulting decrease
in demand for our services, or costs of litigation and damage awards, could
impair our ability to profitably operate our business.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

We do not engage in commodity futures trading activities and do not enter
into derivative financial instruments for trading purposes. We also do not
engage in transactions in foreign currencies that would expose us to market
risk.

The following table presents the estimated future outstanding long-term
debt at the end of each year and future required annual principal payments for
each year then ended associated with our financing based on our projected level
of long-term indebtedness:






(Dollars in millions) Years Ending December 31,
2002 2003 2004 2005 2006 Thereafter
----------- ------------ ------------ ------------ ------------ ----------
Horizon PCS:
Secured credit facility,
due 2008 (1)................ $ 155.0 $ 155.0 $ 155.0 $ 155.0 $ 155.0 $ 155.0
Variable interest rate (2) 5.92% 5.92% 5.92% 5.92% 5.92% 5.92%
Principal payments........ $ - $ - $ 0.4 $ 0.5 $ 0.5 $ 153.6
Discount notes, due 2010....... $ 184.9 $ 210.8 $ 240.0 $ 283.7 $ 295.0 $ 295.0
Fixed interest rate....... 14.00% 14.00% 14.00% 14.00% 14.00% 14.00%
Principal payments........ $ - $ - $ - $ - $ - $ 295.0
Senior notes, due 2011......... $ 175.0 $ 175.0 $ 175.0 $ 175.0 $ 175.0 $ 175.0
Fixed interest rate....... 13.75% 13.75% 13.75% 13.75% 13.75% 13.75%
Principal payments........ $ - $ - $ - $ - $ - $ 175.0


Chillicothe Telephone:
1998 Senior Notes, due 2018.... $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ 12.0
Fixed interest rate....... 6.62% 6.62% 6.62% 6.62% 6.62% 6.62%
Principal payments........ $ - $ - $ - $ - $ - $ 12.0
1993 Senior Notes, due 2005.... $ 6.0 $ 4.0 $ 2.0 $ - $ - $ -
Fixed interest rate ...... 6.72% 6.72% 6.72% - - -
Principal payments........ $ 2.0 $ 2.0 $ 2.0 $ 2.0 $ - $ -



- -------------------
(1) Assumes required draw by Horizon PCS of $105.0 million by March 26, 2002.
At December 31, 2001, Horizon PCS had borrowed $50.0 million under the
secured credit facility.

(2) Interest rate on the secured credit facility equals the London Interbank
Offered Rate ("LIBOR") plus a margin that varies from 375 to 425 basis
points. At December 31, 2001, $50.0 million was effectively fixed at 8.5%
through an interest rate swap discussed below. The interest rate is assumed
to equal 5.92% for all periods ($50.0 million tranche at 6.25% and $105.0
million tranche at 5.75%).



70


In the normal course of business, our operations are exposed to interest
rate risk on our secured credit facility. Our primary interest rate risk
exposures relate to 1) the interest rate on our financing, 2) our ability to
refinance our discount notes at maturity at market rates, and 3) the impact of
interest rate movements on our ability to meet interest expense requirements and
meet financial covenants under our debt instruments.


We manage the interest rate risk on our outstanding long-term debt through
the use of fixed and variable rate debt and interest rate swaps. In the first
quarter of 2001, we entered into a two-year interest rate swap effectively
fixing $25.0 million of our term loan borrowed under the secured credit facility
at a rate of 9.4%. In the third quarter of 2001, we entered into another
two-year interest rate swap effectively fixing the remaining $25.0 million of
our term loan borrowed under the secured credit facility at 7.65%. While we
cannot predict our ability to refinance existing debt or the impact interest
rate movements will have on our existing debt, we continue to evaluate our
interest rate risk on an ongoing basis.

As of December 31, 2001, 100% of our outstanding variable-rate long-term
debt has been swapped for fixed-rate debt, thus reducing our exposure to
interest rate risk. Therefore, an increase in the base lending rate would have a
less significant effect on our annual earnings. However, our swap interest rates
are currently greater than the market interest rates. Thus, our results from
operations currently reflect a higher interest expense than had we not hedged
our position. If we do not renew our swaps, or, if we do not hedge incremental
borrowings under our secured credit facility, of which we have $200.0 million
available at December 31, 2001, we will increase our interest rate risk, which
could have a material impact on our future earnings. An increase of 1% in the
base-lending rate on our current unhedged portion of our borrowings would result
in a decrease in annual earnings of approximately $200,000. We are exposed to
market risk on our long-term debt related to the current market value of
interest rates compared to our fixed-rate and hedged variable-rate debt. A
100-basis point change in interest rates would have an impact on the market
value of our debt.


ITEM 8. Financial Statements and Supplementary Data

Our financial statements and supplementary data required by this item are
submitted as a separate section of this annual report on Form 10-K. See
"Financial Statements" commencing on page F-1.


ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

None.



71


PART III

ITEM 10. Directors and Executive Officers of the Registrant

Directors and Executive Officers


The following are the directors and executive officers of Horizon Telcom
during 2001 or as of the date hereof:


NAME AGE POSITION


Robert McKell.............. 78 Chairman of the Board, Director
Thomas McKell.............. 66 President, Director of Horizon Telcom;
President of Chillicothe Telephone
Peter M. Holland........... 36 Vice President of Finance, Treasurer and
CFO of Horizon Telcom; Chief Financial
Officer of Horizon PCS
Jack E. Thompson........... 68 Secretary, Director
William A. McKell.......... 41 Chairman of the Board, President and Chief
Executive Officer of Horizon PCS
Phoebe H. McKell........... 55 President of Horizon Services
Joseph S. McKell........... 76 Director
David McKell............... 74 Director
Helen M. Sproat............ 69 Director
John E. Herrnstein......... 64 Director
Joseph G. Kear............. 78 Director
Larry A. Gates............. 64 Director
Jerry B. Whited............ 51 Director

ROBERT MCKELL has served as Chairman of the Board of Directors of Horizon
Telcom since its inception in 1996 and of Chillicothe Telephone since 1988. Mr.
McKell has 55 years of telecommunications experience.

THOMAS MCKELL has served as the President and a Director of Horizon Telcom
since its inception in 1996 and of The Chillicothe Telephone Company since 1988.
Mr. McKell has 46 years of telecommunications experience and received a Bachelor
of Science in Electrical Engineering. Mr. McKell is the father of William A.
McKell.

PETER M. HOLLAND has served as Vice President of Finance and Treasurer of
Horizon Telcom since November 1999. He has also served as the Chief Financial
Officer of Horizon PCS since its inception in April 2000 and has served as the
Chief Financial Officer and a director of Horizon Telcom's other subsidiaries
since November 1999. Mr. Holland has been a member of the management committee
of Bright PCS since its formation in September 1999. Mr. Holland has nearly 14
years of telecommunications experience. From May 1996 to December 1999, Mr.
Holland was a principal and owner of The Pinnacle Group located in Langley,


72


Washington. Pinnacle provides strategic business planning and regulatory
consulting services to independent wireless and wireline companies, including
Horizon PCS. Prior to joining Pinnacle in May 1996, Mr. Holland was a manager in
Nextel Communications' Business Development and Corporate Strategy groups. Mr.
Holland started his career in telecommunications with Ernst & Young's
telecommunications consulting group and is a Certified Public Accountant. Mr.
Holland received his Bachelor of Business Administration with an accounting
concentration from Pacific Lutheran University.

JACK E. THOMPSON has been Secretary and Director of Horizon Telcom since
its inception in 1996 and of Chillicothe Telephone since May 1982. He served as
chief financial officer of Horizon Telcom from its inception to May 2000, and
was treasurer of Chillicothe Telephone from May 1982 until May 2000. Mr.
Thompson has 35 years of telecommunications experience.

WILLIAM A. MCKELL has served as Chairman of the Board, President and Chief
Executive Officer of Horizon PCS since its inception in April 2000 and has
served as President, Chief Executive Officer and Chairman of the Board of
Horizon Personal Communications since May 1996 and as President of Bright PCS
since its formation in September 1999. Mr. McKell has 14 years of
telecommunications experience. Mr. McKell served as Vice President of Network
Services from January 1996 to April 1996 and Director of Network Services from
August 1994 to December 1995 for The Chillicothe Telephone Company. Mr. McKell
is a graduate of Ohio Northern University and is the son of Thomas McKell.

PHOEBE H. MCKELL has served as the President of Horizon Services since its
inception in 1996. Ms. McKell has 23 years of telecommunications experience.
From 1989 to 1996, she was Director of Administration for The Chillicothe
Telephone Company.

JOSEPH S. MCKELL has been a director of Horizon Telcom since its inception
in 1996 and a director of Chillicothe Telephone since 1983. Mr. McKell, a
physician, has practiced medicine in Chillicothe, Ohio for more than forty
years.

DAVID MCKELL has been a director of Horizon Telcom since its inception in
1996 and a director of Chillicothe Telephone for 36 years. He is now retired.

HELEN M. SPROAT has been a director of Horizon Telcom since its inception
in 1996 and a director of The Chillicothe Telephone Company since 1988. She has
owned and managed Hidden Hill Gallery, Springboro, Ohio, for more than six
years.

JOHN E. HERRNSTEIN has been a director of Horizon Telcom since its
inception in 1996, and a director of Chillicothe Telcom since 1981. He has been
a registered representative and financial consultant for AG Edwards & Sons, Inc.
a securities brokerage firm for more than six years.

JOSEPH G. KEAR has been a director of Horizon Telcom since its inception in
1996, and of Chillicothe Telephone for 36 years. Mr. Kear, an attorney, has
practiced law in Chillicothe, Ohio for the past 53 years. He is now a partner at
Kear-Motes law firm, a firm which was organized in January 2001. Prior to that
time, he practiced law as a sole practitioner.

LARRY A. GATES was appointed as a director of Horizon Telcom in November of
2001. Mr. Gates is the current president of the of the Chillicothe High School
Alumni Association, a Chillicothe Education Foundation board member, a member of
the Cavalier Endowment Board of Trustees and a partner of Sunrush Enterprises,
L.L.C. Mr. Gates is the former Senior Vice President, Human Resources and
Administration, for Phillip Morris Companies, Inc. Mr. Gates graduated from
Northeastern University with a bachelor's degree in Business Administration. Mr.
Gates resigned from the board of directors on February 20, 2002.

JERRY B. WHITED was appointed as a director of Horizon Telcom in November
of 2001. Mr. Whited is a partner in the CPA firm of Whited, Seigneur, Sams &
Rahe. Mr. Whited serves on various boards and committees for local non-profit
organizations, including the Bicentennial Commission, Chillicothe Community
Foundation, Ohio University Chillicothe Coordinating Council, Adena Hospital
Finance Committee, the Chillicothe Chamber of Commerce, and has previously
served as president of the Chillicothe Rotary Club. Mr. Whited also currently
serves on the Board of Directors for Citizens National Bank. Mr. Whited
graduated from Bowling Green State University.

Robert McKell, Thomas McKell, David McKell and Joseph McKell are brothers.
Helen Sproat is their sister. Phoebe McKell is the daughter of Robert McKell.
William McKell is the son of Thomas McKell.



73


Board of Directors

There are presently nine members of the board of directors. Following
election, directors serve for a term of one year, or until their successors have
been elected and qualified, and are compensated at the discretion of the board
of directors. Executive officers are ordinarily elected annually and serve at
the discretion of the board of directors.

Director Compensation

Directors who are not otherwise employed by Horizon Telcom or its
subsidiaries receive $2,200 per quarter as director compensation. Robert McKell,
Thomas McKell, and Jack Thompson receive $50 per quarter.

Board Committees

We currently have an audit committee which is responsible for recommending
to the board of directors the engagement of our independent auditors and
reviewing with the independent auditors the scope and results of the audits, our
internal accounting controls, audit practices and the professional services
furnished by the independent auditors. The audit committee is currently
comprised of three members.

We also currently have a compensation committee, which is responsible for
reviewing and approving all compensation arrangements for our officers, and is
also responsible for administering the stock option plan. The compensation
committee is currently comprised of two members.

ITEM 11. Executive Compensation

The following table presents summary information with respect to the
compensation paid to our Chief Executive Officer and each of our other executive
officers whose salary and bonus exceeded $100,000 during the year ended December
31, 2001:


74






Long-Term
Compensation
Annual Compensation Securities
----------------------------- Underlying All Other
Name and Principal Position Salary ($) Bonus ($) Options (#) Compensation ($)
--------------------------- ---------- --------- ----------- ----------------
Thomas McKell................................ 2001 207,733 -- -- 9,117 (1)
President of Horizon Telcom; President of 2000 207,312 -- -- 8,789 (2)
Chillicothe Telephone 1999 214,523 -- -- 17,853 (3)

William A. McKell............................ 2001 195,833 65,935 -- 116,885 (4)
Chairman of the Board, President and 2000 154,167 21,458 -- 12,497 (5)
CEO of Horizon PCS 1999 107,125 9,641 1,614,186 8,934 (6)


Peter M. Holland............................. 2001 170,833 57,479 -- 129,032 (8)
Vice President of Finance, 2000 150,000 20,625 -- 11,971 (9)
Treasurer and CFO of Horizon 1999 -- -- 1,614,186 --
Telcom; CFO of Horizon PCS (7)


Joseph E. Corbin............................. 2001 121,667 44,428 -- 126,797 (10)
Vice President, Engineering/Operations 2000 105,000 14,438 -- 20,254 (11)
of Horizon PCS 1999 85,200 9,200 188,322 13,528 (12)


Monesa S. Skocik............................. 2001 121,667 40,733 -- 126,501 (13)
Vice President, External Affairs of 2000 105,000 14,438 -- 12,692 (14)
Horizon PCS 1999 65,750 6,850 188,322 3,024 (15)


- ------------------------

(1) Includes a yearly car allowance of $7,040 and a 401(k) contribution of
$2,077.
(2) Includes a yearly car allowance of $7,189 and a 401(k) contribution of
$1,600.
(3) Includes a yearly car allowance of $6,773 and a 401(k) contribution of
$11,080.
(4) Includes an award of Horizon Telcom shares valued at $100,900 at the date
of the award, a yearly car allowance of $10,985 and a 401(k) contribution
of $5,000.
(5) Includes a yearly car allowance of $7,784 and a 401(k) contribution of
$4,713.
(6) Includes a yearly car allowance of $7,428 and a 401(k) contribution of
$1,506.
(7) Mr. Holland became Chief Financial Officer on November 17, 1999, but did
not receive any compensation in 1999. See ITEM 13 "Certain
Transactions-Consulting Agreement" for a discussion of consulting fees
received by the Pinnacle Group, a company that was 50% owned by Mr.
Holland. Pinnacle received consulting fees of $267,000 in 1999, $204,000 in
1998 and $419,000 in 1997.
(8) Includes an award of Horizon Telcom shares valued at $116,000 at the date
of the award, a yearly car allowance of $7,892 and a 401(k) contribution of
$5,140.
(9) Includes a yearly car allowance of $7,578 and a 401(k) contribution of
$4,393.
(10) Includes an award of Horizon Telcom shares valued at $116,000 at the date
of the award, a yearly car allowance of $7,839 and a 401(k) contribution of
$2,958.
(11) Includes a yearly car allowance of $9,981 and a 401(k) contribution of
$10,273.
(12) Includes a yearly car allowance of $4,328 and a 401(k) contribution of
$9,200.
(13) Includes an award of Horizon Telcom shares valued at $116,000 at the date
of the award, a yearly car allowance of $6,807 and a 401(k) contribution of
$3,694.
(14) Includes a yearly car allowance of $6,330 and a 401(k) contribution of
$6,362.
(15) Includes a 401(k) contribution of $3,024.

None of the named executive officers received stock options from Horizon
Telcom or Horizon PCS in 2001.




75



Employment Agreements

Horizon PCS entered into employment agreements with William McKell and
Peter Holland, its Chief Executive Officer and Chief Financial Officer,
respectively. The employment agreements provide for an annual base salary of
$200,000 to Mr. McKell and $175,000 to Mr. Holland beginning in 2002. In
addition to their base salary, Mr. McKell and Mr. Holland are eligible to
receive an annual bonus up to 40% of their base salary. In addition, Mr. McKell
and Mr. Holland are eligible to participate in all of Horizon PCS' employee
benefit plans.

The employment agreements provide that Mr. McKell's or Mr. Holland's
employment may be terminated with or without cause, as defined in the agreement.
If either Mr. McKell or Mr. Holland is terminated without cause, he is entitled
to receive 24 months base salary, the vesting of all of his stock options on the
date of termination and 24 months of health and dental benefits. Under the
employment agreements, both Mr. McKell and Mr. Holland have agreed to a
restriction on their present and future employment. They have agreed not to
compete in the business of wireless telecommunications either directly or
indirectly within our markets while employed by us and for a period of twelve
months after termination of employment.

Horizon Telcom 1999 Stock Option Plan

The 1999 Stock Option Plan has been adopted by our board of directors and
stockholders. The option plan permits the granting of both incentive stock
options and nonqualified stock options to employees. The aggregate number of
shares of common stock that may be issued pursuant to options granted under the
option plan is 10,000 shares, including both shares of class A common stock and
shares of class B common stock, subject to adjustments in the event of certain
changes in the outstanding shares of common stock. In 1999, we granted options
to purchase 950 shares of class B common stock at an exercise price of $60.00
per share. No additional options were granted in 2000 or 2001.

The option plan will be administered by our board of directors or by a
compensation committee appointed by our board of directors, which will be
authorized, subject to the provisions of the option plan, to grant options and
establish rules and regulations as it deems necessary for the proper
administration of the option plan and to make whatever determinations and
interpretations it deems necessary or advisable.

An incentive option may not have an exercise price less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant. In the case of option holders that own
more than 10% of Horizon Telcom's stock, the exercise price for an incentive
option cannot be less than 110% of the fair market value of the common stock on
the date of grant and the exercise period cannot exceed five years from the date
of grant. Incentive options are also subject to other limitations, which allow
the option holder to qualify for favorable tax treatment. Nonqualified options
may have an exercise price of less than, equal to or greater than the fair
market value of the underlying common stock on the date of grant but are limited
to an exercise period of no longer than ten years.

The board of directors or the compensation committee will determine the
persons to whom options will be granted and the terms, provisions, limitations
and performance requirements of each option granted, and the exercise price of
an option.

An option will not be not transferable except by will or by the laws of
descent or distribution or unless determined otherwise by our board of directors
or the compensation committee.

The plan provides that all stock issued under the plan will be subject to a
right of first refusal in favor of Horizon Telcom. Under the right of first
refusal, each holder of stock issued under the plan must offer the stock to
Horizon Telcom prior to selling it to a third party. If Horizon Telcom declines
to purchase the stock, the stockholder may sell the stock to the third party,
but the stock will remain subject to the Horizon Telcom right of first refusal.
The right of first refusal shall cease to apply upon the completion of an
underwritten initial public offering of Horizon Telcom's capital stock
registered under the Securities Act.

The plan contains provisions that give the compensation committee or our
board of directors or the acquiring entity's board of directors discretion to


76


take specified actions if Horizon Telcom is acquired, unless the individual
option grants provide otherwise. Those actions can include the authorization to
purchase option grants from plan participants, or make adjustments or
modifications to outstanding options granted to protect and maintain the rights
and interests of the plan participants or, upon notice to optionees, require
that all options must be exercised within a specified number of days and
thereafter the option will terminate. The board may provide for acceleration of
options upon the occurrence of events specified in the option agreement. To
date, all individual option grants have provided that the options will
accelerate and become fully exercisable upon an acquisition of Horizon Telcom.

Horizon PCS 2000 Stock Option Plan

The Horizon PCS Stock Option Plan has been adopted by Horizon PCS' board of
directors and stockholders. That option plan permits the granting of both
incentive stock options and nonqualified stock options to employees. The
aggregate number of shares of common stock that may be issued pursuant to
options granted under the option plan is 7,500,000 shares of Horizon PCS class A
common stock and 4,196,884 shares of Horizon PCS class B common stock, subject
to adjustments in the event of certain changes in the outstanding shares of
common stock. On December 1, 1999, Horizon PCS' subsidiary, Horizon Personal
Communications, granted options to purchase 3,588,000 shares of its class B
common stock with an exercise price of $0.1414 per share to 13 individuals under
its 1999 Stock Option Plan. After Horizon PCS was incorporated, it issued
options to replace those initial options, on the same economic terms adjusted
for the fact that Horizon Personal Communications was a subsidiary. After taking
into account the adjustment, Horizon PCS issued 4,196,884 substituted options on
its class B common stock at an exercise price of $0.1209. In November 2000,
Horizon PCS granted options to purchase 116,971 shares of Horizon PCS' class A
common stock at an exercise price of $5.88 per share.

The Horizon PCS option plan will be administered by its board of directors
or a compensation committee appointed by its board of directors, which will be
authorized, subject to the provisions of the option plan, to grant options and
establish rules and regulations as it deems necessary for the proper
administration of the option plan and to make whatever determinations and
interpretations it deems necessary or advisable.

An incentive option may not have an exercise price less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant. In the case of option holders that own
more than 10% of Horizon PCS' stock, the exercise price for an incentive option
cannot be less than 110% of the fair market value of the common stock on the
date of grant and the exercise period cannot exceed five years from the date of
grant. Incentive options are also subject to other limitations, which allow the
option holder to qualify for favorable tax treatment. Nonqualified options may
have an exercise price of less than, equal to or greater than the fair market
value of the underlying common stock on the date of grant but are limited to an
exercise period of no loner than ten years. However, we will not grant
non-qualified options with an exercise price less than 85% of fair market value
of the common stock on the date of the grant.

The board of directors or the compensation committee will determine the
persons to whom options will be granted and the terms, provisions, limitations
and performance requirements of each option granted, and the exercise price of
an option.

An option will not be not transferable except by will or by the laws of
descent or distribution or unless determined otherwise by our board of directors
or the compensation committee.

Unless previously exercised, a vested option granted under the Horizon PCS
option plan will terminate automatically:

o twelve months after the employee's termination of employment by reason
of disability or death; and

o three months after an employee's termination of employment for reasons
other than disability or death.

The plan contains provisions that give the Horizon PCS compensation
committee or board of directors or the acquiring entity's board of directors


77


discretion to take specified actions if Horizon PCS is acquired, unless the
individual option grants provide otherwise. Those actions can include the
authorization to purchase option grants from plan participants, or make
adjustments or modifications to outstanding options granted to protect and
maintain the rights and interests of the plan participant or accelerate the
vesting of outstanding options. To date, all individual option grants have
provided that the options will accelerate and become fully exercisable upon an
acquisition of Horizon PCS.

The Horizon PCS board of directors has adopted a policy to the effect that,
for at least one year from March 27, 2001, 3,000,000 of the shares authorized to
be issued under the plan are subject to the condition that they must either be
issued to non-promoter employees (as defined in the North American Securities
Administration Association's statement of policy on options and warrants) or at
an exercise price no less than $5.88 per share. The Horizon PCS board also has
undertaken not to grant options (other than under the Horizon PCS 2000 Stock
Option Plan) with a term of longer than 5 years until the class A common stock
is listed on either the New York Stock Exchange, the American Stock Exchange, or
the NASDAQ National Market.

None of our named executive officers were granted stock options during
fiscal year 2001. Additionally, none of our named executive officers exercised
stock options in the fiscal year ended December 31, 2001. The following table
sets forth information concerning the number and value of unexercised options
held by each of our named executive officers on December 31, 2001. There was no
public market for our common stock as of December 31, 2001. Accordingly, the
fair market value on December 31, 2001, is based on an average assumed value of
$100 per share of Horizon Telcom common stock and $5.39 per share of Horizon PCS
common stock. This valuation at December 31, 2001, does not represent the actual
value of our stock at December 31, 2001.





Aggregated Option Exercises In Fiscal Year 2001
And 2001 Fiscal Year-End Option Values

Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Options At Year End (#) Options At Year End ($) (1)
Name Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------------------------- ---------------
Thomas McKell................................ -- -- -- --
William A.McKell...................... 706,206* 907,980* 3,721,708* 4,785,053*
Peter M. Holland...................... 706,206* 907,980* 3,721,708* 4,785,053*
Joseph E. Corbin...................... 117,701* 70,621* 620,285* 372,171*
Monesa S. Skocik............................. 117,701* 70,621* 620,285* 372,171*


- -------------
* Represents options to purchase Horizon PCS class A common stock.
(1) Based on an assumed value of $100.00 per share of Horizon Telcom stock and
$5.39 per share for Horizon PCS stock.


Pension Plan

This table shows the estimated annual benefits payable upon retirement at
age 65 in the September 1, 2001 plan year under The Chillicothe Telephone
Company Salaried Employees' Pension Plan and Trust Agreement, a non-contributory
qualified defined benefit plan. Benefits from the plan are payable upon
retirement in monthly installments for the life of the participant.






----------------------------------------------------------------------------------------------
Years of Service
----------------------------------------------------------------------------------------------
Remuneration 15 20 25 30 35

$125,000 18,750 25,000 31,250 37,500 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 25,500 34,000 42,500 51,000 59,500
200,000 25,500 34,000 42,500 51,000 59,500
225,000 25,500 34,000 42,500 51,000 59,500
250,000 25,500 34,000 42,500 51,000 59,500
300,000 25,500 34,000 42,500 51,000 59,500
400,000 25,500 34,000 42,500 51,000 59,500
450,000 25,500 34,000 42,500 51,000 59,500
500,000 25,500 34,000 42,500 51,000 59,500

78

The remuneration shown above is the annual equivalent of an average of
monthly rates of pay. The benefits shown above are based on the sum of the
highest five consecutive monthly rates of pay in effect on each July 1 during
the final ten plan years divided by five. The benefit stated in the table will
not be reduced by Social Security or other amounts received by a participant.
The benefits in the table would be paid in the form of a joint and 50% survivor
annuity.

For the September 1, 2001 plan year, the July 1, 2001 monthly rate of pay
is limited to $14,167, which is equivalent to an annual pay of $170,000.
Compensation in excess of this amount will not be taken into account for benefit
calculation purposes. Along these lines, years of benefit service in excess of
40 years will not be taken into account for benefit calculation purposes.

The pension plan was amended on November 11, 2000. This amendment increased
the minimum benefit from $32.00 per month times years of benefit service to
$35.00 per month times years of benefit service. This minimum does not apply for
any of the benefits listed in the table above.

The number of years of credited service certain executive officers have
accrued under the pension plan as of the most recent fiscal year end are:


Name Years of Service
----------------------- -----------------------
Thomas McKell 46.6
William A. McKell 11.6
Jack E. Thompson 34.0
Phoebe McKell 23.6


Thomas McKell is an active employee, but he is currently eligible to
retire. Mr. Thompson is retired and receives retirement benefits under the
pension plan. Horizon PCS employees do not now participate in this plan,
although several current employees of Horizon PCS who formerly were employees
eligible to participate, including William McKell, have vested pension benefits
under this plan.

Indemnification Of Officers and Directors

Horizon Telcom

The regulations of Horizon Telcom provide for indemnification of officers
and directors, as described below:

Actions Not by the Company. Horizon Telcom shall indemnify any person who
was or is a party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
Company, by reason of the fact that he is or was a director or officer of
Horizon Telcom or is or was serving at the request of Horizon Telcom as a
director, officer, partner, or trustee of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.

Actions by the Company. Horizon Telcom shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of Horizon Telcom to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of Horizon Telcom as
a director, officer, partner, or trustee of another corporation, domestic or
foreign, nonprofit or for profit, partnership, joint venture, trust, or other


79


enterprise against expenses, including attorneys' fees, actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to Horizon Telcom unless, and only to
the extent that, the court of common pleas, or the court in which such action or
suit was brought, shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court of common pleas or such other court shall deem proper.

Indemnification for Expenses. To the extent that a person indemnified by
right or at the option of Horizon Telcom under the above bylaw provisions has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in said sections, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection therewith.

Determination of Indemnification. Any indemnification under these bylaw
provisions, unless ordered by a court, shall be made by Horizon Telcom only as
authorized in the specific case upon a determination that indemnification of the
indemnified person is proper in the circumstances because he has met the
applicable standard of conduct set forth in the bylaws. Such determination shall
be made (a) by a majority vote of a quorum consisting of directors of Horizon
Telcom who were not and are not parties to or threatened with any such action,
suit, or proceeding, or (b) if such a quorum is not obtainable or if a majority
vote of a quorum of disinterested directors so directs, in a written opinion by
independent legal counsel, other than an attorney or a firm having associated
with it an attorney who has been retained by or who has performed services for
Horizon Telcom or any person to be indemnified, within the past five years, or
(c) by the shareholders, or (d) by the court of common pleas or the court in
which such action, suit, or proceeding was brought. Any determination made by
the disinterested directors under clause (a) or by independent legal counsel
under clause (b) shall be promptly communicated to the person who threatened or
brought the action or suit by or in the right of the Company, and within ten
days after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or suit was
brought to review the reasonableness of such determination.

Advances of Expenses. Expenses, including attorneys' fees, incurred in
defending any action, suit, or proceeding referred to in the above bylaw
provisions may be paid by Horizon Telcom in advance of the final disposition of
such action, suit, or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the indemnified
person to repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by Horizon Telcom as authorized in the above bylaw
provisions. No holder shall have the right to question such expenses paid so
long as the board of directors has authorized such payment and the
aforementioned undertaking has been received by the Company; provided that the
restriction contained in this sentence shall not be construed to restrict a
shareholder's right to question the reasonableness of the ultimate determination
of indemnification as described above under "Determination of Indemnification."

Indemnification Not Exclusive. The indemnification provided by the bylaws
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under the articles, or any agreement, vote of
shareholders or disinterested directors, statute (as now existing or as
hereafter enacted or amended), or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office and
shall continue as to a person who has ceased to be a director, officer, partner,
trustee, or other indemnified capacity and shall inure to the benefit of the
heirs, executors, and administrators of such a person.

Insurance. Horizon Telcom is authorized under the bylaws to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
trustee, employee, or agent of the Company, or is or was serving at the request
of Horizon Telcom as a director, officer, partner, trustee, employee, or agent
of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not Horizon Telcom has the obligation or power to
indemnify him against such liability under the bylaws. Horizon Telcom has
purchased such insurance covering the officers and directors.

Definitions. As used in the bylaws, references to "Company" includes all
constituent corporations in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director or officer of such a


80


constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, partner, trustee, or other indemnified
capacity of another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same capacity.

Horizon PCS

Horizon PCS' certificate of incorporation limits the liability of Horizon
PCS directors to the maximum extent permitted by Delaware law. Horizon PCS'
certificate of incorporation provides that Horizon PCS shall indemnify our
directors and executive officers and may indemnify its other officers and
employees and agents and other agents to the fullest extent permitted by law.
Horizon PCS' certificate of incorporation also permits it to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of actions in his or her official capacity.

Horizon PCS intends to enter into agreements to indemnify its directors and
officers in addition to indemnification provided for in its certificate of
incorporation. These agreements will indemnify its directors and officers for
certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any of these persons in any action or proceeding, including
any action by Horizon PCS or in its right, arising out of that person's services
as a director or officers of Horizon PCS, any subsidiary of Horizon PCS, or any
other company or enterprise to which the person provides services at Horizon
PCS' request. In addition, Horizon PCS has directors' and officers' insurance
providing indemnification for certain of its directors, officers and employees
for these types of liabilities. Horizon PCS believes that these provisions,
agreements and insurance are necessary to attract and retain qualified directors
and officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Horizon PCS where indemnification will
be required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Horizon Telcom's executive
officers, directors and persons who beneficially own more than 10% of Horizon
Telcom's stock ("reporting persons") to file initial reports of ownership and
reports of changes in ownership with the SEC. Executive officers, directors and
greater than 10% beneficial owners are required by SEC regulations to furnish
Horizon Telcom with copies of all Section 16(a) forms they file.

Based solely on its review of copes of forms received by it pursuant to
Section 16(a) of the Exchange Act or written representations from reporting
persons, Horizon Telcom believes that with respect to 2001, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than 10% beneficial owners were complied with, except that Mr. Whited filed one
late Form 3 and Mr. Gates failed to file a Form 3 prior to his resignation as a
director.

The following table sets forth information regarding the beneficial
ownership of our voting securities, as of December 31, 2001 by:

o each person who, to our knowledge, is the beneficial owner of 5% or
more of a class of our outstanding common stock;

o each of our directors;

o each of the executive officers; and

o all executive officers and directors as a group.



81


Beneficial ownership is determined in accordance with Rule 13d-3 of the
Exchange Act. A person is deemed to be the beneficial owner of any shares of
common stock if that person has or shares voting power or investment power with
respect to the common stock, or has the right to acquire beneficial ownership at
any time within 60 days of the date of the table. "Voting power" is the power to
vote or direct the voting of shares and "investment power" is the power to
dispose or direct the disposition of shares.





Class A Common Stock (1) Class B Common Stock (1)
------------------------------------- -------------------------------------
Name and Address (2) Number Percent Number Percent
- -------------------- ------ ------- ------ -------

Robert McKell 2,079 2.32% 4,463 1.6%
Thomas McKell (3) 7,638 8.4% 20,620 7.6%
Peter M. Holland (4) 290 * 875 *
Jack E. Thompson (5) 423 * 1,368 *
William A. McKell (6) 1,274 1.4% 3,800 1.4%
Phoebe H. McKell (7) 2,625 2.9% 7,969 2.9%
Joseph S. McKell (8) 8,993 9.9% 26,979 9.9%
David McKell (9) 9,294 10.3% 27,882 10.3%
Helen M. Sproat (10) 6,165 6.8% 17,735 6.5%
John E. Herrnstein (11) 105 * 343 *
Joseph G. Kear (12) 230 * 784 *
Larry A. Gates -- -- -- --
Jerry B. Whited -- -- -- --

All Executive Officers and Directors 39,116 43.2% 112,818 41.5%
as a Group (13 persons) (13)


- ---------------------
* Less than one percent.

(1) Holders of class A common stock are entitled to one vote per share. Holders
of class B common stock do not have voting rights, except as otherwise
required by law.
(2) The address for Horizon Telcom, Inc. and each executive officer and
director is 68 E. Main Street, Chillicothe, Ohio 45601-0480.
(3) Includes 6,623 shares of class A common stock and 17,575 shares of class B
common stock held by a trust. Mr. McKell shares voting and investment power
over these shares. A separate trust owns 1,015 shares of class A common
stock and 3,045 shares of class B common stock. Mr. McKell's wife shares
voting and investment power over these shares. Mr. McKell disclaims
beneficial ownership of the shares owned by his wife.
(4) Includes 290 shares of class A stock and 870 shares of class B common stock
received as a bonus during 2001.
(5) Includes 213 shares of class A common stock and 639 shares of class B
common stock owned by Mr. Thompson's spouse. Mr. Thompson disclaims
beneficial ownership of these shares. Includes 57 shares of class B common
stock issuable upon exercise of stock options that are presently
exercisable or exercisable within 60 days of the date hereof.
(6) Includes 400 shares of class A common stock and 1,200 shares of class B
common stock held by Mr. McKell's spouse and their children. Mr. McKell
disclaims beneficial ownership of those shares. Includes 259 shares of
class A stock and 750 shares of class B common stock received as a bonus
during 2001.
(7) Includes 80 shares of class A common stock and 240 shares of class B common
stock held by Ms. McKell's spouse. Ms. McKell disclaims beneficial
ownership of these shares. Includes 57 shares of class B common stock
issuable upon exercise of stock options that are presently exercisable or
exercisable within 60 days of the date hereof.
(8) Includes 415 shares of class A common stock and 1,245 shares of class B
common stock owned by Dr. McKell's spouse. Dr. McKell disclaims beneficial
ownership of these shares.
(9) These shares are owned by a Trust. Dr. McKell shares voting and investment
powers over these shares. Dr. McKell disclaims beneficial ownership of
these shares.
(10) Includes 385 shares of class A common stock and 115 shares of class B
common stock held by Ms. Sproat's spouse. Ms. Sproat disclaims beneficial
ownership of these shares.
(11) Includes 94 shares of class B common stock issuable upon exercise of stock
options that are presently exercisable or exercisable within 60 days of the
date hereof.
(12) Includes 57 shares of class B common stock issuable upon exercise of stock
options that are presently exercisable or exercisable within 60 days of the
date hereof.
(13) Includes 264 shares of class B common stock issuable upon exercise of stock
options that are presently exercisable or exercisable within 60 days of the
date hereof.


82


ITEM 13. Certain Relationships and Related Transactions

Service Agreements With Horizon Telcom Subsidiaries

HPC and Bright PCS, wholly-owned subsidiaries of our majority-owned
subsidiary Horizon PCS, have entered into service agreements with Horizon
Services, Inc. and a separate services agreement with Horizon Technology, Inc.,
Horizon Services and Horizon Technology, Inc. (formerly United Communications,
Inc.). Horizon Services and Horizon Technology are both wholly-owned
subsidiaries of Horizon Telcom.

Under the agreement with Horizon Services, Horizon Services provides
services to HPC and Bright PCS including insurance functions, billing services,
accounting services, computer access and other customer relations, human
resources, and other administrative services that HPC and Bright PCS would
otherwise be required to undertake on their own. These agreements have a term of
three years, with the right to renew the agreement for additional one-year terms
each year thereafter. Horizon PCS has the right to terminate each agreement
during its term by providing 90 days written notice to Horizon Services. Horizon
Services may terminate the agreement prior to its expiration date only in the
event that Horizon PCS breaches its obligations under the services agreement and
the breach is not cured within 90 days after Horizon PCS receives written notice
of breach from Horizon Services. Horizon Services is entitled to the following
compensation from HPC for services provided:

o direct labor charges at cost; and

o expenses and costs which are directly attributable to the activities
covered by the agreement on a direct allocation basis.

The agreement provides that Horizon Services' obligations do not relieve
HPC of any of its rights and obligations to their customers and to regulatory
authorities having jurisdiction over them. Additionally, Horizon Services, upon
request, is required to provide HPC with access to Horizon Services' records
with respect to the provision of services, and Horizon Services is also required
to provide regular reports to Horizon Personal Communications, as it may
request. Horizon Services received compensation from HPC of approximately $6.2
million, $4.4 million and $815,000 in the years ending December 31, 2001, 2000
and 1999, respectively. As of December 31, 2001, Horizon PCS had a receivable
from Horizon Services of approximately $101,000. As of December 31, 2001,
Horizon PCS had a receivable from Horizon Telcom of approximately $484,000.
Horizon Services also provides administrative services to Bright PCS.

HPC, a subsidiary of Horizon PCS, entered into a services agreement with
Horizon Technology, Inc., a wholly-owned subsidiary of Horizon Telcom. Under the
services agreement, HPC provided services to Horizon Technology including
customer activation and deactivation, customer care support and other
administrative services that Horizon Technology would otherwise have been
required to undertake on its own. Under the agreement, Horizon Technology paid
HPC $4,000 each month of the term of the services agreement. This agreement was
terminated in August 2001. Horizon Technology paid a total of $32,000 to HPC
during 2001.

Sale of Assets to Affiliate

On April 1, 2000, Horizon PCS transferred the assets and contractual rights
that made up its Internet, long distance and other businesses unrelated to the
PCS wireless operations to Horizon Technology, a subsidiary of Horizon Telcom,
for a purchase price of approximately $708,000. Horizon Technology paid the
purchase price by delivering a promissory note with an interest rate equal to
the applicable federal rate, which was 6.0%. The note was repaid in 2001.

83


Office Lease

Horizon PCS leases its principal office space, the space for one of its
retail locations and the space for certain equipment from The Chillicothe
Telephone Company, a wholly owned subsidiary of Horizon Telcom. The monthly
rental payments under the lease are $10,000. Prior to signing the lease
agreement in May 2000, Horizon PCS rented the office space from The Chillicothe
Telephone Company under a month-to-month rental arrangement. Under this lease,
Horizon PCS paid The Chillicothe Telephone Company $120,000, $97,500 and $22,300
in 2001, 2000, and 1999, respectively. We believe that the lease was made on
terms no less favorable to Horizon PCS than would have been obtained from a
non-affiliated third party. The lease term expires in May 2005. Horizon PCS has
the option to renew the lease for an additional two year period. It is the
expectation of management that the lease will be renewed.

Stock Grant

In 2001, Horizon PCS distributed the remaining 2% of the Horizon Telcom
stock that it owned to a group of its officers and key employees in the form of
a bonus. Recipients included William A. McKell, who received 259 shares of
Horizon Telcom's class A common stock and 750 shares of Horizon Telcom's class B
common stock, Peter M. Holland, Monesa S. Skocik and Joseph E. Corbin who each
received 290 shares of Horizon Telcom's class A common stock and 870 shares of
Horizon Telcom's class B common stock.

Tax-Sharing Agreement

In 1997, Horizon Telcom entered into a tax-sharing agreement with its
subsidiaries, including Horizon Personal Communications (now a subsidiary of
Horizon PCS). This agreement provides that Horizon Telcom and its subsidiaries
will file a consolidated tax return as long as they are eligible to do so and
that subsidiaries will be paid for the amount of their taxable net operating
losses used by Horizon Telcom to offset taxable income. During 1999, Horizon PCS
had taxable net operating losses of $16.5 million and received an aggregate of
$5.2 million from Horizon Telcom under the agreement. During 2000, Horizon PCS
had taxable net income of $18.6 milion and paid an aggregate of $2.2 million to
Horizon Telcom under the agreement. Due to the sale by Horizon PCS of
convertible preferred stock in September 2000, Horizon PCS is no longer included
in the consolidated tax return of Horizon Telcom. This change in tax status is
referred to as a tax deconsolidation. The tax-sharing agreement provides that
Horizon Telcom will indemnify Horizon PCS to the extent of any aggregate tax
liability in excess of $11.5 million related to the tax deconsolidation and the
dividend of the Horizon Telcom stock. As of December 31, 2001, Horizon PCS had a
receivable from Horizon Telcom of approximately $484,000. As of December 31,
2000, Horizon PCS had a payable to Horizon Telcom of approximately $338,000.


PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this annual report on Form
10-K:

1. Financial Statements

Report of Independent Public Accountants, Consolidated Balance Sheets as of
December 31, 2001 and 2000, Consolidated Statements of Operations for the
Years Ended December 31, 2001, 2000 and 1999, Consolidated Statements of
Changes in Stockholders' Equity (Deficit) for the Years Ended December 31,
2001, 2000 and 1999, Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999, and Notes to Consolidated Financial
Statements.

2. Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

84


3. Exhibits

See the Index to Exhibits immediately preceding the exhibits filed with
this Report.

(b) Reports on Form 8-K:

There were no Reports on Form 8-K filed by the Registrant during the fourth
quarter of 2001.



85




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

HORIZON TELCOM, INC.


By:/s/ THOMAS MCKELL March 20, 2002
-----------------------
Thomas McKell
President, Director; President of
Chillicothe Telephone


Date: March 20, 2002


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.





NAME TITLE DATE


/s/ THOMAS MCKELL President, Director; President of March 20, 2002
- ------------------------------- Chillicothe Telephone
Thomas McKell
(Principal Executive Officer)


/s/ PETER M. HOLLAND Vice President of Finance and , March 20, 2002
- ------------------------------- Treasurer, Director
Peter M. Holland


Chairman of the Board, Director March 20, 2002
- -------------------------------
Robert McKell


/s/ JACK E. THOMPSON Secretary, Director March 20, 2002
- -------------------------------
Jack E. Thompson


/s/ PHOEBE H. MCKELL Director March 20, 2002
- -------------------------------
Phoebe H. McKell


Director March 20, 2002
- -------------------------------
Joseph S. McKell


Director March 20, 2002
- -------------------------------
David McKell


Director March 20, 2002
- -------------------------------
Helen M. Sproat


Director March 20, 2002
- -------------------------------
John E. Herrnstein


/s/ JOSEPH G. KEAR Director March 20, 2002
- -------------------------------
Joseph G. Kear


s/ JERRY B. WHITED Director March 20, 2002
- -------------------------------
Jerry B. Whited





86





INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION

3.1** Articles of Incorporation of Horizon Telcom, Inc.

3.2** Bylaws of Incorporation of Horizon Telcom, Inc.

4.1** Form of Stock Certificate.

4.2* Indenture dated as of September 26, 2000 between Horizon PCS, Inc.,
Horizon Personal Communications, Inc., Bright Personal
Communications Services, LLC and Wells Fargo Bank Minnesota,
National Association.

4.3* A/B Exchange Registration Rights Agreement made as of September 26,
2000 by and among Horizon PCS, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation and First Union Securities, Inc.

4.4* Form of Registered Note (included in Exhibit 4.2).

4.5* Note Guarantee of Horizon Personal Communications, Inc.

4.6* Note Guarantee of Bright Personal Communications Services, LLC.

4.7 Indenture dated December 7, 2001 by and among Horizon PCS, Inc., as
Issuer, Horizon Personal Communications, Inc., and Bright Personal
Communications Services, LLC, as Guarantors, and Wells Fargo Bank
Minnesota, National Association, as Trustee (incorporated by
reference to Exhibit No. 10.45 filed with the Registration
Statement on Form S-1 of Horizon PCS, Inc. (File No. 333-51240)).

10.1* Form of Employment Agreement, dated September 26, 2000, by and
between Horizon PCS, Inc. and William A. McKell.

10.2* Form of Employment Agreement, dated September 26, 2000, by and
between Horizon PCS, Inc. and Peter M. Holland.

10.3*+ Sprint PCS Management Agreement between Sprint Spectrum, L.P.,
SprintCom, Inc. and Horizon Personal Communications, Inc., dated
June 8, 1998.

10.3.1* Letter Agreement dated July 3, 2000 between Sprint Spectrum L.P.,
and Horizon Personal Communications, Inc.

10.3.2 Addendum VI to Sprint PCS Management Agreement between the
Registrant and Sprint PCS, Inc. (incorporated herein by reference
to the Registrant's Current Report on Form 8-K filed on August 24,
2001).

10.3.3+ Addendum V to Sprint PCS Management Agreement between the
Registrant and Sprint PCS, Inc. (incorporated herein by reference
to Exhibit 10.3.1 to the Registration Statement on Form 10/A of
Horizon Telcom, Inc. (File No. 000-32617)).

10.4*+ Sprint PCS Services Agreement between Sprint Spectrum L.P. and
Horizon Personal Communications, Inc., dated June 8, 1998.

10.5* Sprint Trademark and Service Mark License Agreement between Sprint
Communications Company, L.P. and Horizon Personal Communications,
Inc., dated June 8, 1998.




87




EXHIBIT NO. DESCRIPTION

10.6* Sprint Spectrum Trademark and Service Mark License Agreement
between Sprint Spectrum L.P. and Horizon Personal Communications,
Inc., dated June 8, 1998.

10.7*+ Sprint PCS Management Agreement between Wirelessco, L.P.,
SprintCom, Inc., Sprint Spectrum, L.P. and Bright Personal
Communications Services, LLC, dated October 13, 1999.

10.8* Sprint PCS Services Agreement between Sprint Spectrum, L.P. and
Bright Personal Communications Services, LLC, dated October 13,
1999.

10.9* Sprint Trademark and Service Mark License Agreement between Sprint
Communications Company, L.P. and Bright Personal Communications
Services, LLC, dated October 13, 1999.

10.10* Sprint Spectrum Trademark and Service Mark License Agreement
between Sprint Spectrum, L.P. and Bright Personal Communications
Services, LLC, dated October 13, 1999.

10.19*+ Network Services Agreement by and between West Virginia PCS
Alliance, L.C., Virginia PCS Alliance, L.C. and Horizon Personal
Communications, Inc., dated August 12, 1999.

10.19.1** First Amendment to Network Services Agreement by and between West
Virginia PCS Alliance, L.C., Virginia PCS Alliance, L.C. and
Horizon Personal Communications, Inc., dated as of June 18, 2000.

10.19.2 Amendment to Network Services Agreement by and among the
Registrant, West Virginia PCS Alliance, L.C. and Virginia PCS
Alliance, L.C. (incorporated herein by reference to the
Registrant's Current Report on Form 8-K filed on August 24, 2001).

10.21*+ PCS CDMA Product Supply Contract by and between Motorola, Inc. and
Horizon Personal Communications, Inc.

10.25* Horizon PCS, Inc. 2000 Stock Option Plan.

10.25.1** Horizon Telcom, Inc. 1999 Stock Option Plan.

10.26*+ Site Development Agreement by and between Horizon Personal
Communications, Inc. and SBA Towers, Inc., dated August 17, 1999.

10.27*+ Master Site Agreement by and between SBA Towers, Inc. and Horizon
Personal Communications, Inc., dated July 1999.

10.28*+ Master Design Build Agreement by and between Horizon Personal
Communications, Inc. and SBA Towers, Inc., dated August 17, 1999.

10.29*+ Master Site Agreement by and between SBA Towers, Inc. and Bright
Personal Communications Services, LLC, dated October 1, 1999.

10.30*+ Master Design Build Agreement by and between Bright Personal
Communications Services, LLC and SBA Towers, Inc., dated October 1,
1999.

10.31* Services Agreement, dated May 1, 2000, between Horizon Personal
Communications, Inc. and Horizon Services, Inc.

10.32* Lease Agreement, dated May 1, 2000 between The Chillicothe
Telephone Company and Horizon Personal Communications, Inc.




88




EXHIBIT NO. DESCRIPTION

10.33* Services Agreement, dated May 1, 2000 between Horizon Personal
Communications, Inc. and United Communications, Inc.

10.34* Form of Horizon PCS, Inc. Indemnification Agreement.

10.35* Amended and Restated Tax Allocation Agreement dated May 1, 2000 by
and among Horizon Telcom, Inc., The Chillicothe Telephone Company,
Horizon Personal Communications, Inc., United Communications, Inc.,
Horizon Services, Inc., and Horizon PCS, Inc.

10.35.1* First Amendment to the Amended and Restated Tax Allocation
Agreement dated as of September 26, 2000 by and among Horizon
Telcom, Inc., The Chillicothe Telephone Company, Horizon Personal
Communications, Inc., United Communications, Inc., Horizon
Services, Inc., and Horizon PCS, Inc.

10.37* Securities Purchase Agreement dated September 26, 2000 by and among
Horizon PCS, Inc., Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., Ares Leveraged Investment Fund, L.P., Ares
Leveraged Investment Fund, II, L.P. and First Union Capital
Partners, LLC.

10.38* Investors Rights and Voting Agreement dated September 26, 2000 by
and among Horizon PCS, Inc., Apollo Investment Fund IV, L.P.,
Apollo Overseas Partners IV, L.P., Ares Leveraged Investment Fund,
L.P., Ares Leveraged Investment Fund II, L.P. and First Union
Capital Partners, LLC.

10.39* Registration Rights Agreement dated September 26, 2000 by and among
Horizon PCS, Inc., Apollo Investment Fund IV, L.P., Apollo Overseas
Partners IV, L.P., Ares Leveraged Investment Fund, L.P., Ares
Leveraged Investment Fund II, L.P. and First Union Capital
Partners, LLC.

10.40* Credit Agreement, dated as of September 26, 2000, by and among
Horizon Personal Communications, Inc., and Bright Personal
Communications Services, LLC, Horizon PCS, Inc. (the "Parent") and
certain Subsidiaries of the Parent, the several banks and other
financial institutions as may from time to time become parties to
this Agreement, First Union National Bank, as Administrative Agent,
Westdeutsche Landesbank Girozentrale, as Syndication Agent and
Arranger and Fortis Capital Corp., as Documentation Agent.

10.40.1* First Amendment to Credit Agreement and Assignment, dated November
20, 2000, by and among Horizon Personal Communications, Inc. and
Bright Personal Communications Services, LLC, Horizon PCS, Inc.
(the "Parent") and certain Subsidiaries of the Parent, Existing
Lenders, New Lenders, First Union National Bank, as Administrative
Agent, Westdeutsche Landesbank Girozentrale, as Syndication Agent
and Arranger, and Fortis Capital Corp., as Documentation Agent.

10.40.2 Second Amendment to Credit Agreement and Assignment, dated June 29,
2001, by and among Horizon Personal Communications, Inc. and Bright
Personal Communications Services, LLC, Horizon PCS, Inc. (the
"Parent") and certain Subsidiaries of the Parent, Existing Lenders,
New Lenders, First Union National Bank, as Administrative Agent,
Westdeutsche Landesbank Girozentrale, as Syndication Agent and
Arranger, and Fortis Capital Corp., as Documentation Agent.
(Incorporated by reference to the same exhibit number in the Form
8-K filed by Horizon PCS, Inc. on July 3, 2001).


89




EXHIBIT NO. DESCRIPTION

10.40.3 Third Amendment to Credit Agreement and Waiver dated as of November
26, 2001 by and among Horizon Personal Communications, Inc., and
Bright Personal Communications Services, LLC, Horizon PCS, Inc.
(the "Parent") and certain Subsidiaries of the Parent, the several
banks and other financial institutions as may from time to time
become parties to the Agreement, First Union National Bank, as
Administrative Agent, Westdeutsche Landesbank Girozentrale, as
Syndication Agent and Arranger and Fortis Capital Corp., as
Documentation Agent (incorporated by reference to Exhibit 10.40.3
filed with the Registrant's Current Report on Form 8-K filed on
November 28, 2001).

10.41* Warrant Agreement dated as of September 26, 2000 between Horizon
PCS, Inc. and Wells Fargo Bank Minnesota, National Association.

10.42* Warrant Registration Rights Agreement made as of September 26, 2000
by and among Horizon PCS, Inc., and Donaldson, Lufkin & Jenrette
Securities Corporation and First Union Securities, Inc.

10.43** Note Purchase Agreement dated November 1, 1993 by and among The
Chillicothe Telephone Company, Northern Life Insurance Company and
Northwestern National Life Insurance Company.

10.43.1** Amendment dated as of January 1, 1997 by and among The Chillicothe
Telephone Company, Northern Life Insurance Company and Northwestern
National Life Insurance Company.

10.44** Note Purchase Agreement dated as of June 1, 1998 by and among The
Chillicothe Telephone Company, American Life Insurance Company, and
the State Life Insurance Company.

10.44.1** First Amendment to Note Purchase Agreement dated as of April 1,
1999 by and among The Chillicothe Telephone Company, American
United Life Insurance Company, and the State Life Insurance
Company.

10.45** Business Loan Agreement dated as of March 16, 2001 between The
Chillicothe Telephone Company and the Huntington National Bank.

10.46 Pledge and Escrow Agreement dated December 7, 2001 by and among
Horizon PCS, Inc., Bright Personal Communications Services, LLC,
Wells Fargo and Minnesota, National Association, as Escrow Agent
(incorporated by reference to Exhibit No. 10.43 filed with the
Registration Statement on Form S-1 of Horizon PCS, Inc. (File No.
333-51240)).

10.47 Registration Rights Agreement dated December 7, 2001 by and among
Horizon PCS, Inc., Horizon Personal Communications, Inc., Bright
Personal Communications Services, LLC, and Credit Suisse First
Boston Corporation, First Union Securities, Inc., Bear, Stearns &
Co., Inc. and Lehman Brothers, Inc. (incorporated by reference to
Exhibit No. 10.44 filed with the Registration Statement on Form S-1
of Horizon PCS, Inc. (File No. 333-51240))

21*** Subsidiaries of the Company.

99.1*** Letter re: Arthur Andersen.

- ---------------------
* Incorporated by reference to the Exhibit of the same number filed with the
Registration Statement on Form S-4 of Horizon PCS, Inc. (File No.
333-51238).
** Incorporated by reference to the Exhibit of the same number filed with the
Registrant's Registration Statement on Form 10 (File No. 000-32617).
*** Filed herewith.
+ The Registrant requested confidential treatment for certain portions of
this exhibit pursuant to Rule 406 of the Securities Act of 1933, as
amended, in connection with the previously filed Registration Statement on
Form S-1 of Horizon PCS, Inc. (File No. 333-37516), except Exhibit 10.3.3
for which confidential treatment has been requested under Rule 24b-2 of the
Securities Exchange Act of 1934 in connection with this filing.


90




HORIZON TELCOM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Page

Report of Independent Public Accountants............................................ F-2

Consolidated Balance Sheets as of December 31, 2001 and 2000........................ F-3

Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999.................................................. F-5

Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended December 31, 2001, 2000 and 1999.............................. F-6

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999.................................................. F-7

Notes to Consolidated Financial Statements, as of December 31, 2001 and 2000,
and for the Years Ended December 31, 2001, 2000 and 1999.......................... F-9


Financial Statement Schedule - Valuation and Qualifying Accounts.................... F-35





F-1




Report of Independent Public Accountants


To the Board of Directors and Stockholders of Horizon Telcom, INC. AND
SUBSIDIARIES:

We have audited the accompanying consolidated balance sheets of HORIZON
TELCOM, INC. (an Ohio corporation) AND SUBSIDIARIES as of December 31, 2001 and
2000, and the related consolidated statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Horizon
Telcom, INC. and Subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


/s/ ARTHUR ANDERSEN LLP



Columbus, Ohio,
February 12, 2002 (except with respect to the matter discussed
in Note 20, as to which the date is March 27, 2002)



F-2


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
As of December 31, 2001 and 2000
- -------------------------------------------------------------------------------




2001 2000
----------- ------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents.................................................. $ 127,154,227 $ 192,011,997
Restricted cash............................................................ 24,597,222 --
Accounts receivable - subscriber, less allowance for doubtful accounts of
$2,662,000 in 2001 and $1,801,000 in 2000................................ 15,275,708 4,527,098
Accounts receivable - interexchange carriers, access charge pools and other,
less allowance for doubtful accounts of $478,000 in 2001 and $90,000 in 2000 5,691,105 6,802,530
Inventories................................................................ 6,512,026 6,756,789
Taxes applicable to future years, prepayments, investments and other....... 2,322,646 8,025,451
--------------- ---------------
Total current assets................................................. 181,552,934 218,123,865
--------------- ---------------

INVESTMENTS:
Securities available-for-sale.............................................. 3,537,720 --
Other investments.......................................................... 227,852 387,169
--------------- ---------------
Total investments.................................................... 3,765,572 387,169
--------------- ---------------

OTHER ASSETS:
Intangibles, net........................................................... 42,840,534 45,299,867
Goodwill, net.............................................................. 7,191,180 7,580,067
Restricted cash............................................................ 24,062,500 --
Unamortized debt issuance costs, prepaid pension costs and other........... 29,223,926 19,367,136
--------------- ---------------
Total other assets................................................... 103,318,140 72,247,070
--------------- ---------------

PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 289,277,220 175,541,739
--------------- ---------------

Total assets.................................................... $ 577,913,866 $ 466,299,843
=============== ===============






(Continued on next page)


F-3






HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)
As of December 31, 2001 and 2000
- --------------------------------------------------------------------------------




2001 2000
--------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Lines of credit............................................................ $ 19,167,338 $ 12,767,338
Current maturities of long-term debt....................................... 2,000,000 2,000,000
Accounts payable........................................................... 9,933,862 13,323,743
Accounts payable - interexchange carriers and access charge pools.......... 1,895,452 1,763,271
Payable to Sprint PCS...................................................... 10,244,529 4,959,128
Deferred PCS service revenue............................................... 3,712,734 1,015,701
Accrued taxes.............................................................. 4,842,912 2,960,489
Accrued vacation and payroll............................................... 2,441,434 1,788,137
Other accrued liabilities.................................................. 26,542,875 24,277,001
--------------- ----------------
Total current liabilities............................................ 80,781,136 64,854,808
--------------- ----------------

LONG-TERM DEBT AND OTHER LIABILITIES:
Deferred Federal income taxes, net......................................... 4,632,157 3,295,462
Deferred income............................................................ 13,678,270 10,844,378
Postretirement benefit obligation.......................................... 5,756,305 4,717,774
Long-term debt............................................................. 402,055,643 205,283,104
Other long-term liabilities................................................ 2,137,675 264,138
--------------- ----------------
Total long-term debt and other liabilities........................... 428,260,050 224,404,856
--------------- ----------------
Total liabilities.................................................. 509,041,186 289,259,664
--------------- ----------------

MINORITY INTEREST............................................................. -- 983,883

CONVERTIBLE PREFERRED STOCK OF SUBSIDIARY..................................... 145,349,043 134,421,881

COMMITMENTS AND CONTINGENCIES (Note 12)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - class A, no par value, 200,000 shares authorized, 99,726
shares issued, stated at $4.25 per share................................. 423,836 423,836
Common stock - class B, no par value, 500,000 shares authorized, 299,301
shares issued, stated at $4.25 per share................................. 1,272,029 1,272,029
Treasury stock - 36,698 and 43,938 shares in 2001 and 2000, respectively, at
cost..................................................................... (5,504,700) (6,624,962)
Accumulated other comprehensive income, net................................ 1,332,044 --
Additional paid-in capital................................................. 72,188,904 72,588,577
Deferred compensation...................................................... (1,079,610) (1,503,889)
Retained deficit........................................................... (145,108,866) (24,521,176)
--------------- ----------------
Total stockholders' equity (deficit)............................... (76,476,363) 41,634,415
--------------- ----------------
Total liabilities and stockholders' equity (deficit)............ $ 577,913,866 $ 466,299,843
=============== ================





The accompanying notes are an integral part of these consolidated financial
statements.

F-4



HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------





2001 2000 1999
---------------- ----------------- ----------------
OPERATING REVENUES:
Wireless Personal Communications Services (PCS) revenue $ 115,905,619 $ 26,110,404 $ 4,295,433
PCS equipment sales................................... 7,105,457 3,061,021 600,451
Basic local, long-distance and other landline......... 19,586,373 20,320,299 19,800,224

Network access........................................ 20,198,336 17,275,754 17,508,729
Internet access services.............................. 3,130,885 3,625,452 3,136,098
Equipment systems sales, information services, and other
revenues............................................ 4,213,346 3,606,712 4,065,545
---------------- ---------------- ----------------
Total operating revenues.......................... 170,140,016 73,999,642 49,406,480
---------------- ---------------- ----------------
OPERATING EXPENSES:
Cost of goods sold.................................... 15,559,164 10,497,130 3,472,649
Cost of services (exclusive of items shown separately
below).............................................. 115,168,420 41,471,586 18,472,935
Selling and marketing................................. 50,545,921 19,626,803 5,568,712
General and administrative (exclusive of items shown
separately below)................................... 42,961,821 25,636,741 16,804,566
Non-cash compensation expense......................... 1,149,179 852,718 2,671
Depreciation and amortization......................... 26,148,564 13,057,587 9,589,410
---------------- ---------------- ----------------
Total operating expenses.......................... 251,533,069 111,142,565 53,910,943
---------------- ---------------- ----------------
OPERATING LOSS........................................... (81,393,053) (37,142,923) (4,504,463)
---------------- ---------------- ----------------
NONOPERATING INCOME (EXPENSE):
Interest expense, net................................. (29,565,953) (12,193,821) (3,598,275)
Subsidiary preferred stock dividends.................. (10,929,852) (2,782,048) --
Interest income and other, net........................ 3,867,539 4,734,949 1,462,809
---------------- ---------------- ----------------
Total nonoperating income (expense)............... (36,628,266) (10,240,920) (2,135,466)
---------------- ---------------- ----------------
LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT
AND MINORITY INTEREST.................................. (118,021,319) (47,383,843) (6,639,929)

INCOME TAX (EXPENSE) BENEFIT............................. (1,783,166) 895,576 2,158,831

MINORITY INTEREST IN LOSS................................ 983,883 2,301,344 --
---------------- ---------------- ----------------
LOSS BEFORE EXTRAORDINARY ITEM........................... (118,820,602) (44,186,923) (4,481,098)

EXTRAORDINARY LOSS, NET OF TAX BENEFIT
OF $261,863............................................ -- (486,323) --
---------------- ---------------- ----------------

NET LOSS................................................. $ (118,820,602) $ (44,673,246) $ (4,481,098)
=============== ================ ================


Basic and diluted loss per share before extraordinary item $ (329.59) $ (127.62) $ (11.23)
Basic and diluted loss per share from extraordinary item. -- (1.41) --
---------------- ---------------- ----------------
Basic and diluted net loss per share..................... $ (329.59) $ (129.03) $ (11.23)
=============== ================ ================
Weighted-average common shares outstanding .............. 360,508 346,237 398,904
================ ================ ================



The accompanying notes are an integral part of these consolidated financial
statements.



F-5



HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------





Accumulated
Other Total
class A class B Comprehen- Additional Deferred Retained Stockholders'
Common Common Treasury sive Paid-in Stock Option Earnings Equity
Stock Stock Stock Income Capital Compensation (Deficit) (Deficit)
--------- ----------- ----------- ----------- ---------- ------------ --------- --------------

Balance, December 31, 1998.... $423,836 $1,271,506 $ -- $ -- $ 131,233 $ -- $32,160,618 $ 33,987,193

Dividends.................. -- -- -- -- -- -- (1,815,014) (1,815,014)
Deferred stock compensation -- -- -- -- 2,180,568 (2,180,568) -- --
Stock option compensation
expense.................. -- -- -- -- -- 2,671 -- 2,671
Net loss................... -- -- -- -- -- -- (4,481,098) (4,481,098)
--------- --------- ----------- --------- ---------- ------------ ------------ ------------
Balance, December 31, 1999.... $423,836 1,271,506 -- -- 2,311,801 (2,177,897) 25,864,506 27,693,752
--------- ---------- ----------- --------- ---------- ------------ ------------ ------------
Acquisition of treasury
stock.................... -- -- (11,835,000) -- -- -- -- (11,835,000)
Acquisition of Bright PCS.. -- -- 4,786,800 -- 44,512,732 -- -- 49,299,532
Issuance of warrants....... -- -- -- -- 33,600,647 -- -- 33,600,647
Stock option compensation
expense.................. -- -- -- -- 178,710 674,008 -- 852,718
Exercise of stock options.. -- 523 -- -- 6,857 -- -- 7,380
Stock dividends paid....... -- -- 473,100 -- 1,037,666 -- (1,529,072) (18,306)
Tax on exchange of stock... -- -- -- -- (3,696,000) -- -- (3,696,000)
Tax on dividend............ -- -- -- -- (363,183) -- (4,256,817) (4,620,000)
Dividends paid............. -- -- -- -- -- -- (1,793,038) (1,793,038)
Stock dividends received... -- -- (49,862) -- -- -- -- (49,862)
Minority interest
adjustment............... -- -- -- -- (5,000,653) -- 1,866,491 (3,134,162)
Net loss................... -- -- -- -- -- -- (44,673,246) (44,673,246)
--------- --------- ----------- --------- ---------- ------------ ------------ --------------
Balance, December 31, 2000.... 423,836 1,272,029 (6,624,962) -- 72,588,577 (1,503,889) (24,521,176) 41,634,415
--------- --------- ----------- --------- ---------- ------------ ------------ --------------

Stock option compensation
expense.................. -- -- -- -- -- 424,279 -- 424,279
Stock distribution to
employees................ -- -- 1,124,573 -- (399,673) -- -- 724,900
Treasury stock received
as a dividend............ -- -- (4,311) -- -- -- -- (4,311)
Dividends paid............. -- -- -- -- -- -- (1,767,088) (1,767,088)
Comprehensive Income (Loss):
Net loss................. -- -- -- -- -- -- (118,820,602) (118,820,602)
Unrealized gain on
securities available-
for-sale, net of taxes
of $1,117,825......... -- -- -- 2,169,895 -- -- -- 2,169,895
Unrealized loss on
hedging activities,
net of tax............... -- -- -- (837,851) -- -- -- (837,851)
------- ---------- ----------- ---------- ---------- ------------ ----------- -------------
Total comprehensive
income (loss)....... -- -- -- 1,332,044 -- -- (118,820,602) (117,488,558)
------- ---------- ----------- ----------- ---------- ------------ ---------- -------------
Balance, December 31, 2001.... $423,836 $1,272,029 $(5,504,700) $1,332,044 $72,188,904 $(1,079,610) $(145,108,866)$(76,476,363)
======= ========== =========== =========== =========== ============ ============= =============



The accompanying notes are an integral part of these
consolidated financial statements



F-6





HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------



2001 2000 1999
--------------- --------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (118,820,602) $ (44,673,246) $ (4,481,098)
--------------- --------------- ---------------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effect of
acquisition:
Depreciation and amortization.......................... 26,148,564 13,057,587 9,589,410
Extraordinary loss, net................................ -- 486,323 --
Deferred Federal income taxes.......................... 218,870 (261,786) (1,216,364)
Deferred investment tax credits........................ (55,527) (69,635) (82,036)
Non-cash compensation expense.......................... 1,149,179 852,718 2,671
Non-cash interest expense.............................. 19,363,149 5,635,498 --
Loss (Gain) on disposal of property, plant and equipment 1,296,834 21,277 (5,206,286)
Non-cash preferred stock dividend of subsidiary........ 10,929,852 2,782,048 --
Minority interest in subsidiary........................ (983,883) (2,301,344) --
Provision for doubtful accounts........................ 7,344,007 2,487,170 1,136,099
Loss on hedging activities............................. 176,322 -- --
Decrease (Increase) in certain assets:
Accounts receivable.................................. (16,981,192) (8,387,769) (261,645)
Inventories.......................................... 244,763 (2,707,991) (271,432)
Taxes applicable to future years, prepayments,
investments and other.............................. 2,807,159 (2,864,492) (154,586)
Increase (Decrease) in certain liabilities:
Accounts payable..................................... 2,027,701 10,529,126 (605,579)
Deferred income...................................... 2,833,892 6,911,554 3,721,837
Accrued liabilities.................................. 4,801,594 18,086,085 3,934,096
Postretirement benefit obligation.................... 1,041,531 495,872 737,838
Change in other assets and liabilities, net............ (324,829) (558,907) (741,996)
--------------- --------------- ---------------
Total adjustments.................................. 62,037,986 44,193,334 10,582,027
--------------- --------------- ---------------
Net cash provided by (used in) operating
activities..................................... (56,782,616) (479,912) 6,100,929
--------------- --------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (132,506,210) (101,491,729) (17,799,773)
Increase in restricted cash............................... (48,659,722) -- --
Proceeds from sale of fixed assets........................ -- 834,000 20,450,000
Proceeds from redemption of RTFC certificates............. 2,895,646 -- --
Net cash acquired in acquisition of Bright PCS............ -- 4,926,803 --
Investment in joint venture............................... -- (1,032,000) (2,068,000)
--------------- --------------- ---------------
Net cash provided by (used in) investing
activities................................... $ (178,270,286) $ (96,762,926) $ 582,227
--------------- --------------- ---------------




(Continued on next page)

F-7



HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------




2001 2000 1999
--------------- --------------- -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Notes and term loans payable - borrowings, net of
repayments........................................... $ 179,400,000 $ 185,321,607 $ (5,641,354)
Exercise of stock options.............................. -- 7,380 --
Issuance of preferred stock............................ -- 126,500,000 --
Deferred financing fees................................ (7,433,469) (15,410,327) --
Stock issuance costs................................... -- (9,161,242) --
Treasury stock received as dividend.................... (4,311) -- --
Dividends paid......................................... (1,767,088) (1,793,038) (1,815,014)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 170,195,132 285,464,380 (7,456,368)
--------------- --------------- ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (64,857,770) 188,221,542 (773,212)
CASH AND CASH EQUIVALENTS, beginning of year.............. 192,011,997 3,790,455 4,563,667
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, end of year.................... $ 127,154,227 $ 192,011,997 $ 3,790,455
=============== =============== ===============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized................... $ 8,705,947 $ 4,330,600 $ 3,569,284
Income taxes........................................... 2,125,000 9,078,515 3,278,100



SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During 2001, Horizon PCS paid $11,775,917 of dividends on convertible
preferred stock. The dividends were paid in additional shares of convertible
preferred stock of Horizon PCS. During 2001 and 2000, Horizon PCS accrued
$1,935,983 and $2,782,048, respectively, to be paid in 2002 and 2001,
respectively.

The purchase of the Company's common stock in 2000 (Note 14) was financed
through a $13,000,000, one-year, unsecured 13% senior subordinated promissory
note to a third party lender. The lender converted 100% of the outstanding
principal and interest into Horizon PCS' convertible preferred stock valued at
$14,066,611 (Note 13).

The proceeds from the issuance of Horizon PCS' discount notes in 2000 have
been allocated to long-term debt and the value of the warrants ($20,245,000 or
$5.32 per share) have been allocated to additional paid-in capital (Note 8).

During 2000 Horizon PCS agreed to grant to Sprint PCS warrants to acquire
2,510,460 shares of Horizon PCS' class A common stock, valued at $13,356,000, in
exchange for the right to service PCS markets in additional areas. The warrants
will be issued to Sprint at the earlier of an initial public offering of Horizon
PCS' common stock or July 31, 2003 (Note 15).

During 1999, Horizon PCS had outstanding notes payable totaling $1,032,000
related to the investment in joint venture.


The accompanying notes are an integral part of these consolidated financial
statements.





F-8



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies

Business Organization and Principles of Consolidation

The accompanying consolidated financial statements reflect the operations
of Horizon Telcom, Inc. (the "Company") and its subsidiaries, the Chillicothe
Telephone Company ("Chillicothe Telephone"), Horizon PCS, Inc. ("Horizon PCS"),
Horizon Services, Inc. ("Services"), and Horizon Technology, Inc. ("Horizon
Technology," formerly United Communications, Inc.). All material intercompany
transactions and balances have been eliminated in consolidation.

On April 26, 2000, Horizon Telcom, Inc., formed Horizon PCS, Inc. On June
27, 2000, Horizon Telcom, Inc., transferred 100% ownership of Horizon Personal
Communications, Inc. (HPC) to Horizon PCS in exchange for 53,806,200 shares of
stock of Horizon PCS. This transfer was accounted for as a reorganization of
companies under common control in a manner similar to a pooling-of-interests in
the consolidated financial statements. HPC will continue to exist and conduct
business as a wholly-owned subsidiary of Horizon PCS.

The Company is a facilities-based telecommunications carrier that provides
a variety of voice and data services to commercial, residential/small business
and local market segments. The Company provides landline telephone service, VDSL
television service and Internet access services to the southern Ohio region,
principally in and surrounding Chillicothe, Ohio. The Company also provides PCS
operations to a twelve-state region in the Midwest, including Ohio, Indiana,
Pennsylvania, Virginia and West Virginia, as an affiliate of Sprint PCS (Note
2).

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposits, money
market accounts and investments in commercial paper with original maturities of
three months or less.

Restricted Cash

In connection with Horizon PCS' December 2001 offering of $175,000,000 of
senior notes due in 2011 (Note 9), approximately $48,660,000 of the offering's
proceeds were placed in an escrow account to be used toward the first four
semi-annual interest payments due under the terms of the notes. The first two
payments have been classified as short-term. The funds are invested in a
government security money market account. Interest earned on the escrow funds
totaled approximately $69,000 in 2001.

Inventories

Inventories consist of equipment held for resale, materials and supplies
and installation-related work in progress held by Chillicothe Telephone and
Horizon PCS. Chillicothe Telephone inventories include the cost (determined by
the first-in, first-out method) of equipment to be used in the installation of
telephone systems, as well as costs related to direct sales orders in process.
Horizon PCS inventories consist of handsets and related accessories which are
carried at the lower of cost (determined by the weighted-average method) or
market (replacement cost).



F-9


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (Continued)

Inventories consist of the following at December 31, 2001 and 2000:

2001 2000
------------ --------------
Equipment held for resale................. $ 3,964,383 $ 3,968,704
Materials, supplies and work in progress.. 2,547,643 2,788,085
------------ ------------
Total inventories.................... $ 6,512,026 $ 6,756,789
============ ============

Investments

The classification of investments in debt and equity securities is
determined by management at the date individual investments are acquired. The
classification of those securities and the related accounting policies are as
follows:

Held-to-maturity securities are debt securities for which the Company has
both the intent and ability to hold to maturity, regardless of changes in market
conditions, liquidity needs or changes in general economic conditions. They are
carried at amortized historical cost. The Company had no securities classified
as held-to-maturity securities at December 31, 2001 or 2000.

Available-for-sale securities are debt and equity securities which the
Company intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale would
be based on various factors, including changes in market conditions, liquidity
needs and similar criteria. Available-for-sale securities are carried at fair
value as determined by quoted market prices. Unrealized gains and losses are
reportable as increases and decreases in other comprehensive income, net of tax.
Realized gains and losses determined on the basis of the cost of specific assets
sold are included in net income.

Trading securities are debt and equity securities which the Company intends
to purchase and sell frequently and has the intent to sell in the near future at
the time the security is purchased. Trading securities are carried at fair value
with unrealized holding gains and losses reported in the statement of
operations. The Company has no securities classified as trading securities at
December 31, 2001 or 2000.

Other investments in which the Company does not have a significant
ownership and for which there is no ready market are carried at cost.
Information regarding these and all other investments is reviewed periodically
for evidence of impairment in value.

Property, Plant and Equipment

Property, plant and equipment, including improvements that extend useful
lives, are stated at original or acquisition cost (Note 6) while maintenance and
repairs are charged to operations as incurred. Construction work in progress
includes expenditures for the purchase of capital equipment, construction and
items such as direct payroll-related benefits and interest capitalized during
construction. The Company capitalizes interest pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 34 "Capitalization of Interest
Cost." The Company capitalized interest of approximately $6,813,000, $1,731,000
and $213,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future undiscounted net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to



F-10


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (Continued)


be disposed of are reported at the lower of the carrying amount or fair value,
less costs to sell. At December 31, 2001 and 2000, the Company had no impaired
assets.

Accounting for Rate Regulation

Chillicothe Telephone is subject to rate regulation. SFAS No. 71
"Accounting for the Effects of Certain Types of Rate Regulation" provides that
rate-regulated public utilities account for revenues and expenses and report
assets and liabilities consistent with the economic effect of the way in which
regulators establish rates. Chillicothe Telephone follows the accounting and
reporting requirements of SFAS No. 71. As of December 31, 2001, the Company has
recorded regulatory assets and liabilities of approximately $331,000 and
$302,000, respectively. As of December 31, 2000, regulatory assets and
liabilities were approximately $600,000 and $475,000, respectively.

Depreciation

Chillicothe Telephone provides for depreciation under the straight-line
method using rates based on the estimated service lives of the various classes
of property. The provisions were equivalent to an annual rate of approximately
7.1% of the average depreciable property cost for both 2001 and 2000.

In 1996, the Public Utilities Commission of Ohio ("PUCO") approved
Chillicothe Telephone's application to increase annual depreciation rates and to
amortize an estimated depreciation reserve deficiency of approximately
$4,600,000 over a five-year period beginning January 1, 1996. Amortization and
recovery of the depreciation reserve deficiency was approximately $740,000 and
$798,000 during 2000 and 1999, respectively. This deficiency was fully amortized
and recovered as of December 31, 2000.

In 2001, the PUCO approved Chillicothe Telephone's application to increase
annual depreciation rates and to amortize an estimated depreciation reserve
deficiency of approximately $1,029,000 over a five-year period beginning January
1, 2001. Amortization and recovery of the depreciation reserve deficiency was
approximately $206,000 in 2001.

In 1998, Chillicothe Telephone retired its 1210 digital switch upon
completion of the conversion to a new EWSD digital switch. The PUCO approved the
Company's application to amortize the remaining undepreciated cost of the 1210
digital switch of approximately $1,344,000 over a five-year period beginning
April 1, 1998. Amortization and recovery of the switch was approximately
$268,000, $269,000 and $267,000 in 2001, 2000 and 1999, respectively. The
remaining unamortized balance was approximately $330,000 and $598,000 as of
December 31, 2001 and 2000, respectively, and is included in other assets on the
accompanying consolidated balance sheets.

Horizon PCS, Services and Horizon Technology provide for depreciation and
amortization under the straight-line method based on the estimated service lives
of the various classes of property. Estimated useful lives are as follows:

Years
-----
Network assets...................................................5-15
Switching equipment...............................................5-8
Computer and telecommunications equipment.........................3-5
Furniture, vehicles and office equipment..........................3-5

Amounts included as depreciation expense that relate to cost of services
were approximately $19,803,000, $10,100,000 and $8,000,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.



F-11




HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 1 - Summary of Significant Accounting Policies (Continued)

Debt Issuance Costs

In connection with the issuance of long-term debt (Note 9) the Company has
incurred debt issuance costs. These debt issuance costs are amortized using the
effective interest method over the term of the underlying obligation, ranging
from eight to ten years. For the years ended December 31, 2001, 2000 and 1999,
approximately $1,139,000, $726,000 and $23,000 of amortization of debt issuance
costs, including subsequently retired financings, was included in interest
expense. At December 31, 2001, the Company had approximately $20,585,000 of
unamortized debt issuance costs.

Derivative Financial Instruments

The Company's policies do not permit the use of derivative financial
instruments for speculative purposes. The Company uses interest rate swaps to
manage interest rate risk. The net amount paid or received on interest rate
swaps is recognized as an adjustment to interest expense (Note 18).

On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
"Accounting for Derivative Instruments and Certain Hedging Activities." These
statements established accounting and reporting standards for derivative
instruments and hedging activities that require an entity to recognize all
derivatives as an asset or liability measured at fair value. Depending on the
intended use of the derivative, changes in its fair value will be reported in
the period of change as either a component of earnings or a component of other
comprehensive income. Pursuant to the derivative criteria established by SFAS
No. 133, an item with exposure to variability in expected future cash flows that
is attributable to a particular risk is considered a cash flow hedge. The
exposure may be associated with an existing recognized asset or liability such
as future interest payments on variable-rate debt.

Revenue Recognition

Chillicothe Telephone is an independent local exchange carrier that
provides local telephone service within ten local exchanges. Chillicothe
Telephone follows an access charge system as ordered by the Federal
Communications Commission ("FCC") and the PUCO in 1984. The access charge
methodology provides a means whereby local exchange carriers, including
Chillicothe Telephone, provide their customers access to the facilities of the
long-distance carriers and charge long-distance carriers for interconnection to
local facilities.

The PUCO issued an Opinion and Order effective January 1, 1988, for
reporting intra-LATA (Local Access and Transport Area) toll revenues. This
methodology is defined as the Originating Responsibility Plan with a Secondary
Carrier Option (ORP-SCO). This plan calls for one or more primary carriers in
each LATA with other local exchange carriers acting as secondary carriers. The
secondary carriers provide the primary carrier with access to local facilities
and are compensated based upon applicable intra-LATA access charge tariffs.
Chillicothe Telephone is a primary carrier. Intra-LATA toll revenue is reflected
in basic and long-distance service revenue on the accompanying consolidated
statements of operations, and is recognized as such services are provided.
Estimated unbilled amounts are accrued at the end of each month.

Chillicothe Telephone recognizes revenue for billing and collection
services performed on behalf of certain interexchange carriers. Chillicothe
Telephone is reimbursed for this service based on the number of messages billed
on behalf of the interexchange carrier. The revenues from this service are
recognized in the same period the services are provided. Chillicothe Telephone
also recognizes advertising revenues from its telephone directory. Telephone
directory customers sign an annual contract which is billed in twelve equal
installments. The revenue derived from directory advertising is recognized
equally over the twelve-month period of the directory, consistent with the
ratemaking treatment. These items are recorded in other revenues on the
accompanying consolidated statements of operations.


F-12


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 1 - Summary of Significant Accounting Policies (Continued)

Chillicothe Telephone recognizes revenues on the completed contract basis
for the installation of telecommunication and other related equipment. These
revenues are reported as equipment system sales on the accompanying consolidated
statements of operations. Maintenance revenues are recognized over the life of
the contract, and recorded as other revenues on the accompanying consolidated
statements of operations.

Horizon PCS sells handsets and accessories which are recorded at the time
of the sale as PCS equipment sales. After the handset has been purchased, the
subscriber purchases a service package which is recognized monthly as service is
provided and is included as PCS revenue. Horizon PCS defers monthly service
revenue billed in advance. Roaming revenue is recorded when Sprint PCS
subscribers, other Sprint PCS affiliate subscribers and non-Sprint PCS
subscribers roam onto Horizon PCS' network.

Horizon PCS' accounting policy for the recognition of activation fee
revenue is to record the revenue over the periods such revenue is earned in
accordance with the current interpretations of SEC Staff Accounting Bulletin
("SAB") No. 101, "Revenue Recognition in Financial Statements." Accordingly,
activation fee revenue and direct customer activation expense is deferred and
recorded over the average life for those customers (36 months) that are assessed
an activation fee. Horizon PCS recognized approximately $695,000 and $47,000 of
both activation fee revenue and customer activation expense during 2001 and
2000, respectively, and had deferred approximately $3,809,000 and $393,000 of
activation fee revenue and direct customer activation expense at December 31,
2001 and 2000, respectively, which is shown as a component of deferred income
and other assets on the accompanying consolidated balance sheets.

A management fee of 8% of collected PCS revenues from Sprint PCS
subscribers based in the Horizon PCS' territory, is accrued as services are
provided and remitted to Sprint PCS and recorded as cost of service. Revenues
generated from the sale of handsets and accessories, inbound and outbound Sprint
PCS roaming fees and roaming services provided to Sprint PCS customers who are
not based in the Horizon PCS' territory are not subject to the 8% management
fee. Expense related to the management fees charged under the agreement was
approximately $5,923,000, $1,302,000 and $130,000 for the years ended December
31, 2001, 2000 and 1999, respectively.

Horizon Technology is an FCC-licensed radio common carrier that primarily
provides Internet access services and resells long-distance service. Revenues on
equipment sales were recognized at the time of sale. Revenues for the Internet
and long distance services are recognized monthly as service is rendered. Prior
to December 2000, Horizon Technology also provided digital paging services in
the state of Ohio. Horizon Technology sold the assets of its paging business to
an unrelated third party and recognized a loss of approximately $230,000 in
December 2000.

Minority Interest

As part of the acquisition of Bright Personal Communication Services, LLC
("Bright PCS") (Note 4), the former members of Bright PCS have approximately an
8% ownership in Horizon PCS. The Company accounts for this ownership by
recording the portion of net income (loss) attributable to the minority
shareholders (a loss of $983,883 and $2,301,344 during 2001 and 2000,
respectively) as minority interest in earnings (loss) in the accompanying
consolidated statements of operations. The minority interest's share in the
Company's losses during 2001 reduced the minority interest's accounting basis to
zero at December 31, 2001. There will be no further allocations to minority
interest until such time as Horizon PCS becomes profitable and any unallocated
losses to minority interest are offset with income in future periods.

Advertising Costs

Costs related to advertising and other promotional expenditures are
expensed as incurred. Advertising costs totaled approximately $10,780,000,
$4,645,000 and $1,207,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.



F-13


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 1 - Summary of Significant Accounting Policies (Continued)

Stock-Based Compensation

The Company accounts for compensation cost associated with its stock-based
compensation plans for employees in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees". The Company
applies SFAS No. 123 "Accounting for Stock Based Compensation," and related
interpretations, for options granted to non-employees.

Deferred Income

During 2001 and 2000, Horizon PCS received approximately $740,000 and
$7,220,000, respectively, of site bonuses from SBA, which constructs towers
leased by Horizon PCS. The Company defers and amortizes the site bonuses over
the life of the respective lease. At December 31, 2001 and 2000, the Company had
approximately $6,911,000 and $7,111,000, respectively, in deferred site bonuses.
During 2001 and 2000, Horizon PCS recorded approximately $916,000 and $320,000,
respectively, as a reduction to lease expense. Additionally, the Company had
approximately $3,809,000 and $393,000 of deferred activation fee revenue at
December 31, 2001 and 2000, respectively.

In October 1999, the Company sold towers, including both in-service
property and construction work in progress, to an external third party. The
towers were then leased back by Horizon PCS. The gain on the sale of the towers
was approximately $3,817,000. Since this transaction was classified as a
sale-leaseback, the gain was deferred and is being recognized over the ten-year
term of the operating lease. Amortization of the gain recognized as a reduction
of the related lease expense was approximately $382,000 for both 2001 and 2000
and $95,000 during 1999. The remaining unamortized gain on the sale was
approximately $2,958,000 and $3,340,000 at December 31, 2001 and 2000,
respectively.

Federal Income Taxes

The Company accounts for income taxes pursuant to the requirements of SFAS
No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Deferred tax assets and liabilities are adjusted for future
changes in tax rates. Investment tax credits have been deferred and are being
amortized over the estimated service lives of the related property.

Concentration of Credit Risk

The Company maintains cash and cash equivalents in an account with a
financial institution in excess of the amount insured by the Federal Deposit
Insurance Corporation. The financial institution is one of the largest banks in
the United States and management does not believe there is significant credit
risk associated with deposits in excess of federally insured amounts.

Restricted cash is invested in short-term government money market funds.
The Company does not believe there is significant credit risk associated with
the funds as the underlying securities are issued by the U.S. Treasury
Department.

The Company maintains accounts with nationally recognized investment
managers. Such deposits are not insured by the Federal Deposit Insurance
Corporation. Management does not believe there is significant credit risk
associated with these uninsured deposits.

Other financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable.
Management believes the risk is limited due to the large number of customers
comprising the



F-14


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 1 - Summary of Significant Accounting Policies (Continued)


customer base and its geographic diversity.

Net Loss per Share

The Company computes net loss per common share in accordance with SFAS No.
128, "Earnings per Share" and SAB No. 98. Basic and diluted loss per share
before extraordinary item is computed by dividing loss before extraordinary
item, for each period, by the weighted-average outstanding common shares. Basic
and diluted net loss per share is computed by dividing net loss, for each
period, by the weighted-average outstanding common shares. No conversion of
common stock equivalents (options, warrants or convertible securities) has been
assumed in the calculations since the effect would be antidilutive. As a result,
the number of weighted-average outstanding common shares as well as the amount
of net loss per share are the same for basic and diluted net loss per share
calculations for all periods presented. There are three items that could
potentially dilute basic earnings per share in the future. These items include
the common stock options (Note 16), the stock purchase warrants (Notes 9 and 15)
and the convertible preferred stock (Note 13). These items will be included in
the diluted earnings per share calculation when dilutive.

Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 addresses financial accounting and reporting
for all business combinations and requires that all business combinations
entered into subsequent to June 2001 be recorded under the purchase method. This
statement also addresses financial accounting and reporting for goodwill and
other intangible assets acquired in a business combination at acquisition. SFAS
No. 142 addresses financial accounting and reporting for intangible assets
acquired individually or with a group of other assets at acquisition. This
statement also addresses financial accounting and reporting for goodwill and
other intangible assets subsequent to their acquisition. These statements will
be adopted by the Company on January 1, 2002.

Goodwill amortization will cease as of December 31, 2001, and the Company
will be required to complete an impairment test of the remaining goodwill
balance annually (or more frequently if impairment indicators arise). The
Company has not yet determined the financial impact the adoption of these
pronouncements will have on its financial position or results of operations. As
of December 31, 2001, Horizon PCS has goodwill of approximately $7,191,000, net
of accumulated amortization, related to the acquisition of Bright PCS and
recognized approximately $389,000 of amortization expense during 2001 (Note 4).
The valuation of this goodwill would be subject to an impairment test at the
date of adoption. The Company will complete the first step of the impairment
test by June 30, 2002 and, if necessary, will complete the second step by
December 31, 2002.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirements of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset. The Company will adopt this statement effective January 1,
2003. The adoption is not expected to have a material effect on the Company's
financial position, results of operations or cash flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment of long-lived assets. The statement
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30. SFAS No. 144 removes goodwill from its scope,
as goodwill is addressed in the impairment test described above under SFAS No.
142. The Company will adopt SFAS No. 144 on January 1, 2002. The adoption is not
expected to have a material effect on the Company's financial position, results
of operations or cash flows.



F-15

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (Continued)

Reclassifications

Certain prior year amounts have been reclassified to conform with the 2001
presentation.

NOTE 2 - Wireless Personal Communications Services

In October 1996, the FCC conditionally granted Horizon PCS licenses to
provide wireless personal communications services in various parts of Ohio, West
Virginia and Kentucky (a total of five licenses). The FCC financed the licenses.
According to FCC rules, the licenses were conditional upon the full and timely
payment of the licenses' cost. The licenses were subject to a requirement that
Horizon PCS constructs and operates facilities that offer coverage to a defined
population within the relevant license areas within a defined period. Horizon
PCS began the engineering and design phase in 1996 and began the construction of
the personal communications network in early 1997. Horizon PCS began providing
digital, wireless personal communications services in August 1997.

In 1997, the FCC offered four options to certain PCS license holders to
change the payment terms of the FCC financed debt. These options were:
continuing with the current installment plan (status quo); return half of the
spectrum from any or all of the licenses in exchange for a proportionate
reduction in debt (disaggregation); turning in all licenses in exchange for
total debt forgiveness (amnesty); or prepay for as many licenses as Horizon PCS
can afford at face value while returning other licenses in exchange for debt
forgiveness (prepayment).

During 1998, the Company elected to return all of the spectrum from four
licenses and half of the spectrum from the fifth license. In connection with the
return of the spectrum, the Company entered into management agreements with
Sprint PCS, the PCS group of Sprint Corporation, during 1998. These agreements
provide the Company with the exclusive right to build, own and manage a wireless
voice and data services network in certain markets located in Ohio, West
Virginia, Kentucky, Virginia, Tennessee and Maryland under the Sprint PCS brand.
Horizon PCS is required to build-out the wireless network according to Sprint
PCS specifications. The term of the agreements is 20 years with three successive
10-year renewal periods unless terminated by either party under provisions
outlined in the management agreements. The management agreements commenced in
June 1998, but payments of the management fee (Note 1) did not commence until
Horizon PCS converted to a fully branded Sprint PCS affiliate in October 1999.
The management agreements included indemnification clauses between the Company
and Sprint PCS to indemnify each party against claims arising from violations of
laws or the management agreements, other than liabilities resulting from
negligence or willful misconduct of the party seeking to be indemnified.

In May 2000, Horizon PCS expanded its management agreement with Sprint PCS.
This allows Horizon PCS to have the exclusive right to build, own and manage a
wireless voice and data services network in markets located in Pennsylvania, New
York, Ohio and New Jersey.



F-16


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------

NOTE 2 - Wireless Personal Communications Services (Continued)

The Sprint PCS agreements require Horizon PCS to interface with the Sprint
PCS wireless network by building Horizon PCS' network to operate on PCS
frequencies licensed to Sprint PCS in the 1900 MHz range. Under the Sprint PCS
agreements, Horizon PCS has agreed to:

o construct and manage a network in Horizon PCS' territory in compliance
with Sprint PCS' PCS licenses and the terms of the management
agreement;

o distribute, during the term of the management agreement, Sprint PCS'
products and services;

o conduct advertising and promotion activities in Horizon PCS'
territory; and

o manage that portion of Sprint PCS' customer base assigned to Horizon
PCS' territory.

The management agreement specifies the terms of the Sprint PCS affiliation,
including the required network build-out plan. Horizon PCS has agreed to operate
its network to provide for a seamless handoff of a call initiated in its
territory to a neighboring Sprint PCS network. The Sprint PCS management
agreements require Horizon PCS to complete specified portions of its markets by
specified dates.

Horizon PCS must comply with Sprint PCS' program requirements for technical
standards, customer service standards, national and regional distribution and
national accounts programs to the extent that Sprint PCS meets these
requirements.

A failure to meet the build-out requirements for any of Horizon PCS'
markets, or to meet Sprint PCS' technical requirements, would constitute a
breach of the Sprint PCS agreements that could lead to their termination if not
cured within a cure period of 30 to 180 days, depending on the nature of the
breach. If Sprint PCS terminates these agreements, Horizon PCS will no longer be
able to offer Sprint PCS products and services. Additionally, Sprint PCS may
purchase Horizon PCS' operating assets or capital stock for 72% of the "entire
business value," as defined in the management agreements. As of December 31,
2001, Horizon PCS is in compliance with these requirements or has obtained
appropriate waivers from Sprint PCS.

NOTE 3 - Segment Information

The Company is organized around the differences in products and services it
offers. Under this organizational structure, the Company operates in two
reportable business segments as defined by SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information:" landline telephone services
and wireless personal communications services. The landline telephone services
segment includes four major revenue streams: basic local service, long-distance
toll, network access services and other related telephone services. The wireless
personal communications services segment includes three major revenue streams:
PCS subscriber revenues, PCS roaming revenues and PCS equipment sales.

The Company evaluates the performance of the segments based on operating
earnings before the allocation of administrative expenses. Information about
interest income and expense and income taxes is not provided on a segment level.
The accounting policies of the segments are the same as described in the summary
of significant accounting policies (Note 1).


F-17


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 3 - Segment Information (Continued)

The following table includes revenue, intercompany revenues, operating
earnings (loss), depreciation and amortization expense and capital expenditures
for the years ended December 31, 2001, 2000 and 1999, and assets as of December
31, 2001 and 2000, for each segment and reconciling items necessary to total to
amounts reported in the financial statements:




Net Revenue
2001 2000 1999
--------------- --------------- ---------------
Landline telephone services.................. $ 39,784,709 $ 37,596,053 $ 37,308,953
Wireless personal communications services.... 123,011,076 29,171,425 4,895,884
All other.................................... 7,344,231 7,232,164 7,201,643
--------------- --------------- ---------------
Total net revenue.......................... $ 170,140,016 $ 73,999,642 $ 49,406,480
=============== =============== ===============

Intercompany Revenue
2001 2000 1999
--------------- --------------- ---------------
Landline telephone services.................. $ 1,331,912 $ 644,321 $ 545,813
Wireless personal communications services.... 292,628 22,514 11,059
All other.................................... 165,615 15,261 11,670
--------------- --------------- ---------------
Total intercompany revenue................. $ 1,790,155 $ 682,096 $ 568,542
=============== =============== ===============

Operating Earnings (Loss)
2001 2000 1999
--------------- --------------- ----------------
Landline telephone services.................. $ 16,120,785 $ 15,113,485 $ 10,346,853
Wireless personal communications services.... (82,178,169) (40,308,311) (12,696,469)
All other.................................... (2,931,280) (1,536,540) (1,037,384)
Unallocated administrative expenses.......... (12,404,389) (10,411,557) (1,117,463)
---------------- ---------------- ----------------
Total operating loss....................... $ (81,393,053) $ (37,142,923) $ (4,504,463)
=============== ==+============= ================

Depreciation and Amortization
2001 2000 1999
--------------- --------------- ----------------
Landline telephone services.................. $ 6,294,037 $ 6,313,846 $ 6,046,874
Wireless personal communications services.... 18,518,948 6,134,458 2,532,982
All other.................................... 1,335,579 609,283 1,009,554
--------------- --------------- ---------------
Total depreciation and amortization........ $ 26,148,564 $ 13,057,587 $ 9,589,410
=============== =============== ===============

Capital Expenditures
2001 2000 1999
--------------- --------------- ---------------
Landline telephone services.................. $ 9,364,038 $ 11,202,539 $ 8,755,937
Wireless personal communications services.... 116,574,323 83,562,958 8,640,456
All other.................................... 6,567,849 6,726,232 403,380
--------------- --------------- ---------------
Total capital expenditures, net............ $ 132,506,210 $ 101,491,729 $ 17,799,773
=============== =============== ===============


Assets
2001 2000
--------------- ---------------
Landline telephone services.................. $ 90,951,437 $ 74,160,504
Wireless personal communications services.... 480,754,022 383,433,298
All other.................................... 6,208,407 8,706,041
--------------- ---------------
Total assets............................... $ 577,913,866 $ 466,299,843
=============== ===============




F-18

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 3 - Segment Information (Continued)

Other business activities of the Company include Internet access services,
equipment systems sales, and other miscellaneous revenues, which do not meet the
definition of a reportable segment under SFAS No. 131. Amounts related to these
business activities are included above under "All other." Unallocated
administrative expenses represent general and administrative expenses, which are
incurred at a corporate level. All other assets represent common assets not
identified to an operating segment.

Net operating revenues by product and services were as follows for the
years ended December 31:




2001 2000 1999
--------------- --------------- ---------------
Landline telephone services:

Basic local service....................... $ 14,510,003 $ 14,413,686 $ 13,807,521
Long-distance toll........................ 1,476,034 2,512,901 2,763,920
Network access services................... 20,198,336 17,275,754 17,508,729
Other related telephone services.......... 3,600,336 3,393,712 3,228,783
--------------- --------------- ---------------
Total landline telephone services........ 39,784,709 37,596,053 37,308,953
--------------- --------------- ---------------

Wireless personal communications services:
PCS subscriber revenues................... 77,365,343 17,702,302 3,653,471
PCS roaming revenues...................... 38,540,276 8,408,102 641,962
PCS equipment sales....................... 7,105,457 3,061,021 600,451
--------------- --------------- ---------------
Total wireless personal communications
services............................... 123,011,076 29,171,425 4,895,884
--------------- --------------- ---------------

Other:

Internet access services.................. 3,130,885 3,625,452 3,136,098
Equipment systems sales................... 1,393,413 1,503,094 1,963,944
Other miscellaneous revenues.............. 2,819,933 2,103,618 2,101,601
--------------- --------------- ---------------
Total other.............................. 7,344,231 7,232,164 7,201,643
--------------- --------------- ---------------
Total operating revenues................. $ 170,140,016 $ 73,999,642 $ 49,406,480
=============== =============== ===============



NOTE 4 - Acquisitions

During 1999 Horizon PCS entered into a joint venture agreement through the
purchase of 25.6% of Bright PCS. The investment was accounted for under the
equity method. The joint venture was established in October 1999 to provide
wireless personal communications services in Ohio, Indiana and Michigan.

On June 27, 2000, Horizon PCS acquired the remaining 74.4% of Bright PCS in
exchange for approximately 8% of Horizon PCS' class B common stock (4,678,800
shares valued at approximately $34,000,000) and approximately 40% of the Horizon
Telcom, Inc. common stock owned by Horizon PCS (31,912 shares valued at
approximately $15,300,000) (Note 14). This acquisition was treated as a purchase
for accounting purposes. The consolidated statements of operations include the
results of Bright PCS from June 28, 2000.

In conjunction with this transaction, Horizon PCS also acquired the Bright
PCS management agreement with Sprint PCS and, with it, the right to operate
using Sprint PCS licenses in the Bright PCS markets. Horizon PCS has recognized
an intangible asset totaling $33,000,000 related to this licensing agreement
which will be amortized over 20 years, the initial term of the underlying
management agreement. Amortization commenced in June 2000. Amortization expense
for the years ended December 31, 2001 and 2000, was $1,707,000 and $868,000,
respectively. Accumulated amortization on the intangible asset was approximately
$2,575,000 and $868,000 at December 31, 2001 and 2000, respectively.


F-19


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 4 - Acquisitions (Continued)

The purchase price exceeded the fair market value of the net assets
acquired by approximately $7,778,000. The resulting goodwill is being amortized
on a straight-line basis over 20 years. Amortization commenced in June 2000.
Amortization expense for the years ended December 31, 2001 and 2000, was
$389,000 and $198,000, respectively. Accumulated amortization of goodwill was
approximately $587,000 and $198,000 at December 31, 2001 and 2000, respectively.
The Company will adopt SFAS No. 142 on January 1, 2002. As a result of the
adoption, goodwill amortization will cease as of December 31, 2001, and the
Company will be required to complete an impairment test of the remaining
goodwill balance annually (or more frequently if impairment indicators arise).

The purchase price allocation of the fair value of assets acquired and
liabilities assumed is summarized below:

Fair Value at
June 27, 2000
-------------
Working capital...............................$ 2,072,000
Property and equipment........................ 6,328,000
Sprint PCS licenses........................... 33,000,000
Goodwill...................................... 7,778,000
Other assets.................................. 122,000

The following unaudited pro forma summary presents the net revenues, net
loss and loss per share from the combination of the Company and Bright PCS, as
if the acquisition had occurred on January 1, 1999. The pro forma information is
provided for information purposes only. It is based on historical information
and does not necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of the future results of operations of the combined
enterprise:

Year Ended December 31,
2000 1999
------------ -------------
Net revenue......................... $ 73,492,525 $ 49,333,479
Net loss............................ (44,774,980) (4,603,448)
Basic and diluted net loss per share (123.32) (11.54)


Prior to acquisition, Bright PCS had not commenced revenue-generating
operations and was paying a management fee to its investor, Horizon PCS. The
management fee recognized by Horizon PCS in the periods prior to the acquisition
date is included in net revenue during 2000 and 1999. In the pro forma
disclosure above, this management fee revenue is fully eliminated.

NOTE 5 - Investments

The Company holds 93,000 shares of common stock in Verisign, Inc., as
marketable equity securities classified as available-for-sale at December 31,
2001. The fair value of the shares at December 31, 2001, was $3,537,720. The
cost of the investment was $250,000. An unrecognized gain of $2,169,895, net of
tax of $1,117,825, has been recorded in other comprehensive income at December
31, 2001.

As part of the term loan facility for the construction of the personal
communications network (Note 9), Horizon PCS was required to purchase Rural
Telephone Finance Cooperative's (RTFC, the lender) subordinated capital
certificates with each draw on the loan. The balance of these certificates at
December 31, 2000, was approximately $2,896,000. The certificates were redeemed
in March 2001 for approximately $2,896,000 with no recognized gain or loss on
the redemption.



F-20

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------



NOTE 6 - Property, Plant and Equipment


Property, plant and equipment consists of the following at December 31:



2001 2000
--------------- ---------------
Network assets..................................................... $ 220,849,771 $ 127,415,818
Switching equipment................................................ 35,253,986 14,053,810
Land and buildings................................................. 15,223,363 11,324,343
Computer and telecommunications equipment.......................... 14,292,341 9,321,052
Furniture, vehicles and office equipment........................... 12,477,119 8,845,181
--------------- ---------------
Property, plant and equipment in-service, at cost................ 298,096,580 170,960,204
Accumulated depreciation........................................... (68,604,457) (49,027,055)
--------------- ---------------
Property, plant and equipment in-service, net................. 229,492,123 121,933,149
Construction work in progress...................................... 59,785,097 53,608,590
--------------- ---------------
Total property, plant and equipment, net................. $ 289,277,220 $ 175,541,739
=============== ===============


During 2001, Horizon PCS retired certain network assets and replaced them
with equipment required to upgrade the network. As a result of these
retirements, the Company recorded a loss on disposal of approximately
$1,297,000.

During 1999, Horizon PCS sold certain PCS equipment, including ancillary
equipment and base stations, to an unrelated third party. The sale resulted in a
gain of approximately $1,388,000, which is included in the Company's
consolidated statement of operations, and represents the excess of cash proceeds
over the historical net book value of the assets sold.

NOTE 7 - Lines of Credit

During 2000, Chillicothe Telephone entered into an agreement with a bank
for a line of credit that provides maximum borrowings of $15,000,000, payable on
demand. On March 16, 2001, Chillicothe Telephone increased this line of credit
to $30,000,000. Interest accrues on the outstanding balance at a fluctuating
rate tied to the LIBOR and is due and payable monthly. At December 31, 2001, the
interest rate on the line of credit was 3.625%. The outstanding balance at
December 31, 2001 was approximately $19,167,000. The line of credit contains a
covenant requiring minimum tangible net worth. As of December 31, 2001,
Chillicothe Telephone was in compliance with the covenant.

On September 26, 2000, Horizon PCS entered into a $95,000,000 line of
credit that expires on September 30, 2008, as part of its secured credit
facility agreement (Note 9). As of December 31, 2001, Horizon PCS had not
borrowed on this line of credit. The Company pays an annual commitment fee of
1.375% of the unused line at the end of each quarter. The Company incurred
approximately $1,324,000 and $306,000 for the line of credit commitment fee for
the years ended December 31, 2001 and 2000, respectively. The interest rate on
the line of credit is variable, based on LIBOR plus 375 basis points, and was
5.66% at December 31, 2001.

In May 2000, Horizon PCS entered into a $5,000,000 general corporate line
of credit with a bank, the proceeds of which were used for financing of
construction expenditures. Interest was at the bank's standard line of credit
rate plus 100 basis points and was payable quarterly beginning in the first
quarter after the initial advance. In September 2000, this line of credit was
fully repaid and terminated with the proceeds from the financing described in
Note 9 below.

In March 2000, Horizon PCS entered into a $5,000,000 interim revolving line
of credit with a bank, the proceeds of which were used for general working
capital purposes. Interest was at the bank's prevailing prime rate plus 150
basis points and was payable quarterly, beginning in the first quarter after the
initial advance. In September 2000, this line of credit was fully repaid and
terminated with the proceeds from the financing described in Note 9 below.



F-21

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 8 - Short-Term Note Payable

In February 2000, Horizon PCS purchased 78,900 shares of Horizon Telcom,
Inc. common stock from an external shareholder (Note 14). This purchase was
financed through a $13,000,000, one year, unsecured 13% senior subordinated
promissory note to a third party lender. The lender converted 100% of the
outstanding principal and unpaid interest into Horizon PCS' convertible
preferred stock on September 26, 2000, as part of Horizon PCS' financing
activities (Note 9). The value converted into convertible preferred stock was
$14,066,611 (Note 13).

NOTE 9 - Long-Term Debt

On December 7, 2001, Horizon PCS received $175,000,000 from the issuance of
unsecured senior notes (the "senior notes") due on June 15, 2011. Interest is
paid semi-annually on June 15 and December 15 at an annual rate of 13.75%, with
interest payments commencing June 15, 2002. Approximately $48,660,000 of the
offering's proceeds were placed in an escrow account to fund the first four
semi-annual interest payments. The senior notes may be redeemed at Horizon PCS'
election on or after December 15, 2006, at redemption prices defined in the
senior note agreement. Additionally, on or before December 15, 2004, Horizon PCS
may redeem up to 35% of the aggregate principal amount of the senior notes
originally issued at a redemption price of 113.75%, plus accrued and unpaid
interest to the date of redemption, with the proceeds of certain equity
offerings as long as 65% of the aggregate principal amount originally issued
remains outstanding after that redemption.

On September 26, 2000, Horizon PCS received $149,680,050 from the issuance
of $295,000,000 of unsecured senior discount notes due on October 1, 2010 (the
"discount notes"). The discount notes accrete in value until October 1, 2005, at
a rate of 14% compounded semi-annually. Cash interest on the notes will become
payable on April 1 and October 1 of each year, beginning on April 1, 2006. The
discount notes may be redeemed at Horizon PCS' election on or after October 1,
2005, at redemption prices defined in the discount note agreement. Additionally,
on or before October 1, 2003, Horizon PCS may redeem up to 35% of the aggregate
principal amount of the discount notes originally issued at a redemption price
of 114%, plus accrued and unpaid interest to the date of redemption, with the
proceeds of certain equity offerings as long as 65% of the aggregate principal
amount originally issued remains outstanding after that redemption. The discount
notes include warrants to purchase 3,805,500 shares of Horizon PCS' class A
common stock at $5.88 per share. The warrants represent the right to purchase an
aggregate of approximately 4.0% of the issued and outstanding common stock of
Horizon PCS on a fully diluted basis, assuming the exercise of all outstanding
options and warrants to purchase common stock and the conversion of the
convertible preferred stock into shares of Horizon PCS' class A common stock
(Note 13). The proceeds from the issuance of the discount notes was allocated to
long-term debt and the value of the warrants ($20,245,000 or $5.32 per share)
was allocated to additional paid-in capital. The fair value of the warrants was
estimated on the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected dividend yield of
0.0%, a risk-free interest rate of 6.5%, expected life of 10 years (equal to the
term of the warrants) and a volatility of 95%.

On September 26, 2000, and concurrent with the sale of the convertible
preferred stock (Note 13) and the discount notes described above, Horizon PCS
entered into a senior secured credit facility (the "secured credit facility")
with a financial institution to provide an aggregate commitment, subject to
certain conditions, of up to $250,000,000 (including a $95,000,000 line of
credit described in Note 7, a $50,000,000 term note and a $105,000,000 term
note) expiring on September 30, 2008. The secured credit facility bears interest
at various floating rates, which approximate one to six month LIBOR rates plus
375 to 425 basis points (5.66% to 6.16% at December 31, 2001). The secured
credit facility is collateralized by a perfected security interest in
substantially all of Horizon PCS' tangible and intangible current and future
assets, including an assignment of Horizon PCS' affiliation agreements with
Sprint PCS and a pledge of all of the capital stock of Horizon PCS and its
subsidiaries. At December 31, 2001, the outstanding balance on the secured
credit facility was $50,000,000. Horizon PCS pays a commitment fee of 1.375% on
the unused portion of the $250,000,000 note. Horizon PCS incurred a total of
approximately $2,788,000 and $680,000 of commitment fee expense for the years
ended December 31, 2001 and 2000, respectively. Additionally, Horizon PCS was
required to, and did, draw on the $105,000,000 term note in March 2002. At
December 31, 2001, the rate on the undrawn term note was 5.66%.


F-22

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 9 - Long-Term Debt (Continued)

The senior notes, discount notes and secured credit facility contain
various financial covenants. Among other restrictions, the most restrictive
covenants relate to maximum capital expenditures, minimum EBITDA ("earnings
before interest, taxes, depreciation and amortization") requirements, maximum
financial leverage ratios and minimum revenues. There are also limitations on
restricted payments, asset sales, additional debt issuance and equity issuance.
In June 2001 and December 2001, Horizon PCS amended its secured credit facility
with the bank group. These modifications amended and restated certain financial
covenants. The June 2001 amendment also increased the base interest rate by 25
basis points to LIBOR plus 375 to 425 basis points. As of December 31, 2001,
Horizon PCS was in compliance with the amended covenants under each agreement.

In connection with the acquisition of Bright PCS, Horizon PCS assumed a
ten-year secured term loan totaling $35,400,000. The note was collateralized by
the equipment acquired. In September 2000, this note was fully repaid and
terminated with the proceeds from the financing described above.

In May 2000, Horizon PCS entered into a $40,500,000 term loan facility with
a financial institution to purchase certain PCS equipment to construct Horizon
PCS' personal communications network. Maximum advances on the note totaled
$38,475,000. This loan was secured by equipment, collateral assignments of
Horizon PCS' tower lease (Note 12) and pledges of Horizon PCS stock and
ownership interests in Bright PCS. In September 2000, this note was fully repaid
and terminated with the proceeds from the financing described above.

In June 1998, Chillicothe Telephone issued senior notes ("1998 Senior
Notes") of $11,000,000 and $1,000,000 to insurance companies. Annual principal
payments of $1,200,000 begin in 2009 and continue until 2018. The interest rate
on the outstanding balance at December 31, 2001, was 6.62%. The 1998 Senior
Notes contain various financial covenants, the most restrictive covenants being
the minimum net worth requirement, the limitation of funded debt requirement and
the restricted intercompany payments and investment requirements. As of December
31, 2001, Chillicothe Telephone was in compliance with such covenants.

In November 1993, Chillicothe Telephone issued senior notes ("1993 Senior
Notes") of $6,000,000 and $4,000,000 to insurance companies. Annual principal
payments of $2,000,000 began in 2001 and continue until 2005. The interest rate
on the outstanding balance at December 31, 2001, was 6.72%. The 1993 Senior
Notes contain various financial covenants, the most restrictive covenants being
the minimum net worth requirement, the limitations on funded debt requirement,
and the restricted intercompany payments and investment requirements. As of
December 31, 2001, Chillicothe Telephone was in compliance with such covenants.

In August 1997, Horizon PCS entered into a term loan facility with a
financial institution to purchase certain equipment to construct Horizon PCS'
personal communications network. The note was collateralized by the same
equipment. The Company had unconditionally guaranteed the debt and had pledged a
security interest in all of the outstanding shares of Horizon PCS. In addition,
certain obligations under this loan had been guaranteed by a third party vendor.
In September 2000, this note was fully repaid and terminated with the proceeds
from the financings described above.


F-23

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 9 - Long-Term Debt (Continued)

The components of long-term debt outstanding at December 31, 2001 and 2000,
are as follows:




Interest Rate at
December 31, 2001 2001 2000
----------------- --------------- ---------------
Senior notes............................. 13.75% $ 175,000,000 $ --
Discount notes........................... 14.00% 159,055,643 135,283,104
Secured credit facility.................. 6.16% 50,000,000 50,000,000
1998 Senior Notes........................ 6.62% 12,000,000 12,000,000
1993 Senior Notes........................ 6.72% 6,000,000 8,000,000
--------------- ---------------
Total long-term debt................. $ 402,055,643 $ 205,283,104
=============== ===============


Scheduled maturities of long-term debt outstanding at December 31, 2001,
are as follows:

Year Amount
---------------
2002........................................$ 2,000,000
2003........................................ 2,000,000
2004........................................ 2,375,000
2005........................................ 2,500,000
2006........................................ 500,000
Thereafter.................................. 530,625,000
-----------
Total maturities of long-term debt........ 540,000,000
Less: Current maturities.................... (2,000,000)
Less: Unaccreted interest portion of
long-term debt............................ (135,944,357)
-------------
Total long-term debt....................$ 402,055,643
================


NOTE 10 - Federal Income Taxes

The Company's Federal income tax expense (benefit) consists of the following
for the years ended December 31:




2001 2000 1999
--------------- --------------- ---------------
Current payable................................ $ 1,433,572 $ (564,155) $ (1,593,268)
Deferred taxes................................. 405,121 (261,786) (483,527)
Investment tax credit.......................... (55,527) (69,635) (82,036)
--------------- --------------- ---------------
Income tax expense (benefit) before
extraordinary item......................... 1,783,166 (895,576) (2,158,831)

Extraordinary loss:
Current payable.............................. -- (261,863) --
--------------- --------------- ---------------
Total tax expense (benefit).............. $ 1,783,166 $ (1,157,439) $ (2,158,831)
=============== =============== ===============



F-24

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 10 - Federal Income Taxes (Continued)

The income tax expense from continuing operations varies from the statutory
rate as follows for the years ended December 31:




2001 2000 1999
--------------- ---------------- ----------------
Tax at statutory rate applied to pretax book loss $ (40,127,248) $ (16,110,507) $ (2,356,633)
Increase (decrease) in tax from:
Investment tax credit.......................... (55,527) (69,635) (82,036)
Change in valuation allowance.................. 37,163,536 2,385,097 237,519
Non-deductible goodwill amortization........... 444,227 302,968 --
Tax on interest on warrants.................... 695,627 177,210 --
Stock option compensation...................... 241,044 171,571 --
Tax on excess loss account..................... -- 11,463,395 --
Non-deductible subsidiary dividend............. 3,716,150 945,896 --
Other, net..................................... (294,643) (161,571) 42,319
---------------- --------------- ---------------
Total tax expense (benefit).................. $ 1,783,166 $ (895,576) $ (2,158,831)
================ =============== ===============



Deferred income taxes result from temporary differences between the
financial reporting and tax basis amounts of existing assets and liabilities.
The source of these differences and tax effect of each are as follows at
December 31:




2001 2000 1999
--------------- --------------- ---------------
Deferred income tax assets:
Uncollectible accounts........................ $ 1,030,600 $ 601,944 $ 332,577
Vacation...................................... 472,708 416,915 280,670
Pensions and other retirement benefits........ 1,106,912 895,820 712,061
Personal Communication Services Licenses
and start-up costs.......................... -- 654,293 381,276
Net operating loss carryforward............... 36,089,387 -- 903,292
Deferred gain on sale of fixed assets......... 1,274,886 1,415,488 1,016,036
Deferred income............................... 2,285,961 2,479,716 --
Interest expense on senior discount notes..... 9,523,013 1,880,148 --
Unrealized loss on hedging activity........... 284,869 -- --
--------------- --------------- ---------------
Total deferred income tax assets............ 52,068,336 8,344,324 3,625,912
--------------- --------------- ---------------

Deferred income tax liabilities:
Property differences.......................... (14,498,936) (8,821,255) (6,826,487)
Unrealized gain on securities................. (1,117,825) -- --
Other, net.................................... (1,496,497) (195,915) (119,154)
--------------- --------------- ---------------
Total deferred income tax liabilities....... (17,113,258) (9,017,170) (6,945,641)
--------------- --------------- ---------------

Deferred income taxes, net................ 34,955,078 (672,846) (3,319,729)
Less: valuation allowance................. (39,587,235) (2,622,616) (237,519)
--------------- --------------- ---------------

Total deferred income taxes, net........ $ (4,632,157) $ (3,295,462) $ (3,557,248)
=============== =============== ===============




F-25



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 10 - Federal Income Taxes (Continued)

Until September 26, 2000, Horizon PCS was included in the consolidated
Federal income tax return of the Horizon Telcom affiliated group. Horizon PCS
provided for Federal income taxes on a pro-rata basis, consistent with a
consolidated tax sharing agreement. As a result of the sale of the convertible
preferred stock, Horizon PCS is not able to participate in the tax sharing
agreement nor the filing of a consolidated Federal income tax return with the
Horizon Telcom affiliated group. Thus, Horizon PCS filed a separate Federal
income tax return for the period after deconsolidation through December 31,
2000, and will file a separate return for all subsequent periods.

In assessing the Company's ability to realize deferred tax assets,
management considers whether it is more likely than not that some or all of the
assets will not be realized. Management considers, among other things, the
scheduled reversal of deferred tax assets and liabilities and estimates of
future taxable income in making this assessment. The Company has provided a
valuation allowance of $39,587,235 and $2,622,616 as of December 31, 2001 and
2000, respectively, against the deferred tax assets of Horizon PCS.

Horizon PCS has generated net operating losses ("NOL") that may be used to
offset future taxable income. Each year's NOL has a maximum carryforward period
of twenty years. Horizon PCS' ability to use its NOL carryforwards is dependent
on the future taxable income of Horizon PCS. At December 31, 2001, Horizon PCS
has NOL carryforwards of $106,145,256, expiring in 2021. The future tax benefit
of these NOL carryforwards of $36,089,387 has been recorded as a deferred tax
asset. As a result of Horizon PCS' operating losses and its deconsolidation from
the Horizon Telcom affiliated group for tax purposes, Horizon PCS does not
expect to record future tax benefits of operating losses until such time as its
operations become profitable. Accordingly, Horizon PCS has recognized a full
valuation allowance related to its net deferred tax assets.

The Company's consolidated income tax benefit for the year ended December
31, 2000, was $1,157,439. This benefit was primarily a result of the Company's
net loss offset by the recognition by Horizon PCS of an excess loss account on
the tax deconsolidation from the Horizon Telcom affiliated group and valuation
reserves established against deferred tax assets of Horizon PCS.

In connection with Horizon PCS' acquisition of Bright PCS (Note 2), a tax
of $3,696,000 was generated based on the excess of the fair value of the
Company's stock over Horizon PCS' cost basis in the stock. The tax on the
exchange of the stock was charged directly to equity and not recorded as income
tax expense.

Horizon PCS generated a tax of $4,256,818 on the stock dividend of 10% of
the Horizon Telcom stock held by Horizon PCS. The tax on the stock dividend was
charged directly to equity and not recorded as an income tax expense during
2000.

NOTE 11 - Pension Plans and Other Retirement Benefits

The Company has two trusteed pension plans covering certain salaried and
hourly employees. The Company's funding policy is to be in compliance with the
Employee Retirement Income Security Act guidelines. The plan's assets consist
primarily of investments in common stocks, bonds, notes, cash equivalents and
life insurance policies. The Company applies the accounting and measurement
practices prescribed by SFAS No. 87, "Employers' Accounting For Pensions," and
the disclosure requirements of SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits."

In addition, the Company provides coverage of postretirement medical,
prescription drug, telephone service and life insurance benefits to eligible
retirees whose status at retirement from active employment qualifies for
postretirement benefits. Coverage of postretirement benefits is also provided to
totally and permanently disabled active employees whose status at disablement
qualifies for postretirement benefits as a retiree from active employment. The
Company also provides coverage of postretirement dental and vision benefits to
certain enhanced retirees. No future retirees will receive coverage of
postretirement dental and vision benefits. Certain eligible retirees



F-26

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 11 - Pension Plans and Other Retirement Benefits (Continued)

are required to contribute toward the cost of coverage under the postretirement
health care and telephone service plans. No contribution is required for
coverage under the postretirement life insurance benefits plan.

The Company applies the accounting and measurement practices prescribed by
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and the disclosure requirements of SFAS No. 132. As permitted by SFAS
No. 106, the Company has elected to amortize the accumulated postretirement
benefit obligations existing at the date of adoption (the transition obligation)
over a twenty-year period. The unrecognized prior service cost is also being
amortized over a twenty-year period.

The pension and postretirement plans discussed above are maintained by
Horizon Telcom, Inc. Each subsidiary is charged for each plan based on its
employee participation in the respective plans. The funding status of the
consolidated plans as of December 31, 2001 and 2000, is as follows:




Pension Benefits Other Benefits
------------------------- --------------------
2001 2000 2001 2000
----------- ------------ ----------- --------
(in thousands)
Change in benefit obligation

Benefit obligation, beginning of year............. $ 14,235 $ 11,783 $ 5,624 $ 7,747
Service cost.................................... 390 343 359 163
Interest cost................................... 1,044 1,015 609 399
Actuarial (gain) or loss........................ 34 1,426 4,111 (2,495)
Benefits paid................................... (570) (620) (293) (190)
Change in plan provisions....................... -- 288 -- --
----------- ------------ ----------- -----------
Benefit obligation, end of year................... 15,133 14,235 10,410 5,624
----------- ------------ ----------- -----------

Change in plan assets

Fair value of plan assets, beginning of year...... 19,380 18,146 -- --
Actual return on plan assets.................... (229) 1,839 -- --
Employer contributions.......................... 18 15 293 190
Benefits paid................................... (570) (620) (293) (190)
----------- ------------ ----------- -----------
Fair value of plan assets, end of year............ 18,599 19,380 -- --
----------- ------------ ----------- -----------
Funded status..................................... 3,466 5,145 (10,410) (5,624)
Unrecognized transition obligation.............. (35) (35) 2,994 3,224
Unrecognized prior service cost................. 1,043 1,136 2,154 --
Unrecognized actuarial (gain) or loss........... (20) (2,213) (494) (2,318)
----------- ------------ ----------- -----------
Prepaid (accrued) benefit cost.................... $ 4,454 $ 4,033 $ (5,756) $ (4,718)
=========== ============ =========== ===========

Weighted average assumption at December 31:

Discount rate..................................... 7.25% 7.50% 7.75%
Expected return on plan assets.................... 10.00% 10.00% -- --
Rate of compensation increase..................... 4.00% 4.00% -- --



The assumed medical benefit cost trend rate used in measuring the
accumulated postretirement benefit obligation was 8.0% in 2001, and 7.0% in 2000
and 1999, respectively, declining gradually to 5.0% for all periods presented.
For the over 65 retirees and their spouses, the assumed medical benefit cost
trend rate was 7.0% in 2001 and 6.5% in 2000 and 1999, declining gradually to
5.0% for all periods presented. The assumed dental and vision benefit cost trend
rates used in measuring the accumulated postretirement benefit obligation were
6.0% in 2001, 2000 and 1999, declining gradually to 5.0% for retirees and their
spouses. The telephone service benefit cost trend rate for retirees and their
spouses in 2001, 2000 and 1999 was estimated at 5.0% for all future years.



F-27


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 11 - Pension Plans and Other Retirement Benefits (Continued)





Pension Benefits Other Benefits
------------------------------- -------------------------------
2001 2000 1999 2001 2000 1999
--------- --------- --------- --------- --------- ---------
(in thousands)
Components of net periodic benefit cost:
Service cost......................... $ 390 $ 343 $ 346 $ 359 $ 163 $ 234
Interest cost........................ 1,044 1,015 898 608 399 480
Expected return on plan assets....... (1,907) (1,785) (1,812) -- -- --
Amortization of transition obligation -- -- -- 230 230 230
Amortization of prior service cost... 93 73 73 212 -- --
Recognized net actuarial loss........ (22) (50) (154) (100) (128) --
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost.......... $ (402) $ (404) $ (649) $ 1,309 $ 664 $ 944
======== ======== ======== ======== ======== ========



Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):




1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
(in thousands)
Effect on total of service and interest cost components............. $ 194 $ (154)
Effect on postretirement benefit obligation......................... 1,869 (1,504)



Horizon Telcom, Inc., also had two defined contribution plans covering
eligible Chillicothe Telephone and Horizon Services' salaried and hourly
employees. These plans provided for participants to defer up to 19% of their
annual compensation as contributions to the plans. Horizon Telcom, Inc. matched
a participant's contributions equal to 25% of each participant's salary deferral
up to a maximum of 1% of a participant's compensation. Horizon Telcom's
contributions to these plans were approximately $87,900 and $82,400 for 2000 and
1999, respectively, and are included in the general and administrative expense
of the Company.

In May 1999, Horizon PCS adopted a defined contribution plan covering
certain eligible employees of Horizon PCS. The plan provided for participants to
defer up to 15% of annual compensation, as defined under the plan, as
contributions to the plan. Horizon PCS had the option, at the direction of the
Board of Directors, to make a matching contribution to the plan of up to 50% of
an employee's contribution, limited to a maximum of 3% of the employee's salary.
A matching contribution of approximately $115,000 and $61,000 was recognized
during 2000 and 1999, respectively.

Effective January 1, 2001, the Company merged all three defined
contribution plans into a new defined contribution plan covering all eligible
employees of the Company and its subsidiaries. The plan provides for
participants to defer up to 19% of annual compensation, as defined under the
plan, as contributions to the plan. The Company matches a participant's
contribution based on the subsidiary that employs the participant. Horizon PCS
matches 50% of each participant's salary deferral up to a maximum of 6% of a
participant's compensation. All other subsidiaries match 25% of each
participant's salary deferral up to a maximum of 4% of a participant's
compensation. The Company's contribution to this plan was approximately $425,000
for 2001 and is included in general and administrative expenses in the
consolidated statements of operations.


F-28

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 12 - Commitments and Contingencies

Operating Leases

The Company leases office space and various equipment under several operating
leases. In October 1999, Horizon PCS signed a tower lease agreement with a third
party whereby it will lease the towers for substantially all of Horizon PCS'
cell sites. The leases are operating leases with a term of five to ten years
with three consecutive five-year renewal option periods. In addition, Horizon
PCS receives a site development fee from the tower lessor for certain tower
sites which the lessor constructs on behalf of Horizon PCS.

Horizon PCS also leases space for its retail stores. At December 31, 2001,
Horizon PCS leased 38 stores operating throughout its territories.

Future minimum operating lease payments are as follows:


Year Amount
- ---- ---------------
2002.....................................$ 15,031,000
2003..................................... 14,177,000
2004..................................... 12,689,000
2005..................................... 9,389,000
2006..................................... 4,891,000
Thereafter............................... 9,102,000
---------------
Future operating lease obligation......$ 65,279,000
===============

Rental expenses for all operating leases were approximately $11,347,000,
$5,539,500 and $2,525,500 for the years ended December 31, 2001, 2000, and 1999,
respectively.

Construction Expenditures

Construction expenditures in 2002 are estimated to be between approximately
$70,000,000 and $85,000,000. The majority of the estimated expenditures are for
the build-out of the PCS network.

Legal Matters

The Company is party to legal claims arising in the normal course of
business. Although the ultimate outcome of the claims cannot be ascertained at
this time, it is the opinion of management that none of these matters, when
resolved, will have a material adverse impact on the Company's results of
operations or financial condition.

NTELOS Network Agreement

In August 1999, the Company entered into a wholesale network services
agreement with West Virginia PCS Alliance and Virginia PCS Alliance (the
"Alliances"), two related, independent PCS providers whose network is managed by
NTELOS. Under the network services agreement, the Alliances provide the Company
with the use of and access to key components of their network in most of Horizon
PCS' markets in Virginia and West Virginia. The initial term was through June 8,
2008, with four automatic ten-year renewals.



F-29

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 12 - Commitments and Contingencies (Continued)

This agreement was amended in the third quarter of 2001 to provide for a
minimum monthly fee to be paid by the Company through December 31, 2003. The
minimum monthly fee includes a fixed number of minutes to be used by the
Company's subscribers. The Company incurs additional per minute charges for
minutes used in excess of the fixed number of minutes allotted each month. The
aggregate amount of future minimum payments is as follows:


Year Amount
---- ------
2002......................................$ 27,400,000
2003....................................... 38,600,000
----------

Total...................................$ 66,000,000
==============

NOTE 13 - Convertible Preferred Stock

Horizon PCS has authorized 175,000,000 shares of convertible preferred
stock at $0.0001 par value. On September 26, 2000, an investor group led by
Apollo Management purchased 23,476,683 shares of convertible preferred stock for
approximately $126,500,000 in a private placement offering. Concurrent with the
closing, holders of the $14,100,000 short-term convertible note converted the
principal and unpaid interest into 2,610,554 shares of the same convertible
preferred stock purchased by the investor group. Holders of the convertible
preferred stock have the option to convert their shares (on a share for share
basis) into class A common stock at any time. In addition, the convertible
preferred stock converts automatically upon the completion of a public offering
of class A common stock meeting specified criteria or upon the occurrence of
certain business combination transactions. The convertible preferred stock pays
a 7.5% stock dividend semi-annually, commencing April 30, 2001. The dividends
are payable in additional preferred stock. During 2001, Horizon PCS paid
$11,775,917 of dividends in additional shares of convertible preferred stock. At
December 31, 2001, there were 28,272,170 shares of convertible preferred stock
outstanding.

If Horizon PCS has not completed either (i) a public offering of its class
A common stock in which Horizon PCS receives at least $50,000,000 or (ii) a
merger or consolidation with a publicly-listed company that has a market
capitalization of at least $100,000,000 by the fifth anniversary of the date
Horizon PCS issued the convertible preferred stock, the investor group may
request Horizon PCS repurchase all of their shares of convertible preferred
stock at fair market value, as determined by three investment banking
institutions. If the investor group requests Horizon PCS repurchase their
convertible preferred stock and Horizon PCS declines, Horizon PCS will be
required to auction itself. If no bona fide offer is received upon an auction,
the repurchase right of the investor group expires. If, however, a bona fide
offer is received upon the auction, Horizon PCS must sell itself or the dividend
rate on the convertible preferred stock will increase from 7.5% to 18.0% and
Horizon PCS will be required to re-auction itself annually until the convertible
preferred stock is repurchased. Horizon PCS' secured credit facility and the
discount notes, both described in Note 9, prohibit Horizon PCS from repurchasing
any convertible preferred stock. Due to a mandatory redemption clause, this
stock is considered a mezzanine financing and is recorded outside of
stockholders' equity (deficit).

Holders of Horizon PCS' convertible preferred stock are entitled to vote on
all matters on an as-converted basis. In addition, the vote of at least a
majority of the outstanding shares of convertible preferred stock, voting as a
single class, shall be necessary for effecting or validating significant
corporate actions specified in the certificate of incorporation.

Horizon PCS has agreed that until the conversion of the preferred stock, it
will adhere to certain restrictive covenants. Among other restrictions, the most
significant covenants relate to capital expenditures, asset sales, restricted
payments, additional debt incurrence, and equity issuance. As of December 31,
2001, Horizon PCS was in compliance with the covenants under the agreement.



F-30


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 14 - Common Stock and Treasury Stock

In October 1999, the Company converted all of the issued and outstanding
shares of its common stock into class A common stock, without par value.
Additionally, the Company authorized a new class B common stock, consisting of
500,000 authorized shares, at no par value. Each holder of class A common stock
is entitled to one vote per share and each holder of class B common stock is
entitled to ten votes per share. Both classes of common stock have equal
dividend rights.

In December 1999, the Company declared a stock split which distributed
three shares of class B common stock for each share of class A common stock
issued and outstanding at the time of declaration. This resulted in the issuance
of 299,178 shares of class B common stock.

In February 2000, Horizon PCS purchased 78,900 shares of common stock of
the Company from the Company's largest unaffiliated shareholder for $11,835,000.
This represented approximately a 19.78% interest in the Company. Horizon PCS
exchanged 40% of the shares owned (31,912 shares) as consideration for the
acquisition of Bright PCS (Note 4). This transaction reduced the treasury stock
to 11.78%.

On September 26, 2000, Horizon PCS distributed 10% of its 11.78% ownership
of the Company in the form of a dividend, payable pro rata to the shareholders
of record on September 26, 2000. This transaction resulted in a gain of
approximately $1,038,000, as part of the stock was distributed to owners other
than the Company.

During 2001, Horizon PCS distributed its remaining 7,249 shares of Horizon
Telcom to members of Horizon PCS' management as an award. As a result, the
Horizon PCS recorded non-cash compensation expense of approximately $725,000 in
the accompanying consolidated statements of operations.

NOTE 15 - Sprint PCS Warrants

Horizon PCS agreed to grant to Sprint PCS warrants to acquire 2,510,460
shares of Horizon PCS' class A common stock in exchange for the right to service
PCS markets in additional areas. By September 30, 2000, Sprint PCS had
substantially completed its obligations under the agreement and Horizon PCS
completed the required purchase of certain Sprint PCS assets. Horizon PCS valued
the warrants and recorded an intangible asset of approximately $13,356,000
(based on a price of $5.88 per share, valued using the Black-Scholes pricing
model using an expected dividend yield of 0.0%, a risk-free interest rate of
6.5%, expected life of 10 years and a volatility of 95%). The intangible asset
is being amortized over the remaining term of the Sprint PCS management
agreement resulting in approximately $752,000 of amortization expense per year.
Amortization expense for the years ended December 31, 2001 and 2000, was
approximately $752,000 and $188,000 respectively. Accumulated amortization on
the intangible asset was approximately $940,000, and $188,000 as of December 31,
2001 and 2000, respectively. The warrants will be issued to Sprint PCS at the
earlier of an initial public offering of Horizon PCS' common stock or July 31,
2003.


F-31

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 16 - Stock Option Plans

In November 1999, Horizon Telcom adopted the 1999 Stock Option Plan, (the
"Plan"). The Plan is intended to provide directors, officers and other employees
of, and service providers to, the Company and any of its related corporations
with opportunities to purchase stock pursuant to the grant of incentive or
nonqualified options.

The Company may grant options for up to 10,000 shares of class B common
stock. The maximum term of the options is ten years. Options vest based on the
terms of each individual agreement, currently over four years from the date of
the grant.

In November 1999, Horizon PCS adopted the 1999 Stock Option Plan which was
amended in June 2000 and renamed the 2000 Stock Option Plan (Horizon PCS' Plan).
Horizon PCS may grant options for up to 7,500,000 shares of its class A common
stock and 4,196,884 shares of its class B common stock. The maximum term of the
options is ten years. Options vest based on the terms of each individual
agreement, currently over four or six years from the date of the grant.

A summary of the status of the Company's plans for the years ended December
31, 2001, 2000 and 1999, follows:






Horizon Telcom Horizon PCS
------------------------------ ----------------------------------------------------------------
Weighted Options Weighted Options Weighted Options
Average Exercisable Average Exercisable Average Exercisable
class B Exercise At class A Exercise At class B Exercise At
Shares Price Year End Shares Price Year End Shares Price Year End
------ ----- -------- ------ ----- -------- ------ ----- --------
December 31, 1998 -- $ -- -- $ -- -- $ --
Granted 950 60.00 -- -- 4,196,884 0.12
Exercised -- -- -- -- -- --
Forfeited -- -- -- -- --
------ ------ ------------------ -------- ---------

December 31, 1999 950 60.00 238 -- -- -- 4,196,884 0.12 500,398
Granted -- -- 116,971 5.88 -- --
Exercised (123) 60.00 -- -- -- --
Forfeited -- -- -- --
------- ----- ------- --------- --------

December 31, 2000 827 60.00 293 116,971 5.88 -- 4,196,884 0.12 1,116,249
Granted -- -- -- -- -- --
Exercised -- -- -- -- -- --
Forfeited -- -- -- -- -- --
------ ------ ------- ---------- --------- ----------
December 31, 2001 827 $60.00 471 116,971 $ 5.88 29,243 4,196,884 $ 0.12 2,017,733
======= ====== ======= ========== ========= ==========



The Company applies APB Opinion 25 and related interpretations in
accounting for the plans with respect to employees. The Company applies SFAS No.
123 and related interpretations in accounting for stock options granted to
non-employees. Pursuant to this, the Company will recognize approximately
$2,180,000 in compensation expense over the period of the options (through
2005). The accompanying consolidated financial statements reflect a non-cash
compensation charge, related to the stock option plans, of approximately
$424,000, $674,000 and $2,700 for the years ended December 31, 2001, 2000 and
1999, respectively.

For the purpose of the SFAS No. 123 disclosure, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model with an assumption of a risk-free interest rate of 6.5% and
5.5% for the 2000 and 1999 options, respectively, for the Company and Horizon
PCS and a dividend yield of 3.1% for the Company. Horizon PCS options also
include a 95% volatility factor. The fair values at the date of grant were
$88.34 for Horizon Telcom's 1999 grant and $0.60 and $4.75 for Horizon PCS' 1999
and 2000 grants, respectively.


F-32

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 16 - Stock Option Plans (Continued)

Had compensation cost for both plans been determined based on the fair
value at the grant dates consistent with the method of SFAS No. 123, the
Company's net loss available to common shareholders and losses per common share
would have been increased to the pro forma amounts indicated below for the years
ended December 31:




2001 2000 1999
------------------ ---------------- ----------------
Net Loss

As reported.................................. $ (118,820,602) $ (44,673,246) $ (4,481,098)
Pro forma.................................... (119,485,362) (45,407,163) (4,519,366)

Basic and diluted loss per share

As reported.................................. $ (329.59) $ (129.03) $ (11.23)
Pro forma.................................... (331.44) (131.14) (11.33)



NOTE 17 - Extraordinary Loss

As a result of the September 26, 2000, financings described earlier, the
Company retired long-term debt payable to financial institutions. As a result of
this debt extinguishment, the Company expensed the unamortized portion of the
related financing costs as well as fees associated with the debt
extinguishments. These fees and expenses amounted to approximately $748,000
during 2000 and are shown on the consolidated statements of operations net of a
tax benefit of approximately $262,000.

NOTE 18 - Disclosures About Fair Value of Financial Instruments

SFAS No. 107 requires disclosure of the fair value of all financial
instruments. For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Fair value may be based on quoted market prices for the same or similar
financial instruments or on valuation techniques such as the present value of
estimated future cash flows using a discount rate commensurate with the risks
involved.

The estimates of fair value required under SFAS No. 107 require the
application of broad assumptions and estimates. Accordingly, any actual exchange
of such financial instruments could occur at values significantly different from
the amounts disclosed. As cash and cash equivalents, current receivables,
current payables and certain other short-term financial instruments are all
short term in nature, their carrying amounts approximate fair value. The
carrying value of restricted cash approximates fair value as the investment
funds are short-term. Investments in marketable securities classified as
available-for-sale are recorded at fair value based on the market price of the
security at December 31, 2001.

The secured credit facility is based on variable, market-driven rates;
therefore, its carrying value approximates fair value. The senior notes were
issued in December 2001 and approximate fair value as of December 31, 2001. The
fair values of the fixed-rate 1993 Senior Notes, the 1998 Senior Notes and the
discount notes, set forth below, were estimated using discounted cash flow
analyses based on current incremental borrowing rates for similar types of
borrowing arrangements and current market prices.

Fair Value Recorded Value
------------- -----------------
December 31, 2001......... $ 161,968,000 $ 179,055,643
December 31, 2000......... 156,470,000 157,283,104


F-33

HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


NOTE 18 - Disclosures About Fair Value of Financial Instruments (Continued)

In the first quarter of 2001, Horizon PCS entered into a two-year interest
rate swap, effectively fixing $25,000,000 of a term loan under the secured
credit facility (Note 9) at a rate of 9.4%. In the third quarter of 2001,
Horizon PCS entered into another two-year interest rate swap, effectively fixing
the remaining $25,000,000 borrowed under the secured credit facility at 7.65%.
The swaps have been designated as a hedge of a portion of the future variable
interest cash flows expected to be paid under the secured credit facility
borrowings. A loss of approximately $838,000 was recorded in other comprehensive
income (loss) during the year ended December 31, 2001. The Company also
recognized a loss in the consolidated statements of operations of approximately
$176,000 during 2001 related to the ineffectiveness of the hedge. Other
comprehensive income may fluctuate based on changes in the fair value of the
swap instrument. The Company has recorded a liability in other long-term
liabilities in the accompanying consolidated balance sheets of approximately
$1,014,000 at December 31, 2001, related to the swaps.

NOTE 19 - Supplementary Financial Information (Unaudited)

The quarterly results of operations for the years ended December 31, 2001 and
2000:





For the three months ended
--------------------------------------------------------------------
March 31 June 30 September 30 December 31
---------------- --------------- --------------- ----------------
(Dollars in thousands except per share data)
Fiscal Year 2001:
- ----------------
Total revenues............................. $ 30,633 $ 35,755 $ 47,364 $ 56,388
Operating loss............................. (13,660) (20,051) (21,181) (26,501)
Net loss................................... (19,751) (28,724) (30,471) (39,875)
Basic and diluted net loss per share ...... (55.62) (79.28) (84.10) (110.61)

Fiscal Year 2000:
- ----------------
Total revenues............................. $ 15,304 $ 16,245 $ 18,791 $ 23,660
Operating loss............................. (3,181) (5,521) (10,502) (17,939)
Loss before extraordinary item............. (3,917) (6,813) (10,772) (22,685)
Extraordinary loss, net of taxes........... -- -- (486) --
Net loss................................... (3,917) (6,813) (11,258) (22,685)
Basic and diluted loss per share before
extraordinary item..................... (11.31) (20.61) (30.52) (63.89)
Basic and diluted loss per share from
extraordinary item..................... -- -- (1.38) --
Diluted net loss per share available to common
shareholders........................... (11.31) (20.61) (31.90) (63.89)




NOTE 20 - Subsequent Events

Horizon PCS' secured credit facility includes financial covenants that must
be met each quarter. Horizon PCS complied with these covenants at December 31,
2001. There is a likelihood, however, that it will not meet the covenant for
EBITDA for the first quarter of 2002. Although financial results for the end of
the first quarter are not final, subscriber information to date indicates
significantly higher than expected gross and net additions to Horizon PCS
subscribers for the quarter. Although Horizon PCS ultimately benefits from the
revenues generated by new subscribers, Horizon PCS incurs one-time expenses
associated with new subscribers, including commissions, handset subsidies, set
up costs for the network and marketing expenses. As a result, these new
subscriber costs negatively affect Horizon PCS' EBITDA in the short-term during
the period of the addition of new subscribers which could lead to non-compliance
with the EBITDA covenant for the first quarter of 2002.

We have initiated discussions with the lead bank in our lending group
concerning a possible non-compliance with the covenant. After quarter-end, if
the financial statements show a non-compliance, we intend to immediately enter
into negotiations with the bank group to obtain a waiver of the non-compliance
and amendments to the covenants.


F-34


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2001 and 2000,
And for the Years Ended December 31, 2001, 2000 and 1999
- --------------------------------------------------------------------------------


The failure to comply with the covenant would be an event of default under
our secured credit facility, and would give the lenders the right to pursue
remedies. These remedies could include acceleration of amounts due under the
facility. If the lender elected to accelerate the indebtedness under the
facility, this would also represent a default under the indentures for our
senior notes and discount notes. If we fail to comply with the covenant, one
option available to us would be to prepay the indebtedness under the secured
credit facility, together with prepayment fees. If we prepaid the facility prior
to acceleration, we would avoid default under the indentures for our senior
notes and discount notes. In the event of such a prepayment, we believe that we
could obtain replacement financing to the extent necessary to fund our business
plan. There can be no assurance, however, that we could obtain adequate or
timely replacement financing on acceptable terms or at all.


F-35



HORIZON TELCOM, INC. AND SUBSIDIARIES

Financial Statement Schedule
Valuation and Qualifying Accounts




- ------------------------------------------------------------------------------------------------------------------------------------

Balance at
Beginning of Charged to Deductions Balance at
Description Period Expense (1) End of Period
- ------------------------------------------ -------------- -------------- -------------- --------------
(dollars in thousands)
Allowance for Doubtful Accounts
Receivable-Subscribers
Year Ended December 31, 1999............ $ 663 $ 781 $ (533) $ 911
============= ============= ============= =============
Year Ended December 31, 2000............ $ 911 $ 1,891 $ (1,001) $ 1,801
============= ============= ============= =============
Year Ended December 31, 2001............ $ 1,801 $ 6,936 $ (6,075) $ 2,662
============= ============= ============= =============


Allowance for Doubtful Accounts
Receivable-Interexchange Carriers and
Other

Year Ended December 31, 1999............ $ 50 $ 20 $ (3) $ 67
============= ============= ============= =============
Year Ended December 31, 2000............ $ 67 $ 25 $ (2) $ 90
============= ============= ============= =============
Year Ended December 31, 2001............ $ 90 $ 408 $ (20) $ 478
============= ============= ============= =============
- -----------------


(1) Represents amounts written off during the period, less recoveries of
amounts previously written off.




F-36





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