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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, 2002

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: 0-32617

HORIZON TELCOM, INC.
(Exact name of registrant as specified in its charter)

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

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, 2003, there were 90,552 shares of class A common stock
outstanding and 271,926 shares of class B common stock outstanding.






HORIZON TELCOM, INC.
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS




PAGE NO.
PART I
ITEM 1. Business.........................................................................................2
ITEM 2. Properties......................................................................................29
ITEM 3. Legal Proceedings...............................................................................29
ITEM 4. Submission of Matters to a Vote of Security Holders.............................................29

PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................29
ITEM 6. Selected Financial Data.........................................................................31
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operation............32
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk......................................73
ITEM 8. Financial Statements and Supplementary Data.....................................................73
ITEM 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure....................................................................73

PART III
ITEM 10. Directors and Executive Officers of the Registrant...............................................74
ITEM 11. Executive Compensation...........................................................................76
ITEM 12. Security Ownership of Certain Beneficial Owners and Management...................................84
ITEM 13. Certain Relationships and Related Transactions...................................................85
ITEM 14. Controls and Procedures..........................................................................86

PART IV
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................88







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" or "Horizon Personal Communications") 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 our future compliance with debt covenants;

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 estimates for churn and ARPU (defined below);

O statements regarding Horizon PCS' plans for and costs of the build-out
of its PCS network;

O statements regarding our anticipated revenues, expense levels,
liquidity and capital resources and projections of when we will
achieve break-even or positive operating cash flow; and

O the anticipated impact of recent accounting pronouncements.

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:

1


O changes or advances in technology and the acceptance of new technology
in the marketplace;

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

O changes in government regulation; and

O general political economic and business conditions.

And, in addition the following factors related to Horizon PCS:

O Horizon PCS' ability to continue as a going concern;

O Horizon PCS' significant level of indebtedness;

O the likelihood that Horizon PCS will fail to comply with debt
covenants in its senior secured credit facility;

O the nature and amount of the fees that Sprint charges Horizon PCS for
back office services;

O Horizon PCS' potential need for additional capital or the need for
refinancing existing indebtedness;

O Horizon PCS' dependence on its affiliation with Sprint and its
dependence on Sprint's back office services;

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

O the potential to continue to experience a high rate of customer
turnover;

O Horizon PCS' lack of operating history and anticipation of future
losses;

O potential fluctuations in Horizon PCS' operating results;

O Horizon PCS' ability to attract and retain skilled personnel; and

O the possibility that the nature and extent of Horizon Telcom's
ownership interest in Horizon PCS may be materially adversely affected
by the foregoing factors.

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

RECENT DEVELOPMENTS

As of December 31, 2002, Horizon PCS, Inc., a corporation in which we hold
a majority ownership interest, was in compliance with its covenants with regards
to its outstanding debt. However, Horizon PCS believes that it is probable that
it will violate one or more covenants under its secured credit facility in 2003.
The failure to comply with a covenant would be an event of default under Horizon
PCS' secured credit facility, and would give the lenders the right to pursue
remedies against Horizon PCS. These remedies could include acceleration of
amounts due under the facility. If the lenders elected to accelerate the


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indebtedness under the facility, this would also represent a default under the
indentures for Horizon PCS' senior notes and discount notes (see "Note 12" in
the "Notes to Consolidated Financial Statements") and would give Sprint certain
remedies under Horizon PCS' Consent and Agreement with Sprint. See "The Sprint
Agreements." Horizon PCS does not have sufficient liquidity to repay all of the
indebtedness under these obligations. Horizon PCS' independent auditors' report
dated March 4, 2003 states that these matters raise substantial doubts about
Horizon PCS' ability to continue as a going concern.

In addition, without the additional borrowing capacity under the senior
credit facility, significant modifications in the amounts charged by Sprint
under the management agreements, significant modifications in the amounts
charged by the Alliances under the Network Service Agreement, and/or a
restructuring of Horizon PCS' capital structure, Horizon PCS likely does not
have sufficient liquidity to fund its operations so that it can pursue its
desired business plan and achieve positive cash flow from operations.

Horizon PCS plans to take the following steps (some of which it has already
commenced) within the next six months to achieve compliance under its debt
facilities and to fund its operations:

O Entering into negotiations with Sprint to adjust the amounts charged
by Sprint to Horizon PCS under the Sprint management agreements to
improve the Horizon PCS's cash flow from operations.

O Entering into negotiations with the lenders under the senior credit
facility to modify the debt covenants, and if necessary, to obtain
waivers and/or a forbearance agreement with respect to defaults under
Horizon PCS' senior credit facility.

O Entering into negotiations with the lenders under its senior credit
facility to obtain the right to borrow under the $95 million line of
credit and to modify the repayment terms of this facility.

O If the lenders under its senior credit facility accelerate the senior
secured debt, negotiating a waiver or forbearance agreement with
representatives of the holders of its senior notes and discount notes.

O Entering into negotiations or arbitration with the Alliances to reduce
the amounts charged by Alliances to Horizon PCS under the network
agreements to improve Horizon PCS' cash flow from operations.

O Pursuing means to reduce operating expenses by critically analyzing
all expenses and entering into pricing negotiations with key vendors.

Horizon PCS would need to be successful in these efforts to be in position
to execute its business plan and achieve positive cash flow. Horizon PCS can
give no assurance that it will be successful in these efforts. In its early
discussions with Sprint, Sprint has indicated reluctance in modifying the fee
structure as needed under the first item listed above.

Horizon PCS has engaged Berenson & Company, an investment banking firm, to
assist in its efforts to renegotiate or restructure its equity, debt and other
contractual obligations.

If Horizon PCS is unable to restructure its current debt and other
contractual obligations as discussed above, it would need to:

O obtain financing to satisfy or refinance its current obligations;

O find a purchaser or strategic partner for Horizon PCS' business or
otherwise dispose of its assets; and/or

O seek bankruptcy protection.

There is a substantial risk that Horizon Telcom would lose all or a
substantial portion of the value of its investment in Horizon PCS in connection
with any restructuring of Horizon PCS. While Horizon Telcom may retain an equity
interest in a restructuring of Horizon PCS, it is possible that Horizon Telcom


3


will lose voting control of Horizon PCS and will lose all of the value of its
investment in Horizon PCS in connection with restructuring. See "Risks Related
To Horizon PCS."

Horizon Telcom, Chillicothe Telephone, Horizon Technology, and Horizon
Services are not obligated in any form to assist Horizon PCS in its negotiations
nor are they obligated to compensate any of Horizon PCS' creditors should
Horizon PCS default on any debt agreements. While Horizon PCS faces several
liquidity issues, the liquidity of Horizon Telcom independent of Horizon PCS is
more favorable. Cash and working capital for Horizon Telcom, net of Horizon PCS,
is approximately $8.8 million and approximately $13.2 million, respectively. We
believe that this level of working capital is adequate to maintain Horizon
Telcom's operations for the foreseeable future. Horizon Telcom, net of Horizon
PCS, generated approximately $15.4 million of cash flow from operations during
2002.

OVERVIEW

Through its operating subsidiaries, Horizon Telcom, Inc. is a
facilities-based telecommunications carrier that provides (i) local and long
distance telephone, (ii) Internet and network services to residential and
business customers located primarily in Ohio, and (iii) 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 a PCS affiliate of
Sprint, with an exclusive right to market Sprint's PCS products and services to
a total population of over 10.2 million people in portions of twelve contiguous
states. A PCS affiliate of Sprint is an entity that has agreed to act as
Sprint's PCS exclusive agent to market its services and manage its customers in
a particular area. Horizon PCS' territory covers 54 markets in parts of Indiana,
Kentucky, Maryland, Michigan, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Tennessee, Virginia, and West Virginia. These territories are
located between Sprint's 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. We believe that connecting or being
adjacent to existing Sprint PCS markets is important to Sprint's and our
strategy to provide seamless, nationwide PCS. As a PCS affiliate of Sprint,
Horizon PCS markets digital personal communications services under the Sprint
and Sprint PCS brand names. At December 31, 2002, Horizon PCS had approximately
270,900 Sprint PCS subscribers in its 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
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.


4



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.



5


The operations of Chillicothe Telephone, a landline telephone service
provider, and Horizon PCS, a wireless personal communications service provider,
are our primary business segments. Landline telephone services accounted for
approximately 15%, 23% and 51% of our operating revenues, respectively, in 2002,
2001 and 2000. Landline telephone services accounted for $15.4, $16.1 and $15.1
million operating profit for 2002, 2001 and 2000, respectively. Horizon PCS
accounted for approximately 82%, 72%, and 39% of our operating revenues, and
$113.0 million, $83.5 million and $40.3 million of operating losses,
respectively, for 2002, 2001 and 2000.

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 4 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, 2002, Horizon Telcom had 968 employees, of which 143 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 38,000 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 285 fiber miles, serving
ten exchanges, including a central office acting as host to nine remote
switches.

The number of access lines decreased from 38,892 on December 31, 2001, to
38,203 on December 31, 2002. The following table details the changes in access
lines over the past three years:





AT DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
ACCESS LINES
Residential.............................. 28,232 74% 28,480 73% 28,820 76%
Business................................. 9,971 26% 10,412 27% 9,004 24%
--------- ------ --------- ------ --------- ------
TOTAL ILEC............................... 38,203 100% 38,892 100% 37,824 100%
========= ====== ========= ====== ========= ======


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
products and services unique to business customers. Customers with less complex
needs are supported by a telephone customer care group, which develops solutions


6


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 covers approximately 285 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's current strategy
continues to emphasize expansion of its network while providing high quality
service to as many residents in our markets as possible.

Chillicothe Telephone offers 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, 2002,
we had 3,790 Horizon View customers. Chillicothe Telephone continues to be at
the forefront in providing video and high-speed Internet services to rural
customers in our local markets.

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 co-locate 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:


7


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

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


8


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.

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 a new alternative
rate regulation and, when the regulation is finalized, Chillicothe Telephone has
the right to elect this form of regulation. Generally, we would have greater
flexibility in bundling service packages. Basic residential rates are frozen and
future offerings of other products are limited. 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 17 years, including:

O growing customer demand for alternative products and services,
including wireless products which include long distance for one low
rate,

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. Adelphia Cable is already offering cable services, long distance
telephone services as a reseller, as well as high-speed Internet access.
Adelphia Cable has slowed its deployment of services which leads to a more
favorable position for us. Adelphia Cable and its subsidiaries, partnerships and
joint ventures voluntarily filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code. If Adelphia Cable is acquired or emerges from
bankruptcy in a favorable competitive position, we may face more competition not
only in our cable service but also in our local telephone offerings.

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 which could negatively impact our business.


9


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, Verizon, Sprint and MCI
WorldCom, Inc. Furthermore, all Bell companies have received permission to offer
long distance services in certain states. 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 10,000 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, 2002, we had approximately 12,500
subscribers to this service. Additionally, there are approximately 2,600 DSL
subscribers that we offer Internet access to through our Viewnet 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 1.5 mbps. 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 hope to offer broadband or DSL
in the rest of our bright.net service territory.

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.



10


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 Adelphia; and

O DSL and two-way satellite providers.

NETWORK CONSULTING

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

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 56.3%
of the outstanding shares of all classes of capital stock on a fully diluted
basis, and 83.1% 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 and its subsidiaries.

OVERVIEW

We are a Sprint PCS affiliate with an 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 59 million. As a PCS
affiliate of Sprint, we market digital personal communications services, or PCS,
under the Sprint and Sprint PCS brand names. At December 31, 2002, we had
approximately 270,900 Sprint PCS subscribers in our territory.

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


11


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. In August 1997, approximately ten months
after receiving our licenses, we launched PCS service as an
independent service provider operating under the "Horizon Personal
Communications" brand name. We were the third C-Block licensee to
launch PCS service in the United States and the first to use CDMA
technology.

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

O In August 1999, Sprint granted us 17 additional markets in Virginia,
West Virginia, Tennessee, Maryland, Kentucky, North Carolina and Ohio
with a total population of approximately 3.3 million residents. 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. At December 31, 2002, the Alliances' network
provided coverage to 1.8 million residents, or 62% of their network's
portion of our total population.

O In September 1999, Horizon Telcom, sold its interest in the towers it
owned to SBA Communications Corp ("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.

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. At that time, we also entered
into a management agreement with Bright PCS which we agreed to manage
Bright PCS' network build-out and operation. 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's major national PCS retailers.

O In May 2000, Sprint granted us an additional 17 markets in
Pennsylvania, New York, Ohio and New Jersey with a total population of
approximately 2.9 million residents.


12


O In June 2000, we acquired the remaining 74% of Bright PCS equity that
we did not already own to become a 100% owner. As consideration for
the outstanding Bright PCS equity, 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)
with a bank group. The discount notes were subject to an exchange
offer filed with the SEC which was completed.

O In December 2001, the Company received $175.0 million from our
offering of 13.75% senior notes. The senior notes were subject to an
exchange offer which was completed.

The Sprint PCS agreements require Horizon PCS to interface with the Sprint
PCS wireless network by building Horizon PCS's network to operate on PCS
frequencies licensed to Sprint in the 1900 MHz range. Under the Sprint PCS
agreements, we have agreed to:

O construct and manage a network in HPCS' territory in compliance with
Sprint's PCS licenses and the terms of the management agreement;

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

O conduct advertising and promotion activities in HPCS' territory.

Horizon PCS must comply with Sprint's PCS program requirements for
technical standards, customer service standards, national and regional
distribution and national accounts programs to the extent that Sprint meets
these requirements. For further discussion of the Sprint PCS agreements, see
"The Sprint PCS Agreements" below.

CURRENT OPERATING ENVIRONMENT AND OUR BUSINESS STRATEGY

Since the beginning of 2002, the wireless communications industry,
including Sprint and its PCS affiliates, has experienced significant declines in
per share equity prices and debt ratings. We believe that this decline in
wireless stocks and debt ratings results from a weaker outlook for the wireless
industry than previously expected. Reasons for a weaker operating environment
include:

O declining rates of subscriber growth in the United States caused by
the lack of availability of new quality subscribers, as overall
penetration rates in the wireless industry approximate 50%;

O concerns that intense competition among wireless service providers in
the United States will continue to lead to service offerings of
increasingly large bundles of minutes at lower prices;

O higher rates of churn resulting from intense competition and programs
for lower credit rating ("sub-prime") subscribers; and

O the highly leveraged capital structures of many wireless providers and
a lack of viable financing alternatives.


13



Our business has been and continues to be affected by these general market
conditions. In addition, as a result of our dependence on Sprint, we are also
confronted with additional factors that have had a negative impact on our
operations such as:

O At Sprint's direction, we offered a no deposit account spending limit
("NDASL") program that attracted sub-prime subscribers and contributed
to high rates of churn. Sprint has discontinued the NDASL program and
replaced it with Clear Pay, which tightened credit restrictions, and
Clear Pay II, which re-instituted deposit requirements for most lower
credit quality customers and introduces additional controls on loss
exposure;

O The amount of the affiliation and back office fees and roaming and
other charges that we pay to Sprint expressed as a percentage of our
service revenues has increased over the years to a level of 42% for
2002. Consequently, our ability to control costs through our own cost
cutting measures is more limited;

O Over the past year, Sprint has taken a number of actions which
resulted in unanticipated charges or increases in charges to the
Company. Some of these charges resulted from prior billing errors by
Sprint, while others were charges to which we had little or no advance
notice. The effect of these actions was to reduce our liquidity and
interject a greater degree of uncertainty to our business and
financial planning;

O Our dependence on Sprint to provide customer care provides us limited
tools to improve the quality of customer care, which may contribute to
higher churn; and

O Our dependence on Sprint to provide services, including back-office
services, gives us a more limited control of our own working capital.

In reaction to these changes, we have implemented a variety of operational
management initiatives, including:

O We have reorganized our sales group and added strategic positions to
better manage our sales team;

O We have reduced planned capital expenditures and preserved cash by
delaying or eliminating plans to expand our network of company-owned
retail stores, and have held headcount steady to control operating
expenses within the retail channel;

O We have implemented several network cost control initiatives,
including a reduction of engineering and operations staffing in
recognition of a transition from network deployment activities toward
steady-state network operations;

O We are reducing advertising expenditures to preserve cash while
concurrently increasing sales productivity through the use of outbound
local marketing, business development and community relations efforts
directed through our retail stores and local marketing support staff;

O We have implemented a churn reduction initiative as a proactive
response to keep valuable customers and to assist the customer care
services provided by Sprint;

O We reinstituted the deposit on sub-prime subscribers in an effort to
focus on value added, long-term subscribers. As a result, our
percentage of higher credit rating ("prime") customers in our
subscriber portfolio increased to 74% at December 31, 2002, from 65%
at its lowest point on March 31, 2002; and

O We have commenced negotiations with Sprint for a modification in the
manner that we are charged for back office services.

O As a result of the industry trends discussed above and the fact that
wireless industry acquisitions subsequent to the Company's acquisition
of Bright PCS have been valued substantially lower on a price per
population and price per subscriber basis, the Company believed that


14


the fair value of Bright PCS and its assets had been reduced. The
Company recorded a goodwill impairment of approximately $13.2 million
during the quarter ended December 31, 2002 (See "Note 7" under "Notes
to Consolidated Financial Statements").

OPERATIONAL ANALYSIS

We focused a significant amount of our operational efforts over the past
twelve months on upgrading our wireless network to be able to provide the first
level of third generation ("3G") network services marketed by Sprint nationally
as "PCS Vision." In conjunction with Sprint's nationwide launch of PCS Vision,
we began providing 3G services across our network in mid-August 2002.
Subscribers are now able to connect to the Internet with their handsets, PDA's,
and laptops at speeds of up to 144 kilobits per second ("kbps"). The average
user will experience peak rates of 75-80 kbps, which is two to three times
faster than historical dial-up speeds. We can now offer several new products and
services to our subscribers.

In addition to the 3G upgrades, 253 cell sites were added to both
substantially complete our build-out requirements with Sprint and expand
coverage and capacity where necessary. At December 31, 2002, we covered 73% of
the total population of 10.2 million in our territory.

SPRINT

Sprint operates the nation's largest all-digital, all PCS wireless network,
serving more than 4,000 cities and communities across the United States. Sprint
has licensed PCS coverage of more than 280 million people in all 50 states,
Puerto Rico and the U.S. Virgin Islands. In August 2002, Sprint became the first
wireless carrier in the country to launch next generation services nationwide
delivering faster speeds and advanced applications on Vision-enabled phones and
devices.

Sprint Affiliation. 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. Additionally, we believe that Sprint, using CDMA technology, has
developed a path to wireless high-speed data that will ultimately benefit us as
customer demand for robust data enabled services increases. In addition,
Sprint's national advertising campaigns, national distribution channels and
developed marketing programs are provided to us under our Sprint PCS agreements.
We offer the same strategic pricing plans, promotional campaigns and handset and
accessory promotions as Sprint.

Marketing and pricing. Our use of the Sprint national pricing strategy
offers our subscribers standardized service plans. Sprint's pricing plans are
typically structured with monthly recurring charges, large local calling areas,
bundles of minutes and service features such as voicemail, caller ID, call
waiting, call forwarding and three-way calling. We also feature Sprint Free and
Clear plans, which offer plans for consumer and business subscribers, and
include long distance calling from anywhere on the Sprint PCS nationwide
network. In addition, Sprint's national Free and Clear plans include the option
to choose free long distance calling from anywhere on Sprint PCS' nationwide
network, a package of off-peak minutes or the Sprint PCS Wireless Web.

Local focus. Our local focus enables us to supplement Sprint's marketing
strategies with our own strategies tailored to each of our specific markets.
These include attracting local businesses to diversify our distribution channels
and using local radio and newspaper advertising to sell our products and
services in each of our markets. We also enhance our local focus with specific
service plans called Area-wide Plans. These plans are designed for our
territories to create a more competitive product to those offered by other
regional or local providers. We have established a local sales force to execute
our marketing strategy through company-owned Sprint PCS stores and employ a
direct sales force targeted to business sales. Our PCS affiliation with Sprint
provides us with access to major national retailers under Sprint's existing
sales and distribution agreements and other national sales and distribution
channels, including Radio Shack, Best Buy, Circuit City and Office Depot. In
addition to the Sprint provided channels above, we own and manage 44 Sprint PCS
retail stores throughout our territory. For the year ended December 31, 2002,
our retail stores provided approximately 40% of our gross customer additions.



15


NETWORK BUILD-OUT

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. We believe that we have substantially completed our
build-out requirements. Our network now offers service to 7.4 million residents
or 73% of the total population in our territory.

Switching. We currently use three switching centers in Johnson City,
Tennessee, Erie, Pennsylvania, 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). 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. We believe the capacity of our switching centers is adequate to
accommodate our planned growth.

CDMA (Code Division Multiple Access) Technology. Sprint's network and
Sprint's network partners' networks all use CDMA technology. CDMA technology is
fundamental to accomplishing our business objective of providing high volume,
high quality airtime at a low cost. We believe that CDMA provides important
system performance benefits. CDMA systems offer more powerful error correction,
less susceptibility to fading and less interference 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 vocoder
technology also employs adaptive equalization, which filters out annoying
background noise more effectively than existing wireline, analog cellular or
other digital PCS phones. CDMA technology also allows a greater number of calls
within one allocated frequency and reuses the entire frequency spectrum in each
cell. In addition, CDMA technology combines a coding scheme with a low power
signal to enhance security and privacy. As a subscriber travels from one cell
site to another cell site, the call must be "handed off" to the second cell
site. CDMA systems transfer calls throughout the network using a technique
referred to as soft hand-off, which connects a mobile subscriber's call with a
new cell site while maintaining a connection with the cell site currently in
use. CDMA standards and products allow existing CDMA networks to be upgraded to
the next generation of wireless technology. This technology offers data speeds
of up to 144 kbps voice capacity improvements of over 50% and improved battery
life in the handset.

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.

As of December 31, 2002, the Alliances had deployed 510 cell sites within
our markets in West Virginia and Virginia and provided coverage to approximately
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.

On March 4, 2003, NTELOS and certain of its subsidiaries have filed
voluntarily petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S. Bankruptcy Court for the Eastern District of Virginia. The
results of NTELOS' restructuring could have a material adverse impact on our
operations. Pursuant to bankruptcy law, the Alliances have the right to assume
or reject the network services agreement. If the Alliances reject the network
services agreement, we will lose the ability to provide service to our
subscribers in Virginia and West Virginia through the Alliances Network and
Sprint may take the position that we would be in breach of our management
agreements with Sprint.



16


Prior to the Alliances' bankruptcy filing, Horizon had asserted that the
Alliances had overcharged Horizon approximately $4,799,000 for charges that were
neither authorized nor contemplated by the network services agreement. As a
result of the Alliances' bankruptcy filing, Horizon was at risk that any
subsequent payments that it would make for services under the network services
agreement could impair its setoff or recoupment rights with respect to its
claims for a repayment of the unauthorized charges. Consequently, Horizon
declined to make a scheduled payment of $3 million to the Alliances on March 11,
2003 for services rendered by the Alliances in January 2003 and, on that date,
filed a motion in the Alliances' bankruptcy case to protect its rights.

On March 12, 2003, the Alliances telecopied to Horizon a letter notifying
Horizon of the failure to make payment on the January 2003 invoice, which letter
purported to be a ten-business day notice under the network services agreement
that would give the Alliances the right to terminate the agreement at the
conclusion of such ten-day period.

On March 24, 2003, Horizon PCS and the Alliances entered into a Stipulation
which provided that Horizon would pay the January 2003 and February 2003
invoices, the bankruptcy court would provide procedural protection of Horizon's
claim, the Alliances would withdraw the default notice and the parties would
move forward to settle or arbitrate the merits of Horizon's claim. On March 26,
2003, the Court in the NTELOS bankruptcy case approved the Stipulation.

COMPETITION

Given the broad geographic coverage of our territory, we face substantial
competition from a large number of other wireless providers. 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 competitor is Verizon Wireless, which offers service in
the majority of our markets. We also face significant competition from AT&T
Wireless, T-Mobile and Nextel, which operates in conjunction with their
affiliates in almost all of our markets. Our primary competitors offer a
wireless service that is generally comparable to our PCS service. The intense
competition among wireless service providers in the United States will likely
continue to lead to service offerings of increasingly large bundles of minutes
at lower prices.

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 providers. While few of
these technologies and services are currently operational, others are being
developed or may be developed in the near future.

INTELLECTUAL PROPERTY

"Sprint," the Sprint diamond design logo, "Sprint PCS," "Sprint Personal
Communications Services," "The Clear Alternative to Cellular," "Experience the
Clear Alternative to Cellular Today," "PCS Vision" and "Free and Clear" 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.


17


Except in limited instances, Sprint 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 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.

SUPPLIERS AND EQUIPMENT VENDORS

We do not manufacture any of the handsets or network equipment we use in
our operations. We purchase our network equipment and handsets pursuant to
various Sprint vendor arrangements that provide us with volume discounts. These
discounts have reduced the overall capital required to build our network.

We currently purchase our handsets from Sprint and our accessories from
Sprint and certain other third-party vendors. Our agreements with Sprint require
us to pay Sprint $4.00 for each 3G handset that we purchase either directly from
Sprint or from a Sprint authorized distributor. We agreed to pay this fee
starting with purchases on July 1, 2002 and ending on the earlier of December
31, 2004 or the date on which the cumulative 3G handset fees received by Sprint
from all Sprint network partners equal $25,000,000. We further agreed to
purchase 3G handsets only from Sprint or a Sprint authorized distributor during
this period.

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. References under this heading to "we," "us" and
"our" are to Horizon PCS and its subsidiaries.

OVERVIEW OF SPRINT RELATIONSHIP AND PCS AGREEMENTS

We have eight major agreements with Sprint (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 in the
1900 MHz range. The Sprint PCS agreements also give us access to Sprint's
equipment discounts, roaming revenue from Sprint PCS customers traveling into
our territory, and various other back office services. 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 Sprint or we
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;

0 the trademark and service mark license agreement with Sprint PCS; and

O the trademark and service mark license agreement with Sprint.

THE MANAGEMENT AGREEMENT

Under our Sprint PCS agreements, we have agreed to:



18


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

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

O conduct advertising and promotion activities in our territory.

Sprint 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 in our territory. Sprint 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 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 PCS
affiliation with Sprint, 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.

Our long-term affiliation agreements with Sprint, 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's technical
specifications and coverage requirements. The agreements also require us to
provide minimum network coverage to the population within each of the markets
that make up our territory by specified dates.

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 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 extended contract dates. We believe that we
have substantially complied with our build-out requirements.

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. 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's 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 PCS affiliates of Sprint. If we decide to use third parties
to provide these services, we must give Sprint 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 carrier unless we name the Sprint
owned local exchange carrier as the exclusive distributor or Sprint approves the
terms and conditions. Subject to agreements existing before we became a PCS
affiliate of Sprint, 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's 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's systems and Sprint's approval.

Fees. We are entitled to receive from Sprint 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:



19


O outbound non-Sprint PCS roaming revenue;

O inbound Sprint PCS roaming fees;

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

O proceeds from sales not in the ordinary course of business.

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 PCS subscriber uses our network. We will earn revenues from Sprint
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 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's PCS service area includes the urban markets around our
territory. Sprint will pay for advertising in these markets. Given the proximity
of these markets to ours, we expect considerable spill-over from Sprint's PCS
advertising in surrounding urban markets.

Program requirements. We must comply with Sprint's PCS program requirements
for technical standards, customer service standards, national and regional
distribution and national accounts programs to the extent that Sprint meets
these requirements. Sprint can adjust the program requirements from time to
time. We have the right to appeal to Sprint's 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 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. 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 not use the spectrum to
offer Sprint PCS products and services without prior written consent from
Sprint.

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

O termination of Sprint's 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



20


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, as described below.

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

O require Sprint 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 was the licensee for 20MHz or more of the spectrum in a
particular market on the date the management agreement was executed,
require Sprint 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 of the license plus any microwave
relocation costs paid by Sprint or (2) 9% of our Entire Business
Value; or

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

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

O require us to sell our operating assets to Sprint 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 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 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 gives us timely notice that it does not intend to
renew the management agreement, we may:

O require Sprint 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 was the licensee for 20MHz or more of the spectrum in a
particular market on the date the management agreement was executed,
require Sprint 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 of the license plus any microwave
relocation costs paid by Sprint or (2) 10% of our Entire Business
Value.

If we give Sprint 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 may:

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



21


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 of the license plus any microwave relocation
costs paid by Sprint 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 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
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 and its directors,
employees and agents and related parties of Sprint 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, 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 the management agreement, except we will not
indemnify Sprint for any claims arising solely from their negligence or willful
misconduct. Sprint has agreed to indemnify us and our directors, employees and
agents against all claims against any of these parties arising from Sprint's
violation of any law, from Sprint's breach of any representation, warranty or
covenant contained in the management agreement or any other agreement between
Sprint and us, or the actions or the failure to act of anyone who is employed or
hired by Sprint in the performance of any work under the management agreement
except Sprint will not indemnify us for any claims arising solely from our
negligence or willful misconduct.

Sprint PCS warrants. In connection with Sprint's grant to us of our markets
in Pennsylvania, New York, Ohio and New Jersey, Horizon PCS agreed to grant to
Sprint warrants to acquire shares of Horizon PCS' class A common stock. (See
"Note 18" under "Notes to Consolidated Financial Statements" included herein).

THE SERVICES AGREEMENTS

The services agreements outline back office services provided by Sprint and
available to us at established rates. Sprint 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 offers three packages of
available services. Each package identifies which services must be purchased
from Sprint 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 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 of additional markets to us, we agreed to change our
arrangement under the services agreement so that Sprint 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. For our Bright PCS markets and our new markets in
Pennsylvania, New York and New Jersey, we launched these markets using Sprint's
billing and customer care services. Sprint 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


22


written notice. Sprint may discontinue a service provided that Sprint provides
us with nine months' prior notice.

We have agreed with Sprint 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," "PCS Vision,"
"Free and Clear" and "Clarity You Can See and Hear" 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 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 of any infringement of
any of the licensed marks within our territory of which we become aware and to
provide assistance to Sprint in connection with Sprint's enforcement of its
rights. We have agreed with Sprint 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 from any loss suffered by reason of
our use of the licensed marks or marketing, promotion, advertisement,
distribution, lease or sale of any Sprint products and services other than
losses arising solely out of our use of the licensed marks in compliance with
the contractual guidelines.

Sprint 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 abandonment of the licensed marks or if Sprint files
for bankruptcy, or the management agreement is terminated.

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 Horizon PCS' tangible and intangible
current and future assets, including an assignment of Horizon PCS' affiliation
agreements with Sprint and a pledge of all of the capital stock of Horizon
Personal Communications and Bright PCS.

Sprint entered into a consent and agreement (the "senior secured consent")
for the benefit of the holders of the indebtedness under our secured credit
facility. This agreement was acknowledged by us, and modified Sprint's 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's consent to the pledge of substantially all of our assets,
including our rights in the Sprint PCS agreements;

O Sprint's consent to the pledge of all our equity interests in Horizon
Personal Communications and Bright PCS and the pledge by Horizon
Personal Communications and Bright PCS of all equity interests in each
of their subsidiaries;


23



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 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 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 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's 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, the senior secured consent
provides that Sprint may 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 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 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 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 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.

Sale of operating assets to third parties. If Sprint 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 does not
have to accept the third-party as a PCS affiliate of Sprint 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, Horizon PCS must ensure that its 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:


24



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 had previously prohibited 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 eliminated this restriction on January 1, 2003.
Instead the FCC will consider competitive factors when licensees seek to
aggregate large amounts of spectrum in an area. We cannot predict whether this
action 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
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 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.



25


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.

OTHER FCC REQUIREMENTS

The FCC 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 were 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's initial compliance with these rules
occurred on or before October 1, 2001. In addition, the FCC has required
implementation of Phase II emergency 911 capabilities by October 1, 2002,
including the ability to provide ALI of subscribers by latitude and longitude
with a specified accuracy. Sprint has obtained waivers of the relevant ALI
enhanced 911 requirements based on a modified deployment plan, which includes a
number of interim benchmarks and other conditions, and would provide for
completing Phase II E911 deployment by 2005. The Company's Chillicothe PCS
system, the licenses to which the Company owns, is currently exempt from E911
ALI requirements.



26


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.

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 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 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.

Carriers must comply with certain other FCC requirements:

o payment of annual regulatory user fees;


27


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.

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 is required to contribute to the Federal
universal service program as well as existing state programs. The FCC has
determined that Sprint's 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 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.


28


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 are 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
130 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' principal executive offices, which are leased from Chillicothe
Telephone, are located at 52 E. Main Street, Chillicothe, Ohio 45601-0480, which
is also the location of its first PCS store. Horizon PCS also leases an
additional 43 other retail stores throughout its territory. Horizon PCS owns
three switching facilities in Fort Wayne, Indiana, Erie, Pennsylvania and
Johnson City, Tennessee. As of December 31, 2002, Horizon PCS leased space on
828 on-air towers. Horizon PCS believes that its 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.

ITEM 3. LEGAL PROCEEDINGS

On July 3, 2002, the Federal Communications Commission (the "FCC") issued a
declaratory ruling on issues referred to it by a U.S. District Court, in the
case of Sprint Spectrum L.P. v. AT&T Corp. The FCC held that PCS wireless
carriers could not unilaterally impose terminating long distance access charges
pursuant to FCC rules. This FCC ruling did not preclude a finding of a
contractual basis for these charges, nor did it rule whether or not Sprint had
such a contract with carriers such as AT&T. This ruling has been appealed to the
U.S. Circuit Court of Appeals for the District Columbia. The underlying case
remains pending in the trial court, but has been stayed pending the outcome of
the appeal. Because the appeal of the FCC ruling and the underlying case are
both still pending, we cannot predict, with certainty, the final outcome of this
action. As a result, Horizon PCS recorded a reduction in revenue in the second
quarter of 2002 of approximately $1.3 million representing previously billed and
recognized access revenue. Horizon PCS plans to cease recognition of this type
of revenue in future quarters, unless there is ultimately a favorable ruling by
the courts or the FCC on this issue. Sprint has asserted the right to recover
these revenues from Horizon PCS. Horizon PCS will continue to assess the ability
of Sprint or other carriers to recover these charges. Horizon PCS is also
continuing to review the availability of defenses we may have against Sprint's
claim to recover these revenues from us.

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 2002.

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


29


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:

2002 2001
-------- --------
First Quarter.................................. $ 1.25 $ 1.15
Second Quarter................................. 1.25 1.25
Third Quarter.................................. 1.25 1.25
Fourth Quarter................................. 1.25 1.25
-------- --------
Total................................. $ 5.00 $ 4.90
======== ========

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 354 holders on record of our class A common stock as of December
31, 2002. There were 668 holders of record of our class B common stock as of
December 31, 2002. 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.

RECENT SALES OF UNREGISTERED SECURITIES

(1) During 2002, two people holding options to acquire Horizon Telcom
class B common stock each exercised the vested portions of the
options (149 shares each at $60 per share). Both individuals
exercised in April 2002, and each was an executive officer or
director. See "ITEM 11. Executive Compensation."

(2) In May 2002 and November 2002, Horizon PCS issued an additional
1,060,201 and 1,099,958 shares, respectively, of convertible
preferred stock as a dividend-in-kind to the holders of the
outstanding convertible preferred stock.

Exemption from the registration provisions of the Securities Act for the
transactions described in paragraph (2) above was claimed on the basis that such
transaction 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 transactions described in paragraph (1)
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 paragraph (1) 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 and exemption from the
registration provisions of the Securities Act for the transactions described in
paragraph (2) above was claimed under Rule 144A of the Securities Act.

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of December 31, 2002 with
respect to shares of Horizon Telcom's and Horizon PCS' common stock that may be
issued under existing equity compensation plans.


30





HORIZON TELCOM HORIZON PCS
-------------------------------------------- --------------------------------------------
Weighted Number of Weighted- Number of
Number of Average Shares Number of Average Shares
Shares Exercise Remaining Shares exercise Remaining
Issued Price to be Issued Issued price to be Issued
------------- ------------- ------------- -------------- -------------- --------------
Equity Plans approved by
stockholders............ 950 $ 60.00 9,050 4,513,854 $ 0.51 7,183,030
============= ============= ============= ============== ============== ==============



TRANSFER AGENT AND REGISTRAR

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

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth our selected historical consolidated
financial data. We derived the data as of and for the five years ended December
31, 2002, 2001, 2000, 1999 and 1998 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, 2002, 2001 and 2000 included under with "ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of Operation," and
"ITEM 8. Financial Statements and Supplementary Data."




FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------- -------------- -------------- -------------- --------------
Operating revenues.............. $ 264,706,821 $ 170,140,016 $ 73,999,642 $ 49,406,480 $ 41,518,407
Operating income (loss)......... (112,737,213) (82,689,886) (37,142,923) (4,504,463) 2,038,267
Net loss........................ (186,100,403) (118,820,602) (44,673,246) (4,481,098) (1,207,083)
Diluted loss per share of
common stock (1).............. (513.48) (329.59) (129.03) (11.23) (3.03)
Cash dividends on common
stock......................... 1,812,204 1,767,088 1,793,038 1,815,014 1,815,014
Dividends per share on common
stock (1)..................... 5.00 4.90 4.60 4.55 4.55
Capital expenditures............ 73,905,456 132,506,210 101,491,729 17,799,773 15,984,218



AS OF DECEMBER 31,
----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------------- -------------- -------------- -------------- --------------
Property, plant and equipment
in-service, net............. $ 299,487,567 $ 229,492,123 $ 121,933,149 $ 72,868,507 $ 79,565,362
Total assets.................. 545,750,113 577,913,866 466,299,843 101,713,365 106,102,379
Long-term debt................ 558,284,349 402,055,643 205,283,104 45,557,965 53,180,442
Convertible preferred stock of
subsidiary - book value..... 157,105,236 145,349,043 134,421,881 -- --
Stockholders' equity (deficit) (265,366,491) (76,476,363) 41,634,415 27,693,752 33,987,193

Non-financial data:
Total access lines............ 38,203 38,892 37,824 36,832 36,554
Total Horizon PCS subscribers
(2)......................... 270,900 194,100 66,400 13,700 2,100
Total bright.net subscribers.. 12,500 14,900 15,000 14,500 11,800

- --------------------------
(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.




31



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

OVERVIEW

We have focused a significant amount of our operational efforts over the
past twelve months upgrading our wireless network to be able to provide the
first level of third generation ("3G") network services marketed by Sprint
nationally as "PCS Vision." In conjunction with Sprint's nationwide launch of
PCS Vision, Horizon PCS began providing 3G services across its network in
mid-August 2002. Subscribers are now able to connect to the Internet with their
handsets, PDA's, and laptops at speeds of up to 144 kilobits per second
("kbps"). We believe the average user will experience peak rates of 75-80 kbps,
which is two to three times faster than historical dial-up speeds.

During the second half of 2001 and first half of 2002, a significant number
of our customer additions were under the NDASL program. These lower credit
quality customers activated under the NDASL program led to higher churn rates
and an increased amount of bad debt during the second half of 2002 as a
significant number of these customers were disconnected and written-off.

Sprint has discontinued the NDASL program and replaced it with Clear Pay,
which tightened credit restrictions, and Clear Pay II, which re-instituted
deposit requirements for most lower credit quality customers and introduces
additional controls on loss exposure. In addition, we have focused our marketing
efforts toward recruiting higher quality customers. As a result, our percentage
of prime credit customers in our subscriber portfolio increased to 74% at
December 31, 2002, from 65% at its lowest point on March 31, 2002.

In response to increased competition from other carriers and to improve
focus on penetrating our markets with PCS Vision, Horizon PCS reorganized its
operations group on October 1, 2002. Horizon PCS realigned its internal
geographic markets and added a vice president to oversee our marketing and
retail operations teams. Horizon PCS looks forward to the benefits of this new
organizational alignment and believes it will result in higher gross subscriber
additions and a better retention effort.

Chillicothe Telephone continued to upgrade its landline network with fiber
optic cabling. This upgrade will expand bandwidth capacity, improve network
efficiency and extend the reach of our network. Through this upgrade, we
expanded the availability of our VDSL product and saw steady growth in the
number of new VDSL subscribers. Our VDSL subscribers can currently enjoy over
100 digital cable channels, high-speed Internet access and basic landline
telephone service.

Horizon PCS is currently in the process of attempting to negotiate
modifications to lending arrangements and major contractual relationships.
Horizon Telcom, Chillicothe Telephone, Horizon Technology, and Horizon Services
are not obligated in any form to assist Horizon PCS in their negotiations nor
are they obligated to compensate any of Horizon PCS' creditors should Horizon
PCS default on any debt agreements. Defaults of covenants on debt agreements of
Horizon PCS will not result in defaults in any debt agreements or other
contractual obligation of Horizon Telcom or any of its subsidiaries. Should
Horizon PCS be unsuccessful in its efforts to modify its debt and major
contractual relationships, it is possible that our equity ownership would be
substantially changed and reduced. Should our ownership of Horizon PCS fall
below 50% and we lose control, Horizon PCS may not be included in the
consolidated results of Horizon Telcom. This would have a significant impact on
the presentation of operations of Horizon Telcom.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Allowance for Doubtful Accounts. With respect to Horizon PCS, estimates are
used in determining our allowance for doubtful accounts receivable, which are
based on a percentage of our accounts receivables by aging category. The
percentage is derived by considering our historical collections and write-off
experience, current aging of our accounts receivable and credit quality trends,
as well as Sprint's credit policy.


32



The following table provides certain statistics on Horizon PCS' allowance
for doubtful accounts receivable of wireless subscribers for the year ended
December 31:





2002 2001 2000
------------- -------------- -------------
Provision as a percent of wireless subscriber
revenue............................................ 10% 8% 8%
Write-offs, net of recoveries as a percent of
wireless subscriber revenue........................ 10% 7% 5%
Allowance for doubtful accounts as a percent of
PCS accounts receivable............................ 11% 11% 22%


Under Sprint's service plans, wireless customers who do not meet certain
credit criteria can select any plan offered subject to an account spending
limit, referred to as ASL, to control credit risk exposure. Account spending
limits range from $125 to $200 depending on the credit quality of the customer.
Prior to May 2001, all of these customers were required to make a deposit that
could be credited against future billings. In May 2001, the deposit requirement
was eliminated on certain, but not all, credit classes ("No Deposit ASL" or
"NDASL"). As a result, a significant amount of our new wireless customer
additions (approximately 59%) were NDASL subscribers during the program's
available period.

This increase in sub-prime credit customers under the NDASL program has led
to higher churn rates (defined below) and an increase in account write-offs.
While the average balance written-off for an NDASL customer is lower than the
average write-off balances of non-account spending limit customers, the number
of NDASL write-offs has caused an increase in the total amount written-off each
quarter, resulting in the need for a higher allowance and provision for doubtful
accounts receivable.

Beginning in November 2001, the NDASL program was replaced by "Clear Pay",
which had tightened credit criteria. In April 2002, we replaced Clear Pay with
"Clear Pay II," which re-instated the deposit requirement for most credit
classes with account spending limits and featured increased back-office controls
with respect to credit qualification and account collections. We anticipate the
implementation of the Clear Pay II program will reduce our future bad debt
exposure. If the deposit requirement is later removed or if these allowances for
doubtful accounts receivable estimates are insufficient for any reason, our
operating income and available cash could be reduced. At December 31, 2002, the
allowance for doubtful accounts was $2,308,000. At December 31, 2002,
approximately 30% of the subscribers in our markets were account spending limit
customers with no deposit paid.

With respect to our landline segments accounts receivable consists
primarily of amounts billed to interexchange carriers for allowing their
customers to access our network when their customers place a call. Accounts
receivable also includes charges for advertising in Chillicothe Telephone's
yellow pages directory and amounts billed to customers for monthly services. Our
collection history with interexchange carriers has been good. However, we do
have some exposure to WorldCom and WorldCom's MCI division, which declared
bankruptcy on July 21, 2002. Our outstanding accounts receivable with WorldCom
at December 31, 2002 was approximately $600,000. Chillicothe Telephone wrote off
approximately $375,000 at year-end 2002 which was related to WorldCom's
pre-petition bankruptcy balances. The allowance for doubtful interexchange
accounts receivable is approximately 4% of accounts receivable at December 31,
2002.

Revenue Recognition. Horizon PCS records equipment revenue from the sale of
handsets and accessories to subscribers in its retail stores and to local
distributors in its territories upon delivery. Horizon PCS does not record
equipment revenue on handsets and accessories purchased from national
third-party retailers or directly from Sprint by subscribers in our territory.
After the handset has been purchased, the subscriber purchases a service
package, revenue from which is recognized monthly as service is provided and is
included in subscriber revenue, net of credits related to the billed revenue.
Horizon PCS believes the equipment revenue and related cost of equipment
associated with the sale of wireless handsets and accessories is a separate
earnings process from the sale of wireless services to subscribers. For industry
competitive reasons, Horizon PCS sells wireless handsets at a loss. Because such
arrangements do not require a customer to subscribe to Horizon PCS' wireless
services and because Horizon PCS sells wireless handsets to existing customers
at a loss, it accounts for these transactions separately from agreements to
provide customers wireless service.


33


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
will be recorded over the average life for those customers (30 months) that are
assessed an activation fee. The Company recognized approximately $2,992,000,
$695,000 and $47,000 of both activation fee revenue and customer activation
expense during 2002, 2001 and 2000, respectively, and had deferred approximately
$6,093,000 and $3,809,000 of activation fee revenue and direct customer
activation expense at December 31, 2002 and 2001.

A management fee of 8% of collected PCS revenues from Sprint PCS
subscribers based in Horizon PCS' territory, is accrued as services are provided
and remitted to Sprint PCS and recorded as general and administrative expenses.
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 Horizon PCS' territory are not subject to the 8%
affiliation fee. Expense related to the management fees charged under the
agreement was approximately $12,027,000, $5,923,000 and $1,302,000 for the years
ended December 31, 2002, 2001 and 2000 respectively.

The landline telephone services operating segment consists of basic local
and long-distance toll, network access services and other related telephone
service revenue. Intra-LATA, (Local Access and Transport Area) (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
landline 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 by
our landline telephone services segment from the provision of exchange access
services to an interexchange carrier or to an end user beyond the exchange
carrier's network. Other related telephone service revenue includes directory
advertising related to a telephone directory published annually.

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.

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.



34


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 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.

Impairment of Long-Lived Assets and Goodwill. The Company accounts for
long-lived assets and goodwill in accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 144 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that 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 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 be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. As a result, the Company recorded approximately $3.5 million with respect
to Horizon PCS related to accelerated depreciation on an impaired asset for the
year ended December 31, 2002. SFAS No. 142 requires annual tests for impairment
of goodwill including intangible assets that have indefinite useful lives and
interim tests when an event has occurred that more likely than not has reduced
the fair value of such assets. The Company recorded a goodwill impairment with
respect to Horizon PCS of $13.2 million during the year ended December 31, 2002.




35


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2001

This discussion and analysis is presented on an operating segment basis.
The following table details the consolidated statements of income by operating
segment for the years ended December 31, 2002 and 2001:




For the Year Ended December 31,
------------------------------------------------------
Wireless Personal Landline Telephone
Communications Services And Other Services
(Dollars in thousands) ------------------------- -------------------------
OPERATING REVENUES: 2002 2001 2002 2001
------------ ------------ ------------ ------------
PCS subscriber and roaming........... $ 207,978 $ 115,906 $ -- $ --
PCS equipment........................ 7,847 7,106 -- --
Basic local and long-distance service -- -- 18,702 19,586
Network access....................... -- -- 21,523 20,198
Equipment systems sales, information
services, Internet access and other -- -- 8,657 7,344
------------ ------------ ------------ ------------
Total operating revenues.......... 215,825 123,012 48,882 47,128
------------ ------------ ------------ ------------

OPERATING EXPENSES:
Cost of PCS and other equipment sales 19,189 14,871 607 688
Cost of services..................... 166,904 100,257 16,296 14,911
Selling and marketing................ 52,601 48,993 1,648 1,553
General and administrative........... 35,654 21,505 20,959 21,457
Non-cash compensation................ 397 1,044 16 105
Loss on disposal of assets........... 632 1,297 16 --
Depreciation and amortization........ 40,271 18,519 9,032 7,630
Impairment of goodwill and impact of
acquisition-related deferred taxes. 13,222 -- -- --
------------ ------------ ------------ ------------
Total operating expenses........... 328,870 206,486 48,574 46,344
------------ ------------ ------------ ------------

OPERATING INCOME (LOSS)................. (113,045) (83,474) 308 784
------------ ------------ ------------ ------------

NONOPERATING INCOME (EXPENSE):
Interest expense, net................ (60,601) (27,434) (2,769) (2,131)
Subsidiary preferred stock dividends. (11,756) (10,930) -- --
Interest income, net................. 2,990 5,054 (67) 110
------------ ------------ ------------ ------------
Total nonoperating expense......... (69,367) (33,310) (2,836) (2,021)
------------ ------------ ------------ ------------

LOSS BEFORE INCOME TAX EXPENSE AND
MINORITY INTEREST.................... (182,412) (116,784) (2,528) (1,237)

INCOME TAX (EXPENSE) BENEFIT............ -- -- (1,160) (1,783)

MINORITY INTEREST IN LOSS............... -- -- -- 984
------------ ------------- ------------ ------------

NET INCOME (LOSS)....................... $ (182,412) $ (116,784) $ (3,688) $ (2,036)
============ ============= ============ ============




36



WIRELESS PERSONAL COMMUNICATIONS SERVICES SEGMENT

The following discussion details key operating metrics and the results of
operations for our wireless personal communications segment over the last fiscal
year. Our wireless personal communications segment consists entirely of the
operations of Horizon PCS.

Under the Sprint Agreements, Sprint provides the Company significant
support services such as billing, collections, long distance, customer care,
network operations support, inventory logistics support, use of the Sprint and
Sprint PCS brand names, national advertising, national distribution and product
development. Additionally, the Company derives substantial roaming revenue and
expenses when Sprint's and Sprint's network partners' PCS wireless subscribers
incur minutes of use in the Company's territories and when the Company's
subscribers incur minutes of use in Sprint and other Sprint network partners'
PCS territories. These transactions are recorded in roaming revenue, cost of
service, cost of equipment and selling and marketing expense captions in the
accompanying consolidated statements of operations. Cost of service and roaming
transactions include, long distance charges, roaming expense and the costs of
services such as billing, collections, and customer service and other
pass-through expenses. Cost of equipment transactions relate to inventory
purchased by the Company from Sprint under the Sprint Agreements. Selling and
marketing transactions relate to subsidized costs on handsets and commissions
paid by the Company under Sprint's national distribution program. The 8%
management fee is included in general and administrative. Amounts recorded
relating to the Sprint Agreements for the years ended December 31, 2002 and
2001, are approximately as follows:




TOTAL REVENUES AND EXPENSES PROVIDED BY YEAR ENDED DECEMBER 31,
SPRINT AGREEMENTS 2002 2001
- ---------------------------------------- ------------- --------------

Roaming revenue......................... $ 51,688,000 $ 37,734,000
============= ==============

Cost of Service:
Roaming............................... $ 40,883,000 $ 27,007,000
Billing and customer care............. 20,587,000 10,475,000
Long Distance......................... 10,470,000 6,640,000
------------- --------------
Total cost of service............... 71,940,000 44,122,000
Selling and marketing................... 2,566,000 1,460,000
General and administrative
Affiliation fee....................... 12,027,000 5,923,000
------------- --------------
Total expense....................... $ 86,533,000 $ 51,505,000
============= ==============

KEY METRICS - HORIZON PCS

Customer Additions. As of December 31, 2002, we provided personal
communication service directly to approximately 270,900 customers. For the year
ended December 31, 2002 and 2001, Horizon PCS net subscribers increased by
approximately 76,800 and 127,700 customers, respectively. Gross activations
during 2002 were 12% higher than 2001. However, an increase in the churn of
NDASL and Clear Pay subscribers resulted in overall lower net customer additions
for the year ended December 31, 2002, compared to the year ended December 31,
2001.

Cost Per Gross Addition. CPGA summarizes the average cost to acquire new
customers during the period. CPGA is computed by adding the income statement
components of selling and marketing, cost of equipment and activation costs
(which are included as a component of cost of service) and reducing that amount
by the equipment revenue recorded, then divide that net amount by the total new
customers acquired during the period. CPGA increased to $342 for the year ended
December 31, 2002, compared to $339 for the year ended December 31, 2001 due
primarily to an increase in commissions.

Churn. Churn is the monthly rate of customers that both voluntarily and
involuntarily discontinued service during the month. Churn is computed by
dividing the number of customers that discontinued service during the month, net
of 30-day returns, by the beginning customer base for the period. Churn for the
year is an average of the twelve months in the year. Churn for the year ended
December 31, 2002, was 3.5% compared to 2.4% for the year ended December 31,
2001. This increase in churn is a result of an increase in the amount of
sub-prime credit quality customers the Company added whose service was


37


involuntarily discontinued during the period. We believe that it is likely that
churn will remain at or slightly below this level during 2003.

Average Revenue Per Unit. ARPU summarizes the average monthly revenue per
customer. ARPU is computed by dividing service revenue and roaming revenues for
the period by the average subscribers for the period.

The following summarizes ARPU for the twelve months ended December 31:

2002 2001
------------- --------------
Service revenues
Recurring..................... $ 40 $ 43
Minute sensitive.............. 12 14
Features and other............ 3 (1)
------------- --------------
Total service revenues...... 55 56
------------- --------------

Roaming revenues................. 20 27
------------- --------------
ARPU...................... $ 75 $ 83
------------- --------------

Recurring service ARPU has declined as more customers activated or migrated
to service plans in the $29.99 to $39.99 monthly recurring charge range.
Additionally, recent service plans are offering more minutes at a lower monthly
charge due to increased competition in the wireless industry. These additional
minutes have driven down the ARPU received when customers use more minutes than
their plan allows. We anticipate this trend to continue on voice-only service
plans, but we anticipate higher service ARPU in the future as subscribers
activate on data and voice plans, which offer more features, but at a higher
monthly charge. ARPU from features and other has increased as we are offering
fewer promotional credits and have charged more contract termination fees in
2002 as a result of higher deactivation and churn rates.

The reduction in the reciprocal roaming rate has caused a decline in the
roaming ARPU. On April 27, 2001, Sprint and its affiliates announced an
agreement on a new Sprint PCS roaming rate; the reciprocal 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 reciprocal
roaming rate changed to $0.10 per minute on January 1, 2002. Sprint has notified
the Company that it intends to reduce the reciprocal roaming rate to $0.058 per
minute of use in 2003. Based upon 2002 historical roaming data, a reduction in
the reciprocal roaming rate to $0.058 per minute would have substantially
reduced roaming revenue and expense. Had the lower rate been in effect for all
of 2002, roaming revenue would have been approximately 40-50% lower.

RESULTS OF OPERATIONS

Revenues. Subscriber revenues for the year ended December 31, 2002, were
approximately $152.2 million, compared to approximately $77.7 million for the
year ended December 31, 2001, an increase of $74.5 million. The growth in
subscriber revenues is primarily the result of the growth in our customer base.
We had approximately 270,900 customers at December 31, 2002, compared to
approximately 194,100 at December 31, 2001. Our customer base has grown because
we have launched additional markets and increased our sales force.

Roaming revenues increased from approximately $38.5 million during the year
ended December 31, 2001, to approximately $55.8 million for the year ended
December 31, 2002, an increase of $17.3 million. This increase resulted from the
continued expansion of our service territory as well as expanding roaming
agreements with wireless carriers.

PCS equipment revenues consist of handsets and accessories sold to
customers through our stores and through our direct sales force. Equipment
revenues for the year ended December 31, 2002, were approximately $7.8 million,


38


compared to approximately $7.1 million for the year ended December 31, 2001,
representing an increase of approximately $700,000. The increase in equipment
revenues is the result of an increase in the number of handsets sold by our
stores and direct sales force, somewhat offset by a lower sales price per unit.

Cost of PCS and other equipment sales. Cost of equipment includes the cost
of handsets and accessories sold by our stores and direct sales force to our
customers. Cost of equipment for the year ended December 31, 2002, was
approximately $19.2 million, compared to approximately $14.9 million for the
year ended December 31, 2001, an increase of $4.3 million. The increase in the
cost of equipment is the result of the growth in our wireless customers. 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 includes costs associated with operating
our network, including site rent, utilities, 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. We pay Sprint PCS roaming fees to Sprint PCS when our customers
use Sprint PCS' network outside of our territory. We pay 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 our 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 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.

Sprint provides back-office and other services to Horizon PCS. Recently,
Sprint has sought to increase service fees in connection with its development of
3G-related back-office systems and platforms. Horizon PCS, along with the other
Sprint affiliates, is currently disputing the validity of Sprint's right to pass
through this fee to the affiliates. If this dispute is resolved unfavorably to
Horizon PCS, then Horizon PCS will incur additional expenses, which could have a
material adverse impact on its liquidity and financial results. As of December
31, 2002, Horizon PCS has been billed by Sprint for 3G development costs of
approximately $600,000, which the Company has not recorded or paid due to this
dispute.

Horizon PCS' cost of service for the twelve months ended December 31, 2002,
was approximately $166.9 million, compared to approximately $100.3 million for
the twelve months ended December 31, 2001, an increase of approximately $66.6
million. This increase reflects an increase in roaming expense and long distance
charges of approximately $16.7 million and the increase in costs incurred under
our network services agreement with the Alliances of approximately $13.7
million, both as a result of our subscriber growth during 2001 and 2002.
Additionally, at December 31, 2002, our network covered approximately 7.4
million people versus approximately 6.9 million people at December 31, 2001. As
a result, cost of service in 2002 was higher than 2001 due to the increase in
network operations expense, including tower lease expense, circuit costs and
payroll expense, of approximately $22.3 million. Growth in our customer base
resulted in increased customer care, activations, and billing expense of
approximately $11.2 million and other variable expenses, including
interconnection and national platform expenses, of approximately $2.7 million.
Overall, the average monthly cost of providing service per the average
subscriber on our network decreased from $72 to $60 for the twelve months ended
December 31, 2001 and 2002, respectively, as we have increased our subscriber
base. In the aggregate, we expect to have substantial increases in 2003 in
charges from Sprint, both as a result of volume and pricing increases.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with operating our retail stores, including marketing,
advertising, payroll and sales commissions. Selling and marketing expense also
includes 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. Selling and marketing expenses rose to $52.6 million for the
year ended December 31, 2002, compared to $49.0 million for the year ended
December 31, 2001, an increase of $3.6 million. This increase reflects the
increase in the costs of operating our 44 retail stores, 6 of which were
launched during 2002. The costs include an increase in marketing and advertising
in our sales territory of $6.5 million, the increase in commissions paid to
third parties of $1.4 million and is offset by the decrease in subsidies on
handsets sold by third parties of $4.3 million. We expect selling and marketing
expense to increase in the aggregate as we compete to add customers.

General and administrative expenses. General and administrative costs
include the Sprint management fee (which is 8% of "collected revenues" as
described under the "Sprint PCS Agreements" above), a provision for doubtful


39


accounts receivable and costs related to corporate support functions including
costs associated with functions performed for us by Horizon Services under our
services agreement. These services include finance and accounting functions,
computer access and administration, consulting, human resources and other
administrative services. Horizon Services' costs for these functions are charged
to us using a standard FCC cost allocation methodology. Under this methodology,
all costs that can be specifically identified to us are directly charged to us,
and all costs that are specifically identified to other subsidiaries of Horizon
Telcom are charged to them. Costs incurred by Horizon Services that cannot be
specifically identified to a company for which Horizon Services provides service
are apportioned among the Horizon Telcom subsidiaries based on appropriate
measures. Because of the economies of scale inherent in a centralized service
company, we believe we are able to receive these services less expensively
through this arrangement than if we provided them ourselves.

General and administrative expenses for the twelve months ended December
31, 2002, were approximately $35.7 million compared to approximately $21.5
million in 2001, an increase of approximately $14.2 million. The increase
reflects an increase in the provision for doubtful accounts of approximately
$9.1 million, primarily due to the write-off of NDASL and ClearPay customers,
and an increase in the Sprint management fee of approximately $6.1 million, as a
result of higher subscriber revenues in 2002, offset by a decrease in other
general expenses of approximately $1.0 million.

Non-cash compensation expense. For both the twelve months ended December
31, 2002 and 2001, Horizon PCS recorded stock-based compensation expense of
approximately $400,000 and $1.0 million, respectively. The expense recorded in
2001 includes approximately $700,000 related to the distribution of 7,249 shares
of Horizon Telcom stock to employees of Horizon PCS and approximately $300,000
for stock options granted. Stock-based compensation expense will continue to be
recognized through the conclusion of the vesting period for these options in
2005. The annual non-cash compensation expense expected to be recognized for
these stock options is approximately $620,000 in 2003, $193,000 in 2004, and
$71,000 in 2005.

Loss on sale of property and equipment. During the twelve months ended
December 31, 2002, we incurred a loss of approximately $600,000 related to the
sale of network equipment and corporate owned vehicles. These sales resulted in
proceeds of approximately $1.6 million. The vehicles were subsequently leased
back from the purchaser.

Depreciation and amortization expense. Depreciation and amortization
expenses increased by approximately $21.8 million to a total of approximately
$40.3 million during the twelve months ended December 31, 2002. The increase
reflects the continuing construction of our wireless network as we funded
approximately $63.1 million of capital expenditures during 2002.

During 2002, the Company launched switches in Tennessee and Pennsylvania
and disconnected some switching equipment in Chillicothe, Ohio. As a result,
approximately $6.2 million of switching equipment is considered an impaired
asset as defined by SFAS No. 144. Accordingly, depreciation and amortization
expense for the year ended December 31, 2002, includes approximately $3.5
million of expense related to accelerated depreciation on the impaired asset.

Amortization expense of the intangible asset related to the Bright PCS'
acquisition was approximately $1.7 million during the years ended December 31,
2002 and 2001. Goodwill amortization was approximately $389,000 during the year
ended December 31, 2001. Goodwill amortization ceased as of December 31, 2001,
with the adoption of SFAS No. 142.

Amortization expense also includes amortization of an intangible asset
recorded in September 2000 related to the new markets granted to us by Sprint
PCS in September 2000. We agreed to grant warrants 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 the Company's
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 for the years ended December 31, 2002 and 2001.


40


Impairment of goodwill and impact of acquisition-related deferred taxes. On
December 31, 2002 the Company performed the annual valuation assessment of
goodwill. As a result of this valuation the Company recorded goodwill impairment
of approximately $13.2 million, which eliminates the entire balance of goodwill
at December 31, 2002.

Interest expense, net. Interest expense for the year ended December 31,
2002, was approximately $60.6 million, compared to approximately $27.4 million
in 2001. The increase in interest expense was a result of our additional
indebtedness. Interest on the outstanding balance of our secured credit facility
accrues at LIBOR plus a specified margin. On June 29, 2002, we agreed to several
changes in the secured credit facility including a 25 basis point increase in
the margin on the annual interest rate. At December 31, 2002, the interest rate
on the $105.0 million term loan A borrowed under our secured credit facility was
5.40%, while the interest rate on the $50.0 million term loan B was 6.33%.
Interest expense on the secured credit facility was $9.3 million and $4.8
million during the year ended December 31, 2002 and 2001, respectively.

We accrue interest at a rate of 14.00% annually on our discount notes
issued in September 2000 and will pay interest semi-annually in cash beginning
in October 2005. Unaccreted interest expense on the discount notes was
approximately $108.7 million at December 31, 2002. Interest expense on the
discount notes was approximately $27.2 million and $23.8 million during the year
ended December 31, 2002 and 2001, respectively.

On June 15, 2002, we began making semi-annual interest payments on our
senior notes issued in December 2001 at an annual rate of 13.75%. Interest
expense accrued on the senior notes was approximately $24.1 million and $1.5
million during the years ended December 31, 2002 and 2001, respectively. Under
the terms of the senior notes, cash to cover the first four semi-annual interest
payments was placed in an escrow account.

Interest expense also includes approximately $2.8 million and $1.1 million
during the year ended December 31, 2002 and 2001, respectively, of amortization
from the deferred financing fees related to our secured credit facility, our
discount notes and our senior notes. Also contributing to interest expense was
approximately $1.6 million and $2.8 million during the year ended December 2002
and 2001, respectively, in commitment fees paid on the unused portion of our
secured credit facility.

Capitalized interest during the year ended December 31, 2002 and 2001, was
approximately $4.4 million and $6.6 million, respectively.

Preferred stock dividend. Horizon PCS' convertible preferred stock pays a
stock dividend at the rate of 7.5% per annum, payable semi-annually, commencing
May 1, 2001. The dividends are paid with additional shares of convertible
preferred stock. Through December 31, 2002, we have issued an additional
4,345,092 shares of convertible preferred stock in payment of dividends,
including 1,060,201 shares on May 1, 2002 and 1,099,958 shares on November 1,
2002.

Interest income, net. Interest income for the year ended December 31, 2002,
was approximately $3.0 million compared to approximately $5.1 million in 2001.
This decrease was due primarily to a lower average balance of cash investments
during 2002, as compared to the same period in 2001 and due to a lower
short-term interest rate environment in 2002.

Income taxes. Until September 26, 2000, Horizon PCS was included in the
consolidated Federal income tax return of Horizon Telcom. We 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 is not able to participate in the
tax-sharing agreement. Additionally, Horizon PCS is not able to recognize any
net operating loss benefits until it generates taxable income. Horizon PCS did
not record any income tax benefit for the twelve months ended December 31, 2002
or 2001, because of the uncertainty of generating future taxable income to be
able to recognize current net operating loss carryforwards.

Net loss. Horizon PCS' net loss for the twelve months ended December 31,
2002, was approximately $182.4 million compared to approximately $116.8 million
for the twelve months ended December 31, 2001. The increase in Horizon PCS' loss
reflects the continued expenses related to launching its wireless markets and
building its wireless customer base, as well as the factors discussed in
"Business - Current Developments" and "Business - Wireless Personal


41


Communications Services - Current Operating Environment and Our Business
Strategy." We expect Horizon PCS to incur significant operating losses and to
generate significant negative cash flow from operating activities due to these
factors.

LANDLINE TELEPHONE SERVICES SEGMENT AND ALL OTHER SERVICES

The following discussion details the results of operations of our landline
telephone services segment and all other services not assigned to a segment for
the last fiscal quarter.

RESULTS OF OPERATIONS

Revenues. Network access revenue increased by approximately $1.3 million
for the twelve months ended December 31, 2002, to approximately $21.5 million.
The Company saw lower revenue from pooled interexchange carriers, offset by an
increase of approximately $2.1 million related to amounts that had been
previously set aside to settle future over earnings claims by other carriers.
The over earnings claims amount was reversed due to a ruling in 2002 by the
United States Court of Appeals that deals with a similar landline
telecommunications company and its related carrier access rates. Long distance
charges decreased by approximately $300,000 due to lower usage by our customers,
as usage for long distance continues to shift to wireless devices. Directory
advertising revenue and other related telephone services each decreased by
approximately $300,000.

Internet access and other revenues increased by approximately $1.4 million
to $8.7 million for the twelve months ended December 31, 2002. Other revenues
were impacted by increased VDSL revenue as we continue to build our customer
base, which was somewhat offset by lower bright.net dial-up Internet service
subscribers. We believe a number of these lost dial-up customers have switched
to high-speed VDSL service.

Cost of PCS and other equipment sales. Cost of goods sold for Chillicothe
Telephone and Horizon Technology primarily consists of business system sales and
customer maintenance expenses. Cost of goods sold for landline telephone and
other services was essentially flat, decreasing by approximately $100,000 to
$600,000 for the twelve months ended December 31, 2002 as compared to the same
period in 2001.

Cost of services. Cost of services include customer care support, and
network-related costs, including switching, access and circuit expenses. Cost of
services also includes expenses related to the installation of Chillicothe
Telephone's VDSL service.

Cost of services for the twelve months ended December 31, 2002, was
approximately $16.3 million, compared to approximately $14.9 million for the
twelve months ended December 31, 2001, an increase of approximately $1.4
million. Approximately $900,000 of the increase was related to the continued
installation and programming expenses associated with our VDSL service, while
Horizon Technology's Internet service, Brightnet, experienced an increase in
access expense of approximately $500,000 due primarily to increased circuit
charges.

Selling and marketing expenses. Selling and marketing expenses consist of
costs associated with local marketing and advertising programs including
marketing for VDSL. Selling and marketing expenses for landline telephone and
other related services was approximately $1.6 million, for each of the twelve
months ending December 31, 2002 and 2001.

General and administrative expenses. General and administrative expenses
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. General and administrative expenses
decreased by approximately $500,000 to approximately $21.0 million for the
twelve months ended December 31, 2002, primarily due to a decrease in legal fees
and other general expenses.

Non-cash compensation expense. Non-cash compensation expense is the
amortization of the value of stock options granted in November 1999. Stock-based
compensation expense will continue to be recognized through the conclusion of
the vesting period for these options in 2005. Non-cash compensation expense
decreased slightly in 2002 due to a reduction in vesting percentages in 2002.



42


Loss on disposal of assets. During 2002, Horizon Technology incurred a loss
of approximately $16,000 related to the disposal of computer related equipment.

Depreciation and amortization expense. Depreciation and amortization
expenses for landline telephone and other services increased by approximately
$1.4 million to a total of approximately $9.0 million during the twelve months
ended December 31, 2002. The increase reflects the continuing expansion of our
plant to provide VDSL service. We expect to continue this expansion in 2003,
resulting in further increases in depreciation expense.

Interest expense, net. Interest expense for the twelve months ended
December 31, 2002, was approximately $2.8 million, compared to approximately
$2.1 million for the twelve months ended December 31, 2001. The increase in
interest expense was a result of our additional debt outstanding during the
twelve months ended December 31, 2002, compared to the same period in 2001. We
expect further increases in interest expense in 2003 due to anticipated higher
average debt levels.

In August 2002, Chillicothe Telephone issued $30,000,000 of 6.64% Senior
Notes. A portion of the proceeds was used to retire the line of credit on
September 28, 2002. Interest expense on the 2002 Senior Notes was approximately
$800,000 for the twelve months ended December 31, 2002. The remaining proceeds
of approximately $3.0 million were used primarily for general corporate
purposes. Interest expense on the retired line of credit and the retired 1993
Senior Notes was approximately $1.3 million and $1.5 million for the twelve
months ended December 31, 2002 and 2001, respectively. Interest expense on
Chillicothe Telephone's 1998 Senior Notes was approximately $800,000 in both
2002 and 2001. Capitalized construction interest was approximately $100,000 and
$200,000, for the years ended 2002 and 2001, respectively.

Interest income, net. The landline telephone service segment recorded
approximately $100,000 of other expense in the twelve months ended December 31,
2002. In 2001, income of approximately $100,000 was recorded related to
non-operating corporate activity.

Income tax expense. Income tax expense for the twelve months ended December
31, 2002, was approximately $1.2 million compared to approximately $1.8 million
in 2001, reflecting lower net income before tax in 2002.

Minority interest in loss. As part of the acquisition of 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 loss attributable to the minority shareholders
as minority interest in loss in the accompanying condensed consolidated
statements of operations. Horizon Telcom recognized approximately $1.0 million
in 2001 related to the minority interest. 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.


43


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2000

The following table details the consolidated statements of income by
operating segment for the twelve months ended December 31, 2001 and 2000.



For the Year Ended, December 31,
------------------------------------------------------
Wireless Personal Landline Telephone
Communications Services And Other Services
(Dollars in thousands) ------------------------- --------------------------
OPERATING REVENUES: 2001 2000 2001 2000
------------ ------------ ------------ ------------
PCS subscriber and roaming.............. $ 115,906 $ 26,111 $ -- $ --
PCS equipment........................... 7,106 3,061 -- --
Basic local and long-distance service... -- -- 19,586 20,320
Network access.......................... -- -- 20,198 17,276
Equipment systems sales, information
services, Internet access and other... -- -- 7,344 7,232
------------ ------------ ------------ ------------
Total operating revenues............. 123,012 29,172 47,128 44,828
------------ ------------ ------------ ------------

OPERATING EXPENSES:
Cost of PCS and other equipment sales . 14,871 9,775 688 722
Cost of services....................... 100,257 27,452 14,911 14,019
Selling and marketing.................. 48,993 18,026 1,553 1,601
General and administrative............. 21,505 7,457 21,457 18,180
Non-cash compensation.................. 1,044 636 105 217
Loss on disposal of assets............. 1,297 -- -- --
Depreciation and amortization.......... 18,519 6,134 7,630 6,924
------------ ------------ ------------ ------------
Total operating expenses............. 206,486 69,480 46,344 41,663
------------ ------------ ------------ ------------

OPERATING INCOME (LOSS)................... (83,474) (40,308) 784 3,165
------------ ------------ ------------ ------------

NONOPERATING INCOME (EXPENSE):
Interest expense, net.................. (27,434) (10,317) (2,131) (1,876)
Subsidiary preferred stock dividends... (10,930) (2,782) -- --
Interest income, net................... 5,054 4,559 110 175
------------ ------------ ------------ ------------
Total nonoperating expense........... (33,310) (8,540) (2,021) (1,701)
------------ ------------ ------------ ------------

INCOME (LOSS) BEFORE INCOME TAX EXPENSE
AND MINORITY INTEREST.................. (116,784) (48,848) (1,237) 1,464

INCOME TAX (EXPENSE) BENEFIT.............. -- 2,983 (1,783) (2,087)

MINORITY INTEREST IN LOSS................. -- -- 984 2,301
------------ ------------ ------------ ------------

GAIN (LOSS) BEFORE EXTRAORDINARY ITEM..... -- (45,865) (2,036) 1,678
------------ ------------ ------------ ------------

EXTRAORDINARY ITEM........................ -- (486) -- --
------------ ------------ ------------ ------------

NET INCOME (LOSS)......................... $ (116,784) $ (46,351) $ (2,036) $ 1,678
============ ============ ============ ============



WIRELESS PERSONAL COMMUNICATIONS SERVICES SEGMENT

The following discussion details key operating metrics and the results of
operations for our wireless personal communications service segment over the
past twelve months. Our wireless personal communications segment consists
entirely of the operations of Horizon PCS.


44


SPRINT AGREEMENTS

Amounts recorded relating to the Sprint Agreements for the years ended
December 31, 2001 and 2000, are approximately as follows:




TOTAL REVENUES AND EXPENSES PROVIDED BY YEAR ENDED DECEMBER 31,
SPRINT AGREEMENTS 2001 2000
- --------------------------------------------- -------------- --------------
Roaming revenue.............................. $ 37,734,000 $ 7,662,000
============== ==============

Cost of Service:
Roaming.................................... $ 27,007,000 $ 5,180,000
Billing and customer care.................. 10,475,000 960,000
Long Distance.............................. 6,640,000 574,000
-------------- --------------
Total cost of service.................... 44,122,000 6,714,000
Selling and marketing...................... 1,460,000 322,000
General and administrative Affiliation fee 5,923,000 1,302,000
-------------- --------------
Total expense............................ $ 51,505,000 $ 8,338,000
============== ==============


KEY METRICS - HORIZON PCS

Customer Additions. As of December 31, 2001, we provided personal
communication service directly to approximately 194,100 customers. For the year
ended December 31, 2001 and 2000, Horizon PCS net subscribers increased by
approximately 127,700 and 52,700 customers, respectively. Gross activations
during 2001 were 153% higher than 2000 due in part to changes in deposit
requirements for new low credit quality subscribers.

Cost Per Gross Addition. CPGA was $339 for the year ended December 31,
2001, compared to $373 for the year ended December 31, 2000. This decrease is
primarily the result of more gross activations in 2001 compared to 2000.

Churn. Churn for the year is an average of the twelve months in the year.
Churn for the year ended December 31, 2001, was 2.4% relatively flat when
compared to 2.6% for the year ended December 31, 2000.

Average Revenue Per Unit. The following summarizes ARPU for the year ended
December 31:

2001 2000
---------------- ---------------
Service revenues
Recurring.......................... $ 43 $ 38
Minute sensitive................... 14 13
Features and other*................ (1) --
---------------- ---------------
Total service revenues........... 56 51
================ ==============

Roaming revenues...................... 27 24
---------------- --------------
ARPU........................... $ 83 $ 75
---------------- --------------
- ----------------------
* Excludes impact of a non-recurring adjustment to access revenue.

Recurring service ARPU increased as more customers activated or migrated to
service plans carrying higher monthly recurring charges.

RESULTS OF OPERATIONS

Revenues. Subscriber revenues for the year ended December 31, 2001, were
$77.7 million, compared to $17.7 million for the year ended December 31, 2000,
an increase of $60.0 million. The growth in subscriber revenues is primarily the


45


result of the growth in our customer base. We had approximately 194,100
customers at December 31, 2001, compared to approximately 66,400 at December 31,
2000. Our customer base has grown because we have launched additional markets
and increased our sales force. ARPU excluding roaming increased in 2001 to $56
from $51 in 2000, as customers chose plans carrying a higher monthly recurring
charge.

Roaming revenues increased from $8.4 million during the year ended December
31, 2000, to $38.5 million for the year ended December 31, 2001, an increase of
$30.1 million. 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.

Equipment revenues consist of handsets and accessories sold to customers
through our stores and through our direct sales force. Equipment revenues for
the year ended December 31, 2001, were $7.1 million, compared to $3.1 million
for the year ended December 31, 2000, representing an increase of $4.0 million.
The increase in equipment revenues is the result of an increase in the number of
handsets sold by our stores and direct sales force, somewhat offset by a lower
sales price per unit.

Cost of PCS and other equipment sales. Cost of equipment for the twelve
months ended December 31, 2001, was approximately $14.9 million, compared to
approximately $9.8 million for the twelve months ended December 31, 2000, an
increase of approximately $5.1 million. The increase in the cost of equipment 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.

Cost of service. Cost of service for the twelve months ended December 31,
2001, was approximately $100.3 million, compared to approximately $27.4 million
for the twelve months ended December 31, 2000, an increase of approximately
$72.9 million. This increase reflects the increase in roaming expense, including
long distance charges, of approximately $29.9 million; the increase in costs
incurred under our wireless network services agreement with the Alliances of
approximately $12.4 million; the increase in wireless network operations,
including tower lease expense, circuit costs and payroll expense, of
approximately $17.6 million; increased customer care, activations, and billing
expense of approximately $9.6 million; and the increase in other variable
expenses, including interconnection and national platform expenses, of
approximately $3.4 million.

Selling and marketing expenses. Selling and marketing expenses rose to
approximately $49.0 million for the twelve months ended December 31, 2001,
compared to approximately $18.0 million in 2000, an increase of approximately
$31.0 million. This increase reflects the increase in the costs of operating our
38 retail stores, including marketing and advertising in our sales territory, of
approximately $17.6 million, the increase in subsidies on handsets sold by third
parties of approximately $10.1 million, and the increase in commissions paid to
third parties of approximately $3.3 million. We expect selling and marketing to
increase in the aggregate as we expand our coverage, launch additional a stores
and add customers.

General and administrative expenses. General and administrative expenses
for the twelve months ended December 31, 2001, were approximately $21.5 million
compared to approximately $7.5 million in 2000, an increase of approximately
$14.0 million. The increase reflects an increase in the provision for doubtful
accounts receivable of approximately $5.0 million, an increase in the Sprint
management fee of approximately $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, professional services and other general expenses, including property
and franchise taxes, of $3.1 million.

Non-cash compensation expense. For the twelve months ended December 31,
2001 and 2000, Horizon PCS recorded stock-based compensation expense of
approximately $1.0 million and $600,000 respectively. The expense recorded in
2001 includes approximately $700,000 related to the distribution of 7,249 shares
of Horizon Telcom stock to employees of Horizon PCS and $300,000 for stock
options granted. The expense in 2000 relates to the amortization of the value of
stock options granted in 1999 and 2000.

Depreciation and amortization expense. Depreciation and amortization
expenses increased by $12.4 million to a total of $18.5 million in 2001. The


46


increase reflects the continuing construction of our network as we funded
approximately $116.6 million of capital expenditures during 2001. In addition,
because our acquisition of Bright PCS was accounted for as a purchase
transaction, amortization has increased as a result of amortizing the related
goodwill and intangible assets. Amortization expense of the intangible asset was
$1.7 million and $868,000 during 2001 and 2000, respectively. Related goodwill
amortization was $389,000 and $198,000 in 2001 and 2000, respectively. Goodwill
amortization ceased as of December 31, 2001, with the adoption of SFAS No. 142.

Amortization expense also includes amortization of an intangible asset
recorded in September 2000 related to the new PCS markets granted to us by
Sprint in September of 2000. We agreed to grant warrants to purchase shares of
Horizon PCS' common stock to Sprint in exchange for the right to provide service
in additional markets. The warrants will be issued to Sprint 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 $800,000
and $200,000 for the years ended December 31, 2001 and 2000, respectively.

Loss on disposal of assets. During the twelve months ended December 31,
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.

Interest expense, net. Interest expense for the year ended December 31,
2001, was $27.4 million, compared to $10.3 million in 2000. Interest on the
outstanding balance of our secured credit facility accrues at LIBOR plus a
specified margin. On June 29, 2001, we 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 the amount borrowed on our secured
credit facility was 6.16%. Interest expense on the secured credit facility was
$4.8 million and $1.2 million during 2001 and 2000, respectively.

We accrue interest at a rate of 14.00% per annum on our 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, we begin making semi-annual interest payments on our
senior notes issued in December 2001 at an annual rate of 13.75%. Interest
expense accrued on the senior notes was $1.5 million during 2001. Under the
terms of the senior notes, cash to cover the first four semi-annual interest
payments was placed in an escrow account.

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 approximately $6.6 million and
$1.5 million, respectively.

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

Interest income. Interest income for the year ended December 31, 2001, was
$5.0 million. Interest income was generated from the short-term investment of
cash proceeds from our private equity sales, discount notes and drawings under
the secured credit facility, all completed on September 26, 2000. Additionally,
in conjunction with our offering of $175.0 million in senior notes in December
2001, we were 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. We recorded $69,000 of interest income on the escrow funds.


47



Income taxes. Until 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 Horizon PCS' convertible
preferred stock on September 26, 2000, Horizon PCS will not be able to
participate in the tax sharing agreement nor will they be able to utilize any
net operating loss benefits until they start to generate taxable income. Horizon
PCS did not record any income tax benefit for the twelve months ended December
31, 2001 because of the uncertainty of generating future taxable income to be
able to recognize current net operating losses.

Extraordinary loss. As a result of the September 26, 2000, financings,
Horizon PCS retired its long-term debt payable to financial institutions. As a
result of the debt extinguishments, Horizon PCS 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 and
are shown on the statement of operation net of a tax benefit of $262,000.

Net loss. Horizon PCS' net loss for the twelve months ended December 31,
2001, was approximately $116.8 million compared to approximately $46.4 million
for the twelve months ended December 31, 2000. The increase in Horizon PCS' loss
reflects the continued expenses related to launching its markets and building
its customer base.

LANDLINE TELEPHONE SERVICES SEGMENT AND ALL OTHER SERVICES

The following discussion details the results of operations of our landline
telephone services segment and all other services not assigned to a segment for
the twelve months ended December 31, 2001 and 2000.

RESULTS OF OPERATIONS

Revenues. Basic local and long-distance service revenue decreased for the
twelve months ended December 31, 2001, by approximately $700,000 to $19.6
million as the Company continues to see substantially lower usage for
long-distance service. We expect this trend to continue for the foreseeable
future, as more customers use wireless devices where long distance is included
for one monthly fee. Network access revenues increased by approximately $2.9
million to $20.2 million for the year ended December 31, 2001, as compared to
2000. This increase was due to increased usage of our network.

Other revenues were impacted by increased VDSL revenue as we continue to
build our customer base, offset somewhat 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.

Cost of PCS and other equipment sales. Cost of goods sold was essentially
flat for the twelve months ended December 31, 2001 and 2000, at approximately
$700,000.

Cost of services. Cost of services for the twelve months ended December 31,
2001, was approximately $14.9 million, compared to approximately $14.0 million
for the twelve months ended December 31, 2000, an increase of approximately
$900,000. This increase was a result of increased costs associated with the
start up, continued installation and expansion of our VDSL service as we
continue to build out the network and increase the subscriber base.

Selling and marketing expenses. Selling and marketing expenses were
essentially flat, at approximately $1.6 million for each of the twelve months
ended December 31, 2001 and 2000.

General and administrative expenses. General and administrative expenses
increased to approximately $21.5 million for the twelve months ended December
31, 2001, compared to approximately $18.2 million for 2000. Of the increase,
$1.5 million was related to an increase in billing support services, information
technology and Horizon Technology's administrative services, while $1.8 million
was related to increased headcount and professional services at Horizon
Services, needed to support Horizon PCS' growth.



48


Non-cash compensation expense. This compensation expense is the
amortization of the value of stock options granted in November 1999.

Depreciation and amortization expense. Depreciation and amortization
expenses increased by approximately $700,000 to a total of $7.6 million in 2001.
The increase reflects the continuing construction of our network as we
additionally funded approximately $16.0 million for VDSL and the continuous
upgrade of our landline network to optical fiber cabling.

Interest expense, net. Interest expense for the twelve months ended
December 31, 2001, was approximately $2.1 million, compared to approximately
$1.9 million for the twelve months ended December 31, 2000. The increase in
interest expense was a result of our additional debt outstanding during the
twelve months ended December 31, 2001, compared to the same period in 2000.

Interest expense on the retired line of credit and the retired 1993 Senior
Notes was approximately $1.5 million in 2001 and $900,000 in 2000. Interest
expense on Chillicothe Telephone's 1998 Senior Notes was approximately $800,000
in 2002 and 2001. For the year ended December 31, 2000, Chillicothe Telephone
recognized other interest expense of approximately $500,000 related to its
outstanding line of credit. Capitalized construction interest was approximately
$200,000 and $300,000, in 2001 and 2000 respectively. Amortization of debt
issuance costs was approximately $19,000 in both 2001 and in 2000.

Interest income, net. The landline telephone service segment had
approximately $100,000 of income for the twelve months ended December 31, 2001
compared to approximately $400,000 of income in 2000. The decrease of
approximately $300,000 was related to lower amounts of interest income that was
recognized in 2001.

Income tax expense. Income tax expense for the twelve months ended December
31, 2001, was approximately $1.8 million compared to approximately $2.0 million
in 2000, reflecting lower net income before taxes.

Minority interest in loss. As part of the acquisition of 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 loss attributable to the minority shareholders
as minority interest in loss in the accompanying condensed consolidated
statements of operations. 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.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002, Horizon PCS was in compliance with its covenants
with regards to its outstanding debt. However, Horizon PCS believes that it is
probable that it will violate one or more of its covenants under its secured
credit facility in 2003. The failure to comply with a covenant would be an event
of default under Horizon PCS' 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 lenders elected to accelerate the
indebtedness under the facility, this would also represent a default under the
indentures for our senior notes and discount notes (see "Note 11" in the "Notes
to Consolidated Financial Statements") and would give Sprint certain remedies
under our Consent and Agreement with Sprint. See "The Sprint Agreements."
Horizon PCS does not have sufficient liquidity to repay all of the indebtedness
under these obligations. Horizon PCS's independent auditors report dated March
4, 2003 states that these matters have substantial doubt about Horizon PCS'
ability to continue as a going concern.

In addition, without the additional borrowing capacity under the senior
credit facility, significant modifications in the amounts charged by Sprint
under the management agreements, significant modifications in the amounts
charged by the Alliances under the Network Service Agreement and/or a
restructuring of their capital structure, Horizon PCS likely does not have
sufficient liquidity to fund its operations so that it can pursue its desired
business plan and achieve positive cash flow from operations.

Horizon PCS plans to take the following steps (some of which it has already
commenced) within the next six months to achieve compliance under its debt
facilities and to fund its operations:


49



o Entering into negotiations with Sprint to adjust the amounts charged
by Sprint to the Company under the Sprint management agreements to
improve Horizon PCS' cash flow from operations.

o Entering into negotiations or arbitration with the lenders under the
senior credit facility to modify the debt covenants, and if necessary,
to obtain waivers and/or a forbearance agreement with respect to
defaults under the senior credit facility.

o Entering into negotiations with the lenders under their senior credit
facility to obtain the right to borrow under the $95 million line of
credit and to modify the repayment terms of this facility.

o If the lenders under the senior credit facility accelerate the senior
debt, negotiating a waiver or forbearance agreement with
representatives of the holders of their senior notes and discount
notes.

o Entering into negotiations with the Alliances to adjust the amounts
charged by Alliances to Horizon PCS under the network agreements to
improve Horizon PCS' cash flow from operations.

o Pursuing means to reduce operating expenses by critically analyzing
all expenses and entering into pricing negotiations with key vendors.

Horizon PCS would need to be successful in these efforts to be in position
to execute its business plan and achieve positive cash flow. Horizon PCS can
give no assurance that it will be successful in these efforts. In its early
discussions with Sprint, Sprint has indicated reluctance in modifying the fee
structure as needed under the first item listed above.

Horizon PCS has engaged Berenson & Company, an investment banking firm, to
assist in its efforts to renegotiate or restructure its equity, debt and other
contractual obligations.

If Horizon PCS is unable to restructure its current debt and other
contractual obligations as discussed above, it would need to:

O obtain financing to satisfy or refinance its current obligations;

O find a purchaser or strategic partner for Horizon PCS' business or
otherwise dispose of its assets; or

O seek bankruptcy protection.

Financing Overview

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 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.

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


50


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 6.33% at December 31, 2002. As required, we drew the remaining
$105.0 million tranche in March, 2002. The interest rate on the $105.0 million
tranche was 5.40% at December 31, 2002. The revolving credit facility is subject
to restrictions and may not be used if we violate loan covenants.

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
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. The first of these payments were made on June 15, 2002 and
December 15, 2002. The senior notes were subject to an exchange offer that was
completed in 2002.

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 contractual
level of long-term indebtedness:





(Dollars in millions) Years Ending December 31,
-------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
------------ ------------ ------------ ----------- ------------ -----------
Horizon PCS:
Secured credit facility,
due 2008....................... $ 155.0 $ 146.7 $ 126.5 $ 99.7 $ 71.6 $ --
Variable interest rate (1) . 5.70% 5.70% 5.70% 5.70% 5.70% 5.70%
Principal payments.......... $ -- $ 8.3 $ 20.2 $ 26.8 $ 28.1 $ 71.6
Discount notes, due 2010 (2)..... $ 217.5 $ 253.1 $ 283.7 $ 286.1 $ 288.5 $ --
Fixed interest rate......... 14.00% 14.00% 14.00% 14.00% 14% 14.00%
Principal payments.......... $ -- $ -- $ -- $ -- $ -- $ 295.0
Senior notes, due 2011........... $ 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 (3).. $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ 12.0 $ --
Fixed interest rate......... 6.72% 6.72% 6.72% 6.72% 6.72% 6.72%
Principal payments.......... $ -- $ -- $ -- $ -- $ -- $ 12.0
2002 Senior notes, due 2012 (4).. $ 30.0 $ 30.0 $ 30.0 $ 30.0 $ 30.0 $ --
Fixed interest rate......... 6.64% 6.64% 6.64% 6.64% 6.64% 6.64%
Principal payments.......... $ -- $ -- $ -- $ -- $ -- $ 30.0



51



----------------------
(1) Interest rate on the secured credit facility equals the LIBOR plus a
margin that varies from 400 to 450 basis points. At December 31, 2002,
$50.0 million was effectively fixed at 8.53% through two interest rate
swaps discussed in "Item 3. Quantitative and Qualitative Disclosures
About Market Risk." The nominal interest rate is assumed to equal
5.70% for all periods ($50.0 million at 6.33% and $105.0 million at
5.40%).

(2) Face value of the discount notes is $295.0 million. End of year
balances presented here are net of the discount and net of the related
warrant value and assume accretion of the discount as interest expense
at an annual rate of 14.00%.

(3) On November 12, 2002, Chillicothe Telephone amended and restated its
1998 $12,000,000 senior notes due 2018. The interest rate on the
amended notes will be 6.72%, an increase of 10 basis points, with the
same maturity date as the 1998 Senior Notes.

(4) In August 2002, Chillicothe Telephone issued $30,000,000 of 6.64%,
10-year Senior notes due in full July 1, 2012. The proceeds of the
offering were used to retire both the short-term line of credit and
the non-current portion of the 1993 Senior Notes.

Horizon Telcom, Chillicothe Telephone, Horizon Technology, and Horizon
Services are not obligated in any form to assist Horizon PCS in their
negotiations nor are they obligated to compensate any of Horizon PCS' creditors
should Horizon PCS default on any debt agreements. While Horizon PCS faces
several liquidity issues, the liquidity of Horizon Telcom independent of Horizon
PCS is more favorable. Cash and working capital for Horizon Telcom, net of
Horizon PCS, is approximately $8.8 million and approximately $13.2 million,
respectively. We feel that this level of working capital is adequate to maintain
Horizon Telcom's operations for the foreseeable future. Horizon Telcom, net of
Horizon PCS, generated approximately $15.4 of cash flow from operations during
2002.

Statement of Cash Flows. At December 31, 2002, we had cash and cash
equivalents of approximately $94.9 million, including Horizon PCS' deposit
requirements discussed below, and working capital of approximately $100.8
million. At December 31, 2001, we had cash and cash equivalents of approximately
$127.2 million and working capital of approximately $104.4 million. Horizon PCS
was also required to escrow funds sufficient to cover the first four interest
payments on the senior notes. These funds are presented as restricted cash on
the consolidated balance sheet. The decrease in cash and cash equivalents of
approximately $32.3 million is primarily attributable to the funding of our loss
from continuing operations of approximately $186.1 million (this loss also
includes certain non-cash charges) and funding our capital expenditures of
approximately $73.9 million during 2002, offset by the $105.0 million draw on
Horizon PCS' secured credit facility.

Net cash used in operating activities for the twelve months ended December
31, 2002, was approximately $63.4 million. This reflects the continuing use of
cash for our operations to build our customer base, including but not limited to
providing service in our markets and the costs of acquiring new customers. The
net loss of approximately $186.1 million was partially offset by increases to
depreciation, non-cash interest expense and the provision for doubtful accounts
receivable, offset by increases to accounts receivable. We expect to continue to
see negative cash flows from operations for 2003.

Net cash used in investing activities was approximately $72.3 million for
2002, 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, 2002,
we operated approximately 828 cell sites in our PCS network (an additional 510
cell sites were operated by the Alliances in our territories). This represents
an addition of approximately 224 sites during the twelve months ended December
31, 2002. In addition to the sites, we have increased the number of PCS
switching stations in our territory and have increased our number of PCS retail
stores from 38 at the end of 2001, to 44 at December 31, 2002. We expect future
capital expenditures to be much less than 2002 as we focus more on operational
and maintenance of our network and less on build out and expansion.

Net cash provided by financing activities for 2002, was approximately
$103.5 million consisting primarily of $105.0 million draw Horizon PCS' term
loan A required under the secured credit facility. We incurred approximately
$2.3 million of deferred financing fees related to the amendment of Horizon PCS'
covenants under its secured credit facility. In August 2002, Chillicothe
Telephone issued $30,000,000 of 6.64%, 10 year Senior notes due in full July 1,
2012 ("2002 Senior Notes"). The proceeds of the offering were used to retire
both the short-term line of credit with Huntington National Bank ($18,400,000 at
repayment) and the non-current portion of the 1993 Senior Notes ($6,000,000 at
repayment). The remaining funds were used for general corporate purposes.
Chillicothe Telephone incurred approximately $300,000 of deferred financing fees
related to this offering.

On November 12, 2002, Chillicothe Telephone amended and restated its 1998
$12,000,000 senior notes due 2008. The interest rate on the amended notes is
6.72%, an increase of 10 basis points, with the same maturity dates as the 1998
Senior Notes. Chillicothe Telephone refinanced its 1998 Senior Notes in order to
align the debt covenants of those notes with the covenants of the 2002 Senior


52


Notes, which are less restrictive than the covenants of the original 1998 Senior
Notes.

Debt Covenants. Horizon PCS' secured credit facility includes financial
covenants that must be met each quarter. Horizon PCS did not meet the covenant
for EBITDA for the first quarter of 2002. As a result of higher than expected
gross and net additions to Horizon PCS subscribers for the quarter, Horizon PCS
incurred additional expenses to add those customers. Although Horizon PCS
believes it will ultimately benefit 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 affected EBITDA during the period of the addition of new subscribers,
which led to non-compliance with the EBITDA covenant for the first quarter of
2002.

On June 27, 2002, Horizon PCS entered into a fourth amendment to its
secured credit facility with its bank group. The amendment adjusts certain
financial covenants and increases the margin on the base interest rate by 25
basis points to LIBOR plus 400 to 450 basis points, while also providing for the
payment of fees to the banking group, an increase in post-default interest
rates, a new financial covenant regarding minimum available cash, additional
prepayment requirements, restrictions on Horizon PCS' borrowings under the
remaining $95.0 million line of credit and deposit requirements on the $105.0
million borrowed under the secured credit facility in March 2002.

The following table details the maximum amount available to be borrowed on
the line of credit under Horizon PCS' secured credit facility for the period
then ended:


Maximum amount
available to be
borrowed
---------------
December 31, 2002.................................... --
March 31, 2003....................................... --
June 30, 2003........................................ $ 16,000,000
September 30, 2003................................... 26,000,000
December 31, 2003.................................... 33,000,000
March 31, 2004....................................... 52,000,000
April 1, 2004........................................ 95,000,000

The following table details the minimum balance requirements placed on cash
and cash equivalents under the amended terms of Horizon PCS' secured credit
facility:

Deposit balance
requirement
-----------------
December 31, 2002..................................... $ 55,000,000
January 1, 2003, through February 15, 2003............ 33,000,000
February 16, 2003, through March 31, 2003............. 11,000,000
April 1, 2003, through May 15, 2003................... 5,500,000

As of December 31, 2002, Horizon PCS was in compliance with all of the
applicable covenants, as amended. However as described above, the Company
believes it is probable Horizon PCS will violate one or more of its covenants
during 2003.

Chillicothe Telephone's 1998 Senior Notes contain a covenant that restricts
the amount of investments that Chillicothe Telephone may make in loans, stock or
other securities of another company. For the covenant reporting quarter ended
June 30, 2002, Chillicothe Telephone failed to comply with the covenant related
to these restricted investments, which constitutes an event of default under the
note purchase agreement. Additionally the 1993 Senior Notes contain a covenant
that restricts the amount of Chillicothe Telephone's funded debt. Due to the
issuance of the 2002 Senior Notes, the proceeds of which were used to retire the
non-current portion of the 1993 Senior Notes, coupled with the current portion
of the 1993 Senior Notes, Chillicothe Telephone failed to comply with this
covenant at September 30, 2002. A waiver of non-compliance on the intercompany
investment covenant violation on the 1998 Senior Notes was obtained on August 8,


53


2002, and a waiver of non-compliance on the funded debt covenant violation on
the 1998 Senior Notes was obtained on August 14, 2002. Both waivers were
extended on September 12, 2002. Also on August 14, 2002, the 1993 Senior Notes
were amended to provide for the issuance of the 2002 Senior Notes.

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, 2002:





Long-Term
Debt and Alliances
Current Operating Network
Year Maturities Leases Agreement Total
------------- ------------- -------------- --------------
2003...................... $ -- $ 18,646,000 $ 38,600,000 $ 57,246,000
2004...................... 8,250,000 16,799,000 -- 25,049,000
2005...................... 20,187,500 13,571,000 -- 33,758,500
2006...................... 26,750,000 8,419,000 -- 35,169,000
2007...................... 28,062,500 3,440,000 31,502,500
Thereafter (1)............ 583,750,000 7,027,000 -- 590,777,000
------------- ------------- -------------- --------------
Total.................. $ 667,000,000 $ 67,902,000 $ 38,600,000 $ 773,502,000
============= ============= ============== ==============



- ----------------
(1) Note: should Horizon PCS violate a covenant and be declared in default of
its credit agreements, the amount of Horizon PCS' long-term debt,
$541,750,000, would be a current liability.

Credit Ratings. At December 31, 2002, the discount notes were rated by
Standard and Poors ("S&P") as "CCC+" with a negative outlook, which means an
obligation "is currently vulnerable to nonpayment and is dependent upon
favorable business, financial, and economic conditions for the obligor to meet
its financial commitment on the obligation. In the event of adverse business,
financial, or economic conditions, the obligor is not likely to have the
capacity to meet its financial commitment on the obligation." At December 31,
2002, Moody's Investors Services ("Moody's") rated the notes as "C," which is
Moody's lowest bond rating. The CUSIP on the discount notes is 44043UAC4.

At December 31, 2002, the senior notes were rated by S&P as "CCC+" with a
negative outlook. At December 31, 2002, Moody's rated the senior notes as "C",
which is Moody's lowest bond rating. The CUSIP on the senior notes is 44043UAH3.

Funding Requirements. At December 31, 2002, Horizon PCS had a $95.0 million
line of credit, with certain restrictions discussed above, committed under our
secured credit facility. However, if Horizon PCS violates its debt covenants
this line will not be available. We believe the increase in churn and subsequent
write-offs of involuntary NDASL deactivations combined with a slow down in
activation growth during the second and third quarters of 2002 has extended the
time it will take to reach positive EBITDA.

EBITDA is not a measure of financial performance under accounting
principles generally accepted in the United States of America and should not be
considered alternatives to net income (loss) as measures of performance or to
cash flows as a measure of liquidity.

For the year ended December 31, 2003, we anticipate our annual funding
needs will be approximately $90.0 million, including projected operating cash
losses, cash interest payments and capital expenditures. The terms of their
respective credit agreements prohibit or severely restrict the ability of
Chillicothe Telephone and Horizon PCS to provide funds to their affiliates in
the event the affiliate experiences a shortfall. The actual funds required to
build-out and upgrade our wireless network and to fund operating losses, working
capital needs and other capital needs may vary materially from our 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. Additionally,
Sprint is planning to continually upgrade their nationwide wireless network to
deploy higher data-rate speeds, which may require us to outlay additional
capital expenditures in future years that have not been determined at this
point. Should the Company be required to upgrade its network to provide


54


additional 3G services that meet Sprint's standards, we may need to obtain
additional financing to fund those capital expenditures.

If we are unable to obtain any necessary additional financing, or if we
incur further restrictions on the availability of our current funding to meet
the covenants imposed under our credit facilities or Horizon PCS is unable to
complete its network upgrades and build-out as required by the management
agreements, Sprint may terminate our agreements; we will no longer be able to
offer Sprint PCS products and services. In this event, Sprint may purchase our
operating assets or capital stock under terms defined in our agreements with
Sprint. Also, any delays in our build-out may result in penalties under our
Sprint agreements, as amended.

Other factors that would impact liquidity are:

O we may not be able to sustain our growth or obtain sufficient revenue
to achieve and sustain positive cash flow from operations or
profitability;

O we may experience a higher churn rate, which could result in lower
revenue;

O new customers may be of lower credit quality, which may require a
higher provision for doubtful accounts;

O increased competition causing declines in ARPU;

O our failure to comply with restrictive financial and operational
covenants under the secured credit facility; and

O our upgrade to 3G services, due to which we have incurred significant
capital expenditures, may not be successful in the marketplace and may
not result in incremental revenue.

Income from ongoing operations and EBITDA are not measures of financial
performance under generally accepted accounting principles and should not be
considered alternatives to net income (loss) as measures of performance or to
cash flows as a measure of liquidity.

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.



55


INFLATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123." This Statement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company adopted the
disclosure requirements of SFAS No. 148 on December 31, 2002, but continues to
account for stock compensation costs in accordance with APB Opinion No. 25.

In June 2002 the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities by requiring that expenses related to the exit
of an activity or disposal of long-lived assets be recorded when they are
incurred and measurable. Prior to SFAS No. 146, these charges were accrued at
the time of commitment to exit or dispose of an activity. The Company will adopt
SFAS 146 on January 1, 2003, and it is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 addresses the accounting for gains and losses from
the extinguishments of debt, economic effects and accounting practices of
sale-leaseback transactions and makes technical corrections to existing
pronouncements. The Company will adopt SFAS No. 145 on January 1, 2003, and it
is not expected to have a material effect on the Company's financial position,
results of operations or cash flows.

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 the normal operation of a
long-lived asset. The Company will adopt this statement effective January 1,
2003, and it is not expected to have a material effect on the Company's
financial position, results of operations or cash flows. Management is currently
in the process of evaluating its impact.

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, OR INCUR LOWER NETWORK ACCESS SERVICE MINUTES OF USE.

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:

56


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.

A RESTRUCTURING OF HORIZON PCS MAY CAUSE A SUBSTANTIAL REDUCTION IN THE NATURE
AND VALUE OF HORIZON TELCOM'S OWNERSHIP INTEREST IN HORIZON PCS.

There is a substantial risk that Horizon Telcom would lose all or a
substantial portion of the value of its investment in Horizon PCS in connection
with any restructuring of Horizon PCS. While Horizon Telcom may retain an equity
interest in a restructuring of Horizon PCS, it is possible that Horizon Telcom
will lose voting control of Horizon PCS and will lose all of the value of its
investment in Horizon PCS in connection with any restructuring. See "Risks
Related To Horizon PCS."

THE RESTRUCTURING OF HORIZON PCS MAY HAVE ADVERSE EFFECTS ON HORIZON TELCOM.

Horizon Telcom has agreements and relationships with third parties,
including suppliers, subscribers and vendors that are integral to conducting its
day to day operations. A restructuring of Horizon PCS in or out of a bankruptcy
proceeding could have a material adverse affect on the perception of Horizon
Telcom and the Horizon Telcom business and its prospects in the eyes of
subscribers, employees, suppliers, creditors and vendors. These persons may
perceive that there is increased risk in doing business with Horizon Telcom as a
result of Horizon PCS' restructuring. Some of these persons may terminate their
relationships with Horizon Telcom which would make it more difficult for Horizon
Telcom to conduct is business.

IN THE EVENT THAT THE SERVICES AGREEMENT BETWEEN HORIZON TELCOM AND HORIZON PCS
IS TERMINATED FOR ANY REASON, HORIZON TELCOM MAY NOT BE ABLE TO REDUCE ITS
GENERAL AND ADMINISTRATIVE COSTS IN AN AMOUNT SUFFICIENT TO SUBSIDIZE THE
PORTION OF THE COMBINED COMPANY'S COSTS CURRENTLY BORNE BY HORIZON PCS.

On a net basis, we estimate that Horizon PCS will incur approximately $5.3
million of charges from Horizon Services (a subsidiary of Horizon Telcom) in
fiscal 2003. If the services agreement between Horizon Telcom and Horizon PCS is
terminated for any reason, Horizon Telcom and its subsidiaries (excluding
Horizon PCS) will lose this source of revenue and will be required to lower its
costs and expenses to meet its business plan. Horizon Telcom may have little
notice of any such termination. A failure to reduce these expenses in a timely
manner could adversely affect Horizon Telcom's liquidity, financial condition
and results of operations.



57


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.

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. Horizon PCS is 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
8% of the Company's total revenues for the year ended December 31, 2002,
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. In 2002 USSF revenues accounted for
approximately 3% of total revenues. 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.

58


In addition, potential competitors generally cannot, under current laws,
receive the same universal service support enjoyed by Chillicothe Telephone.
Chillicothe Telephone therefore enjoys a competitive advantage, which could,
however, be removed by regulators at any time. The Telecommunications Act of
1996 (the "Telecom Act") provides that competitors could obtain the same
support as we do if the PUCO 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.

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 more
burdensome requirements in the Telecom Act 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

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 DO NOT HAVE SUFFICIENT CASH AND CASH COMMITMENTS TO ENABLE US TO PURSUE OUR
DESIRED BUSINESS PLAN TO ACHIEVE POSITIVE CASH FLOW.

Our business and prospects have been significantly adversely affected by a
number of factors. These factors include the general economic recession in the
U.S., the significant slow down in subscriber acquisition over the past two
quarters throughout most of the wireless telecommunications industry, aggressive
pricing competition which has developed within the wireless telecommunications
industry, the greater than expected churn which we have suffered and several
factors which arise from our relationship with Sprint. As a result of these and
other factors, we likely will not have sufficient cash and cash commitments to
enable us to pursue our desired business plan to achieve positive cash flow.

59


As a result of this situation, we have embarked on a number of initiatives
to attempt to:

O reduce operating expenses;

O reduce churn;

O negotiate a modification in the fees we pay to Sprint;

O negotiate or otherwise achieve a reduction in the fees we pay to
NTELOS;

O negotiate modifications to the covenants and payment terms of our
senior secured facility; and

O negotiate the right to obtain funding under our $95.0 million
revolving line of credit under our senior secured facility.

There can be no assurance that we will achieve any of these goals or that
we will be able to develop a business plan which is reasonably designed to
achieve positive cash flow.

Because of the status of the financing market for telecommunications
companies, we believe that it is unlikely that we could raise a sufficient
amount of financing to cure our anticipated cash shortfall.

We have retained Berenson & Company, a financial advisory firm, to assist
us in analyzing and developing our business plan, in addressing our strategic
relationships with Sprint and NTELOS and in considering potential restructurings
of our capital structure.

WE ANTICIPATE THAT, DURING 2003, HORIZON PCS WILL BECOME IN NON-COMPLIANCE WITH
ONE OR MORE OF THE FINANCIAL COVENANTS UNDER ITS SENIOR SECURED FACILITY.

Our secured credit facility provides for aggregate borrowings of $250.0
million of which $155.0 million was borrowed as of December 31, 2002. Horizon
PCS' secured credit facility includes financial covenants that must be met each
quarter.

We anticipate that, during 2003, we will become in non-compliance with one
or more of the financial covenants under our senior secured facility. This may
occur as soon as the determination of our covenant compliance as of the end of
the first quarter of 2003. If we do so, we will not have the right to borrow
under our revolving line of credit. In addition, the banks would have the right
to accelerate the indebtedness under the senior secured facility and to pursue
remedies. In the event that the lenders under the senior secured facility
accelerate our indebtedness, such acceleration would cause an event of default
under the indentures for our senior discount notes and our senior notes.

Horizon PCS did not meet the covenant for EBITDA for the first quarter of
2002. On June 27, 2002, Horizon PCS obtained a waiver of the non-compliance with
the EBITDA covenant for the first quarter of 2002 and entered into an amendment
of the secured credit facility. The amended facility primarily adjusts certain
financial covenants and increases the margin on the base interest by 25 basis
points, while also providing for the payment of fees to the banking group, an
increase in post-default interest rates, a new financial covenant regarding
minimum available cash, additional prepayment requirements, restrictions on
Horizon PCS' borrowings under the remaining $95.0 million revolving credit
facility and deposit requirements on the $105.0 million borrowed under the
secured credit facility in March 2002.

OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR LONG-TERM DEBT OBLIGATIONS.

As of December 31, 2002, our total debt outstanding was $625.0 million,
comprised of $155.0 million borrowed under our secured credit facility, $175.0
million due under our senior notes issued in December 2001 and $295.0 million
represented by our discount notes (which are reported on our balance sheet at
December 31, 2002, net of a discount of approximately $108.7 million).

60


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 positive 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.

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

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, 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's technical
specifications and coverage requirements. The agreements also require us to
provide minimum network coverage to the population within each of the markets
that make up our territory by specified dates.

61


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 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 extended contract dates. The amounts of the
penalties depends on the market and length of delay 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 agree, in shares of Horizon PCS 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 launched
service in portions of each of these markets, we did not complete all of the
build-out requirements. We notified Sprint PCS in November 2001 that it was our
position that the reasons for the delay constitutes events of "force majeure" as
described in the Sprint PCS agreements and that, consequently, no monetary
penalties or other remedies were applicable. The delay was 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 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 agreed to use commercially reasonable efforts to complete the
build-out by June 30, 2002. Although we have not been able to complete some of
the sites in some markets due to continuing force majeure issues, we believe
that we are in substantial compliance with our build-out requirements.

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's 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 terminates
these agreements, we will no longer be able to offer Sprint PCS products and
services.

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 our valuation and
decrease our ability to raise additional capital. If Sprint terminates these
agreements, the Sprint PCS agreements provide that Sprint may purchase our
operating assets or capital stock for 80% of the "Entire Business Value" as
defined by the agreement. 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, the Sprint PCS agreements provide that Sprint must approve any
change of control of our ownership and consent to any assignment of the Sprint
PCS agreements. Sprint 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 our company or our operating assets to a number of identified and yet to
be identified competitors of 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 the Company and may operate to reduce the Entire Business
Value of the Company.

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 owns the FCC licenses that 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
may terminate the Sprint PCS agreements for breach by us of any material terms.
We also depend on Sprint's ability to perform its obligations under the Sprint
PCS agreements. The termination of the Sprint PCS agreements or the failure of
Sprint to perform its obligations under the Sprint PCS agreements would severely
restrict our ability to conduct our wireless digital communications business.

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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 LOST THE ABILITY TO USE THE
ALLIANCES' NETWORK.

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. On March 4, 2003, NTELOS and certain of its subsidiaries
filed voluntarily petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of
Virginia. The results of NTELOS' restructuring could have a material adverse
impact on our operations. Pursuant to bankruptcy law, the Alliances have the
right to assume or reject the network services agreement. If the Alliances
reject the network services agreement, we will lose the ability to provide
service to our subscribers in Virginia and West Virginia through the Alliances'
Network, and Sprint may take the position that we would be in breach of our
management agreements with Sprint.

Prior to the Alliances' bankruptcy filing, Horizon had asserted that the
Alliances had overcharged Horizon approximately $4,799,000 for charges that were
neither authorized nor contemplated by the network services agreement. As a
result of the Alliances' bankruptcy filing, Horizon was at risk that any
subsequent payments that it would make for services under the network services
agreement could impair its setoff or recoupment rights with respect to its claim
for a repayment of the unauthorized charges. Consequently, Horizon declined to
make a scheduled payment of $3 million to the Alliances on March 11, 2003 for
services rendered by the Alliances in January 2003 and, on that date, filed a
motion in the Alliances' bankruptcy case to protect its rights.

On March 12, 2003, the Alliances telecopied to Horizon a letter notifying
Horizon of the failure to make payment on the January 2003 invoice, which letter
purported to be a ten-business day notice under the network services agreement
that would give the Alliances the right to terminate the agreement at the
conclusion of such ten-day period.

On March 24, 2003, Horizon and the Alliances entered into a Stipulation
which provided that Horizon would pay the January 2003 and February 2003
invoices, the bankruptcy court would provide procedural protection of Horizon's
claim, the Alliances would withdraw the default notice and the parties would
move forward to settle or arbitrate the merits of Horizon's claim. On March 26,
2003, the Court in the NTELOS bankruptcy case approved the Stipulation.

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.

IF OTHER SPRINT NETWORK PARTNERS HAVE FINANCIAL DIFFICULTIES, THE SPRINT PCS
NETWORK COULD BE DISRUPTED

Sprint's national network is a combination of networks. The large
metropolitan areas are owned and operated by Sprint, and the areas in between
them are owned and operated by Sprint network partners, all of which are
independent companies like we are. We believe that most, if not all, of these
companies have incurred substantial debt to pay the large cost of building out
their networks. If other network partners experience financial difficulties,
Sprint's PCS network could be disrupted. If Sprint's agreements with those
network partners are like ours, Sprint would have the right to exercise various
remedies. In such event, there can be no assurance that Sprint or the network
partner could restore the disrupted service in a timely and seamless manner.

One of the network partners, iPCS, Inc., recently filed a chapter 11
bankruptcy petition. In connection with its bankruptcy filing, iPCS filed a
Complaint against Sprint Corporation and Sprint PCS alleging that Sprint PCS
breached its management agreement and services agreement with iPCS, seeking an
equitable accounting of alleged overcharges and underpayments by Sprint PCS to
iPCS, and seeking specific performance of (i) Sprint PCS' obligation to purchase
the operating assets of iPCS by virtue of iPCS' purported exercise of its
contractual "put" right as a result of the alleged material breaches, and (ii)
Sprint's obligation to pay an increased share of Collected Revenue as a result
of iPCS' lenders issuing a notice of acceleration. Finally, iPCS alleges that
Sprint Corporation is liable on each of the claims because it allegedly
controls, authorizes, directs and/or ratifies the conduct of Sprint PCS under


63


the management agreement and services agreement. Because we believe that the
iPCS claims allege conduct under agreements which are similar to our Sprint
agreements, we are reviewing the iPCS lawsuit to determine the extent to which
the factual and legal assertions of iPCS have similarities to our relationship
with Sprint.

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's 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 is creating a nationwide PCS network
through its own construction efforts and those of its affiliates. Today, neither
Sprint nor any other PCS provider offers service in every area of the United
States. Sprint 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
and its PCS affiliate program are subject, in varying degrees, to the economic,
administrative, logistical, regulatory and other risks described in this
document. Sprint and its other affiliates' PCS operations may not be successful,
which in turn could adversely affect our ability to generate revenues.

OUR REVENUES MAY BE LESS THAN WE ANTICIPATE WHICH COULD MATERIALLY ADVERSELY
AFFECT OUR LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Revenue growth is primarily dependent on the size of our subscriber base,
average monthly revenues per user and roaming revenue. During the year ended
December 31, 2002, we experienced slower net subscriber growth rates than
planned, which we believe is due in large part to increased churn, declining
rates of wireless subscriber growth in general, the re-imposition of deposits
for most sub-prime credit subscribers during the last half of the year, the
current economic slowdown and increased competition. Other carriers also have
reported slower subscriber growth rates compared to prior periods. We have seen
a continuation of competitive pressures in the wireless telecommunications
market causing some major carriers to offer plans with increasingly large
bundles of minutes of use at lower prices which may compete with the calling
plans we offer, including the Sprint calling plans we support. While our
business plan anticipates lower subscriber growth, it assumes average monthly
revenues per user will remain relatively stable. Increased price competition may
lead to lower average monthly revenues per user than we anticipate. In addition,
the lower reciprocal roaming rate that Sprint has announced for 2003 will reduce
our roaming revenue, which may not be offset by the reduction in our roaming
expense. If our revenues are less than we anticipate, it could materially
adversely affect our liquidity, financial condition and results of operation.

WE ARE DEPENDENT UPON SPRINT PCS' BACK OFFICE SERVICES AND ITS THIRD-PARTY
VENDORS' BACK OFFICE SYSTEMS. PROBLEMS WITH THESE SYSTEMS, OR TERMINATION OF
THESE ARRANGEMENTS, COULD DISRUPT OUR BUSINESS AND POSSIBLY INCREASE OUR COSTS.

Because Sprint provides our back office systems such as billing, customer
care and collections, our operations could be disrupted if Sprint 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's business will continue to pose a significant challenge to its internal
support systems. Additionally, Sprint 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's willingness to continue to offer these services to us and to provide
these services at competitive costs. We paid Sprint approximately $20.6 million
for these services during 2002. The Sprint PCS agreements provide that, upon
nine months' prior written notice, Sprint may elect to terminate any of these
services. If Sprint 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.

Further, our ability to replace Sprint in providing back office services
may be limited. While the services agreements allow the Company to use
third-party vendors to provide certain of these services instead of Sprint, the
high startup costs and necessary cooperation associated with interfacing with
Sprint's system may significantly limit our ability to use back office services
provided by anyone other than Sprint. This could limit our ability to lower our
operating costs.

64


WE DEPEND ON OTHER TELECOMMUNICATIONS COMPANIES FOR SOME SERVICES THAT, 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 and Sprint (long distance) 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 some of 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 and capacity 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.

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 contains 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;

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;

O minimum total revenues; and

O minimum EBITDA.

65


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. An event of default under the secured credit facility may
prevent the Company and the guarantors of the senior notes and the discount
notes from paying those notes or the guarantees of those notes.

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.

WE MAY HAVE DIFFICULTY 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 or upgrade 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. 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 manufacturers of specific types
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.



66


SPRINT'S VENDOR DISCOUNTS MAY BE DISCONTINUED, WHICH COULD INCREASE OUR
EQUIPMENT COSTS AND REQUIRE MORE CAPITAL THAN WE HAD PROJECTED TO BUILD-OUT OR
UPGRADE OUR NETWORK.

We intend to continue to purchase our infrastructure equipment under
Sprint's vendor agreements that include significant volume discounts. If Sprint
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 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 has a substantial amount of control
over the conduct of our business. Conflicts between us may arise, and as Sprint
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 may price its national plans based on its own objectives and
may set price levels and customer credit policies that may not be
economically sufficient for our business;

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

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

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 may have significantly greater financial and
technical resources than we do, they could offer attractive pricing options and
they may have a wider variety of handset options. We expect existing cellular
providers will continue to upgrade their systems and provide expanded digital
services to compete with the Sprint PCS products and services 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 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 may experience could also harm our competitive position
and success.

We anticipate that market prices for two-way wireless voice services and
products generally will continue to decline as a result of increased
competition. Consequently we may be forced to increase spending for advertising
and promotions. Increased competition also may lead to continued increases in
customer churn. Those trends could cause further delays in our expected dates to
achieve positive EBITDA.

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 and its PCS affiliates. Some of our competitors are seeking to


67


reduce access to their networks through actions pending with the FCC. Moreover,
the engineering 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 code division multiple access (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 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. 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. The fee for each Sprint PCS roaming minute used was decreased from
$0.20 per minute before 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." Sprint has notified us
that it intends to reduce the reciprocal roaming rate to $0.058 per minute of
use in 2003. As a result, we may receive less Sprint PCS roaming revenue in the
aggregate, than we previously anticipated. 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. Sprint's 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 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 has licenses covering 20 MHz or 30
MHz of spectrum. However, Sprint 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


68


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's PCS licenses, which are subject to renewal and
revocation by the FCC. Sprint's 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's 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 does not
demonstrate to the FCC that Sprint 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 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 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 the FCC will agree with us. If the FCC determines
that the Sprint PCS agreements need to be modified to increase the level of
licensee control, we have agreed with Sprint to use our best efforts to modify
the Sprint PCS agreements to comply with applicable law. If we cannot agree with
Sprint 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.

WE MAY NEED MORE CAPITAL THAN WE CURRENTLY ANTICIPATE TO COMPLETE THE BUILD-OUT
AND UPGRADE 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 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 generations," or
"3G", technology. Sprint has selected a version of 3G technology (1XRTT) for its
own networks and required us to upgrade our network to provide those services.
Sprint launched the new 3G technology in August 2002 under the brand, PCS
Vision. We participated in that launch along with other Sprint PCS affiliates.
We still have additional expenditures pending to complete the full
implementation of 3G in all of our markets. 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


69


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.

Recently, Sprint has sought to increase service fees during the remainder
of 2002 and beyond in connection with its development of 3G-related back-office
systems and platforms. Horizon PCS, along with the other PCS affiliates of
Sprint, are currently disputing the validity of Sprint's right to pass through
this fee to Horizon PCS. If this dispute is resolved unfavorably to Horizon PCS,
then Horizon PCS will incur additional expenses.

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
Sprint has implemented 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;

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 and
incur additional debt.

THE SPRINT AGREEMENTS AND OUR RESTATED CERTIFICATE OF INCORPORATION INCLUDE
PROVISIONS THAT MAY DISCOURAGE, DELAY OR RESTRICT ANY SALE OF OUR OPERATING
ASSETS OR COMMON STOCK TO THE POSSIBLE DETRIMENT OF OUR NOTEHOLDERS.

The Sprint PCS agreements restrict our ability to sell our operating assets
and common stock. Generally, Sprint 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 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 our company. For
example, our 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



70


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
restated certificate of incorporation could discourage any sale of our operating
assets or common stock.

WE MAY EXPERIENCE A HIGH RATE OF CUSTOMER TURNOVER, WHICH WOULD INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE AND POTENTIALLY CAUSE A VIOLATION OF
THE COVENANTS UNDER HPCS' SECURED CREDIT FACILITY.

Our 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. We have experienced
an increase in churn during 2002, primarily caused by NDASL customers' inability
to pay for services billed. Current and future strategies to reduce customer
churn may not be successful.

The rate of customer turnover is affected by the following factors, several
of which are not within our ability to address:

O credit worthiness of customers;

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 a lack of affordability;

O price competition;

O Sprint's 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.

OUR ALLOWANCE FOR DOUBTFUL ACCOUNTS MAY NOT BE SUFFICIENT TO COVER UNCOLLECTIBLE
ACCOUNTS.

On an ongoing basis, we estimate the amount of customer receivables that we
may not collect to reflect the expected loss on such accounts in the current
period. However, our allowance for doubtful accounts may underestimate actual
unpaid receivables for various reasons, including:

O adverse changes in our churn rate exceeding our estimates;

O adverse changes in the economy generally exceeding our expectations;
or

O unanticipated changes in Sprint PCS' products and services.

71


If our allowance for doubtful accounts is insufficient to cover losses on
our receivables, our business, financial position or results of operations could
be materially adversely affected.

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.

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 Federal Aviation Administration 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.

REGULATION BY GOVERNMENT OR POTENTIAL LITIGATION RELATING TO THE USE OF WIRELESS
PHONES WHILE DRIVING COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

Some studies have indicated that some aspects of using wireless phones
while driving may impair drivers' attention in certain circumstances, making
accidents more likely. These concerns could lead to litigation relating to
accidents, deaths or serious bodily injuries, or to new restrictions or
regulations on wireless phone use, any of which also could have material adverse
effects on our results of operations. A number of U.S. states and local
governments are considering or have recently enacted legislation that would
restrict or prohibit the use of a wireless handset while driving a vehicle or,
alternatively, require the use of a hands-free telephone. Legislation of this
sort, if enacted, would require wireless service providers to provide hands-free
enhanced services, such as voice activated dialing and hands-free speaker phones
and headsets, so that they can keep generating revenue from their subscribers,
who make many of their calls while on the road. If we are unable to provide
hands-free services and products to our subscribers in a timely and adequate
fashion, the volume of wireless phone usage would likely decrease, and our
ability to generate revenues would suffer.



72


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.

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 i) the interest rate on our financing, ii) our ability to
refinance our discount notes at maturity at market rates, and iii) the impact of
interest rate movements on our ability to meet interest expense requirements and
meet financial covenants under our debt instruments.

In the first quarter of 2001, Horizon PCS entered into a two-year interest
rate swap, effectively fixing $25.0 million of term loan B borrowed under the
secured credit facility. In the third quarter of 2001, Horizon PCS entered into
another two-year interest rate swap, effectively fixing the remaining $25.0
million of term loan B. The table below compares current market rates on the
balances subject to the swap agreements:

(Dollars in millions) At December 31, 2002
--------------------------------------
Balance Market rate Swap rate
------------ ------------- ----------
Swap 1..................... $25.0 6.33% 9.40%
Swap 2..................... $25.0 6.33% 7.65%

Since our swap interest rates are currently greater than the market
interest rates on our underlying debt, our results from operations currently
reflect a higher interest expense than had we not hedged our position. At
December 1, 2002, the Company recorded approximately $395,000 in other
comprehensive losses related to the swap on the balance sheet.

While we cannot predict our ability to refinance existing debt, we continue
to evaluate our interest rate risk on an ongoing basis. If we do not renew our
swaps, or, if we do not hedge incremental variable-rate borrowings under our
secured credit facility, we will increase our interest rate risk, which could
have a material impact on our future earnings. As of December 31, 2002,
approximately 83% of our long-term debt is fixed rate or is variable rate that
has been swapped under fixed-rate hedges, thus reducing our exposure to interest
rate risk. Currently, a 100 basis point increase in interest rates would
increase our interest expense approximately $1.1 million.

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

On June 27, 2002, Horizon Telcom and its subsidiary, Horizon PCS, dismissed
Arthur Andersen LLP ("Andersen") as its principal accountant and engaged KPMG
LLP as its principal accountant. This change in accountants was reported in the
Current Reports on Form 8-K filed on June 27, 2002, by Horizon Telcom and
Horizon PCS.


73


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 2002 or as of the date hereof:



NAME AGE POSITION
- ---- --------- --------
Robert McKell...................................... 79 Chairman of the Board, Director
Thomas McKell...................................... 67 President, Director of Horizon Telcom;
President of Chillicothe Telephone
Peter M. Holland................................... 37 Vice President of Finance, Treasurer and
CFO of Horizon Telcom; Chief Financial
Officer of Horizon PCS
Jack E. Thompson................................... 69 Secretary, Director
William A. McKell.................................. 42 Chairman of the Board, President and Chief
Executive Officer of Horizon PCS
Phoebe H. McKell................................... 56 President of Horizon Services; President of
Horizon Technology
Joseph S. McKell................................... 77 Director
David McKell....................................... 75 Director
Helen M. Sproat.................................... 70 Director
John E. Herrnstein................................. 65 Director
Joseph G. Kear..................................... 79 Director
Jerry B. Whited.................................... 53 Director
Donald L. McNeal................................... 65 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 56 years of telecommunications experience and received a Bachelor of
Science in Electrical Engineering.

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 47 years of telecommunications experience and received a Bachelor
of Science in Electrical Engineering.

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 15
years of telecommunications experience. From May 1996 to December 1999, Mr.
Holland was a principal and owner of The Pinnacle Group located in Langley,
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 was 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 36 years of telecommunications experience.

74


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 15 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.

PHOEBE H. MCKELL has served as the President of Horizon Services since its
inception in 1996. Ms. McKell has 24 years of telecommunications experience.
From 1999 until February 20, 2003, she also was a director of Horizon PCS. From
1989 to 1996, she was Director of Administration for The Chillicothe Telephone
Company. Ms. McKell has served as President of Horizon Technology since its
inception.

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 37 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 37 years. Mr. Kear, an attorney, has
practiced law in Chillicothe, Ohio for the past 54 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. Mr. Kear submitted his
resignation to the board of directors on December 6, 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.

DONALD L. MCNEAL was appointed as a director of Horizon Telcom in November
of 2002. Mr. McNeal worked his entire business career in the Human Resources
Department with The Mead Corporation, retiring as vice president of Mead's Human
Resources School and Office Products Division in 1992. He graduated from The
Ohio State University in 1959 and then served as a captain in the United States
Air Force.

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.

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.

75


DIRECTOR COMPENSATION

Directors who are not otherwise employed by Horizon Telcom or its
subsidiaries receive $2,350 per quarter as director compensation. Robert McKell,
Thomas McKell, and Jack Thompson receive $50 per quarter. Compensation and Audit
committee chairmen receive an additional $1,500 per quarter for their services
while other committee members receive $1,000 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 two members, Messrs. Whited and Herrnstein. The board of directors
intends to identify and elect a third member to the audit committee at their
annual meeting in May of 2003.

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

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 copies 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 2002, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than 10% beneficial owners were complied with, except that the following
insiders each filed a late Form 5 to report one late transaction; Messrs Whited
and Gates.



76



The following table presents summary information with respect to the
compensation paid to our Chief Executive Officer and our four other highest paid
executive officers whose salary and bonus exceeded $100,000 during the year
ended December 31, 2002:




LONG-TERMS
COMPENSATION
ANNUAL COMPENSATION SECURITIES
----------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- --------------------------- ------------ ------------- ------------- -------------

Thomas McKell................................ 2002 226,557 -- -- 11,406 (1)
President of Horizon Telcom; President of 2001 207,733 -- -- 10,148 (2)
Chillicothe Telephone 2000 207,312 -- -- 8,789 (3)

William A. McKell............................ 2002 207,500 50,103 -- 13,075 (4)
Chairman of the Board, President and 2001 195,833 65,935 -- 116,885 (5)
CEO of Horizon PCS 2000 154,167 21,458 -- 12,497 (6)

Peter M. Holland............................. 2002 181,562 43,819 -- 12,676 (7)
Vice President of Finance, 2001 170,833 57,479 -- 129,032 (8)
Treasurer and CFO of Horizon 2000 150,000 20,625 -- 11,971 (9)
Telcom; CFO of Horizon PCS

Alan Morse................................... 2002 150,000 36,627 200,000 10,193 (10)
Chief Operating Officer of Horizon PCS 2001 -- -- -- --
2000 -- -- -- --

Joseph E. Corbin............................. 2002 129,688 33,752 -- 8,631 (11)
Vice President, Engineering/Operations 2001 121,667 44,428 -- 126,797 (12)
of Horizon PCS 2000 105,000 14,438 -- 20,254 (13)


- ------------------------
(1) Includes a yearly car allowance of $9,140 and a 401(k) contribution of
$2,266.
(2) Includes a yearly car allowance of $8,071 and a 401(k) contribution of
$2,077.
(3) Includes a yearly car allowance of $7,189 and a 401(k) contribution of
$1,600.
(4) Includes a yearly car allowance of $9,368 and a 401(k) contribution of
$3,707.
(5) 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.
(6) Includes a yearly car allowance of $7,784 and a 401(k) contribution of
$4,713.
(7) Includes a yearly car allowance of $8,103 and a 401(k) contribution of
$4,573.
(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 a yearly car allowance of $6,443 and a 401(k) contribution of
$3,750.
(11) Includes a yearly car allowance of 8,631.
(12) 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.
(13) Includes a yearly car allowance of $9,981 and a 401(k) contribution of
$10,273.

None of the named executive officers received stock options from Horizon
Telcom in 2002.


77


Grant of Options. During 2002, options were granted to Alan Morse. No stock
appreciation rights (SARs) have been granted by the Company. The following table
sets forth information regarding the grants of options in 2002:



OPTION/SAR GRANTS IN LAST FISCAL YEAR (2002)


NUMBER OF POTENTIAL REALIZABLE
SECURITIES % OF TOTAL VALUE AT ASSUMED ANNUAL
UNDERLYING OPTIONS/SARS RATES OF APPRECIATION FOR
OPTIONS/ GRANTED TO EXERCISE OPTION TERM
SARS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
------------------------- --------------- ----------------- ----------- ------------ ---------------------------
Alan Morse............... 200,000 100% $5.60 3/01/12 $704,362 $1,784,992


EMPLOYMENT AGREEMENTS

Horizon PCS entered into employment agreements with Mr. McKell, Mr. Holland
and Mr. Morse, Horizon PCS' Chief Executive Officer, Chief Financial Officer and
Chief Operating Officer, respectively. The employment agreements provide for an
annual base salary of $200,000 to Mr. McKell, $175,000 to Mr. Holland and
$180,000 to Mr. Morse beginning in 2002. In addition to their base salary, Mr.
McKell, Mr. Holland and Mr. Morse are eligible to receive an annual bonus up to
40% of their base salary. In addition, Mr. McKell, Mr. Holland and Mr. Morse are
eligible to participate in all of Horizon PCS' employee benefit plans.

The employment agreements provide that Mr. McKell's, Mr. Holland's or Mr.
Morse's employment may be terminated with or without cause, as defined in the
agreements. If Mr. McKell, Mr. Holland or Mr. Morse is terminated without cause,
he is entitled to receive 24 months of 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, Mr. McKell, Mr. Holland and Mr. Morse
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 2001 or 2002.

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.

78


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
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 4,196,883 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 4,196,883 substituted options on
its class B common stock at an exercise price of $0.1209. In 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. In March 2002, Horizon PCS granted
options to purchase 200,000 shares of Horizon PCS' class A common stock at an
exercise price of $5.60 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.

79


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
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 undertaken not to grant options
(other than under the 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.

Additionally, none of our named executive officers exercised stock options
in the fiscal year ended December 31, 2002. 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, 2002. There was no public market
for our common stock as of December 31, 2002. Accordingly, the fair market value
on December 31, 2002, is based on the valuation analysis performed in
conjunction with SFAS 142, was assumed to be less than $0.12 per share.



AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002
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...................... 1,008,866* 907,980* -- --
Peter M. Holland...................... 1,008,866* 907,980* -- --
Alan G. Morse......................... -- 200,000* -- --
Joseph E. Corbin...................... 153,011* 35,310* -- --


- -------------
* 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, 2002 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.



80






----------------------------------------------------------------------------------------------
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 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000
225,000 30,000 40,000 50,000 60,000 70,000
250,000 30,000 40,000 50,000 60,000 70,000
300,000 30,000 40,000 50,000 60,000 70,000
400,000 30,000 40,000 50,000 60,000 70,000
450,000 30,000 40,000 50,000 60,000 70,000
500,000 30,000 40,000 50,000 60,000 70,000


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.

For the September 1, 2002 plan year, the July 1, 2001 monthly rate of pay
is limited to $16,667, which is equivalent to an annual pay of $200,000.
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 minimum benefit for the plan is $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 pension plan was amended on December 24, 2002. This amendment increased
the compensation limit to $200,000 allowing for the cost-of -living adjustments
in future years. This amendment also changed the definition of the mortality
table used for calculation of lump sum distributions.

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 46.5
Robert McKell 56.1
William A. McKell 12.6
Jack E. Thompson 34.0
Phoebe McKell 24.3

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


81


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
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."

82


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
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.

83


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 copies 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, 2002 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.

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 ................... 2,019 2.2% 4,463 1.6%
Thomas McKell (3)................ 7,638 8.4% 22,620 8.3%
Peter M. Holland (4)............. 290 * -- *
Jack E. Thompson (5)............. 423 * 1,368 *
William A. McKell (6)............ 1,274 1.4% 3,000 1.1%
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% 17,375 6.4%
John E. Herrnstein (11).......... 105 * 438 *
Joseph G. Kear (12).............. 230 * 784 *
Jerry B. Whited.................. -- -- -- --
Donald L. McNeal................. -- -- 500 *

All Executive Officers and Directors
as a Group (13 persons) (13)... 39,056 43.1% 113,378 41.7%

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



84


(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 19,575 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 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 435 shares of class A common stock and 1,305 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 1,155 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.

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 $5.2


85


million, $6.2 million and $4.4 million in the years ending December 31, 2002,
2001 and 2000, respectively. As of December 31, 2002, Horizon PCS had a
receivable from Horizon Services of approximately $8,000. As of December 31,
2002, Horizon PCS did not have a receivable from Horizon Telcom.

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.

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. Under this lease, Horizon PCS paid
The Chillicothe Telephone Company $120,000, $120,000 and $97,500 in 2002, 2001,
and 2000, 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 2000, Horizon PCS
had taxable net income of $18.6 million 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.

ITEM 14. CONTROLS AND PROCEDURES

Our Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining "disclosure controls and procedures" (as defined in
the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) for the
Company. With the participation of management, the Company's Chief Executive
Officer and Chief Financial Officer evaluated the Company's disclosure controls
and procedures within 90 days preceding the filing date of this annual report.
Based upon this evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in ensuring that material information required to be disclosed is
included in the reports that it files with the Securities and Exchange
Commission.

Under Horizon PCS' agreements with Sprint, Sprint provides Horizon PCS with
billing, collections, customer care and other back office services. As a result,
Sprint remits approximately 96% of Horizon PCS' revenues to Horizon PCS. In
addition, approximately 43% of cost of service in Horizon PCS' consolidated
financial statements relate to charges for services provided under Horizon PCS'
agreements with Sprint such as billing, customer care, roaming expense, and
long-distance. Horizon PCS, as a result, necessarily relies on Sprint to provide

86


accurate, timely and sufficient data and information to properly record its
revenues, expenses and accounts receivable which underlie a substantial portion
of its periodic financial statements and other financial disclosures. The
relationship with Sprint is established by Horizon PCS' agreements and its
flexibility to use a service provider other than Sprint is limited.

Because of Horizon PCS' reliance on Sprint for financial information,
Horizon PCS must depend on Sprint to design adequate internal controls with
respect to the processes established to provide this data and information to
Horizon PCS and Sprint's other network partners. To address this issue, Sprint
engages its independent auditors to perform a periodic evaluation of these
controls and to provide a "Report on Controls Placed in Operation and Tests of
Operating Effectiveness for Affiliates" under guidance provided in Statement of
Auditing Standards No. 70. These reports are provided annually to Horizon PCS
and covers Horizon PCS' entire fiscal year.

There were no significant changes in the Company's internal controls or, to
the knowledge of the management of the Company, in other factors that could
significantly affect these controls subsequent to the evaluation date.


87


PART IV

ITEM 15. 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

Reports of Independent Public Accountants, Consolidated Balance Sheets
as of December 31, 2002 and 2001, Consolidated Statements of
Operations for the Years Ended December 31, 2002, 2001 and 2000,
Consolidated Statements of Stockholders' Equity (Deficit) for the
Years Ended December 31, 2002, 2001 and 2000, Consolidated Statements
of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000,
and Notes to Consolidated Financial Statements.

2. 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 2002.



88


Horizon Telcom, Inc., Certification for Annual Report on Form 10-K


I, Thomas McKell, certify that:

1. I have reviewed this annual report on Form 10-K of Horizon Telcom, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date: March 25, 2003 /s/ Thomas McKell
-------------------------------------
Thomas McKell
President and Chief Executive Officer




89




Horizon Telcom, Inc., Certification for Annual Report on Form 10-K


I, Peter M. Holland, certify that:

1. I have reviewed this annual report on Form 10-K of Horizon Telcom, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.



Date: March 25, 2003 /s/ Peter M. Holland
--------------------------
Peter M. Holland
Chief Financial Officer



90




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 25, 2003
-----------------------------
Thomas McKell President,
Director; President of
Chillicothe Telephone

Date: March 25, 2003

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
- -------------------------------
Thomas McKell President, Director; President of March 25, 2003
(Principal Executive Officer) Chillicothe Telephone


/s/ Peter M. Holland
- -------------------------------
Peter M. Holland Vice President of Finance, Chief March 25, 2003
Financial Officer and Treasurer

/s/ Robert McKell
- -------------------------------
Robert McKell Chairman of the Board, Director March 25, 2003

/s/ Jack E. Thompson
- -------------------------------
Jack E. Thompson Secretary, Director March 25, 2003

/s/ Joseph S. McKell
- -------------------------------
Joseph S. McKell Director March 25, 2003

/s/ David McKell
- -------------------------------
David McKell Director March 25, 2003

/s/ Helen M. Sproat
- -------------------------------
Helen M. Sproat Director March 25, 2003

/s/ John E. Herrnstein
- -------------------------------
John E. Herrnstein Director March 25, 2003

/s/ Jerry B. Whited
- -------------------------------
Jerry B. Whited Director March 25, 2003


- -------------------------------
Donald L. McNeal Director March __, 2003





91



INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- -----------

3.1(c) Articles of Incorporation of Horizon Telcom, Inc.

3.2(c) Bylaws of Incorporation of Horizon Telcom, Inc.

4.1(c) Form of Stock Certificate.

4.2(b) 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(b) 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(b) Form of Registered Note (included in Exhibit 4.2).

4.5(b) Note Guarantee of Horizon Personal Communications, Inc.

4.6(b) 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(b) Form of Employment Agreement, dated September 26, 2000, by
and between Horizon PCS, Inc. and William A. McKell.

10.2(b) Form of Employment Agreement, dated September 26, 2000, by
and between Horizon PCS, Inc. and Peter M. Holland.

10.3(b)+ Sprint PCS Management Agreement between Sprint Spectrum,
L.P., SprintCom, Inc. and Horizon Personal Communications,
Inc., dated June 8, 1998.

10.3.1(b) 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
Horizon PCS and Sprint PCS, Inc. as of June 1, 2001
(incorporated by reference Exhibit 10.3.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).

10.4(b)+ Sprint PCS Services Agreement between Sprint Spectrum L.P.
and Horizon Personal Communications, Inc., dated June 8,
1998.

10.5(b) Sprint Trademark and Service Mark License Agreement between
Sprint Communications Company, L.P. and Horizon Personal
Communications, Inc., dated June 8, 1998.



92




EXHIBIT NO. DESCRIPTION
- ----------- -----------

10.6(b) Sprint Spectrum Trademark and Service Mark License Agreement
between Sprint Spectrum L.P. and Horizon Personal
Communications, Inc., dated June 8, 1998.

10.7(b)+ 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(b) Sprint PCS Services Agreement between Sprint Spectrum, L.P.
and Bright Personal Communications Services, LLC, dated
October 13, 1999.

10.9(b) 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(b) 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(b)+ 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(c) 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(b)+ PCS CDMA Product Supply Contract by and between Motorola,
Inc. and Horizon Personal Communications, Inc.

10.25(b) Horizon PCS, Inc. 2000 Stock Option Plan.

10.25.1(c) Horizon Telcom, Inc. 1999 Stock Option Plan.

10.26(b)+ Site Development Agreement by and between Horizon Personal
Communications, Inc. and SBA Towers, Inc., dated August 17,
1999.

10.27(b)+ Master Site Agreement by and between SBA Towers, Inc. and
Horizon Personal Communications, Inc., dated July 1999.

10.28(b)+ Master Design Build Agreement by and between Horizon
Personal Communications, Inc. and SBA Towers, Inc., dated
August 17, 1999.

10.29(b)+ Master Site Agreement by and between SBA Towers, Inc. and
Bright Personal Communications Services, LLC, dated October
1, 1999.

10.30(b)+ Master Design Build Agreement by and between Bright Personal
Communications Services, LLC and SBA Towers, Inc., dated
October 1, 1999.

10.31(b) Services Agreement, dated May 1, 2000, between Horizon
Personal Communications, Inc. and Horizon Services, Inc.

10.32(b) Lease Agreement, dated May 1, 2000 between The Chillicothe
Telephone Company and Horizon Personal Communications, Inc.


93




EXHIBIT NO. DESCRIPTION
- ----------- -----------

10.33(b) Services Agreement, dated May 1, 2000 between Horizon
Personal Communications, Inc. and United Communications,
Inc.

10.34(b) Form of Horizon PCS, Inc. Indemnification Agreement.

10.35(b) 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(b) 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(b) 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(b) 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(b) 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(b) 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(b) 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).



94




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).

10.40.4 Waiver Agreement dated May 9, 2002 by and among Horizon
Personal Communications, Inc. (the "Company"), Bright
Personal Communications Services, LLC, an Ohio limited
liability company ("Bright") (each of the Company and
Bright, individually a "Borrower" and collectively, the
"Borrowers"), Horizon PCS, Inc., a Delaware corporation (the
"Parent"), those Subsidiaries of the Parent listed on the
signature pages hereto (together with the Parent,
individually a "Guarantor" and collectively the
"Guarantors"; the Guarantors, together with the Borrowers,
individually a "Credit Party" and collectively the "Credit
Parties"), the lenders party hereto (the "Lenders"), First
Union National Bank, as Administrative Agent (the
"Administrative Agent"), Westdeutsche Landesbank
Girozentrale, as Syndication Agent and Arranger (the
"Syndication Agent"), and Fortis Capital Corp., as
Documentation Agent (the "Documentation Agent")
(incorporated by reference Exhibit 10.40.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2002).

10.40.5 Second Waiver Agreement dated as of June 7, 2002, 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 the Registrant's Current
Report on Form 8-K filed on June 10, 2002).

10.40.6 Fourth Amendment to Credit Agreement and Waiver dated as of
June 27, 2002 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, Wachovia Bank, National Association (successor to
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 Registrant's Current
Report on Form 8-K filed on June 27, 2002).

10.40.7 Consent and Agreement for Benefit of Holders of Senior
Security Facility 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,
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
Annual Report on Form 10-K for the year ended December 31,
2002 of Horizon PCS, Inc. (File No. 333-51240)).

10.41(b) Warrant Agreement dated as of September 26, 2000 between
Horizon PCS, Inc. and Wells Fargo Bank Minnesota, National
Association.

10.42(b) 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.



95


EXHIBIT NO. DESCRIPTION
- ----------- -----------

10.43(c) 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(c) 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(c) 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(c) 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(c) 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)).

10.46.1 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)).

10.47 Employment Agreement between Horizon PCS, Inc., and Alan G.
Morse (incorporated by reference to Exhibit 10.47 to the
Quarterly Report on Form 10-Q of Horizon PCS, Inc. for the
quarter ended June 30, 2002 (File No. 333-51240)).

10.48 Waiver Agreement between The Chillicothe Telephone Company,
American United Life Insurance Company and The State Life
Insurance Company dated as of August 8, 2002 (Incorporated
by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2002 (File No.
000-32617)).


10.49(d) Senior Note Purchase agreement for $30,000,000 at 6.64%,
between The Chillicothe Telephone Company, The Variable
Annuity Life Insurance Company, AIG Annuity Insurance
Company, and Modern Woodmen of America, dated as of August
1, 2002.

10.50(d) Amended and Restated Note Purchase Agreement for $12,000,000
at 6.72%, between The Chillicothe Telephone Company,
American United Life Insurance Company and The State Life
Insurance Company, dated as of November 1, 2002.

10.51(d) Waiver Agreement between The Chillicothe Telephone Company,
American United Life Insurance Company and The State Life
Insurance Company dated as of August 14, 2002.

10.52(d) Amendment Agreement between The Chillicothe Telephone
Company, Northern Life Insurance Company and Reliastar Life
Insurance Company dated as of August 14, 2002.

10.53(d) Waiver Extension Agreement between The Chillicothe Telephone
Company, The American United Life Insurance Company and The
State Life Insurance Company dated as of September 12, 2002.



96

EXHIBIT NO. DESCRIPTION
- ----------- -----------

10.54 Waiver Agreement between The Chillicothe Telephone Company,
American United Life Insurance Company and The State Life
Insurance Company dated as of August 8, 2002 (Incorporated
by reference to Exhibit 10.48 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2002
(File No. 000-32617)).

16.1 Letter from Arthur Andersen dated June 27, 2002
(Incorporated by reference to the Registrant's Current
Report on Form 8-K filed June 28, 2002 (File No.
000-32617)).

21(a) Subsidiaries of the Company.

23(a) Consent of KPMG LLP.
99.1(a) Certification, under Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2(a) Certification, under Section 906 of the Sarbanes-Oxley Act
of 2002.

- ---------------------
(a) Filed herewith.
(b) 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).
(c) Incorporated by reference to the Exhibit of the same number filed with the
Registrant's Registration Statement on Form 10 (File No. 000-32617).
(d) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2002 (File No. 000-32617).
+ 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.




97



HORIZON TELCOM, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PAGE

Independent Auditor's Report.................................................... F-2

Report of Independent Public Accountants........................................ F-3

Consolidated Balance Sheets as of December 31, 2002 and 2001.................... F-4

Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000.............................................. F-6

Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 2002, 2001 and 2000.......................... F-7

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000.............................................. F-8

Notes to Consolidated Financial Statements, as of December 31, 2002 and 2001,
and for the Years Ended December 31, 2002, 2001 and 2000...................... F-10



F-1



INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Horizon Telcom, Inc.:

We have audited the accompanying consolidated balance sheet of Horizon
Telcom, Inc. and subsidiaries as of December 31, 2002, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the year then ended. 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 audit. The
consolidated balance sheet of Horizon Telcom, Inc. and subsidiaries as of
December 31, 2001, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended December 31,
2001 and 2000 were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements, before
the revision described in Note 6 to the financial statements, in their report
dated February 12, 2002 (except with respect to the matter discussed in Horizon
Telcom's 2001 Form 10-K, Note 20, as to which the date is March 27, 2002).

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 audit provides a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, management
of the Company's subsidiary, Horizon PCS, Inc., believes that it is probable
that Horizon PCS, Inc. will violate one or more of its debt covenants in 2003,
resulting in the ability of the lenders to demand payment of all or a portion of
its outstanding debt ($516.3 million at December 31, 2002). Horizon PCS, Inc.
represents approximately 82% of total consolidated revenues for the year ended
December 31, 2002 and 81% of the total consolidated assets at December 31, 2002.
Although the ultimate impact of Horizon PCS not being able to meet its debt
covenants in 2003 is presently unknown, as discussed in Note 1, management
believes that it will not have a significant adverse effect on the liquidity of
Horizon Telcom, Inc. and its other subsidiaries through fiscal 2003.
Management's plans are also described in Note 1.

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, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

As discussed above, the consolidated balance sheet of Horizon Telcom, Inc.
and subsidiaries as of December 31, 2001, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended December 31, 2001 and 2000 were audited by other auditors who have
ceased operations. As described in Note 6, these financial statements have been
revised to include the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
which was adopted by the Company as of January 1, 2002. In our opinion, the
disclosures for 2001 and 2000 in Note 6 are appropriate. However, we were not
engaged to audit, review, or apply any procedures to the 2001 and 2000 financial
statements of Horizon Telcom, Inc. and subsidiaries other than with respect to
such disclosures and, accordingly, we do not express an opinion or any other
form of assurance on the 2001 and 2000 financial statements taken as a whole.

/s/ KPMG LLP
Columbus, Ohio
March 4, 2003



F-2



THE FOLLOWING REPORT OF ARTHUR ANDERSEN, LLP ("ANDERSEN") IS A COPY OF THE
REPORT PREVIOUSLY ISSUED BY ANDERSEN ON FEBRUARY 12, 2002. THE REPORT OF
ANDERSEN IS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO RULE 2-02(E)
OF REGULATIONS S-X. AFTER REASONABLE EFFORTS THE COMPANY HAS NOT BEEN ABLE TO
OBTAIN A REISSUED REPORT FROM ANDERSEN. ANDERSEN HAS NOT CONSENTED TO THE
INCLUSION OF ITS REPORT IN THIS ANNUAL FORM 10-K. BECAUSE ANDERSEN HAS NOT
CONSENTED TO THE INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT, IT MAY BE
DIFFICULT FOR SHAREHOLDERS TO SEEK REMEDIES AGAINST ANDERSEN AND SHAREHOLDERS'
ABILITY TO SEEK RELIEF AGAINST ANDERSEN MAY BE IMPAIRED.


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 Horizon Telcom's 2001 Form 10-K, Note 20,
as to which the date is March 27, 2002)


F-3




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
As of December 31, 2002 and 2001
- --------------------------------------------------------------------------------



2002 2001
--------------- ---------------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents (includes $55,000,000 on deposit in accordance with
covenant amendment in 2002).............................................. $ 94,948,351 $ 127,154,227
Restricted cash............................................................ 24,063,259 24,597,222
Accounts receivable - subscriber, less allowance for doubtful accounts of
approximately $2,654,000 in 2002 and $2,662,000 in 2001.................. 20,560,658 15,276,422
Accounts receivable - interexchange carriers, access charge pools and other,
less allowance for doubtful accounts of approximately $214,000 in 2002 and
$478,000 in 2001......................................................... 5,974,702 5,690,390
Inventories................................................................ 6,336,877 6,512,026
Investments, available-for-sale, at fair value............................. 745,860 3,537,720
Prepaid expenses and other................................................. 4,998,044 2,403,905
---------------- ---------------
Total current assets................................................. 157,627,751 185,171,912
---------------- ---------------

OTHER ASSETS:
Intangibles, net........................................................... 40,381,201 42,840,534
Restricted cash............................................................ -- 24,062,500
Debt issuance costs, net................................................... 20,365,415 20,584,960
Deferred PCS activation expense............................................ 6,092,645 3,808,618
Goodwill, net.............................................................. -- 7,191,180
Prepaid pension costs and other............................................ 5,361,994 4,976,942
---------------- ---------------
Total other assets................................................... 72,201,255 103,464,734
---------------- ---------------

PROPERTY, PLANT AND EQUIPMENT, NET ........................................... 315,921,107 289,277,220
---------------- ---------------
Total assets.................................................... $ 545,750,113 $ 577,913,866
=============== ================






(Continued on next page)



F-4




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)
As of December 31, 2002 and 2001
- --------------------------------------------------------------------------------



2002 2001
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------- ---------------
- ----------------------------------------------
CURRENT LIABILITIES:
Accounts payable........................................................... $ 24,827,065 $ 30,268,185
Payable to Sprint.......................................................... 9,910,262 10,244,529
Deferred PCS revenue....................................................... 5,308,457 3,712,734
Accrued taxes.............................................................. 6,514,707 4,886,100
Accrued interest, payroll and other accrued liabilities.................... 10,237,300 10,502,250
Lines of credit............................................................ -- 19,167,338
Current maturities of long-term debt....................................... -- 2,000,000
---------------- ---------------
Total current liabilities............................................ 56,797,791 80,781,136
---------------- ---------------

LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt............................................................. 558,284,349 402,055,643
Deferred income taxes, net................................................. 15,234,409 4,632,157
Postretirement benefit obligation.......................................... 6,526,991 5,490,015
Deferred PCS activation revenue............................................ 6,092,645 3,808,618
Other long-term liabilities................................................ 11,075,183 12,273,617
---------------- ---------------
Total long-term debt and other liabilities........................... 597,213,577 428,260,050
---------------- ---------------
Total liabilities.................................................. 654,011,368 509,041,186
---------------- ---------------

CONVERTIBLE PREFERRED STOCK OF SUBSIDIARY..................................... 157,105,236 145,349,043

COMMITMENTS AND CONTINGENCIES (Note 15)

STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - class A, no par value, 200,000 shares authorized, 99,726
shares issued and 90,552 shares outstanding, stated at $4.25 per share... 423,836 423,836
Common stock - class B, no par value, 500,000 shares authorized, 299,450
and 299,301 shares issued at December 31, 2002 and 2001,
respectively, and 271,926 and 271,777 shares outstanding at
December 31, 2002 and 2001, respectively, stated at $4.25 per share...... 1,272,662 1,272,029
Treasury stock - 36,698 shares in 2002 and 2001, at cost................... (5,504,700) (5,504,700)
Accumulated other comprehensive income (loss), net......................... (67,307) 1,332,044
Additional paid-in capital................................................. 72,197,212 72,188,904
Deferred stock compensation................................................ (666,721) (1,079,610)
Retained deficit........................................................... (333,021,473) (145,108,866)
---------------- ---------------
Total stockholders' equity (deficit)............................... (265,366,491) (76,476,363)
---------------- ----------------
Total liabilities and stockholders' equity (deficit)............ $ 545,750,113 $ 577,913,866
================ ================



The accompanying notes are an integral part of these consolidated financial
statements.


F-5



HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------



2002 2001 2000
---------------- ---------------- ----------------
OPERATING REVENUES:
Wireless Personal Communications Services revenue..... $ 207,978,059 $ 115,905,619 $ 26,110,404
PCS equipment sales................................... 7,846,573 7,105,457 3,061,021
Basic local, long-distance and other landline......... 18,702,184 19,586,373 20,320,299
Network access........................................ 21,523,193 20,198,336 17,275,754
Equipment systems sales, information services,
Internet access and other .......................... 8,656,812 7,344,231 7,232,164
---------------- ---------------- ----------------
Total operating revenues.......................... 264,706,821 170,140,016 73,999,642
---------------- ---------------- ----------------

OPERATING EXPENSES:
Cost of PCS and other equipment sales................. 19,796,010 15,559,164 10,497,130
Cost of services (exclusive of items shown
separately below)................................... 183,200,584 115,168,420 41,471,586
Selling and marketing................................. 54,248,493 50,545,921 19,626,803
General and administrative (exclusive of items shown
separately below)................................... 56,613,033 42,961,821 25,636,741
Non-cash compensation expense......................... 412,889 1,149,179 852,718
Loss on sale of property and equipment................ 647,634 1,296,833 --
Depreciation and amortization......................... 49,303,211 26,148,564 13,057,587
Impairment of goodwill and impact of
acquisition-related deferred taxes.................. 13,222,180 -- --
---------------- ---------------- ----------------
Total operating expenses.......................... 377,444,034 252,829,902 111,142,565
---------------- ---------------- ----------------

OPERATING LOSS........................................... (112,737,213) (82,689,886) (37,142,923)
---------------- ---------------- ----------------

NONOPERATING INCOME (EXPENSE):
Interest expense, net................................. (63,369,224) (29,565,953) (12,193,821)
Subsidiary preferred stock dividends.................. (11,756,253) (10,929,852) (2,782,048)
Interest income, net.................................. 2,922,479 5,164,372 4,734,949
---------------- ---------------- ----------------
Total nonoperating income (expense)............... (72,202,998) (35,331,433) (10,240,920)
---------------- ---------------- ----------------

LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT
AND MINORITY INTEREST.................................. (184,940,211) (118,021,319) (47,383,843)

INCOME TAX (EXPENSE) BENEFIT............................. (1,160,192) (1,783,166) 895,576

MINORITY INTEREST IN LOSS................................ -- 983,883 2,301,344
---------------- ---------------- ----------------

LOSS BEFORE EXTRAORDINARY ITEM........................... (186,100,403) (118,820,602) (44,186,923)

EXTRAORDINARY LOSS, NET OF TAX BENEFIT
OF $261,863 in 2000.................................... -- -- (486,323)
---------------- ---------------- ----------------

NET LOSS................................................. $ (186,100,403) $ (118,820,602) $ (44,673,246)
================ ================ ================

Basic and diluted loss per share before extraordinary item $ (513.48) $ (329.59) $ (127.62)
Basic and diluted loss per share from extraordinary item. -- -- (1.41)
---------------- ---------------- ----------------
Basic and diluted net loss per share..................... $ (513.48) $ (329.59) $ (129.03)
================ ================ ================
Weighted-average common shares outstanding .............. 362,429 360,508 346,237
================ ================ ================


The accompanying notes are an integral part of these consolidated financial
statements.



F-6




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------




Accumulated Total
class A class B Other Additional Deferred Retained Stockholders
Common Common Treasury Comprehensive Paid-in Stock Option Earnings Equity
Stock Stock Stock Income Capital Compensation (Deficit (Deficit)
--------- --------- ------------ ------------- ------------- ------------ -------------- --------------
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)
========= ========== ============ ============= ============= ============ ============= ==============

Stock option
compensation
expense......... -- -- -- -- -- 412,889 -- 412,889
Exercise of
stock options... -- 633 -- -- 8,308 -- -- 8,941
Dividends paid.... -- -- -- -- -- -- (1,812,204) (1,812,204)
Comprehensive
Income (Loss):..
Net loss....... -- -- -- -- -- -- (186,100,403) (186,100,403)
Unrealized loss
on securities
available-for-
sale, net of
taxes of
$949,232.... -- -- -- (1,842,627) -- -- -- (1,842,627)
Unrealized gain
on hedging
activities,
net of tax.... -- -- -- 443,276 -- -- -- 443,276
--------- ----------- ------------ ------------- ------------- ------------ ------------- ---------------
Total
comprehensive
income loss.. -- -- -- (1,399,351) -- -- (186,100,403) (187,499,754)
--------- ----------- ------------ ------------- ------------- ------------ ------------- ---------------
Balance,
December 31, 2002 $423,836 $1,272,662 $(5,504,700) $ (67,307) $72,197,212 $ (666,721) $(333,021,473) $(265,366,491)
========= =========== ============ ============== ============= ============ ============== ===============



The accompanying notes are an integral part of these consolidated financial
statements.



F-7


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------





2002 2001 2000
--------------- --------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (186,100,403) $ (118,820,602) $ (44,673,246)
---------------- ---------------- ----------------
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities, net of effect of
acquisition:
Depreciation and amortization.......................... 49,303,211 26,148,564 13,057,587
Impairment of goodwill and impact of acquisition related
deferred taxes....................................... 13,222,180 -- --
Extraordinary loss, net................................ -- -- 486,323
Deferred federal income taxes.......................... 11,551,485 218,870 (261,786)
Deferred investment tax credits........................ -- (55,527) (69,635)
Non-cash compensation expense.......................... 412,889 1,149,179 852,718
Non-cash interest expense.............................. 28,023,852 19,363,149 5,635,498
Loss on disposal of property, plant and equipment...... 647,634 1,296,833 21,277
Non-cash preferred stock dividend of subsidiary........ 11,756,253 10,929,852 2,782,048
Minority interest in subsidiary........................ -- (983,883) (2,301,344)
Provision for bad debt expense......................... 16,077,356 7,344,007 2,487,170
Loss on hedging activities............................. 48,536 176,322 --
Decrease (Increase) in certain assets:
Accounts receivable.................................. (21,645,904) (16,981,192) (8,387,769)
Inventories.......................................... 175,149 244,763 (2,707,991)
Taxes applicable to future years, prepayments,
investments and other.............................. (2,514,270) 2,984,911 (2,864,492)
Increase (Decrease) in certain liabilities:
Accounts payable..................................... (5,441,120) 2,397,069 10,529,126
Payable to Sprint.................................... (334,267) -- --
Accrued liabilities and deferred PCS service revenue. 25,330,341 2,833,892 6,911,554
Other accrued liabilities............................ 1,606,073 4,432,226 18,086,085
Postretirement benefit obligation.................... 1,036,976 1,791,042 495,872
Change in other assets and liabilities, net............ (6,559,042) (1,252,091) (558,907)
---------------- ---------------- ----------------
Total adjustments.................................. 122,697,332 62,037,986 44,193,334
---------------- ---------------- ----------------
Net cash used in operating activities............
(63,403,071) (56,782,616) (479,912)
---------------- ---------------- ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (73,905,456) (132,506,210) (101,491,729)
Increase in restricted cash............................... -- (48,659,722) --
Proceeds from sale of fixed assets........................ 1,642,781 -- 834,000
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)
---------------- ---------------- ----------------
Net cash provided used in investing
activities................................... $ (72,262,675) $ (178,270,286) $ (96,762,926)
---------------- ---------------- ----------------

(Continued on next page)


F-8


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------




2002 2001 2000
---------------- ---------------- ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt........................... $ 135,000,000 $ 181,400,000 $ 185,321,607
Repayments on long-term debt........................... (27,167,337) (2,000,000) --
Exercise of stock options.............................. 8,941 -- 7,380
Issuance of preferred stock............................ -- -- 126,500,000
Deferred financing fees................................ (2,569,530) (7,433,469) (15,410,327)
Stock issuance costs................................... -- -- (9,161,242)
Treasury stock received as dividend.................... -- (4,311) --
Dividends paid......................................... (1,812,204) (1,767,088) (1,793,038)
---------------- ---------------- ----------------
Net cash provided by financing activities........ 103,459,870 170,195,132 285,464,380
---------------- ---------------- ----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (32,205,876) (64,857,770) 188,221,542
CASH AND CASH EQUIVALENTS, beginning of year.............. 127,154,227 192,011,997 3,790,455
---------------- ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year.................... $ 94,948,351 $ 127,154,227 $ 192,011,997
================ ================ ================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized................... $ 35,179,498 $ 8,705,947 $ 4,330,600
Income taxes (refund).................................. (2,954,948) 2,125,000 9,078,515



SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Horizon PCS paid $11,636,969 and $11,775,917 in 2002 and 2001,
respectively, of dividends on convertible preferred stock. The dividends were
paid in additional shares of convertible preferred stock of Horizon PCS. During
2002 and 2001, Horizon PCS accrued $2,055,267 and $1,935,983, respectively, to
be paid in 2003 and 2002, respectively.

The purchase of the Company's common stock in 2000 (Note 17) 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 16).

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 12).

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 18).

The accompanying notes are an integral part of these consolidated financial
statements.



F-9


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 1 - LIQUIDITY

As of December 31, 2002, Horizon PCS, Inc. ("Horizon PCS"), a subsidiary of
Horizon Telcom and a registrant that files separate statements with the
Securities and Exchange Commission, was in compliance with its covenants with
regards to all outstanding debt (approximately $516.3 million at December 31,
2002). However, the Company believes that it is probable that Horizon PCS will
violate one or more of its covenants under the secured credit facility in 2003.
Horizon PCS, represents approximately 82% of total consolidated revenues for the
year ended December 31, 2002 and 81% of the total consolidated assets at
December 31, 2002. The failure to comply with a covenant would be an event of
default under the secured credit facility, and would give the lenders the right
to pursue remedies against Horizon PCS. These remedies could include
acceleration of amounts due under the facility. If the lenders elected to
accelerate the amounts due under the facility, this would also represent a
default under the indentures for the senior notes and discount notes (Note 12).
As a result, Horizon PCS' independent auditors' report states these matters
raise substantial doubt about Horizon PCS' ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. Please refer to Horizon
PCS' 2002 10-K filing for more details.

Horizon PCS is currently in the process of negotiating various terms with
its creditors. Horizon Telcom, Chillicothe Telephone, Horizon Technology, and
Horizon Services are not obligated in any form to assist Horizon PCS in their
negotiations nor are they obligated to compensate any of Horizon PCS' creditors
should Horizon PCS default on any debt agreements. Defaults of covenants on debt
agreements of Horizon PCS will not result in defaults in any debt agreements or
other contractual obligation of Horizon Telcom or any of its subsidiaries.
Should Horizon PCS be unsuccessful in their discussions, the Company could
potentially revise the ownership structure in Horizon PCS. Should ownership of
our voting rights fall below 50% or otherwise lose control of Horizon PCS,
Horizon PCS may not be included in the consolidated results of Horizon Telcom.
This would have a significant impact on the presentation of operations of
Horizon Telcom.

To address the liquidity issues at Horizon PCS, management has embarked on
a number of initiatives to attempt to:

o reduce operating expenses;

o reduce churn;

o negotiate a modification in the fees Horizon PCS pays to Sprint;

o negotiate a reduction in the fees Horizon PCS pays to NTELOS;

o negotiate modifications to the covenants in the senior secured
facility; and

o negotiate the right to obtain funding under Horizon PCS' $95.0
million revolving line of credit under its senior secured
facility.

Horizon PCS' ability to raise funding at this time may be dependent upon
other factors including, without limitation, market conditions, and such funds
may not be available or be available on acceptable terms. There can be no
assurance that Horizon PCS will achieve these goals or that it will be able to
develop a business plan which is reasonably designed to achieve positive cash
flow.

Horizon PCS has engaged Berenson and Company, an investment banking firm
(the "Advisor") to assist in its efforts to renegotiate or restructure its debt
and other contractual obligations. Horizon PCS has agreed in principle with the
Advisor to have the Advisor formulate financial and other strategic business
alternatives. We cannot guarantee that the Advisor will be successful in
preparing and executing successful strategies.


F-10



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements reflect the operations
of the Company and its subsidiaries. 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 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
3).

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 materially
from those estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand, money market accounts, U.S.
treasury bills, corporate bonds and investments in commercial paper with
original maturities of three months or less.

The breakout of cash and cash equivalents at December 31, 2002 is detailed
below:

2002
----------------
Cash on hand................................... $ 20,454,044
Auction rate certificates...................... 5,850,000
Money market accounts.......................... 140,221
U.S. treasury bills............................ 349,696
Corporate bonds and commercial paper........... 68,154,390
----------------
Cash and cash equivalents.................. $ 94,948,351
================



F-11


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTRICTED CASH

In connection with Horizon PCS' December 2001 offering of $175,000,000 of
senior notes due in 2011 (Note 12), 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. During 2002,the
Company paid approximately $24,596,000, representing the first two installments.
The remaining two payments have been classified as short-term and will be paid
in 2003. The funds are invested in a government security money market account.
Interest earned on the escrow funds totaled approximately $673,000 in 2002 and
$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).

Inventories consist of the following at December 31:

2002 2001
--------------- ---------------
Equipment held for resale................ $ 4,204,296 $ 3,964,383
Materials, supplies and work in progress. 2,132,581 2,547,643
--------------- ---------------
Total inventories................... $ 6,336,877 $ 6,512,026
=============== ===============

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:

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 with unrealized gains and losses
reported in other comprehensive 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.
Trading securities are carried at fair value with unrealized holding gains and
losses reported in the statement of operations.

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 and "other than temporary" declines in
value.

F-12


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, including improvements that extend useful
lives, are stated at cost (Note 9) 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
and 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 $4,541,000, $6,813,000 and $1,731,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

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, 2002, the Company has
recorded regulatory assets and liabilities of approximately $63,000 and
$321,000, respectively. As of December 31, 2001, regulatory assets and
liabilities were approximately $331,000 and $303,000, 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. 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 $41,167,000, $19,803,000 and $10,100,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

In 2001, 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
$1,029,000 over a five-year period beginning January 1, 2001. Amortization and
recovery of the depreciation reserve deficiency was approximately $206,000 for
both 2002 and 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 in both 2002 and 2001, and $269,000 in 2000. The remaining unamortized
balance was approximately $63,000 and $330,000 as of December 31, 2002 and 2001,
respectively, and is included in other assets on the accompanying consolidated
balance sheets.


F-13


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEBT ISSUANCE COSTS

In connection with the issuance of long-term debt (Note 12), the Company
has incurred approximately $24,441,000 in deferred financing costs through
December 31, 2002, including approximately $2,570,000 during 2002. 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, 2002, 2001 and 2000, approximately $2,789,000, $1,139,000 and
$726,000 of amortization of debt issuance costs was included in interest
expense.

GOODWILL

On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and other
intangible assets" (Note 6). Prior to January 1, 2002, the Company amortized
goodwill on a straight line basis over a 20 year period. Under SFAS No. 142, the
Company ceased amortization of goodwill and conducted an impairment test of the
goodwill balance. As of January 1, 2002, the goodwill balance was deemed not to
be impaired. However, the December 31, 2002 goodwill balance was deemed impaired
and was written off during the fourth quarter of 2002. See Note 6 for further
details on the impairment of goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets such as property, plant and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in circumstances indicate that 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 estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell, and depreciation ceases.

Goodwill and intangible assets not subject to amortization are tested
annually for impairment. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value (Note 6).

During 2002, Horizon PCS launched switches in Tennessee and Pennsylvania
and disconnected some switching equipment in Chillicothe, Ohio. As a result,
approximately $6.2 million of switching equipment is considered an impaired
asset as defined by SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." Accordingly, depreciation and amortization expense for the
year ended December 31, 2002, includes approximately $3.5 million related to
accelerated depreciation on the impaired asset. The total amount of depreciation
recorded to date on this equipment is approximately $5.8 million. The residual
book value of $400,000 approximates fair market value at December 31, 2002,
based on quoted market prices and is included in other assets in the
accompanying balance sheet.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes derivative financial instruments to reduce interest
rate risk and not for trading or speculative purposes. Interest rate swap
agreements are used to hedge the exposure of the variable interest rates of
certain notes payable and are designed as cash flow hedges. The interest rate
swap agreements involve the periodic exchange of payments without the exchange
of the notional amount upon which the payments are based. The related amount
payable to or receivable from counter-parties is included as an adjustment to
accrued interest. The carrying amount of the interest swap agreements is
included in accrued liabilities, with the changes in carrying amounts recorded
as an adjustment to other comprehensive income, a component of retained deficit.
The Company also formally assesses, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged
items. When it


F-14


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

is determined that a derivative is not highly effective as a hedge or that it
has ceased to be a highly effective hedge, the Company discontinues hedge
accounting prospectively.

REVENUE RECOGNITION

Horizon PCS records equipment revenue from the sale of handsets and
accessories to subscribers in its retail stores and to local distributors in its
territories upon delivery. The Company does not record equipment revenue on
handsets and accessories purchased from or sold by national third-party
retailers or directly from Sprint by subscribers in its territory. After the
handset has been purchased, the subscriber purchases a service package, revenue
from which is recognized monthly as service is provided and is included in
subscriber revenue, net of credits related to the billed revenue. The Company
believes the equipment revenue and related cost of equipment associated with the
sale of wireless handsets and accessories is a separate earnings process from
the sale of wireless services to subscribers. For industry competitive reasons,
the Company sells wireless handsets at a loss. Because such arrangements do not
require a customer to subscribe to the Company's wireless services and because
the Company sells wireless handsets to existing customers at a loss, the Company
accounts for these transactions separately from agreements to provide customers
wireless service.

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
will be recorded over the average life for those customers (30 months) that are
assessed an activation fee. The Company recognized approximately $2,992,000,
$695,000 and $47,000 of both activation fee revenue and customer activation
expense during 2002, 2001 and 2000, respectively, and had deferred approximately
$6,093,000 and $3,809,000 of activation fee revenue and direct customer
activation expense at December 31, 2002 and 2001, respectively.

A management fee of 8% of collected PCS revenues from Sprint PCS
subscribers based in Horizon PCS' territory, is accrued as services are provided
and remitted to Sprint PCS and recorded as general and administrative expense.
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 Horizon PCS' territory are not subject to the 8%
affiliation fee. Expense related to the management fees charged under the
agreement was approximately $12,027,000, $5,923,000 and $1,302,000 for the years
ended December 31, 2002, 2001 and 2000 respectively.

The landline telephone services operating segment consists of basic local
and long-distance toll, network access services and other telephone service
revenue. All revenue is recognized monthly as service is provided.

Intra-LATA, (Local Access and Transport Area) (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.


F-15


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Other revenues include Internet access services, equipment systems sales
and information services. Internet access revenues are monthly service fees and
other charges billed to customers of Horizon Technology's bright.net dial-up
Internet service. Equipment systems sales and information services revenues
consist of sales made by Chillicothe Telephone to various businesses or other
residential customers for equipment used on the telephone system.

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 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.

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 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.

MINORITY INTEREST

As part of the acquisition of Bright Personal Communication Services, LLC
("Bright PCS") (Note 5), 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. 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.


F-16


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS

Costs related to advertising and other promotional expenditures are
expensed as incurred. Advertising costs totaled approximately $11,851,000,
$10,780,000 and $4,645,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.

STOCK-BASED COMPENSATION

The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations including FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation an interpretation of APB Opinion No. 25" issued in March 2000, to
account for its fixed plan stock options. Under this method, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" established accounting and disclosure requirements using a
fair value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS No. 148, the Company has elected to continue to apply
the intrinsic value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 148. The following table illustrates the
effect on net income if the fair-value-based method had been applied to all
outstanding and unvested awards in each period.





2002 2001 2000
--------------- --------------- ---------------
Net Loss
As reported.................................... $ (186,100,403) $ (118,820,602) $ (44,673,246)
Add: Stock-based employee compensation expense
included in reported net loss.................... 412,889 1,149,179 852,718
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards................................... (1,175,131) (1,813,939) (1,586,635)
--------------- -------------- --------------
Pro forma net loss............................. (186,862,645) (119,485,362) (45,407,163)
=============== =============== ===============
Basic and diluted loss per share
As reported.................................... $ (513.48) (329.59) $ (129.03)
Pro forma...................................... (515.58) (331.44) (131.14)
=============== =============== ===============



The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 148 and Emerging Issues Task Force
("EITF") Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counter-party's performance is complete or the date on which it is
probable that performance will occur.

SITE BONUSES

Horizon PCS has received approximately $8,000,000 (of which, approximately
$740,000 was received in 2001) for 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. During 2002, 2001 and 2000, Horizon PCS
recorded approximately $941,000, $916,000 and $320,000, respectively, as a
reduction to lease expense.


F-17


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

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 from
subscribers. Management believes the risk is limited due to the number of
customers comprising the Company's customer base and its geographic diversity.

A significant amount of Horizon PCS' financial transactions result from its
relationship with Sprint. Additionally, Sprint holds approximately four to
eleven days of Horizon PCS' subscriber lockbox receipts prior to remitting those
receipts to the Horizon PCS weekly. The Company does not record these cash
receipts until Sprint recruits them.

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 19), the stock purchase warrants (Note 18) and
the convertible preferred stock (Note 16). These items will be included in the
diluted earnings per share calculation when dilutive.


F-18


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an amendment of FASB Statement No. 123." This Statement provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement requires prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company adopted the
disclosure requirements of SFAS No. 148 as of December 31, 2002, but continues
to account for stock compensation costs in accordance with APB Opinion No. 25
(Note 19).

In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities by requiring that expenses related to the exit
of an activity or disposal of long-lived assets be recorded when they are
incurred and measurable. Prior to SFAS No. 146, these charges were accrued at
the time of commitment to exit or dispose of an activity. The Company will adopt
SFAS 146 on January 1, 2003, and it is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 addresses the accounting for gains and losses from
the extinguishments of debt, economic effects and accounting practices of
sale-leaseback transactions and makes technical corrections to existing
pronouncements. The Company will adopt SFAS No. 145 on January 1, 2003, and it
is not expected to have a material effect on the Company's financial position,
results of operations or cash flows.

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 the normal operation of a
long-lived asset. The Company will adopt this statement on January 1, 2003, and
it is not expected to have a material effect on the Company's financial
position, results of operations and cash flows.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform with the 2002
presentation.

UNION REPRESENTATION

At December 31, 2002, Horizon Telcom had approximately 15% of its work
force represented by a union. The current union contract is due to expire in the
fourth quarter of 2003. The company considers relations with all its employees
to be good.


F-19


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 3 - 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 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.

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.


F-20


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 3 - WIRELESS PERSONAL COMMUNICATIONS SERVICES (CONTINUED)

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,
2002, Horizon PCS was in compliance with these requirements or has obtained
appropriate waivers from Sprint PCS.

NOTE 4 - 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." These segments are wireless
personal communications services and landline telephone services. The wireless
personal communications services segment includes three major revenue streams:
PCS subscriber revenues, PCS roaming revenues and PCS equipment sales. The
landline telephone services segment includes four major revenue streams: basic
local service, long-distance service, network access and other related telephone
service.

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 below under the heading "All other."
Unallocated administrative expenses represent general and administrative
expenses incurred at a corporate level. All other assets represent common assets
not identified to an operating segment.

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.


F-21


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 4 - 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, 2002, 2001 and 2000, and assets as of December
31, 2002 and 2001, for each segment and reconciling items necessary to total to
amounts reported in the financial statements:





NET REVENUES
----------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services.... $ 215,824,632 $ 123,011,076 $ 29,171,425
Landline telephone services.................. 40,225,377 39,784,709 37,596,053
All other.................................... 8,656,812 7,344,231 7,232,164
----------------- ---------------- -----------------
Total net revenue.......................... $ 264,706,821 $ 170,140,016 $ 73,999,642
================= ================ =================

INTERCOMPANY REVENUES
----------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services.... $ 212,969 $ 292,628 $ 22,514
Landline telephone services.................. 1,356,589 1,331,912 644,321
All other.................................... 474,679 165,615 15,261
----------------- ---------------- -----------------
Total intercompany revenue................. $ 2,044,237 $ 1,790,155 $ 682,096
================= ================ =================

OPERATING EARNINGS (LOSS)
----------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services.... $ (113,045,622) $ (83,475,002) $ (40,308,311)
Landline telephone services.................. 15,411,463 16,120,785 15,113,485
All other.................................... (3,751,250) (2,931,280) (1,536,540)
Unallocated administrative expenses.......... (11,351,804) (12,404,389) (10,411,557)
----------------- ---------------- -----------------
Total operating loss....................... $ (112,737,213) $ (82,689,886) $ (37,142,923)
================= ================ =================

DEPRECIATION AND AMORTIZATION
----------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services.... $ 40,271,034 $ 18,518,948 $ 6,134,458
Landline telephone services.................. 6,841,399 6,294,037 6,313,846
All other.................................... 2,190,778 1,335,579 609,283
----------------- ---------------- -----------------
Total depreciation and amortization........ $ 49,303,211 $ 26,148,564 $ 13,057,587
================= ================ =================

CAPITAL EXPENDITURES
----------------------------------------------------------
2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services.... $ 63,082,910 $ 116,574,323 $ 83,562,958
Landline telephone services.................. 7,442,794 9,364,038 11,202,539
All other.................................... 3,379,752 6,567,849 6,726,232
----------------- ---------------- -----------------
Total capital expenditures, net............ $ 73,905,456 $ 132,506,210 $ 101,491,729
================= ================ =================

ASSETS
-------------------------------------
2002 2001
----------------- ----------------
Wireless personal communications services.... $ 443,116,762 $ 480,754,022
Landline telephone services.................. 83,258,131 90,951,437
All other.................................... 19,375,220 6,208,407
----------------- ----------------
Total assets............................... $ 545,750,113 $ 577,913,866
================= ================



F-22


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 4 - SEGMENT INFORMATION (CONTINUED)

Net operating revenues by product and services were as follows for the
years ended December 31:




2002 2001 2000
----------------- ---------------- -----------------
Wireless personal communications services:
PCS subscriber revenues................... $ 152,196,485 $ 77,365,343 $ 17,702,302
PCS roaming revenues...................... 55,781,574 38,540,276 8,408,102
PCS equipment sales....................... 7,846,573 7,105,457 3,061,021
----------------- ---------------- -----------------
Total wireless personal communications
services............................... 215,824,632 123,011,076 29,171,425
----------------- ---------------- -----------------

Landline telephone services:
Basic local service....................... $ 14,483,197 $ 14,510,003 $ 14,413,686
Long-distance toll........................ 1,153,767 1,476,034 2,512,901
Network access services................... 21,523,193 20,198,336 17,275,754
Other related telephone services.......... 3,065,220 3,600,336 3,393,712
----------------- ---------------- -----------------
Total landline telephone services........ 40,225,377 39,784,709 37,596,053
----------------- ---------------- -----------------

Other:
Internet access services.................. 3,113,522 3,130,885 3,625,452
Equipment systems sales................... 1,259,455 1,393,413 1,503,094
Other miscellaneous revenues.............. 4,283,835 2,819,933 2,103,618
----------------- ---------------- -----------------
Total other.............................. 8,656,812 7,344,231 7,232,164
----------------- ---------------- -----------------
Total operating revenues................. $ 264,706,821 $ 170,140,016 $ 73,999,642
================= ================ =================


NOTE 5 - ACQUISITIONS

During 1999, Horizon PCS entered into a joint venture agreement through the
purchase of 25.6% of Bright Personal Communications Services, LLC ("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 17). 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 is being amortized over 20 years, the initial term of the underlying
management agreement. Amortization commenced in June 2000.


F-23


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 5 - ACQUISITIONS (CONTINUED)

The purchase price exceeded the fair market value of the net assets
acquired by approximately $7,778,000. The resulting goodwill was 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 at December 31, 2002. The Company adopted SFAS No. 142 on
January 1, 2002. As a result of the adoption, goodwill amortization ceased as of
December 31, 2001, and the Company is now required to complete an impairment
test of the remaining goodwill balance annually (or more frequently if
impairment indicators arise). On December 31, 2002 the Company completed its
annual impairment test of goodwill and recorded an impairment charge for the
full amount of unamortized goodwill as a result of this acquisition. As required
by SFAS 109, goodwill should be increased for the deferred taxes arising from
assets recorded in excess of their tax basis for an acquisition. This amounted
to $6,031,000 for this acquisition and accordingly the goodwill impairment of
$13,232,180 included such amounts.

NOTE 6 - GOODWILL AND INTANGIBLE ASSETS

During 1999, the Company entered into a joint venture agreement through the
purchase of 25.6% of Bright PCS. On June 27, 2000, the Company acquired the
remaining 74.4% of Bright PCS. The total purchase price was approximately
$49,300,000 and was treated as a purchase method acquisition for accounting
purposes. The purchase price exceeded the fair market value of the net assets
acquired by approximately $7,778,000. The resulting goodwill was amortized on a
straight-line basis over 20 years until December 31, 2001.

The Company adopted SFAS No. 142 on January 1, 2002. As a result of the
adoption, goodwill amortization ceased as of December 31, 2001, and the Company
was required to complete an impairment test on its remaining goodwill balance as
of the date of adoption. The Company completed the first step required by SFAS
No. 142 and determined the goodwill remaining at January 1, 2002, was not
impaired.

On December 31, 2002, Horizon PCS performed the annual valuation assessment
of goodwill. This valuation determined that the carrying amount of the goodwill
exceeded the fair value of the assets. As a result the Company recorded goodwill
impairment of $13,222,180, related to the impairment of goodwill and impact of
acquisition-related deferred taxes. The impairment eliminated the entire balance
of goodwill as of December 31, 2002. Fair value was measured based on projected
discounted future operating cash flows using a discount rate reflecting the
Company's average cost of funds.

The following pro forma disclosure reconciles net loss available to common
stockholders, as presented on the accompanying consolidated statements of
operations, excluding the effect of goodwill amortization:




YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2002 2001 2000
---------------- ------------------ -----------------
Reported net loss.................................. $ (186,100,403) $ (118,820,602) $ (44,673,246)
Goodwill amortization.............................. -- 388,887 197,685
---------------- ------------------ -----------------
Adjusted net loss.............................. (186,100,403) (118,431,715) (44,475,561)

Basic and diluted net loss per share............... (513.48) (329.59) (129.03)
Goodwill amortization.............................. -- 1.08 0.57
---------------- ------------------ -----------------
Adjusted basic and diluted net loss per share.. (513.48) (328.51) (128.46)


In conjunction with the acquisition discussed in Note 5, the Company
recognized an intangible asset totaling approximately $33,000,000 related to the
licensing agreement which will be amortized on a straight line basis over 20
years, the initial term of the underlying management agreement. In addition, the
Company agreed to grant Sprint warrants to acquire shares of common stock in
exchange for the right to service additional PCS markets. These warrants were
recorded as an intangible asset of approximately $13,356,000 (Note 18) and are
being amortized on a straight line basis over approximately 18 years. The
breakout of these intangible assets is detailed below:

F-24


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 6 - GOODWILL AND INTANGIBLE ASSETS (CONTINUED)





SPRINT LICENSES SPRINT WARRANTS
---------------------------------- -------------------------------
2002 2001 2002 2001
---------------- ---------------- --------------- --------------
Gross intangible value.................... $ 33,000,000 $ 33,000,000 $ 13,355,647 $ 13,355,647
Amortized expense recognized.............. (1,706,897) (1,706,897) (752,436) (752,436)
Beginning accumulated amortization........ (2,574,569) (867,672) (940,544) (188,108)
-------------- --------------- --------------- -------------
Net intangible value.................... $ 28,718,534 $ 30,425,431 $ 11,662,667 $ 12,415,103
=============== =============== =============== =============


Estimated amortization expense for the next five years is approximately
$2,459,000 each year.

NOTE 7 - 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,
2002. The fair value of the shares at December 31, 2002 and 2001, was $745,860
and $3,537,720, respectively. The cost of the investment was $250,000. An
unrecognized loss of $1,842,627, net of tax of $949,232, has been recorded in
other comprehensive income at December 31, 2002, offsetting an unrecognized gain
of $2,169,895 (net of related tax of $1,117,825) recorded for the year ended
December 31, 2001.

As part of the term loan facility for the construction of the personal
communications network (Note 12), 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-25


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 8- ACCOUNTS RECEIVABLE ALLOWANCE

Estimates are used in determining our allowance for doubtful accounts
receivable, which is based on a percentage of our accounts receivable by aging
category. The percentage is derived by considering our historical collections
and write-off experience, current aging of our accounts receivable and credit
quality trends, as well as Sprint's credit policy. The breakout of the activity
recorded to the allowance for accounts receivable is detailed below:




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, 2000............ $ 911 $ 1,891 $ (1,001) $ 1,801
============== ============== ============== ==============

Year Ended December 31, 2001............ $ 1,801 $ 6,936 $ (6,075) $ 2,662
============== ============== ============== ==============

Year Ended December 31, 2002............ $ 2,662 $ 15,544 $ (15,552) $ 2,654
============== ============== ============== ==============

ALLOWANCE FOR DOUBTFUL ACCOUNTS
RECEIVABLE-INTEREXCHANGE CARRIERS
AND OTHER
Year Ended December 31, 2000............ $ 67 $ 25 $ (2) $ 90
============== ============== ============== ==============

Year Ended December 31, 2001............ $ 90 $ 408 $ (20) $ 478
============== ============== ============== ==============

Year Ended December 31, 2002............ $ 478 $ 533 $ (797) $ 214
============== ============== ============== ==============
- -----------------


(1) Represents amounts written off during the period, less recoveries of
amounts previously written off.

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following at December 31:




2002 2001
--------------- ---------------
Network assets......................................... $ 293,825,031 $ 220,849,771
Switching equipment.................................... 63,294,413 35,253,986
Land and buildings..................................... 15,856,491 15,223,363
Computer and telecommunications equipment.............. 13,369,767 14,292,341
Furniture, vehicles and office equipment............... 12,518,760 12,477,119
--------------- ---------------
Property, plant and equipment in-service, at cost.... 398,864,462 298,096,580
Accumulated depreciation............................... (99,376,895) (68,604,457)
--------------- ---------------
Property, plant and equipment in-service, net..... 299,487,567 229,492,123
Construction work in progress.......................... 16,433,540 59,785,097
--------------- ---------------
Total property, plant and equipment, net..... $ 315,921,107 $ 289,277,220
=============== ===============


During 2002 and 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 $631,417 and
$1,296,834, respectively.


F-26


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 10 - SPRINT AGREEMENTS

Under the Sprint Agreements, Sprint provides the Company significant
support services such as billing, collections, long distance, customer care,
network operations support, inventory logistics support, use of the Sprint and
Sprint PCS brand names, national advertising, national distribution and product
development. Additionally, the Company derives substantial roaming revenue and
expenses when Sprint's and Sprint's network partners' PCS wireless subscribers
incur minutes of use in the Company's territories and when the Company's
subscribers incur minutes of use in Sprint and other Sprint network partners'
PCS territories. These transactions are recorded in roaming revenue, cost of
service, cost of equipment and selling and marketing expense captions in the
accompanying consolidated statements of operations. Cost of service and roaming
transactions include, long distance charges, roaming expense and the costs of
services such as billing, collections, and customer service and other
pass-through expenses. Cost of equipment transactions relate to inventory
purchased by the Company from Sprint under the Sprint Agreements. Selling and
marketing transactions relate to subsidized costs on handsets and commissions
paid by the Company under Sprint's national distribution program. The 8%
management fee is included in general and administrative. Amounts recorded
relating to the Sprint Agreements for the years ended December 31, 2002, are
approximately as follows:

TOTAL REVENUES AND EXPENSES PROVIDED BY
SPRINT AGREEMENTS 2002
------------------------------------------------------- ---------------
Roaming revenue.................................... $ 51,688,000
===============

Cost of Service:
Roaming............................................. $ 40,883,000
Billing and customer care........................... 20,587,000
Long distance....................................... 10,470,000
---------------
Total cost of service.............................. 71,940,000
Selling and marketing................................ 2,566,000
General and administrative:
Management fee...................................... 12,027,000
---------------
Total expense..................................... $ 86,533,000
===============

The Sprint Agreements require the Company to maintain certain minimum
network performance standards and to meet other performance requirements. The
Company was in compliance in all material respects with these requirements at
December 31, 2002.

NOTE 11 - LINES OF CREDIT

On December 15, 2002, Chillicothe Telephone entered into an agreement with
Huntington National Bank for a line of credit that provides maximum borrowings
of $15,000,000, payable on demand. Interest accrues on the outstanding balance
at a fluctuating rate tied to LIBOR and is due and payable monthly. At December
31, 2002, the interest rate on the line of credit was 2.92%. As of December 31,
2002, Chillicothe Telephone had not used this line of credit. The line of credit
contains several covenants requiring minimum tangible net worth, a fixed charge
coverage ratio, a funded debt to consolidated total capitalization ratio and an
interest coverage ratio. As of December 31, 2002, Chillicothe Telephone was in
compliance with these covenants.

During 2000, Chillicothe Telephone entered into an agreement with
Huntington National 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. On August 14, 2002, this line of
credit expired when it was repaid in full with proceeds from the $30,000,000,
6.64% senior notes (Note 12).


F-27


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 11 - LINES OF CREDIT (CONTINUED)

On September 26, 2000, the Company entered into a $95,000,000 line of
credit that expires on September 30, 2008, as part of its senior secured credit
facility agreement (Note 12). As of December 31, 2002, the Company had not
borrowed on this line of credit.

As discussed in Note 12 below, Horizon PCS did not meet the covenant for
earnings before interest, taxes, depreciation and amortization for the first
quarter of 2002. Horizon PCS obtained a waiver of non-compliance and entered
into an amendment of the secured credit facility. This amendment restricted the
maximum amount available to be borrowed for certain periods (Note 15).

NOTE 12 - LONG-TERM DEBT

The components of long-term debt outstanding are as follows:





INTEREST RATE AT DECEMBER 31, DECEMBER, 31,
DECEMBER 31, 2002 2002 2001
------------------ ---------------- ----------------
Horizon PCS:
Discount notes........................... 14.00% $ 295,000,000 $ 295,000,000
Senior notes............................. 13.75% 175,000,000 175,000,000
Secured credit facility-term loan A...... 5.40% 105,000,000 --
Secured credit facility-term loan B...... 6.33% 50,000,000 50,000,000
Chillicothe Telephone:
2002 Senior Notes........................ 6.64% 30,000,000 --
1998 Senior Notes........................ 6.72% 12,000,000 12,000,000
1993 Senior Notes........................ 6.72% -- 8,000,000
--------------- --------------
Long-term debt, par value............. 667,000,000 540,000,000
Less: Unaccreted interest portion of
Horizon PCS discount notes.......... (108,715,651) (135,944,357)
Less: Current maturities................. -- (2,000,000)
--------------- ---------------
Total long-term debt................ 558,284,349 402,055,643



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 was 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



F-28


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 12 - LONG-TERM DEBT (CONTINUED)

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 16). 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 issuance of the convertible
preferred stock (Note 16) 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 11, 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
400 to 450 basis points. 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, 2002, the outstanding
balance on the secured credit facility was $155,000,000. Horizon PCS pays a
commitment fee of 1.375% on the unused portion of the $250,000,000 note. Amounts
recorded relating to this commitment fee expense for the year ended December 31,
2002, are as follows:

2002
---------------
Secured credit facility - term loan A......... $ 325,000
Line of credit................................ 1,324,000
---------------
Total commitment fee expense.............. $ 1,649,000
===============

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, December 2001 and June 2002, Horizon PCS amended its secured
credit facility with the bank group. These modifications amended and restated
certain financial covenants.

In August 2002, Chillicothe Telephone issued $30,000,000 of 6.64% senior
notes ("2002 Senior Notes") due in full July 1, 2012. The proceeds of the
offering were used to retire both the short-term line of credit with Huntington
National Bank and the non-current portion of Chillicothe Telephone's 1993 Senior
Notes ("1993 Senior Notes"). The 1993 Senior Notes were issued in November 1993
- - $6,000,000 and $4,000,000 to insurance companies. The 1993 Senior Notes were
set to make annual principle payments of $2,000,000, which began in 2001 and
were to continue through 2005. The current portion of the 1993 Senior Notes was
repaid on November 1, 2002. The remaining funds were used for general corporate
purposes.

On November 12, 2002, Chillicothe Telephone amended and restated its 1998
$12,000,000 senior notes due 2018. The interest rate on the amended notes is
6.72%, an increase of 10 basis points, with the same maturity date as the 1998
Senior Notes. Chillicothe Telephone refinanced its 1998 Senior Notes in order to
align the debt covenants of those notes with the covenants of the 2002 Senior
Notes, which are less restrictive then the covenants of the original 1998 Senior
Notes. Annual principal payments of $1,200,000 begin in 2009 and continue until
2018. The interest rate on the outstanding balance at December 31, 2002, was
6.72%.


F-29


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 12 - LONG-TERM DEBT (CONTINUED)

The 2002 and 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, 2002, Chillicothe Telephone was
in compliance with such covenants.

Scheduled maturities of long-term debt outstanding at December 31, 2002,
are as follows:

YEAR AMOUNT
--------------
2003....................................... --
2004....................................... $ 8,250,000
2005....................................... 20,187,500
2006....................................... 26,750,000
2007....................................... 28,062,500
Thereafter................................. 583,750,000
--------------
Total maturities of long-term debt....... 667,000,000
Less: current maturities................... --
Less: Unaccreted interest portion of
long-term debt........................... (108,715,651)
--------------
Total long-term debt................... $ 558,284,349
==============

As of December 31, 2002, Horizon PCS had $95.0 million committed under the
Company's secured credit facility in the form of a line of credit at a variable
interest rate equal to the London Interbank Offered Rate ("LIBOR") plus 400
basis points (Notes 11 and 15).

Horizon PCS' secured credit facility includes financial covenants that must
be met each quarter. The Company did not meet the covenant for earnings before
interest, taxes, depreciation and amortization ("EBITDA") for the first quarter
of 2002. As a result of higher than expected gross and net additions to Horizon
PCS subscribers for that quarter, the Company incurred additional expenses to
add those customers. Although the Company ultimately benefits from the revenues
generated by new subscribers, the Company 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 EBITDA in the short-term during the period of the addition of
new subscribers, which led to non-compliance with the EBITDA covenant for the
first quarter of 2002.

On June 27, 2002, the Company obtained a waiver of the non-compliance with
the EBITDA covenant for the first quarter of 2002 and entered into an amendment
of the secured credit facility. The amended facility primarily adjusts certain
financial covenants and increases the margin on the base interest rate by 25
basis points, while also providing for the payment of fees to the banking group,
an increase in post-default interest rates, a new financial covenant regarding
minimum available cash, additional prepayment requirements, restrictions on the
Company's borrowings committed under the remaining $95.0 million revolving
credit facility and deposit requirements on the use of the $105.0 million
borrowed under the secured credit facility in March 2002 (Note 15).

As of December 31, 2002, Horizon PCS was in compliance with the amended
covenants under each agreement, therefore, debt was classified as long-term.
However as described in Note 1, Horizon PCS believes it is probable that it will
violate one or more of its covenants during 2003. If Horizon PCS violates a
covenant, is declared to be in default of the credit agreement, and does not
cure the default, then the debt will be reclassified to current liabilities.


F-30


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES

The Company's Federal income tax expense (benefit) consists of the
following for the years ended December 31:




2002 2001 2000
---------------- ---------------- ----------------
Current........................................ $ (2,126,867) $ 1,433,572 $ (564,155)
Deferred....................................... 3,316,349 405,121 (261,786)
Investment tax credit.......................... (29,290) (55,527) (69,635)
---------------- ---------------- ----------------
Income tax expense (benefit) before
extraordinary item......................... 1,160,192 1,783,166 (895,576)

Extraordinary loss:
Current payable.............................. -- -- (261,863)
---------------- ---------------- ----------------
Total tax expense (benefit).............. $ 1,160,192 $ 1,783,166 $ (1,157,439)
================ ================ ================


The income tax expense from continuing operations varies from the statutory
rate as follows for the years ended December 31:




2002 2001 2000
---------------- ---------------- ----------------
Tax at statutory rate applied to pretax book loss $ (62,879,672) $ (40,127,248) $ (16,110,507)
Increase (decrease) in tax from:
Investment tax credit.......................... (29,290) (55,527) (69,635)
Change in valuation allowance.................. 53,399,909 37,163,536 2,385,097
Goodwill impairment............................ 4,495,519 -- --
Non-deductible goodwill amortization........... -- 444,227 302,968
Tax on interest on warrants.................... -- 695,627 177,210
Non-deductible interest........................ 2,221,649 -- --
Stock option compensation...................... -- 241,044 171,571
Tax on excess loss account..................... -- -- 11,463,395
Non-deductible subsidiary dividend............. 3,997,126 3,716,150 945,896
Other, net..................................... (45,049) (294,643) (161,571)
---------------- ---------------- ----------------
Total tax expense (benefit).................. $ 1,160,192 $ 1,783,166 $ (895,576)
================ ================ ================


F-31



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES (CONTINUED)

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:




2002 2001
---------------- ----------------
Deferred income tax assets:
Uncollectible accounts.................. $ 879,910 $ 1,030,600
Accrued vacation........................ 627,803 472,708
Pensions and other retirement benefits.. 2,409,408 1,106,912
Net operating loss carryforward......... 99,465,755 36,089,387
Deferred gain on sale of fixed assets... 932,068 1,274,886
Deferred income......................... 1,716,405 2,285,961
Interest expense........................ 14,690,303 9,523,013
Unrealized loss on hedging activity..... 210,607 284,869
Other................................... 3,222,002 --
---------------- ----------------
Total deferred income tax assets...... 124,154,261 52,068,336
---------------- ----------------

Deferred income tax liabilities:
Property and equipment.................. (32,251,907) (14,498,936)
Unrealized gain on securities........... (168,593) (1,117,825)
Sprint PCS Licenses..................... (6,273,286) --
Other................................... (5,355,002) (1,496,497)
---------------- ----------------
Total deferred income tax liabilities. (44,048,788) (17,113,258)
---------------- ----------------

Deferred income taxes, net.......... 80,105,473 34,955,078
Less: valuation allowance........... (95,339,882) (39,587,235)
---------------- ----------------

Total deferred income taxes, net.. $ (15,234,409) $ (4,632,157)
================ ================


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 $95,339,882 and $39,587,235 as of December 31, 2002 and
2001, 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, 2002, Horizon PCS
has NOL carryforwards of approximately $293,000,000, expiring in 2021 thru 2022.
The future tax benefit of these NOL carryforwards of approximately $99,000,000
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 or other deferred tax assets until such time as its operations become
profitable and, accordingly, has recognized valuation allowance of $95,339,882.

F-32


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES (CONTINUED)

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 5), 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 14 - 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 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.


F-33


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 14 - PENSION PLANS AND OTHER RETIREMENT BENEFITS (CONTINUED)

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, 2002 and 2001, is as follows:





PENSION BENEFITS OTHER BENEFITS
-------------------------- -------------------------
2002 2001 2002 2001
------------ ------------- ------------ ------------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year............. $ 15,133 $ 14,235 $ 10,410 $ 5,624
Service cost.................................... 477 390 584 359
Interest cost................................... 1,077 1,044 651 609
Actuarial loss.................................. 1,325 34 977 4,111
Benefits paid................................... (715) (570) (328) (293)
Change in plan provisions....................... -- -- -- --
------------ ------------- ------------ ------------
Benefit obligation, end of year................... 17,297 15,133 12,294 10,410


CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year...... 18,599 19,380 -- --
Actual return on plan assets.................... (1,658) (229) -- --
Employer contributions.......................... 18 18 328 293
Benefits paid................................... (715) (570) (328) (293)
------------ ------------- ------------ ------------
Fair value of plan assets, end of year............ 16,244 18,599 -- --
------------ ------------- ------------ ------------
Funded status..................................... (1,053) 3,466 (12,294) (10,410)
Unrecognized transition obligation.............. (35) (35) 2,763 2,994
Unrecognized prior service cost................. 950 1,043 1,942 2,154
Unrecognized actuarial (gain) or loss........... 4,795 (20) 483 (494)
------------ ------------- ------------ ------------
Prepaid (accrued) benefit cost.................... $ 4,657 $ 4,454 $ (7,106) $ (5,756)
------------ ------------- ------------ ------------


WEIGHTED AVERAGE ASSUMPTION AT DECEMBER 31:
Discount rate..................................... 6.75% 7.25% 6.50% 6.50%
Expected return on plan assets.................... 8.50% 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 10.0% in 2002, 8.0% in 2001,
and 7.0% in 2000, 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 10.0% in 2002, 7.0% in 2001 and 6.5% in 2000, 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
5.8% in 2002, 6.0% in 2001, 2000, declining gradually to 5.0% for retirees and
their spouses. The telephone service benefit cost trend rate for retirees and
their spouses in 2002, 2001, and 2000 was estimated at 5.0% for all future
years.


F-34


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 14 - PENSION PLANS AND OTHER RETIREMENT BENEFITS (CONTINUED)




PENSION BENEFITS OTHER BENEFITS
-------------------------------- -------------------------------
2002 2001 2000 2002 2001 2000
---------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost......................... $ 476 $ 390 $ 343 $ 584 $ 359 $ 163
Interest cost........................ 1,077 1,044 1,015 651 608 399
Expected return on plan assets....... (1,357) (1,907) (1,785) -- -- --
Amortization of transition obligation -- -- -- 230 230 230
Amortization of prior service cost... 93 93 73 212 212 --
Recognized net actuarial loss........ 1 (22) (50) -- (100) (128)
---------- --------- --------- --------- --------- ---------
Net periodic benefit cost.......... $ 290 $ (402) $ (404) $ 1,677 $ 1,309 $ 664
========== ========= ========= ========== ========= =========


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 POINT
INCREASE DECREASE
------------- -------------
(IN THOUSANDS)
Effect on total of service and interest cost components............. $ 284 $ (222)
Effect on postretirement benefit obligation......................... 2,213 (1,844)



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 $486,000
for 2002 and $425,000 for 2001, and is included in general and administrative
expenses in the consolidated statements of operations. Contributions under the
prior defined contribution plans for 2000 was approximately $203,000.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

SPRINT 3G DEVELOPMENT FEES

Recently, Sprint increased service fees in connection with its development
of 3G-related back-office systems and platforms. Horizon PCS, along with other
PCS affiliates of Sprint, is currently disputing the validity of Sprint's right
to pass through this fee to the affiliates. If this dispute is resolved
unfavorably to Horizon PCS, then Horizon PCS will incur additional expenses. As
of December 31, 2002, Horizon PCS has not recorded or paid amounts billed by
Sprint for 3G development costs of approximately $591,000.

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 tower leases are operating leases with a term of
five to ten years with three consecutive five-year renewal option periods.


F-35


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Horizon PCS also leases space for its retail stores. At December 31, 2002,
Horizon PCS leased 43 of its 44 retail stores operating throughout its
territories.

Future minimum operating lease payments are as follows:

YEAR AMOUNT
---- -----------
2003....................................... 18,646,000
2004....................................... 16,799,000
2005....................................... 13,571,000
2006....................................... 8,419,000
2007....................................... 3,440,000
Thereafter................................. 7,027,000
-----------
Future operating lease obligation.......... $67,902,000
===========

Rental expenses for all operating leases were approximately $18,625,000,
$11,347,000 and $5,539,500 for the years ended December 31, 2002, 2001 and 2000,
respectively.

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.

On July 3, 2002 the Federal Communications Commission (the "FCC") issued an
order in Sprint v. AT&T for declaratory judgment holding that PCS wireless
carriers could not unilaterally impose terminating long distance access charges
pursuant to FCC rules. This FCC order did not preclude a finding of a
contractual basis for these charges, nor did it rule whether or not Sprint had
such a contract with carriers such as AT&T. This case has been remanded to a
U.S. District Court for further proceedings. Because the case is still pending
the Company cannot predict, with certainty, the final outcome of this action. As
a result, the Company recorded a reduction in revenue in the second quarter of
2002 of approximately $1.3 million representing previously billed and recognized
access revenue. The Company plans to cease recognition of this type of revenue
in future quarters, unless there is ultimately a favorable ruling by the courts
or the FCC on this issue. Sprint has asserted the right to recover these
revenues from the Company. The Company will continue to assess the ability of
Sprint or other carriers to recover these charges. The Company is also
continuing to review the availability of defenses it may have against Sprint's
claim to recover these revenues from the Company.


F-36


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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.

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 through December 31, 2003 is
$38,600,000. Total costs incurred, for both fixed and variable charges from the
NTELOS agreement, were approximately $33,036,000 for the year ended December 31,
2002.

On March 4, 2003, NTELOS announced that it and certain of its subsidiaries
have filed voluntarily petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code in the U.S. Bankruptcy Court for the Eastern District of
Virginia. The results of NTELOS' restructuring could have a material adverse
impact on our operations. Pursuant to bankruptcy law, the Alliances have the
right to assume or reject the network services agreement. If the Alliances
reject the network services agreement, we will lose the ability to provide
service to our subscribers in Virginia and West Virginia and will be in breach
of our management agreements with Sprint.

LONG-TERM DEBT COVENANTS

As discussed in Note 12 above, Horizon PCS entered into a covenant
amendment under its secured credit facility in June 2002. In addition to a
number of changes to the secured credit facility, including an increase in the
margin on the base interest rate, this amendment placed restrictions on the
Company's ability to draw on the $95.0 million line of credit and deposit
requirements on the $105.0 million term loan A borrowed under the secured credit
facility in March 2002. These amounts are summarized below.

The following table details the maximum amount available to be borrowed on
the line of credit for the period then ended:

MAXIMUM AMOUNT
AVAILABLE TO BE
BORROWED
---------------
December 31, 2002...................... --
March 31, 2003......................... --
June 30, 2003.......................... 16,000,000
September 30, 2003..................... 26,000,000
December 31, 2003...................... 33,000,000
March 31, 2004......................... 52,000,000
April 1, 2004.......................... 95,000,000


F-37


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The following table details the minimum balance requirements placed on cash
and cash equivalents under the amended terms of the secured credit facility:

DEPOSIT BALANCE
REQUIREMENT
----------------
December 31, 2002.............................. 55,000,000
January 1, 2003, through February 15, 2003..... 33,000,000
February 16, 2003, through March 31, 2003...... 11,000,000
April 1, 2003, through May 15, 2003............ 5,500,000

NOTE 16 - 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. Through December 31, 2002, Horizon
PCS paid a cumulative total $23,412,886 of dividends in additional shares of
convertible preferred stock. At December 31, 2002, there were 30,432,329 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 12, 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,
2002, Horizon PCS was in compliance with the covenants under the agreement.


F-38


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 17 - COMMON STOCK AND TREASURY 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 5). 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 18 - SPRINT PCS WARRANTS

Horizon PCS agreed to grant to Sprint 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 had substantially
completed its obligations under the agreement and Horizon PCS completed the
required purchase of certain Sprint 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 management agreement resulting in approximately
$752,000 of amortization expense per year. 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.

NOTE 19 - 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 4,196,883 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.


F-39


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 19 - STOCK OPTION PLANS (CONTINUED)

A summary of the status of the Company's plans for the years ended December
31, 2002, 2001 and 2000, follows:





HORIZON TELCOM HORIZON PCS
-------------------- -------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
CLASS B EXERCISE CLASS A EXERCISE CLASS B EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- --------- --------- --------- --------- ---------
December 31, 1999.. 950 60.00 -- -- 4,196,883 0.12
Granted.......... -- -- 116,971 5.88 -- --
Exercised........ (123) 60.00 -- -- -- --
Forfeited........ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
December 31, 2000.. 827 60.00 116,971 5.88 4,196,883 0.12
Granted.......... -- -- -- -- -- --
Exercised........ -- -- -- -- -- --
Forfeited........ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
December 31, 2001.. 827 $ 60.00 116,971 $ 5.88 4,196,883 $ 0.12
Granted.......... -- -- 200,000 5.60 -- --
Exercised........ (149) 60.00 -- -- -- --
Forfeited........ -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
December 31, 2002.. 678 60.00 316,971 5.70 4,196,883 0.12
========= ========= ========= ========= ========= =========


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
$413,000, $424,000 and $674,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

The per share weighted-average fair value of stock options granted during
2002 and 2000 was $5.02 and $4.75 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions: 2002 -
expected dividend yield 0%, risk-free interest rate of 5%, volatility of 95% and
an expected life of 10 years; 2000 - expected dividend yield 0%, risk-free
interest rate of 5.5%, volatility of 95% and an expected life of 10 years.




OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -------------------------------
WEIGHTED
WEIGHTED- AVERAGE
AVERAGE REMAINING WEIGHTED-
RANGE OF EXERCISE CONTRACTUAL AVERAGE
EXERCISE PRICE NUMBER PRICE LIFE NUMBER EXERCISE PRICE
---------------- -------------- -------------- -------------- -------------- ---------------
HPCS
---------------- -------------- -------------- -------------- -------------- ---------------
$ 0.12 (1) 4,196,883 $ 0.12 5.88 2,804,648 $ 0.12
$5.60 - 5.88 (2) 316,971 5.70 8.58 51,175 5.88
-------------- -------------- -------------- -------------- ---------------
4,513,854 $ 0.51 6.07 2,855,823 0.22
============== ============== ============== ============== ===============

TELCOM
----------------
$ 60.00 678 $ 60.00 6.88 499 $ 60.00
============== ============== ============== ============== ===============

- ---------------------
(1) Horizon PCS Class B common stock.
(2) Horizon PCS Class A common stock.




F-40


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 20 - 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 21 - 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, 2002.

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, 2002. The
fair values of the fixed-rate 2002 Senior Notes, the 1998 Senior Notes and the
Horizon PCS senior notes and 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, 2002......... $ 68,500,000 $ 403,300,000
December 31, 2001......... 162,000,000 179,000,000

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 12) 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 gain of approximately $443,000 and a loss of approximately
$838,000 was recorded in other comprehensive income (loss) during the year ended
December 31, 2002 and 2001, respectively. The Company also recognized a loss in
the consolidated statements of operations of approximately $49,000 and $176,000,
during 2002 and 2001, respectively, 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 accrued liabilities
in the accompanying consolidated balance sheets of approximately $619,000 and
$1,014,000 at December 31, 2002, and 2001, respectively, related to the swaps.
The swaps mature in the first and third quarters of 2003.


F-41


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 22 - SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

The quarterly results of operations for the years ended December 31, 2002
and 2001:




FOR THE THREE MONTHS ENDED
------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------------- --------------- --------------- --------------
(Dollars in thousands except per share data)
Fiscal Year 2002:
Total revenues............................. $ 59,408 $ 65,272 $ 68,190 $ 71,837
Operating loss............................. (23,282) (24,456) (23,928) (41,071)
Impairment of goodwill and impact of
acquisition-related deferred taxes..... -- -- -- (13,222)
Net loss................................... (39,093) (43,621) (43,164) (60,222)
Basic and diluted net loss per share....... $ (107.89) $ (120.36) (119.08) $ (166.15)

Fiscal Year 2001:
Total revenues............................. $ 30,633 $ 35,755 $ 47,364 $ 56,388
Operating loss............................. (13,660) (20,051) (21,181) (27,798)
Net loss................................... (19,751) (28,724) (30,471) (39,875)
Basic and diluted net loss per share ...... $ (55.62) $ (79.28) $ (84.10) $ (110.59)






F-42


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