DIGITAL TELEVISION SERVICES INC, 10-K405, 1998-03-23

DIGITAL TELEVISION SERVICES INC
10-K405, 1998-03-23
CABLE & OTHER PAY TELEVISION SERVICES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year ended December 31, 1997

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to
__________

333-36217
333-36217-01
Commission file number

DIGITAL TELEVISION SERVICES, INC.
DTS CAPITAL, INC.
(Exact Name of Registrants as Specified in Their Respective Charters)

Delaware 06-1473713
Delaware 58-2332106
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

880 Holcomb Bridge Road, Building C-200, Roswell, Georgia 30076
(Address of Principal Executive Offices) (Zip Code)

Registrants' telephone number, including area code: (770) 645-4440

Securities registered pursuant to Section 12(b) of the Act:

None None
(Title of Each Class) (Name of Each Exchange on Which Registered)

Securities registered pursuant to Section 12(g) of the Act:

None
(Title of class)

Indicate by check mark whether the Registrants: (1) have 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
Registrants were required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. Yes [ ] No [X]

Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants' 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. [X]

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrants: Not applicable; the Registrants have no
publicly traded equity securities. As of March 23, 1998, Digital Television
Services, Inc. and DTS Capital, Inc. had outstanding 2,137,049 shares of Common
Stock and 100 shares of Common Stock, respectively.

Documents Incorporated By Reference: None

<PAGE> 2

Index to Form 10-K

Page
----
Part I

Item 1. Business........................................................4

Item 2. Properties.....................................................13

Item 3. Legal Proceedings..............................................13

Item 4. Submission of Matters to a Vote of Security Holders............13

Part II

Item 5. Market for Registrants' Common Equity and Related
Stockholder Matters............................................14

Item 6. Selected Financial Data........................................15

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................18

Item 7A. Quantitative and Qualitative Disclosures
about Market Risk..............................................26

Item 8. Financial Statements and Supplementary Data....................26

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................26

Part III

Item 10. Directors and Executive Officers of the Registrants............26

Item 11. Executive Compensation.........................................29

Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................35

Item 13. Certain Relationships and Related Transactions.................37

Part IV

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................38

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PART I

ITEM 1. BUSINESS

As used in this Report, unless the context otherwise requires,
the term "Company" refers to Digital Television Services, Inc. ("DTS"), its
consolidated subsidiaries (including DTS Capital, Inc. ("Capital")), the
predecessors of DTS (including Digital Television Services, LLC and WEP
Intermediate Corp.) and the predecessors of such subsidiaries. Unless otherwise
indicated, all data as to the number of households set forth herein is based
upon information compiled by Claritas as of April 1, 1996 and all data as to the
number of subscribers is as of December 31, 1997.

This Report contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended. These statements
appear in a number of places in this Report and include all statements regarding
the intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) the Company's financing plans;
(ii) trends affecting the Company's financial condition or results of
operations; (iii) the Company's growth strategy and operating strategy; and (iv)
the declaration and payment of dividends. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various factors
discussed herein and those factors discussed in detail in the Company's filings
with the Securities and Exchange Commission, including the "Risk Factors"
section of the Company's Registration Statement on Form S-4 (Registration Number
333-36217), as declared effective by the Securities and Exchange Commission on
December 24, 1997.

General

The Company was formed on January 30, 1996. On October 10, 1997,
the Company was converted (the "Corporate Conversion") from a limited liability
company (the "LLC") to a corporation. In order to effect the Corporate
Conversion, the LLC merged with and into WEP Intermediate Corp., a Delaware
corporation ("WEP"), pursuant to which (i) the member interests in the LLC held
by WEP were canceled, (ii) all of the outstanding capital stock of WEP was
converted into Series A Preferred Stock, (iii) the member interests in the LLC
evidenced by the Class A Units were converted into Series A Preferred Stock,
(iv) the member interests in the LLC evidenced by the Class B Units were
converted into Common Stock, (v) the member interests in the LLC evidenced by
the Class C Units were converted into the right to purchase shares of Common
Stock, (vi) the member interests in the LLC evidenced by the Class D Units were
converted into warrants to purchase Common Stock, (vii) all of the resulting
capital stock of the Company became subject to the Stockholders Agreement and
(viii) the surviving entity changed its name to "Digital Television Services,
Inc."

On January 8, 1998, the Company entered into an Agreement and
Plan of Merger (the "Merger Agreement") among Pegasus Communications Corporation
("Pegasus"), the Company, Pegasus DTS Merger Sub, Inc., a wholly-owned
subsidiary of Pegasus (the "Merger Sub"), certain stockholders of Pegasus and
certain stockholders of the Company. Pursuant to the Merger Agreement, the
Merger Sub will be merged (the "Pegasus Merger") with and into the Company, and
the Company will become a wholly-owned subsidiary of Pegasus. As a result of the
Pegasus Merger and the transactions contemplated thereby, (i) with certain
exceptions and subject to certain adjustments, all holders of capital stock of
the Company will have the right to receive shares of Class A common stock of
Pegasus (the "Pegasus Class A Common Stock") and all holders of options and
warrants to purchase capital

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stock of the Company will receive options and/or warrants to purchase Pegasus
Class A Common Stock, (ii) the board of directors of Pegasus will be increased
to nine members, three of whom will be designated by certain stockholders of the
Company or their affiliates and (iii) certain stockholders of the Company and
certain of their affiliates, Marshall W. Pagon, Pegasus' President, Chief
Executive Officer and Chairman of the Board, and certain affiliates of Mr. Pagon
who hold all of the Class B common stock of Pegasus (the "Pegasus Class B Common
Stock") will enter into a voting agreement with respect to the designation and
election of directors. After giving effect to the Pegasus Merger, the Company's
stockholders will own approximately 48.9% of the issued and outstanding Pegasus
Class A Common Stock, which will represent approximately 34.8% of the common
equity of Pegasus. After giving effect to the Pegasus Merger and the voting
rights of the Pegasus Class B Common Stock (each share of which is entitled to
ten votes), the stockholders of the Company and Mr. Pagon will have voting power
with respect to approximately 9.6% and 80.3%, respectively, of Pegasus' common
stock, subject to the terms of the voting agreement. Upon the consummation of
the Pegasus Merger, Michael C. Brooks, Harry F. Hopper III, and Riordon B.
Smith, directors of the Company, will become directors of Pegasus. The Pegasus
Merger is expected to be consummated in the first half of 1998, and is subject,
among other things, to approval of the stockholders of Pegasus and the Company,
consents from the NRTC, DirecTv and the Company's lenders, and other conditions
customary in transactions of this nature.

The Company is a leading independent provider of direct broadcast
satellite ("DBS") television services offered by DirecTv, Inc. ("DIRECTV
Services") in terms of households in the territories in which the Company has
the exclusive right to provide DIRECTV Services, the number of subscribers
within such territories and the Company's revenues from the sale of DIRECTV
Services. DirecTv, Inc. ("DirecTv") is the leading provider of direct to home
satellite ("DTH") television in the United States, offering over 175 program
channels to approximately 3.3 million subscribers as of December 31, 1997. The
Company has the exclusive right to provide DIRECTV Services within certain rural
territories in the United States encompassing approximately 1.7 million
households. As of December 31, 1997 (after giving effect to the pending
acquisition of one Rural DirecTv Market in Georgia), the Company had
approximately 131,000 subscribers representing a household penetration rate of
approximately 7.9%.

The Company owns the exclusive right to distribute DIRECTV
Services in its territories pursuant to agreements (the "NRTC Member
Agreements") with the National Rural Telecommunications Cooperative (the
"NRTC"). The NRTC acquired in 1992 the exclusive right to provide DIRECTV
Services to residential households and business establishments located in
designated rural areas of the United States (the "Rural DirecTv Markets") under
an agreement (the "Hughes Agreement") with Hughes Communication Galaxy, Inc.
("Hughes"), the parent company of DirecTv. Both the Hughes Agreement and the
NRTC Member Agreements expire when Hughes removes its current satellites from
their assigned orbital locations. According to Hughes, the DirecTv satellites
have estimated orbital lives of at least 15 years from their respective launches
in December 1993 and 1994. The NRTC has advised the Company that the Hughes
Agreement provides the NRTC with a right of first refusal to obtain DBS Services
(other than programming services) in substantially the same form as such DBS
Services are provided under the existing Hughes Agreement in the event that
Hughes elects to launch one or more successor satellites upon the removal of the
present satellites from their assigned orbital locations. The NRTC Member
Agreements do not expressly provide an equivalent right of first refusal for the
NRTC Members to acquire DBS Services through the NRTC should the NRTC exercise
its right of first refusal under the Hughes Agreement. The NRTC Member
Agreements do provide, however, that the Company has substantial proprietary
interests in and rights to information with respect to certain of its
subscribers. In addition, the Company (through its subsidiaries) is an affiliate
of the NRTC. The Company believes that if the NRTC exercises its rights of first
refusal

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under the Hughes Agreement, such rights will be made available by the NRTC to
the Company.

Pursuant to the NRTC Member Agreements, the Company has the
exclusive right in its Rural DirecTv Markets to market, sell and retain all of
the revenues from subscribers derived from the sale of programming (other than
that designated as "non-select" programming) transmitted by the DirecTv
satellites over the 27 frequencies owned by Hughes. The Company pays the NRTC
for the wholesale cost of the programming and a fee to DirecTv based upon 5% of
the programming revenue. With respect to those services purchased by the
Company's subscribers which are designated as "non-select" the Company retains
5% of the revenues and remits the balance to DirecTv.

The Company purchases customer authorization, billing services
and centralized remittance processing services from the NRTC. Each NRTC Member
Agreement also contains customary provisions regarding payment terms, compliance
with laws and indemnification and provides that both the NRTC and DirecTv must
consent prior to the assignment or transfer by the NRTC Member party thereto of
its rights or obligations thereunder, which consent shall not be unreasonably
withheld. Each NRTC Member Agreement also contains termination provisions which
allow the NRTC to terminate such agreement under certain circumstances,
including a failure by the Company to make any payment due to the NRTC or other
breach by the Company of a material obligation or a failure by the Company to
maintain any letter of credit required by the NRTC in full force and effect or
to adjust the amount of any such letter of credit as required by the NRTC Member
Agreement.

The Company has the exclusive right to distribute DIRECTV
Services in 18 Rural DirecTv Markets in the following locations (after giving
effect to the acquisition of one Rural DirecTv Market in Georgia which closed on
January 30, 1998):

<TABLE>
<CAPTION>
Percentage of
Homes
Not Passed
Location Households by Cable Subscribers(1) Penetration(2)

<S> <C> <C> <C> <C>
Kentucky.................. 368,445 31.23% 24,979 6.78%
Kansas.................... 299,423 19.17% 15,173 5.07%
Georgia................... 277,141 33.76% 21,583 7.79%
Vermont................... 209,332 34.80% 28,306 13.52%
South Carolina............ 164,314 31.66% 9,415 5.73%
Indiana................... 131,625 20.00% 12,864 9.77%
New Mexico................ 84,920 16.06% 6,634 7.81%
California................ 84,006 3.84% 7,143 8.50%
New York.................. 49,593 30.52% 5,355 10.80%
------ ------ ----- ------
Total................ 1,668,799 27.16% 131,452 7.88%
========= ====== ======= =====
</TABLE>

- ----------

(1) Reflects actual subscribers at December 31, 1997.
(2) Represents the percentage of households which subscribe to DIRECTV
Services in the Company's Rural DirecTv Markets.

The Company's objective is to be the leading provider of pay
television entertainment and information services in its Rural DirecTv Markets.
To achieve this objective, the Company pursues the following operating strategy:

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- -- Capitalize on DirecTv Brand Name and Programming. The Company has and
will continue to build on the recognition of DirecTv and Digital
Satellite System(R) ("DSS(R)") brand names. In addition, the Company
believes that it can continue to capitalize on DirecTv's extensive
programming, unique and exclusive sports packages and large selection of
pay per view movies and events to broaden the Company's subscriber base
in its Rural DirecTv Markets. Management also believes that
competitively priced DSS(R) equipment, which is sold in more retail
outlets within its Rural DirecTv Markets than any other DTH product,
provides the Company with a competitive advantage over other DTH
providers.

- -- Emphasize Direct Marketing. The Company complements the extensive
marketing efforts of DirecTv and its other national distribution
partners through targeted local and regional marketing. The Company has
established or is establishing a direct sales force and Company-owned
full service retail stores in each of its Rural DirecTv Markets. The
Company believes that it can increase penetration more rapidly through
its direct sales approach instead of relying, as some DTH providers
have, upon the consumer to take the initiative to purchase the product
and services.

- -- Establish Strong Local Presence. Unlike a majority of traditional DTH
providers, the Company continues to maximize penetration and customer
satisfaction in its Rural DirecTv markets by establishing a strong local
presence within the communities it serves. The Company provides a full
range of services at the local level, including direct sales,
Company-owned retail stores, dealer support services, equipment
installation and customer service. The Company has managers in these
communities to oversee local marketing and customer service operations.

- -- Operate Regional Clusters. The Company operates in regional clusters
that generate the significant economies of scale of a larger operator
and offer quality centralized customer service to complement local
customer service. The Company believes that the clustering of its Rural
DirecTv Markets results in increased operating efficiencies, including
lower administrative costs as a percentage of revenues, better trained
employees and a higher level of customer service.

- -- Acquire Additional Rural DirecTv Markets. The Company believes that
consolidation of the Rural DirecTv Markets will continue over the next
three to five years. Beginning with its initial acquisition in March
1996, the Company has systematically implemented a successful
acquisition and consolidation strategy focused on the Rural DirecTv
Markets. The Company believes that it has a significant opportunity to
aggressively acquire additional rights to provide DIRECTV Services to
the remaining households in the Rural DirecTv Markets currently owned by
the original members of the NRTC, the majority of which are rural
electric and telephone cooperatives. Management believes that the
Company's experience in completing 18 acquisitions will be instrumental
in identifying, negotiating, and integrating future acquisitions. In
addition, as the Company continues to grow as a leading independent
provider of DIRECTV Services in the Rural DirecTv Markets, "fill-in" and
contiguous acquisitions should become less attractive to other potential
acquirers as their ability to create significant clusters is reduced.

The Company believes its strategy, combined with the general
characteristics of the Company's business of marketing DIRECTV Services,
including relatively low administrative overhead and capital expenditure
requirements, strengthens the opportunity for the Company to generate operating
cash flows.

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Overview of the DTH Industry

DTH services encompass all types of television transmission from
satellites directly to the home. The FCC has authorized two types of satellite
services for transmission of television programming: Broadcast Satellite Service
("BSS," more commonly referred to as "DBS"), which operates at high power in the
Ku-band, and Fixed Satellite Service ("FSS," more commonly referred to as low
power and medium power DTH), which includes low power services transmitting in
the C-band, as well as medium power services transmitting in the Ku-band. Both
DBS and medium power DTH satellites are used for digital satellite television
services. DBS provides high quality video and audio signals and can be received
by an 18-inch dish. Medium and low power DTH signals require home satellite
dishes of 27 inches to six feet in diameter (depending on the geographical
location of the dish and wattage per frequency channel). DirecTv, United States
Satellite Broadcasting Corporation ("USSB") and EchoStar Satellite Broadcasting
Corporation ("EchoStar") are the only current domestic providers of DBS
services. All other DTH domestic satellite television providers currently
provide medium or low power DTH services. See "-- Competition."

DirecTv

DirecTv is the leading DBS provider in the United States, with
approximately 3.3 million subscribers, representing approximately 52% market
share of the DBS and medium power DTH subscribers at December 31, 1997.

Of the eight orbital positions allocated for DBS service, only
the 101(Degree) W.L., 110(Degree) W.L. and 119(Degree) W.L. positions provide
full continental United States ("CONUS") coverage. DirecTv has 27 licensed
channel frequencies in operation in the 101(Degree) W.L. full CONUS orbital
position. DirecTv's over 175 program channels are transmitted via three
satellites in this orbital position. DirecTv's satellites also provide full
redundancy on all critical components, including additional transponders with a
sophisticated switching system. The Company believes that such redundancy
substantially lowers the risk of interruption in service to its subscribers.

DirecTv programming includes (i) cable networks, broadcast
networks and audio services available for purchase in tiers for a monthly
subscription fee, (ii) premium services available a la carte or in tiers for a
monthly subscription fee, (iii) sports programming (major professional league
sports packages, including the exclusive NFL Sunday Ticket(TM), regional sports
networks and seasonal college sports packages) available for a yearly, seasonal
or monthly subscription fee and (iv) movies from all major Hollywood studios and
special events available for purchase on a pay-per-view basis. Satellite and
premium services available a la carte or for a monthly subscription are priced
comparably to cable. Pay per view movies are generally $2.99 per movie. Pay per
view movies are generally available for viewing on multiple channels at
staggered starting times so that a viewer does not have to wait more than 30
minutes to view a particular pay-per-view movie. DirecTv is constantly adjusting
its programming packages to provide the best channel mix possible at various
price points.

USSB owns five transponders on DirecTv's first satellite and
offers a programming service separate from DirecTv's service, with over 25
channels of premium video programming not available from DirecTv, including
HBO(R), Showtime Network(R), MTV(R) and Comedy Central(R). USSB's selection of
programming services (and its use of transponders on the same satellite used by
DirecTv, which

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enables subscribers to receive both DirecTv and USSB signals with a single dish)
allows it to be marketed as complementary programming to DirecTv. The Company is
a dealer of USSB and receives a one-time commission for each activation of a
subscriber to USSB programming. As of December 31, 1997, approximately 52% of
DirecTv's 3.3 million subscribers receive USSB programming.

DSS(R) equipment is currently sold through over 25,000 retail
outlets throughout the United States for prices typically ranging from $199 to
$599, depending upon the generation of the equipment, the level of features and
the retail outlet. Typically, consumers can purchase home installation kits for
approximately $75 or receive professional installation for approximately $99 to
$199.

Acquisitions by the Company

The Company has acquired the exclusive right to provide DIRECTV
Services in 18 Rural DirecTv Markets since it began implementing its acquisition
strategy (after giving effect to the acquisition of one Rural DirecTv Market in
Georgia, which closed on January 30, 1998). When the Company purchases the
exclusive right to provide DIRECTV Services in a Rural DirecTv Market, it
acquires the NRTC Member Agreement and related agreements providing for the
exclusive right to provide DIRECTV Services within such Rural DirecTv Market,
all assets related to the provision of DIRECTV Services in such market and any
residual rights to provide DBS services which the NRTC may grant the owner of
such Rural DirecTv Market after the termination or expiration of the NRTC Member
Agreement.

The Company completed its first two acquisitions of the exclusive
right to provide DIRECTV Services in Rural DirecTv Markets from NRTC Members in
the first half of 1996 in California and New Mexico. In the second half of 1996,
the Company completed six additional acquisitions of such rights in Rural
DirecTv Markets in New York, Colorado, New Mexico and South Carolina. During
1997, the Company completed eight acquisitions in Kentucky, Kansas, Vermont and
Georgia. On January 2, 1998, the Company completed an additional acquisition in
Indiana effective as of December 31, 1997, and on January 30, 1998, the Company
completed an additional acquisition of a Rural DirecTv Market in Georgia,
adjacent to existing Georgia operations. These 18 acquisitions represent
approximately 1.7 million households and approximately 131,000 subscribers at
December 31, 1997.

Sales and Distribution

The Company offers DIRECTV Services to consumer and business
segments in its Rural DirecTv Markets through two separate but complementary
sales and distribution channels. The Company employs both a direct sales force
and an extensive indirect dealer network, which includes major retailers, mass
merchandisers and consumer electronics stores, in its Rural DirecTv Markets. The
Company has direct sales forces in all but one of its market clusters, and plans
to establish a direct sales force in that cluster by the end of the first
quarter of 1998. The Company's direct sales force is supported by an active lead
generation call center which sets appointments during which outside sales agents
provide in-home demonstrations of DIRECTV Services. The Company also has
Company-owned full service retail stores located in six of its Rural DirecTv
Markets and has plans to open additional stores in its other markets during
1998.

The Company has approximately 314 quality independent dealers in
its Rural DirecTv Markets. In connection with the sale of a DSS(R) unit and a
subscription to DIRECTV Services offered by the Company, a dealer retains the
proceeds from the sale of the equipment and earns a one-time

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commission paid by the Company. The Company retains the ongoing monthly
subscription revenue from the subscriber. For certain equipment sold through the
indirect dealer network, the Company provides a subsidy, thus lowering the price
of the equipment for the consumer. The Company also offers equipment to dealers
on a consignment basis.

DIRECTV Services are also offered to potential subscribers in the
Company's Rural DirecTv Markets by sources which the Company does not control.
Such sources include (i) national retailers selected by DirecTv, (ii) consumer
electronics dealers authorized by DirecTv to sell DIRECTV Services and (iii)
satellite dealers and consumer electronics dealers authorized by five regional
sales management agents ("SMAs") selected by DirecTv. Similar to the Company's
indirect dealer network, the Company pays a one-time commission to these
distribution channels for the sale of DIRECTV Services to a subscriber located
in the Company's Rural DirecTv Markets and the Company receives all monthly
programming revenues associated therewith.

Marketing

In its marketing efforts, the Company emphasizes the DirecTv and
DSS(R) brand names, promoting the superior DirecTv programming as the new
standard in television. The Company reinforces the marketing efforts of DirecTv
and its other national distribution partners with local print and radio
advertising to promote general market acceptance of DIRECTV Services. The
Company's marketing efforts emphasize the value of premium subscription plan
offerings in order to maximize revenues per customer. Specific promotions, such
as offering new subscribers an initial month's service at no charge, have been
implemented to motivate customers to purchase such plans, and the Company has
incentive-based sales compensation for both the direct and dealer sales forces
to promote and sell premium subscription plans. The Company has established or
plans to establish a direct sales force and Company-owned full service retail
stores in each of its Rural DirecTv Markets.

A key element of the Company's marketing strategy is to offer
value-priced DSS(R) equipment and installation through the use of subsidies on
direct sales of equipment and installations. The Company offers various types of
DSS(R) equipment and accessories through its direct sales force and retail
locations. The Company is able to take advantage of volume discounts in
purchasing this equipment from the NRTC. In addition, dealers are motivated to
lower the prices at which they offer DSS(R) equipment and installation by the
Company's volume-based commission structure.

Customer Service

Quality installations and ongoing customer care are critical
elements to customer satisfaction and low customer churn. The Company has
established centralized customer care facilities and maintains customer service
technicians in each of its market clusters. The market clusters are responsible
for the processing of subscription authorizations, assisting the customers
through the installation and initial service period and handling customer
inquiries and service complaints that require customer contact. Centralized
customer service handles customer inquiries and complaints, billing issues and
service questions, proactive customer service programs and customer account
treatment. The Company, through its customer care department, currently provides
customer service from 8:00 a.m. EST to 1:00 a.m. EST each day, seven days a
week. The staff is highly trained with on-line access to the DirecTv billing and
authorization system.

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Competition

The Company faces competition from a broad range of companies
offering communications and entertainment services, including cable operators,
other satellite service providers, wireless cable operators, telephone
companies, television networks and home video product companies. Many of the
Company's competitors have greater financial and marketing resources than the
Company, and the business of providing subscription and pay television
programming is highly competitive. The Company believes that quality and variety
of programming, signal quality and service and cost will be the key bases of
competition.

Cable Television

Cable operators in the United States serve approximately 64
million subscribers, representing over 65% penetration of television households
passed by cable systems. Cable operators typically offer 25 to 78 channels of
programming at an average monthly subscription price of approximately $35. While
cable companies currently serve a majority of the U.S. television market, the
Company believes many may not be able to provide the quality and variety of
programming offered by DirecTv until they significantly upgrade their coaxial
systems. Many cable television providers are in the process of upgrading their
systems and other cable operators have announced their intentions to make
significant upgrades. Many proposed upgrades, such as conversion to digital
format, fiber optic cabling, advanced compression technology and other
technological improvements, when fully completed, will permit cable companies to
increase channel capacity, thereby increasing programming alternatives, and to
deliver a better quality signal. However, although cable systems with adequate
channel capacity may offer digital service without major rebuilds, the Company
believes that other cable systems that have limited channel capacity like those
in most of the Rural DirecTv Markets will have to be upgraded to add bandwidth
in order to provide digital service. The Company believes that such upgrades
will require substantial investments of capital and time to complete
industry-wide. As a result, the Company believes that there will be a
substantial delay before cable systems in the Rural DirecTv Markets can offer
programming services equivalent to digital DBS providers and that some cable
systems in those markets may never be upgraded, subject to advances in digital
compression technology currently under development.

The Company expects to encounter a number of challenges in
competing with cable television providers. First, cable operators have an
entrenched position in the marketplace. The Company believes that its current
strategy of targeting for acquisition Rural DirecTv Markets which are not served
by cable or are underserved by cable partially offsets the cable industry's
position in the consumer marketplace. Second, the upfront costs to the consumer
associated with purchasing and installing DSS(R) equipment are higher than the
upfront costs for installation of cable television. However, as a result of the
declining prices of DSS(R) units, the Company has realized a substantial growth
in its subscriber base. Third, current DBS systems, unlike cable, do not provide
local broadcast programming via satellite, although seamless switching between
satellite and broadcast programming from other sources is possible with all
DSS(R) units. In addition, DirecTv provides programming from affiliates of the
national broadcast networks to subscribers who are unable to receive networks
over the air and do not subscribe to cable. The Company believes that the
significant capital costs of upgrading cable systems to provide similar
services, combined with the marketing strength of DBS providers such as DirecTv,
presents DBS providers with an opportunity to take substantial market share for
pay television services from cable in the Rural DirecTv Markets.

Other DBS Providers

EchoStar commenced national broadcasting of programming in March
1996 and currently broadcasts over 120 video channels and 30 audio channels.
EchoStar has 21 licensed channel

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frequencies at the 119(Degree) W.L. full CONUS orbital position and has 69
frequencies in other partial CONUS orbital locations. EchoStar reported
approximately 1.0 million subscribers at December 31, 1997, representing a 16%
market share of high and medium power DTH subscribers. The Company believes that
it can successfully compete with EchoStar in the DBS market because of DirecTv's
brand name and its significantly larger distribution networks and greater number
of manufacturers of the equipment used to receive DTH services.

USSB owns and operates five transponders on DirecTv's first
satellite and offers a programming service separate from DirecTv's service, with
over 25 channels of premium video programming not available from DirecTv. USSB's
programming (and its use of transponders on the same satellite used by DirecTV,
which enables subscribers to receive both DirecTv and USSB signals with a single
dish) allows it to be marketed as complementary to DirecTv. As of December 31,
1997, approximately 52% of DirecTv's 3.3 million subscribers received USSB
programming. In addition, USSB has three licensed channel frequencies at the
110(Degree) W.L. full CONUS orbital position and eight at the 148(Degree) W.L.
partial CONUS position.

Medium Power DTH Providers

PrimeStar, owned primarily by a consortium of cable companies
including Tele-Communications, Inc., launched the first digital DTH satellite
television service in 1994. As a result of the successful launch and operation
of a new satellite in early 1997, PrimeStar increased its medium-power
programming services to approximately 150 channels. This new satellite will
potentially enable PrimeStar to reduce its dish size to approximately 29 inches
for most subscribers within the continental United States. In addition,
PrimeStar is expected to have access to significant DBS capacity via TSAT's DBS
satellite, which is capable of providing full-CONUS service. PrimeStar has
announced plans to use such satellite to provide a mix of sports, multichannel
movie services, pay-per-view services and popular cable networks to traditional
broadcast television, basic cable and other analog programming customers. As of
December 31, 1997, PrimeStar had approximately 1.9 million subscribers.

On June 11, 1997, PrimeStar announced that it had entered into an
agreement to combine its assets with American Sky Broadcasting ("ASkyB").
According to press releases, each of PrimeStar's cable company partners will
contribute its PrimeStar customers and partnership interests into the newly
formed entity. ASkyB has announced that it will contribute two satellites under
construction and 28 full-CONUS frequencies at the 110(Degree) W.L. orbital
location. This proposed transaction requires certain federal regulatory
approvals. In addition, Tempo Satellite, Inc. has a license for a satellite
using 11 full-CONUS frequencies at the 119(Degree) W.L. orbital location, and
recently launched a satellite to that location.

Other Competitors

Low power C-band operators reported approximately 2.1 million
subscribers representing 25% of the total market for DTH satellite services at
December 31, 1997. The C-band/TVRO market has been built primarily on
subscribers who live in markets not served by cable television. C-band
equipment, including the six to eight foot dish necessary to receive the low
power signal, currently costs approximately $2,000 and is distributed by local
TVRO satellite dealers. The Company believes that high and medium power DTH
services have significant advantages over low power C-band service in equipment
cost, dish size and range of programming packages.

There are approximately 175 wireless cable systems in the United
States. These systems (which

12
<PAGE> 12

are usually analog) typically offer only 20 to 40 channels of programming, which
may include local programming. Wireless cable requires a direct line of sight
from the receiver to the transmitter, which creates the potential for
substantial interference from terrain, buildings and foliage in the line of
sight. However, while it is expected that most large wireless operators
(especially certain of those backed by local telephone companies) will upgrade
to digital technology over the next several years, such upgrades will require
the installation of new digital decoders in customers' homes and modifications
to transmission facilities, at a potentially significant cost.

Management and Employees

The Company has assembled an experienced management team to
execute its business strategy. The Company's executive team brings to the
Company extensive business acquisition experience in the telecommunications
industry, as well as experience in the sales and delivery of a full array of
communications services to customers in rural America. As of December 20, 1997,
the Company had approximately 337 employees. The Company is not a party to any
collective bargaining agreement and considers its relations with its employees
to be good.

ITEM 2. PROPERTIES

The Company is headquartered in approximately 6,400 square feet
of leased space in Roswell, Georgia and maintains offices in leased spaces in
Louisville, Kentucky; Hays, Kansas; Sante Fe, New Mexico; Burlington, Vermont;
Cortland, New York; Florence, South Carolina; San Luis Obispo, California; and
Albany, Georgia. The Company expects these facilities to be adequate for its
needs in the foreseeable future. The Company also maintains twelve full service
retail stores in leased spaces in South Carolina, New Mexico, California,
Georgia, New York and Kentucky. Management believes that the Company will be
able to lease office and retail space in its Rural DirecTv Markets as needed on
acceptable terms.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to, nor is any of its property subject
to, any material legal proceedings, other than routine litigation incidental to
its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

By written consent effective October 10, 1997, the stockholders
of the Company approved the Digital Television Services, Inc. 1997 Stock Option
Plan. The written consent was signed by all stockholders of the Company other
than one, which stockholder owns 1.8% of the capital stock of the Company. No
other matters were submitted to a vote of the Company's security holders during
the fourth quarter of the year ended December 31, 1997.

13
<PAGE> 13

PART II

ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

On January 2, 1997, the Company sold member interests in the LLC
to Columbia DBS Investors, L.P., Columbia DBS, Inc., Douglas S. Holladay, Jr.,
Donald A. Doering and William J. Dorran (the "Investors") for an aggregate
purchase price of $2,059,902. The Company did not engage an underwriter in
connection with such offering, and no underwriting discounts or commissions were
paid to any party. The member interests were offered and sold in a private
placement without registration under the Securities Act in reliance on Section
4(2) of the Securities Act. In connection with the sale of the Class A Units
described below, the Company amended and restated its Limited Liability Company
Agreement (the "LLC Agreement") and classified such member interests as an
aggregate of 205,902 Class B Units. In connection with the Corporate Conversion,
the Class B Units were converted into an aggregate of 205,902 shares of Common
Stock.

On February 10, 1997, the Company sold an aggregate of 1,333,333
Class A Units to Columbia DBS Class A Investors, LLC, WEP Intermediate Corp.,
Fleet Venture Resources, Inc., Fleet Equity Partners VI, L.P., Chisholm Partners
III, L.P. and Kennedy Plaza Partners (collectively, the "Equity Investors") for
an aggregate purchase price of $30,000,000. The Company did not engage an
underwriter in connection with such offering, and no underwriting discounts or
commissions were paid to any party. The Class A Units were offered and sold
without registration under the Securities Act in reliance on Rule 506 under the
Securities Act. Each of the Equity Investors represented to the Company that it
was an "Accredited Investor" as defined in Rule 501(A)(1),(2), (3) or (7) under
the Securities Act and that it was acquiring the Class A Units for its own
account and with no intention of distributing the Class A Units or reselling the
Class A Units in any transaction that would be in violation of the federal or
state securities laws.

In connection with the Corporate Conversion, the Class A Units
were converted into an aggregate of 1,404,056 shares of Series A Preferred
Stock.

Each holder of shares of the Series A Preferred Stock has the
right, exercisable at any time and from time to time, to convert all or any such
shares of Series A Preferred Stock into shares of Common Stock, initially on a
share-for-share basis. The conversion ratio of the Series A Preferred Stock is
subject to adjustment in the event of (i) any subdivision or combination of the
Common Stock, (ii) any payment by the Company of a stock dividend to the holders
of the Common Stock, (iii) the issuance of rights to acquire equity to holders
of the Common Stock without issuing similar rights to the holders of the Series
A Preferred Stock, or (iv) the issuance of equity or rights to acquire equity at
a price per share less than $22.50 (as adjusted). In addition, if the Company
consolidates or merges with, or transfers all or substantially all of its assets
to, another corporation, and such transaction requires the approval of the
stockholders of the Company, then a holder of Series A Preferred Stock may
convert some or all of such shares into shares of Common Stock simultaneously
with the record date for, or the effective date of, such transaction so as to
receive the rights, warrants, securities or assets that a holder of shares of
the Common Stock on that date may receive.

14
<PAGE> 14

$45.00, if such public offering is consummated at any time after July 31, 1999,
then the Series A Preferred Stock shall be converted automatically upon such
consummation into shares of Common Stock at an initial conversion rate of
one-for-one, subject to adjustment as described above.

There is no established public trading market for the Series A
Preferred Stock or any other equity security of the Company. As of March 23,
1998, the Company's Common Stock was held of record by five holders and its
Series A Preferred Stock was held of record by six holders. As of March 23,
1998, the common stock of Capital was held of record by one holder.

The Company has not paid any cash dividends to the holders of its
equity securities. The ability of the Company to pay dividends is restricted by
the Indenture dated July 30, 1997 (the "Indenture") by and between the Company,
Capital, the Subsidiaries and The Bank of New York, as Trustee, which governs
the 12 1/2% Senior Subordinated Notes due 2007 (the "Notes") of the Company and
Capital and by the Second Amended and Restated Credit Facility dated July 30,
1997 among the Company and the lenders party thereto (the "Credit Facility").

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data for the period from
inception (January 30, 1996) to December 31, 1996 and for the year ended
December 31, 1997 have been derived from the Company's audited Consolidated
Financial Statements for such periods. The information should be read in
conjunction with the Consolidated Financial Statements and the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere herein.

15
<PAGE> 15

SELECTED FINANCIAL DATA
($ in thousands)

<TABLE>
<CAPTION>
Inception
(January 30) to Year Ended
December 31, December 31,
1996 1997
------------------------------------

<S> <C> <C>
Statement of Operations Data:
Programming revenue............................................ $ 3,085 $ 41,753
Equipment sales and installation revenue....................... 324 5,690
--------- -----------
Total revenue.................................................. 3,409 47,443
Cost of revenue................................................ 2,270 31,147
--------- -----------
Total gross profit............................................. 1,139 16,296
Operating expenses, excluding depreciation and amortization.... 2,732 17,366
Total depreciation and amortization............................ 1,148 14,509
--------- -----------
Operating loss................................................. (2,741) (15,579)
Interest expense, net.......................................... (818) (14,457)
Other income (expense)......................................... 24 (112)
--------- -----------
Net loss(1).................................................... $ (3,535) $ (30,148)
========= ===========
Ratio of earnings to fixed charges(2).......................... -- --
Deficiency in fixed charges.................................... (3,535) $ (30,148)

Other Data:
Cash flows used in operating activities........................ (634) (7,307)
EBITDA(3)...................................................... (1,593) (1,070)
Cash dividends per common share................................
Number of subscribers at beginning of period................... -- 19,659
Subscriber additions through acquisitions...................... 16,449 79,479
Subscriber additions........................................... 3,989 39,469
Subscriber disconnects......................................... (779) (11,905)
Net subscriber additions....................................... 3,210 27,564
Number of subscribers at end of period......................... 19,659 126,702
Number of households at end of period.......................... 382,833 1,631,887
Household penetration at end of period......................... 5.14% 7.76%

As of December 31,
-------------------------------
1996 1997
--------- -----------

Balance Sheet Data:
Cash, cash equivalents and marketable investment
securities(4)........................................ $ 1,596 $ 39,113
Total assets......................................... 42,162 257,662
Total debt (including current portion)............... 23,577 192,592
Members'/stockholders' equity........................ 14,906 16,637
</TABLE>

- ----------

(1) Prior to the Corporate Conversion, the Company was a limited liability
company and was not required to pay United States federal income taxes.
(2) The ratio of earnings to fixed charges is calculated by adding (i)
earnings (loss) before income taxes plus (ii) fixed charges, with the
resulting sum divided by fixed charges. Fixed charges consist of
interest on all indebtedness, amortization of debt issuance costs (which
is included in the interest expense line above), plus that portion of
operating lease rentals representative of the interest factor.

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<PAGE> 16

(3) "EBITDA" represents earnings before net interest expense, other income
(expense), taxes, depreciation and amortization. EBITDA is presented
because it is a widely accepted financial measure in the communications
industry and is similar to "Consolidated Operating Cash Flow," a
financial measure used in the Indenture to determine whether the Company
has complied with certain covenants and differs from cash flows from
operating activities. Pursuant to the Indenture, Consolidated Operating
Cash Flow is calculated with respect to any period by adding to the
consolidated net income of the Company and those subsidiaries of the
Company which are designated as "Restricted Subsidiaries" pursuant to
the Indenture for such period (i) consolidated income tax expense for
such period to the extent deducted in determining consolidated net
income for such period, (ii) consolidated interest expense for such
period to the extent deducted in determining consolidated net income for
such period, (iii) all dividends on preferred equity interests to the
extent not taken into account in determining consolidated net income for
such period and (iv) depreciation, amortization and any other non cash
items for such period to the extent deducted in determining consolidated
net income for such period. The EBITDA measures presented may not be
comparable to other similarly titled measures of other companies. EBITDA
is not intended to be a substitute for a measure of performance in
accordance with generally accepted accounting principles and should not
be relied on as such.
(4) Excludes approximately $37.0 million placed in an escrow account to
fund, together with the proceeds from the investment thereof, the first
four semi-annual interest payments on the Notes.

17
<PAGE> 17

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

The following discussion provides an assessment of the historical
results of operations and liquidity and capital resources of the Company and its
wholly-owned subsidiaries. This discussion should be read in conjunction with
the audited Consolidated Financial Statements of the Company and the related
notes thereto, appearing elsewhere herein. As a result of the growth of the
Company through acquisitions and the continued growth as a result of the pending
acquisitions and possible future acquisitions, the historical audited financial
information of the Company may not be indicative of the financial position or
results of operations to be reported in the future.

On October 10, 1997, the Company effected the Corporate
Conversion pursuant to which the Company was converted from the LLC to a
corporation. The LLC merged with and into WEP Intermediate Corp., a Delaware
corporation, pursuant to which (i) the member interests in the LLC held by WEP
were canceled, (ii) all of the outstanding capital stock of WEP was converted
into Series A Preferred Stock, (iii) the member interests in the LLC evidenced
by the Class A Units were converted into Series A Preferred Stock, (iv) the
member interests in the LLC evidenced by the Class B Units were converted into
Common Stock, (v) the member interests in the LLC evidenced by the Class C Units
were converted into the right to purchase shares of Common Stock, (vi) the
member interests in the LLC evidenced by the Class D Units were converted into
warrants to purchase Common Stock, (vii) all of the resulting capital stock of
the Company became subject to the Stockholders Agreement and (viii) the
surviving entity changed its name to "Digital Television Services, Inc."

Subsequent to the Corporate Conversion, substantially all of the
outstanding shares of the resulting corporation are owned by the holders of the
equity interests in the LLC. Therefore, the Corporate Conversion has been
treated for accounting purposes as the acquisition of WEP by the LLC. The LLC's
assets and liabilities have been recorded at historical cost and WEP's assets
and liabilities have been recorded at fair value. However, given that WEP's only
asset consisted of its investment in the LLC, no goodwill was recognized.
Following the Corporate Conversion, the historical financial statements of the
LLC became the historical financial statements of WEP and include the businesses
of both companies.

The Pegasus Merger, pursuant to which the Company will become a
wholly-owned subsidiary of Pegasus, is anticipated to close in the first half of
1998 and is subject, among other things, to approval of the stockholders of
Pegasus and the Company, consents from the NRTC, DirecTv and the Company's
lenders, and other conditions customary in transactions of this nature.

Overview

The Company was formed on January 30, 1996, to acquire, own and
manage rights to distribute DIRECTV Services to residential households and
commercial establishments in the Rural DirecTv Markets. As of December 31, 1997,
the Company had acquired the rights to provide DIRECTV Services to approximately
1,632,000 households for approximately $170.9 million or $105 per household,
excluding adjustments recorded to reflect the discount of certain of the
Company's seller notes at the 9% interest rate under the Credit Facility. Of the
total purchase price, approximately $129.1 million was paid in cash and
approximately $41.8 million was financed through the issuance of promissory
notes of the Company in favor of the sellers. The Company has also entered into
a

18
<PAGE> 18

definitive agreement with respect to an acquisition of certain Rural DirecTv
Markets in Georgia (the "Georgia Acquisition"), with respect to which it will
acquire the rights to provide DIRECTV Services to an aggregate of approximately
37,000 additional households for a total purchase price of approximately $9.5
million in cash or approximately $257 per household. The following table
presents information regarding completed and certain acquisitions as of December
31, 1997.

<TABLE>
<CAPTION>
Subscribers at
Acquisition Acquisition Subscribers at
System Location Date Acquired Price Date December 31, 1997

<S> <C> <C> <C> <C>
Completed Acquisitions - 17 Rural
DirecTv Markets:
New Mexico.......................... March 1, 1996 $ 512,000 404 1,080
California.......................... April 1, 1996 5,980,000 3,385 7,143
New Mexico.......................... August 28, 1996 9,683,000 2,931 5,554
New York............................ August 28, 1996 4,860,000 3,970 5,355
South Carolina...................... November 26, 1996 12,700,000 5,759 9,415
Kentucky............................ January 2, 1997 30,000,000 19,908 24,979
Kansas.............................. January 31, 1997 19,425,000 11,520 15,173
Vermont............................. February 18, 1997 38,000,000 20,778 28,306
Georgia............................. May 9, 1997 21,190,000 14,409 16,833
Indiana............................. December 31, 1997 28,500,000 12,864 12,864
---------------- ----------- ----------

Subtotal -- Acquisitions.... $ 170,850,000 95,928 126,702
---------------- ----------- ----------
Pending Acquisition -- 1 Rural
DirecTv Market:
Georgia............................. January 30, 1998 9,500,000 4,750
---------------- ----------
Subtotal-- Pending
Acquisition................ $ 9,500,000 4,750
---------------- ----------
Totals................................ $ 180,350,000 131,452
================ ==========
</TABLE>

The Company generates revenues by providing DIRECTV Services to
its subscribers. DIRECTV Services consist of programming purchased in a monthly
or annual subscription, additional premium programming available on an a la
carte basis, sports programming available under a monthly, yearly or seasonal
subscription, and movies and events programming available on a pay per view
basis.

Although the majority of DSS(R) equipment is sold to subscribers
through independent dealers, the Company also generates revenue from the direct
sale, rental and installation of satellite receivers and related equipment.
During 1996 and 1997, the Company offered price subsidies on DSS(R) equipment to
further stimulate the demand for DIRECTV Services. The retail sales price of
DSS(R) equipment ranged from $199 to $599 during 1996 and 1997, depending upon
the type of equipment sold. These sales prices were approximately $25 to $135
below the Company's cost for such equipment. The Company records revenue from
the sale of DSS(R) equipment and related accessories based on the amount paid by
the customer, and recognizes a loss on the sale for the Company's cost in excess
of the amount collected. The Company offers installation services at prices
ranging from $99 to $199.

The Company's major cost of providing DIRECTV Services to its
subscribers is the direct wholesale cost of purchasing related program offerings
from DirecTv, which averaged approximately 52% and 50% of programming revenues
during 1996 and 1997, respectively. Additionally, the Company purchases other
contract services from DirecTv through the NRTC. These costs consist of
recurring monthly subscriber maintenance fees, including security fees, ground
services fees, system authorization fees and fees for subscriber billing.

19
<PAGE> 19

Since inception through December 31, 1997, the Company has
invested significant working capital to implement extensive distribution
networks and promotional programs to stimulate the acquisition of new
subscribers. Costs associated with subscriber acquisition are a significant
component of the Company's operating expenses. These expenses include variable
commission expenses, fixed and variable promotional expenses and marketing
salaries and benefits. As discussed above, the Company also subsidizes the cost
of DSS(R) equipment to the subscriber, thereby incurring a loss on the sale of
satellite receivers and related equipment sold. The Company's policy is to
expense all subscriber acquisition costs at the time the sale is made or, in the
case of cash back promotions on annual subscriptions, to amortize the promotion
expense over 12 months. During the period beginning on January 30, 1996
(inception) and ending December 31, 1997, subscriber acquisition costs,
including the loss on DSS(R) equipment sales, averaged approximately $236 for
each new subscriber addition (other than subscribers added through
acquisitions). Based on this expenditure level and the current average
subscriber cash contribution, the Company will recover its subscriber
acquisition costs in approximately 20 months. The Company anticipates that it
will continue to incur a significant level of subscriber acquisition costs in
conjunction with the growth of its subscriber base, and that these costs could
increase as a result of increased competition and a downward pressure on the
retail price of satellite equipment sold. Potential increases in subscriber
acquisition costs as well as significant subscriber growth is expected to have a
short term negative impact on operating cash flow of the Company.

General and administrative costs include administrative costs
associated with the Company's sales and subscriber service operations, as well
as accounting and general administration. Although these expenses will continue
to increase as the Company's scope of operations increases, such expenses are
primarily fixed in nature and, accordingly, should not increase directly in
proportion to the future increase to the Company's subscriber base.

During May and June 1997, the Company experienced an increase in
subscriber disconnects above historical levels. The Company's average monthly
disconnect rate for May and June 1997 was approximately 1.6% as compared to
approximately 1% for all other months in the nine month period ended September
30, 1997. The Company believes that this increase was primarily the result of
two non-recurring factors, the tightening by the Company of its account
treatment policies and the disconnection of services by DirecTv of all
subscribers who had not converted to DirecTv's current security protocol by
replacing their system access cards. The Company has distributed new access
cards to these subscribers in order to reconnect their DIRECTV Services.
Effective May 1, 1997, the Company temporarily revised its account treatment
policies by reducing the period of time for which its disconnects subscribers
due to non-payment from 60 days after the bill date to 45 days after the bill
date. The Company rescinded this change in late June 1997. Subscriber
disconnects stabilized to historical levels for the remainder of 1997, with
subscriber churn averaging approximately 1% monthly for the 1997 year.

The Company has yet to achieve positive operating cash flow due
to cash expended in implementing its sales and administrative infrastructure,
marketing expenses associated with adding new subscribers and interest and other
debt servicing costs associated with financing activities. The Company expects
to continue its focus on increasing its subscriber base which is expected to
have a negative impact on short-term operating results. In addition, a changing
competitive environment may increase the marketing expenditures necessary to
acquire new subscribers. There can be no assurance that the Company's subscriber
base and revenues will continue to increase or that the Company will be able to
achieve or sustain profitability or positive operating cash flow.

20
<PAGE> 20

Results of Operations

Year Ended December 31, 1997 Compared to Period Ended from Inception
(January 30, 1996) to December 31, 1996

The Company acquired the rights to provide DIRECTV Services to
approximately 97,000 households during March and April 1996, and acquired an
additional 286,000 households by December 31, 1996. Programming revenue
generated during the year ended December 31, 1996 (the "1996 Period"), consisted
of DIRECTV Services provided to the approximately 16,500 subscribers associated
with these acquisitions. During 1997, the Company added approximately 1,249,000
households, and acquired approximately 66,600 subscribers, which contributed
revenue to the Company for all or a portion of the year ended December 31, 1997
(the "1997 Period"). Programming revenue was approximately $41,753,000 for the
1997 Period compared to approximately $3,085,000 for the 1996 Period. This
increase resulted primarily from revenue generated from (i) the subscribers
acquired in conjunction with the Company's acquisitions during 1997 and, to a
lesser extent, from the inclusion of a full year of revenue from subscribers
acquired in the Company's 1996 acquisitions and from net subscribers added in
1997 from the Company's sales and marketing activities. During the 1997 Period,
the Company added approximately 39,500 new subscribers offset by approximately
11,900 disconnects. Average monthly programming revenue per subscriber during
the 1997 Period was approximately $39, which was consistent with the average
monthly programming revenue per subscriber during the 1996 Period.

Equipment sales and installation revenue totaled approximately
$5,690,000 during the 1997 Period compared to approximately $324,000 during the
1996 Period. This increase resulted from the sale of DSS(R) equipment and
related installations to new subscribers added during the 1997 Period.

Costs directly associated with providing programming, equipment
sales and installation revenue totaled approximately $31,147,000 during the 1997
Period compared with approximately $2,270,000 during the 1996 Period. These
costs increased in direct proportion to the increase in the number of
subscribers subscribing to DIRECTV Services and the increase in DSS(R) units
sold between years. For the 1997 Period, the gross profit on programming revenue
after recurring service fees was approximately 41%, consistent with the 1996
Period. During the 1997 Period, the Company sold DSS(R) equipment installed at
average prices of approximately 12% below the Company's cost as compared to 19%
during the 1996 Period. This reduced subsidy resulted from declining DSS(R) unit
costs to the Company associated with volume purchases. The Company expects to
continue to subsidize the cost of DSS(R) equipment, and anticipates increased
subsidies as retail prices may decline as a result of increased competition.

The Company incurred direct selling expenses of approximately
$9,413,000 during the 1997 Period as compared to $853,000 during the 1996
Period. These costs included advertising and promotion expenses, sales
commissions to both the Company's employee and dealer distribution channels, and
marketing salaries and benefits. Including subsidies on DSS(R) equipment sales,
the Company incurred approximately $239 of selling expenses for each new
subscriber added (other than subscribers added through acquisitions) during the
1997 Period compared with $214 of selling expenses for each new subscriber added
during the 1996 Period. Selling expenses per subscriber addition increased
between periods as a direct result of increased advertising and fixed selling
expenses associated with implementation of the Company's direct distribution
channels.

General and administrative expenses totaled approximately
$8,707,000 during the 1997 Period

21
<PAGE> 21

or approximately 18% of revenues compared with $1,954,000 or 57% of revenues for
the 1996 Period. These expenses consisted primarily of salaries and expenses
associated with customer service operations, retail store and installation
facility expenses, general office expenses, and other general administrative
expenses. General and administrative expenses are expected to continue to
further decline as a percent of total revenues in 1998 as the majority of these
expenses are fixed in nature.

Depreciation expense totaled approximately $510,000 for the 1997
Period compared to approximately $48,000 during the 1996 Period, and has
increased in conjunction with the addition of general office assets, retail
store assets, and the purchase of installation service vehicles. Amortization
expense totaled approximately $13,999,000 for the 1997 Period compared with
approximately $1,100,000 during the 1996 Period. Of the 1997 Period amount,
approximately $12,647,000 relates to the acquisition of contract rights by the
Company, approximately $242,000 relates to fees incurred in connection with the
formation of the Company and Subsidiaries and approximately $1,110,000 relates
to amortization of subscriber acquisition costs under the Company's cash back
offer program.

The Company generated a Consolidated Operating Cash Flow deficit
pursuant to the terms of the Indenture of approximately $1,070,000 for the 1997
Period compared with approximately $1,593,000 for the 1996 Period. This
improvement to Operating Cash Flow deficit resulted from increased revenues
associated with increased subscriber penetration. The Company expects to incur
an Operating Cash Flow deficit during 1998 as a result of selling expenses
associated with subscriber growth

Interest expense for the 1997 Period, including amortization of
debt discount and debt issuance costs, totaled approximately $15,924,000 as
compared to approximately $818,000 for the 1996 Period. This increase is
associated with an increase in average borrowings under the Credit Facility,
seller financing and interest associated with the Notes issued in July 1997.
During the 1997 Period, the Company also earned interest revenue totaling
approximately $1,467,000 on the over funded portion of the Notes.

The Company was considered a partnership for federal and state
income tax purposes for the period from inception (January 30, 1996) to October
10, 1997. All taxable income or loss was allocated to the members of the Company
in accordance with the terms of the member agreement. Accordingly, no provision
for income taxes has been made for the 1996 Period. The Company became a taxable
entity for federal and state income tax purposes upon consummation of the
Corporate Conversion on October 10, 1997.

Liquidity and Capital Resources

The Company has required significant capital since its formation
in order to acquire the rights to provide DIRECTV Services and for the start up
of its operations. The Company has financed acquisitions and its other capital
needs through the proceeds received from the private sale of equity securities,
the issuance of seller notes, through borrowings under the Credit Facility and
issuance of the Notes. Cash flows from financing activities for the 1996 Period
totaled approximately $27,873,000, including $9,400,000 borrowed under the
Credit Facility, approximately $32,000 from the issuance of installment notes,
and approximately $18,441,000 from the sale of equity interests. In addition,
the Company issued approximately $24,156,000 of seller notes during the 1996
Period to finance a portion of the purchase price for certain Rural DirecTv
Markets which the Company acquired. Cash flows from financing activities during
the 1997 Period totaled approximately $273,333,000, including approximately
$88,269,000 borrowed under the Credit Facility, approximately $344,000 from the

22
<PAGE> 22

issuance of installment notes, approximately $152,841,000, net of discounts,
from the issuance of Notes, and approximately $31,879,000 from the sale of
equity interests. In addition, the Company issued approximately $17,552,000 of
seller notes during the 1997 Period to finance a portion of the purchase price
for certain Rural DirecTv Markets which the Company acquired.

The Company used proceeds from the financings during the 1996
Period (i) to consummate acquisitions of certain Rural DirecTv Markets for
approximately $33,700,000, excluding adjustments recorded to reflect the
discount of certain of the Company's seller notes at the 9% interest rate under
the Credit Facility at December 31, 1996, (ii) to pay approximately $3,150,000
in deposits toward acquisitions during the 1997 Period, (iii) to pay certain
fees totaling approximately $3,516,000 incurred in conjunction with the
Company's formation and fees associated with the Credit Facility, (iv) to repay
approximately $9,047,000 of seller notes and other notes payable, (v) for
capital expenditures totaling approximately $386,000, and (vi) for operating
cash needs totaling approximately $634,000. The Company used proceeds from the
financings during the 1997 Period (i) to consummate acquisitions for
approximately $107,143,000, excluding adjustments recorded to reflect the
discount of certain of the Company's seller notes at the 9% interest rate under
the Credit Facility at December 31, 1996, (ii) to repay approximately
$82,169,000 of borrowings under the Credit Facility, (iii) to pay certain fees
and expenses totaling approximately $9,650,000 associated with the procurement
of debt financing, (iv) to repay approximately $6,202,000 of seller notes and
other notes payable, (v) for capital expenditures totaling approximately
$2,611,000, (vi) expenses incurred in connection with the Company's formation
totaling approximately $1,259,000, and (vi) for operating cash needs totaling
approximately $7,307,000.

In conjunction with the acquisitions of the exclusive rights to
provide DIRECTV Services in certain areas of California, New Mexico, Colorado,
New York, South Carolina and Georgia, the Company issued promissory notes
totaling approximately $41,705,000 in favor of the sellers. The promissory notes
accrue interest at per annum rates ranging from 3% to 15%. Notes with interest
rates below 9% have been discounted to reflect the 9% interest rate under the
Credit Facility. One of the promissory notes carries a contingent payment
amount, which is dependent upon the number of subscribers in the Company's
California system at October 1, 1998. The amounts due under the terms of the
contingent note were approximately $4,223,000 and $6,251,000 at December 31,
1996 and 1997, respectively.

On July 30, 1997, the Company raised approximately $146.0
million, net of underwriting discount and expenses, through the issuance of
$155.0 million of the Notes, which were sold in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Act"). The Notes
mature in 2007 and bear interest at 12 1/2%, payable semi-annually on February 1
and August 1. The Company used the net proceeds to fund an escrow account for
the first four semi-annual interest payments due with respect to the Notes and
to repay outstanding indebtedness under the Credit Facility. On January 26,
1998, the Company exchanged all of the Notes for new senior subordinated notes
(the "Exchange Notes") registered under the Act. The terms of the Exchange Notes
are identical in all material respects (including principal amount, interest
rate, maturity, security and ranking) to the terms of the Notes (which they
replace), except that the Exchange Notes: (i) bear a Series B designation, (ii)
are registered under the Act and, therefore, do not bear legends restricting
their transfer, and (iii) are not entitled to certain registration rights and
certain liquidated damages which were applicable to the Notes. The Exchange
Notes are unconditionally guaranteed, on a senior subordinated basis, as to
payment of principal, premium, if any, and interest, jointly and severally, by
all direct and indirect subsidiaries of the Company (the "Guarantors"). The
Guarantors consist of all of the subsidiaries of the Company, except DTS
Capital, Inc., which is a co-issuer of the Exchange Notes and has no separate

23
<PAGE> 23

assets or operations. The Company does not have assets or operations apart from
the assets and operations of its subsidiaries.

In connection with the issuance of the Notes, the Company amended
and restated its Credit Facility to provide for a revolving credit facility in
the amount of $70.0 million, with a $50.0 million sublimit for letters of
credit, and a $20.0 million term loan facility. The proceeds of the Credit
Facility, as amended, may be used (i) to refinance certain existing
indebtedness, (ii) prior to December 31, 1998, to finance the acquisition of
certain Rural DirecTv markets and related costs and expenses, (iii) to finance
capital expenditures of the Company and its Subsidiaries and (iv) for the
general corporate purposes and working capital needs of the Company and its
Subsidiaries.

The $20.0 million term loan facility must be drawn no later than
July 30, 1998, and any amounts not so drawn by that date will be canceled. The
term loan shall be repaid in 20 consecutive quarterly installments of $200,000
each commencing September 30, 1998 with the remaining balance due on July 30,
2003. Borrowings under the revolving credit facility established pursuant to the
Credit Facility will be available to the Company until July 31, 2003; however,
if the then unused portion of the commitments exceeds $10.0 million on December
31, 1998, the commitments will be reduced on such date by an amount equal to the
unused portion of such commitments minus $10.0 million. Thereafter, the
commitments thereunder will reduce quarterly commencing on September 30, 1999 at
a rate of 3.50% through 1999, 5.75% in 2000, 7.0% in 2001, 9.0% in 2002 and 3.0%
until June 30, 2003. All of the loans outstanding will be repayable on July 31,
2003. The making of each loan under the Credit Facility will be subject to the
satisfaction of certain conditions, including not exceeding a certain "borrowing
base" based on the number of paying subscribers and households within the Rural
DirecTv Markets served by the Company; maintaining minimum subscriber
penetration throughout the term of the Credit Facility; maintaining annualized
contribution per paying subscriber throughout the term of the Credit Facility
based on net income plus certain sales, administrative and payroll expenses;
maintaining a maximum ratio of total debt to equity beginning in the first
quarter of 2000 and continuing throughout the term of the Credit Facility;
maintaining a maximum ratio of total senior debt to annualized operating cash
flow and a ratio of total debt to annualized operating cash flow beginning in
the first quarter of 2000 and continuing throughout the term of the Credit
Facility; maintaining a maximum ratio of total debt to adjusted annualized
operating cash beginning in the first quarter of 1999 and continuing until the
last quarter of 2000; and maintaining a maximum percentage of general and
administrative expenses to revenues beginning in the first quarter of 1998 and
continuing for the duration of the Credit Facility. The Company is in compliance
with those covenants with which it is required to comply as of the date hereof.
In addition, the Credit Facility provides that the Company will be required to
make mandatory prepayments of the Credit Facility from, subject to certain
exceptions, the net proceeds of certain sales or other dispositions by the
Company or any of its subsidiaries of material assets and with 50% of any excess
operating cash flow with respect to any fiscal year after the fiscal year ending
December 31, 1998.

Borrowings by the Company under the Credit Facility are
unconditionally guaranteed by each of the Company's direct and indirect
subsidiaries, and such borrowings are secured by (i) an equal and ratable pledge
of all of the equity interests in the Company's subsidiaries, (ii) a first
priority security interest in all of their assets, and (iii) a collateral pledge
of the Company's NRTC Member Agreements.

24
<PAGE> 24

the CIBC Alternate Base Rate with respect to borrowings pursuant to the
revolving credit facility, the Applicable Margin will be (w) 2.25% per annum
(when the ratio of total indebtedness of the Company to annualized operating
cash flow (the "Leverage Ratio") is greater than or equal to 6.75 to 1.00), (x)
2.00% (when the Leverage Ratio is less than 6.75 to 1.00 but greater than or
equal to 6.25 to 1.00), (y) 1.50% (when the Leverage Ratio is less than 6.25 to
1.00 but greater than or equal to 5.75 to 1.00) or (z) 1.25% (when the Leverage
Ratio is less than 5.75 to 1.00). When applying the Eurodollar Rate with respect
to borrowings pursuant to the revolving credit facility, the Applicable Margin
will be (w) 3.50% per annum (when the Leverage Ratio is greater than or equal to
6.75 to 1.00), (x) 3.25% (when the Leverage Ratio is less than 6.75 to 1.00 but
greater than or equal to 6.25 to 1.00), (y) 2.75% (when the Leverage Ratio is
less than 6.25 to 1.00 but greater than or equal to 5.75 to 1.00) or (z) 2.50%
(when the Leverage Ratio is less than 5.75 to 1.00). The Applicable Margin for
borrowings pursuant to the term loan facility will be the Applicable Margin for
borrowings pursuant to the revolving credit facility, plus 0.25%. As used
herein, "CIBC Alternate Base Rate" means the higher of (i) CIBC's prime rate and
(ii) the federal funds effective rate from time to time plus 1/2% per annum. As
used herein, "Eurodollar Rate" means the rate at which eurodollar deposits for
one, two, three and six months (as selected by the Company) are offered to CIBC
in the interbank eurodollar market. The Credit Facility will also provide that
at any time when the Company is in default in the payment of any amount due
thereunder, the principal of all loans made under the Credit Facility will bear
interest at 2% per annum above the rate otherwise applicable thereto and overdue
interest and fees will bear interest at a rate of 2% per annum over the CIBC
Alternative Base Rate.

Pursuant to a recent amendment to the NRTC Member Agreements, the
Company and all other NRTC Members whose monthly obligations to the NRTC have
exceeded $500,000 in the past six months are required to keep and maintain in
full force and effect a standby letter of credit in favor of the NRTC to secure
their respective payment obligations to the NRTC under the NRTC Member
Agreements. The amount of the letter of credit issued at the request of the
Company pursuant to the Credit Facility, is equal to three times the Company's
single largest monthly invoice from the NRTC, exclusive of amounts payable for
DSS(R) equipment purchased by the Company from the NRTC, or $6.28 million, and
must be increased as the Company makes additional acquisitions of Rural DirecTv
Markets and when the Company's obligations to the NRTC exceed the amount of the
original letter of credit by 167%.

The Company's cash and financing needs for 1998 and beyond will
be dependent on the Company's level of subscriber growth and the related
marketing costs to acquire new subscribers, and the working capital needs
necessary to support such growth. During 1998, the Company has commitments
totaling approximately $9.5 million to acquire additional contract rights,
principal repayment obligations on its seller and installment notes totaling
approximately $9.5 million, and commitments under various operating leases for
office space and equipment. The Company expects to make capital expenditures of
approximately $1.5 million during 1998. Capital expenditures will be primarily
for leasehold improvements, furniture and equipment and software enhancements
associated with the Company's centralized customer call center and the opening
of retail stores. The Company plans to fund these obligations and operating cash
requirements using borrowings under the Credit Facility and cash generated from
operations. At December 31, 1997, the Company had approximately $41 million of
borrowings immediately available under the Credit Facility. The Company believes
that the available borrowings under the Credit Facility will provide sufficient
funds to enable the Company to consummate the Georgia Acquisition, make
additional acquisitions and fund debt service and operations through the
maturity date of the Credit Facility in 2003. The Company believes that
consummation of the Pegasus Merger will not adversely affect the ability of the
Company to consummate the Georgia Acquisition and fund debt service and
operations through such period,

25
<PAGE> 25

provided the Credit Facility is amended to permit the Pegasus Merger to be
consummated without an event of default (due to a change in control of the
Company). Such an amendment is a condition to the closing of the Pegasus Merger.
Other future acquisitions by the Company may become less likely as a result of
the Pegasus Merger especially if such amendment to the Credit Facility is
conditioned upon a reduction in amounts available thereunder. The consummation
of the Pegasus Merger will also cause a change of control to occur under the
Indenture, and the issuers will be required to make an offer to purchase the
Notes at 101% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of purchase. The Company has entered into a
commitment letter with CIBC Oppenheimer Corp. ("CIBCC") under which CIBCC has
agreed to purchase the Notes tendered in response to the offer to purchase the
Notes. CIBCC's commitment is subject to the execution of definitive
documentation and customary closing conditions. There can be no assurance that
such alternative arrangements will be available or, if available will be on
terms satisfactory to the Company. The Company's business strategy contemplates
additional acquisitions of Rural DirecTv Markets which will require additional
capital. The Company's operations do not currently generate positive cash flow.
While the Company anticipates funding any additional acquisitions through
borrowings under the Credit Facility, seller financing in connection with such
acquisitions, additional debt and/or equity offerings and cash from operations,
there can be no assurance that such funding would be available at the time of
such acquisitions or available on favorable terms.

"Year 2000" Issues

Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations, including the Company. The Company, however, purchases customer
authorization, billing services and centralized remittance processing services
from the NRTC pursuant to the NRTC Member Agreements. The NRTC has informed the
Company that the computer system which provides such services is Year 2000
compatible. While minor difficulties could arise by or at the Year 2000, the
Company does not expect an adverse effect on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not hold any market risk sensitive instruments
for trading or other purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is set forth on pages F-2
through F-26.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

The Company had no disagreements on accounting or financial
disclosure matters with its accountants, nor did it change accountants, during
the period from inception (January 30, 1996) through the fiscal year ended
December 31, 1997.

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<PAGE> 26

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

Prior to the Corporate Conversion, the LLC was managed by its
manager, DTS Management, which in turn was managed by a board of managers. As a
result of the Corporate Conversion, the Company is now managed by a board of
directors (the "Board"), which consists of the same persons who serve as the
managers of DTS Management. DTS Management, in its capacity as sole member of
such subsidiaries, continues to serve as the manager of the Company's indirect
subsidiaries (other than Spacenet, Inc., which has its own board of directors).
The dates of service as an executive officer with the Company reflected below
include service with the Company's predecessors and DTS Management, and dates of
service as a director of the Company include service on the board of managers of
DTS Management. The Company's executive officers and directors and their
positions are as follows:

<TABLE>
<CAPTION>
Name Age Position

<S> <C> <C>
Douglas S. Holladay, Jr...... 51 President, Chief Executive Officer and Director
Earle A. MacKenzie........... 45 Vice President and Chief Operating Officer
William J. Dorran............ 41 Senior Vice President
Donald A. Doering............ 40 Vice President, Treasurer, Secretary and Chief Financial Officer
Michael C. Brooks............ 53 Director
Harry F. Hopper III.......... 44 Director
William Laverack, Jr......... 40 Director
David P. Mixer............... 45 Director
James B. Murray, Jr.......... 50 Director
Riordon B. Smith............. 37 Director
</TABLE>

Background of Directors and Executive Officers

Douglas S. Holladay, Jr. Mr. Holladay has been President and
Chief Executive Officer of the Company since April 1996 and a director since
June 1996; the Stockholders Agreement provides that the Chief Executive Officer
shall serve as a director. From 1990 to April 1996, Mr. Holladay was President
and Chief Operating Officer of Sterling Cellular, a multi-system rural cellular
operator formed in 1989.

Earle A. MacKenzie. Mr. MacKenzie has been Vice President and
Chief Operating Officer of the Company since March 1997. From June 1991 to March
1997, Mr. MacKenzie was President of Essex Communications Consulting and its
predecessor, which are providers of consulting services to the wireless
telecommunications industry. Prior to June 1991, he held various executive
positions with Contel Cellular, a leading wireless provider in rural and midsize
markets.

William J. Dorran. Mr. Dorran has been Senior Vice President of
the Company since April 1996. From 1990 to April 1996, Mr. Dorran served in
various positions with the NRTC, most recently as its Chief Operating Officer.
He was involved in negotiating and structuring the NRTC's investment in DirecTv
licenses and in developing and launching the NRTC's DirecTv operations.

Donald A. Doering. Mr. Doering has been Vice President and Chief
Financial Officer of the

27
<PAGE> 27

Company since April 1996 and Treasurer and Secretary of the Company since
October 1997. From May 1995 to April 1996 Mr. Doering served as a consultant to
the wireless communications industry. From 1989 to May 1995 Mr. Doering served
in various capacities with Sterling Cellular, most recently as Vice President
and Chief Financial Officer.

Michael C. Brooks. Mr. Brooks has been a director of the Company
since February 1997 and serves in such capacity as a designee of Whitney
pursuant to the Stockholders Agreement. He has been a general partner of J.H.
Whitney & Co., a venture capital firm ("J.H. Whitney"), since January 1985 and
currently serves as Managing Partner. Mr. Brooks is also a director of SunGard
Data Systems, Inc., DecisionOne Holdings Corp., Nitinol Medical Technologies,
Inc. and several private companies.

Harry F. Hopper III. Mr. Hopper has been a director of the
Company since June 1996 and serves in such capacity as a designee of the holders
of the Common Stock pursuant to the Stockholders Agreement. Mr. Hopper has been
a Managing Director of Columbia since January 1997. From January 1994 to January
1997, Mr. Hopper was a Senior Vice President of Columbia. From May 1990 to
January 1994, he was an Executive Vice President of the corporate general
partners of Bachtel Cellular Liquidity, LP and Paul S. Bachow Co-investment
Fund, LP.

William Laverack, Jr. Mr. Laverack has been a director of the
Company since February 1997 and serves in such capacity as a designee of Whitney
pursuant to the Stockholders Agreement. Mr. Laverack has been a general partner
of Whitney since joining the firm in May 1993. From 1991 to 1993, he was a
Managing Director of Gleacher & Co., Inc., a mergers and acquisitions advisory
firm. From 1985 to 1991 he was employed by Morgan Stanley & Co. Incorporated in
its Merchant Banking Group. Mr. Laverack is also a director of Steel Dynamics,
Inc. and several private companies.

David P. Mixer. Mr. Mixer has been a director of the Company
since June 1996 and serves in such capacity as a designee of the holders of the
Common Stock pursuant to the Stockholders Agreement. Since Columbia's inception
in March 1989, Mr. Mixer has been a Managing Director of Columbia. Since 1988,
Mr. Mixer has also been the President of Bay Cellular, a cellular communications
company. Mr. Mixer is a member of the Board of Directors of each of Saville
Systems PLC ("Saville Systems"), a producer of customized billing systems for
service providers in the telecommunications industry, Telular Corporation and
NETCOM On Line Communications Services, Inc.

James B. Murray, Jr. Mr. Murray has been a director of the
Company since June 1996 and serves in such capacity as a designee of the holders
of the Common Stock pursuant to the Stockholders Agreement. Since Columbia's
inception in March 1989, Mr. Murray has been a Managing Director of Columbia.
From January 1990 to January 1993, Mr. Murray was also the President of Randolph
Cellular Corp., a cellular communications company. Mr. Murray is a member of the
Board of Directors of Saville Systems, Advanced Radio Telecom Corp., a wireless
broadband telecommunications company, and of several privately-held
telecommunications companies, including Merrick Tower Corporation, and Contact
New Mexico, Inc.

Riordon B. Smith. Mr. Smith has been a director of the Company
since February 1997 and serves in such capacity as the designee of Chisholm
Partners III, L.P. pursuant to the Stockholders Agreement. Mr. Smith is a Senior
Vice President of Fleet Venture Resources, Inc., which he joined in 1990. Fleet
Venture Resources, Inc. is a private equity fund with an investment focus in
media and information, telecommunications services, healthcare services,
industrial manufacturing, business services and consumer products and services.

28
<PAGE> 28

Board of Directors

All directors hold office by virtue of their designation by
certain holders of capital stock of the Company pursuant to the terms of the
Stockholders Agreement dated October 10, 1997 among the Company and the holders
of its capital stock (the "Stockholders Agreement"). There are no family
relationships between any of the directors or executive officers of the Company.

Capital

Since the formation of Capital in July 1997, Mr. Holladay and
Mr. Doering have been the only directors. Mr. Holladay is also the Chairman and
President of Capital and Mr. Doering its Vice President, Treasurer and
Secretary.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information regarding the
compensation of the Company's Chief Executive Officer and the Company's other
executive officers whose total salary and bonus exceeded $100,000 during the
year ended December 31, 1997 (the "Named Executives"), as well as the total
compensation earned by the Named Executives during 1996 and 1997.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------
Shares of Common
Restricted Stock Stock Underlying All Other
Name and Principal Position Year Salary Bonus Awards(1) Options Compensation
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Holladay, Jr.
President and Chief
Executive Officer................... 1997 $ 180,000 $ 88,350 15,000(2) 13,711 $ 5,472(3)
1996 $ 120,171 $ 50,000 40,111(4) 0 $ 1,932(3)
Earle A. MacKenzie
Vice President and Chief
Operating Officer................... 1997 $ 127,212 $ 78,350 45,000(2) 13,711 $ 102(3)
1996 $ 0 $ 0 0 0 $ 0
Donald A. Doering
Vice President, Treasurer,
Secretary and Chief
Financial Officer................... 1997 $ 126,923 $ 70,800 5,000(2) 13,711 $ 1,534(3)
1996 $ 83,139 $ 40,000 20,056(5) 0 $ 792(3)
William J. Dorran
Senior Vice President............... 1997 20,000 $ 25,000 0 0 $ 102(3)
1996 $ 113,531(6) $ 25,000 26,882(7) 0 $ 0
</TABLE>
- ----------------
(1) No market exists for the Class C Units or the Class D Units. The Company
estimates that the dollar value of the Class C Units and the Class D
Units at date of grant and of the Common Stock as of December 31, 1997
was zero.
(2) Messrs. Holladay, MacKenzie and Doering received 15,000, 45,000 and
5,000 Class D Units, respectively,

29
<PAGE> 29

pursuant to the Employee Unit Plan. See"--- Employee Unit Plan." As a
result of the Corporation Conversion, each of Messrs. Holladay,
MacKenzie and Doering received a warrant to purchase that number of
shares of Common Stock equal to the number of Class D Units held by such
holder. Mr. Holladay's and Mr. Doering's warrants will vest one-fourth
On September 12, 1998; one-fourth on September 12, 1999; one-fourth on
September 12, 2000; and one-fourth on September 12, 2001. Mr.
MacKenzie's 45,000 warrants will vest one-fourth on March 24, 1998;
one-fourth on March 24, 1999; one-fourth on March 24, 2000; and
one-fourth on March 24, 2001. Any shares of Common Stock as to which the
warrant has not yet vested will be forfeited upon the earlier to occur
of (i) termination of such holder's employment with cause and (ii) such
holder's voluntary resignation (including notice by the holder of
nonrenewal of the applicable Employment Agreement. Pursuant to their
Employment Agreements, the warrants held by Messrs. Holladay, Doering
and MacKenzie shall vest immediately with respect to all shares of
Common Stock upon the earlier to occur of (i) termination of such
holder's employment without cause (including notice by the Company of
nonrenewal of the applicable Employment Agreement) and (ii) resignation
by such holder with good reason (defined as resignation following a
material reduction in his responsibilities or authority with respect to
the Company's business from such responsibilities and authority existing
as of October 10, 1997 or the requirement that he perform material
duties and responsibilities from a location outside the metropolitan
Atlanta area). In the case of the warrants held by Messrs. Holladay,
Doering and MacKenzie, one-half of any shares of Common Stock with
respect to which the warrant has not yet vested shall vest immediately
upon such holder's voluntary resignation within one year of a change of
control of the Company unless such resignation was prompted by the fact
that cause for termination existed. To the extent that the Company pays
dividends with respect to the Common Stock, such dividends will be paid
to the holder of a warrant with respect to only those shares of Common
Stock underlying such warrant as to which such warrant has been
exercised.
(3) Represents the premiums paid by the Company with respect to term life
insurance for the benefit of such Named Executive Officers.
(4) In connection with the Corporate Conversion, Holladay Family LP
exchanged (i) 40,111 Class C Units issued as of November 19, 1996
pursuant to the Holladay Employment Agreement (as defined below) and
the LLC Agreement and (ii) a nonrecourse noninterest bearing promissory
note in the principal amount of $401,110 for 40,111 shares of Common
Stock. Such promissory note is secured by a pledge of such shares of
Common Stock. The Company estimates that the dollar value of the shares
issued at the time of the Corporate Conversion did not exceed the
market value of the Class C Units and promissory note exchanged for
such shares. The 40,111 Class C Units vested according to the following
schedule: one-third on the date on which the number of households
served by the Company first reached 250,000; two-thirds on the date on
which such number first reached 500,000; and the remainder on the date
on which such number first reached 750,000. As of the date of the
Corporate Conversion, all such Class C Units were fully vested and, as
of the date hereof, the shares of Common Stock received in exchange for
such Class C Units are fully vested. All of Mr. Holladay's shares of
Common Stock are owned by the Holladay Family Limited Partnership, a
Georgia limited partnership (the "Holladay Family LP"), of which Mr.
Holladay is the sole general partner and Mr. Holladay, his wife, and
their children are the limited partners. To the extent that the Company
pays dividends with respect to the Common Stock, Holladay Family LP
will be entitled to receive such dividends with respect to the 40,111
shares of Common Stock.
(5) In connection with the Corporate Conversion, Mr. Doering exchanged (i)
20,056 Class C Units issued as of November 19, 1996 pursuant to the
Doering Employment Agreement (as defined below) and the LLC Agreement
and (ii) a nonrecourse noninterest bearing promissory note in the
principal amount of $200,560 for 20,056 shares of Common Stock. Such
promissory note is secured by a pledge of such shares of Common Stock.
The Company estimates that the dollar value of the shares issued at the
time of the Corporate Conversion did not exceed the market value of the
Class C Units and promissory note exchanged for such shares. Mr.
Doering's 20,056 shares of Common Stock will vest according to the
following schedule: one-third on March 31, 1997; one-third on March 31,
1998; and one-third on March 31, 1999. As of the date hereof, 6,685.33
of such shares of Common Stock were vested. Shares of Common Stock
received by Mr. Doering in exchange for Class C Units in connection with
the Corporate Conversion that have not vested will be forfeited upon the
earlier to occur of (i) termination of Mr. Doering's employment with
cause and (ii) Mr. Doering's voluntary resignation (including notice by
Mr. Doering of nonrenewal of the Doering Employment

30
<PAGE> 30

Agreement). All of such unvested shares of Common Stock shall vest
immediately upon the earlier to occur of (i) termination of Mr.
Doering's employment without cause (including notice by the Company of
nonrenewal of the Doering Employment Agreement) and (ii) resignation by
Mr. Doering with good reason (defined as resignation following a
material reduction in his responsibilities or authority with respect to
the Company's business from such responsibilities and authority
existing as of October 2, 1997 or the requirement that he perform
material duties and responsibilities from a location outside the
metropolitan Atlanta area). One-half of any unvested shares of Common
Stock shall vest immediately upon Mr. Doering's voluntary resignation
within one year of a change of control of the Company unless such
resignation was prompted by the fact that cause for termination
existed. To the extent that the Company pays dividends with respect to
the Common Stock, Mr. Doering will be entitled to receive such
dividends with respect to the 20,056 shares of Common Stock.
(6) The Company paid Mr. Dorran approximately $25,000 of his total 1996
salary and reimbursed Columbia for the balance.
(7) In connection with the Corporate Conversion, Mr. Dorran exchanged (i)
26,882 Class C Units issued as of November 19, 1996 pursuant to the
Dorran Employment Agreement (as defined below) and the LLC Agreement
and (ii) a nonrecourse noninterest bearing promissory note in the
principal amount of $268,820 for 26,882 shares of Common Stock. Such
promissory note is secured by a pledge of such shares of Common Stock.
The Company estimates that the dollar value of the shares issued at the
time of the Corporate Conversion did not exceed the market value of the
Class C Units and promissory note exchanged for such shares. Mr.
Dorran's 26,882 shares of Common Stock vested according to the
following schedule: 40% on the date on which the number of households
served by Company first reached 200,000; 40% on September 1, 1996; and
20% on September 1, 1997. As of the date of the Corporate Conversion,
all such Class C Units were fully vested and, as of the date hereof,
the shares of Common Stock received in exchange for such Class C Units
are fully vested. To the extent that the Company pays dividends with
respect to the Common Stock, Mr. Dorran will be entitled to receive
such dividends with respect to the 26,882 shares of Common Stock.

31
<PAGE> 31

Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------

Number of Potential Realizable Value Assumed
Shares of annual Rates of Stock Price
Common Percent of Appreciation for Option Term
Stock Total Options ----------------------------------
Name Underlying Granted to
Options Employees Exercise Expiration
Granted during 1997 Price/Share Date 5% 10% 0%
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas S. Holladay, Jr. 10,000(1) 22.92% $22.50 10/10/04 $121,400 $192,300 $60,000
3,711(2) 8.51% $22.50 10/30/99 -- -- $22,266

Earle A. MacKenzie 10,000(1) 22.92% $22.50 10/10/04 $121,400 $192,300 $60,000
3,711(2) 8.51% $22.50 10/30/99 -- -- $22,266

Donald A. Doering 10,000(1) 22.92% $22.50 10/10/04 $121,400 $192,300 $60,000
3,711(2) 8.51% $22.50 10/30/99 -- -- $22,266

William J. Dorran -- -- -- -- -- -- --
</TABLE>

(1) Option will vest with respect to the number of shares of Common Stock
determined by multiplying (x) 25%, by (y) the number of full years that
have passed since October 10, 1997, by (z) 10,000. Option may be
exercised to the extent vested at any time and from time to time until
its expiration on October 10, 2004. Option will, to the extent not
vested, be forfeited upon the earlier to occur of (i) termination of
such holder's employment with cause and (ii) such holder's voluntary
resignation (including notice by the holder of nonrenewal of the
applicable Employment Agreement). Option shall vest immediately upon
the earlier to occur of (i) termination of such holder's employment
without cause (including notice by the Company of nonrenewal of the
applicable Employment Agreement) and (ii) resignation by such holder
with good reason (defined as resignation following a material reduction
in his responsibilities or authority with respect to the Company's
business from such responsibilities and authority existing as of
October 10, 1997 or the requirement that he perform material duties and
responsibilities from a location outside the metropolitan Atlanta
area). In the event of voluntary resignation upon a change of control
of the Company, 50% of the portion of the option that is unvested shall
become fully vested; provided, however, that if such voluntary
resignation is prompted by the fact that cause existed for termination,
then all of the unvested portion of the option shall be forfeited. In
addition, the Compensation Committee of the Board has the authority to
accelerate vesting of stock options with the consent of the holder of
the option.
(2) Option was fully vested as of the dated of grant and may be exercised
at any time and from time to time until its expiration on October 30,
1999. The Compensation Committee of the Board has the authority to
accelerate vesting of stock options with the consent of the holder of
the option.

Employment Agreements

The Company has entered into an employment agreement with each of
Mr. Holladay (the "Holladay Employment Agreement") and Mr. Dorran (the "Dorran
Employment Agreement"), which became effective on April 1, 1996, an employment
agreement with Mr. Doering (the "Doering Employment Agreement"), which became
effective on April 15, 1996, and an employment agreement with Mr. MacKenzie (the
"MacKenzie Employment Agreement"), which became effective on March 24, 1997
(collectively, as amended, the "Employment Agreements"). The Employment
Agreements

32
<PAGE> 32

(other than the Dorran Employment Agreement) were amended effective October 10,
1997, the date of the Corporate Conversion, and effective November 6, 1997, the
date an Agreement in Principle with respect to the Pegasus Merger was signed,
which amendments are subject to stockholder approval. The Holladay, Doering and
Dorran Employment Agreements expire on March 31 of each year and are
automatically renewed for successive one-year terms unless the Company gives
notice of nonrenewal or the employee gives notice of resignation on or prior to
January 31 preceding the expiration date. The MacKenzie Employment Agreement
expires on March 23 of each year and is automatically renewed for successive
one-year terms unless terminated by either Mr. MacKenzie or the Company. The
Company may terminate any of the Employment Agreements prior to the end of their
terms with or without cause.

The Holladay Employment Agreement provides that Mr. Holladay will
be paid a salary of $15,000 per month from January 1, 1997 through March 31,
1998. Mr. Holladay's current compensation is $15,000 per month. The Employment
Agreements provide that each of Mr. Doering and Mr. Dorran will be paid a salary
not less than $120,000 per year, which salary shall be reviewed not less often
than annually by the Board to determine whether such salary should be increased.
Mr. Doering's compensation is currently $130,000 per year. The MacKenzie
Employment Agreement provides that Mr. MacKenzie will be paid a salary of $6,731
bi-weekly, which salary shall be reviewed on each successive March 24 by the
Chief Executive Officer of the Company and the Board to determine whether such
salary should be increased. During the term of the applicable Employment
Agreement, each of Messrs. Holladay, Doering and Dorran will also be paid a
bonus on or before January 31 in an amount determined by the Board in its sole
discretion in light of his performance during the prior fiscal year. Under the
MacKenzie Employment Agreement, Mr. MacKenzie will be paid a bonus of $50,000
per year, if the financial and operating objectives of the Company are met as of
the end of the applicable calendar year, which amount may be increased in the
sole discretion of the Company if such objectives are materially exceeded. The
Holladay Employment Agreement, the MacKenzie Employment Agreement and the
Doering Employment Agreement provide that in the event that Mr. Holladay, Mr.
MacKenzie or Mr. Doering, respectively, (i) is terminated without cause, (ii)
resigns for good reason (defined as resignation following a material reduction
in his responsibilities or authority with respect to the Company's business from
such responsibilities and authority existing as of October 2, 1997 or the
requirement that he perform material duties and responsibilities from a location
outside the metropolitan Atlanta area), (iii) resigns for any reason within one
year following a change of control of the Company, or (iv) is notified of
nonrenewal of his Employment Agreement, then he shall receive severance payments
from the Company equal to 12 to 24 months' base salary, depending upon the
timing and circumstances of their termination.

Pursuant to their respective Employment Agreements and the LLC
Agreement, the Company issued 40,111, 20,056 and 26,882 Class C Units to Messrs.
Holladay, Doering and Dorran, respectively which Class C Units, together with
certain noninterest bearing promissory notes, were exchanged for shares of
Common Stock in connection with the Corporate Conversion. See "-- Executive
Compensation." Their Employment Agreements also permitted Messrs. Holladay,
Doering and Dorran to purchase Class B Units at a price of $10.00 per Unit.
Pursuant to these rights, Mr. Holladay purchased 46,000 Class B Units, Mr.
Doering purchased 17,500 Class B Units and Mr. Dorran purchased 37,000 Class B
Units. In connection with the Corporate Conversion, each such Class B Unit was
converted into one share of Common Stock. All of Mr. Holladay's shares of Common
Stock are held by the Holladay Family LP. Although no market has ever existed
for the Class B Units, the Company believes that the $10.00 per Class B Unit
purchase price was no less than the fair market value of such Units on the dates
they were purchased. To enable Messrs. Holladay, Doering and Dorran to purchase
a portion of these Class B Units, Columbia DBS Investors, L.P. loaned them

33
<PAGE> 33

$160,000, $80,000 and 190,000, respectively. Each such loan is secured by a
pledge of 20,000 shares of Common Stock in the case of Mr. Holladay and Mr.
Dorran and 10,000 shares of Common Stock in the case of Mr. Doering, and is
evidenced by a promissory note bearing interest at a rate of 10% per annum,
payable in full at maturity and maturing upon the earlier to occur of (i) April
1, 2001 and (ii) receipt by Mr. Holladay, Mr. Doering or Mr. Dorran, as the case
may be, of the proceeds from the sale of all of the shares of Common Stock
received upon conversion of his Class B Units (including, in the case of Mr.
Holladay, the shares of Common Stock received upon conversion of the Class B
Units held by the Holladay Family LP). The notes are subject to mandatory
prepayment equal to (i) 100% of all cash distributions, other than distributions
to pay taxes, received by Mr. Holladay, Mr. Doering or Mr. Dorran, as the case
may be, from the Company with respect to the shares of Common Stock received
upon conversion of Class B Units, plus (ii) 60% of the cash proceeds received
from Mr. Holladay, Mr. Doering or Mr. Dorran, as the case may be, from a sale of
less than all of the shares of Common Stock received upon conversion of Class B
Units.

Their Employment Agreements and Subscription Agreements with
respect to shares of Common Stock received upon conversion of the Class C Units
provide that the Company has the option to repurchase all of the shares of
Common Stock received upon conversion of Class C Units held by Mr. Holladay (or
by the Holladay Family LP), Mr. Doering or Mr. Dorran, as the case may be, that
have vested and all of such executive's shares of Common Stock received upon
conversion of Class B Units at fair market value if such executive's employment
with the Company is terminated for cause by the Company or if such executive
resigns prior to April 1, 1998 with respect to Mr. Holladay and Mr. Dorran or
April 1, 1999 with respect to Mr. Doering. After April 1, 1998 with respect to
Mr. Holladay and Mr. Dorran or April 1, 1999 with respect to Mr. Doering, none
of their shares of Common Stock is subject to repurchase under the Employment
Agreements or Subscription Agreements. Mr. Doering's Class C Units that have not
vested will be forfeited or their acceleration vested upon certain conditions.
At such time as employment is terminated, all unvested shares of Common Stock
received upon conversion of Class C Units held by Mr. Dorran shall be forfeited,
except that if Mr. Dorran's employment is terminated by the Company other than
for cause, Mr. Dorran's shares of Common Stock received upon conversion of Class
C Units will become fully vested. See " -- Executive Compensation."

Employee Unit Plan

In March 1997 DTS Management adopted an Employee Unit Plan (the
"Employee Unit Plan") providing for the issuance of up to 180,000 Class D Units
to employees or independent contractors of DTS Management or the Subsidiaries at
prices equal to the market value thereof as of the date of issuance and pursuant
to terms and conditions (including vesting) determined by DTS Management. As of
October 9, 1997 (the date immediately prior to the Corporate Conversion),
124,000 Class D Units had been issued pursuant to the Employee Unit Plan, of
which 15,000 Class D Units were issued to Mr. Holladay, 45,000 Class D Units
were issued to Mr. MacKenzie and 5,000 Class D Units were issued to Mr. Doering.
In connection with the Corporate Conversion, each holder's Class D Units were
converted into a warrant to purchase at $22.50 per share a number of shares of
Common Stock equal to the number of Class D Units held by such holder and are
subject to certain vesting requirements.

34
<PAGE> 34

Stock Option Plan

In October 1997, the Board adopted and the stockholders approved
the Digital Television Services, Inc. 1997 Stock Option Plan (the "Employee
Stock Plan") pursuant to which up to 100,000 shares of Common Stock (or such
larger number of shares as may be approved by the compensation committee of the
Board) may be granted to employees or independent contractors of the Company or
the Subsidiaries at prices equal to the market value thereof as of the date of
issuance and pursuant to such terms and conditions (including vesting) as the
Board shall determine. As of the date hereof, stock options have been granted
with respect to 43,633 shares of Common Stock with an exercise price of $22.50
per share. Messrs. Holladay, MacKenzie and Doering each received stock options
exercisable with respect to 10,000 shares of Common Stock effective October 10,
1997, which options vest 25% per year through October 10, 2001 and stock options
exercisable with respect to 3,711 shares of Common Stock effective October 30,
1997, which options vest 25% per year through October 30, 2001. Forfeiture and
accelerated vesting provisions substantially identical to those applicable to
their warrants also apply to stock options held by Messrs. Holladay, MacKenzie
and Doering. In addition, the compensation committee of the Board has the
authority to accelerate vesting of stock options and to redesignate incentive
stock options as nonqualified stock options with the consent of the relevant
optionee.

Director Compensation

Directors do not receive compensation in their capacity as directors,
but are entitled to reimbursement of expenses incurred in connection with their
attendance at Board meetings.

Compensation Committee Interlocks and Insider Participation

The Company's compensation committee consists of Mr. Brooks (chairman),
Mr. Smith and Mr. Mixer. Mr. Smith is a Senior Vice President of Fleet Venture
Resources, Inc., which is an affiliate of Fleet National Bank, the documentation
agent and a lender under the Credit Facility. Fleet Venture Resources, Inc. and
its affiliate, Fleet Equity Partners VI, L.P., own in the aggregate 367,960
shares of Series A Preferred Stock, representing approximately 13% of all
classes of the Company's capital stock. Mr. Mixer is a principal of Columbia
Capital Corporation. Columbia formed the Company in 1996 and provides financial,
managerial and other services to the Company. The Company paid Columbia
approximately $47,000 in 1997 for such services. Columbia and its affiliates own
327,613 shares of Series A Preferred Stock and 1,949,500 shares of Common Stock,
representing approximately 64% of all classes of the Company's capital stock.

Director Compensation

Directors do not receive compensation in their capacity as directors,
but are entitled to reimbursement of expenses incurred in connection with their
attendance at Board meetings.

Compensation Committee Interlocks and Insider Participation

The Company's compensation committee consists of Mr. Brooks (chairman),
Mr. Smith and Mr. Mixer.

35
<PAGE> 35

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of March
23 , 1998, regarding beneficial ownership of (i) the Company's capital stock by
all directors of the Company and all Named Executives, and all directors and
executive officers of the Company as a group, and (ii) the Company's voting
securities by persons or entities known to the Company to be the beneficial
owner of more than five percent of any class of such securities.

Series A Preferred Percent of All
Common Stock Stock Capital Stock
-------------------------- ---------------------- Considered as
Name and Address Number of Percentage Number of Percentage a Single
of Beneficial Owner Shares of Class Shares of Class Class(19)

<S> <C> <C> <C> <C> <C>
Whitney Equity Partners, L.P.(1)................. -- -- 608,424 43.34% 17.18%
Fleet Venture Resources, Inc.(2)................. -- -- 468,019 33.33% 13.22%
Fleet Equity Partners VI, L.P.(2)................ -- -- 468,019 33.33% 13.22%
Chisholm Partners III, L.P.(2)................... -- -- 468,019 33.33% 13.22%
Kennedy Plaza Partners(2)........................ -- -- 468,019 33.33% 13.22%
Columbia Capital Corporation(3)(4)............... 1,949,500 91.22% 327,613 23.33% 64.31%
Columbia DBS Class A Investors, LLC(3)(5)........ -- -- 327,613 23.33% 9.25%
Columbia DBS Investors, L.P.(3)(6)............... 1,937,579 90.67% -- -- 54.72%
Harry F. Hopper III(3)(7)........................ -- -- -- -- --
David P. Mixer(8)(9)............................. -- -- -- -- --
James B. Murray, Jr.(8)(10)...................... -- -- -- -- --
William Laverack, Jr.(11)........................ -- -- 608,424 43.34% 17.18%
Michael C. Brooks(12)............................ -- -- 608,424 43.34% 17.18%
Riordon B. Smith(13)............................. -- -- 468,019 33.33% 13.22%
Douglas S. Holladay, Jr.(14)(15)................. 86,111 4.03% -- -- 2.43%
Earle A. MacKenzie(14)(16)....................... -- -- -- -- --
William J. Dorran(17)............................ 63,882 2.99% -- -- 1.80%
Donald A. Doering(14)(18)........................ 37,556 1.76% -- -- 1.06%
All managers and executive officers as a
group (10 Persons).............................. 187,549 8.78% 1,076,443 76.67% 35.69%
</TABLE>

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

(1) The address of this person is 177 Broad Street, Stamford,
Connecticut 06901.
(2) Includes 257,572 shares of Series A Preferred Stock held by
Fleet Venture Resources, Inc. and Fleet Equity Partners VI,
L.P. (together, the "Fleet Entities") and 93,604 shares of
Series A Preferred Stock held by Chisholm Partners III, L.P.,
and 6,455 shares of Series A Preferred Stock held by Kennedy
Plaza Partners. The address of this person is 50 Kennedy
Plaza, RI MO F12C, Providence, Rhode Island 02903.
(3) The address of this person is 201 N. Union Street, Suite 300,
Alexandria, Virginia 22314-2642.
(4) Includes 327,613 shares of Series A Preferred Stock held by
Columbia DBS Class A Investors, LLC, 1,937,579 shares of
Common Stock held by Columbia DBS Investors, L.P. and 11,921
shares of Common Stock held by Columbia DBS, Inc. Columbia
Capital Corporation is the sole general partner of Columbia
DBS Investors, L.P. and as such has sole investment and voting
power over the shares of Common Stock held by Columbia DBS
Investors, L.P. The same persons who serve as directors of
Columbia Capital Corporation also serve as directors of
Columbia DBS, Inc. and have a majority of the voting power of
Columbia DBS Class A Investors, LLC. Columbia Capital
Corporation disclaims beneficial ownership of such shares of
capital stock, except the shares of capital stock held by
Columbia DBS Investors, L.P.
(5) Excludes 1,937,579 shares of Common Stock held by Columbia DBS
Investors, L.P., and 11,921 shares of Common Stock held by
Columbia DBS, Inc. The same persons who have a majority of the
voting power of Columbia DBS Class A Investors, LLC also serve
as directors of each of Columbia Capital Corporation and
Columbia DBS, Inc. Columbia Capital Corporation is the sole
general partner of

36
<PAGE> 36

Columbia DBS Investors, L.P. and as such has sole investment
and voting power over the shares of capital stock held by
Columbia DBS Investors, L.P. Columbia DBS Class A Investors,
LLC disclaims beneficial ownership of all shares of capital
stock except those shares of capital stock held directly by
it.
(6) Excludes 327,613 shares of Series A Preferred Stock held by
Columbia DBS Class A Investors, LLC and 11,921 shares of
Common Stock held by Columbia DBS, Inc. Columbia Capital
Corporation is the sole general partner of Columbia DBS
Investors, L.P. and as such has sole investment and voting
power over the shares of Common Stock held by Columbia DBS
Investors, L.P. The same persons who serve as directors of
Columbia Capital Corporation also serve as directors of
Columbia DBS, Inc. and have a majority of the voting power of
Columbia DBS Class A Investors, LLC. Columbia DBS Investors,
L.P. disclaims beneficial ownership of all shares of capital
stock except those shares of capital stock held directly by
it.
(7) Excludes 1,937,579 shares of common stock held by Columbia DBS
Investors, L.P. and 11,921 shares of capital stock held by
Columbia DBS, Inc. Mr. Hopper is a shareholder of Columbia
Capital Corporation and Columbia DBS, Inc. and a limited
partner of Columbia DBS Investors, L.P. Mr. Hopper disclaims
beneficial ownership of the shares of Common Stock held by
Columbia DBS Investors, L.P. and Columbia DBS, Inc.
(8) Excludes 327,613 shares of Series A Preferred Stock held by
Columbia DBS Class A Investors, LLC, 1,937,579 shares of
Common Stock held by Columbia DBS Investors, L.P. and 11,921
shares of Common Stock held by Columbia DBS, Inc. Messrs.
Mixer and Murray are members of Columbia DBS Class A
Investors, LLC, limited partners of Columbia DBS Investors,
L.P., and shareholders of Columbia Capital Corporation (the
sole general partner of Columbia DBS Investors, L.P.) and
Columbia DBS, Inc. Messrs. Mixer and Murray disclaim
beneficial ownership of the shares of capital stock held by
Columbia DBS Class A Investors, LLC, Columbia DBS Investors,
L.P., and Columbia DBS, Inc.
(9) The address of this person is 5586 Post Road, Suite 110, East
Greenwich, Rhode Island 02818.
(10) The address of this person is 0 Court Square, P.O. Box 1465,
Charlottesville, Virginia 22901.
(11) Includes 608,424 shares of Series A Preferred Stock held by
Whitney Equity Partners L.P. Mr. Laverack has shared voting
and investment power over such shares of Series A Preferred
Stock with the managing members of the general partner of
Whitney Equity Partners, L.P. and disclaims beneficial
ownership of such shares of Series A Preferred Stock. The
address of this person is 177 Broad Street, Stamford, CT
06901.
(12) Includes 608,424 shares of Series A Preferred Stock held by
Whitney Equity Partners, L.P. Mr. Brooks has shared voting and
investment power over such shares of Series A Preferred Stock
with the managing members of the general partner of Whitney
Equity Partners, L.P. and disclaims beneficial ownership of
such shares of Series A Preferred Stock. The address of this
person is 177 Broad Street, Stamford, CT 06901.
(13) Includes 367,960 shares of Series A Preferred Stock held by
the Fleet Entities and 93,604 shares of Series A Preferred
Stock held by Chisholm Partners III, L.P., and 6,455 shares of
Series A Preferred Stock held by Kennedy Plaza Partners. Mr.
Smith, a member of the Board, is a Senior Vice President of
each of the managing general partners of Fleet Equity Partners
VI, L.P., is a Senior Vice President of Fleet Venture
Resources, Inc., is a Senior Vice President of the corporation
that is the general partner of the partnership that is the
general partner of Chisholm Partners III, L.P., and a partner
of Kennedy Plaza Partners. As Senior Vice President of Fleet
Growth Resources II, Inc. and Silverado IV Corp. (the two
general partners of Fleet Equity Partners VI, L.P.) and as a
Senior Vice President of Fleet Venture Resources, Inc. and
Silverado III Corp. (the general partner of the partnership
(Silverado III, L.P.) which is the general partner of Chisholm
Partners III, L.P.), Mr. Smith may be considered to share
investment and voting power with Robert M. Van Degna and Habib
Y. Gorgi, the Chairman and CEO, and President, respectively,
of the aforementioned entities. As a partner of Kennedy Plaza
Partners, Mr. Smith may be considered to share investment and
voting power with Mr. Van Degna and Mr. Gorgi, the Managing
General Partners of Kennedy Plaza Partners. Mr. Smith
disclaims beneficial ownership of all shares held directly by
Fleet Venture Resources, Inc. and all shares held directly by
Fleet Equity Partners VI, L.P., Chisholm Partners III, L.P.
and Kennedy Plaza Partners, except for his pecuniary interest
therein. The address of this person is 50 Kennedy Plaza, RI MO
F12C, Providence, Rhode Island 02903.
(14) The address of this person is Building C-200, 880 Holcomb
Bridge Road, Roswell, Georgia 30076.

37
<PAGE> 37

(15) All of Mr. Holladay's shares of Common Stock are held by the
Holladay Family LP. Mr. Holladay was issued 15,000 Class D
Units on September 12, 1997 pursuant to the Employee Unit
Plan. Mr. Holladay's Class D Units were converted into a
warrant to purchase 15,000 shares of Common Stock in
connection with the Corporate Conversion. Mr. Holladay was
granted stock options to acquire 10,000 shares and 3,711
shares of Common Stock under the Employee Stock Plan effective
October 10, 1997 and October 30, 1997, respectively. Upon full
exercise of such warrant and stock options, Mr. Holladay would
beneficially own 3.22% of the capital stock of the Company
(including the shares of Common Stock owned by the Holladay
Family LP).
(16) Mr. MacKenzie was issued 45,000 Class D Units on March 24,
1997 pursuant to the Employee Unit Plan. Mr. MacKenzie's Class
D Units were converted into a warrant to purchase 45,000
shares of Common Stock in connection with the Corporate
Conversion. Mr. MacKenzie was granted stock options to acquire
10,000 shares and 3,711 shares of Common Stock under the
Employee Stock Plan effective October 10, 1997 and October 30,
1997, respectively. Upon full exercise of such warrant and
stock options, Mr. MacKenzie would beneficially own 1.63% of
the capital stock of the Company.
(17) The address of this person is 2808 Octavia Street, San
Francisco, California 94123.
(18) Mr. Doering was issued 5,000 Class D Units on September 12,
1997 pursuant to the Employee Unit Plan. Mr. Doering's Class D
Units were converted into a warrant to purchase 5,000 shares
of Common Stock in connection with the Corporate Conversion.
Mr. Doering was granted stock options to acquire 10,000 shares
and 3,711 shares of Common Stock under the Employee Stock Plan
effective October 10, 1997 and October 30, 1997, respectively.
Upon full exercise of such warrant and stock options, Mr.
Doering would beneficially own 1.58% of the capital stock of
the Company.
(19) Excludes 124,000 shares of Common Stock issuable to employees
and consultants upon the exercise of certain warrants.

The Pegasus Merger, if consummated, will result in a change of
control of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Columbia provides financial, managerial and other services to the
Company. The Company has formulated its business plan in reliance upon market
research, financial analysis and recommendations, some of which have been
provided by Columbia. The Company paid Columbia approximately $47,000 in 1997
for such services. Columbia formed the Company in 1996. Columbia and its
affiliates own 327,613 shares of Series A Preferred Stock and 1,949,500 shares
of Common Stock, representing approximately 64% of all classes of the Company's
capital stock. Messrs. Hopper, Mixer and Murray are principals of Columbia and
directors of the Company.

Fleet National Bank is the documentation agent and a lender
under the Company's bank credit facility. Fleet National Bank is an affiliate of
Fleet Venture Resources, Inc. and Fleet Equity Partners VI, L.P., which in the
aggregate own 367,960 shares of Series A Preferred Stock, representing
approximately 13% of all classes of the Company's capital stock. Mr. Smith is a
Senior Vice President of Fleet Venture Resources, Inc. and a director of the
Company.

38
<PAGE> 38

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The Financial Statements listed in the accompanying Index on page
F-1 are filed as a part of this Report.

(a)(2) Financial Statement Schedules

Financial statement schedules are omitted because they are
either: (i) not applicable or not required; or (ii) the information required is
contained in the consolidated financial statements or the notes thereto.

(a)(3) Exhibits

Refer to (c) below.

(b) Reports on Form 8-K

None.

Reference is made to the Index to Exhibits immediately preceding
the exhibits hereto.

39
<PAGE> 39

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Digital Television Services, Inc. has duly caused this
Report to be signed on its behalf by the undersigned, thereto duly authorized.

Digital Television Services, Inc.

March 23, 1998 By: /s/ Douglas S. Holladay, Jr.
- -------------------- ------------------------------------
Date Douglas S. Holladay, Jr.
President, Chief Executive Officer
and Director

POWER OF ATTORNEY

KNOW BY ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and severally, Douglas
S. Holladay, Jr. and Donald A. Doering, and each one of them, his
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any and all amendments to this Annual Report (Form 10-K) and
to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchanges Act of
1934, this Report has been signed below by the following persons on behalf of
the Digital Television Services, Inc. and in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Douglas S. Holladay, Jr. President, Chief Executive March 23, 1998
- ----------------------------- Officer and Director
Douglas S. Holladay, Jr. (principal executive officer)

/s/ Donald A. Doering Vice President, Treasurer, March 23, 1998
- ----------------------------- Secretary and Chief Financial
Donald A. Doering Officer (principal financial
and accounting officer)

/s/ Michael C. Brooks Director March 23, 1998
- -----------------------------
Michael C. Brooks

Director March __, 1998
- -----------------------------
Harry F. Hopper III

Director March __, 1998
- -----------------------------
William Laverack, Jr.

</TABLE>

40
<PAGE> 40
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ David P. Mixer Director March 23, 1998
- -----------------------------
David P. Mixer

/s/ James B. Murray Director March 23, 1998
- -----------------------------
James B. Murray

/s/ Riordon B. Smith Director March 23, 1998
- -----------------------------
Riordon B. Smith

</TABLE>

41
<PAGE> 41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DTS Capital, Inc. has duly caused this Report to be signed
on its behalf by the undersigned, thereto duly authorized.

DTS Capital, Inc.

March 23, 1998 By: /s/ Douglas S. Holladay, Jr.
- -------------------- ------------------------------------
Date Douglas S. Holladay, Jr.
President and Director

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Exchanges Act of
1934, this Report has been signed below by the following persons on behalf of
DTS Capital, Inc. and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>

/s/ Douglas S. Holladay, Jr. President and Director March 23, 1998
- ----------------------------- (principal executive officer)
Douglas S. Holladay, Jr.

/s/ Donald A. Doering Vice President, Treasurer, March 23, 1998
- ----------------------------- Secretary and Director
Donald A. Doering (principal financial and
accounting officer)

</TABLE>

42
<PAGE> 42

DIGITAL TELEVISION SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS

Page
----
Report of Arthur Andersen, LLP............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............... F-3
Consolidated Statements of Operations for the period from Inception
(January 30, 1996) to December 31, 1996 and for the year ended
December 31, 1997....................................................... F-4
Consolidated Statements of Members'/Stockholders' Equity for the
period from Inception (January 30, 1996) to December 31, 1996 and
for the year ended December 31, 1997.................................... F-5
Consolidated Statements of Cash Flows for the period from Inception
(January 30, 1996) to December 31, 1996 and for the year ended
December 31, 1997....................................................... F-6
Notes to Consolidated Financial Statements................................. F-7

F-1
<PAGE> 43

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
of Digital Television Services, Inc.:

We have audited the accompanying consolidated balance sheets of DIGITAL
TELEVISION SERVICES, INC. (a Delaware corporation and formerly Digital
Television Services, LLC) AND SUBSIDIARIES as of December 31, 1996 and 1997 and
the related consolidated statements of operations, members'/stockholders'
equity, and cash flows for the period from inception (January 30, 1996) through
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 Digital
Television Services, Inc. and subsidiaries as of December 31, 1996 and 1997 and
the results of their operations and their cash flows for the period from
inception (January 30, 1996) through December 31, 1996 and for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
February 18, 1998

F-2
<PAGE> 44

DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,595,955 $ 39,113,152
Restricted cash........................................... -- 19,006,386
Accounts receivable:
Trade, net of allowance for doubtful accounts of $6,750
and $190,647 at December 31, 1996 and 1997,
respectively......................................... 893,950 4,629,539
Other.................................................. 154,840 544,480
Inventory................................................. 244,544 2,229,918
Other (Note 2)............................................ 234,153 92,605
----------- ------------
Total current assets.............................. 3,123,442 65,616,080
----------- ------------
RESTRICTED CASH............................................. -- 18,020,702
----------- ------------
PROPERTY AND EQUIPMENT, at cost (Note 2).................... 478,445 3,474,754
Less accumulated depreciation............................. (44,339) (554,537)
----------- ------------
434,106 2,920,217
----------- ------------
CONTRACT RIGHTS AND OTHER ASSETS, NET (Note 2).............. 38,604,625 171,105,067
----------- ------------
$42,162,173 $257,662,066
=========== ============

LIABILITIES AND MEMBERS'/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,041,019 $ 4,495,937
Accrued liabilities....................................... 1,380,321 40,275,901
Unearned revenue.......................................... 1,082,601 3,314,397
Current maturities of long-term debt...................... 6,033,732 14,950,430
Other..................................................... 92,279 299,766
----------- ------------
Total current liabilities......................... 9,629,952 63,336,431
----------- ------------
LONG-TERM DEBT, less current maturities..................... 17,542,883 177,641,876
----------- ------------
OTHER LIABILITIES........................................... 83,615 46,646
----------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 8, and 10)
MEMBERS'/STOCKHOLDERS' EQUITY
Class A units............................................. -- --
Class B units............................................. 18,440,982 --
Class C units............................................. -- --
Class D units............................................. -- --
Preferred stock, $.01 par value; 10,000,000 shares
authorized; 1,404,056 issued and outstanding at
December 31, 1997...................................... -- 14,041
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,137,049 issued and outstanding at
December 31, 1997...................................... -- 21,370
Additional paid-in capital................................ -- 25,826,080
Retained deficit.......................................... (3,535,259) (9,224,378)
----------- ------------
Total members'/stockholders' equity............... 14,905,723 16,637,113
----------- ------------
$42,162,173 $257,662,066
=========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE> 45

DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
INCEPTION
(JANUARY 30) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------------- ------------
<S> <C> <C>
REVENUE:
Programming revenue....................................... $ 3,085,146 $ 41,752,873
Equipment and installation revenue........................ 323,663 5,690,253
----------- ------------
Total revenue..................................... 3,408,809 47,443,126
----------- ------------
COST OF REVENUE:
Programming expense....................................... 1,595,963 20,694,127
Cost of equipment and installation........................ 398,144 6,443,374
Service fees.............................................. 275,704 4,009,353
----------- ------------
Total cost of revenue............................. 2,269,811 31,146,854
----------- ------------
GROSS PROFIT................................................ 1,138,998 16,296,272
----------- ------------
OPERATING EXPENSES:
Sales and marketing....................................... 778,036 8,659,446
General and administrative................................ 1,953,635 8,706,851
Depreciation and amortization............................. 1,147,963 14,509,152
----------- ------------
Total operating expenses.......................... 3,879,634 31,875,449
----------- ------------
OPERATING LOSS.............................................. (2,740,636) (15,579,177)
----------- ------------
OTHER INCOME (EXPENSE):
Interest expense, net..................................... (817,603) (14,457,088)
Other income (expense).................................... 22,980 (111,350)
----------- ------------
(794,623) (14,568,438)
----------- ------------
NET LOSS.................................................... $(3,535,259) $(30,147,615)
=========== ============
</TABLE>

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

F-4
<PAGE> 46

DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF MEMBERS'/STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 30, 1996) THROUGH DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>

CLASS A CLASS B CLASS C CLASS D
------------------------ ------------------------ ---------------- -----------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT
---------- ----------- ---------- ----------- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 30,
1996............... -- $ -- -- $ -- -- $ -- -- $ --
Sale of Class B
Units............ -- -- 1,844,098 18,440,982 -- -- -- --
Issuance of Class C
Units............ -- -- -- -- 87,049 -- -- --
Net loss........... -- -- -- (3,535,259) -- -- -- --
---------- ----------- ---------- ----------- ------- ---- -------- ----
BALANCE, December 31,
1996............... -- -- 1,844,098 14,905,723 87,049 -- -- --
Sale of Class A
Units............ 1,333,333 29,820,008 -- -- -- -- -- --
Sale of Class B
Units............ -- -- 205,902 2,058,997 -- -- -- --
Issuance of Class D
Units............ -- -- -- -- -- -- 124,000 --
Net Loss (January
1, 1997 through
October 10,
1997............. -- (3,958,517) -- (16,964,720) -- -- -- --
---------- ----------- ---------- ----------- ------- ---- -------- ----
BALANCE, October 10,
1997............... 1,333,333 25,861,491 2,050,000 -- 87,049 -- 124,000 --
Conversion of
Capital (Note
7)............... (1,333,333) (25,861,491) (2,050,000) -- (87,049) -- (124,000) --
Net Loss (October
11, 1997 through
December 31,
1997............. -- -- -- -- -- -- -- --
---------- ----------- ---------- ----------- ------- ---- -------- ----
BALANCE, December 31,
1997............... -- $ -- -- $ -- -- $ -- -- $ --
========== =========== ========== =========== ======= ==== ======== ====

<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL MEMBERS'/
--------------------- --------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL DEFICIT EQUITY
--------- --------- --------- --------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 30,
1996............... -- $ -- -- $ -- $ -- $ -- $ --
Sale of Class B
Units............ -- -- -- -- -- -- 18,440,982
Issuance of Class C
Units............ -- -- -- -- -- -- --
Net loss........... -- -- -- -- -- -- (3,535,259)
--------- ------- --------- ------- ----------- ----------- -----------
BALANCE, December 31,
1996............... -- -- -- -- -- -- 14,905,723
Sale of Class A
Units............ -- -- -- -- -- -- 29,820,008
Sale of Class B
Units............ -- -- -- -- -- -- 2,058,997
Issuance of Class D
Units............ -- -- -- -- -- -- --
Net Loss (January
1, 1997 through
October 10,
1997............. -- -- -- -- -- -- (20,923,237)
--------- ------- --------- ------- ----------- ----------- -----------
BALANCE, October 10,
1997............... -- -- -- -- -- -- 25,861,491
Conversion of
Capital (Note
7)............... 1,404,056 14,041 2,137,049 21,370 25,826,080 -- --
Net Loss (October
11, 1997 through
December 31,
1997............. -- -- -- -- -- (9,224,378) (9,224,378)
--------- ------- --------- ------- ----------- ----------- -----------
BALANCE, December 31,
1997............... 1,404,056 $14,041 2,137,049 $21,370 $25,826,080 $(9,224,378) $16,637,113
========= ======= ========= ======= =========== =========== ===========
</TABLE>

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

F-5
<PAGE> 47

DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
INCEPTION
(JANUARY 30) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
--------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (3,535,259) $(30,147,615)
------------ ------------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,106,264 13,412,025
Amortization of capitalized debt costs and debt
discount............................................. 313,329 2,423,535
Amortization of deferred promotional costs............. 41,699 1,097,127
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable, net............................. (428,281) (1,678,650)
Inventory............................................ (218,140) (1,566,129)
Other current assets................................. (269,721) (771,194)
Accounts payable..................................... 877,630 19,297
Accrued liabilities and other liabilities............ 1,099,003 11,721,655
Unearned revenue..................................... 379,533 (1,817,178)
------------ ------------
Total adjustments................................. 2,901,316 22,840,488
------------ ------------
Net cash used in operating activities............. (633,943) (7,307,127)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net of
acquisitions........................................... (382,175) (2,611,405)
Disposals of property and equipment....................... (3,930) --
Increase in restricted cash for payment of subordinated
notes.................................................. -- (37,027,088)
Purchase of contract rights and related net assets, net of
amounts financed....................................... (12,695,488) (89,590,710)
Increase in other assets.................................. (693,690) (1,222,307)
------------ ------------
Net cash used in investing activities............. (13,775,283) (130,451,510)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank credit facility........................ 9,400,000 88,269,409
Repayment of bank credit facility......................... -- (82,169,409)
Proceeds from subordinated notes offering, net of
discounts.............................................. -- 152,840,850
Issuance of notes payable................................. 32,399 344,417
Repayment of seller notes and other notes payable......... (9,047,023) (6,201,532)
Capitalized financing fees................................ (2,821,177) (9,649,936)
Sale of Member Units...................................... 18,440,982 31,879,005
Other, net................................................ -- (36,970)
------------ ------------
Net cash provided by financing activities......... 16,005,181 175,275,834
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,595,955 37,517,197
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ -- 1,595,955
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 1,595,955 $ 39,113,152
============ ============
SUPPLEMENTAL NONCASH FINANCING ACTIVITY:
NRTC patronage capital declared........................... $ 83,615 $ --
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 301,035 $ 5,425,156
============ ============
Issuance of seller notes in connection with
acquisitions........................................... $ 24,156,000 $ 17,552,000
============ ============
</TABLE>

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

F-6
<PAGE> 48

DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997

1. ORGANIZATION AND NATURE OF BUSINESS

Digital Television Services, Inc. ("DTS"), a Delaware corporation, is
successor to Digital Television Services, LLC, a limited liability company
organized under the Delaware Limited Liability Act, and DBS Holdings, L.P., a
Delaware limited partnership originally formed on January 30, 1996 by Columbia
Capital Corporation ("Columbia") and senior management of DTS. DTS and its
wholly owned subsidiaries (collectively, "the Company") were formed to acquire
and operate the exclusive rights to distribute direct broadcast satellite
("DBS") services ("DIRECTV Services") offered by DirecTv, Inc. ("DirecTv") in
certain rural markets. The Company completed its first acquisition of rights to
provide DIRECTV Services in March 1996 and has made a total of 17 acquisitions
through December 31, 1997. On November 19, 1996, the limited partnership was
converted into a limited liability company. On October 10, 1997, DTS effected a
conversion from a limited liability company to a corporation through a merger
with and into WEP Intermediate Corp.

In connection with the Company's expansion, Columbia and certain of its
affiliates increased their investment in the Company in February 1997. Also, in
February 1997, the Company raised additional equity from J.H. Whitney & Co. and
Fleet Equity Partners (together with Columbia, the "Equity Investors") and from
senior executives of the Company. The Equity Investors and senior executives, in
aggregate, have contributed $50,500,000 of equity capital to the Company.

DTS is a holding company which operates primarily through its wholly-owned
subsidiaries. The principal wholly-owned subsidiaries of DTS as of December 31,
1997 consist of 11 entities (the "Operating Subsidiaries") which, except for one
subsidiary which is a Delaware limited liability company and one subsidiary
which is a New Mexico corporation, are limited liability companies organized
under the laws of the state of Georgia. The Operating Subsidiaries have the
right to provide DIRECTV Services. The sole member and manager of the Operating
Subsidiaries is DTS Management, LLC ("DTS Management"), a Georgia limited
liability company, which is a wholly-owned subsidiary of DTS. The Company's
other wholly-owned subsidiary, DTS Capital, Inc. ("DTS Capital"), was formed in
1997 and currently has nominal assets and does not conduct any operations. DTS
Capital was formed to facilitate the issuance of $155.0 million in senior
subordinated notes (the "Notes") in July 1997 (Note 5). In connection with the
reorganization (the "Reorganization") of the Company in February 1997, the
Company contributed to the capital of DTS Management the Company's ownership
interest in each of its direct subsidiaries, other than DTS Management and DTS
Capital. As a result thereof, each direct subsidiary became a wholly-owned
direct subsidiary of DTS Management and a wholly-owned indirect subsidiary of
the Company. Since each subsidiary was a wholly-owned direct or indirect
subsidiary of the Company prior to the Reorganization, the Reorganization had no
impact on the consolidated financial statements of the Company.

The Company obtained the rights to distribute DIRECTV Services in its
territories pursuant to agreements (the "NRTC Member Agreements") with the
National Rural Telecommunications Cooperative (the "NRTC"). Under the provisions
of the NRTC Member Agreements, the Company has the exclusive right to provide
DIRECTV Services within certain rural territories in the United States (Note 3).

The Company has had a limited operating history during which time it has
generated negative cash flows and net losses. The negative cash flows can be
attributed to the costs incurred to purchase NRTC contract rights and related
assets (Notes 3 and 10) and general corporate overhead expenses. The Company
expects negative cash flows and net losses to continue through at least 1998, as
the Company plans to purchase additional contract rights and to incur
substantial selling and marketing expenses in order to build its subscriber
base. The ability to generate positive cash flow in the future is dependent upon
many factors, including general economic conditions, the level of market
acceptance for the Company's services, and the degree of competition encountered
by the Company. As discussed in Note 5, financing totaling $90 million has
F-7
<PAGE> 49
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

been committed by a syndicate of lenders, of which approximately $41.0 million
was available at December 31, 1997. The Company also issued the Notes in July
1997 (Note 5) to refinance certain indebtedness and to provide additional funds
for possible future acquisitions and general operating needs.

The success of the Company is dependent on the future ability of DTS and
its subsidiaries to generate projected revenues through successful operations.
In the opinion of management, capital on hand, as well as funds provided from
financings (Note 5), will be sufficient to meet the capital and operating needs
of the Company through at least 1998. Additional funding may be required for any
future acquisitions. However, there can be no assurance when or if future
operations of the Company will be successful or that further financing, if
needed, will be available with terms acceptable to the Company, or at all.

On November 6, 1997, the Company entered into an agreement in principle
with Pegasus Communications Corporation ("Pegasus") providing for the
acquisition of the Company by Pegasus (Note 10).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of DTS and its
subsidiaries. All significant intercompany transactions and balances have been
eliminated.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

The Company earns programming revenue by providing DIRECTV Services to its
subscribers. Programming revenue includes DIRECTV Services purchased by
subscribers in monthly, quarterly, or annual subscriptions; additional premium
programming available on an a la carte basis; sports programming available under
monthly, annual, or seasonal subscriptions; and movies and events programming
available on a pay-per-view basis. Programming purchased on a monthly,
quarterly, annual, or seasonal basis, including premium programming, is billed
in advance and is recorded as unearned revenue. All programming revenue is
recognized when earned. As programming revenue is earned uniformly over the
period of the purchase agreement with the customer, approximately $447,000 and
$2,315,000 of net accounts receivable in the accompanying consolidated balance
sheets represent unearned revenue at December 31, 1996 and 1997, respectively.

Equipment and installation revenue primarily consists of the sale of DSS(R)
equipment and accessories and related installation charges. Equipment sales
revenue represents the amounts paid by customers to the Company and is
recognized upon delivery of the equipment. Installation revenue is recognized
when the equipment is installed and represents the amounts paid by customers to
the Company for such services.

COST OF REVENUES

Cost of revenues includes the cost associated with providing DIRECTV
Services to the Company's subscribers. These costs include the direct wholesale
cost of purchasing related programming from DirecTv (through the NRTC (Note 9));
monthly subscriber maintenance fees charged by DirecTV, such as security

F-8
<PAGE> 50
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fees, ground service fees, system authorization fees, and fees for subscriber
billings; costs of equipment and installation; and certain subscriber operating
costs. Cost of equipment and installation represents the actual cost of the
equipment to the Company plus the costs to install the equipment.

INVENTORIES

The Company maintains inventories consisting of DSS(R) equipment and
related accessories. Inventory is valued at the lower of cost or market,
generally on a specific identification basis.

OTHER CURRENT ASSETS

Other current assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Deferred promotional costs....................... $214,939 $16,006
Other............................................ 19,214 76,599
-------- -------
$234,153 $92,605
======== =======
</TABLE>

Deferred promotional costs consist of costs related to a subscriber rebate
program sponsored by DirecTv. Under the program, new subscribers who sign a
non-cancellable and non-refundable contract pursuant to which they agree to
prepay for one year of programming service receive a credit which is applied
toward the one year's programming subscription. Subscribers under this program
may choose to net the credit on their first bill or pay the full amount and
receive a refund from the Company for the credit. The Company defers both the
programming revenue and the cost of this credit and amortizes them over the
one-year contract period. In addition, as a part of this program, the Company
receives $1 per month for up to five years from the NRTC for each subscriber
activated under this program. This program was discontinued in July 1997.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and repairs
which do not extend the useful lives of these assets are expensed currently.
Depreciation for property and equipment is provided using the straight-line
method over the estimated useful lives of five years for leasehold improvements
and three to seven years for furniture and equipment. Depreciation expense was
$48,269 and $509,842 for the period from inception (January 30, 1996) through
December 31, 1996 and for the year ended December 31, 1997, respectively. Upon
retirement or disposal of assets, the cost and related accumulated depreciation
are removed from the balance sheet and any gain or loss is reflected in
earnings.

Property and equipment, at cost, consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Leasehold improvements........................... $ 81,244 $ 327,804
Furniture and equipment.......................... 397,201 3,146,950
-------- ----------
$478,445 $3,474,754
======== ==========
</TABLE>

F-9
<PAGE> 51
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONTRACT RIGHTS AND OTHER ASSETS

Contract rights and other assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Contract rights.................................. $32,727,697 $170,715,335
Organization costs............................... 599,528 1,166,475
----------- ------------
33,327,225 171,881,810
Accumulated amortization......................... (1,057,995) (13,943,682)
----------- ------------
32,269,230 157,938,128
Deposits on Pending Acquisitions................. 3,380,961 250,000
Debt issuance costs, net......................... 2,776,658 4,002,209
Bond issuance costs, net......................... -- 7,276,609
NRTC patronage capital........................... 83,615 46,646
Subscriber acquisition receivable................ -- 717,632
Capitalized merger costs......................... -- 555,239
Other............................................ 94,161 318,604
----------- ------------
$38,604,625 $171,105,067
=========== ============
</TABLE>

Contract Rights: Contract rights represent the cost of acquiring rights to
distribute DIRECTV Services (Note 3), less net tangible assets acquired.
Contract rights are being amortized over ten years, the estimated remaining
useful life of the satellites operated by DirecTv which provide service under
the related contracts. Amortization expense, included in depreciation and
amortization in the accompanying consolidated statements of operations, was
$1,021,606 and $12,646,558 for the period from inception (January 30, 1996)
through December 31, 1996 and for the year ended December 31, 1997,
respectively. Accumulated amortization, included in the accompanying
consolidated balance sheets, was $1,021,606 and $13,668,165 for the period from
inception (January 30, 1996) through December 31, 1996 and for the year ended
December 31, 1997, respectfully.

Organization Costs: Organization costs are costs associated with the
formation of the Company and its subsidiaries and are being amortized over five
years. Amortization expense included in depreciation and amortization in the
accompanying consolidated statements of operations was $33,891 and $241,626, for
the period from inception (January 30, 1996) through December 31, 1996 and for
the year ended December 31, 1997, respectively. Accumulated amortization,
included in the accompanying consolidated balance sheets, was $33,891 and
$275,517 for the period from inception (January 30) through December 31, 1996
and for the year ended December 31, 1997, respectively.

Deposits on Acquisitions: In accordance with the provisions of asset
purchase agreements entered into by the Company, deposits were made into escrow
accounts for acquisitions of contract rights in Kentucky, Vermont and Kansas,
which were pending at December 31, 1996 and for a pending acquisition of
contract rights in Georgia at December 31, 1997.

Debt Issuance Costs: Debt issuance costs are amortized over the term of
the related long-term debt facility. Amortization expense, included in interest
expense in the accompanying consolidated statements of operations, was $44,520
and $843,410 for the period from inception (January 30, 1996) through December
31, 1996 and for the year ended December 31, 1997, respectively. Accumulated
amortization, included in the accompanying consolidated balance sheets, was
$44,520 and $887,930 for the period from inception (January 30) through December
31, 1996 and for the year ended December 31, 1997, respectively.

Bond Issuance Costs: Bond issuance costs represent deferred costs incurred
in connection with the issuance of the Notes (Note 5) and are capitalized over
the life of the Notes. Amortization expense, included

F-10
<PAGE> 52
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in interest expense in the accompanying consolidated statements of operations,
was $304,364 for the year ended December 31, 1997. Accumulated amortization,
included in the accompanying consolidated balance sheets, was $304,364 for the
same period.

NRTC Patronage Capital: The Company, through its subsidiaries, is an
affiliate of the NRTC. While affiliates have no vote, they do have an interest
in the NRTC in proportion to their prior patronage. NRTC patronage capital
represents the noncash portion of NRTC patronage income. Under its bylaws, the
NRTC declares a patronage dividend of its excess of revenues over expenses each
year. Of the total patronage dividend, 20% is paid in cash and recognized as
income when received and is netted against programming expense in the
accompanying statement of operations. The remaining 80% is distributed in the
form of noncash patronage capital, which will be redeemed in cash only at the
discretion of the NRTC. The Company includes noncash patronage capital as other
assets, with an offsetting deferred patronage income amount included in other
liabilities in the accompanying consolidated balance sheets. The patronage
capital will be recognized as income when cash distributions are declared by the
NRTC. The NRTC does not permit the transfer of patronage capital. Accordingly,
noncash patronage capital due to the Operating Subsidiaries relating to the
period of time prior to the date of acquisition by the Company has not been
recorded in the accompanying consolidated balance sheets.

Subscriber Acquisition Receivable: During the second half of 1996, the
Company entered into an agreement with the NRTC pursuant to which the NRTC
provided a rebate to offset costs relating to the acquisition of new subscribers
under the Company's subscriber rebate program. The Company receives the rebate
over the period of 60 months commencing with the acquisition date of each
subscriber covered under this agreement. The receivable represents amounts due
to the Company under this agreement at December 31, 1997.

Capitalized Merger Costs: Capitalized merger costs are costs incurred
during 1997 associated with the agreement with Pegasus that provides that the
Company will become a wholly owned subsidiary of Pegasus (Note 10). As the
transaction is not expected to be completed until the first half of 1998, no
amortization expense has been recorded in the accompanying consolidated
statement of operations.

INCOME TAXES

The Company was considered a partnership for federal and state income tax
purposes for the period from inception (January 30, 1996) to October 10, 1997.
All taxable income or loss was allocated to the members in accordance with the
terms of the limited liability company agreement of the Company (the "LLC
Agreement"). Additionally, the Company incurred an operating loss for the period
from October 11, 1997 to December 31, 1997. Accordingly, no provision for income
taxes is included in the accompanying consolidated financial statements.

The Company became a taxable entity for federal and state income tax
purposes, effective with its conversion to a corporation (Note 7) on October 10,
1997. The Company accounts for income taxes using Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," which
requires the use of the asset and liability approach for financial accounting
and reporting for income taxes. Deferred tax assets and liabilities arise from
differences between the tax basis of an asset or liability and its reported
amount in the financial statements. Deferred tax balances are calculated by
applying the provisions of enacted tax law to determine the amount of taxes
payable or refundable currently or in future years.

F-11
<PAGE> 53
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The sources of the differences between the financial accounting and tax
bases of the Company's assets and liabilities which give rise to the deferred
tax assets and liabilities and the tax effects of each are as follows as of
December 31, 1997 (in thousands):

<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards ("NOLs").............. $ 3,072
Amortization........................................... 1,989
Professional fees...................................... 172
Other.................................................. 97
Less: valuation allowance.............................. (5,330)
-------
$ --
=======
</TABLE>

As of December 31, 1997, the Company had NOLs of approximately $7,877,000,
which will expire in year 2017. The Company has established a valuation
allowance equal to the net operating loss carryforwards not utilized because of
the uncertainty of the realizability of the net operating loss carryforwards.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments for which it is practicable to estimate that
value. For purposes of the following 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 sale or liquidation.

The methods and assumptions used to estimate fair value are as follows:

Cash and cash equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents. The carrying amount approximates fair value due to the
relatively short period to maturity of these instruments.

Long-term debt: Fair value is estimated based on borrowing rates
currently available to the Company for bank loans with similar terms and
average maturities.

The asset and liability amounts recorded in the accompanying balance sheets
at December 31, 1996 and 1997 for cash and cash equivalents and long-term debt
approximate fair value based on the above assumptions.

CONCENTRATION OF CREDIT RISK

Concentration of credit risk with respect to accounts receivable is limited
due to the large number of geographically dispersed subscribers. As a result, at
December 31, 1996 and 1997, management does not believe any significant
concentration of credit risk exists.

LONG-LIVED ASSETS

Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When
events or changes in circumstances occur related to long-lived assets,
management estimates the future cash flows expected to result from the use of
the asset and its eventual disposition. Having found no instances whereby the
sum of expected future cash flows (undiscounted and without interest charges)
was less than the carrying amount of the asset and thus requiring

F-12
<PAGE> 54
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the recognition of an impairment loss, management believes that the long-lived
assets in the accompanying consolidated balance sheets are appropriately valued.

3. CONTRACT RIGHTS

During 1996, the Company acquired the rights to distribute DIRECTV Services
in eight rural DirecTv markets in certain rural areas in the United States (the
"1996 Acquisitions"). The aggregate consideration was approximately $32.3
million, including closing date working capital and other adjustments as defined
in the purchase agreements and fair value adjustments related to the seller
notes (Note 5), subject to increase based on the number of subscribers in one of
the markets on October 1, 1998 (Note 5). Of the total purchase price,
approximately $9.3 million was paid in cash and approximately $24.2 million
(before fair value adjustments related to the seller notes of $1.2 million (Note
5)) was financed through the issuance of promissory notes to the sellers of the
contract rights (Note 5). Under the 1996 Acquisitions, rights were acquired in
the following markets:

- In March 1996, the Company acquired the outstanding common stock of
Spacenet, Inc. and the rights to provide DIRECTV Services in certain
counties in New Mexico.

- In April 1996, the Company acquired the rights to provide DIRECTV
Services in certain counties in California from Pacific Coast DBS, Inc.

- In August 1996, the Company acquired the rights to provide DIRECTV
Services in certain counties in New Mexico from Teg DBS Services, Inc.,
in certain counties in New York from Northeast Cable Services, Inc. and
Falls Earth Station, Inc., and in certain counties in Colorado from Omega
Cable.

- In November 1996, the Company acquired the rights to provide DIRECTV
Services in certain counties in South Carolina from Pee Dee Electric
Cooperative, Inc. and Santee Electric Cooperative, Inc.

When the Company purchases the exclusive rights to provide DIRECTV Services
in a rural DirecTv market, it acquires the NRTC Member Agreement and related
agreements providing for the exclusive rights to provide DIRECTV Services within
that market, all net assets related to the provision of DIRECTV Services in such
market, and any residual rights to provide DBS services which the NRTC may grant
the owner of such market after the termination or expiration of the NRTC Member
Agreement. The purchase price of the above acquisitions was allocated to the
fair values of the net assets acquired as follows (in thousands):

<TABLE>
<S> <C>
Current assets.............................................. $ 751
Property and equipment...................................... 96
Contract rights, net of fair value adjustments of $1.2
million................................................... 32,728
Current liabilities......................................... (1,240)
-------
Total consideration............................... $32,335
=======
</TABLE>

Any additional contingent consideration will be recorded as an increase in
contract rights.

During 1997, the Company acquired the rights to distribute DIRECTV Services
in nine additional rural DirecTv markets in certain rural areas in the United
States (the "1997 Acquisitions"). The aggregate consideration was approximately
$134.3 million including closing date working capital and other adjustments as
defined in the purchase agreements and fair value adjustments related to the
seller notes (Note 5). Of the total price, approximately $44.4 million was paid
in cash, approximately $75.3 million was financed through borrowings under the
Credit Facility and approximately $17.6 million (before fair value adjustments
related to

F-13
<PAGE> 55
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the seller notes of $3.0 million (Note 5)) was financed through the issuance of
promissory notes to the sellers of the contract rights (Note 5). Under the 1997
Acquisitions, rights were acquired in the following markets:

- In January 1997, the Company acquired the rights to provide DIRECTV
Services in certain counties in Kentucky from Direct Programming Services
Limited Partnership

- In January 1997, the Company also acquired the rights to provide DIRECTV
Services in certain counties in Kansas from Kansas DBS, L.L.C. and
Skywave Communications, Inc.

- In February 1997, the Company acquired the rights to provide DIRECTV
Services in certain counties in Vermont from Northeast DBS Enterprises,
L.P.

- In May 1997, the Company acquired the rights to provide DIRECTV Services
in certain counties in Georgia from Mitchell Electric Membership
Corporation, Washington Electric Membership Corporation, Planters
Electric Membership Corporation and DigiCom Services, Inc.

- In December 1997, the Company acquired the rights to provide DIRECTV
Services in certain counties in Indiana from Satellite Television
Services, Inc. ("STS"). The purchase price has been allocated to the
assets acquired and liabilities assumed based on the estimated fair
values as of the acquisition date. The purchase price allocation of STS
is preliminary and subject to adjustment.

The purchase price of the above acquisitions was allocated to the fair
values of the net assets acquired as follows (in thousands):

<TABLE>
<S> <C>
Current assets.............................................. $ 3,908
Property and equipment...................................... 385
Contract rights, net of fair value adjustments of $3.0
million................................................... 137,987
Current liabilities......................................... (7,965)
--------
Total consideration............................... $134,315
========
</TABLE>

The following pro forma information has been prepared assuming that the
1996 Acquisitions and the 1997 Acquisitions (collectively the "Acquisitions")
occurred at the beginning of the respective periods. This information includes
pro forma adjustments related to the amortization of contract rights resulting
from the excess of the purchase price over the fair value of the net assets
acquired and interest expense related to the Notes, the seller notes and a
portion of the credit facility which were used to acquire the Acquisitions. The
pro forma information is presented for informational purposes only and may not
be indicative of the results of operations as they would have been had the
Acquisitions occurred at the beginning of the respective periods, nor is the
information necessarily indicative of the results of the operations which may
occur in the future.

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Consolidated operating revenues...................... $ 40,024 $ 57,498
Consolidated net loss................................ $(43,718) $(44,904)
</TABLE>

4. RELATED-PARTY TRANSACTIONS

Columbia, which is owned by certain members of the Company holding Class A
and Class B units prior to October 10, 1997 and preferred stock and common stock
subsequent to October 10, 1997 (Note 7), provides financial, managerial, and
other services to the Company. Total fees and expenses paid to Columbia were
approximately $322,000 and $47,000 for the period from inception (January 30,
1996) through

F-14
<PAGE> 56
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1996 and for the year ended December 31, 1997, respectively. Such
fees are included in general and administrative expenses and other expenses in
the accompanying consolidated statements of operations.

5. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997
------------------------- --------------------------
UNAMORTIZED UNAMORTIZED
PRINCIPAL DISCOUNT PRINCIPAL DISCOUNT
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Senior subordinated notes............ $ -- $ -- $155,000,000 $2,069,185
Credit facility...................... 9,400,000 -- 15,500,000 --
Seller notes and commitments......... 15,113,250 965,011 26,544,998 2,675,149
Installment notes.................... 28,376 -- 291,642 --
----------- -------- ------------ ----------
24,541,626 965,011 197,336,640 4,744,334
Less current maturities.............. 6,130,183 96,451 16,315,333 1,364,903
----------- -------- ------------ ----------
$18,411,443 $868,560 $181,021,307 $3,379,431
=========== ======== ============ ==========
</TABLE>

SENIOR SUBORDINATED NOTES

On July 30, 1997, the Company sold the Notes in a transaction exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The Notes are the joint and several obligations of the Company and DTS
Capital. DTS Capital has nominal assets, does not conduct any operations and
will not provide any additional security for the Notes. DTS Capital was formed
solely to provide a corporate co-issuer in addition to a limited liability
company issuer (the Company). Accordingly, financial information for DTS Capital
is not provided. The Notes mature in 2007 and bear interest at 12 1/2%, payable
semi-annually on February 1 and August 1. The Company raised approximately
$146.0 million, net of underwriting discount and estimated expenses, through the
issuance of the Notes. The Company used the net proceeds to fund an interest
escrow account for the first four semi-annual interest payments and to repay
outstanding indebtedness under the Credit Facility (as defined below).

The Company filed to exchange the Notes with new senior subordinated notes
(the "Exchange Notes") registered under the Securities Act. The terms of the
Exchange Notes are identical in all material respects (including principal
amount, interest rate, maturity, security and ranking) to the terms of the
Private Notes (which they replace), except that the Exchange Notes: (i) bear a
Series B designation, (ii) have been registered under the Securities Act and,
therefore, do not bear legends restricting their transfer, and (iii) are not
entitled to certain registration rights and certain liquidated damages which
were applicable to the Notes in certain circumstances under a registration
rights agreement entered into by the Company in connection with the sale of the
Notes.

The Exchange Notes are unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by all direct and indirect subsidiaries of DTS (the "Guarantors").
The Guarantors consist of all of the subsidiaries of DTS, except DTS Capital,
which is a co-issuer of the Exchange Notes and has no separate assets or
operations. DTS does not have assets or operations apart from the assets and
operations of the subsidiaries. Accordingly, separate financial information for
the Guarantors is not provided because management of the Company has determined
that such information would not be material to investors. On January 26 1998,
the Company completed the exchange of the Notes with the Exchange Notes.

F-15
<PAGE> 57
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CREDIT FACILITY

The Company is a party to a credit agreement dated November 27, 1996, as
amended and restated on July 30, 1997 (the "Credit Facility") by and among the
Company, the banks and other lenders party from time to time thereto (the
"Lenders"), CIBC, as Administrative Agent, CIBC Wood Gundy Securities Corp.
("CIBCWG"), as Arranger, J.P. Morgan, as Syndication Agent, and Fleet Bank, as
Documentation Agent, which provides for a revolving credit facility in the
amount of $70.0 million, with a $50.0 million sublimit for letters of credit,
and a $20.0 million term loan facility. The proceeds of the Credit Facility may
be used (i) to refinance certain existing indebtedness, (ii) prior to December
31, 1998, to finance the acquisition of certain Rural DirecTv Markets and
related costs and expenses, (iii) to finance capital expenditures of the Company
and its subsidiaries and (iv) for the general corporate purposes and working
capital needs of the Company and its subsidiaries.

The $20.0 million term loan facility must be drawn no later than July 30,
1998 and any amounts not so drawn by that date will be cancelled. The term loan
shall be repaid in 20 consecutive quarterly installments of $200,000 each
commencing September 30, 1998 with the remaining balance due July 31, 2003.
Borrowings under the revolving credit facility established pursuant to the
Credit Facility are available to the Company until July 31, 2003; however, if
the then unused portion of the commitments exceeds $10.0 million on December 31,
1998, the commitments will be reduced on such date by an amount equal to the
unused portion of such commitments minus $10.0 million. Thereafter, the
commitments thereunder will reduce quarterly commencing on September 30, 1999 at
a rate of 3.50% through 1999, 5.75% in 2000, 7.0% in 2001, 9.0% in 2002 and 3.0%
until June 30, 2003. All of the loans outstanding will be repayable on July 31,
2003. The making of each loan under the Credit Facility is subject to the
satisfaction of certain conditions, including not exceeding a certain "borrowing
base" based on the number of paying subscribers and households within the Rural
DirecTv Markets served by the Company; maintaining minimum subscriber
penetration throughout the term of the Credit Facility; maintaining annualized
contribution per paying subscriber throughout the term of the Credit Facility
based on net income plus certain sales, administrative and payroll expenses;
maintaining a maximum ratio of total debt to equity beginning in the first
quarter of 2000 and continuing throughout the term of the Credit Facility;
maintaining a maximum ratio of total senior debt to annualized operating cash
flow and a ratio of total debt to annualized operating cash flow beginning in
the first quarter of 2000 and continuing throughout the term of the Credit
Facility; maintaining a maximum ratio of total debt to adjusted annualized
operating cash beginning in the first quarter of 1999 and continuing until the
last quarter of 2000; and maintaining a maximum percentage of general and
administrative expenses to revenues beginning in the first quarter of 1998 and
continuing for the duration of the Credit Facility. The Credit Facility also
contains a number of significant covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur additional indebtedness and
guaranty obligations, create liens and other encumbrances, make certain
payments, investments, loans and advances, pay dividends or make other
distributions in respect of its equity interests, sell or otherwise dispose of
assets, make capital expenditures, merge or consolidate with another entity,
make amendments to its organizational documents or transact with affiliates. The
Company is in compliance with those covenants with which it is required to
comply as of the date hereof. In addition, the Credit Facility provides that the
Company will be required to make mandatory prepayments of the Credit Facility
from, subject to certain exceptions, the net proceeds of certain sales or other
dispositions by the Company or any of its subsidiaries of material assets and
with 50% of any excess operating cash flow with respect to any fiscal year after
the fiscal year ending December 31, 1998.

Borrowings by the Company under the Credit Facility are unconditionally
guaranteed by each of the Company's direct and indirect subsidiaries, and such
borrowings are secured by (i) an equal and ratable pledge of all of the equity
interests in the Company's subsidiaries, (ii) a first priority security interest
in all of their assets, and (iii) a collateral pledge of the Company's NRTC
Member Agreements.

F-16
<PAGE> 58
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Credit Facility provides that the Company may elect that all or a
portion of the borrowings under the Credit Facility bear interest at a rate per
annum equal to either (i) the CIBC Alternate Base Rate plus the Applicable
Margin or (ii) the Eurodollar Rate plus the Applicable Margin. When applying the
CIBC Alternate Base Rate with respect to borrowings pursuant to the revolving
credit facility, the Applicable Margin will be (w) 2.25% per annum (when the
ratio of total indebtedness of the Company to annualized operating cash flow
(the "Leverage Ratio")) is greater than or equal to 6.75 to 1.00), (x) 2.00%
(when the Leverage Ratio is less than 6.75 to 1.00 but greater than or equal to
6.25 to 1.00), (y) 1.50% (when the Leverage Ratio is less than 6.25 to 1.00 but
greater than or equal to 5.75 to 1.00) or (z) 1.25% (when the Leverage Ratio is
less than 5.75 to 1.00). When applying the Eurodollar Rate with respect to
borrowings pursuant to the revolving credit facility, Applicable Margin will be
(w) 3.50% per annum (when the Leverage Ratio is greater than or equal to 6.75 to
1.00), (x) 3.25% (when the Leverage Ratio is less than 6.75 to 1.00 but greater
than or equal to 6.25 to 1.00), (y) 2.75% (when the Leverage Ratio is less than
6.25 to 1.00 but greater than or equal to 5.75 to 1.00) or (z) 2.50% (when the
Leverage Ratio is less than 5.75 to 1.00). The Applicable Margin for borrowings
pursuant to the term loan facility will be the Applicable Margin for borrowings
pursuant to the revolving credit facility, plus 0.25%. As used herein, "CIBC
Alternate Base Rate" means the higher of (i) CIBC's prime rate and (ii) the
federal funds effective rate from time to time plus 1/2% per annum. As used
herein, "Eurodollar Rate" means the rate at which eurodollar deposits for one,
two, three and six months (as selected by the Company) are offered to CIBC in
the interbank eurodollar market. The Credit Facility will also provide that at
any time when the Company is in default in the payment of any amount due
thereunder, the principal of all loans made under the Credit Facility will bear
interest at 2% per annum above the rate otherwise applicable thereto and overdue
interest and fees will bear interest at a rate of 2% per annum over the CIBC
Alternative Base Rate.

At December 31, 1996 and 1997, borrowings under the Credit Facility accrued
interest at the rate of 9% and 9.66%, respectively.

The Company has and will pay a commitment fee on the unused amounts under
the Credit Facility calculated at 0.5% per annum, payable quarterly in arrears.
The Company also paid the arrangers of the Credit Facility a customary
structuring and syndication fee and paid certain agency fees to the agents.

Pursuant to a recent amendment to the NRTC Member Agreements, the Company
and all other NRTC Members whose monthly obligations to the NRTC have exceeded
$500,000 in the past six months are required to keep and maintain in full force
and effect a standby letter of credit in favor of the NRTC to secure their
respective payment obligations to the NRTC under the NRTC Member Agreements. The
amount of the letter of credit issued at the request of the Company pursuant to
the Credit Facility, is equal to three times the Company's single largest
monthly invoice from the NRTC, exclusive of amounts payable for DSS(R) equipment
purchased by the Company from the NRTC, or $6.3 million, and must be increased
as the Company makes additional acquisitions of Rural DirecTv Markets and when
the Company's obligations to the NRTC exceed the amount of the original letter
of credit by 167%.

SELLER NOTES AND COMMITMENTS

In connection with the acquisition of the Company's California rural
DirecTv market, one of the Operating Subsidiaries, Digital Television Services
of California, LLC ("DTS California"), entered into a promissory note dated
April 1, 1996, as modified as of December 31, 1996 (as so modified, the "DTS
California Note"), in favor of Pacific Coast DBS, Inc. ("Pacific"). Pursuant to
the DTS California Note, DTS California is obligated to pay to Pacific the sum
of (i) $480,000, payable in 24 equal monthly installments commencing May 1,
1996, and (ii) an amount payable on October 1, 1998 equal to the greater of $4.0
million or the Contingent Payment Amount. The Contingent Payment Amount is
determined by multiplying the number of subscribers to DIRECTV Services in DTS
California's rural DirecTv market as of

F-17
<PAGE> 59
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

October 1, 1998 by certain dollar amounts. As of December 31, 1996 and December
31, 1997, the Contingent Payment Amount is recorded as $4,223,250 and
$6,250,800, which is based on subscriber levels at December 31, 1996 and
December 31, 1997, respectively. The DTS California Note is classified as
current maturities in the accompanying consolidated balance sheet at December
31, 1997. The obligations of DTS California pursuant to the DTS California Note
are secured by a $7,000,000 irrevocable letter of credit (the "DTS California
Letter of Credit") issued in favor of Pacific pursuant to the Credit Facility,
as subsequently defined. The stated amount of the DTS California Letter of
Credit will increase so that it will at all times be at least equal to 110% of
the Contingent Payment Amount. The DTS California Note contains certain
covenants which, among other things, prohibit the payment of dividends or other
distributions by DTS California and payments by DTS California to Columbia. A
failure to make any payment due under the DTS California Note will allow Pacific
to draw under the DTS California Letter of Credit.

In connection with the acquisition of one of the Company's rural DirecTv
markets in South Carolina (the "South Carolina Rural DirecTv Markets"), one of
the Operating Subsidiaries, Digital Television Services of South Carolina I, LLC
("DTS South Carolina I"), entered into a promissory note dated November 26, 1996
(the "South Carolina I Note") payable to Pee Dee Electricom, Inc. ("Pee Dee") in
the amount of $7,955,000, of which $3,265,000 was paid in January 1997. The
balance was paid on January 2, 1998 and is classified as current maturities in
the accompanying consolidated balance sheet at December 31, 1997. The note bears
interest at a rate of 4% per annum, payable quarterly. The obligations of DTS
South Carolina I with respect to the South Carolina I Note are secured by an
irrevocable letter of credit (the "South Carolina I Letter of Credit") issued in
favor of Pee Dee pursuant to the Credit Facility. The South Carolina I Note does
not contain any covenants; however, a failure to make any payment due under the
South Carolina I Note will allow Pee Dee to draw under the South Carolina I
Letter of Credit.

In connection with the acquisition of the Company's other South Carolina
rural DirecTv market, one of the Operating Subsidiaries, Digital Television
Services of South Carolina II, LLC, entered into a promissory note dated
November 26, 1996 (the "South Carolina II Note") payable to Santee Satellite
Systems, Inc. ("Santee") in the amount of $2,200,000, of which $1,100,000 was
due on November 26, 1997, with the balance due on November 26, 1998. The entire
balance was paid in January 1997 and thus is classified as current maturities in
the accompanying consolidated balance sheet at December 31, 1996. The note bears
interest at 6% per annum, payable quarterly. The note is secured by an
irrevocable letter of credit issued pursuant to the Credit Facility (the "South
Carolina II Letter of Credit") issued in favor of Santee. The South Carolina II
Note does not contain any covenants; however, a failure to make any payment due
under the South Carolina II Note will allow Santee to draw under the South
Carolina II Letter of Credit.

In connection with the acquisition of one of the Company's New Mexico rural
DirecTv markets, the Company entered into a promissory note dated March 1, 1996,
as modified as of November 27, 1996 (as so modified, the "New Mexico Note"), in
favor of Edward Botefuhr and Janet Blakeley Botefuhr in the amount of $415,000,
payable in equal installments on April 1, 1998 and April 1, 1999. The note bears
interest at 15% per annum, payable monthly. The note is secured by an
irrevocable letter of credit issued pursuant to the Credit Facility (the "New
Mexico Letter of Credit") issued in favor of the Botefuhrs. The New Mexico Note
does not contain any covenants; however, a failure to make any payment due under
the New Mexico Note will allow the Botefuhrs to draw under the New Mexico Letter
of Credit. The entire balance was paid in January 1997 and thus is classified as
current maturities in the accompanying consolidated balance sheet at December
31, 1996.

In connection with the acquisition of the Company's Rural DirecTv Markets
in Georgia (the "Georgia Rural DirecTv Markets"), one of the Subsidiaries,
Digital Television Services of Georgia, LLC ("DTS Georgia"), issued three
promissory notes, each of which represents a portion of the purchase price for
one of the Georgia Rural DirecTv Markets. DTS Georgia issued (i) a promissory
note dated May 9, 1997 (the

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DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"Planters Notes") payable to Planters Electric Membership Corporation
("Planters") in the amount of approximately $850,000, (ii) a promissory note
dated May 9, 1997 (the "Mitchell Note") payable to Mitchell Electric Membership
Corporation ("Mitchell") in the amount of approximately $9.4 million and (iii) a
promissory note dated May 9, 1997 (the "Washington Note") payable to Washington
Electric Membership Corporation ("Washington") in the amount of approximately
$5.2 million. The principal amount of the Planters Note was paid on January 2,
1998 and bears interest at a rate of 3% per annum; provided that if DTS Georgia
acquires a certain Rural DirecTv Market, the interest rate will increase as of
the date of such acquisition to 3 1/2% per annum. The principal amount of each
of the Mitchell Note and the Washington Note is payable in annual installments
beginning January 2, 1998 through January 2, 2001. The Mitchell Note and the
Washington Note bear interest at a rate of 3% per annum until May 9, 2000 and at
a rate of 3 1/2% per annum thereafter; provided that if DTS Georgia acquires a
certain Rural DirectTv Market, the interest rate will increase as of the date of
such acquisition to 3 1/2% per annum, until May 9, 2000, and to 4% thereafter.
The obligations of DTS Georgia with respect to the Georgia Notes are secured by
three irrevocable letters of credit issued pursuant to the Credit Facility (the
"Georgia Letters of Credit"), each of which has been issued for the benefit of
one of Planters, Mitchell and Washington. The Georgia Notes do not contain any
affirmative or negative covenants regarding the Company, DTS Georgia or the
operation of the Georgia Rural DirecTv Markets; however, a failure to make any
payment due under a Georgia Note will allow the payee of such Georgia Note to
draw under the applicable Georgia Letter of Credit.

INSTALLMENT NOTES

The installment notes represent notes payable to certain financial
institutions for certain property and equipment. The notes are payable in equal
monthly installments through May 2000 and bear interest at rates ranging from
8.5% to 10.3% at December 31, 1996 and 1997.

UNAMORTIZED DISCOUNT

The Company has discounted the Notes, the DTS California Note, the South
Carolina I Note, the South Carolina II Note and the seller notes issued in
conjunction with the acquisitions of certain Rural DirecTv markets in Georgia to
reflect the fair market value based on average interest rates available to the
Company. The estimated fair value interest rate used to record the discount was
12.75% for the Notes and 9% for the seller notes. The unamortized discount is
being amortized over the life of the notes using the effective interest method.
Amortization expense, included in interest expense in the accompanying
consolidated statements of operations, is $268,544 and $1,275,761 for the period
from inception (January 30, 1996) through December 31, 1996 and for the year
ended December 31, 1997, respectively.

Future maturities of long-term debt are as follows at December 31, 1997:

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DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office and retail space and certain equipment under
noncancelable operating leases which expire in various years through 2002.
Future minimum lease payments for noncancelable operating leases in effect at
December 31, 1997 are as follows:

<TABLE>
<S> <C>
1998........................................................ $ 641,000
1999........................................................ 529,000
2000........................................................ 369,000
2001........................................................ 318,000
2002........................................................ 186,000
----------
Total future minimum lease payments............... $2,043,000
==========
</TABLE>

Rental expense charged to operations totaled approximately $83,000 and
$672,632 during the period from inception (January 30, 1996) through December
31, 1996 and during the year ended December 31, 1997, respectively, and is
included in general and administrative expense in the accompanying consolidated
statements of operations.

MINIMUM SUBSCRIBERS

As part of the NRTC Member Agreements, the Company is required to pay
certain programming fees based on a minimum number of subscribers in each of its
rural DirecTv markets (such minimum number of subscribers being equal to up to
5% of the households in each such rural DirecTv market) and the requirements of
certain programming agreements between DirecTv and providers of programming,
beginning in the fourth year of operation of the NRTC Member Agreement, with
respect to such rural DirecTv market. Each of the Operating Subsidiaries had
achieved the minimum subscriber requirement at December 31, 1997.

7. MEMBERS'/STOCKHOLDERS' EQUITY

Prior to October 10, 1997, DTS was a limited liability company (the "LLC")
organized under the laws of the State of Delaware. The LLC had four classes of
equity interests, denominated as "Class A Units," "Class B Units," "Class C
Units," and "Class D Units," with the classes having different voting and
distribution rights per the LLC Agreement. During 1996, the Company sold
1,844,098 Class B Units to Columbia DBS, Inc. and Columbia DBS Investors, L.P.,
which are affiliates of Columbia, and certain senior executives of the Company,
raising $18.4 million of initial equity capital. On January 2, 1997, the Company
sold an additional 205,902 Class B Units to this same group for approximately
$2.1 million. On February 10, 1997, the Company sold 1,333,333 Class A Units to
the Equity Investors, raising an additional $30 million of equity capital.

Class C Units were issued to certain senior executives of the Company,
subject to certain vesting requirements related to employment. Each Class C Unit
represented a restricted interest in the Company received in exchange for the
performance of services. The Company issued a total of 87,049 Class C Units, of
which 34,876 and 68,302 were vested at December 31, 1996 and October 10, 1997,
respectively.

In March 1997, DTS Management adopted an Employee Unit Plan (the "Employee
Unit Plan") pursuant to which up to 180,000 Class D Units could be issued to
employees or independent contractors of DTS Management or the Subsidiaries at
prices equal to the market value thereof as of the date of issuance and pursuant
to such terms and conditions (including vesting) as determined by the Company.
As of October 10, 1997, 124,000 Class D Units were issued pursuant to the
Employee Unit Plan.

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DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 10, 1997, the Company converted to corporate form in a
transaction (the "Corporate Conversion") contemplated on the LLC Agreement
pursuant to which the LLC merged with and into WEP Intermediate Corp., a
Delaware corporation ("WEP"). As a result of the Corporate Conversion, (i) the
member interests in the LLC held by WEP were canceled, (ii) all of the
outstanding capital stock of WEP was converted into Series A Preferred Stock of
the Company, (iii) the member interests in the LLC evidenced by the Class A
Units (other than those held by WEP) were converted into Series A Preferred
Stock of the Company, (iv) the member interests in the LLC evidenced by the
Class B Units were converted into Common Stock of the Company, (v) the member
interests in the LLC evidenced by the Class C Units together with such Class C
Unit holders' promissory notes in the principal amount of $10.00 per share were
exchanged for shares of Common Stock of the Company, (vi) the member interests
in the LLC evidenced by the Class D Units were converted into warrants to
purchase Common Stock of the Company, (vii) the surviving entity changed its
name to "Digital Television Services, Inc." and (viii) Digital Television
Services, Inc. assumed by operation of law and supplemental indenture all of the
obligations of the LLC under the terms of the Notes.

Subsequent to the Corporate Conversion, substantially all of the
outstanding shares of the Company are owned by the holders of the equity
interests in the LLC. Therefore, the Corporate Conversion has been treated for
accounting purposes as the acquisition of WEP by the LLC. The LLC's assets and
liabilities have been recorded at historical cost and WEP's assets and
liabilities have been recorded at fair value. However, given that WEP's only
asset consisted of its investment in the LLC, no goodwill has been recognized.
Effective with the Corporate Conversion, the historical financial statements of
the LLC have become the historical financial statements of WEP and include the
businesses of both companies.

As a result of the Corporate Conversion, the stockholders' equity of the
Company is as follows:

Common Stock. The Company is authorized to issue up to 10,000,000 shares
of Common Stock, par value $.01 per share. As of December 31, 1997, there were
issued and outstanding 2,137,049 shares of Common Stock, held of record by five
stockholders.

Preferred Stock. The authorized capital stock of the Company includes
10,000,000 shares of preferred stock, par value $.01 per share. A total of
5,000,000 of such shares have been designated "Series A Payment-in-Kind
Convertible Preferred Stock" (the "Series A Preferred Stock"). As of December
31, 1997, there were issued and outstanding 1,404,056 shares of Series A
Preferred Stock, held of record by six stockholders.

The Board is authorized by the Amended and Restated Certificate of
Incorporation to issue one or more additional series of preferred stock from
time to time, without further stockholder action, in one or more series and,
with respect to such series, to fix the designation and number of shares to be
issued, the voting rights of the shares, the dividend rights, if any, the
redemption rights, if any, sinking fund requirements, if any, rights upon the
liquidation, dissolution or winding up of the Company or upon the distribution
of the assets of the Company, the terms of the conversion or exchange into any
other class or series of shares, if provided for, and other powers, preferences,
rights, qualifications, limitations or restrictions thereof. Under the
Stockholders Agreement dated as of October 10, 1997 among the Company, the
holders of the Common Stock and the holders of the Series A Preferred Stock (the
"Stockholders Agreement"), stockholder approval may be required in order to take
certain of these actions.

Each holder of shares of the Series A Preferred Stock will have the right,
exercisable at any time and from time to time, to convert all or any such shares
of Series A Preferred Stock into shares of Common Stock, initially on a
share-for-share basis. The conversion ratio of the Series A Preferred Stock is
subject to adjustment in the event of (i) any subdivision or combination of the
Common Stock, (ii) any payment by the Company of a stock dividend to the holders
of the Common Stock, (iii) the issuance of rights to acquire equity to holders
of the Common Stock without issuing similar rights to the holders of the Series
A Preferred

F-21
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DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock, or (iv) the issuance of equity or rights to acquire equity at a price per
share less than $22.50 (as adjusted). In addition, if the Company consolidates
or merges with, or transfers all or substantially all of its assets to, another
corporation, and such transaction requires the approval of the stockholders of
the Company, then a holder of the Series A Preferred Stock may convert some or
all of such shares into shares of Common Stock simultaneously with the record
date for, or the effective date of, such transaction so as to receive the
rights, warrants, securities or assets that a holder of shares of the Common
Stock on that date may receive.

If the Company consummates an underwritten public offering of equity
securities resulting in gross proceeds to the Company of at least $25 million
and at a price per share equal to (i) at least $33.75, if such public offering
is consummated on or before July 31, 1998, (ii) at least $39.37, if such public
offering is consummated after July 31, 1998 but on or before July 31, 1999, and
(iii) at least $45.00, if such public offering is consummated at any time after
July 31, 1999 (a public offering meeting such requirements is referred to herein
as a "Qualified IPO"), then the Series A Preferred Stock shall be converted
automatically upon such consummation into shares of Common Stock at an initial
conversion rate of one-for-one, subject to adjustment as described above.

In the event of any voluntary or involuntary dissolution, winding up or
liquidation of the Company, after payment or provision for payment of all of the
Company's debts and other liabilities, the holders of the Series A Preferred
Stock will be entitled to receive, out of the remaining net assets of the
Company and in preference to the holders of the Common Stock and any other
capital stock ranking junior to the Series A Preferred Stock, the amount of
$22.50 (the "Liquidation Preference") for each share of the Series A Preferred
Stock, plus any accrued and unpaid dividends up to the date for such
distribution, whether or not declared. If, upon any liquidation of the Company,
the assets distributable among the holders of the Series A Preferred Stock are
insufficient to permit the payment in full to the holders of the Series A
Preferred Stock and all other classes of preferred stock ranking (as to any such
distribution) senior to or on a parity with the Series A Preferred Stock, of all
preferential amounts payable to all such holders, then the entire assets of the
Company thus distributable will be distributed ratably among the holders of the
Series A Preferred Stock and all classes and series of capital stock ranking (as
to any such distribution) senior to or on a parity with the Series A Preferred
Stock in order of relative priority and, as to classes and series ranking on a
parity with one another, in proportion to the full preferential amount that
would be payable per share if such assets were sufficient to permit payment in
full. If, after payment of the Liquidation Preference to the holders of the
Series A Preferred Stock and the payment of the liquidation preference with
respect to any capital stock ranking (as to any such distribution) senior to or
on a parity with the Series A Preferred Stock, assets remain in the Company, all
such remaining funds shall be distributed first to the holders of the Common
Stock, until such holders have received an amount per share equal to the
Liquidation Preference, subject to certain adjustments, and then on an equal per
share basis to holders of all capital stock of the Company on a pro rata,
as-if-converted to Common Stock basis.

The holders of the Series A Preferred Stock shall be entitled to receive
when, as and if declared by the Board cumulative dividends payable on the shares
of the Series A Preferred Stock for each quarterly dividend period, commencing
March 15, June 15, September 15 and December 15 of each year and ending on the
day next preceding the first day of the next quarterly dividend period, at a
rate of 8% per annum, compounded annually, in respect of the Liquidation
Preference. All such dividends shall be payable on March 15, June 15, September
15 and December 15 of each year. The Company may, at its option, pay a certain
portion of such dividends through the issuance of that number of additional
shares of Series A Preferred Stock having an aggregate Liquidation Preference
equal to the aggregate dollar amount of dividends to be paid on such dividend
payment date.

Except as provided by law, the holders of the Series A Preferred Stock are
entitled to only those voting rights set forth in the Stockholders Agreement.

F-22
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DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. EMPLOYEE BENEFITS

EMPLOYMENT AGREEMENTS

DTS Management has entered into employment agreements, as amended, with
certain executive officers of DTS Management (the "Employment Agreements"). The
initial term of the Employment Agreements are one year, with automatic
extensions of one year unless terminated by DTS Management or the executive. The
Employment Agreements provide for base salaries and bonuses at the discretion of
the Board of Directors of DTS.

Pursuant to the Employment Agreements, the Company issued the executives an
aggregate of 87,049 Class C Units, which vest based on the Company's reaching
defined numbers of subscribers and/or on defined vesting dates. Any units not
vested at the earlier of (i) the date on which the Company completes an initial
public offering; (ii) the date upon which Columbia and its officers, directors,
stockholders and employees cease to own, directly or indirectly, in the
aggregate at least 50% of the equity interests of the Company held by them on
November 19, 1996; or (iii) March 31, 1998 shall become fully vested and cease
to be restricted so long as the executive has remained employed by DTS
Management through such date.

The Employment Agreements also permitted the executives to purchase a
certain number of Class B Units at a price of $10 per unit. Pursuant to rights
under the Employment Agreements and the Company's LLC Agreement, the executives
have purchased an aggregate of 100,500 Class B Units.

The Employment Agreements provide that the Company has the option to
repurchase all of the Class C Units held by an executive which have vested and
all of the Class B Units held by an executive if the executive's employment is
terminated voluntarily or with cause (as defined) prior to April 1, 1998. At
such time, all unvested Class C Units of the executive shall be forfeited. If
the executive is terminated for any reason other than cause, the executive's
Class C Units will become fully vested and unrestricted.

Simultaneous with the execution of the Employment Agreements, the subject
executive officers also entered into loan agreements with Columbia for an
aggregate of $430,000 to fund a portion of the equity purchases by the
executives. The loans bear interest at 10% per annum and mature on the earlier
of April 1, 2001 or receipt by the executive of proceeds from the sale of the
purchased units. The loans are secured by a portion of the executive's purchased
Class B Units.

The Employment Agreements were amended as of October 10, 1997 to provide
for certain changes with respect to the severance provisions and the vesting of
applicable executive officers' shares of Common Stock received in exchange for
their Class C Units and warrants received in exchange for their Class D Units.

DIGITAL TELEVISION SERVICES 401(K) PLAN

In January 1997, the Company established the Digital Television Services
401(k) Plan (the "Plan") covering all of its employees. As part of the Plan, the
Company provides matching contributions of 20% of the participant's
contributions up to a maximum of 5% of the participant's pay. The Plan also
provides for additional contributions at the discretion of the Company. The
Company incurs the cost of administering this plan.

EMPLOYEE STOCK PLAN

In October 1997, the Company adopted the Digital Television Services, Inc.
1997 Stock Option Plan (the "Employee Stock Plan") pursuant to which up to
100,000 shares of Common Stock (or such larger number of shares as may be
approved by the Compensation Committee of the Board of Directors of the Company
(the "Board")) may be issued to employees or independent contractors of the
Company or the Subsidiaries at prices equal to the market value thereof as of
the date of issuance and pursuant to such terms

F-23
<PAGE> 65
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and conditions (including vesting) as the Board shall determine. As of December
31, 1997, stock options have been granted with respect to 43,633 shares of
Common Stock. The exercise price at the date of grant of $22.50 per share
approximates the market value of the options and, therefore, the plan is
generally non-compensatory. The stock options expire from two to ten years after
each respective grant date. A portion of the options are exercisable as of the
grant date. The remaining options become exercisable beginning one year from the
grant date with vesting periods of four years. Upon consummation of the Pegasus
transaction (Note 10), generally all options that remain unvested will become
fully vested.

The Company accounts for stock options under Accounting Principles Board
("APB") Opinion No. 25, which requires compensation costs to be recognized only
when the option price differs from the market price at the grant date. Statement
of Financial Accounting Standards No. 123: Accounting for Stock Based
Compensation ("SFAS No. 123") allows a company to follow APB Opinion No. 25 with
an additional disclosure that shows what the Company's pro forma net loss would
have been using the compensation model under SFAS No. 123. Under SFAS No. 123,
the fair values for these options were estimated at the date of grant using an
option pricing model with the following assumptions: weighted average risk-free
interest rate of 5.65%, no dividend yield, and a life of the options
approximating one year to reflect accelerated vesting provisions of the Pegasus
Transaction (Note 10). The estimated fair value of these options was calculated
using a minimum value method and may not be indicative of the future impact,
since the model for this method does not take volatility into consideration.

The pro forma net loss under SFAS No. 123 approach was $3,535,259 for the
period from January 30, 1996 (inception) to December 31, 1996 and $30,286,667
for the year ended December 31, 1997.

9. RELIANCE ON DIRECTV AND THE NRTC AND OTHER MATTERS

The NRTC has contracted with third parties to provide the NRTC members with
certain services, including billing services and centralized remittance
processing services. The NRTC bills the Company for these services on a monthly
basis. These fees are recorded as service fees in the accompanying statement of
operations. The NRTC also sells DSS(R) equipment to its members.

Because the Company is, through the NRTC, a distributor of DIRECTV
Services, the Company would be adversely affected by any material adverse
changes in the assets, financial condition, programming, technological
capabilities or services of DirecTv or its parent corporation, Hughes
Communication Galaxy, Inc. ("Hughes"), including DirecTv's failure to retain or
renew its Federal Communication Commission ("FCC") licenses to transmit radio
frequency signals from the orbital slots occupied by its satellites.

The NRTC is a cooperative organization whose members are engaged in the
distribution of telecommunications and other services in predominantly rural
areas of the United States. Pursuant to an agreement between the NRTC and Hughes
(the "Hughes Agreement") and the NRTC Member Agreements, participating NRTC
members acquired the exclusive rights to provide DIRECTV Services to residential
and commercial subscribers in certain rural DirecTv markets. In general, upon
default by the NRTC under the Hughes Agreement, the Company would have the right
to acquire DIRECTV Services directly from DirecTv. The NRTC has contracted with
third parties to provide the NRTC members with certain services, including
billing services and centralized remittance processing services. If the NRTC is
unable to provide these services for whatever reason, the Company would be
required to acquire the services from other sources. There can be no assurance
that the cost to the Company to obtain these services elsewhere would not exceed
the amounts currently payable to the NRTC.

The Company would also be adversely affected by the termination of the NRTC
Member Agreements by the NRTC prior to the expiration of their respective terms.
If the NRTC Member Agreements are terminated

F-24
<PAGE> 66
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

by the NRTC, the Company would no longer have the right to provide DIRECTV
Services. There can be no assurance that the Company would be able to obtain
similar DBS services from other sources.

Both the Hughes Agreement and the NRTC Member Agreements expire when Hughes
removes its current satellites from their assigned orbital locations. Although,
according to Hughes, the three DirecTv satellites have estimated orbital lives
of approximately 15 years from their respective launches in December 1993 and
1994, there can be no assurance as to the longevity of the satellites and thus
no assurance as to how long the Company will be able to continue to acquire DBS
services pursuant to the NRTC Member Agreements.

While the Company believes it will have access to DIRECTV Services
following the expiration of the current Hughes Agreement by virtue of the NRTC's
right of first refusal in the Hughes Agreement and the Company's existing
contractual and membership relationship with the NRTC, there can be no assurance
that such services will be available to the Company from Hughes or the NRTC,
and, if available, there can be no assurance with regard to the financial and
other terms under which the Company could acquire the services.

The Company's DBS business is a new business with a limited operating
history. There are numerous risks associated with satellite transmission
technology. There can be no assurance as to the longevity of the satellites or
that loss, damage, or changes in the satellites will not occur and have a
material adverse effect on DirecTv and the Company's DBS business.

DirecTv, and therefore the Company, is dependent on third parties to
provide high-quality programming that appeals to mass audiences. DirecTv's
programming agreements have terms which expire on various dates and have
different renewal and cancellation provisions. There can be no assurance that
any such agreements will be renewed or will not be canceled prior to expiration
of their original terms.

DBS operators, such as DirecTv, are free to set prices and serve
subscribers according to their business judgment, without rate of return and
other regulation. However, DirecTv is subject to the regulatory jurisdiction of
the FCC.

10. SUBSEQUENT EVENTS

ACQUISITION OF CONTRACT RIGHTS

On January 30, 1998, the Company acquired the rights to provide DIRECTV
Services in certain counties in Georgia for $9.5 million from Ocmulgee
Communications, Inc. The purchase price was financed through borrowings under
the Credit Facility.

THE ACQUISITION OF THE COMPANY

On January 8, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") among Pegasus Communications Corporation
("Pegasus"), the Company, Pegasus DTS Merger Sub, Inc., a wholly-owned
subsidiary of Pegasus (the "Merger Sub"), certain stockholders of Pegasus and
certain stockholders of the Company. Pursuant to the Merger Agreement, the
Merger Sub will be merged (the "Pegasus Transaction") with and into the Company,
and the Company will become a wholly-owned subsidiary of Pegasus. The Merger
Agreement provides for the acquisition of all of the outstanding capital stock
of the Company in exchange for approximately 5.5 million shares of Pegasus'
Class A Common Stock. Pegasus will not assume, guarantee or otherwise have any
liability for the Notes or any other liability of the Company or its
subsidiaries. At the closing of the Pegasus Transaction, and thereafter except
to the extent permitted under the terms of the Notes, the Company will not
assume, guarantee or otherwise have any liability for any indebtedness or other
liability of Pegasus or any of its subsidiaries.

F-25
<PAGE> 67
DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Pegasus Transaction is expected to be completed in the first half of
1998 and is subject , among other things, to approval of the stockholders of
Pegasus and the Company, consents from the NRTC, DirecTv and the Company's
lenders, and other conditions customary in transactions of this nature.

Upon the consummation of the Pegasus Transaction, a change of control will
occur and the Company will be required to make an offer to purchase the Notes at
101% of the principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the date of the purchase. The Company has entered into a commitment
letter with CIBC Oppenheimer Corp. ("CIBCC") under which CIBCC has agreed to
purchase the Notes tendered in response to the offer to purchase the Notes.
CIBCC's commitment is subject to the execution of definitive documentation and
customary closing conditions. There can be no assurance that such alternative
arrangements will be available or, if available, will be on terms satisfactory
to the Company. In addition, the consummation of the Pegasus Transaction may
also constitute an event of default under the Credit Facility due to a change in
control of the Company, permitting the lenders thereunder to accelerate the
repayment of indebtedness thereunder, in which case the subordination provisions
of the Notes would require the payment in full of the outstanding amounts under
the Credit Facility and any other senior indebtedness before the Company could
distribute cash to purchase the Notes. A condition to the closing of the Pegasus
Transaction is that the Credit Facility be amended to permit such closing.

The Company has been informed by the management of Pegasus that, upon
consummation of the Pegasus Transaction, Pegasus would use the purchase method
of accounting to record the acquisition of the Company and would "push down" the
effects of the purchase price which would increase the Company's intangible
assets by approximately $83 million. Accordingly, the Company's amortization
expense would be increased with respect to periods subsequent to the
consummation of the Pegasus Transaction.

F-26
<PAGE> 68

EXHIBIT INDEX

Exhibit
Number Description
- ------- -----------

2.1 Certificate of Merger of WEP Intermediate Corp. and Digital Television
Services, LLC (incorporated by reference to Exhibit 2.1 to the
Registration Statement on Form S-4 (Registration No. 333-36217) of the
Registrants, as declared effective by the Securities and Exchange
Commission on December 24, 1997 (the "1997 Registration Statement")).

2.2 Agreement and Plan of Merger dated January 8, 1998 among Pegasus
Communications Corporation, Digital Television Services, Inc., Pegasus
DTS Merger Sub, Inc., certain stockholders of Pegasus Communications
Corporation and certain stockholders of Digital Television Services,
Inc. (incorporated by reference to Exhibit 2.1 to the Registration
Statement on Form S-4 (Registration No. 44729) of Pegasus
Communications Corporation).

3.1 Amended and Restated Certificate of Incorporation of Digital Television
Services, Inc. (incorporated by reference to Exhibit 3.1(f) to the 1997
Registration Statement).

3.2 Bylaws of Digital Television Services, Inc. (incorporated by reference
to Exhibit 3.1(g) to the 1997 Registration Statement).

3.3 Certificate of Incorporation of DTS Capital, Inc. (incorporated by
reference to Exhibit 3.2(a) to the 1997 Registration Statement).

3.4 Bylaws of DTS Capital, Inc. (incorporated by reference to Exhibit
3.2(b) to the 1997 Registration Statement).

3.5 Articles of Organization of DTS Management, LLC (incorporated by
reference to Exhibit 3.3(a) to the 1997 Registration Statement).

3.6 Articles of Amendment of DTS Management, LLC (incorporated by reference
to Exhibit 3.3(b) to the 1997 Registration Statement).

3.7 Amended and Restated Operating Agreement of DTS Management, LLC
(incorporated by reference to Exhibit 3.3(c) to the 1997 Registration
Statement).

3.8 Certificate of Formation of Digital Television Services of California,
LLC (incorporated by reference to Exhibit 3.4(a) to the 1997
Registration Statement).

3.9 Limited Liability Company Agreement of Digital Television Services of
California, LLC (incorporated by reference to Exhibit 3.4(b) to the
1997 Registration Statement).

43
<PAGE> 69

3.10 Articles of Organization of Digital Television Services of Colorado,
LLC (incorporated by reference to Exhibit 3.5(a) to the 1997
Registration Statement).

3.11 Operating Agreement of Digital Television Services of Colorado, LLC
(incorporated by reference to Exhibit 3.5(b) to the 1997 Registration
Statement).

3.12 Articles of Organization of Digital Television Services of Georgia, LLC
(incorporated by reference to Exhibit 3.6(a) to the 1997 Registration
Statement).

3.13 Operating Agreement of Digital Television Services of Georgia, LLC
(incorporated by reference to Exhibit 3.6(b) to the 1997 Registration
Statement).

3.14 Articles of Organization of Digital Television Services of Kansas, LLC
(incorporated by reference to Exhibit 3.7(a) to the 1997 Registration
Statement).

3.15 Operating Agreement of Digital Television Services of Kansas, LLC
(incorporated by reference to Exhibit 3.7(b) to the 1997 Registration
Statement).

3.16 Articles of Organization of Digital Television Services of Kentucky,
LLC (incorporated by reference to Exhibit 3.8(a) to the 1997
Registration Statement).

3.17 Operating Agreement of Digital Television Services of Kentucky, LLC
(incorporated by reference to Exhibit 3.8(b) to the 1997 Registration
Statement).

3.18 Articles of Organization of Digital Television Services of New Mexico,
LLC (incorporated by reference to Exhibit 3.9(a) to the 1997
Registration Statement).

3.19 Operating Agreement of Digital Television Services of New Mexico, LLC
(incorporated by reference to Exhibit 3.9(b) to the 1997 Registration
Statement).

3.20 Articles of Organization of Digital Television Services of New York I,
LLC (incorporated by reference to Exhibit 3.10(a) to the 1997
Registration Statement).

3.21 Operating Agreement of Digital Television Services of New York I, LLC
(incorporated by reference to Exhibit 3.10(b) to the 1997 Registration
Statement).

44
<PAGE> 70

3.22 Articles of Organization of Digital Television Services of South
Carolina I, LLC (incorporated by reference to Exhibit 3.11(a) to the
1997 Registration Statement).

3.23 Operating Agreement of Digital Television Services of South Carolina I,
LLC (incorporated by reference to Exhibit 3.11(b) to the 1997
Registration Statement).

3.24 Articles of Organization of Digital Television Services of Vermont, LLC
(incorporated by reference to Exhibit 3.12(a) to the 1997 Registration
Statement).

3.25 Operating Agreement of Digital Television Services of Vermont, LLC
(incorporated by reference to Exhibit 3.12(b) to the 1997 Registration
Statement).

3.26 Articles of Incorporation of Spacenet, Inc. (incorporated by reference
to Exhibit 3.13(a) to the 1997 Registration Statement).

3.27 Certificate of Amendment of Spacenet, Inc. (incorporated by reference
to Exhibit 3.13(b) to the 1997 Registration Statement)

3.28 Bylaws of Spacenet, Inc. (incorporated by reference to Exhibit 3.13(c)
to the 1997 Registration Statement).

3.29 Articles of Organization of Digital Television Services of Indiana, LLC
(incorporated by reference to Exhibit 3.14(a) to the 1997 Registration
Statement).

3.30 Articles of Amendment of Digital Television Services of Indiana, LLC
(incorporated by reference to Exhibit 3.14(b) to the 1997 Registration
Statement).

3.31 Operating Agreement of Digital Television Services of Indiana, LLC
(incorporated by reference to Exhibit 3.14(c) to the 1997 Registration
Statement).

4.1 Indenture dated as of July 30, 1997 among the Issuers, the Guarantors,
and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.1 to the 1997 Registration Statement).

4.2 Form of Notes (incorporated by reference to Exhibit 4.2 to the 1997
Registration Statement).

4.3 Registration Rights Agreement dated as of July 30, 1997 among the
Issuers, the Guarantors, Donaldson, Lufkin & Jenrette Securities
Corporation, CIBC Wood Gundy Securities Corp. and J.P. Morgan
Securities Inc. (incorporated by reference to Exhibit 4.3 to the 1997
Registration Statement).

45
<PAGE> 71

4.4 Interest Escrow Agreement dated as of July 30, 1997 among The Bank of
New York, as Escrow Agent and Collateral Agent, and the Issuers
(incorporated by reference to Exhibit 4.4 to the 1997 Registration
Statement).

4.5 Escrow Security Agreement dated as of July 30, 1997 between The Bank of
New York, as Collateral Agent, and the Issuers (incorporated by
reference to Exhibit 4.5 to the 1997 Registration Statement).

4.6 Supplemental Indenture dated October 10, 1997 among the Issuers, the
Guarantors, WEP Intermediate Corp. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.6 to the 1997 Registration
Statement).

10.1 Second Amended and Restated Credit Agreement dated as of July 30, 1997
(the "Restated Credit Agreement") among Digital Television Services,
Inc., and the several Lenders, CIBC Wood Gundy Securities Corp., as
arranger, Morgan Guaranty Trust Company of New York, Fleet National
Bank, and Canadian Imperial Bank of Commerce (incorporated by reference
to Exhibit 10.1 to the 1997 Registration Statement).

10.2 Guarantee and Collateral Agreement among the Guarantors named therein
and Canadian Imperial Bank of Commerce (incorporated by reference to
Exhibit 10.2 to the 1997 Registration Statement).

10.3 Stock Purchase Agreement dated as of January 30, 1996 by and between
Edward Botefuhr and Janet Blakeley Botefuhr and Digital Television
Services, LLC (formerly DBS Holdings, L.P.)(incorporated by reference
to Exhibit 10.3 to the 1997 Registration Statement).

10.4 Asset Purchase Agreement dated as of March 19, 1996 between Digital
Television Services of California, LLC (formerly Columbia DBS San Luis
Obispo, L.P.) and Pacific Coast DBS, Inc. (the "Pacific Coast Purchase
Agreement")(incorporated by reference to Exhibit 10.4(a) to the 1997
Registration Statement).

10.5 Amendment to Pacific Coast Purchase Agreement dated as of April 1, 1996
(incorporated by reference to Exhibit 10.4(b) to the 1997 Registration
Statement).

10.6 Asset Purchase Agreement dated as of June 11, 1996 between Omega Cable
and Dale Hazard and Scott Alexander and Digital Television Services of
Colorado, LLC (formerly Digital Television Services of Colorado, LP)
(the "Omega Purchase Agreement")(incorporated by reference to Exhibit
10.5(a) to the 1997 Registration Statement).

10.7 Amendment to Omega Purchase Agreement dated July 14, 1996 (incorporated
by reference to Exhibit 10.5(b) to the 1997 Registration Statement).

10.8 Asset Purchase Agreement dated as of June 26, 1996 among Falls Earth
Station, Inc. and Gerald R. Barnes and Digital Television Services of
New

46
<PAGE> 72

York I, LLC (successor by merger to Digital Television Services of New
York II, LP) (the "Falls Earth Purchase Agreement")(incorporated by
reference to Exhibit 10.6(a) to the 1997 Registration Statement).

10.9 First Amendment dated July 11, 1996 to the Falls Earth Purchase
Agreement (incorporated by reference to Exhibit 10.6(b) to the 1997
Registration Statement).

10.10 Asset Purchase Agreement dated as of June 28, 1996 among TEG DBS
Services, Inc. and Kulwinder Singh and Jadwinder Singh and Digital
Television Services of New Mexico, LLC (formerly Digital Television
Services of New Mexico, LP) (the "Teg Purchase Agreement")(incorporated
by reference to Exhibit 10.7(a) to the 1997 Registration Statement).

10.11 First Amendment dated July 11, 1996 to Teg Purchase Purchase
Agreement")(incorporated by reference to Exhibit 10.7(b) to the 1997
Registration Statement).

10.12 Asset Purchase Agreement dated as of June 28, 1996 between Northeast
Cable Services, Inc. and Digital Television Services of New York I, LLC
(formerly Digital Television Services of New York I, LP) (the
"Northeast Cable Purchase Agreement")(incorporated by reference to
Exhibit 10.8(a) to the 1997 Registration Statement).

10.13 Amendment dated August 28, 1996 to the Northeast Cable Purchase
Agreement (incorporated by reference to Exhibit 10.8(b) to the 1997
Registration Statement).

10.14 Asset Purchase Agreement dated as of October 5, 1996 among Pee Dee
Electricom, Inc. and Pee Dee Electric Cooperative, Inc. and Digital
Television Services of South Carolina I, LLC (formerly Digital
Television Services of South Carolina I, LP) (the "Pee Dee Purchase
Agreement")(incorporated by reference to Exhibit 10.9(a) to the 1997
Registration Statement).

10.15 First Amendment dated November 4, 1996 to the Pee Dee Purchase
Agreement (incorporated by reference to Exhibit 10.9(b) to the 1997
Registration Statement).

10.16 Second Amendment dated November 25, 1996 to the Pee Dee Purchase
Agreement (incorporated by reference to Exhibit 10.9(c) to the 1997
Registration Statement).

10.17 Asset Purchase Agreement dated as of October 5, 1996 among Santee
Satellite Systems, Inc. Santee Electric Cooperative, Inc. and Digital
Television Services of South Carolina I, LLC (successor by merger to
Digital Television Services of South Carolina II, LP) (the "Santee
Purchase Agreement") (incorporated by reference to Exhibit 10.10(a) to
the 1997 Registration Statement).

47
<PAGE> 73

10.18 First Amendment dated November 4, 1996 to the Santee Purchase Agreement
(incorporated by reference to Exhibit 10.10(b) to the 1997 Registration
Statement).

10.19 Asset Purchase Agreement dated as of October 28, 1996 between Direct
Programming Services Limited Partnership and Digital Television
Services of Kentucky, LLC (formerly Digital Television Services of
Kentucky, LLC (formerly Digital Television Services of Kentucky, LP)
(the "Direct Purchase Agreement") (incorporated by reference to Exhibit
10.11(a) to the 1997 Registration Statement).

10.20 First Amendment dated November 26, 1996 to the Direct Purchase
Agreement (incorporated by reference to Exhibit 10.11(b) to the 1997
Registration Statement).

10.21 Asset Purchase Agreement dated as of November 13, 1996 between
Northeast DBS Enterprises, L.P., DTS Management, LLC (formerly DBS
Management, LLC) (the "Northeast DBS Purchase Agreement") (incorporated
by reference to Exhibit 10.12(a) to the 1997 Registration Statement)

10.22 Amendment dated February 11, 1997 to the Northeast DBS Purchase
Agreement Among Northeast DBS Enterprises, L.P., DTS Management, LLC
and Digital Television Services of Vermont, LLC (incorporated by
reference to Exhibit 10.12(b) to the 1997 Registration Statement).

10.23 Asset Purchase Agreement dated as of November 22, 1996 between Skywave
Communications, Inc. and Digital Television Services of Kansas, LLC
(formerly Digital Television Services of Kansas, LP)(incorporated by
reference to Exhibit 10.13 to the 1997 Registration Statement).

10.24 Asset Purchase Agreement dated as of November 22, 1996 between Kansas
DBS, L.L.C. and Digital Television Services of Kansas, LLC (formerly
Digital Television Services of Kansas, LP) (incorporated by reference
to Exhibit 10.14 to the 1997 Registration Statement).

10.25 Asset Purchase Agreement dated as of February 19, 1997 between Mitchell
Electric Membership Corporation and Digital Television Services of
Georgia, LLC (incorporated by reference to Exhibit 10.15 to the 1997
Registration Statement).

10.26 Asset Purchase Agreement dated as of February 19, 1997 between DigiCom
Services, Inc. and Digital Television Services of Georgia, LLC (the
"DigiCom Purchase Agreement") (incorporated by reference to Exhibit
10.16(a) to the 1997 Registration Statement).

10.27 First Amendment dated April 15, 1997 to the DigiCom Purchase Agreement
(incorporated by reference to Exhibit 10.16(b) to the 1997 Registration
Statement).

48
<PAGE> 74

10.28 Asset Purchase Agreement dated as of February 19, 1997 between Planters
Electric Membership Corporation and Digital Television Services of
Georgia, LLC (incorporated by reference to Exhibit 10.17 to the 1997
Registration Statement).

10.29 Asset Purchase Agreement dated as of February 19, 1997 between
Washington Electric Membership Corporation and Digital Television
Services of Georgia, LLC (incorporated by reference to Exhibit 10.18 to
the 1997 Registration Statement).

10.30 Form of NRTC/Member Agreement for Marketing and Distribution of DBS
Services, as amended by Amendment to NRTC/Member Agreement for
Marketing and Distribution of DBS Services (incorporated by reference
to Exhibit 10.19 to the 1997 Registration Statement).

10.31 Employee Unit Plan (incorporated by reference to Exhibit 10.20 to the
1997 Registration Statement).

10.32 Lease Agreement dated August 2, 1996 between Fund II, Fund III, Fund IV
and Fund VII Associates and DTS Management, LLC (the "Lease
Agreement")(incorporated by reference to Exhibit 10.21(a) to the 1997
Registration Statement).

10.33 Amendment dated December 20, 1996 to the Lease Agreement (incorporated
by reference to Exhibit 10.21(b) to the 1997 Registration Statement).

10.34 Employment Agreement effective April 1, 1996 between DTS Management,
LLC and Douglas S. Holladay, Jr. (the "Holladay Employment Agreement")
(incorporated by reference to Exhibit 10.22 to the 1997 Registration
Statement).

10.35 Employment Agreement effective March 24, 1997 between DTS Management,
LLC and Earle A. MacKenzie (the "MacKenzie Employment Agreement")
(incorporated by reference to Exhibit 10.23 to the 1997 Registration
Statement).

10.36 Employment Agreement effective April 1, 1996 between DTS Management,
LLC and William J. Dorran (incorporated by reference to Exhibit 10.24
to the 1997 Registration Statement).

10.37 Employment Agreement effective April 15, 1996 between DTS Management
and Donald A. Doering (the "Doering Employment Agreement")
(incorporated by reference to Exhibit 10.25 to the 1997 Registration
Statement).

10.38 Asset Purchase Agreement dated as of October 17, 1997 between Digital
Television Services of Indiana, LLC, Satellite Television Services,
Inc. and Clay County Rural Telephone Cooperative, Inc. (incorporated by
reference to Exhibit 10.26 to the 1997 Registration Statement).

49
<PAGE> 75

10.39 Digital Television Services, Inc. 1997 Stock Option Plan (incorporated
by reference to Exhibit 10.27 to the 1997 Registration Statement).

10.40 Amendment dated October 10, 1997 to Holladay Employment Agreement
(incorporated by reference to Exhibit 10.28 to the 1997 Registration
Statement).

10.41 Amendment dated October 10, 1997 to MacKenzie Employment Agreement
(incorporated by reference to Exhibit 10.29 to the 1997 Registration
Statement).

10.42 Amendment dated October 10, 1997 to Doering Employment Agreement
(incorporated by reference to Exhibit 10.30 to the 1997 Registration
Statement).

10.43 Stockholders Agreement dated October 10, 1997 among the Company and the
Holders of its Common Stock and Series A Preferred Stock (incorporated
by reference to Exhibit 10.31 to the 1997 Registration Statement).

10.44 Registration Rights Agreement dated February 10, 1997 among the Company
and the stockholders named therein. (incorporated by reference to
Exhibit 10.32 to the 1997 Registration Statement)

10.45 Form of Warrant Agreement (incorporated by reference to Exhibit 10.33
to the 1997 Registration Statement).

10.46 Amendment dated November 6, 1997 to Holladay Employment Agreement
(incorporated by reference to Exhibit 10.34 to the 1997 Registration
Statement).

10.47 Amendment dated November 6, 1997 to MacKenzie Employment Agreement
(incorporated by reference to Exhibit 10.35 to the 1997 Registration
Statement).

10.48 Amendment dated November 6, 1997 to Doering Employment Agreement
(incorporated by reference to Exhibit 10.36 to the 1997 Registration
Statement).

10.49 Amendment dated October 30, 1997 to the Restated Credit Agreement
(incorporated by reference to Exhibit 10.37 to the 1997 Registration
Statement).

10.50 Asset Purchase Agreement dated January 8, 1998 between Digital
Television Services of Georgia, LLC and Ocmulgee Communications, Inc.

12 Statement regarding Computation of Ratios.

50
<PAGE> 76

21 Subsidiaries of Registrants.

24 Powers of Attorney (included on the signature pages hereto).

27.1 Financial data schedule Digital Television Services, Inc.

27.2 Financial data schedule DTS Capital, Inc.

<PAGE> 1

EXHIBIT 10.50

================================================================================

ASSET PURCHASE AGREEMENT

DATED AS OF JANUARY 8, 1998

BY AND BETWEEN

DIGITAL TELEVISION SERVICES OF GEORGIA, LLC

AND

OCMULGEE COMMUNICATIONS, INC.

================================================================================

<PAGE> 2

TABLE OF CONTENTS

ARTICLE I DEFINITIONS..............................................1

ARTICLE II SALE AND PURCHASE OF THE ASSETS..........................5

2.1. Sale and Purchase of Assets......................................5

ARTICLE III ASSUMPTION OF LIABILITIES/EXPRESS EXCLUSIONS.............6

3.1. Liabilities of Seller............................................6

ARTICLE IV PURCHASE PRICE; PAYMENT OF PURCHASE PRICE................7

4.1. Purchase Price...................................................7
4.2. Payment of Purchase Price........................................7
4.3. Adjustment to Purchase Price.....................................7
4.4. Allocation of Purchase Price.....................................8

ARTICLE V SELLER'S REPRESENTATIONS AND WARRANTIES..................8

5.1. Organization.....................................................8
5.2. Authority........................................................9
5.3. Title to the Purchased Assets....................................9
5.4. Condition of Fixed Assets........................................9
5.5. NRTC Membership; DBS Distribution Rights........................10
5.6. Inventory.......................................................10
5.7. Accounts Receivable.............................................10
5.8. Prepaid Expenses................................................11
5.9 Financial Statements............................................11
5.10. Absence of Certain Changes or Events............................11
5.11. Licenses and Permits............................................12
5.12. Tax Matters.....................................................12
5.13. Disclosures.....................................................12
5.14. Litigation......................................................13
5.15. Leased Subscriber Equipment.....................................13
5.16 Brokers, Finders................................................13

ARTICLE VI PURCHASER'S REPRESENTATIONS AND WARRANTIES..............13

6.1. Organization....................................................13
6.2. Authority.......................................................13
6.3. Disclosures.....................................................14
6.4. Brokers, Finders................................................14

ARTICLE VII COVENANTS...............................................15

7.1. Conduct of the Business Prior to Closing Date...................15
7.2. Access..........................................................16
7.3. Consent of NRTC, DirecTv and Others.............................17
7.4. Public Announcements; Confidentiality...........................17
7.5. Best Efforts....................................................17
7.6. Exclusive Dealing...............................................17

ii
<PAGE> 3

7.7. Subscriber Leases...............................................17
7.8. Audit...........................................................18

ARTICLE VIII CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS.........18

8.1. Truth of Representations and Warranties.........................18
8.2. Performance.....................................................18
8.3. No Material Adverse Change......................................18
8.4. No Litigation Threatened........................................18
8.5. Consents........................................................19
8.6. Subscribers.....................................................19
8.7. Review of Seller................................................19
8.8. Seller's Closing Deliveries.....................................19

ARTICLE IX CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS............20

9.1. Truth of Representations and Warranties.........................20
9.2. Performance.....................................................20
9.3. No Litigation Threatened........................................20
9.4. Consents........................................................20
9.5. Purchaser's Closing Deliveries..................................21

ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION.........................................21

10.1. No Survival of Representations and Warranties...................21
10.2. Indemnification of Purchaser....................................21
10.3. Indemnification of Seller.......................................22
10.4. Expiration of Indemnification Obligations.......................22
10.5. Right to Contest................................................22

ARTICLE XI MISCELLANEOUS...........................................23

11.1. Notices ........................................................23
11.2. Counterparts....................................................24
11.3. Governing Law...................................................24
11.4. Waivers.........................................................24
11.5. Severability....................................................24
11.6. Section and Article Heading References..........................24
11.7. Successors and Assigns; Assignment..............................25
11.8. Entire Agreement; Amendments....................................25
11.9. Expenses........................................................25
11.10. Knowledge of Seller.............................................25
11.11. Facsimile Signatures............................................25
11.12. Schedules.......................................................25
11.13. Termination of Agreement........................................26
11.14. Power of Attorney...............................................27

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<PAGE> 4

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of this 8th day of January, 1998, by and between Digital Television
Services of Georgia, LLC, a Georgia limited liability company ("Purchaser") and
Ocmulgee Communications, Inc., a Georgia corporation ("Seller").

RECITALS

1. Seller owns and operates the National Rural Telecommunications
Cooperative's System No. 1017 (the "System") for the exclusive distribution in
certain areas in the States of Georgia and Florida of DBS Services offered by
DirecTv (the "Business").

2. Purchaser desires to acquire from Seller, and Seller desires to sell
to Purchaser all of Seller's rights under the NRTC/Member Agreement and the
NRTC/Retail Agreement relating to the Locations, any residual rights of Seller
as a member or affiliate of the NRTC to distribute DBS Services in the Locations
after the termination of the NRTC Agreements and certain of the assets used in
the Business, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and legal sufficiency of which is hereby acknowledged, Purchaser and
Seller hereby agree as follows:

ARTICLE I

DEFINITIONS

The terms defined in this Article shall have the following respective
meanings for all purposes of this Agreement, and the following definitions are
equally applicable to both the singular and plural forms of the terms defined:

"Accounts Payable" shall mean all accounts payable of Seller to the
NRTC as of the Closing Date relating to the Business; including, without
limitation, accounts payable to the NRTC with respect to wholesale bills,
equipment and other services.

"Accounts Receivable" shall mean all of the accounts receivable of
Seller as of the Closing Date for all Customers which are listed on Report 19A
(Accounts Receivable Summary) of the NRTC Central Billing Systems Reports.

"Binder" shall mean the Two Hundred Fifty Thousand Dollars ($250,000)
Purchaser deposited with Seller on October 22, 1997, as a good faith binder to
proceed with the transactions contemplated by this Agreement.

"Cable Programming" shall have the meaning ascribed to such term in the
NRTC/Member Agreement.
<PAGE> 5

"Cash" shall mean all cash in Seller's bank accounts at Huntington Bank
as of the Closing Date.

"Closing" shall mean the consummation and effectuation of the
transactions contemplated herein pursuant to the terms and conditions of this
Agreement and shall be held at 10:00 a.m. at the offices of Nelson Mullins Riley
& Scarborough, L.L.P., 999 Peachtree Street, N.E., Suite 1400, Atlanta, Georgia
30309 (i) at Purchaser's election, on the later of (a) the calendar day of such
month on which NRTC's accounting period closes after which all of the conditions
precedent set forth in Articles VIII and IX herein have been satisfied or
waived, or (b) January 30, 1998; or (ii) such other date or at such other time
or place (including via mail, overnight courier or facsimile transmission) as
the parties may mutually agree upon in writing. The Closing shall be as
effective as of the close of business on the Closing Date.

"Closing Date" shall mean the date on which the Closing actually
occurs.

"Commercial Establishment" shall have the meaning ascribed to such term
in the NRTC/Member Agreement.

"Committed Member Residence" shall have the meaning ascribed to such
term in the NRTC/Member Agreement.

"Current Assets" shall mean Cash, Accounts Receivable and Prepaid
Expenses of Seller, which will be acquired by Purchaser at Closing.

"Current Liabilities" shall mean Accounts Payables and Unearned Revenue
of Seller which will be assumed by Purchaser at Closing.

"Customers" shall mean those Persons, including Subscribers, which have
purchased DBS Services, or entered into a binding agreement to purchase DBS and
related services, from Seller at any time during the five (5) year period
immediately preceding the Closing Date.

"DBS Services" shall have the meaning ascribed to such term in the
NRTC/Member Agreement.

"DirecTv" shall mean DirecTv, Inc., a California corporation, the
successor in interest and rights holder to Hughes Communications Galaxy, Inc.

"Escrow Agent" shall mean Union Bank of California, N.A., a national
banking association with offices in San Francisco, California.

"Escrow Agreement" shall mean the Escrow Agreement dated as of the
Closing Date among the Escrow Agent, Purchaser and Seller which Escrow Agreement
shall be substantially in the form attached hereto as Schedule 1.1.

2
<PAGE> 6

"Escrow Deposit" shall mean the Seven Hundred Fifty Thousand Dollars
($750,000) to be deposited by Purchaser with the Escrow Agent on the Closing
Date.

"Fixed Assets" shall mean the equipment and other tangible assets,
including, without limitation, any MTE terminals and demonstration units owned
by Seller and used or useable in connection with the Business, which equipment
and tangible assets are listed on Schedule 1.2 attached hereto.

"Franchise" shall mean any residual rights of Seller, if any, as a
member or affiliate of the NRTC to distribute DBS Services in the Locations
after the termination of the NRTC Agreements.

"GAAP" shall mean generally accepted accounting principles consistently
applied.

"Inventory" shall mean any DSS(R) subscriber equipment of Seller held
for resale, other than Leased Subscriber Equipment.

"Leased Subscriber Equipment" shall mean all DSS(R) subscriber
equipment of Seller leased or rented or to be leased or rented to Subscribers,
all accounts receivable arising therefrom and all records associated therewith.

"Lien" shall mean with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance, claim, escrow, right of
first refusal, indenture, easement, license or other adverse claim or
restriction of any kind in respect of such property or asset. For purposes of
this Agreement, any restriction or limitation with respect to a security or
other ownership interest (including any restriction on the right to vote, sell
or otherwise dispose of such security or ownership interest) shall constitute a
"Lien" thereon. For the purposes of this Agreement, a Person shall be deemed to
own subject to a Lien any property or asset which it has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
relating to such property or asset.

"Locations" shall mean those counties in the States of Georgia and
Florida set forth on Schedule 1.3 attached hereto in which Seller has the
exclusive right to distribute DBS Services pursuant to the NRTC Agreements.

"Non-Select Services" shall have the meaning ascribed to such term in
the NRTC/Member Agreement.

"NRTC" shall mean the National Rural Telecommunications Cooperative, a
District of Columbia corporation.

"NRTC Agreements" shall mean the NRTC/Member Agreement and the
NRTC/Retail Agreement.

3
<PAGE> 7

"NRTC/Member Agreement" shall mean the NRTC/Member Agreement for
Marketing and Distribution of DBS Services dated January 25, 1993 by and between
the NRTC and Seller, as amended by that certain Amendment as of March 25, 1994,
and as may be further amended from time to time, together with all schedules and
exhibits thereto, a copy of which is attached as Schedule 1.4.

"NRTC/Retail Agreement" shall mean the NRTC/Member DBS Product Retail
Agreement dated September 27, 1993 by and between the NRTC and Seller, as
amended from time to time, together with all schedules and exhibits thereto, a
copy of which is attached hereto as Schedule 1.5.

"Other Assumed Agreements" shall mean the contracts and agreements, if
any, set forth on Schedule 1.6 attached hereto, including any contracts and
agreements with DirecTv, and leases and rental agreements of Leased Subscriber
Equipment with Subscribers, copies of which are attached to such Schedule.

"Patronage Capital" shall mean the amount of patronage capital
dividends credited to the account of Seller at the NRTC for the period through
the Closing Date pursuant to Article XII of the NRTC Bylaws, as amended.

"Person" shall mean an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, joint
venture or other entity or organization including a government, political
subdivision or agency or instrumentality thereof.

"Prepaid Expenses" shall mean all prepaid property taxes, prepaid
supplies, advances, deposits, deferred charges and other prepaid expenses (other
than prepaid insurance) shown on Seller's books and records as of the Closing
Date relating to the Business which Prepaid Expenses can be credited to
Purchaser's account after the Closing Date, as determined in accordance with
GAAP.

"Programming" shall mean Cable Programming and any programming provided
DirecTv pursuant to the NRTC Agreements.

"Purchase Price" shall mean the amount set forth in Section 4.1 herein.

"Purchased Assets" shall mean only (i) the NRTC Agreements, (ii) the
Other Assumed Agreements, (iii) Franchise, (iv) Current Assets, (v) Inventory,
(vi) Leased Subscriber Equipment, (vii) relationships, contracts and accounts
with Customers, (viii) Fixed Assets, (ix) Records, (x) telephone numbers used in
the Business, and (xi) all other assets of Seller, whether tangible or
intangible, used in connection with the Business, specifically excluding the
Patronage Capital.

"Records" shall mean all files, books and records relating to the
provisions of DBS Services by Seller in the Locations, including, without
limitation, copies of Customer and

4
<PAGE> 8

prospective customer lists, computer programs, tapes and electronic data
processing software, accounting journals and ledgers, accounts receivable
records, and all NRTC reports, correspondence and other documents relating to
the NRTC Agreements and Other Assumed Agreements and compliance therewith.

"Subscriber" as of any date shall mean a Customer who, at a minimum (i)
is reported by the NRTC as an active subscriber subscribing to a core DirecTv
programming package (except commercial subscribers), (ii) on the last day of the
calendar month prior to such date, does not have an account more than sixty (60)
days past due from the date payment is due, (iii) is not an employee or agent of
the service provider or charged a fee that is nominal (e.g., demonstration unit)
or substantially below the service provider's published rates, and (iv) has not
given notice of intent to discontinue service and is not pending disconnection
for any reason, and (v) does not reside outside the Locations or is not
otherwise a Committed Member Residence (as defined in the NRTC/Member
Agreement).

"Survival Termination Date" shall mean March 15, 1999.

"Termination Date" shall mean March 31, 1998.

"Unearned Revenue" shall mean all unearned revenue, advance payments
and deposits associated with Customer credit balances of Seller as of the
Closing Date which are listed on Report 17 (Unearned Revenue Report) of the NRTC
Central Billing System Reports.

ARTICLE II

SALE AND PURCHASE OF THE ASSETS

2.1. SALE AND PURCHASE OF ASSETS. Subject to the terms and conditions
of this Agreement, Seller shall sell, transfer, assign and convey the Purchased
Assets to Purchaser, and Purchaser shall purchase, acquire and accept from
Seller all of Seller's right, title and interest in and to the Purchased Assets,
free and clear of any and all Liens, on the Closing Date for the consideration
set forth in this Agreement. The sale, transfer, assignment and conveyance of
the Purchased Assets shall be made by the execution and delivery at Closing of
(i) an Assignment and Assumption Agreement substantially in the form attached
hereto as Schedule 2.1(a) (the "Assignment"), and (ii) a bill of sale
substantially in the form attached hereto as Schedule 2.1(b) (the "Bill of
Sale"), and (iii) such other recordable instruments of assignment, transfer and
conveyance as Purchaser shall reasonably request.

ARTICLE III

ASSUMPTION OF LIABILITIES/EXPRESS EXCLUSIONS

3.1. LIABILITIES OF SELLER. As of the Closing Date, Purchaser shall
assume and agree to pay, perform and otherwise discharge all obligations of
Seller with respect to the following:

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(a) the NRTC Agreements to the extent the obligations therein
arise out of the provision of DBS Services to Customers and accrue on or after
the Closing Date;

(b) the Other Assumed Agreements to the extent the obligations
therein arise on or after the Closing Date; and

Anything in this Agreement to the contrary notwithstanding, except for
the liabilities specifically set forth in this Section 3.1, Purchaser shall not
assume or be deemed to have assumed under this Agreement, by reason of the
transactions contemplated by this Agreement, or otherwise, any other trade or
other accounts payable, accrued expenses, debts, liabilities, obligations or
commitments of Seller of any nature whatsoever, known or unknown, and the
execution, delivery and performance of this Agreement shall not render Purchaser
liable for any such debt, liability, obligation or commitment.

By way of example and not as an exhaustive list, the following
liabilities and obligations of Seller are expressly not assumed by Purchaser,
pursuant to this Agreement or otherwise:

A. any liabilities or obligations of Seller under or with
respect to any employment agreement or any pension, profit-sharing, retirement,
disability or other benefit plan entered into or established by Seller with or
for the benefit of any employee of Seller; and

B. any liabilities or obligations of any kind arising out of
incidents, occurrences, actions or failures to act by or pertaining to Seller,
which occurred prior to the Closing Date, including, without limitation,
liabilities or obligations arising from (i) the distribution, sale or provision
of any services of Seller, or (ii) any failure or alleged failure to comply with
any federal, state or local law, rule or regulation applicable to Seller or the
Business.

Purchaser agrees to promptly notify Seller of any claims which Purchaser obtains
knowledge of which arise out of or result from liabilities of Seller not assumed
by Purchaser pursuant to this Agreement.

ARTICLE IV

PURCHASE PRICE; PAYMENT OF PURCHASE PRICE

4.1. PURCHASE PRICE. The purchase price for the Purchased Assets (the
"Purchase Price") shall be Nine Million Five Hundred Thousand Dollars
($9,500,000), subject to adjustment as provided in Section 4.4 herein.

4.2. PAYMENT OF PURCHASE PRICE. On the Closing Date, Purchaser shall
pay the Purchase Price to Seller as follows:

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(a) Seller shall be entitled to retain the Binder.

(b) The sum of Eight Million Five Hundred Thousand Dollars
($8,500,000), subject to adjustment as provided for in Section 4.3 herein, by
certified or cashier's check, or by wire transfer of immediately available funds
to an account or accounts designated in writing by Seller (the "Closing
Payment").

(c) Purchaser shall deliver the Escrow Deposit to the Escrow
Agent to be held by the Escrow Agent pursuant to the Escrow Agreement.

4.3. ADJUSTMENT TO PURCHASE PRICE.

(a) The Closing Payment shall be (i) increased by (A) the
parties' good faith estimate of the Current Assets of Seller, and (B) Five
Hundred Dollars ($500) times the excess of (1) the number of new Subscribers in
the Locations to the Total Choice Package (or its equivalent) on the Closing
Date over (2) the number of Subscribers in the Locations to the Total Choice
Package (or its equivalent) on January 9, 1998; and (ii) decreased by the
parties' good faith estimate of the Current Liabilities of Seller as of the
Closing Date (the "Closing Adjustment"), which adjustment shall be subject to
final adjustment as provided for in paragraph (c) below.

(b) No later than sixty (60) days after the Closing Date, or
within three (3) days after receipt of the necessary accounting data from the
NRTC Central Billing System, whichever is later, Purchaser shall prepare and
deliver to Seller a balance sheet reflecting the Current Assets and Current
Liabilities of Seller as of the Closing Date (the "Closing Date Balance Sheet"),
prepared on a basis consistent with GAAP. For purposes of the Closing Adjustment
and the Final Closing Adjustment (as hereinafter defined), the amount of
Accounts Receivable of Seller to be included in the Closing Date Balance Sheet
shall include only Accounts Receivable of Subscribers as reflected on Report 18A
(Subscriber Accounts Receivable Aging By Account) of the NRTC Central Billing
System Reports which are less than sixty (60) days past due. The Closing Date
Balance Sheet and the Final Closing Adjustment shall not include as a Current
Asset any accounts receivable arising from Leased Subscriber Equipment. Except
as set forth in this Section 4.3(b), no other assets or liabilities shall be
included in the Closing Date Balance Sheet, including, Leased Subscriber
Equipment or Inventory. Seller shall make available to Purchaser such
documentation, back-up, invoices, and books and records of Seller as Purchaser
may reasonably request.

(c) Seller and Purchaser shall negotiate in good faith to
reconcile any discrepancies which may arise in connection with the determination
of the Closing Date Balance Sheet. If Seller and Purchaser are unable to
reconcile such discrepancies, Seller shall have fifteen (15) days from
presentment of the Closing Date Balance Sheet by Purchaser to notify Purchaser
if Seller wishes to have Purchaser's determination examined. If Seller elects to
have Purchaser's determination examined, it shall be submitted to the
determination in Atlanta, Georgia, by the Certified Public Accounting firm of
KPMG Peat Marwick (or any other independent Certified Public Accounting firm
mutually acceptable to Seller and Purchaser), the cost of such examination

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to be paid fifty percent (50%) by Seller and fifty percent (50%) by Purchaser.
The determination by Purchaser shall be final and binding on the parties unless
Seller elects to have an examination as provided herein, in which case the
results of the examination shall be made within thirty (30) days of such
referral, and shall be final and binding on the parties (the "Final Closing
Adjustment").

(d) To the extent the Final Closing Adjustment is less than
the Closing Adjustment, Seller shall pay the difference in cash to Purchaser
within five (5) days after the final determination. In the event the Final
Closing Adjustment is greater than the Closing Adjustment, Purchaser shall pay
such excess in cash to Seller within five (5) days after the final
determination. If, following any payment pursuant to this Section 4.3(d), an
error (in billing or reporting by NRTC or otherwise) is thereafter discovered
which would have affected the Final Closing Adjustment, the party in whose favor
the error was made shall immediately pay in cash the amount of such error to the
other party.

4.4. ALLOCATION OF PURCHASE PRICE. The parties have agreed, after
arms-length negotiations, to allocate the Purchase Price among the Purchased
Assets on the basis set forth on Schedule 4.4 to be delivered at the Closing,
and the parties shall make all federal, state and local tax filings consistent
therewith.

ARTICLE V

SELLER'S REPRESENTATIONS AND WARRANTIES

To induce Purchaser to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Purchaser as
follows:

5.1. ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia, with all
requisite power and authority to own and operate the Business as it is now
conducted and to own the Purchased Assets in the places where the Business is
now conducted and where the Purchased Assets are now owned or operated.

5.2. AUTHORITY.

(a) Seller has full power and authority to execute, deliver
and perform this Agreement and all agreements and transactions contemplated
hereby. The execution, delivery and performance of this Agreement and all
transactions contemplated hereby have been duly authorized by Seller and, except
for the consent of the NRTC, DirecTv and the other Persons set forth on Schedule
5.2(b) attached hereto, no other action or proceeding on the part of any other
party is necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Seller and constitutes, and each of the other agreements to be
executed by Seller pursuant to the terms hereof will constitute upon execution
and delivery, a legal, valid and binding obligation of Seller enforceable in
accordance with its terms.

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(a) Except for the NRTC, DirecTv and the other Persons set
forth on Schedule 5.2(b) attached hereto, the execution, delivery and
performance of this Agreement or any document related hereto by Seller and the
consummation by Seller of all of the transactions contemplated hereby or thereby
will not (with or without the giving of notice or the lapse of time or both) (i)
violate or require any consent or approval under any applicable provision of any
judgment, order, writ, injunction, decree, rule, regulation or law; (ii) require
any consent under, conflict with, result in termination of, accelerate the
performance required by, result in a breach of, constitute a default under or
otherwise violate the terms of any agreements, instruments or other obligations
to which Seller is a party or by which Seller or any of the Purchased Assets may
be bound or affected; (iii) require any consent or approval by, notice to or
registration with any governmental authority or any other Person; (iv) conflict
with or violate any provision of Seller's organizational documents; or (v)
result in the creation of a Lien upon any of the Purchased Assets howsoever
arising.

5.3. TITLE TO THE PURCHASED ASSETS.

(a) Seller has good and marketable title to all of the
Purchased Assets, free and clear of all Liens except those Liens disclosed on
Schedule 5.3(a) attached hereto and the transfer documents are effective to
transfer such title.

(b) Immediately following the Closing, Purchaser shall have
sufficient title in and to the Purchased Assets to operate and conduct the
Business in the same fashion as Seller was conducting the Business in the
ordinary course prior to the Closing Date.

5.4. CONDITION OF FIXED ASSETS. All of the Fixed Assets set forth on
Schedule 1.2 are in good operating condition, in a state of good maintenance and
repair, and are adequate and suitable for the purposes which are presently being
used. All appropriate repair and maintenance of the Fixed Assets has been
performed on a current basis. Except as set forth on Schedule 5.4 attached
hereto, none of the Fixed Assets are in need of any repairs which are outside
the ordinary course of maintenance and repairs routinely performed by Seller in
the past, and no currently needed repairs are reasonably likely to cost, either
singularly or in the aggregate with respect to all Fixed Assets, in excess of
Five Thousand Dollars ($5,000).

5.5. NRTC MEMBERSHIP; DBS DISTRIBUTION RIGHTS.

(a) Attached hereto as Schedules 1.4, 1.5 and 1.6 are true and
complete copies of each of the NRTC/Member Agreement, the NRTC/Retail Agreement,
and the Other Assumed Agreements, if any, respectively, together with all
amendments, schedules and exhibits thereto. The NRTC/Member Agreement grants
Seller the exclusive right to distribute DBS Services in the Locations, except
as set forth in the NRTC/Member Agreement.

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(b) Seller has paid all sums to NRTC or DirecTv, as
appropriate, required under the NRTC/Member Agreement such that Seller is
entitled to the marketing and sales revenues as provided therein.

(c) Seller is in full compliance in all material respects with
any and all membership, affiliation, licensing or other requirements or
arrangements as may have been established by NRTC or DirecTv pursuant to the
NRTC Agreements, or otherwise.

(d) Seller is not in breach of the NRTC Agreements, nor has
Seller failed to perform any material obligation under the NRTC Agreements.
Seller has not received notice of any such breach or non-performance at any time
of such NRTC Agreements. To the best of Seller's knowledge, no other party to
any of the NRTC Agreements is in default thereunder or has failed to perform any
material obligation thereunder.

5.6. INVENTORY. The Inventory will not, as of the Closing Date, include
any items below standard quality, obsolete or sub-prime. The Inventory shall
consist solely of undamaged, original units in original, sealed cartons. Seller
owns all of the Inventory free and clear of any and all Liens and has full power
and authority to transfer the Inventory to Purchaser.

5.7. ACCOUNTS RECEIVABLE. The Accounts Receivable represent arms'
length transactions with Customers made in the ordinary course of business and
none of the Accounts Receivable are subject to any counterclaim or setoff.

5.8. PREPAID EXPENSES. Each of the Prepaid Expenses is reasonable in
amount, was incurred and paid in the ordinary course of business and can be
utilized in the Business after the Closing Date.

5.9 FINANCIAL STATEMENTS. Seller has delivered to Purchaser true and
complete copies of the audited financial statements of Seller as of December 31,
1996 and for the year then ended (the "Audited Financial Statements"). The
Audited Financial Statements (i) are correct and complete and in accordance with
the books and records of Seller, (ii) fairly present the financial conditions,
assets and liabilities of Seller as at their respective dates and the results of
the operations and changes in cash positions for the periods covered thereby,
(iii) have been prepared in accordance with GAAP consistently applied, and (vi)
have been audited by Arthur Andersen LLP. Seller has also delivered to Purchaser
true and complete copies of the unaudited financial statements of Seller as of
December 31, 1996 and September 30, 1997 and for the months then ended
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i) are correct and complete in accordance with the books and records
of Seller and (ii) fairly present the financial condition of Seller as of such
dates and the results of its operations for the periods covered thereby.

5.10. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Schedule 5.10 attached hereto and other than changes or events which have
affected the DBS industry in general, since December 31, 1996 there has not
been:

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(a) any change in the position, financial or otherwise,
assets, liabilities, earnings, book value, Business or operations of Seller
which is materially adverse, singularly or in the aggregate;

(b) any obligation or liability incurred by Seller (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
other than obligations or liabilities incurred in the ordinary course of
business and consistent with past practices;

(d) any damage, destruction or loss, whether or not covered by
insurance, adversely affecting the Business or the Purchased Assets;

(e) the adoption of any statute, rule, regulation or order
which adversely affects the Business or the Purchased Assets;

(f) any sale, transfer or other disposition of any of the
Purchased Assets to any party, except for dispositions of surplus or used
equipment or other dispositions in the ordinary course of business; or

(g) any agreement to do any of the foregoing.

5.11. LICENSES AND PERMITS. Attached hereto in Schedule 5.11 is a list
of all federal, state, local and foreign permits, certificates, licenses,
approvals and other authorizations necessary in the conduct of the Business. All
such licenses and permits of Seller are in full force and effect, and no
violations are or have been recorded in respect thereof, and no proceeding is
pending or threatened to revoke or limit any thereof. Seller and its conduct of
the Business is in compliance with all applicable laws, statutes, ordinances,
rules, regulations and order of any federal, foreign, state or local government
and any other government department or agency, and in any judgment, decision,
decree or order of any court or governmental agency, department or authority.

5.12. TAX MATTERS.

(a) Seller has timely filed all federal, state, local and
foreign tax returns and tax reports required to be filed with respect to the
Business with the appropriate governmental agency in all jurisdictions in which
such returns and reports are required to be filed. All such returns and reports
are true, correct and complete, and all amounts shown as owing on them have been
paid, including all interest, penalties, deficiencies and assessments heretofore
levied or assessed against Seller. Seller has duly withheld, collected and
timely paid over, or holds for such payment, to the proper governmental
authorities all taxes required to be withheld or collected by it. There is no
agreement for extension of time of assessment or payment of any taxes of

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Seller. No waiver of any statute of limitations has been executed by Seller for
any tax year which remains open or unsettled. To the best knowledge, information
and belief of Seller, there is no examination or audit pending by the Internal
Revenue Service or by any state or local taxing authority with respect to the
tax matters of Seller. There is no liability for taxes or any tax deficiency or
the existence of any basis from which liability for taxes or tax deficiency,
including interest and penalties, might be asserted against Seller for any
period in excess of the applicable reserve for taxes, if any, and Seller has no
knowledge of any such liability or deficiency or the existence of any basis
therefor.

(b) All federal, state, local and foreign income, profits,
franchise, sales, use, occupation, property, excise and other taxes (including
interest and penalties), if any, payable by Seller or relating to or chargeable
against the Purchased Assets or chargeable against Seller's revenue or income
have been fully paid or are not past due and are fully disclosed and accrued on
the books and records of Seller and the proper amount of reserves exist for the
payment thereof.

5.13. DISCLOSURES. No representation or warranty made by Seller in this
Agreement, and no statement made in any schedule, exhibit, certificate or other
writing delivered or to be delivered in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact, or omits or will omit any statement of a material fact necessary to make
the statements contained herein or therein not misleading.

5.14. LITIGATION. Except as set forth in Schedule 5.14 attached hereto,
there are no actions, suits, proceedings, orders, investigations or claims
pending or, to the best of Seller's knowledge, any threats against or affecting
Seller, the Purchased Assets or the Business, at law or in equity, before any
court, arbitration panel, tribunal or governmental department, commission,
board, bureau, agency or instrumentality.

5.15. LEASED SUBSCRIBER EQUIPMENT. To the best of Seller's knowledge,
none of the Leased Subscriber Equipment is in need of any repairs which are
outside the ordinary course of maintenance and repairs routinely performed by
Seller in the past.

5.16 BROKERS, FINDERS. No agent, broker, investment banker or other
person acting on behalf of Seller, or under its authority, is or will be
entitled to any broker's or finder's fee or any other commission or similar fee,
directly or indirectly, in connection with the transaction contemplated by this
Agreement.

ARTICLE VI

PURCHASER'S REPRESENTATIONS AND WARRANTIES

To induce Seller to enter into this Agreement and to consummate the
transactions contemplated hereby, Purchaser hereby represents and warrants to
Seller as follows:

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6.1. ORGANIZATION. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Georgia, with all requisite power to own and operate its business as it is now
conducted.

6.2. AUTHORITY.

(a) Purchaser has full power and authority to execute,
deliver, and perform this Agreement. The execution, delivery and performance of
this Agreement and all transactions contemplated hereby have been duly
authorized by Purchaser and no other action or proceeding on the part of any
other party is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Purchaser, and constitutes, and each of the other
agreements to be executed pursuant to the terms hereof upon execution and
delivery will constitute, a legal, valid and binding obligation of Purchaser,
enforceable in accordance with its terms.

(b) Except for the NRTC, DirecTv and the other Persons set
forth on Schedule 6.2(b) attached hereto, the execution, delivery and
performance of this Agreement or any other document related hereto by Purchaser
and the consummation by Purchaser of all of the transactions contemplated hereby
or thereby will not (with or without the giving of notice or the lapse of time
or both) (i) violate or require any consent or approval under any applicable
provision of any judgment, order, writ, injunction, decree, rule, regulation or
law; (ii) require any consent under, conflict with, result in the termination
of, accelerate the performance required by, result in the breach of, constitute
a default under or otherwise violate the terms of any agreements, instruments or
other obligations to which Purchaser is a party; (iii) require any consent or
approval by, notice to or registration with any governmental authority or any
other Person; or (iv) violate any provision of Purchaser's Articles of
Organization or Operating Agreement.

6.3. DISCLOSURES. No representation or warranty made by Purchaser in
this Agreement, and no statement made in any schedule, exhibit, certificate or
other writing delivered or to be delivered in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact, or omits or will omit any statement of a material fact necessary to make
the statements contained herein or therein not misleading.

6.4. BROKERS, FINDERS. No agent, broker, investment banker or other
person acting on behalf of Purchaser, or under its authority, is or will be
entitled to any broker's or finder's fee or any other commission or similar fee,
directly or indirectly, in connection with the transaction contemplated by this
Agreement.

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ARTICLE VII

COVENANTS

7.1. CONDUCT OF THE BUSINESS PRIOR TO CLOSING DATE. From the date
hereof through and until the Closing Date, unless performance of the following
obligations is waived by Purchaser (in its sole discretion) in advance and in
writing, Seller shall:

(a) consult with Purchaser on a regular basis with respect to
all decisions which might adversely affect the Business or the Purchased Assets;

(b) not modify, amend, alter or terminate any of the NRTC
Agreements or any of the Other Assumed Agreements, or waive any default or
breach thereunder;

(c) comply in all material respects with the NRTC Agreements
and the Other Assumed Agreements, use its best efforts to cure any default or
breach thereunder, and promptly notify Purchaser upon receipt of notice of any
default or breach thereunder;

(d) maintain its Records in accordance with prior practice,
maintain the Purchased Assets in their present condition, ordinary wear and tear
excepted, consistent with past practice, and otherwise use its best efforts to
operate the Business as currently operated and in the ordinary course in
accordance with practices during the twelve (12) months preceding the date of
this Agreement;

(e) not sell, transfer, dispose or permit a Lien, directly or
indirectly, on any of the Purchased Assets, except for sales or dispositions of
Inventory in the ordinary course of business;

(f) use its best efforts to preserve intact the current
business organization and relationships with employees, suppliers, advertisers,
Customers and other Persons having dealings with Seller relating to the
Business;

(g) operate the Business in all material respects in
accordance with the NRTC Agreements, comply in all material respects with all
laws, rules and regulations applicable to it, including the regulations and
policies of the NRTC and DirecTv;

(h) provide to Purchaser, concurrently with filing, sending or
receipt thereof, copies of all reports to and other filings and correspondence
with the NRTC and DirecTv;

(i) provide to Purchaser, promptly upon receipt thereof by
Seller, a copy of (i) any notice of the revocation, suspension or limitation of
the rights under, or of any proceeding for the revocation, suspension, or
limitation of the rights under, any of the NRTC Agreements, and (ii) copies of
all protests, complaints, challenges or other documents submitted to or filed
with the

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NRTC or DirecTv by third parties concerning the Business and, promptly upon the
filing or making thereof, copies of Seller's responses thereto; and

(j) notify Purchaser in writing immediately upon learning of
the institution or threat of any action against Seller in any court, or any
action against Seller before any governmental agency, and notify Purchaser in
writing promptly upon receipt of any administrative or court order relating to
the Business. Without limiting the generality of the foregoing, Seller shall not
take any of the actions (over which Seller can exercise control) listed in
Section 5.9 herein.

7.2. ACCESS.

(a) Prior to the Closing, Purchaser may, through its
employees, agents and representatives, make or cause to be made such
investigation of Seller, its Records and the Business as Purchaser deems
necessary or advisable and shall have full access to the auditors and attorneys
of Seller. Seller shall permit Purchaser and its employees, agents and
representatives, on reasonable notice, to have access during normal business
hours to its premises, personnel and Records. Seller shall cooperate to provide
access to its Customers, suppliers, lenders and such other parties as Purchaser
may reasonably request. Seller shall, and shall cause its officers, attorneys
and accountants to, furnish Purchaser with such financial and operating data and
other information as Purchaser from time to time shall reasonably request. No
investigation by Purchaser shall in any way affect or otherwise diminish the
representations, warranties and covenants of Seller hereunder.

(b) Purchaser will hold, and will cause its authorized
representatives (including its investors and lending institutions) to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or official request or by other requirements of law, all documents and
information concerning Seller and the Business furnished to Purchaser in
connection with the transactions contemplated by this Agreement (except to the
extent that such information can be shown to have been (i) previously known by
Purchaser, (ii) in the public domain through no fault of Purchaser, or (iii)
later lawfully acquired by Purchaser from other sources) and will not release or
disclose such information to any other Person, except its auditors, attorneys,
financial advisors and other consultants and advisors and lending institutions
(including banks) in connection with this Agreement, it being understood that
such Persons shall be informed by such party of the confidential nature of such
information and shall be directed by such party and shall have agreed to treat
such information as confidential. In the event that the transactions
contemplated herein are not consummated for any reason, Purchaser will, upon
request by Seller, promptly return to Seller all copies of any schedules,
statements, documents or other written information obtained in connection
herewith, without retaining any copies or summaries thereof, and shall maintain
such confidence except to the extent such information comes into the public
domain through no fault of Purchaser.

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7.3. CONSENT OF NRTC, DIRECTV AND OTHERS. Seller and Purchaser shall
join in and deliver the requests for the consent of the NRTC and DirecTv to the
transfer of the NRTC Agreements, and such other requests for consent that
Purchaser reasonably determines may be necessary or appropriate to consummate
the transactions contemplated hereby and they will each diligently take all
steps necessary or desirable to obtain such consents. The failure of either of
the parties to timely file or diligently seek the consents, or to cooperate
fully with the other party with respect thereto, shall be deemed a material
breach of this Agreement.

7.4. PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Seller and Purchaser (a)
shall agree in advance as to timing, form and content before issuing any press
release or otherwise making any public statements with respect to the
transactions contemplated hereby and shall not issue any press release or make
any public statement prior to reaching agreement, except as may be required by
law (including federal and state securities laws), contractual relationships
with the NRTC or DirecTv, or auditor or lender requirements; provided, however,
that no party shall disclose the Purchase Price hereunder without the prior
written consent of the other party hereto; and (b) agree to maintain the
confidentiality of this Agreement and the terms hereof and any information
exchanged by the parties in connection with the consummation of the transaction
contemplated hereby, except as may be required by law (including federal and
state securities laws), contractual relationships with the NRTC or DirecTv, or
auditor or lender requirements.

7.5. BEST EFFORTS. Subject to the terms and conditions herein provided,
Seller and Purchaser agree to use their best efforts to take, execute,
acknowledge and deliver, or cause to be taken, executed, acknowledged and
delivered, all actions, deeds, assignments, documents, instruments, transfers,
conveyances, discharges, releases, assurances and consents, and to do, or cause
to be done, all things necessary, proper or advisable under this Agreement and
all applicable laws and regulations to consummate, confirm, perfect, evidence
and otherwise make effective the transactions contemplated by this Agreement,
including actions necessary to obtain all requisite assignments of agreements
and contracts, and to fulfill the requirements of Articles VIII and IX hereof on
or prior to the Closing Date.

7.6. EXCLUSIVE DEALING. During the period from the date of this
Agreement to the Closing Date, Seller will refrain, and will cause all of its
agents and employees to refrain, from taking, directly or indirectly, any action
to encourage, initiate, solicit or continue any discussions or negotiations
with, or any other offers from, any other Person concerning a merger, sale of
substantial stock or any similar transaction concerning Seller which would
affect the Business, or the sale of the Purchased Assets or any portion thereof.

7.7. SUBSCRIBER LEASES. From and after the date hereof, Seller
covenants and agrees to use its best efforts to keep in full force and effect
all leases or rentals of Leased Subscriber Equipment between Seller and
Subscribers and shall refrain from taking, directly or indirectly, any action to
encourage any Subscribers to terminate such leases.

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7.8. AUDIT. Seller agrees that from and after the date hereof,
Purchaser shall have the right, at its sole cost and expense, and upon
reasonable notice, to audit Seller's Records pertaining to the Business and the
Purchased Assets and Seller shall cooperate fully with Purchaser's auditors,
including, but not limited to, granting such auditors reasonable access to
Seller's premises, personnel and Records pertaining to the Business and the
Purchased Assets, and furnishing such auditors with any information and data
which they may reasonably request, related to the Business and the Purchased
Assets.

ARTICLE VIII

CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS

Purchaser's obligations to perform this Agreement and consummate the
transactions contemplated hereby is subject to the satisfaction (or waiver by
Purchaser), on or before the Closing Date, of each of the following conditions
precedent:

8.1. TRUTH OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Seller contained in this Agreement, and all
representations and warranties set forth in any schedule or exhibit attached
hereto, shall have been true, complete and correct when made and as of the
Closing Date, without the necessity of any material amendment or modification,
with the same force and effect as if made as of the Closing Date.

8.2. PERFORMANCE. Each of the agreements, obligations, conditions and
covenants to be performed or complied with by Seller on or before the Closing
Date pursuant to the terms hereof shall have been duly performed or complied
with on or before the Closing Date.

8.3. NO MATERIAL ADVERSE CHANGE. Prior to the Closing Date and except
as otherwise permitted by this Agreement, there shall not have occurred any
material adverse change in the financial condition, Business, assets or results
of operations of Seller or the Purchased Assets.

8.4. NO LITIGATION THREATENED. No action, suit or other proceeding
shall be pending before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain substantial damages in
respect thereof, or involving a claim, the consummation of which would result in
the violation of any law, decree or regulation of any governmental authority
having appropriate jurisdiction.

8.5. CONSENTS. All authorizations and approvals of or consents of, or
filings with, any governmental authority or other Person required to be obtained
or made by Seller in connection with the Closing (including, without limitation,
the consent of the NRTC and DirecTv as provided for in Section 7.3 herein) shall
have been duly obtained by Seller and shall be in full force and effect without
conditions which are materially adverse to Purchaser.

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<PAGE> 21

8.6. SUBSCRIBERS. On the Closing Date, Seller shall have at least 4,600
Subscribers, which Subscribers shall have been acquired in the ordinary course
of business and shall have substantially the same distribution among programming
packages as the Subscribers on October 22, 1997.

8.7 REVIEW OF SELLER. The satisfactory completion, in Purchaser's sole
discretion, on or before November 15, 1997 of Purchaser's due diligence
investigation covering the Business as provided in Section 7.2 herein.

8.8. SELLER'S CLOSING DELIVERIES. Seller shall have delivered to
Purchaser the following at Closing:

(a) the Assignment, the Bill of Sale and other instruments of
transfer to effectively assign, transfer and convey good and marketable title to
the Purchased Assets as Purchaser shall reasonably request, in form and
substance reasonably satisfactory to Purchaser;

(b) copies of the Records which Purchaser may reasonably
request;

(c) a certified copy of Resolutions of the Board of Directors
and Shareholders of Seller authorizing the execution, delivery and performance
of this Agreement;

(d) certificate of good standing of Seller from the Secretary
of State of Georgia;

(e) evidence satisfactory to Purchaser that all Liens on the
Purchased Assets have been removed or otherwise addressed to Purchaser's
satisfaction;

(f) a list of the Accounts Receivable from all Customers
(Reports 18A and 19A) and a list of the Unearned Revenue (Report 17), each as of
the most recently available NRTC billing period ending prior to the Closing
Date;

(g) a certificate signed by Seller's president, dated the
Closing Date, to the effect that the conditions set forth in this Article VIII
have been satisfied;

(h) an opinion of Jones, Cork & Miller, LLP counsel to Seller,
in form and substance reasonably acceptable to Purchaser;

(i) a certificate signed by Seller's president, dated the
Closing Date, regarding the transfer of Seller's accounts at Huntington Bank;

(j) Noncompetition Agreements with each of Seller and Dr.
George S. Walker, substantially in the form attached hereto as Schedule 8.8; and

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<PAGE> 22

(k) such other documents and instruments as may be reasonably
requested and satisfactory to Purchaser and its counsel in connection with
Seller's satisfaction of its obligations hereunder.

ARTICLE IX

CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS

Seller's obligations to perform this Agreement and consummate the
transactions contemplated hereby is subject to the satisfaction (or waiver by
Seller), on or before the Closing Date, of each of the following conditions
precedent:

9.1. TRUTH OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Purchaser contained in this Agreement, and all
representations and warranties set forth in any schedule or exhibit attached
hereto, shall have been true, complete and correct when made and as of the
Closing Date, without the necessity of any material amendment or modification,
with the same force and effect as if made as of the Closing Date.

9.2. PERFORMANCE. Each of the agreements, obligations, conditions and
covenants to be performed or complied with by Purchaser on or before the Closing
Date pursuant to the terms hereof shall have been duly performed or complied
with on or before the Closing Date.

9.3. NO LITIGATION THREATENED. No action, suit or other proceeding
shall be pending before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain substantial damages in
respect thereof, or involving a claim, the consummation of which would result in
the violation of any law, decree or regulation of any governmental authority
having appropriate jurisdiction.

9.4. CONSENTS. All authorizations and approvals of or consents of, or
filings with, any governmental authority or other Person required to be obtained
or made by Purchaser in connection with the Closing (including without
limitation, the consent of the NRTC and DirecTv as provided for in Section 7.3
herein) shall have been duly obtained by Purchaser and shall be in full force
and effect without conditions which are materially adverse to Seller.

9.5. PURCHASER'S CLOSING DELIVERIES. Purchaser shall have delivered to
Seller the following at Closing:

(a) the Closing Payment;

(b) a certified copy of Resolutions of the member of Purchaser
authorizing the execution, delivery and performance of this Agreement;

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<PAGE> 23

(c) a certificate signed by Purchaser's member, dated the
Closing Date, to the effect that the conditions set forth in this Article IX
have been satisfied;

(d) an opinion of Nelson Mullins Riley & Scarborough, L.L.P.,
counsel to Purchaser, in form and substance reasonably acceptable to Seller; and

(e) a certificate signed by Purchaser's member, dated the
Closing Date, regarding the transfer of Seller's accounts at Huntington Bank.

ARTICLE X

SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION

10.1. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as
otherwise specifically provided herein, each and every representation and
warranty contained in this Agreement shall expire with, and be terminated and
extinguished by the Closing or the termination of this Agreement pursuant to
Section 11.13 hereof, and thereafter, except and to the extent otherwise
specifically provided herein, neither Purchaser, Seller or any member, director,
officer or representative thereof shall be under any liability whatsoever with
respect to any such representation or warranty. The representations and
warranties hereunder shall not be affected or diminished by any investigation at
any time by or on behalf of the party for whose benefit such representations and
warranties were made. All statements contained herein or in any schedule,
exhibit, certificate, list or other document delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties.

10.2. INDEMNIFICATION OF PURCHASER. Seller, and its successors, and
assigns shall indemnify, reimburse and hold Purchaser and its members, officers,
subsidiaries, affiliates, successors, assigns and agents harmless from, against,
for and in respect of any and all damages, losses, settlement payments,
obligations, liabilities, claims, demands, actions or causes of action,
judgments, encumbrances, costs and expenses (including reasonable attorneys'
fees) (collectively, the "Indemnifiable Damages") relating to, resulting from or
arising out of (i) any misrepresentation, untruth, inaccuracy, breach or
nonfulfillment of any representation, warranty, agreement or covenant of Seller
contained in or made in connection with this Agreement or in any schedule,
exhibit, certificate or other document delivered pursuant hereto, (ii) the
failure of Seller to pay, perform or discharge promptly when due any of its
obligations, liabilities and debts except as provided under this Agreement,
(iii) any liability or obligation relating to the operation of the Business
prior to the Closing Date, (iv) any breach or default prior to the Closing Date
by Seller under any of the NRTC Agreements, (v) any state or local sales, use,
excise, personal property or similar tax liability (including penalties and
interest) of Seller, (vi) any liability or obligation relating to or arising
from the Multimedia Communications Group, Wireless Cable Associates, L.C.
litigation prior to or after the Closing Date; and (vii) any other liabilities,
obligations or claims, whether absolute or contingent, known or unknown, matured
or unmatured and not expressly assumed by Purchaser hereunder.

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<PAGE> 24

10.3. INDEMNIFICATION OF SELLER. Subject the limitations hereinafter
set forth, Purchaser shall indemnify, reimburse and hold Seller and its
shareholders, officers, directors, subsidiaries and affiliates harmless from,
against, for and in respect of any and all Indemnifiable Damages (as defined in
Section 10.2 above) relating to, resulting from or arising out of (i) any
misrepresentation, untruth, inaccuracy, breach or nonfulfillment of any
representation, warranty, agreement or covenant of Purchaser contained in or
made in connection with this Agreement or in any schedule, exhibit, certificate
or other document delivered pursuant hereto, (ii) the failure of Purchaser to
pay, perform or discharge promptly when due (a) its obligations set forth in
Section 4.2 herein, or (b) the Current Liabilities, (iii) the assertion against
Seller of any liability or obligation relating to Purchaser's operation of the
Business after the Closing Date, and (iv) any breach or default after the
Closing Date by Purchaser under the NRTC Agreements.

10.4. EXPIRATION OF INDEMNIFICATION OBLIGATIONS. The indemnification
obligations of Seller under Sections 10.2(i), (ii), (iii), (iv) and (vi) and
Purchaser under Section 10.3 above shall expire and terminate on the Survival
Termination Date, unless, prior to such termination, the party entitled to
indemnification hereunder (the "Indemnified Party") shall have provided written
notice to the other party hereto obligated to provide indemnification pursuant
to Sections 10.2 or 10.3 herein (the "Indemnifying Party") of an assertion by
the Indemnified Party of a right to indemnification under Sections 10.2 or 10.3
("Indemnification Claim").

10.5. RIGHT TO CONTEST.

(a) If the Indemnified Party receives notice or has knowledge
of any claim for which it believes the Indemnifying Party is obligated to
provide indemnification, the Indemnified Party shall provide the Indemnifying
Party with an Indemnification Claim within twenty (20) days of its receipt of
same, but in no event later than ten (10) days prior to the date a responsive
pleading with respect to such Indemnification Claim is due. The Indemnification
Claim shall set forth a brief description of the facts giving rise to such a
claim and the amount (or reasonable estimate) of the Indemnifiable Damages
suffered or which may be suffered by the Indemnified Party. The Indemnified
Party shall, at the expense of the Indemnifying Party, provide all information
regarding the contest or defense of the claim and cooperate fully with the
Indemnifying Party in the conduct of any such contest or defense. Before being
required to make any payment pursuant to Sections 10.2 or 10.3 herein, the
Indemnifying Party may, at its own expense, elect to undertake and control the
defense of, and take all necessary steps properly to contest any claim in
respect thereof involving third parties or to prosecute such claim to conclusion
or settlement satisfactory to the Indemnified Party. If the Indemnifying Party
makes the foregoing election, then the Indemnified Party shall have the right to
participate, at its own expense, in all proceedings but shall not admit any
liability, settle, compromise, pay or discharge the claim without the prior
written consent of the Indemnifying Party. If the Indemnifying Party does not
make such election, it shall be obligated to pay the costs of defending or
prosecuting such claim and shall be bound by whatever result is obtained by the
Indemnified Party respecting such claim.

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<PAGE> 25

(b) Except as otherwise specifically provided herein, the
remedies provided in this Agreement shall be cumulative and shall not preclude
assertion by any party of any other rights or the seeking of any other remedies
against any other party hereto.

ARTICLE XI

MISCELLANEOUS

11.1. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given, upon
personal delivery, upon receipted delivery by overnight courier, charges prepaid
or charged to the sender's account if delivery is confirmed by the delivery
service, upon receipt of a confirmed transmission if by facsimile transmission,
or three (3) days after mailing if mailed by certified or registered mail,
postage prepaid, return receipt requested, as follows (or at such other address
for a party as shall be specified by like notice; provided that notice of a
change of address shall be effective only upon receipt thereof):

To Purchaser: Digital Television Services of Georgia, LLC
Building C-200
880 Holcomb Bridge Road
Roswell, Georgia 30076
Attention: Douglas S. Holladay, Jr.

with a copy to: C. Mark Kelly, Esq.
Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center, Suite 2600
100 North Tryon Street
Charlotte, North Carolina 28202

To Seller: Ocmulgee Communications, Inc.
107 Professional Center
Eastman, Georgia 31023
Attn: Dr. George S. Walker

with a copy to: W. Carter Bates III, Esq.
Jones, Cork & Miller, LLP
500 SunTrust Bank Building
435 Second Street
Macon, Georgia 31208-6437

11.2. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute one and the same
agreement.

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11.3. GOVERNING LAW. This Agreement shall be governed by and
interpreted, construed and enforced in accordance with the laws of the State of
Georgia, without regard to the choice of law provisions thereof.

11.4. WAIVERS. No provisions of this Agreement may be waived except by
an instrument in writing signed by the party sought to be bound. No failure or
delay by any party in exercising any right or remedy hereunder shall operate as
a waiver thereof, and a waiver of a particular right or remedy on one occasion
shall not be deemed a waiver of any other right or remedy or of the same right
or remedy or a waiver on any future occasion.

11.5. SEVERABILITY. The invalidity or unenforceability of any term or
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.

11.6. SECTION AND ARTICLE HEADING REFERENCES. The Section and Article
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.

11.7. SUCCESSORS AND ASSIGNS; ASSIGNMENT. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by, the respective
successors and permitted assigns, if any, of the parties hereto. Except as
otherwise expressly provided herein, nothing expressed or implied herein is
intended or shall be construed to confer upon or give any Person, other than the
parties hereto, any right or remedy hereunder or by reason hereof. This
Agreement may not be assigned by Purchaser (except to a party which, directly or
indirectly is controlled by, controls or is under common control with,
Purchaser) or Seller without the prior written consent of the other party
hereto.

11.8. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the schedules
attached hereto constitute the entire agreement and understanding of the parties
in respect of the transactions contemplated hereby and supersede all prior
correspondence, conversations, agreements, arrangements, understandings and
other writings, including the Term Sheet dated October 22, 1997 between Seller
and Digital Television Services, LLC. No promises, covenants or representations
of any character or nature other than those expressly stated herein have been
made to induce any party to enter into this Agreement. This Agreement may be
amended or modified only by a written instrument signed by each of the parties
hereto.

11.9. EXPENSES. Each of the parties hereto shall pay its own expenses
incurred in connection with the negotiation and consummation of this Agreement,
including the charges of its respective attorneys, accountants and other
representatives. Seller shall pay up to Five Thousand Dollars ($5,000) of any
transfer or similar fees due the NRTC and up to one hundred twenty (120%) of the
NRTC's costs and expenses incurred to complete the transfer and assignment in
connection with the transactions contemplated by this Agreement. Purchaser shall
pay any transfer fees due the NRTC in excess of the amounts required to be paid
by Seller pursuant to the immediately preceding sentence.

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<PAGE> 27

11.10. KNOWLEDGE OF SELLER. Where any representation or warranty
contained in this Agreement is expressly qualified by reference to knowledge,
Seller confirms that it has made or caused to be made due and diligent inquiry
as to the matters that are the subject of such representations and warranties.

11.11. FACSIMILE SIGNATURES. Facsimile signatures shall be considered
original signatures for purposes of execution and enforcement of the rights
delineated in this Agreement.

11.12. SCHEDULES. The schedules referred to in this Agreement are
attached hereto, made a part hereof and incorporated herein by this reference.

11.13. TERMINATION OF AGREEMENT.

(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing Date
by (i) the written consent of Seller and Purchaser, (ii) any party upon written
notice to the other party if the Closing has not occurred on or before the
Termination Date, (iii) Seller, if Sections 9.1, 9.2 or 9.5 have not been
complied with or performed by Purchaser and such noncompliance and
nonperformance shall not have been cured or eliminated (or by its nature cannot
be cured or eliminated) by Purchaser on or before the sixtieth (60th) day
following written notice thereof from Seller; provided that Seller has not
defaulted in any material respect with respect to any of its obligations
hereunder, (iv) Purchaser, if the covenants and conditions set forth in Articles
VII and VIII (other than Section 8.7) required to be complied with and performed
by Seller have not been complied with or performed by Seller and such
noncompliance and nonperformance shall not have been cured or eliminated (or by
its nature cannot be cured or eliminated) by Seller on or before the sixtieth
(60th) day following written notice thereof from Purchaser; provided that
Purchaser shall not have defaulted in any material respect with respect to any
of its obligations hereunder, or (v) Purchaser if the conditions set forth in
Section 8.7 required to be complied with and performed by Seller have not been
complied with or performed by Seller on or prior to November 15, 1997; provided
that Purchaser shall not have defaulted in any material respect with respect to
any of its obligations hereunder.

(b) In the event of termination pursuant to this Section 11.13, written
notice thereof shall be given to the other party and this Agreement shall
terminate immediately. In the event of such termination pursuant to Section
11.13(a)(i) or (ii), no party hereto (or any of its respective directors,
officers or members) shall have any liability or further obligation to the other
party to this Agreement.

(c) In the event of termination pursuant to Section 11.13(a)(iii),
Purchaser recognizes that Seller would be damaged, the extent to which is
extremely difficult and impractical to ascertain. The parties, therefore, agree
that if this Agreement is terminated pursuant to Section 11.13(a)(iii), Seller
shall be entitled to retain the Binder. The parties agree that this sum shall
constitute liquidated damages and shall be in lieu of any and all other relief
to which Seller might

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<PAGE> 28

otherwise be entitled due to Purchaser's failure to consummate, or Purchaser's
default under, this Agreement.

(d) In the event of termination pursuant to Section 11.13(a)(iv) or
(v), Purchaser shall be entitled to recover from Seller all damages, losses,
costs and expenses (including reasonable attorneys' fees) provided by law.

(e) The parties hereto agree that if any provision in Articles VII or
VIII hereof is not complied with and performed by Seller in accordance with its
specific terms or otherwise breached, and such noncompliance and nonperformance
shall not have been cured (or by its nature cannot be cured) by Seller on or
before the sixtieth (60) day following written notice thereof from Purchaser,
and Purchaser shall not have defaulted in any material respect with respect to
any of its obligations hereunder, Purchaser shall, at its sole option, be
entitled to specific performance of the terms of this Agreement.

11.14. POWER OF ATTORNEY. Seller hereby appoints Purchaser, and all
agents, officers, and employees designated by Purchaser, irrevocably for six (6)
months from and after the Closing Date, as its true and lawful attorney-in-fact
and duly authorized agent to:

(i) open Seller's mail and endorse and collect any checks, notes,
drafts or any other items payable to Seller from Subscribers or
otherwise issued in connection with the Business, and deposit same to
the account of Purchaser in any depository institution;

(ii) sign receipts and other papers necessary for the collection of any
and all amounts due from Subscribers;

(iii) notify Subscribers that the accounts have been assigned to
Purchaser; and

(iv) direct such Subscribers to make all payments due from them
directly to Purchaser.

Purchaser shall furnish Seller with a copy of any notice issued pursuant to
Sections 11.14(iii) or (iv) above and Seller hereby agrees that any such notice,
in Purchaser's sole discretion, may be sent on Seller's stationary, in which
event Seller shall, upon demand, co-sign such notice with Purchaser.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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<PAGE> 29

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.

PURCHASER:

Digital Television Services of
Georgia, LLC

By: DTS Management, LLC
Its: Member

By: /s/ Douglas S. Holladay, Jr.
----------------------------
Douglas S. Holladay, Jr.
President and Manager

SELLER:

Ocmulgee Communications, Inc.

By: /s/ George S. Walker III
--------------------------------
Its: President
---------------------------

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<PAGE> 30

SCHEDULE 1.1

ESCROW AGREEMENT

This Escrow Agreement (this "Agreement"), dated as of _____________,
199__ by and among Union Bank of California, N.A., a national banking
association with offices in Los Angeles, California as Escrow Agent (the "Escrow
Agent"), Digital Television Services of Georgia, LLC, a Georgia limited
liability company ("Purchaser"), and Ocmulgee Communications, Inc., a Georgia
corporation ("Seller").

RECITALS:

A. Purchaser and Seller entered into an Asset Purchase Agreement dated
__________, 199___ (the "Purchase Agreement") pursuant to which Purchaser agreed
to acquire all of Seller's right, title and interest in the National Rural
Telecommunications Cooperative's System No. 1017 for the exclusive distribution
in the Locations of DirecTv, Inc. DBS Services. Unless otherwise defined in this
Agreement, all capitalized terms used herein and defined in the Purchase
Agreement shall have the same meanings as set forth in the Purchase Agreement.

B. Pursuant to Section 4.2 of the Purchase Agreement, on the Closing
Date Purchaser is required to provide $950,000 to the Escrow Agent in
immediately available funds. The Escrow Agent shall hold such funds to satisfy
Indemnification Claims of Purchaser made pursuant to the Purchase Agreement.

C. Accordingly, pursuant to the Purchase Agreement, on the Closing Date
Purchaser shall wire transfer $950,000 to the Escrow Agent, in accordance with
the wire transfer instructions of the Escrow Agent set forth on Exhibit A
attached hereto.

D. The parties hereto desire to enter into this Agreement in order to
set forth the instructions to, and the duties, obligations, responsibilities and
rights of, the Escrow Agent with respect to all matters relating to the
administration, control, operation and disbursement of the amounts to be
deposited with the Escrow Agent.

AGREEMENT:

In consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:

Section 1. Acceptance of Appointment; Fee. The Escrow Agent hereby
accepts its appointment as Escrow Agent and hereby agrees to perform all of the
duties, obligations and responsibilities required of it as Escrow Agent under
this Agreement. Upon the initial deposit of the Escrow Deposit (as defined
below) pursuant to Section 2 below, the Escrow Agent shall be entitled to deduct
One Thousand Eight Hundred Dollars ($1,800) from the amount deposited as its
administration fee for acting as Escrow Agent hereunder.

<PAGE> 31

Section 2. Establishment of Escrow Account. Immediately upon the
receipt of the wire transfer of $950,000 from Purchaser, the Escrow Agent shall
(a) establish an escrow account which shall be maintained and administered in
accordance with the terms hereof, and (b) transmit to Purchaser via facsimile a
Receipt substantially in the form of Exhibit B hereto. The deposit received by
the Escrow Agent from Purchaser, not including any investment income earned on
the funds held by the Escrow Agent, is referred to herein as the "Escrow
Deposit".

The Escrow Deposit shall be held, invested and disbursed in accordance
with the terms and conditions set forth herein. The Escrow Agent shall furnish
to Purchaser and Seller at such times as they may reasonably request an
accounting of all funds held or disbursed by the Escrow Agent.

Section 3. Investment of Escrow Deposit; Payment of Income. The Escrow
Deposit and any investment income earned thereon shall be invested and
reinvested as directed in writing by Purchaser from time to time in the Highmark
U.S. Treasury Fund. The investment income earned as a result of investments made
pursuant to this subsection shall be paid to Seller when directed by Seller
following the disbursement of the Escrow Deposit pursuant to the terms hereof.
The payment of income to Seller shall be in such manner (wire, check, etc.) and
to such address as may be directed by Seller. Seller shall be liable for payment
of income taxes on all income earned on the Escrow Deposit.

Section 4. Disbursements.

A. Indemnification Claims. During the period beginning on the
Closing Date and ending with the close of business on March 15, 1999 (the
"Escrow Termination Date"), Purchaser shall be entitled to submit one or more
Indemnification Claims (as defined in Section 10.4 of the Purchase Agreements)
to the Escrow Agent, in addition to and at approximately the same time as such
Indemnification Claim is submitted to Seller pursuant to Section 10.5 of the
Purchase Agreement. Indemnification Claims shall be in substantially the same
form as Exhibit C hereto. Unless the Escrow Agent receives a written objection
from Seller within fifteen (15) days following receipt by Escrow Agent of an
Indemnification Claim, the Escrow Agent shall disburse funds to the Indemnified
Party identified on the Indemnification Claim in the amount set forth on the
Indemnification Claim; provided, however, in no event shall the Escrow Agent
disburse under this Section 4(A) amounts with respect to Indemnification Claims
received by it after the Escrow Termination Date. Amounts disbursed hereunder in
payment of Indemnification Claims shall be deemed disbursed in satisfaction of
claims in the order in which they are finally resolved.

If the Escrow Agent receives within the fifteen (15) day
period described above a written objection from Seller to the payment of an
Indemnification Claim, which claim would otherwise be properly payable by the
Escrow Agent, the Escrow Agent shall not distribute the amount of the
Indemnification Claim, but rather shall earmark a portion of the Escrow Deposit
as a claims reserve, the amount of which shall be the amount that would have
been distributable to the Indemnified Party but for the objection by Seller (the
"Claims Reserve"). Thereafter, the Escrow Agent shall continue to hold the
Claims Reserve pending resolution of matters objected to

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<PAGE> 32

by Seller and shall distribute the Claims Reserve only pursuant to (i) joint
written instructions executed by both Purchaser and Seller, or (ii) a Final
Order.

A. "Final Order" shall mean a (i) settlement agreement signed
by Seller and Purchaser; (ii) a certified copy of a binding decision of an
arbitrator which is not subject to review by or appeal to any other forum; or
(iii) a certified copy of a final order or judgment of a court of competent
jurisdiction determining the rights of Seller and Purchaser with respect to the
Escrow Deposit, which has been finally affirmed on appeal by the highest court
before which such appeal may be sought, or has become final, by lapse of time or
is not otherwise subject to appeal.

B. Escrow Termination Date. On the first business day
following the Escrow Termination Date the Escrow Agent shall disburse to Seller
via wire transfer in accordance with the wiring instructions provided by Seller
the balance of the Escrow Deposit minus the Claims Reserve with respect thereto,
and minus the amount of any Indemnification Claim submitted prior to the Escrow
Termination Date. The remaining amounts held by the Escrow Agent, if any, shall
continue to be held and distributed pursuant to this Agreement.

Section 5. Concerning the Escrow Agent.

A. Scope of its Authority. The Escrow Agent shall act as
Escrow Agent for the other parties hereto under this Agreement until the
termination of this Agreement in accordance with its terms, shall take such
actions as are specifically provided for herein and may exercise such additional
powers as are reasonably incidental thereto. The Escrow Agent shall not exercise
any discretion or make any judgments and shall act or refrain from acting only
in accordance with instructions and directions of the parties to this Agreement
who shall have agreed to make such instructions or directions.

B. Limitation of Liability. The Escrow Agent shall not be
liable for any act which it may do or omit to do hereunder so long as it shall
have acted in a manner not inconsistent with the terms of this Agreement. The
Escrow Agent shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver this Agreement, or any documents or papers, the delivery of
which is contemplated hereunder. The Escrow Agent may act in reliance upon any
instrument or signature which it reasonably believes to be genuine and may
assume that any person purporting to give notice or advice or instruction in
connection with the provisions hereof has been duly authorized to do so. The
Escrow Agent is authorized to disregard any and all warnings from any person,
and may disregard any directions, instructions, notices, communications or
information from any source whatsoever, excepting only directions conforming to
the terms and provisions of this Agreement. Under no circumstances shall the
Escrow Agent be liable or responsible for the application of funds after
delivery to any account or person in accordance with this Agreement.

C. Additional Rights of Escrow Agent. The Escrow Agent shall
have the following rights in addition to those granted above.

(i) The Escrow Agent may rely, and shall be protected
in acting or refraining from acting in reliance, upon any requisition,
certificate, statement, instrument,

3
<PAGE> 33

opinion, report, notice, request, direction, consent, or other document or
instrument contemplated by this Agreement or any order, judgment or decree of a
court of competent jurisdiction, believed by it to be genuine and to have been
signed or otherwise authenticated by any person reasonably believed by the
Escrow Agent to be the proper person to sign or otherwise authenticate any such
document or instrument.

(ii) If any action of the Escrow Agent is questioned
by the parties hereto, the Escrow Agent may, but is not required to, consult
with independent legal counsel and the written advice of such counsel shall be
sufficient authorization and protection in respect of any action taken, suffered
or omitted by the Escrow Agent in reliance thereon.

(iii) The Escrow Agent shall not be bound to make any
investigation into the facts or other matters stated in any requisition,
certificate, statement, instrument, evidentiary material, opinion, report,
notice, request, directive or consent, or any judgment, order or decree of any
court of competent jurisdiction.

(iv) The Escrow Agent shall not be required to
institute legal proceedings of any kind or to defend any legal proceeding which
may be instituted in respect of the subject matter of this Agreement.

(v) The Escrow Agent shall be reimbursed by Purchaser
for all fees, expenses, disbursements and advances incurred or made by it in the
performance of its duties hereunder.

D. Indemnification of Escrow Agent. Each of the parties hereto
other than the Escrow Agent shall be jointly and severally liable for and shall
indemnify the Escrow Agent for, and hold it harmless against, any loss,
liability, expense, claim, demand or judgment incurred, suffered, paid or
otherwise borne by the Escrow Agent without willful misconduct or gross
negligence on the part of the Escrow Agent, and arising out of or in connection
with the acceptance or administration of this Agreement, including, but not
limited to, all reasonable costs and expenses of defending itself against any
claim of liability, other than a claim of liability arising out of willful
misconduct or gross negligence of the Escrow Agent, asserted in any litigation
relating to this Agreement ("Indemnifiable Damages"). If any such claim is
asserted against the Escrow Agent, the Escrow Agent may engage counsel of its
choice and each of the parties hereto other than Escrow Agent shall be jointly
and severally liable for the fees of such counsel and the expenses incurred to
defend the Escrow Agent against such claim, and in the event any claimant is
successful in establishing his, her or its claim, each of the parties hereto
other than Escrow Agent will, jointly and severally, hold the Escrow Agent
harmless and will be liable for all payments required to be made by the Escrow
Agent pursuant to any order, decree or judgment that may be entered in a court
of competent jurisdiction. The indemnifications provided in this Section shall
survive the termination of this Agreement.

In the event the Escrow Agent is entitled to Indemnifiable Damages from
the other parties to this Agreement, then as between such parties and without
limiting the obligations set forth in the preceding paragraph, Purchaser, on the
one hand, and Seller, on the other hand, shall each be liable for 50% of such
Indemnifiable Damages.

4
<PAGE> 34

E. Resignation of Escrow Agent; Termination of Escrow
Agreement. The Escrow Agent shall be entitled to resign as Escrow Agent upon
sixty (60) days' prior, written notice to each of the other parties hereto, in
which case the Escrow Agent shall pay the Escrow Deposit as directed in writing
jointly by Purchaser and Seller, or, failing receipt of written directions as to
whom the Escrow Deposit shall be paid, to a court of competent jurisdiction.

Except as otherwise provided herein, this Agreement shall cease and
terminate upon the disbursement of the entire Escrow Deposit and the net
investment income and the performance of all obligations contemplated herein;
provided, however, that the indemnifications provided pursuant to Section 5(D)
above shall survive the termination of this Agreement.

Section 6. Delivery of Information to Escrow Agent. Each of the other
parties hereto shall execute and deliver such documents and obtain such
information as the Escrow Agent may reasonably request to effectuate the
operation of the escrow account and the efficient administration thereof.

Section 7. Binding Effect. This Agreement will be binding upon, inure
to the benefit of, and be enforceable by the respective beneficiaries,
representatives, successors and assigns of the parties hereto.

Section 8. Entire Agreement; Amendments. This Agreement contains the
entire understanding of the parties with respect to this subject matter, and may
be amended only by a written instrument duly executed by all parties hereto and
shall be binding for all purposes upon all of the parties hereto.

Section 9. Notices. All notices, claims, requests, demands and other
communications hereunder shall be sufficiently given if delivered in person or
sent by facsimile transmission or by registered or certified mail, postage
prepaid, addressed as follows:

(a) If to Purchaser: Digital Television Services of Georgia, LLC
880 Holcomb Bridge Road
Building C-200
Roswell, Georgia 30076
FAX #770/645-9429
Attn: Mr. Douglas S. Holladay, Jr.

With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center, Suite 2600
100 North Tryon Street
Charlotte, North Carolina 28202
FAX # (704) 377-4814
Attn: C. Mark Kelly, Esq.

5
<PAGE> 35

(b) If to Seller: Ocmulgee Communications, Inc.
107 Professional Center
Eastman, Georgia 31023
Attn: Dr. George S. Walker

With a copy to: Jones, Cork & Miller, LLP
500 SunTrust Bank Building
435 Second Street
Macon, Georgia 31208-6437
Attn: W. Carter Bates III, Esq.

(c) If to the Escrow Agent: Union Bank of California, N.A.
120 South San Pedro Street
Los Angeles, California 90012
FAX # (213) 972-5694
Attn: Andrew R. Ball

or to such other address as the persons to whom notice is to be given may have
previously furnished in writing to the others, provided that notices of changes
of address shall only be effective upon receipt. A notice given in accordance
with the preceding sentence shall be deemed to have been given as of the date so
delivered, or sent by facsimile transmission, or two (2) business days after
mailing if mailed.

Section 10. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Georgia,
without regard to its conflict of law rules.

Section 11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument

Section 12. Headings. Section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

6
<PAGE> 36

IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, all as of the day and year first above written.

DIGITAL TELEVISION SERVICES OF
GEORGIA, LLC

By: DTS Management, LLC
Its: Manager

By:______________________________
Douglas S. Holladay, Jr.,
President and Manager

OCMULGEE COMMUNICATIONS, INC.

By: _________________________________
Its: ____________________________

ESCROW AGENT:

UNION BANK OF CALIFORNIA, N.A.

By: _________________________________
Its: ____________________________

7
<PAGE> 37

EXHIBIT A

ESCROW AGENT'S
WIRING INSTRUCTIONS

Wiring instructions with respect to the deposit by Purchaser to the Escrow Agent
pursuant to Section 2 of the Escrow Agreement:

Name: Union Bank of California, N.A.
ABA #122000496
Trust Department/TRUSDG
Ref: ______________________
Acct #_______________

<PAGE> 38

EXHIBIT B

FORM OF RECEIPT FOR ESCROW DEPOSIT

TO: Digital Television Services of Georgia, LLC
Fax (704) 377-4814
(Attention: C. Mark Kelly, Esq.)

Ocmulgee Communications, Inc.
Fax ______________
(Attention: Dr. George S. Walker)

RE: Receipt of Escrow Deposit pursuant to Escrow Agreement dated
__________, 199__, by and among Union Bank of California, N.A. ("Escrow
Agent"), Digital Television Services of Georgia, LLC ("Purchaser") and
Ocmulgee Communications, Inc. ("Seller")

Ladies and Gentlemen:

Be advised that we have received pursuant to Section 2 of the Escrow
Agreement a wire transfer of funds on this ____ day of _________, 199__ from
Purchaser in the amount of $950,000, to be held by us as Escrow Agent pursuant
to the Escrow Agreement.

Sincerely yours,

------------------------------------
Andrew R. Ball

By: Union Bank of California, N.A.
Title: Assistant Vice-President

<PAGE> 39

EXHIBIT C

FORM OF INDEMNIFICATION CLAIM

TO: Ocmulgee Communications, Inc.
107 Professional Center
Eastman, Georgia 31023
Attn: Dr. George S. Walker

cc: Union Bank of California, N.A.
120 South San Pedro Street
Los Angeles, California 90012
Attn: Andrew R. Ball

cc: Nelson Mullins Riley & Scarborough, L.L.P.
NationsBank Corporate Center, Suite 2600
100 North Tryon Street
Charlotte, North Carolina 28202
Attn: C. Mark Kelly, Esq.

RE: Indemnification Claim pursuant to Section 10.2 of the Purchase
Agreement dated ______________, 199___ (the "Purchase Agreement") by
and between Digital Television Services of Georgia, LLC ("Purchaser")
and Ocmulgee Communications, Inc. ("Seller")

Ladies and Gentlemen:

Please be advised that the undersigned is hereby providing written
notice to Seller of an assertion by the undersigned of a right to
indemnification under Section 10.2 of the Purchase Agreement.

A brief description of the facts giving rise to this claim is as
follows:

[Insert description]

A reasonable estimate of the Indemnifiable Damages (as defined in the
Purchase Agreement) suffered, or which may be suffered, by the undersigned is as
follows:

[Insert amount of claim or reasonable estimate and basis for estimate
of claim]

DIGITAL TELEVISION SERVICES OF GEORGIA, LLC

By: DTS Management, LLC
Its: Member

By:_______________________________
Douglas S. Holladay, Jr.,
President and Manager

<PAGE> 40

SCHEDULE 1.3

LOCATIONS

<TABLE>
<CAPTION>
COUNTY ZIP CODE CABLED NON-CABLED TOTAL
------ -------- ------ ---------- -----
<S> <C> <C> <C> <C>
Atkinson County, GA 750 750
Ben Hill County, GA 2,308 2,308
Bleckley County, GA 1,650 1,650
Brooks County, GA 804 804
Clayton County, GA 30250 8 8
Clinch County, GA 836 836
Coffee County, GA 2,248 2,248
Cook County, GA 2,411 2,389 4,800
Crisp County, GA 806 806
Dodge County, GA 3,828 2,572 6,400
Dooly County, GA 175 175
Echols County, GA 500 500
Irwin County, GA 1,192 1,192
Jeff Davis County, GA 1,337 1,337
Lanier County, GA 1,500 500 2,000
Liberty County, GA 614 614
Lowndes County, GA 1,060 1,060
Muscogee County, GA 31908 1 1
Newton County, GA 30255,30262 121 121
Pulaski County, GA 898 898
Telfair County, GA 803 803
Walker County, GA 30739,30750 208 208
Ware County, GA 1,500 1,500
Wheeler County, GA 1,100 1,100
Wilcox County, GA 686 686
Baker County, FL 32072 17 17
Jefferson County, FL 1,500 2,590 4,090

TOTAL 36,912

</TABLE>
<PAGE> 41

SCHEDULE 1.6

OTHER ASSUMED AGREEMENTS

JMA NRTC/Member Agreement for Marketing and Distribution of DBS Services
Five Year Maintenance Agreement ($4/mo.)
In-House Finance with Maintenance Agreement ($17.88/mo.)
In-House Finance (Single Port $12.49/mo., Dual Port $14.27/mo.)
In-House Lease ($25/mo.)
Bellsouth- Yellow Page Advertising
Berry Company- Directory Advertising

<PAGE> 42

SCHEDULE 2.1(a)

ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made this _____ day of
____________, 1997, by and between Digital Television Services of Georgia, LLC,
a Georgia limited liability company ("Purchaser") and Ocmulgee Communications,
Inc., a Georgia corporation ("Seller").

RECITALS

1. Purchaser and Seller have entered into an Asset Purchase Agreement
dated as of _____________, 1997 (the "Purchase Agreement") pursuant to which
Seller has agreed to sell, assign, transfer and convey to Purchaser all of
Seller's right, title and interest in the National Rural Telecommunications
Cooperative's System No. 1017 for the exclusive distribution in the Locations of
DBS Services offered by DirecTv. Capitalized terms used herein which are not
otherwise defined herein shall have the meanings set forth in the Purchase
Agreement.

2. Pursuant to Section 2.1 and Section 3.1 of the Purchase Agreement,
Seller has agreed to assign and Purchaser has agreed to assume the rights and
obligations under the NRTC Agreements that accrue on and after the date hereof.

1. ASSIGNMENT. Seller hereby assigns, transfers and conveys to
Purchaser all right, title and interest in and to the NRTC Agreements and the
Other Assumed Agreements, including, but not limited to, the agreements listed
on Schedule A hereto and any rights in the Franchise.

2. ASSUMPTION. Purchaser hereby assumes the Current Liabilities, and
all liabilities that accrue under the NRTC Agreements on and after the date
hereof.

3. OTHER MATTERS. This assignment and assumption is made subject to and
together with the representations, warranties, covenants and agreements of
Purchaser and Seller specifically provided in the Purchase Agreement. Seller
hereby covenants to and agrees with Purchaser to do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged and delivered to Purchaser,
its successors and assigns, all such further acts, assignments, transfers,
conveyances, and assurances that may be reasonably requested by Purchaser for
the assignment, transfer and conveyance of the NRTC Agreements, the Other
Assumed Agreements and the Franchise.

<PAGE> 43

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

PURCHASER:

Digital Television Services of
Georgia, LLC

By: DTS Management, LLC
Its: Member

By:____________________________
Douglas S. Holladay, Jr.,
President and Manager

SELLER:

Ocmulgee Communications, Inc.

By:________________________________
Its:______________________

<PAGE> 44

SCHEDULE A

NRTC AGREEMENTS AND OTHER ASSUMED AGREEMENTS

1. NRTC/Member Agreement for Marketing and Distribution of DBS Services
dated as of __________, 199__ by and between the NRTC and Seller, as
amended by that certain Amendment as of _______________, 199__, and as
may be further amended from time to time, together with all schedules
and exhibits thereto.

2. NRTC/Member DBS Product Retail Agreement dated ____________, 199__ by
and between the NRTC and Seller, as amended from time to time, together
with all schedules and exhibits thereto.

<PAGE> 45

SCHEDULE 2.1(b)

BILL OF SALE

FOR VALUE RECEIVED, Ocmulgee Communications, Inc., a Georgia
corporation ("Seller"), does hereby grant, bargain, sell, convey and assign to
Digital Television Services of Georgia, LLC, a Georgia limited liability company
("Purchaser"), the following:

All Purchased Assets, including without limitation (i) the NRTC
Agreements, (ii) the Other Assumed Agreements, (iii) Franchise, (iv) Current
Assets, (v) Inventory, (vi) Leased Subscriber Equipment, (vii) relationships,
contracts and accounts with Customers, (viii) Fixed Assets, (ix) Records, (x)
telephone numbers used in the Business, and (xi) all other assets of Seller,
whether tangible or intangible, used in connection with the Business, as set
forth in the Purchase Agreement dated as of ____________, 1997 between Purchaser
and Seller (the "Purchase Agreement"). Capitalized terms used herein which are
not otherwise defined shall have the meanings set forth in the Purchase
Agreement.

This Bill of Sale is made subject to and together with the
representations, warranties, covenants and agreements of Seller specifically
provided in the Purchase Agreement. Seller hereby covenants and agrees with
Purchaser to do, execute, acknowledge and deliver, or cause to be done,
executed, acknowledged and delivered to Purchaser, its successors and assigns,
all such further acts, assignments, transfers, conveyances, and assurances that
may be reasonably requested by Purchaser for the assignment, transfer and
conveyance of the Purchased Assets.

IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
and delivered to Purchaser on this ____ day of ______, 1997.

OCMULGEE COMMUNICATIONS, INC.

By:_________________________________
Its:_____________________________

<PAGE> 46

SCHEDULE 4.4

ALLOCATION OF PURCHASE PRICE

1. Cash ______________

2. Accounts Receivable ______________

2. Fixed Assets ______________

3. Inventory ______________

4. Leased Subscriber Equipment ______________

5. General Intangibles including NRTC Agreements
==============

Total $______________

<PAGE> 47

SCHEDULE 5.2(b)

CONSENTS OF SELLER

Board of Directors and Shareholders of Seller

<PAGE> 48

SCHEDULE 5.3(a)

LIENS

Liens of Whirlpool Financial Corporation filed in Dodge County, Georgia.

Lien of G.S. Walker, Jr., Farms, Inc.

<PAGE> 49

SCHEDULE 5.4

FIXED ASSETS NEEDING REPAIRS

None

<PAGE> 50

SCHEDULE 5.10

CHANGES OR EVENTS

None

<PAGE> 51

SCHEDULE 5.11

LICENSES AND PERMITS

Dodge County Business License

<PAGE> 52

SCHEDULE 5.14

LITIGATION

None

<PAGE> 53

SCHEDULE 6.2(b)

CONSENTS OF PURCHASER

None

<PAGE> 54

SCHEDULE 8.8

NONCOMPETITION AGREEMENT

THIS NONCOMPETITION AGREEMENT (this "Agreement") is made and entered
into as of this ___ day of _________, 1997, by and between Digital Television
Services of Georgia, LLC, a Georgia limited liability company ("Company"), and
_______________ [("OCI"/"COVENANTOR")].

R E C I T A L S

A. Pursuant to that certain Asset Purchase Agreement dated __________,
1997 (the "Purchase Agreement") by and between Company and [OCI/OCMULGEE
COMMUNICATIONS, INC. ("OCI")], Company has purchased certain assets and assumed
certain liabilities of OCI used or usable for the exclusive distribution in
certain areas in the State of Georgia of DBS Services offered by DirecTv, Inc.,
the successor rights holder to Hughes Communications Galaxy, Inc. ("HCG")
through the National Rural Telecommunications Cooperative (the "NRTC") (the
"Business").

B. A primary reason for the purchase by Company of the assets of OCI
pursuant to the Purchase Agreement is to enable Company to establish and operate
a business substantially similar to the Business operated by OCI.

C. AS A [STOCKHOLDER] [MANAGER] [DIRECTOR] OF OCI, COVENANTOR WILL
RECEIVE SUBSTANTIAL BENEFITS FROM THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THE PURCHASE AGREEMENT.

D. As a condition to closing the transactions contemplated by the
Purchase Agreement, [OCI/COVENANTOR] is required to enter into this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants
of the parties, together with other valuable consideration, the receipt and
legal sufficiency of which is hereby acknowledged, Company and [OCI/COVENANTOR]
hereby stipulate and agree as follows:

1. RESTRICTIVE COVENANTS.

Section 1.1 Access to Confidential Information.
[OCI/COVENANTOR] has had access AS A [STOCKHOLDER] [MANAGER] [DIRECTOR] OF OCI
(DIRECTLY OR INDIRECTLY) PRIOR TO THE SALE OF OCI'S ASSETS TO COMPANY to
valuable, highly confidential, privileged and proprietary information relating
to the Business, including without limitation, the operation of the Business,
customer lists, pricing and other information regarded by Company as proprietary
and confidential (collectively, the "Confidential Information"). Anything herein
to the contrary notwithstanding, information shall not be deemed to be
Confidential Information hereunder if such information is or becomes available
or known to the general public (or to

<PAGE> 55

[OCI/COVENANTOR] by a third party which is not, directly or indirectly, in
breach of a confidentiality obligation) through no act, omission or fault of
[OCI/COVENANTOR] or such information is required to be disclosed by
[OCI/COVENANTOR] by law or pursuant to a court order (provided that
[OCI/COVENANTOR] shall have given Company notice of the circumstances
surrounding such compelled disclosure and an opportunity to seek an appropriate
protective order with respect thereto). It is further stipulated and
acknowledged that unauthorized use or disclosure by [OCI/COVENANTOR] of
Confidential Information would seriously damage Company in its Business.

Section 1.2 Covenant Not To Disclose Confidential Information.
During the "Restrictive Period" (hereinafter defined), and after its termination
or expiration for any reason, [OCI/COVENANTOR] will not, without Company's prior
written consent, (i) communicate, divulge, disclose, furnish or make accessible
to any third person, company or other person or entity, whether or not in
competition with Company, and whether or not for pecuniary gain, any aspect of
the Confidential Information, or (ii) reproduce, recreate or use any
Confidential Information.

Section 1.3 Nonsolicitation of Employees. During the
Restrictive Period, [OCI/COVENANTOR] will not, directly or indirectly, employ,
solicit or encourage any employee or independent contractor of Company, who at
any time during the Restrictive Period was employed by Company, to terminate his
or her employment with or retention by Company for the purpose of becoming
employed or retained by [OCI/COVENANTOR] or any other person or entity to
perform the same or similar services that such employee or independent
contractor performed for Company or Company's successors or permitted assigns.

Section 1.4 Nonsolicitation of Customers. During the
Restrictive Period, [OCI/COVENANTOR] will not, directly or indirectly, solicit
any person or entity that was a customer or subscriber of OCI at any time during
the two (2) year period immediately prior to the consummation of the
transactions contemplated by the Purchase Agreement or is a customer of Company
or Company's successors or permitted assigns during the Restrictive Period for
the purpose of providing to such customer services similar to or in competition
with the services provided by Company or Company's successors or permitted
assigns in the "Territory" (as hereinafter defined).

Section 1.5 Covenant Not To Compete. During the Restrictive
Period, [OCI/COVENANTOR] will not engage in, directly or indirectly, become
interested in, become engaged by, or become involved in any manner in any
business which is competitive with any aspect of the Business and which is
located in or conducts any business in the Territory.

2
<PAGE> 56

Without limiting any of the foregoing, the parties agree that these
covenants are intended to prohibit [OCI/COVENANTOR] from engaging in such
prohibited activities, either, as the case may be, as an [INDIVIDUAL], owner,
partner, employee, consultant, stockholder (except as a holder of stock in
corporations whose stock is publicly traded and which is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
then only to the extent of not owning more than one percent (1%) of the issued
and outstanding stock of such corporation), agent or salesman for any person,
firm, corporation, limited liability company, partnership, or otherwise.

As used herein, the term "Restrictive Period" shall mean the two (2)
year period immediately following the date hereof. As used herein, the term
"Territory" shall mean the specific geographic areas of the State of Georgia as
set forth on Schedule A attached hereto.

2. ENFORCEMENT.

Section 2.1 Equitable Relief. [OCI/COVENANTOR] hereby
acknowledges that a breach by Covenantor of any of the provisions of this
Agreement would cause irreparable damage to Company incapable of measurement and
that the remedy at law for such breach would be inadequate to compensate Company
for its losses. Therefore, in the event of such breach, Company, in addition to
any other remedies available to it at law, in equity or otherwise, shall be
entitled, at its option, to seek and obtain a temporary restraining order and
preliminary and permanent injunctions restraining [OCI/COVENANTOR] from
breaching or continuing any breach of any of the provisions of this Agreement.

Section 2.2 Attorneys' Fees. [OCI/COVENANTOR] shall be liable
for any and all reasonable attorneys' fees, expenses and court costs incurred in
connection with the enforcement of Company's rights hereunder.

3. ACKNOWLEDGMENT OF REASONABLENESS; SEVERABILITY. [OCI/COVENANTOR] has
carefully considered the provisions of this Agreement and agrees that, under all
circumstances, the restrictions set forth herein are fair and reasonable and
required for Company's protection of its legitimate interest, and are a material
and necessary part of the purchase of certain of the assets of OCI by Company
pursuant to the Purchase Agreement. [OCI/COVENANTOR] further agrees that the
restrictions are reasonable in scope, area and time, and will not prevent [HIM
OR IT] from pursuing other business ventures [OR EMPLOYMENT OPPORTUNITIES], or
otherwise cause a financial hardship upon [OCI/COVENANTOR]. The provisions of
this Agreement are severable. If any provision of this Agreement shall be held
to be invalid or unenforceable in any respect, such provision shall be carried
out and enforced only to the extent to which it shall be valid and enforceable,
and any such invalidity and unenforceability shall not affect any other
provision of this Agreement, all of which shall be fully carried out and
enforced as if such invalid or unenforceable provision had not been set forth
herein. If any unenforceable provision of this Agreement may be modified so as
to be enforceable under applicable law, such provision shall be deemed to have
been modified so as to be enforceable to the fullest extent permitted at law.

3
<PAGE> 57

4. REPRESENTATIVES, [HEIRS, SUCCESSORS] AND ASSIGNS; THIRD PARTY
BENEFICIARY. The rights and obligations of [OCI/COVENANTOR] under this Agreement
shall inure to the benefit of Company, its representatives, successors and
assigns, and shall be binding upon [OCI/COVENANTOR] and [HIS OR ITS] legal
representatives, [HEIRS OR SUCCESSORS] and permitted assigns. Company shall have
the right to assign, transfer or convey this Agreement to its affiliated
companies, successor entities or assignees or transferees of substantially all
of Company's business activities. This Agreement, being personal in nature to
[OCI/COVENANTOR], may not be assigned by [OCI/COVENANTOR] without Company's
prior written consent.

5. NOTICES. All notices hereunder shall be in writing and mailed to the
parties by registered or certified mail, return receipt requested, to the
following addresses or to such other locations as the parties may hereafter
designate in writing in accordance with the terms of the delivery of notices
provided for herein:

[OCI/COVENANTOR]:

with a copy to: Jones, Cork & Miller, LLP
500 SunTrust Bank Building
435 Second Street
Macon, Georgia 31208-6437
Attn: W. Carter Bates III, Esq.

Company: Digital Television Services of Georgia, LLC
Building C-200
880 Holcomb Bridge Road
Roswell, Georgia 30076
Attn: Douglas S. Holladay, Jr.

with a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
100 North Tryon Street
NationsBank Corporate Center
Suite 2600
Charlotte, North Carolina 28202
Attn: C. Mark Kelly, Esq.

6. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia, without regard to
the choice of law provisions thereof.

7. EXPENSES; PAYMENTS. Each of the parties hereto shall pay the fees
and expenses incurred by them in connection with the negotiation, preparation,
execution and consummation

4
<PAGE> 58

of this Agreement. All payments made pursuant to this Agreement shall be made
without deduction for present or future income, stamp or other taxes, fees,
duties or other charges of any nature whatsoever.

8. AMENDMENT; WAIVER. This Agreement may be amended or modified or any
provision hereunder waived only by the written agreement of all of the parties
hereto. Failure of any party to enforce at any time any of the provisions of
this Agreement shall in no way be construed to be a waiver of any such
provision, nor in any way to affect the validity of this Agreement or any part
thereof or the right of any party thereafter to enforce each and every
provision. No waiver of any breach or noncompliance of this Agreement shall be
held to be a waiver of any other or subsequent breach or noncompliance.

9. ENTIRE AGREEMENT. This Agreement (and any documents referred to
herein) contains the entire agreement between the parties hereto with respect to
the subject matter hereof and all prior understandings and agreements shall be
deemed merged herein.

10. CHOICE OF FORUM/CONSENT TO JURISDICTION. [OCI/COVENANTOR] hereby
agrees that any dispute arising out of this Agreement shall be subject to the
jurisdiction of both the state and federal courts of Georgia. For that purpose,
[OCI/COVENANTOR] hereby irrevocably submits to the jurisdiction of the state and
federal courts of Georgia and waives any rights [HE OR IT] may have to claim
that jurisdiction over [HIM OR IT] in Georgia may not be had or that Georgia is
an improper venue for the enforcement of the obligations represented by this
Agreement. [OCI/COVENANTOR] further agrees to accept service of process out of
any of the state and federal courts in Georgia in any such dispute by registered
or certified mail addressed to [OCI/COVENANTOR] as provided for herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

5
<PAGE> 59

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.

[OCI/COVENANTOR]:

COMPANY:

Digital Television Services of
Georgia, LLC

By: DTS Management, LLC
Its: Member

By:
Douglas S. Holladay, Jr.,
President and Manager

6
<PAGE> 60

SCHEDULE A

Appling County
Atkinson County
Bacon County
Ben Hill County
Bleckley County
Brooks County
Clayton County
Clinch County
Coffee County
Cook County
Crisp County
Dodge County
Dooly County
Echols County
Henry County
Irwin County
Jeff Davis County
Lanier County
Liberty County
Lowndes County
Mcintosh County
Newton County
Pulaski County
Telfair County
Walker County
Ware County
Wheeler County
Wilcox County

<PAGE> 1

EXHIBIT 12

Statement Re: Computation of Ratio of Earnings to Fixed Charges (in 000's)

<TABLE>
<CAPTION>
January 30 to Year Ended
December 31, December 31,
1996 1997
------------- ------------
<S> <C> <C>
FIXED CHARGES

Interest Expense on Debt* 818 14,457
Interest Element of Rental Expense 33 224
-------- --------
851 14,681
======== ========

EARNINGS

Net Loss (3,535) (30,148)
Fixed Charges 851 14,681
-------- --------
(2,684) (15,467)
-------- --------

Ratio of Earnings to Fixed Charges -- --
-------- --------

Deficiency in Fixed Charges 3,535 30,148

</TABLE>

* Includes Amortization of Debt Issuance Costs

<PAGE> 1
EXHIBIT 21.1

SUBSIDIARIES

SUBSIDIARIES OF DIGITAL TELEVISION SERVICES, INC.

<TABLE>
<CAPTION>
Form of Jurisdiction of Interest of Digital Television
Entity Organization Organization Services, Inc.
- ------ ------------ --------------- ------------------------------
<S> <C> <C> <C>
DTS Capital, Inc. corporation Delaware 100%

DTS Management, LLC limited liability Georgia 100% member interest
company
</TABLE>

SUBSIDIARIES OF DTS MANAGEMENT, LLC

<TABLE>
<CAPTION>
Form of Jurisdiction of Interest of DTS
Entity Organization Organization Management, LLC
- ------ ------------ --------------- ---------------
<S> <C> <C> <C>
Digital Television Services of limited liability Delaware 100% member interest
California, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Colorado, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Georgia, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Indiana, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Kansas, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Kentucky, LLC company

Digital Television Services of New limited liability Georgia 100% member interest
Mexico, LLC company

Digital Television Services of New limited liability Georgia 100% member interest
York I, LLC company

</TABLE>

<PAGE> 2

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Digital Television Services of limited liability Georgia 100% member interest
South Carolina I, LLC company

Digital Television Services of limited liability Georgia 100% member interest
Vermont, LLC company

Spacenet, Inc. corporation New Mexico 100%
</TABLE>

SUBSIDIARIES OF OTHERS

DTS Capital, Inc. and the subsidiaries of DTS Management, LLC have no
subsidiaries.

<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF DIGITAL TELEVISION SERVICES, INC.
AND SUBSIDIARIES AS OF DECEMBER 31, 1997 AND 1996 (SEE FORM 10-K PAGES F-2
THROUGH F-26). THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001035722
<NAME> DIGITAL TELEVISION SERVICES, INC.

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-30-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 39,113,152 1,595,955
<SECURITIES> 0 0
<RECEIVABLES> 5,364,666 1,055,540
<ALLOWANCES> 190,647 6,750
<INVENTORY> 2,229,918 244,544
<CURRENT-ASSETS> 65,616,080 3,123,442
<PP&E> 3,474,754 478,445
<DEPRECIATION> 554,537 44,339
<TOTAL-ASSETS> 257,662,066 42,162,173
<CURRENT-LIABILITIES> 63,336,431 9,629,952
<BONDS> 177,641,876 17,542,883
0 0
14,041 0
<COMMON> 21,370 0
<OTHER-SE> 16,637,113 14,905,723
<TOTAL-LIABILITY-AND-EQUITY> 257,662,066 42,162,173
<SALES> 47,443,126 3,408,809
<TOTAL-REVENUES> 47,443,126 3,408,809
<CGS> 31,146,854 2,269,811
<TOTAL-COSTS> 31,146,854 2,269,811
<OTHER-EXPENSES> 31,232,886 3,815,845
<LOSS-PROVISION> 642,563 63,789
<INTEREST-EXPENSE> 14,457,088 817,603
<INCOME-PRETAX> (30,147,615) (3,535,259)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (30,147,615) (3,535,259)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (30,147,615) (3,535,259)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>

<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF DTS CAPITAL, INC. AND SUBSIDIARIES
AS OF DECEMBER 31, 1997 AND 1996 (SEE FORM 10-K PAGES F-2 THROUGH F-26). THIS
INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001045973
<NAME> DTS CAPITAL, INC.

</TABLE>