DTC COMMUNICATIONS CORP
424B3, 2000-01-11
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1
                                                Filed Pursuant to Rule 424(B)(3)
                                                Registration No. 333-89709


                            DTC COMMUNICATIONS LOGO

PROSPECTUS                                                 INFORMATION STATEMENT
DTC Communications Corp.                      DeKalb Telephone Cooperative, Inc.

             REORGANIZATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT

     Subject to approval by its members, DeKalb Telephone Cooperative, Inc. has
agreed to reorganize by merging with its wholly owned subsidiary, DTC
Communications Corp. The merger is a way to change our form of organization from
a not-for-profit cooperative to a for-profit corporation.

     If the merger is completed, each of our members will receive one share of
DTC stock for every $10.00 in capital credits that a member has on our books as
of February 29, 2000. Fractional shares will not be issued and our members will
receive cash in lieu of any fractional share.

     DeKalb Telephone Cooperative, Inc. has scheduled a special meeting so you
may vote on the merger. You will receive a formal notice of that meeting on or
after February 1, 2000. Your attendance at the meeting and vote are very
important.

                   WE ARE NOT ASKING YOU FOR A PROXY AND YOU
                     ARE REQUESTED NOT TO SEND US A PROXY.

     Only persons to whom this information statement/prospectus is addressed may
attend and vote at the special meeting. No one may represent you at the meeting.
Owners of businesses which are members must appear with satisfactory proof that
you are authorized to represent the business.

     Based on the number of capital credits existing as of September 30, 1999,
DTC will issue approximately 2,500,000 shares of DTC stock to members. Because
only active members currently have voting rights, they will receive class A
voting common stock and inactive members will receive class B non-voting common
stock. DTC stock issued in the merger is expected to be listed, subject to
official notice of issuance, on the American Stock Exchange under the symbols
"DKC.A" and "DKC.B".

     SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF VARIOUS FACTORS
YOU SHOULD CONSIDER WITH RESPECT TO THE DTC STOCK OFFERED BY THIS INFORMATION
STATEMENT/PROSPECTUS.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
INFORMATION STATEMENT/PROSPECTUS OR DETERMINED IF THIS INFORMATION
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

                                January 11, 2000

             Anticipated Mailing Date to Members: January 14, 2000.
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Where You Can Find More Information.........................     1
Questions and Answers About the DTC Merger..................     2
Summary.....................................................     5
  The Companies.............................................     5
  The Special Meeting.......................................     5
  Reasons for the Merger; Possible Disadvantages............     5
  Recommendation to Our Members.............................     6
  Record Date; Quorum; Vote Required........................     6
  The Merger................................................     6
  Federal Income Tax Consequences...........................     7
  Regulatory Approvals Required for the Merger..............     7
  Listing of DTC Common Stock...............................     8
Risk Factors................................................     9
Disclosure Regarding Forward-Looking Statements.............    12
DeKalb Telephone Cooperative, Inc.
  Selected Consolidated Financial Data......................    13
The Special Meeting.........................................    15
  Date, Time and Place......................................    15
  Purpose...................................................    15
  Voting Rights and Record Date for the Merger..............    15
  Quorum; Abstentions.......................................    15
  Expenses..................................................    15
  Recommendation of the Board of Directors..................    15
  Miscellaneous.............................................    15
The Merger..................................................    16
  General...................................................    16
  Background of the Merger..................................    16
  Reasons for the Merger....................................    17
  Board Recommendation......................................    19
  Federal Income Tax Consequences...........................    19
  Former Members of DeKalb Telephone Cooperative, Inc.......    21
  Regulatory Approvals Required for the Merger..............    22
  Resale of DTC Common Stock; Restrictions on DTC
     Affiliates.............................................    22
  Management and Operations Following the Merger............    22
  No Dissenters' Rights.....................................    22
  The Plan and Agreement of Merger..........................    22
Management's Discussion and Analysis of Financial Condition
  and Results of Operations.................................    24
  Overview..................................................    24
  Results of Operations.....................................    25
  Liquidity and Capital Resources...........................    28
  Inflation.................................................    30
  Recent Accounting Pronouncements..........................    30
  Year 2000 Considerations..................................    30
  Market Risk...............................................    31
</TABLE>

                                        i
<PAGE>   3

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Market and Dividend Information.............................    32
  Market Information........................................    32
  Dividend Information......................................    32
  Number of Members/Shareholders............................    33
DeKalb Telephone Cooperative, Inc...........................    34
  Business..................................................    34
  Business Strategy.........................................    36
  Strategic Alliance/Joint Venture..........................    37
  Competition...............................................    37
  Regulation................................................    39
  Employees.................................................    46
  Environmental and Other Matters...........................    46
  Properties................................................    46
  Legal Proceedings.........................................    47
  Financial Statements......................................    47
Information Regarding DTC...................................    47
  Business..................................................    47
  Properties and Legal Proceedings..........................    47
  Financial Statements......................................    47
Management Information......................................    48
  Amount and Nature of Beneficial Ownership.................    48
  Directors and Executive Officers..........................    48
  Compensation of Our Executive Officers and Directors......    51
  Summary Compensation Table................................    51
  Interests of Certain Persons..............................    51
Description of DTC Capital Stock............................    52
  DTC Common Stock..........................................    52
  DTC Preferred Stock.......................................    52
  Statutory Provisions Affecting Control of DTC.............    53
  Other Provisions Affecting Control of DTC.................    56
Comparison of Rights of Our Members and DTC Shareholders....    58
  Members Versus Shareholders...............................    58
  Authorized Stock..........................................    58
  Transferability of Ownership Interests....................    59
  Required Vote for Mergers.................................    59
  Board of Directors........................................    60
  Cumulative Voting for Directors...........................    60
  Limitation of Liability of Directors and Officers.........    61
  Indemnification of Directors and Officers.................    61
  Amendments to Charter and Bylaws..........................    63
  Special Meetings of Members/Shareholders; Action Without
     Meeting................................................    64
  Quorum Requirements.......................................    64
  Dividends and Other Distributions.........................    65
  Dissenters' Rights........................................    66
  Preemptive Rights.........................................    67
</TABLE>

                                       ii
<PAGE>   4

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Legal Matters...............................................    67
Experts.....................................................    67
Financial Statements........................................   F-1
  Pro Forma Financial Statements............................   F-2
  Historical Audited Financial Statements...................   F-7
  Historical Unaudited Financial Statements.................  F-23
APPENDIX A -- Plan and Agreement of Merger..................   A-1
</TABLE>

                                       iii
<PAGE>   5

                      WHERE YOU CAN FIND MORE INFORMATION

     DTC has filed with the SEC a registration statement under the Securities
Act of 1933 that registers the DTC stock to be issued in the merger. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about DTC. SEC rules allow DTC to omit from this
information statement/prospectus some of the information in the registration
statement.

     DTC currently is not subject to the information and reporting requirements
of the Securities Exchange Act of 1934. You may read and copy the registration
statement at any of the following locations of the SEC:

<TABLE>
<S>                      <C>                      <C>
Public Reference Room    7 World Trade Center     Citicorp Center
450 Fifth Street, N.W.   Suite 1300               500 West Madison Street
Washington, D.C. 20549   New York, NY 10048       Suite 1400
                                                  Chicago, IL 60661
</TABLE>

     You also may obtain copies of the registration statement by mail from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the SEC's Public Reference Room in Washington, D.C. can be obtained
by calling the SEC at 800-SEC-0330.

     The registration statement was filed with the SEC electronically via the
SEC's EDGAR system. The SEC maintains an internet world wide web site that
contains registration statements, reports and other information regarding
companies that file materials electronically with the SEC. The address of that
site is http://www.sec.gov.

                                        1
<PAGE>   6

                   QUESTIONS AND ANSWERS ABOUT THE DTC MERGER

     THE FOLLOWING ARE QUESTIONS WE BELIEVE YOU MIGHT HAVE ABOUT THE MERGER AND
OUR ANSWERS TO THOSE QUESTIONS. THESE QUESTIONS AND ANSWERS DO NOT ADDRESS ALL
QUESTIONS THAT YOU MAY HAVE ABOUT THE MERGER. YOU SHOULD CAREFULLY READ THIS
ENTIRE DOCUMENT, AS WELL AS ALL APPENDICES.

Q1:   WHAT WILL I BE ASKED TO VOTE UPON?

A:    When the special meeting takes place, you will be asked to vote on our
      merger into our wholly owned subsidiary, DTC, which will result in a
      change of our form of organization from a not-for-profit cooperative to a
      for-profit corporation. If the merger is approved, you will own the same
      percentage of DTC as you now own of DeKalb Telephone Cooperative.

Q2:   WHAT RISKS SHOULD I CONSIDER IN DECIDING WHETHER TO VOTE FOR THE MERGER?

A:    Although your present capital credits are not transferable, there will be
      various risks from ownership of DTC stock. These are described in detail
      in "Risk Factors," beginning at page 9.

Q3:   WHAT DO I NEED TO DO NOW?

A:    You should read the information statement/prospectus carefully and be sure
      you understand what we are proposing to do. On or after February 1, 2000,
      you will receive formal notice of the special meeting that has been
      scheduled for February 26, 2000. Then, if possible, we would like for you
      to attend the special meeting and cast your vote for the merger.

Q4:   HOW MANY VOTES DOES IT TAKE TO APPROVE THE MERGER?

A:    Two-thirds of our active members present and voting at the special meeting
      must approve the merger. To validly vote at the meeting, we are required
      to have a quorum of at least 50 active members. Accordingly, if only 50 of
      the approximately 15,000 active members attend the special meeting, as few
      as 34 members can approve the merger.

Q5:   HOW DID I BECOME A MEMBER OF DEKALB TELEPHONE COOPERATIVE?

A:    You became a member when you agreed to purchase telephone service from us.

Q6:   HOW DID I OBTAIN MY CAPITAL CREDITS?

A:    Your capital credits accumulated during the years that you have had
      telephone service with us. In essence, your capital credits are your share
      of our accumulated undistributed margin or profits, which is the excess of
      operating revenues over expenses. Each year, profits or losses, if
      applicable, are accrued and allocated to members' accounts. For example,
      as of December 31, 1994, our accumulated capital credits were $13.4
      million. During the past several years, however, due to our efficient
      operation, these accumulated capital credits have grown to $26.2 million
      as of September 30, 1999.

Q7:   I ALSO HAVE CELLULAR TELEPHONE SERVICE FROM ADVANTAGE CELLULAR; HAVE I
      RECEIVED CAPITAL CREDITS FOR THAT TOO?

A:    No. Capital credits are accrued and allocated only on telephone service
      with DeKalb Telephone Cooperative. They are not accrued or allocated based
      upon wireless service from our for-profit subsidiary, Advantage Cellular.

                                        2
<PAGE>   7

Q8:   HOW DO I FIND OUT THE AMOUNT OF MY CAPITAL CREDIT ACCOUNT?

A:    Within the package containing this information statement/prospectus, the
      page on which the mailing label appears shows the amount of your capital
      credits as of December 31, 1998. That amount will change before the
      closing date of the merger which, assuming it is approved by the members,
      is expected to be March 1, 2000. Because of the timing of our year end
      audit, however, we will not be able to provide members with the amount of
      any capital credits accrued during the year ended 1999 and the two-month
      period ending February 29, 2000 until after March 1, 2000. The plan and
      agreement of merger requires that DTC stock and any cash that you receive
      in lieu of a fractional share be distributed to members within 60 days
      after the effective date of the merger.

Q9:   WHY ARE INACTIVE MEMBERS RECEIVING DTC STOCK IN THE MERGER?

A:    Inactive members are those persons or businesses that within the last ten
      years were our members but no longer have telephone service with us.
      Inactive members are receiving stock because some of those members, as of
      February 29, 2000, will still have capital credits on our books. Also,
      both active and inactive members to whom capital credits have been
      allocated during the past ten years have the right, if we were being
      dissolved, to receive their pro rata share of our net assets. That
      "property right" is being preserved for all active and inactive members by
      the issuance of DTC common stock which carries with it a right, if DTC is
      dissolved in the future, to receive a share of DTC's net assets. Inactive
      members, however, will receive non-voting DTC common stock.

Q10:  WHAT HAPPENS IF BETWEEN NOW AND FEBRUARY 29, 2000, I BECOME AN INACTIVE
      MEMBER OF DEKALB TELEPHONE COOPERATIVE?

A:    You will receive non-voting rather than voting DTC stock. Otherwise, there
      will be no difference in the way you are treated in the merger.

Q11:  WHAT WILL MY DTC STOCK BE WORTH AFTER THE MERGER?

A:    We do not know and cannot predict with any certainty what your DTC stock
      will be worth. A number of internal and external factors affect the
      determination of the market price of a company's stock. We recommend that
      you discuss your share holdings with your personal financial advisor prior
      to selling your DTC stock.

Q12:  WHEN CAN I SELL MY DTC STOCK?

A:    Despite the expected listing of the DTC stock on the American Stock
      Exchange, we cannot guarantee you that any market will develop that will
      allow you to sell your DTC stock. If a market does develop for the DTC
      stock following the merger, any shareholder would be free to sell his/her
      DTC stock. Again, we recommend that you discuss your share holdings with
      your personal financial advisor prior to selling your DTC stock.

Q13:  WHAT WILL HAPPEN TO MEMBERS' TELEPHONE SERVICE?

A:    We intend to continue to improve the telephone and other services that you
      receive through DTC. Also, one of the reasons for the merger and the
      conversion to a for-profit entity is to have the ability to expand the
      range of services that we offer, both inside and outside of our current
      service area, to our current and future customers and to better compete
      with other companies that we believe may enter our service area in the
      future.

                                        3
<PAGE>   8

Q14:  WHAT CHANGES IN DEKALB TELEPHONE COOPERATIVE WILL I SEE FOLLOWING THE
      MERGER?

A:    Other than converting to a for-profit corporation, we hope that you will
      not see any changes in our day-to-day operations. Our employees, telephone
      numbers and office locations will remain the same.

Q15:   WHO CAN HELP ANSWER FURTHER QUESTIONS?

A:     If you have more questions about the merger, you should contact:

       DTC Communications Corp.
       Investor Relations
       111 High Street
       Alexandria, TN 37012-0247
       (615) 529-9000

                                        4
<PAGE>   9

                                    SUMMARY
THE COMPANIES

DEKALB TELEPHONE COOPERATIVE, INC. (PAGE 34)
111 High Street
Alexandria, TN 37012-0247
(615) 529-2151
http://www.dtccom.net

     DeKalb Telephone Cooperative is a membership-based Tennessee cooperative
that provides a broad range of telecommunications services, including local
telephone service, long-distance network access, and dial-up and dedicated
internet access over a state-of-the-art wireline network. Our local telephone
service includes basic local lines, as well as ISDN, DSL and T-1 high speed
access lines. We also provide foreign exchange, private lines and switched data
services and install and maintain Centrex, PBX and key telephone switching
network systems for our business customers. In addition, we offer a wide range
of enhanced features such as voice mail, call waiting, caller identification,
automatic redial, call forwarding, three-way calling, speed calling and call
tracing. Advantage Cellular Systems, Inc., our wholly owned for-profit
subsidiary, provides wireless telephone service.

DTC COMMUNICATIONS CORP. (PAGE 47)
111 High Street
Alexandria, TN 37012-0247
(615) 529-2151

     DTC is our wholly owned subsidiary which was formed in order for us to
convert into a for-profit corporation. We will convert by merging into DTC. When
the merger occurs, DTC will assume and carry on our business with our existing
personnel. Advantage Cellular will be a wholly owned subsidiary of DTC.

THE SPECIAL MEETING (PAGE 15)

     DeKalb Telephone Cooperative has scheduled a special meeting of its active
members for February 26, 2000, at 1:00 p.m. (local time). A formal notice of the
meeting will be sent to you on or after February 1, 2000. At the special
meeting, you will be asked to vote on our merger into DTC that will result in a
change in our form of organization from a not-for-profit cooperative to a
for-profit corporation.

REASONS FOR THE MERGER; POSSIBLE DISADVANTAGES (PAGE 17)

     Our board of directors, together with management, believes that converting
from a not-for-profit cooperative into a for-profit corporation will increase
our present and future competitive position in our markets. Our board of
directors unanimously determined to recommend approval of the merger based on
the following factors:

     - review of recent trends in the telecommunications industry including
       rapid changes in technology and increasing competition in the provision
       of many services offered by us;

     - the risks associated with remaining a cooperative;

     - the potential for enhanced liquidity and opportunity for the members to
       realize the value of their investments in us; and

     - recent changes in the regulatory environment affecting the
       telecommunications industry.
                                        5
<PAGE>   10

     The board of directors also considered possible disadvantages of the
merger, including:

     - loss of our partial tax-exempt status; and

     - increased competition that the merged companies will face resulting from
       the pursuit of DTC's business strategy.

RECOMMENDATION TO OUR MEMBERS (PAGE 19)

     Our board of directors believes that the merger is fair to you, as our
members, and that the merger is in your best interests. Our board believes that
the recent and expected changes in the technological and regulatory environment
surrounding the telecommunications industry make it imperative that we convert
from a cooperative to a for-profit corporation. This change will allow us to
continue to offer services to our customers and, once free of the operating
restrictions that accompany being a telephone cooperative, expand our range of
services and pursue opportunities in other markets. Our board believes that
these steps will assist us in becoming more competitive in our markets. Our
board believes that it is in your best interests that you be allowed the
opportunity to realize, should you choose to do so, the value of your capital
credits by selling your DTC stock, assuming a market develops, that you will
receive in the merger. Our board also believes that the merger and resulting
conversion to a for-profit corporation may help to provide us greater access to
capital markets and increase our options in connection with potential
acquisitions, joint ventures and strategic alliances.

     OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
                        PROPOSAL TO APPROVE THE MERGER.

RECORD DATE; QUORUM; VOTE REQUIRED (PAGE 15)

     You may vote at the special meeting if you were an active member at the
close of business on December 31, 1999 or if you become an active member between
December 31, 1999 and the date of the special meeting. On December 31, 1999,
there were approximately 15,000 active members entitled to vote. Each active
member who attends the special meeting in person is entitled to one vote on each
issue voted on at the special meeting.

     The presence in person of the lesser of 50 active members or 2% of the
active members constitutes a quorum for purposes of the vote required at the
special meeting of members. This means that if as few as 50 active members are
present at the meeting, a quorum will exist and the merger may be validly voted
on. Approval of the merger requires the affirmative vote of two-thirds of the
active members present and voting at the special meeting. Our bylaws prohibit
voting by proxy.

THE MERGER

GENERAL (PAGE 16)

     In the merger, we will merge into DTC and DTC will be the surviving
corporation. DTC will assume all of our operations, assets and liabilities and
will have a consolidated financial position substantially identical to ours
immediately before the merger. After the merger, our members will be
shareholders of DTC and the directors, officers, employees, businesses,
properties and operations of DTC will be substantially identical to ours, except
as otherwise indicated in this information statement/prospectus.
                                        6
<PAGE>   11

MERGER CONSIDERATION YOU WILL RECEIVE (PAGE 23)

     As merger consideration, each member will receive one share of DTC stock
for every $10.00 in capital credits that the member has on our books as of
February 29, 2000. Active members will receive voting stock and inactive members
will receive non-voting stock. DTC will not issue any fractional shares. If a
capital credit account is an amount that is not a whole multiple of $10.00, that
person or entity will be paid cash for any fractional amount.

NO DISSENTERS' RIGHTS FOR MEMBERS (PAGE 22)

     Under Tennessee law, members do not have dissenters' rights with respect to
the merger. See "The Merger--No Dissenters' Rights."

CONDITIONS TO COMPLETION OF THE MERGER (PAGE 23)

     The completion of the merger depends on a number of conditions being
satisfied, including the following:

     - approval of the plan and agreement of merger by two-thirds of our active
       members voting at the special meeting;

     - obtaining all required regulatory approvals and third party consents;

     - there being no restraining order, injunction or court order preventing
       the merger, or any proceeding seeking to prevent the merger or making the
       merger illegal; and

     - there being no statute, rule, regulation or governmental order that might
       materially adversely affect or delay the merger.

TERMINATION OF PLAN AND AGREEMENT OF MERGER (PAGE 23)

     We may agree at any time to terminate the plan and agreement of merger
without completing the merger, even after the active members have approved it.

FEDERAL INCOME TAX CONSEQUENCES (PAGE 19)

     The merger has been structured so that a majority of our members will have
tax-free treatment upon receiving the DTC stock. Receiving DTC stock in exchange
for your capital credits generally will be tax-free except to the extent that
you have deducted, for United States federal income tax purposes, the amount of
your telephone bills from your taxable income. If you have deducted the amount
of your telephone bills from your taxable income, you will have income in an
amount equal to the amounts you previously have deducted, but not more than the
fair market value of the DTC stock that you receive. Because it is unlikely that
most residential customers have deducted the amount of their telephone bills
from their taxable income, we believe this generally means that residential
customers will receive their DTC stock tax-free in the merger. Any member who
receives cash in lieu of fractional shares also will have income in the amount
of that cash. Any amount of income that you receive must be reported on your tax
return for the year in which the merger occurs. See "The Merger -- Federal
Income Tax Consequences."

REGULATORY APPROVALS REQUIRED FOR THE MERGER (PAGE 22)

     Consummation of the merger is subject to the approval of the Rural
Utilities Service of the United States Department of Agriculture pursuant to
certain loan agreements between us and the
                                        7
<PAGE>   12

Rural Utilities Service. We have received verbal assurances from the Rural
Utilities Service that the merger will be approved.

     DTC also must receive from the Tennessee Regulatory Authority a certificate
of public convenience and necessity to operate our system following the
effective date of the merger. We currently are exempt from most Tennessee
Regulatory Authority regulation.

LISTING OF DTC COMMON STOCK (PAGE 32)

     DTC stock issued in the merger is expected to be listed, subject to
official notice of issuance, on the American Stock Exchange under the symbols
"DKC.A" and "DKC.B".
                                        8
<PAGE>   13

                                  RISK FACTORS

     In addition to the other information contained in this information
statement/prospectus, the following factors should be considered carefully in
evaluating us and our business which will be assumed by DTC if the merger is
consummated.

MERGER RISKS

OUR MANAGEMENT MAY BE ABLE TO INFLUENCE THE MEMBER VOTE AT THE SPECIAL MEETING
IF THERE IS LOW ATTENDANCE.

     All thirteen of our directors and executive officers also are active
members. Because only 50 of our approximately 15,000 active members must be
present in person in order to validly hold the special meeting and vote on the
merger, those directors and executive officers will be in a position to
substantially influence the results of the vote if a small number of other
members attend the meeting. For example, if only 50 members attend the meeting,
the 13 executive officers and directors will hold approximately 26.0% of the
voting power at the meeting. If, however, 1,000 members attend the meeting, the
13 executive officers and directors will hold only approximately 1.3% of the
voting power at the meeting.

OFFICERS AND DIRECTORS MAY HAVE INTERESTS IN THE MERGER DIFFERENT THAN THOSE OF
OUR MEMBERS GENERALLY.

     Certain of our executive officers and directors may have interests in the
merger that are different from, or in addition to, the interests of our members
generally. In particular, each director will receive a grant of 500 shares of
DTC class A voting common stock and an option to buy 1,000 shares of DTC class A
voting common stock at an exercise price of $10.00 per share upon the
consummation of the merger. In addition, Mr. Gassaway will receive a grant of
1,000 shares and an option to buy 10,000 shares of DTC class A voting common
stock at an exercise price of $10.00 per share. See "Management
Information -- Interests of Certain Persons."

LOSS OF OUR PARTIAL TAX-EXEMPT STATUS WILL SUBJECT MORE OF OUR REVENUE TO
TAXATION WHICH WILL RESULT IN A LOWER PROFIT MARGIN.

     As a not-for-profit cooperative, we currently are exempt from United States
federal income taxation on all revenues other than revenues from non-member
sources. After the merger we will be a for-profit corporation and, thus, will
lose this partial tax exemption. These additional taxes will result in a lower
profit margin. For example, on a pro forma basis, had the merger occured on
January 1, 1998, we would have paid an additional $1.6 million in taxes during
1998 and an additional $1.8 million in taxes during the nine months ended
September 30, 1999. These increases would have represented 36% and 33% of
operating income during the respective time periods. See "Pro Forma Consolidated
Statement of Income Data" at pages F-3 and F-5.

RATE REGULATION BY THE TENNESSEE REGULATORY AUTHORITY WILL INCREASE THE LEVEL OF
UNCERTAINTY REGARDING FUTURE REVENUE.

     As a telephone cooperative, we currently are subject to regulation by the
Tennessee Regulatory Authority only with respect to our service area boundaries.
After the merger, as a for-profit corporation and a public utility, we will be
subject to rate and other regulation by the Tennessee Regulatory Authority.
Therefore, we will not have complete control over the rates we charge for our
services or the type or terms of our rate regulation plan which will increase
the level of uncertainty regarding future revenue.

                                        9
<PAGE>   14

LACK OF CERTAINTY THAT THE MERGER WILL BE TAX FREE.

     There are no Internal Revenue Code provisions, U.S. federal income tax
regulations, court decisions or published Internal Revenue Service rulings
bearing directly on the treatment of a merger of a Section 501(c)(12)
cooperative. Therefore, it is possible that the Internal Revenue Service could
take a position inconsistent with the opinion of Yopp & Sweeney, PLC that the
merger will constitute a reorganization for U.S. federal income tax purposes. If
the Internal Revenue Service were to take a position that the merger does not
constitute a reorganization and that position prevailed, then:

     - a member would likely recognize gain or loss in an amount equal to the
difference between the member's capital credit amount and the fair market value
of the DTC stock received; and

     - if the member recognized gain or loss, the tax basis in the shares of DTC
stock received would likely equal their fair market value at the time of
receipt.

     For a description of the material federal income tax consequences of the
merger, including counsel's views as to the likelihood that the Internal Revenue
Service would prevail if it held the merger does not constitute a
reorganization, see "The Merger -- Federal Income Tax Consequences."

OPERATING RISKS

WE EXPECT REVENUE FROM NETWORK ACCESS CHARGES TO SUBSTANTIALLY DECLINE.

     In 1996, 1997 and 1998, we received, respectively, 50.0%, 49.1% and 49.0%
of our operating revenue in the form of network access charges. During the first
nine months of 1999, we received 51.5% of our operating revenue from these
charges. The FCC and state regulatory authorities are studying the costs of
network access in order to standardize and lower network access charges. In
addition, if competitors entered our service area, they could put pressure on
these revenues by charging lower access charges. The magnitude of the changes
caused by these initiatives presently is unknown and is not expected to occur
for at least two years; however, we do expect that as a result, the amount of
revenue that we receive from network access charges, and thus the amount of
total revenue, will decline materially in the future. This, in turn, could
adversely affect the price of our stock.

A REDUCTION IN THE SUBSIDY AMOUNTS WE RECEIVE FROM THE UNIVERSAL SERVICE FUND
COULD LOWER OUR REVENUE AND EARNINGS.

     During the nine months ended September 30, 1999, we received approximately
$1.8 million, or 11.4% of our operating revenue, from the universal service
fund, a fund established by the FCC that provides monies to incumbent local
exchange carriers in certain rural areas in order to best assure that
telecommunications services are affordable and accessible to all citizens. If
these funds were materially reduced or discontinued, we may not be able to
operate profitably. We have been protected against any loss of universal service
fund monies to competitive local exchange carriers because Tennessee law has not
allowed such carriers to enter markets served by incumbent local exchange
carriers, such as us, with fewer than 100,000 access lines. Recently, however,
the FCC held that this Tennessee law is preempted by the Telecommunications Act,
which encourages such competition. If the FCC's decision is upheld it will be
possible for a competitive local exchange carrier to enter our markets. If a
competitive local exchange carrier is successful in our markets, we may lose
some or all of our universal service fund monies which could reduce our revenue
and earnings. For more information, please refer to the "DeKalb Telephone
Cooperative, Inc. -- Regulation" section in this information
statement/prospectus.

                                       10
<PAGE>   15

FAILURE OF OUR OPERATING SUPPORT SYSTEMS MAY INHIBIT OUR GROWTH AND ABILITY TO
ACHIEVE OPERATING EFFICIENCIES.

     Sophisticated information and processing systems are vital to our growth
and our ability to monitor costs, bill customers, process customer orders and
achieve operating efficiencies. Billing and information systems have
historically been produced by outside vendors. These systems generally have met
our needs. As we continue providing more services, we will need more
sophisticated billing and information systems. Our failure, or the failure of
vendors, to adequately identify all of our information and processing needs or
to upgrade systems as necessary could inhibit our growth and ability to achieve
operating efficiencies.

WE EXPECT TO FACE INCREASING COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY AND
MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

     We operate in an increasingly competitive environment. Aggressive
competition in our markets could reduce our customer base and result in more
competitive pricing. Some of the companies with whom we compete or may compete
are, or are affiliated with, major telecommunications companies that have
greater resources than we have to sustain losses for a longer period of time. We
may not be able to achieve or maintain adequate market share or revenue or
compete effectively in any of our markets. We expect our present and future
competitors to include:

     - competitive local exchange carriers;

     - interexchange carriers;

     - internet service providers;

     - wireless telecommunications providers;

     - cable television companies; and

     - resellers of telecommunications services and enhanced services providers.

OUR SUCCESS DEPENDS UPON OUR ABILITY TO HIRE AND RETAIN KEY PERSONNEL.

     Because we are a relatively small company in the telecommunications
industry, the efforts of a small number of key management, particularly H. Wayne
Gassaway, and operating personnel will largely determine our success. The
competition for qualified personnel in the telecommunications services industry
is intense. None of our employees, including Mr. Gassaway, currently is a party
to an employment or non-competition agreement with us. If Mr. Gassaway or other
key management left our employment, we may not be able to hire replacement
personnel. In particular, it may be difficult to attract experienced
telecommunications executives to our small, rural service area.

FINANCIAL RISKS

THERE MAY NOT BE A MARKET FOR DTC STOCK AND IF ONE DEVELOPS, THE MARKET PRICE
COULD BE VOLATILE.

     Although we intend to apply for listing of the DTC stock on the American
Stock Exchange, we have not yet and may not receive approval by the American
Stock Exchange. If the DTC stock is not

                                       11
<PAGE>   16

approved for listing on an exchange, a market may not develop for your DTC
stock. Even if a market were to develop, it could be one of limited liquidity,
low volume and high price volatility.

                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

     This information statement/prospectus contains certain statements that are
"forward-looking" within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. All statements
other than statements of historical fact included in this information
statement/prospectus, including, without limitation, statements regarding our
future financial position, business strategy, budgets, market position, future
operations, margins, profitability, liquidity and capital resources are
forward-looking statements. In addition, forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "believe," or "continue"
(or the negative thereof) or similar terminology. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we can
give no assurance that these expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from our
expectations ("cautionary statements") are disclosed under "Risk Factors" and
elsewhere in this information statement/prospectus. All forward-looking
statements are expressly qualified in their entirety by the cautionary
statements.

                                       12
<PAGE>   17

                       DEKALB TELEPHONE COOPERATIVE, INC.
                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial information for each of the
years in the five-year period ended December 31, 1998 has been derived from the
consolidated financial statements of DeKalb Telephone Cooperative, Inc., which,
for the years ended December 31, 1996, 1997 and 1998, have been audited by
Arthur Andersen LLP, independent public accountants, included elsewhere in this
information statement/prospectus. The selected historical financial data for the
years ended December 31, 1994 and 1995 and the nine months ended September 30,
1998 and 1999 is derived from unaudited financial statements which, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the financial
condition and results of operations. Operating results for the nine months ended
September 30, 1999 are not indicative of results for the full year. The selected
historical financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto with respect to
DeKalb Telephone Cooperative included at pages F-2 through F-28 to this
information statement/prospectus. No historical financial statements of DTC are
included in this information statement/prospectus since DTC has no significant
assets or liabilities and has no operating history.

<TABLE>
<CAPTION>
                                                                                               NINE MONTHS ENDED
                                                      YEAR ENDED DECEMBER 31,                    SEPTEMBER 30,
                                         -------------------------------------------------   ---------------------
                                          1994      1995      1996      1997       1998        1998        1999
                                         -------   -------   -------   -------   ---------   ---------   ---------
                                                     (Dollars in Thousands, Except Per Share Amounts)
<S>                                      <C>       <C>       <C>       <C>       <C>         <C>         <C>
OPERATING REVENUE:
  Local telephone services revenue.....  $ 3,247   $ 3,500   $ 3,704   $ 3,942   $   4,190   $   3,122   $   3,299
  Network access services revenue......    6,336     5,904     7,892     8,242       8,877       6,528       8,164
  Wireless products and services
    revenue............................    2,418     2,707     2,859     3,085       3,463       2,495       3,201
  Miscellaneous revenue................    1,283     1,300     1,317     1,502       1,595       1,181       1,177
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Total operating revenue.......   13,284    13,411    15,772    16,771      18,125      13,325      15,841
                                         -------   -------   -------   -------   ---------   ---------   ---------
OPERATING EXPENSES:
  Plant operations expense.............    2,528     3,208     3,686     3,345       3,900       2,751       2,995
  Depreciation and amortization
    expense............................    3,418     3,815     3,727     4,879       4,586       3,453       3,688
  Customer operations expense..........      779       902       906       911       1,132         778         936
  Corporate operations expense.........    2,281     2,636     2,658     3,319       3,403       2,267       2,422
  Operating taxes......................      493       492       425       404         380         323         365
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Total operating expenses......    9,499    11,053    11,402    12,858      13,401       9,573      10,406
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Total operating income........    3,785     2,358     4,370     3,913       4,724       3,753       5,435
                                         -------   -------   -------   -------   ---------   ---------   ---------
OTHER INCOME (EXPENSE):
  Loss on retirement of assets.........       --        --        --    (1,107)       (328)       (438)         --
  Interest expense.....................   (1,443)   (1,330)   (1,187)   (1,119)     (1,109)       (837)       (807)
  Interest income......................      244       382       452       649         713         567         562
  Other income.........................      299       231       124       234         510         248         224
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Total other income
           (expense)...................     (900)     (717)     (611)   (1,343)       (214)       (460)        (21)
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Income before income taxes....    2,885     1,641     3,759     2,570       4,510       3,293       5,414
INCOME TAXES...........................      117       221       256       197         107          77         239
                                         -------   -------   -------   -------   ---------   ---------   ---------
         Net income....................  $ 2,768   $ 1,420   $ 3,503   $ 2,373   $   4,403   $   3,216   $   5,175
                                         =======   =======   =======   =======   =========   =========   =========
PRO FORMA INFORMATION ASSUMING MERGER
  WITH DTC(1):
  Net income to common shareholders....                                          $   2,792   $   1,932   $   3,346
                                                                                 =========   =========   =========
  Net income per common share:
    Basic..............................                                          $    1.58   $    1.13   $    1.55
                                                                                 =========   =========   =========
    Diluted............................                                          $    1.58   $    1.13   $    1.55
                                                                                 =========   =========   =========
  Weighted average shares used in
    calculating earnings per share(2):
    Basic..............................                                          1,770,309   1,708,710   2,160,846
                                                                                 =========   =========   =========
    Diluted............................                                          1,770,309   1,708,710   2,160,846
                                                                                 =========   =========   =========
</TABLE>

                                       13
<PAGE>   18

<TABLE>
<CAPTION>
                                                                                                     AS OF
                                                                                              SEPTEMBER 30, 1999
                                                        AS OF DECEMBER 31,                   ---------------------
                                         -------------------------------------------------                  PRO
                                          1994      1995      1996      1997       1998       ACTUAL     FORMA(3)
                                         -------   -------   -------   -------   ---------   ---------   ---------
<S>                                      <C>       <C>       <C>       <C>       <C>         <C>         <C>
BALANCE SHEET DATA:
  Working capital......................  $ 5,031   $ 6,940   $ 9,505   $13,690   $  13,406   $  16,046   $  14,439
  Total assets.........................   43,649    43,479    45,241    45,919      49,868      52,634      51,028
  Long-term debt, net of current
    maturities.........................   26,476    25,339    24,510    23,665      22,845      22,094      22,094
  Members' equity......................   13,396    14,125    16,861    18,346      21,989      26,167          --
  Shareholders' equity.................       --        --        --        --          --          --      24,561
</TABLE>

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

(1) Pro forma gives effect to the merger of DeKalb Telephone Cooperative and
    DTC, as if such merger had occurred as of January 1, 1998 and January 1,
    1999, respectively, and as if the combined entity had been a taxable
    corporation during these respective periods.
(2) The computation of weighted average shares outstanding is based upon an
    estimated number of common shares outstanding as a result of the proposed
    merger at a conversion rate of one common share per $10.00 in capital
    credits outstanding.
(3) Pro forma gives effect to the balance sheet data as though the merger of
    DeKalb Telephone Cooperative and DTC had occurred as of September 30, 1999.

                                       14
<PAGE>   19

                              THE SPECIAL MEETING
DATE, TIME AND PLACE

     DeKalb Telephone Cooperative has scheduled a special meeting for February
26, 2000 at 1:00 p.m. (local time). A formal notice of the meeting will be sent
to you on or after February 1, 2000. At the meeting, voting will take place
between 1:00 p.m. and 6:00 p.m.

PURPOSE

     The special meeting will be held to consider and vote upon a proposal to
approve our merger into DTC which will change our form of organization from a
not-for profit cooperative to a for-profit corporation, and to transact any
other business that may properly come before the meeting.

VOTING RIGHTS AND RECORD DATE FOR THE MERGER

     Only our active members are entitled to notice of and to vote at the
meeting and at any adjournment of that meeting. At the close of business on
December 31, 1999, there were approximately 15,000 active members. Each active
member at the close of business on December 31, 1999 or person who becomes an
active member between that date and the date of the special meeting who attends
the special meeting in person will be entitled to one vote on each matter
presented for a vote of the members at the meeting. As of December 31, 1999, our
directors and executive officers and their respective affiliates and associates
accounted for less than 1% of the total number of members.

QUORUM; ABSTENTIONS

     The presence in person of 50 active members constitutes a quorum for
purposes of the meeting. Accordingly, if a small number of persons attend the
meeting, our 13 executive officers and directors who are members will be in a
position to substantially influence the outcome of matters to be voted upon. For
example, if only 50 members attend the meeting, the 13 executive officers and
directors will cast approximately 26.0% of the votes. If, however, 1,000 members
attend the meeting, the 13 executive officers and directors merely will cast
approximately 1.3% of the votes. If a member attends the meeting and abstains,
that abstention will be counted as a vote against the merger.

     The merger agreement must be approved by the affirmative vote of two-thirds
of the active members present in person and voting at the meeting. Our bylaws
prohibit voting by proxy.

EXPENSES

     We will pay all printing expenses and filing fees pertaining to the
registration statement and the information statement/prospectus, including all
expenses for postage, labor and materials.

RECOMMENDATION OF THE BOARD OF DIRECTORS

     The board of directors unanimously approved the plan and agreement of
merger. The board of directors also declared that the plan and agreement of
merger and the merger are advisable, and determined that the merger is fair to
and in the best interests of our members. Accordingly, the board of directors
unanimously recommends that you vote "FOR" approval of the merger. See "The
Merger--Board Recommendation" and--"Reasons for the Merger."

MISCELLANEOUS

     The board of directors is not aware of any matter to be presented for
action at the special meeting other than the matter described in this
information statement/prospectus. Only business within the purpose or purposes
described in the meeting notice may be conducted at a special meeting of the
members.

                                       15
<PAGE>   20

                                   THE MERGER

     The discussion in this information statement/prospectus is a summary of the
material aspects of the merger and the plan and agreement of merger which is
attached as Appendix A to this information statement/prospectus and incorporated
herein by this reference. We encourage you to read the plan and agreement of
merger in its entirety.

GENERAL

     At the special meeting, you will be asked to approve our merger into DTC.
The merger is a way to change our form of organization from a not-for-profit
cooperative to a for-profit corporation. Therefore, the surviving corporation
would be DTC, which would own all of our assets and be subject to all of our
liabilities.

     In the merger, each active and inactive member will receive one share of
DTC stock for every $10.00 in capital credits that the member has on our books
as of February 29, 2000, subject to payment in cash for fractional shares.
Active members, those still having telephone service with us, will receive class
A voting common stock. Inactive members, those who no longer have telephone
service with us but still have capital credits on our books, will receive class
B non-voting common stock. All DTC stock issued and outstanding immediately
prior to the effective time of the merger will be canceled.

     DTC will not issue fractional shares. Any active or inactive member who
would otherwise be entitled to receive a fraction of a share of DTC stock in the
merger will receive instead cash for any fractional amount that is not a whole
multiple of $10.00.

     The merger will become effective upon the time when the articles of merger
are accepted for record by the Secretary of State of the State of Tennessee or
at any other time established under the articles of merger. We expect that the
merger will become effective on March 1, 2000 after any required regulatory
approvals are received and the other conditions to closing are met if the merger
is approved by our members.

BACKGROUND OF THE MERGER

     Our board of directors, together with management, has been studying our
strategic future particularly in view of the rapid regulatory changes that are
affecting the telecommunications industry, beginning with the Telecommunications
Act of 1996. The Telecommunications Act mandated open competition in the
telecommunications industry. Until recently, we have been effectively insulated
from competition in our local telephone markets due to Tennessee law. Tennessee
law requires any competitive local exchange carrier that desires to offer local
service in an area being served by an incumbent local exchange carrier to obtain
a license from the Tennessee Regulatory Authority. Tennessee law, however,
provides that no license will be issued in any area served by an incumbent local
exchange carrier, such as us, with fewer than 100,000 access lines.

     Despite our monopoly on the provision of local telephone service, our board
of directors became concerned about future competition from companies that
offered "packages" of telecommunications products and services in our area.
These packages might include services that we, as a cooperative, were prevented
from offering, such as cable television, or over which we had no monopoly, such
as wireless or internet services. Failure to offer a full selection of
telecommunications products and services could result in customer migration to
competitors that provided more diverse services and inhibit our ability to
attract new customers.

                                       16
<PAGE>   21

     As a result of these issues, our board began studying the means by which it
could convert to a for-profit corporation that would be free of the restrictions
of operating as a cooperative. This process began in early 1999. That occurred
when the Tennessee Attorney General issued a legal opinion that telephone
cooperatives could merge with for-profit companies.

     Our board of directors accelerated its strategic process following a May
1999 decision of the FCC. At that time, the FCC ruled that the
Telecommunications Act preempted that portion of Tennessee law that
automatically denied a license to a competitive local exchange carrier solely on
the basis that the proposed area to be served is already being served by an
incumbent local exchange carrier with fewer than 100,000 access lines. If the
FCC's order is sustained, we will lose our monopoly on local telephone service
and be subject to potential competition in our service area.

     Therefore, the board unanimously concluded that to continue under the
cooperative form of business was not in the best interests of our members and
that the most advantageous plan for our members is to convert to a for-profit
corporation which would have no restrictions on the services that could be
offered. Accordingly, your board has unanimously approved the proposed plan and
agreement of merger and recommended that the merger be submitted for approval by
the members at the special meeting.

REASONS FOR THE MERGER

     In the course of reaching its decision to approve the merger our board,
without assigning any relative or specific weights, considered the following
factors:

     - The changing nature of the telecommunications industry has caused
       telecommunications providers to consider offering a diverse selection of
       telecommunications products and services. A single provider may offer
       basic local telephone service, internet access, cable television,
       wireless telephone service and long distance reselling services. As a
       result, customers have come to expect "one-stop shopping" for all of
       their telecommunications needs. To remain competitive with these large,
       diverse telecommunications providers, we too must have the capability to
       offer a full selection of telecommunications products and services. We
       currently are considering offering cable television service,
       long-distance reselling services and facilities-based competitive local
       exchange carrier services.

     - The changing regulatory environment surrounding the telecommunications
       services industry has significantly increased competition. Local
       telecommunications companies, like us, can no longer expect to be
       insulated from competition from the diverse, multi-state or
       multi-national telecommunications providers or from competitive local
       exchange carriers. Our failure to devise ways to compete will result in
       the loss of customers to those providers and in our inability to attract
       and retain new customers in the areas we currently serve or in those into
       which we may expand in the future. To be competitive, we must have the
       capability to offer a full selection of telecommunications products and
       services.

     - We currently are restricted in the types of services that we can provide.
       As already stated, we must offer a wide range of telecommunications
       services to remain competitive. However, we do not believe that Tennessee
       law allows us, as a telephone cooperative, to offer certain
       telecommunication products and services, such as cable television. After
       the merger, and our resulting conversion to a for-profit corporation, we
       will no longer be subject to this restriction. Rather, we will be able to
       engage in any lawful telecommunications business that we believe is
       desirable or necessary to remain competitive.

     - Growth opportunities exist outside our current service area. Although our
       board currently has no plans to expand into any specific geographic area,
       we believe that developing an expanded service area in the future will be
       necessary to compete and will be in the best interests of our

                                       17
<PAGE>   22

       members. We believe we are well-positioned to expand into markets
       adjacent to our current markets by offering facilities-based competitive
       local exchange carrier services to customers near our existing or future
       fiber nodes. In addition, we believe there are a number of companies that
       offer telecommunications services either within or near our service area
       which may become interested in potential acquisition or joint venture
       opportunities.

     - We believe it is desirable to provide members with an opportunity for
       liquidity and the ability to realize the value of their investments. As a
       for-profit corporation, DTC's shareholders, assuming a market develops,
       will have the opportunity to realize their investment in DTC by selling
       their stock, if they so choose. Our members currently do not have the
       opportunity to realize the value of their investment with respect to
       their capital credits or their membership interests, both of which are
       non-transferable.

     - We believe it is desirable to have access to public equity markets to
       potentially provide additional resources to promote growth and support
       operating needs. As a telephone cooperative, we do not have access to
       public equity markets. Although we do not anticipate an immediate need
       for capital beyond that which currently is available to us, we believe
       having this access in our costly technological and increasingly
       competitive environment is in our and our members' best interests.

     Our board does not believe that there are any material disadvantages to the
merger. The only potential material disadvantages of the merger identified by
the board were:

     - the loss of our partial tax-exempt status; and

     - the increased competition that the merged companies will face resulting
       from the pursuit of DTC's business plan.

     We are partially exempt from United States federal income taxation by
virtue of Section 501(c)(12) of the Internal Revenue Code, which makes the
exemption available to telephone cooperatives which do not receive more than 15%
of their revenues from non-member sources. The board believes that
diversification and broadening of goods and services sold are essential to our
ability to respond to any future competition we may face from competitive local
exchange carriers and large, multi-state or multi-national telecommunications
providers which may enter our service area. Therefore, our board is considering
offering cable television service, long distance reselling services, and
facilities-based competitive local exchange carrier services. Our board also
believes there is growth opportunity in our wireless services and that new
customers may be attracted either by offering wireless service as the customer's
primary telephone or by installing fixed broadband wireless technology when the
technology has matured.

     However, as our revenues from non-member sources, such as revenue from our
wireless services, increase and the goods and services offered by us expand into
other areas of telecommunications, such as cable television, the board believes
the amount of member-sourced income will decrease relative to total income. In
other words, we may still lose our tax-exempt status even if we remain a
cooperative. If we became a non-exempt cooperative, any tax benefit would be
outweighed by increases in administrative costs and burdens. As revenue sources
diversify and broaden, the difficulties of accounting for, and allocating among,
various classes of members and non-members and various levels and classes of
goods and services sold intensify significantly, with corresponding increases in
administrative costs. We would not incur these costs if we convert into a
for-profit corporation. Therefore, our board does not consider the loss of our
partial tax-exempt status to be a significant disadvantage to the merger.

                                       18
<PAGE>   23

     Our board also has discounted the disadvantage of increased competition
that will result from the pursuit of DTC's business plan. As discussed
previously, as a small rural telephone cooperative, we have been insulated to
some extent from competition within our service area because of Tennessee law.
However, the recent FCC decision that preempted that portion of Tennessee law,
if sustained, would result in the loss of our protection from competition even
though we would still be subject to the restrictions of a telephone cooperative
in the types of telecommunications services that we offer and the service area
within which they could be offered. For example, we, as a telephone cooperative,
are prohibited by Tennessee law from offering cable television service, a
service we may offer if we convert to a for-profit corporation. Because we will
be subject to increased competition regardless of whether we remain as a
cooperative or convert to a for-profit corporation, the board believes this is
not a significant disadvantage to the merger. Rather, our board believes that
this inevitable increased competition by companies able to offer a wider choice
of telecommunications services, including cable television services, actually
supports the merger since continuing to operate as a telephone cooperative risks
loss of members' capital credits in the event that we, as a result of the
inability to anticipate or respond to competitive forces, failed as a business
entity.

BOARD RECOMMENDATION

     Our board of directors believes that the merger is fair to you, as our
members, and that the merger is in your best interests. As of the date of this
information statement/prospectus, our directors and executive officers, together
with their respective affiliates and associates, as a group, constituted less
than one percent of the total number of our members. After the merger, our
directors, executive officers and their respective affiliates and associates as
a group would beneficially own substantially less than one percent of the DTC
stock issuable in the merger.

      OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE MEMBERS VOTE
                                      FOR
                            APPROVAL OF THE MERGER.

FEDERAL INCOME TAX CONSEQUENCES

     The following discussion is Yopp & Sweeney, PLC's opinion as to the
material United States federal income tax consequences of the merger to us, DTC
and members who are residents or citizens of the United States. The following
discussion does not address state, local or foreign tax consequences of the
merger.

     Members should note that this discussion is not binding upon the Internal
Revenue Service and that neither we nor DTC have sought, nor do we or DTC intend
to seek, a ruling from the Internal Revenue Service as to the federal tax
consequences of the merger. In view of this and in view of the absence of
directly applicable legal precedent, there can be no assurance that the Internal
Revenue Service will agree with the treatment described below, or that any
challenge to such treatment would not be sustained. EACH MEMBER SHOULD CONSULT
THAT MEMBER'S OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
MERGER AND THE RECEIPT OF SHARES OF DTC STOCK, INCLUDING THE APPLICATION OF
STATE, LOCAL AND FOREIGN LAW.

     It is the opinion of Yopp & Sweeney, PLC that our proposed merger into DTC
will constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended. As a consequence:

     - Neither we nor DTC will recognize any taxable gain or loss as a result of
       the merger. DTC's tax basis and holding period of the assets acquired in
       the merger will be the same as it currently is for us. Tax basis
       (generally equivalent to cost) and holding period are used to determine
       whether we recognize taxable gain or loss upon a later sale of any of
       these assets by us.

                                       19
<PAGE>   24

     - If you have NOT deducted for United States federal income tax purposes
       the amounts of your monthly telephone bills from DeKalb Telephone
       Cooperative:

        - You will not recognize taxable gain or loss as a result of receiving
          DTC stock in the merger.

        - You will have the same holding period and tax basis in your DTC stock
          as you have in your capital credits in DeKalb Telephone Cooperative.
          Your basis and holding period are used to determine any taxes that you
          might incur on a later sale by you of the DTC stock that you receive
          in the merger. Your tax basis generally will be the amount of your
          capital credit account and your holding period will begin when you
          earned the capital credits in question.

        EXAMPLE:  A customer who has not deducted the amount of his/her
        telephone bills has capital credits of $100.00, $10.00 of which was
        earned in each of the years 1990 through 1999. As a result:

           - That customer will receive ten shares of DTC stock in the merger.

           - The customer will not recognize any gain or loss upon receipt of
             the stock.

           - The customer's tax basis is $100.00.

           - The customer will be deemed, for purposes of the holding period
             used to determine whether gain or loss on a later sale of the stock
             is long-term or short-term, to have received one-tenth of each
             share during each of the years 1990 through 1999. If the customer
             sold the DTC stock received in the merger in 2000 for $200.00, the
             customer would have taxable gain of $100.00, $90.00 of which would
             be long term capital gain and $10.00 of which would be short term
             capital gain.

     - If you HAVE deducted for United States federal income tax purposes the
       amounts of your monthly telephone bills from DeKalb Telephone
       Cooperative:

        - You may recognize taxable income as a result of receiving DTC stock in
          the merger. The amount of income will not exceed the lesser of: the
          amounts previously deducted by you; or the fair market value of the
          DTC stock received in the merger.

        - Your tax basis in the DTC stock received in the merger will be equal
          to the amount of income recognized by you plus the amount by which
          your DeKalb Telephone Cooperative capital credits exceeds the taxable
          income recognized by you.

        - Your holding period in the DTC stock received in the merger will be
          the same as your holding period in your DeKalb Telephone Cooperative
          capital credits.

        EXAMPLE:  A customer has deducted $500.00 between 1990 and 1999 of the
        amount of his/her telephone bills. That customer has capital credits of
        $100.00, $10.00 of which was earned in each of the years 1990 through
        1999. For purposes of this example, the DTC stock has a fair market
        value of $200.00. As a result:

           - That customer will receive ten shares of DTC stock in the merger.

           - The customer will recognize income upon receipt of the stock of
             $200.00 (the lesser of the amounts deducted or the fair market
             value of the DTC stock).

           - The tax basis, used to calculate gain or loss upon a later sale of
             the stock, will be $200.00.

           - The customer will be deemed, for purposes of the holding period
             used to determine whether gain or loss on a later sale of the stock
             is long-term or short-term, to have received one-tenth of each
             share during each of the years 1990 through 1999. If the

                                       20
<PAGE>   25

customer sold the DTC stock received in the merger in 2000 for $200.00, the
customer would have no taxable gain as a result of the sale.

     - Members receiving cash in lieu of fractional shares of DTC stock will
       have differing tax consequences depending upon whether they have deducted
       their telephone bills from DeKalb Telephone Cooperative for United States
       federal income tax purposes. Members who have not deducted their
       telephone bills will not recognize any taxable income or loss as a result
       of the receipt of cash in lieu of fractional shares. Members who have
       deducted their telephone bills will have reduced their basis in their
       capital credits by the amount of the deductions and will recognize
       taxable income in an amount equal to the difference between the cash
       received and the adjusted basis of the capital credit. The gain or loss
       will be capital gain or loss if the capital credits were consolidated
       capital assets in the hands of the member.

        EXAMPLE:  A customer has deducted $500.00 of the amount of his/her
        telephone bills. That customer has capital credits of $109.00. That
        customer will receive ten shares of DTC stock in the merger for $100.00
        of the capital credits. The customer will recognize income upon receipt
        of the stock as discussed in the previous example. The customer will
        receive $9.00 in cash in satisfaction of the remainder of the capital
        credits. As a result of the deductions ($500.00) exceeding the basis
        (amount) of the capital credits ($100.00), the customer's adjusted tax
        basis in the capital credit is $0. Accordingly, the customer will
        recognize income in the year that the merger occurs for United States
        federal income tax purposes in the amount of $9.00 (the difference
        between the $9.00 received and the amount of the basis in the
        corresponding capital credit).

     Because it is unlikely that most residential customers have deducted the
amount of their telephone bills for federal income tax purposes, we believe this
generally means that the receipt of DTC stock in the merger will be tax free to
residential customers and possibly taxable to business customers to the extent
of the amount of payments previously deducted.

     Yopp & Sweeney, PLC indicates that the basis for their opinion is derived
from their review of previously issued public and private letter rulings by the
Internal Revenue Service and court opinions involving transactions with similar
but not identical characteristics. Because the Internal Revenue Service has not
previously ruled on a transaction involving the merger of a Section 501(c)(12)
cooperative, the opinion states that there is a lack of direct precedent for the
stated tax treatment. The opinion of Yopp & Sweeney, PLC, states, however, that
existing precedent involving transactions with similar but not identical
characteristics, if followed, would cause the merger to be treated as and
constitute a tax free exchange and that Yopp & Sweeney, PLC, has no reason to
believe that the Internal Revenue Service would not follow this precedent.

     Due to the complexities of federal, state and local income tax laws, it is
strongly recommended that members, particularly members who have previously
deducted their payments to us, consult their own tax advisors concerning the
particular federal, state and local tax consequences of the merger to them.

FORMER MEMBERS OF DEKALB TELEPHONE COOPERATIVE, INC.

     Our former or inactive members are those persons or entities that at one
time were our members but no longer have telephone service with us. Inactive
members have no voting rights on the merger; however, inactive members have
rights to participate in the distribution of our assets in certain events.

     Some inactive members, as of February 29, 2000, will still have capital
credits on our books. In addition, active and inactive members to whom capital
credits have been allocated during the past ten years have the right, if we were
being dissolved, to receive a share of our net assets. That right,

                                       21
<PAGE>   26

generally called a "property right," is being preserved for all active and
inactive members by the issuance of DTC common stock which carries with it a
right, if DTC is dissolved in the future, to receive a share of DTC's net
assets.

     The stock received in the merger by inactive members is non-voting but the
stock received by active members has voting rights. Inactive members currently
have no voting rights and the issuance of non-voting stock to them carries
forward the active/inactive member distinction in the merged companies.
Otherwise, the stock to be issued in the merger has the same rights to the
owners of the stock.

REGULATORY APPROVALS REQUIRED FOR THE MERGER

     Consummation of the merger is subject to the approval of the Rural
Utilities Service pursuant to certain loan agreements between us and the Rural
Utilities Service. We have received verbal assurances from the Rural Utilities
Service that the merger will be approved.

     DTC also must receive from the Tennessee Regulatory Authority a certificate
of public convenience and necessity to operate our system following the
effective date of the merger. We currently are exempt from most Tennessee
Regulatory Authority regulation. However, after the merger the Tennessee
Regulatory Authority will regulate DTC with regard to various matters, including
rates for basic telephone service, intrastate toll and access rates, quality of
service, issuance of securities, depreciation rates, disposition of public
utility property, issuance of debt and accounting systems.

RESALE OF DTC COMMON STOCK; RESTRICTIONS ON DTC AFFILIATES

     Assuming that a market develops for the stock, DTC stock received in the
merger will be freely transferable, except for DTC stock received by any
"affiliate" of DTC. Affiliate shares will not be transferable except in
compliance with the Securities Act. The term "affiliate" is defined in the
Securities Act and generally includes directors, certain executive officers and
beneficial owners of 10% or more of a class of capital stock. This information
statement/prospectus does not cover sales of DTC stock by any person deemed an
affiliate.

MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER

     After the merger, our members will be shareholders of DTC and the
businesses, properties and operations of DTC would be substantially identical to
ours. The directors and officers of DTC who were engaged immediately prior to
the effective time of the merger would continue immediately after the effective
time of the merger as the directors and officers of DTC. Upon consummation of
the merger, the employees of DTC would be the persons who were our employees
immediately prior to the effective time of the merger.

     As a result of the merger, DTC will assume all of our operations, assets
and liabilities and will have a consolidated financial position substantially
identical to ours immediately before the merger.

NO DISSENTERS' RIGHTS

     Our members are not entitled to dissenters' rights under either the
Tennessee Nonprofit Corporation Act or the Tennessee Telephone Cooperative Act
in connection with the merger.

THE PLAN AND AGREEMENT OF MERGER

Effective Time of the Merger

     If approved by our members, the merger will be consummated on the date and
time the articles of merger are filed with the Secretary of the State of
Tennessee in accordance with the Tennessee Business Corporation Act or at such
other time as is set forth in the articles of merger. If our

                                       22
<PAGE>   27

members approve the merger at the special meeting and the other conditions to
the merger are satisfied, the effective time of the merger would occur as soon
after the special meeting as is possible, which may be the same date as the
special meeting, provided that the merger has not been abandoned prior to such
time. It is anticipated that the merger, if approved and consummated, would
become effective at 12:01 a.m. Central Standard Time on March 1, 2000.

Conversion of Capital Credits

     At the effective time of the merger, we will merge into DTC and cease to
exist. As of the effective time of the merger, members would cease to be our
members and consequently would have no rights as members. Instead, our members
after the merger would have rights as shareholders of DTC.

     If the merger is consummated:

     - each active and inactive member will receive one share of DTC stock for
       every $10.00 in capital credits that a member has on our books as of
       February 29, 2000;

     - persons or entities that are active members as of February 29, 2000 will
       receive shares of DTC's class A voting common stock;

     - persons or entities that are inactive members as of February 29, 2000
       will receive shares of DTC's class B non-voting common stock; and

     - each member with capital credits in an amount other than in whole
       multiples of $10.00 will receive cash for any fractional amount.

     Based on the capital credits on our books as of September 30, 1999, DTC
expects to issue approximately 2,000,000 shares of class A voting common stock
and approximately 500,000 shares of class B non-voting common stock in the
merger.

Procedure for Issuance of Merger Consideration

     If the merger is consummated, as soon as practicable, and in any event
within 60 days after the effective date of the merger, DTC is required to send
to each member certificates for the shares of DTC stock that the member is to
receive in the merger based upon that member's capital credit account as of
February 29, 2000. Each member also will receive a check for the amount of cash
required, if any, to pay that member for any fractional share to which the
member otherwise would be entitled.

Conditions to Completion of the Merger

     Our obligation to consummate the merger is subject to the fulfillment of
the following conditions:

     - approval of the merger by two-thirds of our active members voting at the
       special meeting;

     - obtaining all required regulatory approvals and third party consents;

     - there being no restraining order, injunction or court order preventing
       the merger or any proceeding seeking to prevent the merger or making the
       merger illegal; and

     - there being no statute, rule, regulation or governmental order that might
       materially adversely affect or delay the merger.

     We may terminate the plan and agreement of merger and abandon the merger at
any time before the effective time of the merger, even after approval of the
merger by the members.

                                       23
<PAGE>   28

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our historical
financial information included elsewhere in this document.

OVERVIEW

     DeKalb Telephone Cooperative, Inc., which presently operates under the
trade name of DTC Communications, provides telecommunications services,
including local telephone service, long distance network access and dial-up
internet access, as well as wireless telephone services. At September 30, 1999,
our incumbent local exchange carrier services operated approximately 19,000
access lines primarily in rural Middle Tennessee, and our for-profit subsidiary,
Advantage Cellular, offered wireless telephone services to approximately 7,400
subscribers.

     Our operating revenue primarily is reported in four captions: local
telephone services revenue, network access services revenue, wireless products
and services revenue and miscellaneous revenue.

     Local Telephone Services Revenue.  Local telephone services revenue is
primarily derived from providing local service to customers. Local service
operations provide lines from telephone exchange offices to subscribers'
premises for the origination and termination of telecommunications, including
the following: basic local telephone service and internet service provided
through the regular switched network; dedicated private line facilities for
voice and special services, such as transport of data, audio and video;
switching services for customers' internal communications through facilities
owned by us; services for data transport that include managing and configuring
special service networks; and dedicated low- or high-capacity public or private
digital networks. Other local service revenue is derived from information and
directory assistance and public payphone services. We also offer enhanced
calling features, such as voice mail, call waiting, caller identification,
automatic redial, call forwarding, three-way calling, speed calling and call
tracing, on a monthly subscription or per-use basis.

     Network Access Services Revenue.  We provide network access and
interconnection services by connecting the equipment and facilities of our
subscribers with the communications networks of long distance carriers (e.g.,
AT&T or MCI-Worldcom) in order to allow a long distance call to be either
originated or terminated within our network. These connections are provided by
linking these carriers and subscribers through the public switched network or
through dedicated private lines furnished by us. Network access charges, which
are payable by long distance carriers and end-user subscribers, are designed to
recover the costs of the common and dedicated facilities and equipment used to
connect networks of long distance carriers with our local network and to
subsidize the cost of providing local service to rural and other high-cost
areas. In addition, we receive monies from the universal service fund. We
provide Wide Area Telecommunications Service for customers with highly
concentrated demand; and special services, such as transport of data, audio and
video as well as long distance directory assistance services.

     Wireless Products and Services Revenue.  Wireless products and services
revenue is primarily derived from customers of Advantage Cellular, who purchase
wireless telephone products and services, and from roaming charges paid by
customers of other wireless companies for originating or terminating a wireless
call while traveling within Advantage Cellular's wireless network.

     Miscellaneous Revenue.  Miscellaneous revenue is primarily derived from
directory publication (i.e., advertising) and billing and collection services
for long distance carriers.

                                       24
<PAGE>   29

     For the nine months ended September 30, 1999, we had revenue of $15.8
million, of which 20.8% was attributable to local telephone services revenue,
51.5% was attributable to network access services revenue, 20.2% was
attributable to wireless products and services revenue and 7.4% was attributable
to miscellaneous revenue. For the year ended December 31, 1998, we had revenue
of $18.1 million, of which 23.1% was attributable to local telephone services
revenue, 49.0% was attributable to network access services revenue, 19.1% was
attributable to wireless products and services revenue and 8.8% was attributable
to miscellaneous revenue.

     Plant Operations Expense.  Plant operations expense consists primarily of
maintenance, repair and testing of our telephone network facilities, including
switches and cable.

     Customer Operations Expense.  Customer operations expense consists
primarily of salaries and benefits of employees who respond to customer
inquiries, customer complaints and requests for service.

     Corporate Operations Expense.  Corporate operations expense consists
primarily of unallocated general and administrative expenses associated with
corporate operations, for example, certain consulting and professional fees,
salaries and benefits of management and management information systems.

     Operating Taxes Expense.  Operating taxes expense consists of property
taxes, ad valorem and certain sales taxes.

RESULTS OF OPERATIONS

     The following table sets forth selected income statement data and such data
as a percentage of operating revenue for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                   NINE MONTHS ENDED
                                                    YEAR ENDED DECEMBER 31,                          SEPTEMBER 30,
                                       --------------------------------------------------   --------------------------------
                                            1996              1997              1998             1998             1999
                                       ---------------   ---------------   --------------   --------------   ---------------
                                                                   (Dollar amounts in thousands)
<S>                                    <C>       <C>     <C>       <C>     <C>      <C>     <C>      <C>     <C>       <C>
OPERATING REVENUE:
Local telephone services revenue.....  $ 3,704    23.5%  $ 3,942    23.5%  $4,190    23.1%  $3,122    23.4%  $ 3,299    20.8%
Network access services revenue......    7,892    50.0     8,242    49.1    8,877    49.0    6,528    49.0     8,164    51.5
Wireless products and services
  revenue............................    2,859    18.1     3,085    18.4    3,463    19.1    2,495    18.7     3,201    20.2
Miscellaneous revenue................    1,317     8.4     1,502     9.0    1,596     8.8    1,181     8.9     1,177     7.4
                                       -------   -----   -------   -----   ------   -----   ------   -----   -------   -----
        Total operating revenue......   15,772   100.0    16,771   100.0   18,125   100.0   13,325   100.0    15,841   100.0
OPERATING EXPENSES:
Plant operations expense.............    3,686    23.4     3,345    19.9    3,900    21.5    2,751    20.6     2,995    18.9
Depreciation and amortization
  expense............................    3,727    23.6     4,879    29.1    4,586    25.3    3,453    25.9     3,688    23.3
Customer operations expense..........      906     5.7       910     5.4    1,132     6.2      778     5.8       936     5.9
Corporate operations expense.........    2,658    16.9     3,319    19.8    3,403    18.8    2,267    17.0     2,422    15.3
Operating taxes......................      426     2.7       404     2.4      381     2.1      323     2.4       365     2.3
                                       -------   -----   -------   -----   ------   -----   ------   -----   -------   -----
        Total operating expenses.....   11,402    72.3    12,858    76.7   13,402    73.9    9,573    71.8    10,406    65.7
                                       -------   -----   -------   -----   ------   -----   ------   -----   -------   -----
Operating income.....................  $ 4,370    27.7%  $ 3,913    23.3%  $4,724    26.1%  $3,753    28.2%  $ 5,436    34.3%
                                       =======   =====   =======   =====   ======   =====   ======   =====   =======   =====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998

     Local telephone services revenue increased $178,000, or 5.7%, to $3.3
million for the nine months ended September 30, 1999 from $3.1 million for the
comparable 1998 period. This increase was due primarily to growth in the number
of customers and sales of additional or enhanced calling features to existing
customers. As a percentage of total operating revenue, local telephone services

                                       25
<PAGE>   30

revenue decreased to 20.8% for the nine months ended September 30, 1999 from
23.4% for the comparable 1998 period. This decrease resulted primarily from the
large increase in network access services revenues that was attributable in
large part to the increase in universal service fund monies.

     Network access services revenue increased $1.6 million, or 25.1%, to $8.2
million for the nine months ended September 30, 1999 from $6.5 million for the
comparable 1998 period. This increase was primarily due to an increase of $1.5
million received from the universal service fund, the majority of which resulted
from certain reclassifications of portions of our switching network. As a
percentage of total operating revenue, network access services revenue increased
to 51.5% for the nine months ended September 30, 1999 from 49.0% for the
comparable 1998 period.

     Wireless products and services revenue increased by $706,000, or 28.3%, to
$3.2 million for the nine months ended September 30, 1999 from $2.5 million for
the comparable 1998 period. This increase was primarily due to growth in number
of customers and increased usage by existing customers as well as an increase in
roaming charges, which are charges for calls made by wireless users from other
areas while travelling through our service area. As a percentage of total
operating revenue, wireless products and services revenue increased to 20.2% for
the nine months ended September 30, 1999 from 18.7% for the comparable 1998
period.

     Miscellaneous revenue remained relative constant during the comparable
periods, decreasing by $4,000. As a percentage of total operating revenue,
miscellaneous revenue decreased to 7.4% for the nine months ended September 30,
1999 from 8.9% for the comparable 1998 period.

     Plant operations expense increased by $243,000, or 8.8%, to $3.0 million
for the nine months ended September 30, 1999 from $2.8 million for the
comparable 1998 period. As a percentage of total operating revenue, plant
operations expense decreased to 18.9% for the nine months ended September 30,
1999 from 20.6% for the comparable 1998 period. This decrease was due primarily
to an increase in total revenues.

     Depreciation and amortization expense increased by $234,000, or 6.8%, to
$3.7 million for the nine months ended September 30, 1999 from $3.5 million for
the comparable 1998 period. As a percentage of total operating revenue,
depreciation and amortization expense decreased to 23.3% for the nine months
ended September 30, 1999 from 25.9% for the comparable 1998 period.

     Customer operations expense increased by $158,000, or 20.3%, to $936,000
for the nine months ended September 30, 1999 from $778,000 for the comparable
1998 period. As a percentage of total operating revenue, customer operations
expense increased to 5.9% for the nine month period ended September 30, 1999
from 5.8% for the comparable 1998 period.

     Corporate operations expense increased by $155,000, or 6.8%, to $2.4
million for the nine months ended September 30, 1999 from $2.3 million for the
comparable 1998 period. As a percentage of total operating revenue, corporate
operations expense decreased to 15.3% for the nine months ended September 30,
1999 from 17.0% for the comparable 1998 period. This decrease was due primarily
to an increase in total revenues.

     Operating taxes increased by $43,000, or 13.2%, to $365,000 for the nine
months ended September 30, 1999 from $323,000 for the comparable 1998 period. As
a percentage of total operating revenue, operating taxes decreased to 2.3% for
the nine months ended September 30, 1999 from 2.4% for the comparable 1998
period.

     Operating income increased by $1.7 million, or 44.8%, to $5.4 million for
the nine months ended September 30, 1999 from $3.8 million for the comparable
1998 period. As a percentage of total operating revenue, operating income
increased to 34.3% for the nine months ended September 30, 1999 from 28.2% for
the comparable 1998 period.

                                       26
<PAGE>   31

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

     Local telephone services revenue increased by $248,000, or 6.3%, to $4.2
million for 1998 from $3.9 million for 1997. This increase was primarily due to
increased revenues from the sale of custom calling features. As a percentage of
total operating revenue, local telephone services revenue decreased to 23.1% for
1998 from 23.5% for 1997.

     Network access services revenue increased by $635,000, or 7.7%, to $8.9
million for 1998 from $8.2 million for 1997. This increase was due primarily to
interstate switched access revenues. As a percentage of total operating revenue,
network access services revenue remained relatively constant between 1998 and
1997.

     Wireless products and services revenue increased by $378,000, or 12.2%, to
$3.5 million for 1998 from $3.1 million for 1997. This increase was due
primarily to an increase in the number of customers and usage. As a percentage
of total operating revenue, wireless products and services revenue increased to
19.1% for 1998 from 18.4% for 1997.

     Miscellaneous revenue increased by $94,000, or 6.2%, to $1.6 million in
1998 from $1.5 million in 1997. This increase was due primarily to billing and
collections revenue. As a percentage of total operating revenue, miscellaneous
revenue remained relatively constant decreasing to 8.8% in 1998 from 9.0% in
1997.

     Plant operations expense increased by $555,000, or 16.6%, to $3.9 million
for 1998 from $3.3 million for 1997. As a percentage of total operating revenue,
plant operations expense increased to 21.5% for 1998 from 19.9% for 1997. This
increase was due primarily to accelerated maintenance programs and increases in
roaming charges caused by Advantage Cellular customers originating or
terminating calls in another wireless network.

     Depreciation and amortization expense decreased by $294,000, or 6.0%, to
$4.6 million for 1998 from $4.9 million for 1997. As a percentage of total
operating revenue, depreciation and amortization expense decreased to 25.3% for
1998 from 29.1% for 1997. This decrease was due primarily to an increase in
total operating revenues.

     Customer operations expense increased by $221,000, or 24.3%, to $1.1
million for 1998 from $910,000 for 1997. As a percentage of total operating
revenue, customer operations expense increased to 6.2% for 1998 from 5.4% for
1997. This increase was due primarily to expansion of services offered and
related personnel costs.

     Corporate operations expense increased by $85,000, or 2.5%, to $3.4 million
for 1998 from $3.3 million for 1997. As a percentage of total operating revenue,
corporate and other operations expense decreased to 18.8% for 1998 from 19.8%
for 1997. This decrease was due primarily to an increase in total revenues.

     Operating taxes decreased by $23,000, or 5.8%, to $381,000 for 1998 from
$404,000 for 1997. This decrease resulted primarily from decreased property
taxes. As a percentage of total operating revenue, operating taxes decreased to
2.1% in 1998 from 2.4% in 1997.

     Operating income increased by $811,000, or 20.8%, to $4.7 million for 1998
from $3.9 million in 1997. As a percentage of total operating revenue, operating
income increased to 26.1% in 1998 from 23.3% in 1997.

                                       27
<PAGE>   32

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

     Local telephone services revenue increased by $238,000, or 6.4%, to $3.9
million for 1997 from $3.7 million for 1996. This increase was due primarily to
growth in customers and to offering enhanced calling features to existing
customers. As a percentage of total operating revenue, local telephone services
revenue remained relatively constant at 23.5%.

     Network access services revenue increased by $350,000, or 4.4%, to $8.2
million for 1997 from $7.9 million for 1996. This increase was due primarily to
interstate switched access revenues. As a percentage of total operating revenue,
network access services revenue decreased to 49.1% in 1997 from 50.0% in 1996.

     Wireless products and services revenue increased by $226,000, or 7.9%, to
$3.1 million for 1997 from $2.9 million for 1996. This increase was due
primarily to growth in number of customers and increased roaming service
revenues. As a percentage of total operating revenue, wireless products and
services revenue increased to 18.4% in 1997 from 18.1% in 1996.

     Miscellaneous revenue increased by $185,000, or 14.0%, to $1.5 million in
1998 from $1.3 million in 1997. This increase resulted from interstate and
intrastate billing and collection revenue. As a percentage of total operating
revenue, miscellaneous revenue increased to 9.0% in 1998 from 8.4% in 1996.

     Plant operations expense decreased by $340,000, or 9.2%, to $3.3 million
for 1997 from $3.7 million for 1996. As a percentage of total operating revenue,
plant operations expense decreased to 19.9% for 1997 from 23.4% for 1996. This
decrease was due primarily to a decrease in the amount of application software
expensed in 1997 from 1996.

     Depreciation and amortization expense increased by $1.2 million, or 30.9%,
to $4.9 million for 1997 from $3.7 million for 1996. As a percentage of total
operating revenue, depreciation and amortization expense increased to 29.1% for
1997 from 23.6% for 1996. This increase was due primarily to an increase in
total operating revenue.

     Customer operations expense remained relatively constant during 1997 and
1996. As a percentage of total operating revenue, customer operations expense
decreased to 5.4% for 1997 from 5.7% for 1996. This decrease was due primarily
to an increase in total revenue while customer operations expense remained
unchanged.

     Corporate operations expense increased by $661,000, or 24.9%, to $3.3
million for 1997 from $2.7 million for 1996. As a percentage of total operating
revenue, corporate operations expense increased to 19.8% for 1997 from 16.9% for
1996. This increase was due primarily to an increase in the expensing of
application software and associated database development.

     Operating taxes decreased by $22,000, or 5.1%, to $404,000 in 1997 from
$426,000 in 1996. This decrease resulted primarily from decreased property
taxes. As a percentage of total operating revenue, operating taxes decreased to
2.4% in 1997 from 2.7% in 1996.

     Operating income decreased by $457,000, or 10.4%, to $3.9 million in 1997
from $4.4 million in 1996. As a percentage of total operating revenue, operating
income decreased to 23.3% in 1997 from 27.7% in 1996.

LIQUIDITY AND CAPITAL RESOURCES

     As of September 30, 1999, we had cash and marketable securities of $15.8
million, working capital of $16.0 million and long-term indebtedness of $22.1
million, net of current maturities. Our

                                       28
<PAGE>   33

primary sources of liquidity are cash flows from operations and available
borrowings from the Rural Utilities Service of the United States Department of
Agriculture. As of September 30, 1999, we had available from the Rural Utilities
Service an additional $8.6 million in borrowing capacity. Conversion to a
for-profit corporation will not affect our ability to borrow from the Rural
Utilities Service.

     Historically, our operations and growth have been financed through cash
flows from operations and long-term indebtedness. These borrowings generally are
secured by substantially all of our assets. Our existing long-term debt consists
of a series of loans from the Rural Utilities Service that impose numerous
restrictive covenants on us and our operations. The weighted average interest
rate on these loans at September 30, 1999 was approximately 4.9%.

     We anticipate that our cash flows from operations and the available
borrowings from the Rural Utilities Service will provide sufficient cash to
enable us to meet our working capital needs, debt service requirements and
planned capital expenditures for property and equipment for the foreseeable
future.

Operating Activities

     During the nine months ended September 30, 1999, cash provided by operating
activities was $8.0 million. Net income plus non-cash charges provided $9.1
million of operating cash flow during this period. Reduction in accounts payable
reduced operating cash flow during this period by $1.2 million.

     During the year ended December 31, 1998, cash provided by operating
activities was $9.9 million. Net income plus non-cash charges provided $9.4
million of operating cash flow during this period. Other items that
significantly affected cash flow during this period were increases in
receivables, which reduced cash flow, of $443,000 and in accounts payable, which
increased cash flow, of $1.2 million. The increase in receivables resulted from
an increase in the number of customers and customer services and the increase in
payables resulted from year-end timing differences.

Investing Activities

     During the nine months ended September 30, 1999, cash used by investing
activities was $6.6 million. Cash used on capital expenditures was $4.7 million
during this period. The capital expenditures were incurred to construct and
acquire property, plant and equipment. During the nine months ended September
30, 1999, cash used for investments was $1.9 million. Our investments included
marketable securities, consisting primarily of government securities.

     During the year ended December 31, 1998, cash used by investing activities
was $7.9 million. Cash used on capital expenditures was $7.9 million during this
period. The capital expenditures were incurred to construct and acquire
property, plant and equipment. In addition, we disposed of $333,000 in
marketable securities during this period.

     The Telecommunications Act requires that we offer telephone number
portability to the customers of any competitive local exchange carrier providing
service in our area. We must provide this service within six months after being
requested by a competitive local exchange carrier to do so. Although there
presently is no competitive local exchange carrier in our area, if one were to
be licensed and requested number portability we would be required to purchase an
estimated $200,000 of software.

     As of September 30, 1999, we had made a $100,000 capital investment in
Tennessee Independent Telecommunications Group, LLC, a new wholesale transport
telecommunications

                                       29
<PAGE>   34

network. Although additional capital investments have not been required, we are
obligated to contribute an additional $400,000 in the future.

Financing Activities

     During the nine months ended September 30, 1999, cash used by financing
activities was $1.7 million. Cash used for payments on long-term borrowings was
$710,000 during this period. In addition, we used $996,000 of cash to retire
certain capital credits.

     During the year ended December 31, 1998, cash used by financing activities
was $1.6 million. Cash used for payments on long-term borrowings was $848,000
during this period. In addition, we used $760,000 of cash to retire certain
capital credits.

     The retirement of capital credits during 1998 and 1999 resulted from our
policy of retiring credits of active and inactive members that accrued more than
ten years in the past. For administrative convenience and in order to make our
capital credit position, at the time of the merger, reflect the precise
requirements of tax and cooperative law, we expect to retire, effective as of
January 31, 2000, all capital credits that originated prior to 1990. Those
credits total approximately $1.5 million and, assuming the merger occurs, would
be paid in fiscal year 2000.

INFLATION

     Due to relatively low levels of inflation experienced in the years ended
December 31, 1996, 1997 and 1998, we believe inflation did not have a material
effect on our results during these periods.

RECENT ACCOUNTING PRONOUNCEMENTS

     We adopted SFAS 130, Reporting Comprehensive Income, which establishes
standards for displaying comprehensive income and its components in our
consolidated financial statements. Comprehensive income encompasses all changes
in shareholders equity with the exception of those transactions arising with
owners. The adoption of this pronouncement had no material effect on our results
of operations.

     We adopted SFAS 131, Disclosures about Segments of an Enterprise and
Related Information, which establishes standards for reporting information about
operating segments in our consolidated financial statements. The standard also
establishes requirements for related disclosure about our products and services,
geographic areas and major customers. We operate in two industry segments;
wireline and wireless telephone services and accordingly, have disclosed
information for each of these segments in our consolidated financial statements.
The adoption of this pronouncement had no effect on our presentation of
operating results or financial position.

     We have adopted the AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use ("SOP 98-1").
As permitted, we have elected to adopt the provisions of SOP 98-1 during the
year ended December 31, 1998. Under the provisions of SOP 98-1, we began
capitalizing and amortizing the cost of our internal use software that we had
previously expensed as incurred. During 1998, we capitalized approximately
$500,000 of internal use software that previously would have been expensed.

YEAR 2000 CONSIDERATIONS

     Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields need to accept

                                       30
<PAGE>   35

four-digit entries to distinguish 21st century dates from 20th century dates. As
a result, computer systems and software used by many companies may need to be
upgraded to comply with such year 2000 requirements. Significant uncertainty
exists concerning the potential effects associated with such compliance, but
systems that do not properly recognize such information could generate erroneous
data or cause a system to fail.

     Prior to this year, we reviewed both our information technology and our
non-information technology systems to determine whether they were year 2000
compliant. Planned replacements and upgrades to our billing systems were
completed during 1999 at an estimated cost of $125,000. Following tests on the
billing systems, we did not identify any material systems that were not year
2000 compliant. In connection with our review, we prepared a formal
questionnaire for all significant suppliers, customers and service providers to
determine the extent to which we are vulnerable to those third parties' failure
to remediate the year 2000 problem. Based upon the response we received to these
questionnaires, we believe that our operations will not be significantly
disrupted even if third parties with whom we have relationships are not year
2000 compliant.

     Except as described above, we have not been and do not believe that we will
be required to make any material expenditures to address the year 2000 problem
as it relates to our existing systems. We intend to continue to make efforts to
ensure third parties with whom we have relationships are year 2000 compliant.
Although we do not anticipate any year 2000 issues, we cannot be certain that
unexpected year 2000 compliance problems of either us or our vendors, customers
and service providers would not materially and adversely affect our business,
financial condition or operating results. If an issue were to occur, we would
develop and implement appropriate contingency plans.

MARKET RISK

     We have not been exposed to significant market risks in the normal course
of our business. To date, the interest rate on our long-term indebtedness has
been at fixed rates ranging from 2.0% to 5.0%, which are significantly below
market. Accordingly, to date, we have not deemed it necessary to employ any
market or interest risk management strategies, such as interest rate swap
agreements. In the future, as DTC pursues its business strategy, these low cost
borrowing sources may be unavailable for some business activities. Accordingly,
DTC may have to employ such strategies in the future. In addition, as DTC
pursues its market strategy, it may become subject to a higher degree of
interest rate sensitivity as it is required to borrow at higher or at variable
rates. This could significantly increase DTC's future sensitivity to interest
rate fluctuations and materially affect, in a negative manner, DTC's future
financial position and results of operations.

     As of December 31, 1998, we had $12.2 million in marketable securities. As
of September 30, 1999, we had $14.0 million invested in marketable securities.
For the periods ended December 31, 1998 and September 30, 1999, we had interest
income of $713,000 and $562,000, respectively. Accordingly, a large portion of
our income depends upon our ability to continue to invest monies in these
instruments and prevailing interest rates. We do not believe there is any other
significant risk associated with our investment in marketable securities.
However, if DTC in the future invests in other income-producing securities, it
could subject DTC's income to greater risk and volatility.

                                       31
<PAGE>   36

                        MARKET AND DIVIDEND INFORMATION

MARKET INFORMATION

DeKalb Telephone Cooperative, Inc.

     No public trading market currently exists for capital credits, and capital
credits currently are not transferable.

DTC Communications Corp.

     No public trading market currently exists for DTC stock.

     We intend to apply for the listing of the DTC stock to be issued in the
merger on the American Stock Exchange under the symbols "DKC.A" (common class A
voting) and "DKC.B" (common class B non-voting).

     There can be no assurance that a trading market will develop or be
maintained for any DTC stock or, if it did, that it would provide the
shareholders of DTC a meaningful opportunity to liquidate their equity interests
in DTC at a fair value.

DIVIDEND INFORMATION

DeKalb Telephone Cooperative, Inc.

     By law, we have been required to make an annual refund or rate reduction to
our members to the extent our operating revenues exceeded operating expenses,
maintenance and interest. The law also allows any refund to take the form of
either cash or capital credits on our books. This refund customarily has taken
the form of accumulation of capital credits for the members on our books. See
"Comparison of Rights of Our Members to Rights of DTC Shareholders -- Dividends
and Other Distributions." We previously have not paid dividends or interest on
capital credits.

     Our policy previously has been to pay the capital credits of a member to
the estate of that person upon death or to a business upon its dissolution, when
we receive written application for payment and proof of death or dissolution, as
the case may be.

     In addition, we generally have elected to pay capital credits to both
active and inactive members within ten years after the year in which the capital
credits were accumulated. This policy, however, is subject to the discretion of
the board and to our financial ability to make the payments. During 1996, 1997
and 1998, we retired $767,000, $889,000 and $760,000, respectively, in capital
credits. During the nine months ended September 30, 1999, we retired
approximately $996,000 in capital credits. Assuming the merger is approved, we
anticipate that we will retire all capital credits that accumulated in years
prior to 1990, which amount is approximately $1.5 million.

DTC Communications Corp.

     After the merger, DTC would be permitted by law to pay dividends to its
shareholders, although certain covenants in existing loan agreements between us
and the Rural Utilities Service, as well as federal statutes and regulations
which apply to Rural Utilities Service borrowers, could limit the circumstances
under which DTC would be permitted to pay dividends or make other distributions
to its shareholders. The Rural Utilities Service must authorize distributions
other than in shares of stock unless certain financial ratio requirements are
met. The amount and timing of future dividend payments, if any, would be based
on a number of factors, including the capital requirements of DTC's business and
the financial condition of DTC. There can be no assurance that DTC would pay any

                                       32
<PAGE>   37

dividends at any time and DTC has no intention of paying cash dividends in the
foreseeable future. In the future, it also is possible that agreements with
lenders would continue to limit or restrict, or could place additional
limitations or restrictions upon, DTC's ability to pay dividends or the amount
of dividends that DTC may pay to its shareholders. The dividend rights of DTC
stock also would be subject to the rights of any DTC preferred stock which may
be issued in the future.

NUMBER OF MEMBERS/SHAREHOLDERS

     As of December 31, 1999, we had approximately 15,000 active members of
record. In addition, there were approximately 29,000 inactive members.

     As of December 31, 1999, DTC had one shareholder of record, which was us.
We will remain the sole shareholder of DTC through the effective date of the
merger.

                                       33
<PAGE>   38

                       DEKALB TELEPHONE COOPERATIVE, INC.

     The following description should be considered carefully in evaluating us
and our businesses which will be assumed by DTC if the merger is consummated.

BUSINESS

     DeKalb Telephone Cooperative, Inc. provides telecommunications services to
residential and commercial customers primarily in several counties in rural
Middle Tennessee. We offer high-quality, low-cost telecommunications services,
including local telephone service, long-distance network access, and dial-up
internet access over a state-of-the-art wireline network, as well as wireless
telephone services. In addition, we offer a wide range of enhanced calling
features such as voice mail, call waiting, caller identification, automatic
redial, call forwarding, three-way calling, speed calling and call tracing.

     We were formed in 1951 as a non-profit corporation with assistance from the
Alexandria, Tennessee Lions Club after an ice storm destroyed much of the
existing telephone service. We obtained a Rural Utilities Service loan to
construct a new telephone system and subsequently began operations in 1953 with
508 initial subscribers. Following our incorporation, we focused on acquiring
privately owned rural telephone companies in adjacent communities in an effort
to expand our operations to the service area we currently cover. Also, we
focused on continually upgrading and improving our telecommunications equipment
in order to provide the highest quality telecommunications services to our
customers. In doing so, we replaced eight-party lines with private and two-party
lines in the 1960s, then upgraded completely to one-party lines by 1972, and
converted all ten of our primary exchanges to digital switches by 1990.

     In 1974, we converted to a telephone cooperative under the Tennessee
Telephone Cooperative Act. In 1991, we formed a wholly owned for-profit
subsidiary, Advantage Cellular, to provide customers with wireless telephone
services. Advantage Cellular currently serves approximately 7,400 wireless
customers in eight Middle Tennessee counties. Advantage Cellular's wireless
customers are not our members solely by reason of their wireless service.

     Today, we are the seventh largest telephone company and third largest
cooperative in Tennessee. Our core service area encompasses approximately 759
square miles in rural portions of Cannon, DeKalb, Rutherford, Smith and Wilson
counties in Tennessee. This area is located east of Nashville along the
Interstate 40 corridor, a major east/west connector between Nashville and
Knoxville, Tennessee. According to 1990 U.S. Census data, Nashville is the 40th
largest metropolitan statistical area in the United States and has a compounded
annual growth rate of 2.0% from 1990 to 1998.

     Our core operations focus on providing incumbent local exchange carrier
services to approximately 19,000 residential and commercial access lines in the
Middle Tennessee markets. Our incumbent local exchange carrier services are
comprised of two primary components: local telephone service and long-distance
network access charges. We believe our incumbent local exchange carrier business
encounters little or no competition from alternative local exchange carriers
primarily due to the low population density of our service area, the topography
of our service area, quality of our service and our low basic service rates to
both residential and commercial customers.

     Our local telephone service includes basic local lines, as well as ISDN,
DSL, and T-1 high speed access lines. We also provide foreign exchange, private
lines and switched data services and install and maintain Centrex, PBX and key
telephone switching network systems for our business customers. In addition, our
digital switch platform enables us to offer enhanced services such as voice
mail, call waiting, caller identification, automatic redial, call forwarding,
three-way calling, speed

                                       34
<PAGE>   39

calling and call tracing. In addition to our incumbent local exchange carrier
services, we offer internet and data services in our core service area. We began
offering these services in the mid 1990's as demand from our residential and
commercial customers significantly increased. We provide dial-up internet access
at speeds of up to 56Kbps through basic telephone lines, 128Kbps through ISDN
and various higher speeds through dedicated DSL lines. We provide local
telephone services to residential, commercial and institutional customers,
generally for a fixed monthly charge.

     Our network access services relate to long distance or toll calls that
typically involve more than one company to complete the call. Since toll calls
generally are billed to the customer originating the call, a mechanism is
required to compensate each company providing services to complete the call. We
bill access charges to the other company involved in completing the call for the
use of our facilities to access our customer, whether that customer originated
or received the call. We generate intrastate access revenue when an intrastate
long-distance call is originated within the same state but within different
local access and transport areas. We generate intra local access and transport
area access revenue when long distance calls are made within the same local
access and transport area that originate in our service area. We generate
interstate access revenue when an interstate long distance call is originated
from a local access and transport area in one state to a local access and
transport area in another state.

     Through our for-profit subsidiary, Advantage Cellular, we offer both analog
and digital wireless telephone services to approximately 7,400 wireless
subscribers throughout eight Middle Tennessee counties that combine our core
service area with adjacent counties. We have entered into roaming agreements
with other wireless carriers to enable our customers to utilize their wireless
telephone services throughout the United States. In addition, we own local
multi-point distribution system licenses to operate broadband wireless service
in the Cookeville and Clarksville, Tennessee, and Dalton, Georgia markets.

     The following chart summarizes the major components of our total operating
revenue for each of the years ended December 31, 1996 through December 31, 1998
and the nine-month periods ended September 30, 1998 and September 30, 1999:

<TABLE>
<CAPTION>
                                                        PERCENTAGE OF OPERATING REVENUE
                                                 ---------------------------------------------
                                                                                 NINE MONTHS
                                                                                    ENDED
                                                  YEAR ENDED DECEMBER 31,       SEPTEMBER 30,
                                                 -------------------------     ---------------
                                                 1996      1997      1998      1998      1999
                                                 -----     -----     -----     -----     -----
<S>                                              <C>       <C>       <C>       <C>       <C>
Local telephone services.......................   23.5%     23.5%     23.1%     23.4%     20.8%
Network access services........................   50.0      49.1      49.0      49.0      51.5
Wireless products and services.................   18.1      18.4      19.1      18.7      20.2
Miscellaneous..................................    8.4       9.0       8.8       8.9       7.4
                                                 -----     -----     -----     -----     -----
                                                 100.0%    100.0%    100.0%    100.0%    100.0%
                                                 =====     =====     =====     =====     =====
</TABLE>

     We recently have experienced significant growth. We have grown the number
of access lines we serve as an incumbent local exchange carrier from 15,720 in
1994 to almost 19,000 in 1999, a compounded annual growth rate of 4.3%. Total
operating revenue has increased from $13.3 million in 1994 to $18.1 million in
1998, a compounded annual growth rate of 8.1%. Net income has increased from
$2.8 million to $4.4 million, an annual growth rate of 12.3%.

     Our principal executive offices are located at 111 High Street, Alexandria,
Tennessee 37012-0247 and our telephone number is (615) 529-2151. In addition, we
maintain a website at http://www.dtccom.net where general information about us
is available.

                                       35
<PAGE>   40

BUSINESS STRATEGY

     We believe there are significant opportunities to increase our revenues and
improve profitability. The key elements of our business strategy are:

     Maintain Existing Customer Base.  Our primary business focus is providing
our existing customers with high-quality, low-cost telecommunications services.
We believe our local market knowledge provides a significant competitive
advantage towards servicing our customers. For example, we offer a wide range of
services, from leasing old-fashioned, rotary-dial telephones to providing modern
DSL lines, in an attempt to meet each of our customer's specific needs or
requests. Our ability to satisfy such customer requests historically has created
a loyal customer base in our incumbent local exchange carrier market and has
discouraged interest from larger regional telephone companies and competitive
local exchange carriers.

     Add New Residential and Business Customers and Access Lines.  Although we
currently have an effective monopoly on our local wireline service, we believe
we can add new residential and commercial customers to the markets we serve. We
believe the demand for wireless services and for second lines to customers for
internet, facsimile and data services provides an effective opportunity to add
new access lines.

     Cross-Sell Enhanced Calling Features.  We intend to focus on cross-selling
enhanced calling features that are complementary to our local telephone service.
We believe there are significant opportunities to bundle enhanced calling
features in our market area. Currently, our average customer buys only 1.17
enhanced services from us per access line. In addition, only 7% of customers
maintain a voice mailbox with us and only 13% subscribe to our internet access
service. Because of the current low subscription percentages, we believe that
there are significant growth opportunities in this market segment.

     Expand Into Selected Markets Through Competitive Local Exchange Carrier
Services.  We believe we are well-positioned to expand into adjacent markets to
our incumbent local exchange carrier market by offering facilities-based
competitive local exchange carrier services to customers near our existing or
future fiber nodes. Currently, we hold the cellular license for five counties
outside of our incumbent local exchange carrier area, as well as the "A" and "B"
local multi-point distribution system licenses for the Cookeville, Tennessee
market and the "B" licenses for Clarksville, Tennessee and Dalton, Georgia
markets. We believe new customers could be attracted either by offering wireless
service as the customer's primary telephone or by installing fixed broadband
wireless technology when the technology has matured.

     Provision of Cable Television Services.  We have not been allowed under
Tennessee law to provide cable television service, although we have made a
limited effort to be a reseller of large C-band satellite dishes in prior years.
We feel that many rural cable systems use outdated technology to offer fewer
than 30 channels at non-competitive prices. Once we have converted to a
for-profit company, DTC will be able to offer broadband video services either
using cable or, as the technology becomes available, enhanced DSL lines. We also
believe that there will be opportunities to cross-sell telephone service to
television customers.

     Offer Long-Distance Reselling Services.  We are considering becoming a
long-distance reseller in the same market areas served by our incumbent local
exchange carrier market. We believe the ability to offer long-distance reselling
services provides an attractive opportunity to expand our incumbent local
exchange carrier business because many of our customers increasingly request a
simpler telecommunications package, including one-rate service. As network
access charges are reduced, long-distance reselling services provide us the
ability to become a single-source provider with a more complete, competitive
telecommunications solution for our customers.

                                       36
<PAGE>   41

     Increase Geographic Presence and Market Penetration Through Strategic
Acquisitions.  We believe there are a number of companies that offer
telecommunications services either within or near our service area that are, or
may become, interested in potential acquisition or joint venture opportunities.
In evaluating potential acquisitions or joint ventures, we will evaluate
opportunities based on a number of criteria, including the attractiveness of the
geographic market, experience in the telecommunications industry, services and
products offered and strength of management.

STRATEGIC ALLIANCE/JOINT VENTURE

     We, along with nine other rural Tennessee local exchange carriers, are a
founding investor in Tennessee Independent Telecommunications Group, LLC, a new
fiber optic wholesale transport telecommunications network. By laying new fiber
optic cable where necessary to connect the existing fiber of the ten founding
companies, Tennessee Independent Telecommunications Group intends to be a
carrier's carrier and lease fiber capacity in four initial loops between
Nashville and Knoxville, Nashville and Chattanooga, Nashville and Johnson City,
and Nashville and Huntsville, Alabama, including a Florence, Alabama connection
with Telaplex, a Mississippi transport carrier.

     Through the Tennessee Independent Telecommunications Group network, we
expect to:

     - provide our customers with fast, reliable access to data transmission
       lines;

     - reduce expenses by not paying another carrier expensive access transport
       charges; and

     - diversify revenues through reselling high speed transport of voice and
       data to other telecommunications companies.

     We have made a commitment to contribute to Tennessee Independent
Telecommunications Group an aggregate initial capital investment of $500,000. As
of September 30, 1999, we had contributed approximately $100,000 of this
commitment.

COMPETITION

     The telecommunications industry is highly competitive and affected by rapid
regulatory and technological change. Regulatory trends have had, and may have in
the future, significant effects on competition in our industry. See "DeKalb
Telephone Cooperative, Inc.--Regulation." New technology is continuing to expand
the types of available communications services and equipment and the number of
competitors offering such services. We face actual and potential competition in
all of our businesses. Many of our competitors are large companies which have
considerably greater financial, technological, marketing and other resources
than we have.

     We believe that the factors critical to a customer's choice of a
telecommunications services provider are cost, ease of use, speed of
installation, quality, reputation and, in some cases, geography and network
size. Our objective is to be one of the most responsive service providers in the
telecommunications industry, particularly when providing customized
communications services. We recognize that we must grow to be able to compete
effectively in the changing telecommunications industry and to avail ourself of
greater economies of scale and increased scope in our transport and local access
requirements and in our back office operations.

Local Service Competition

     Until recently, we were effectively insulated from competition in providing
local service. Although the Telecommunications Act mandated local competition,
any competitive local exchange carrier that desired to offer local service in
our area nevertheless was required to obtain a license from

                                       37
<PAGE>   42

the Tennessee Regulatory Authority. Tennessee law, however, provides that no
license will be issued in any area served by an incumbent local exchange carrier
with fewer than 100,000 access lines.

     In May 1999, the FCC rendered a decision involving a request by a company
seeking to expand in Tennessee as a competitive local exchange carrier into an
area already served by an existing incumbent local exchange carrier. The
Tennessee Regulatory Authority denied the license on the basis that the
incumbent local exchange carrier was protected from competition by Tennessee
law. The proposed competitive local exchange carrier appealed the Tennessee
Regulatory Authority's decision to the FCC, requesting that the FCC preempt
Tennessee law.

     The FCC found the Tennessee law not competitively neutral as required by
the Telecommunications Act and, on the facts presented, preempted operation of
the Tennessee law insofar as it operated to deny the license request. The FCC
ordered the Tennessee Regulatory Authority to reevaluate the license request in
view of the Telecommunications Act and the FCC's decision. The Tennessee
Regulatory Authority has filed a request with the FCC for it to reconsider its
order. If the FCC's order is not modified, we will be subject to the threat of
increasing competition in our service area.

Wireless Competition

     Although Advantage Cellular, since 1991, has provided wireless telephone
service in our wireline service area and in several neighboring counties, we
face severe competition in the provision of such service. The other wireless
provider in the rural service area is GTE Cellular, which has considerably
greater financial, technological, marketing and other resources than we have.
Numerous other large wireless companies are able to serve our customers through
various arrangements with GTE Wireless. We and GTE Wireless hold the only
wireless licenses for our eight county service area. Commercial mobile radio
services, which include personal communication systems, and specialized mobile
radio, also have grown rapidly in the area due to the increased clarity,
security and bandwidth of the new technology. Sprint, Nextel and other companies
hold the necessary commercial mobile radio service licenses to provide this
service in our area.

Internet Competition

     The market for data communications services, including internet access
services, is extremely competitive. There are no substantial barriers to entry,
and we expect that competition will intensify in the future. We believe that our
ability to compete successfully will depend on a number of factors, including:

     - market presence;

     - the ability to execute a rapid expansion strategy;

     - the capacity, reliability and security of our network infrastructure;

     - ease of access to and navigation of the internet;

     - the pricing policies of our competitors and suppliers;

     - the timing of our and our competitors' introduction of new products and
       services;

     - our ability to support industry standards; and

     - industry and general economic trends.

                                       38
<PAGE>   43

     We believe that our success in the data communications services market will
depend heavily upon our ability to provide high-quality internet connectivity
and value-added internet services at competitive prices.

     As a result of increased competition in the internet access services
industry, we expect that we will continue to encounter significant pricing
pressure, which in turn could result in significant reductions in the average
selling price of our internet services. There can be no assurance that we will
be able to offset the effects of any such price reductions with an increase in
the number of customers, higher revenue from enhanced services, cost reductions
or otherwise. In addition, we believe that the data communications business, and
in particular the internet access and on-line services businesses, are likely to
encounter consolidation in the near future, which could result in increased
price and other competition in the industry. Increased price or other
competition could erode our market share and could have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that we will have the financial resources, technical expertise,
marketing and support capabilities or the expansion and acquisition
possibilities to continue to compete successfully in this or any market.

REGULATION

Overview

     We operate in a highly regulated industry and our services are and will be
subject to varying degrees of federal, state and local regulation. The FCC
exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent that they involve the
provision, origination or termination of interstate or international
communications. The Tennessee Regulatory Authority has had certain limited
jurisdiction over our telecommunications operations in Tennessee. Following the
merger, the Tennessee Regulatory Authority will have more jurisdiction over the
activities of the merged companies.

     The regulation of the telecommunications industry is changing rapidly and
the regulatory environment varies substantially from state to state. There can
be no assurance that recent or future regulatory changes will not have a
material adverse impact on the merged companies. Recent developments include,
without limitation:

     - enactment of the Telecommunications Act which modifies the AT&T
       divestiture decree, which required the divestiture by AT&T of its 22 Bell
       operating companies and divided the country into 201 local access and
       transport areas, restrictions on the provision of long distance services
       by Regional Bell Operating Companies between local access and transport
       areas, as defined in the AT&T divestiture decree;

     - FCC and state public utilities commissions actions changing access rates
       charged by incumbent local exchange carriers and making other related
       changes to universal service, access and interconnection policies,
       certain of which could have adverse consequences for the merged
       companies' long distance and local service businesses;

     - related FCC and state regulatory proceedings considering additional
       deregulation of incumbent local exchange carriers access pricing;

     - pending FCC "billed party preference" rules that could affect our
       provision of operator services;

     - mandatory deployment of advanced telecommunications services; and

                                       39
<PAGE>   44

     - various legislative and regulatory proceedings that would result in new
       local exchange competition.

     As the following discussion illustrates, the regulation of the
telecommunications industries at the federal, state and local levels is subject
to the political process and has been in constant flux over the past decade.
Material changes in the law and regulatory requirements must be anticipated and
there can be no assurance that the merged companies' business will not be
affected adversely by future legislation, new regulation or deregulation.

Telecommunications Act of 1996

     Among other things, this legislation:

     - permitted Regional Bell Operating Companies to provide domestic and
       international long distance services in their own regions upon a finding
       that the petitioning Regional Bell Operating Company has satisfied
       certain criteria for opening up its local exchange network to competition
       and that its provision of long distance services would further the public
       interest;

     - removed existing barriers to entry into local service markets;

     - significantly changed the manner in which carrier-to-carrier
       interconnection arrangements are regulated at the federal and state
       level; and

     - established procedures to revise universal service standards.

     The Telecommunications Act creates a duty on our part to interconnect our
networks with those of our competitors and, in particular, creates a duty on the
part of our local exchange operations to negotiate in good faith the terms and
conditions of such interconnection. On August 8, 1996, the FCC released its FCC
Interconnection Order. In the FCC Interconnection Order, the FCC adopted a
national framework for interconnection but left to the individual states the
task of implementing the FCC's rules. Because implementation of the rules will
be at the state level, it is uncertain how these new requirements will affect
the merged companies.

     On October 21, 1999, the FCC adopted new rules regarding the universal
service fund. The new rules first set forth the FCC's completed cost model that
will be used to estimate the forward-looking cost of providing service. Second,
the FCC adopted a methodology that uses costs to calculate the appropriate level
of support for non-rural carriers serving high cost areas. The high-cost support
mechanism for rural carriers is not scheduled to be revised until January 1,
2001.

     We cannot predict the effect that this legislation and the FCC's
implementing regulations, many of which are still forthcoming, will have on the
merged companies or the industry as a whole. However, we believe that the merged
companies will be better positioned to pursue business opportunities in the
rapidly changing telecommunications market.

Local Telephone Service Regulation

     Historically, because we are a cooperative, our local telephone operations
have not been subject to most state regulation. When we convert to a private
corporation, and if the Tennessee Regulatory Authority grants DTC a license,
DTC's operations will become subject to regulation and oversight of the
Tennessee Regulatory Authority. The Tennessee Regulatory Authority will then
have primary jurisdiction over various matters including rates for basic
telephone service, intrastate toll and access rates, quality of service,
issuance of securities, depreciation rates, disposition of public utility
property and issuance of debt and accounting systems used by the merged
companies. The FCC historically

                                       40
<PAGE>   45

has had primary jurisdiction over our interstate toll and access rates and
issues related to interstate telephone service.

     The Telecommunications Act has substantially modified both the states' and
the FCC's jurisdictions in the regulation of local exchange telephone companies.
The Telecommunications Act prohibits any state legislative or regulatory
restrictions or barriers to entry regarding the provision of local telephone
service. The Telecommunications Act required the FCC to develop regulations to
implement various sections of the Telecommunications Act including:

     - the obligations imposed on incumbent local exchange carriers to
       interconnect with the networks of other telecommunications carriers,
       including competitive telecommunications carriers;

     - unbundling of services into network elements;

     - repricing of their services at wholesale rates for the purpose of
       permitting resale of those services;

     - allowing other telecommunications carriers physically to collocate their
       equipment on the premises of the incumbent local exchange carrier; and

     - requiring telecommunications carriers to compensate each other based on
       their own costs for the transport and termination of calls on the other
       carriers' networks.

     The Telecommunications Act requires that we offer telephone number
portability to the customers of any competitive local exchange carrier providing
service in our area. We must provide this service within six months after being
requested by a competitive local exchange carrier to do so. An estimated
$200,000 of software will be required to provide this service, which we believe
will be installed and operational within an acceptable period of time after the
first request for portability.

     In addition, pursuant to the Telecommunications Act, the FCC instituted and
referred to a federal-state joint board a proceeding to recommend changes to the
current method of subsidizing universal service to assure the availability of
quality telephone services at just, reasonable and affordable rates. The
federal-state joint board released an initial "recommended decision" on November
8, 1996, and on May 8, 1997, the FCC released a Report and Order substantially
adopting the joint board's recommendations. On October 21, 1999, the FCC adopted
new rules regarding the universal service fund. The new rules first set forth
the FCC's completed cost model that will be used to estimate the forward-looking
cost of providing service. Second, the FCC adopted a methodology that uses costs
to calculate the appropriate level of support for non-rural carriers serving
high cost areas. The high-cost support mechanism for rural carriers is not
scheduled to be revised until January 1, 2001. We cannot predict the terms or
the effect that the FCC's actions will have on the merged companies or on the
industry as a whole. However, we believe that we are taking proper steps to
reduce our exposure to potential declines in universal service support.

     The Telecommunications Act requires that all telecommunications providers,
including cable operators that provide telecommunications services, must
contribute equitably to a universal service fund, although the FCC may exempt an
interstate carrier or class of carriers if their contribution would be minimal
under the universal service fund formula. The Telecommunications Act allows
states to determine which intrastate telecommunications providers contribute to
the universal service fund. The purpose of the universal service fund is to
provide consumers in all regions, including low-income consumers and those
consumers in rural, insular and high-cost areas, access to telecommunications
and information services that are reasonably comparable to those services in
urban areas at reasonably comparable rates.

                                       41
<PAGE>   46

     After the merger, DTC will be subject to regulation of its local service by
the Tennessee Regulatory Authority. Such regulation covers prices, services,
competition and other issues. Traditionally, wireline rates were set in
Tennessee at levels that were anticipated to generate revenues sufficient to
cover its allowed expenses and to provide an opportunity to earn a fair rate of
return on its capital investment. Such a regulatory structure, generally known
as rate of return regulation, was acceptable in a less competitive era. However,
the regulatory processes have changed in response to the increasingly
competitive telecommunications environment.

     Under the first generation of alternative regulation, generally known as
incentive regulation, economic incentives were provided to lower costs and
increase productivity through the potential availability of "shared" earnings
over a benchmark rate of return. Generally, when levels above targeted returns
were reached, earnings were "shared" by providing refunds or price reductions to
customers. Under the next generation of alternative regulation, generally known
as price regulation, the state authorities established maximum prices that could
be charged for certain telecommunications services. While such plans limit the
amount of increases in prices for specified services, they enhance a company's
ability to adjust prices and service options to respond more effectively to
changing market conditions and competition and provide an opportunity to benefit
more fully from productivity enhancements. The majority of these plans, during
the early years, have price cap provisions on basic local exchange services with
provisions for inflation-based price increases in later years. These plans are
now operational for certain carriers within Tennessee although appeals relating
to these plans are pending.

     Upon the effectiveness of the merger, we plan to apply to the Tennessee
Regulatory Authority to be subject to incentive or rate of return regulation.
Incentive or rate of return regulation allows a carrier a certain percentage
(generally 10-12%) return on its investment in telecommunications infrastructure
and operating expenses. We believe this type of rate regulation is advisable
until we can evaluate the economies of scale that we can achieve once we have
had the opportunity to expand the telecommunications products and services we
offer. Until that time, we believe we have a better opportunity to earn
reasonable rates of return under incentive regulation. Once we have achieved a
certain level of operational economies of scale, we may apply to be regulated
based upon a price cap plan. Under a price cap plan, the applicable regulatory
authority, with input from the carrier, sets the maximum prices that may be
charged for various telecommunications services. The carrier may then charge any
price for those services up to the specified maximums. We believe a price cap
plan provides an opportunity to benefit more fully from operational improvements
as well as to respond to future competitive pressures.

Network Access Regulation

     The FCC regulates rates and other aspects of interstate network access
services through its price cap and access charge rules. State regulatory
commissions have jurisdiction over the provision of network access to the long
distance carriers to complete intrastate telecommunications. Historically,
network access charges paid by long distance carriers have been set at levels
that subsidize the cost of providing local residential service. The
Telecommunications Act requires that the FCC identify the local service subsidy
implicitly provided by such network access charges; provide for the removal of
such subsidy from network access rates in order that network access charges
reflect underlying costs; arrange for the universal service fund to ensure the
continuation of universal service to high-cost, low-income service areas; and
develop the arrangements for payments into that fund by all carriers.

     The FCC's 1997 network access charge reform order, which was upheld by the
United States Court of Appeals for the Eighth Circuit, resulted in several
changes to the existing interstate network access rate structure designed to
move network access charges, over time, to more economically efficient levels
and to create more efficient rate structures. Non-traffic-sensitive costs, that
were

                                       42
<PAGE>   47

previously recovered on a per-minute-of-use basis, were changed to be recovered
on a flat-rate, per-line basis. As part of this plan, subscriber line charges
were increased and a new presubscribed long distance carrier charge was
established. As subscriber line charges and presubscribed long distance carrier
charges are increased over time, usage charges are reduced. At January 1, 1999,
subscriber line charges for primary residence and single-line business access
lines remained unchanged at $3.50 per line, per month.

     Beginning in January 1999, subscriber line charges for non-primary or
"additional" residence access lines increased from $5.00 to $6.07 per line, per
month, and subscriber line charges for multi-line business customers increased
from $8.17 to $8.25 per line, per month. Presubscribed long distance carrier
charges were established on January 1, 1998 and are charged to long distance
carriers for recovery of non-traffic-sensitive costs not recovered through
subscriber line charges. These charges were established for primary residence
and single-line business access lines, non-primary residence access lines and
multi-line business access lines and were initially set at $.53, $1.50 and
$2.75, respectively, per line, per month, beginning January 1998. We believe
that the net effect of these changes has been substantially revenue-neutral.

     The Universal Service Order, which has been substantially upheld by the
U.S. Court of Appeals for the Fifth Circuit, established new funding mechanisms
for high-cost, low-income service areas. We began contributing to the new funds
on January 1, 1998 and are allowed recovery of our contributions through
increased interstate network access charges. Major changes to the support
mechanism to subsidize the provision of services to high-cost areas are under
consideration by regulatory bodies. The new support mechanism, when implemented,
is expected to be based on forward-looking economic costs. The order also
established significant discounts to be provided to eligible schools and
libraries for all telecommunications services, internal connections and internet
access. It also established support for rural health care providers so that they
may pay rates comparable to those that urban health care providers pay for
similar services. Industry-wide annual costs of the program, estimated at
approximately $1.9 billion, through June 1999, are to be funded out of the
universal service fund. Local and long distance carriers' contributions to the
education and health care funds would be assessed by the fund administrator on
the basis of their interstate and intrastate end-user revenues.

     As a result of litigation challenging a number of the FCC's rulings under
the Telecommunications Act, the U.S. Supreme Court has ruled that the FCC has
considerable authority to establish many pricing, interconnection and other
policies that have been considered within the exclusive jurisdiction of the
state public service commissions. We expect the FCC to accelerate the growth of
local service competition by aggressively utilizing such power to require
interconnection with competing carriers and the sale of network elements to
competitors who wish to provide communications services to customers in our
region.

Wireless Services

     As discussed below, the FCC regulates, among other things, the licensing,
construction, operation, interconnection arrangements, sale and acquisition of
wireless telephone systems. Competition between providers of wireless
communications service in each market is conducted principally on the basis of
price, services and enhancements offered, the technical quality and coverage of
the system, and the quality and responsiveness of customer service. As discussed
below, competition has intensified in recent years in our markets and is
expected to continue to intensify.

     Wireless Licensing Process.

     During the 1980's and early 1990's, the FCC awarded two 10-year licenses to
provide wireless service in each metropolitan statistical area and rural service
area market. Initially, one license was

                                       43
<PAGE>   48

reserved for companies offering local telephone service in the market, the
wireline carrier, and one license was available for firms unaffiliated with the
local telephone company, the non-wireline carrier.

     Since mid-1986, the FCC has permitted telephone companies or their
affiliates to acquire control of non-wireline licenses in markets in which they
do not hold interests in the wireline license. The FCC has issued a decision
that grants a renewal expectancy during the license renewal period to incumbent
licensees that substantially comply with the terms and conditions of their
wireless authorizations and the FCC's regulations. The license for the operated
rural service area initially granted to Advantage Cellular expires in October
2000. We expect that license to be renewed for an additional ten years.

     The completion of an acquisition involving the transfer of control or
assignment of a wireless system as contemplated by the merger requires prior FCC
approval. The acquisition of a minority interest generally does not require FCC
approval. Whenever FCC approval is required, any interested party may file a
petition to dismiss or deny the application for approval of the proposed
transfer or assignment. In addition to regulation by the FCC, wireless systems
are subject to certain Federal Aviation Administration tower height regulations
concerning the siting and construction of wireless transmitter towers and
antennas.

     Wireless operators are also subject to state and local regulation in some
instances. Although the FCC has pre-empted the states from exercising
jurisdiction in the areas of entry and rate regulation. States may regulate
quality of service and areas not related to entry into the market or rates
charged by the operator. The siting and construction of the wireless facilities
may also be subject to state or local zoning, land use and other local
regulations. State approval also is required for interconnection arrangements
made between the wireless operator and landline networks.

     Developments Affecting Wireless Competition.

     Competition in the wireless communications industry has increased due to
continued and rapid technological advances in the communications field, coupled
with legislative and regulatory changes. Several recent FCC initiatives over the
past several years have resulted in the allocation of additional radio spectrum
or the issuance of licenses for emerging mobile communications technologies that
are competitive with our wireless operations, including personal communication
systems.

     Although there is no universally recognized definition of personal
communication systems, the term is generally used to refer to wireless services
to be provided by licensees operating in the 1850 MHz to 1990 MHz radio
frequency band using microcells and high-capacity digital technology. From 1996
to 1997 the FCC auctioned six personal communication systems licenses per
market. Two 30 MHz frequency blocks were awarded for each of the 51 Rand McNally
major trading areas, while one 30 MHz and three 10 MHz frequency blocks were
awarded for each of the 493 Rand McNally basic trading areas. Personal
communication systems technology permits personal communication systems
operators to offer wireless voice, data, image and multimedia services.

     The largest personal communication systems providers commenced initial
operations in late 1996 and since then have aggressively expanded their
operations. These providers have initially focused on larger markets, and have
generally marketed personal communication systems as being a competitive service
to cellular. Many of these companies have aggressively competed for customers on
the basis of price, which has placed downward pressure on cellular prices. There
is at least one personal communication systems competitor in our service area.
In addition to personal communication systems, users and potential users of
cellular systems may find their communication needs satisfied by other current
and developing technologies. Several years ago the FCC authorized the licensees
of certain specialized mobile radio service systems, which historically have
generally been used by taxicabs and tow truck operators, to configure their
systems into digital networks that operate in a

                                       44
<PAGE>   49

manner similar to cellular systems. Such systems are commonly referred to as
enhanced specialized mobile radio service systems.

     We believe that enhanced specialized mobile radio service systems are
operating in a few cellular markets. One well-established enhanced specialized
mobile radio service provider has constructed a nationwide digital mobile
communications system to compete with cellular systems. Other similar
communication services that have the technical capability to handle wireless
telephone calls may provide competition in certain markets, although these
services currently lack the subscriber capacity of cellular systems. Paging or
beeper services that feature text message and data display as well as tones may
be adequate for potential subscribers who do not need to converse directly with
the caller. Mobile satellite systems, in which transmissions are between mobile
units and satellites, may ultimately be successful in obtaining market share
from cellular systems that communicate directly to land-based stations.

     In recent years, several large cellular providers have merged with other
companies or formed joint ventures. Several of these joint ventures pooled their
resources to develop extensive personal communication systems. Many of our
current or potential competitors have substantially greater financial and
marketing resources than we. Although it is uncertain how personal communication
systems, specialized mobile radio service, enhanced specialized mobile radio
service, mobile satellites and other emerging technologies will ultimately
affect us, we anticipate that we will continue to face increased competition in
our operating markets. However, management believes that providing digital
services and applying new microcellular technologies will permit our cellular
systems to provide services comparable with the emerging technologies described
above, although no assurances can be given that this will happen or that future
technological advances or legislative or regulatory changes will not create
additional sources of competition.

     We anticipate that regulatory changes and competitive pressures may result
in future revenue reductions in our telephone operations. However, we anticipate
that such reductions may be minimized by increases in revenues attributable to
the continued demand for enhanced services and new product offerings.

Regulation of Internet Access Services

     In the United States, internet access is not currently subject to direct
regulation other than pursuant to laws applicable to businesses generally.
Adverse changes in the legal or regulatory environment relating to the
interactive online services and internet industry in the United States could
have a material adverse effect on our business, financial condition and
operating results. A number of legislative and regulatory proposals from various
international bodies and foreign and domestic governments in the areas of
telecommunication regulation, access charges, encryption standards, content
regulation, consumer protection, intellectual property, privacy, electronic
commerce, and taxation, among others, are now under consideration. We are unable
at this time to predict which, if any, of such proposals may be adopted and, if
adopted, whether such proposals would have an adverse effect on our business,
financial condition and operating results.

Summary Only

     The foregoing discusses all relevant, material regulatory issues relating
to our businesses. Other existing federal regulations, copyright licensing and,
in many jurisdictions, state and local regulatory requirements, currently are
the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which we operate. Neither the outcome of these proceedings nor
their impact upon the merged companies can be predicted at this time.

                                       45
<PAGE>   50

EMPLOYEES

     As of September 30, 1999, we employed approximately 100 employees, none of
whom was subject to any collective bargaining agreements.

ENVIRONMENTAL AND OTHER MATTERS

     Except for site-specific issues, environmental issues tend to impact
members of the telecommunications industry in consistent ways. The United States
Environmental Protection Agency and other agencies regulate a number of
chemicals and substances that may be present in facilities used in the provision
of telecommunications services. These include preservatives which may be present
in certain wood poles, asbestos which may be present in certain underground duct
systems and lead which may be present in certain cable sheathing. Components of
our network may include one or more of these chemicals or substances. We believe
that in our present uses, none of our facilities poses any significant
environmental or health risk that derives from Environmental Protection Agency
regulated substances. If Environmental Protection Agency regulation of any such
substance is increased, or if any facilities are disturbed or modified in such a
way as to require removal of the substance(s), special handling, storage and
disposal may be required for any such facilities removed from use. At this time,
we are not subject to any environmental litigation.

PROPERTIES

     The net book value of our property, plant and equipment in service was
$29.5 million at December 31, 1998 and $28.4 million at September 30, 1999.

     We own four principal facilities:

     - our principal executive office, approximately 10,000 square feet, on
       approximately four acres of land in Alexandria, Tennessee;

     - our maintenance and operations facility, approximately 20,000 square
       feet, on approximately five acres of land in Alexandria, Tennessee;

     - a business office and switching building, approximately 7,500 square
       feet, on approximately 1 1/2 acres of land in Smithville, Tennessee; and

     - a business office and remote switch, approximately 4,000 square feet, on
       approximately 1 1/2 acres of land in Woodbury, Tennessee.

     Our remaining properties do not lend themselves to simple description by
character and location. Our tangible assets include a substantial investment in
our telecommunications property, plant and equipment. Our telecommunications
property, plant and equipment consists primarily of:

     - numerous switching and transmission equipment and related facilities;

     - aerial and underground cable;

     - poles and cellular towers;

     - conduit and wiring;

     - public pay telephones;

     - telephone equipment, including PBXs and other switching networks, leased
       by us to customers;

     - office equipment and furniture; and

     - approximately 50 vehicles.

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<PAGE>   51

     We believe that we follow standard practices prevailing in the
telecommunications industry in the construction and maintenance of plant and
facilities, and that all properties presently being used for our operations are
suitable, well maintained and adequately equipped for the purposes for which
they are used. Substantially all of our properties are subject to mortgage liens
held by the Rural Utilities Service.

LEGAL PROCEEDINGS

     There are no material pending legal proceedings against us.

FINANCIAL STATEMENTS

     The audited consolidated financial statements of DeKalb Telephone
Cooperative, Inc. and subsidiary as of December 31, 1997 and 1998 and for the
years ended December 31, 1996, 1997 and 1998, together with the notes thereto
and the report of Arthur Andersen, LLP, dated September 1, 1999 (except with
respect to the matter discussed in Note 11 as to which the date is October 18,
1999), are included at pages F-7 through F-22 of this information
statement/prospectus. The unaudited consolidated financial statements of DeKalb
Telephone Cooperative, Inc. as of September 30, 1998 and 1999 and for the nine
months ended September 30, 1998 and 1999, together with the notes thereto, are
included at pages F-23 through F-28 of this information statement/prospectus.

                           INFORMATION REGARDING DTC

BUSINESS

     DTC is a Tennessee for-profit business corporation incorporated on October
4, 1999 and currently is our wholly owned subsidiary. Before the merger, DTC
will have had no operating history. If the merger is consummated, we would be
merged into DTC, and DTC would be the surviving corporation; the business of DTC
initially would be identical to our business. For a description of our business,
see "DeKalb Telephone Cooperative, Inc. -- Business."

PROPERTIES AND LEGAL PROCEEDINGS

     If the merger is approved and consummated, the properties and legal
proceedings of DTC would be identical to ours. See "DeKalb Telephone
Cooperative, Inc.-Properties" and " -- Legal Proceedings."

FINANCIAL STATEMENTS

     DTC has no operating assets or liabilities and no income. If the merger is
approved and consummated, DTC would assume all of our operations, assets and
liabilities and DTC's financial position would be substantially identical to
ours immediately prior to the merger. For this reason, historical consolidated
financial statements of DTC have not been included in this information
statement/prospectus. See pages F-7 through F-22 of this information
statement/prospectus for our historical consolidated financial statements and
pages F-2 through F-6 for pro forma financial statements that give effect to the
merger. DTC recently was formed as our wholly owned subsidiary for purposes of
changing our form of organization from a not-for-profit cooperative to a
for-profit corporation by means of a merger. As such, DTC has no assets or
liabilities and has had no operating history. The directors, officers,
employees, business and properties of DTC will be substantially identical after
the merger as ours immediately prior to the merger.

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<PAGE>   52

                             MANAGEMENT INFORMATION

     The following table shows the number of shares of DTC stock that each of
our directors and executive officers would receive based upon the capital
credits as of December 31, 1998 and the receipt of certain awards of DTC stock
that are described below. No director or executive officer would receive more
than 1% of the DTC stock to be issued in the merger.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

<TABLE>
<CAPTION>
                                                                NUMBER OF SHARES OF DTC
                                                                         STOCK
                                                              THAT WOULD BE RECEIVED BASED
NAME OF BENEFICIAL OWNER                                        UPON 12/31/98 CREDIT(2)
- ------------------------                                      ----------------------------
<S>                                                           <C>
H. Wayne Gassaway...........................................             1,170
Denise J. Brown.............................................               105
Phyllis McKinney............................................                66
James Paul Cantrell.........................................               674
Billy Chumbley..............................................               590
James C. Hale...............................................               771
Danny Lattimore.............................................               743
Royce N. Martin.............................................               627
David L. Parker.............................................               713
Robert B. Parton............................................               605
Roy N. Pugh.................................................               622
Eddie Thomas................................................               589
Charles Dwight Vinson.......................................               568
All directors & executive officers as a group (13
  persons)(1)...............................................             6,847
</TABLE>

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

(1) All directors and officers, as a group, own less than 1% of our capital
    credits and, following the merger, will own less than 1% of DTC's stock.

(2) Includes grants of DTC stock to directors and officers that will become
    effective upon completion of the merger.

DIRECTORS AND EXECUTIVE OFFICERS

     Our current board and DTC's board of directors following the merger would
be divided into three classes, which will be as nearly equal in number as
possible. Each class of directors serves a successive three-year term of office.

     Biographical information concerning the persons who now are or would be
directors or executive officers of DTC after the consummation of the merger is
presented below. Except as otherwise indicated, all of the named individuals
have had the same principal employment for over five years. Executive officers
are and would be appointed annually and serve at the pleasure of our or DTC's
board of directors, as applicable.

Directors with Terms Expiring in 2002

Billy Chumbley         Age: 61       Director since 1990

     Mr. Chumbley, since retiring from General Electric in 1993, has been self
     employed in the farming business.

                                       48
<PAGE>   53

Robert B. Parton       Age: 47       Director since 1987

     Mr. Parton is the Director of Motor Vehicle Management (overseeing
     procurement, maintenance and disposal of vehicles and motorized vehicles)
     for the Department of General Services of the State of Tennessee.

Charles D. Vinson      Age: 48       Director since 1987

     Mr. Vinson is the Chief of Food Production and Service of the Alvin C. York
     V.A. Medical Center in Murfreesboro, Tennessee. He also, since 1997, has
     been an affiliate broker and auctioneer with Durham Realty and Auction Co.

Directors with Terms Expiring in 2001

Royce N. Martin       Age: 57       Director since 1989

     Mr. Martin is retired.

David L. Parker        Age: 47       Director since 1976

     Mr. Parker is the owner-operator of DKM Farms in Woodland, Tennessee.

Roy N. Pugh            Age: 48       Director since 1983

     Mr. Pugh is a vice president of the Liberty State Bank in Liberty,
     Tennessee.

Eddie Thomas          Age: 46       Director since 1989

     Mr. Thomas is a lineman for the Upper Cumberland Electric Cooperative, an
     electricity supplier.

Directors with Terms Expiring in 2000

James Paul Cantrell    Age: 61       Director since 1994

     Mr. Cantrell is a letter carrier for the United States Postal Service.

James C. Hale          Age: 47       Director since 1988

     Mr. Hale, since January 1, 1996, has served as Vice President at Large and
     Regional Manager (Southeast Region) of the Laborers International Union of
     North America. Prior to 1996, he was the Business Manager of the Laborers
     District Council of Tennessee.

Danny Lattimore       Age: 54       Director since 1991

     Mr. Lattimore is retired.

Executive Officers

     Mr. Gassaway has been our general manager since 1989.

     Ms. Brown has been our controller since 1991.

     Ms. McKinney has been our office manager since 1997. Prior to 1997, Ms.
McKinney was our administrative services supervisor.

                                       49
<PAGE>   54

Board Committees

     DTC has standing Audit, Compensation and Nominating Committees.

     The Audit Committee, composed of Messrs. Parton, Chumbley and Vinson, will
provide assistance to the board in fulfilling its responsibilities relating to
oversight of DTC's financial reporting and internal controls. Some of the Audit
Committee's specific duties include:

     - Reviewing DTC's annual and quarterly reports and periodic filings with
       the SEC;

     - Determining the accounting principles and practices to be followed in the
       preparation of DTC's financial statements;

     - Determining the scope of and procedures to be used in DTC's annual audit;

     - Analyzing the strength of DTC's internal accounting and financial
       controls to ensure fair reporting in accordance with generally accepted
       accounting principles of DTC's publicly released financial statements;

     - Reviewing with management and the external and internal auditors DTC's
       major financial risk exposures and assessing the necessary steps to
       minimize those risks.

     The Compensation Committee, composed of Messrs. Hale, Parker and Cantrell,
will assist the board in establishing policies with respect to compensation and
all pension and retirement plans for which DTC may have responsibility. The
Compensation Committee will review and make recommendations to the board
concerning the following:

     - Annual salary, bonus and other benefits of the directors, senior officers
       and employees and the overall compensation philosophy;

     - Executive contracts and management perquisites;

     - Stock based plans and other incentive plans; and

     - Policy regarding all pension and retirement plans for which DTC may have
       responsibility. The Compensation Committee also directs the
       administration of those plans and reviews the investment performance of
       funds held in the plans.

     The Nominating Committee, composed of Messrs. Martin, Thomas and Lattimore,
will assist the board in determining matters relating to the composition of the
board and in developing effective corporate governance policies. Some of the
Nominating Committee's specific duties include:

     - Recommending the size of the board;

     - Recommending committee members and candidates for the board;

     - Assessing the performance of the Chief Executive Officer and senior
       officers in consultation with the Compensation Committee; and

     - Monitoring and recommending changes to DTC's corporate governance
       policies.

     DTC has adopted a policy that the Chairman of the Board and Chief Executive
Officer should be different persons. Accordingly, the DTC board has elected Mr.
Pugh as the Chairman of the Board. Mr. Pugh receives no additional compensation
for his service as Chairman.

                                       50
<PAGE>   55

COMPENSATION OF OUR EXECUTIVE OFFICERS AND DIRECTORS

     The following table shows certain information concerning the compensation
paid to H. Wayne Gassaway, our General Manager, for services rendered during the
years ended December 31, 1998, 1997 and 1996. No other officer earned cash
compensation in excess of $100,000 during 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                  ANNUAL COMPENSATION
                                                             -----------------------------
NAME AND PRINCIPAL POSITION                                  YEAR    SALARY($)    BONUS($)
- ---------------------------                                  ----    ---------    --------
<S>                                                          <C>     <C>          <C>
H. Wayne Gassaway..........................................  1998    91,135        7,379
  General Manager                                            1997    81,885        4,731
                                                             1996    78,827        3,038
</TABLE>

     During 1998, we compensated our directors at the rate of $50 per board
meeting attended. This rate of pay has been in place since 1951. In addition,
board members are provided medical coverage under our group insurance plan
generally applicable to all our employees.

INTERESTS OF CERTAIN PERSONS

     As of the date of this information statement/prospectus, our directors and
executive officers are entitled to a total of 13 votes on matters presented for
member action, or less than 1% of the total member votes. See "Management
Information."

     As of the date of this information statement/prospectus, directors and
executive officers of DTC would hold less than 1% of DTC stock to be issued in
the merger, assuming that the merger was consummated as of such date. See
"Management Information."

     After the merger, DTC intends to pay its directors a quarterly retainer of
$2,000. Members of committees would receive a fee of $100, plus travel expenses,
for each committee meeting attended. All board members also will be eligible for
medical coverage under DTC's group medical insurance that will be applicable to
all DTC employees. In addition, each person who is a DTC director upon the
effectiveness of the merger will receive a grant of 500 shares of DTC class A
voting common stock and an option to buy 1,000 shares of DTC class A voting
common stock at an exercise price of $10.00 per share. Afterwards, at each
annual meeting of the shareholders of DTC, each person who continues to serve as
a member of the board following that annual meeting will receive an option to
buy 1,000 shares of DTC class A voting common stock at the then current fair
market value of the shares.

     The board of directors has provided that upon the effectiveness of the
merger, Mr. Gassaway will receive a grant of 1,000 shares of DTC class A voting
common stock and an option to buy 10,000 shares of DTC class A voting common
stock at an exercise price of $10.00 per share.

                                       51
<PAGE>   56

                        DESCRIPTION OF DTC CAPITAL STOCK

     DTC's authorized capital stock consists of 200,000,000 shares of DTC common
stock and 20,000,000 shares of preferred stock. Of the common stock, 199,000,000
shares are designated as class A voting common stock and 1,000,000 shares are
designated as class B non-voting common stock. Class A shares will be issued to
persons or entities that, as of February 29, 2000, are our active members. Class
B shares will be issued to those persons or entities who, as of February 29,
2000, are our inactive members as a result of their ceasing to have telephone
service with us. Also, 250,000 class A shares are reserved for issuance pursuant
to certain DTC stock compensation plans.

     DTC has no plans at this time to issue any of the 20,000,000 authorized
shares of preferred stock.

     As of the date of this information statement/prospectus, there are 100
outstanding class A shares, all of which are held by us, and no outstanding
class B shares or shares of DTC preferred stock.

     DTC expects that no more than 2,100,000 class A shares and 500,000 class B
shares would be issued in the merger.

DTC COMMON STOCK

DTC Class A Voting Common Stock

     The holders of class A shares are entitled to one vote per share. The
charter of DTC does not provide for cumulative voting in the election of
directors. The DTC board may declare dividends on the class A shares in its
discretion, if funds are legally available for that purpose. Certain covenants
in existing loan agreements between us and the Rural Utilities Service to which
DTC would be subject following the merger, as well as federal statutes and
regulations which apply to Rural Utilities Service borrowers, would limit the
circumstances under which DTC would be permitted to pay dividends or make other
distributions to class A shareholders. Under these agreements, the Rural
Utilities Service must authorize distributions other than in shares of stock
unless certain financial ratio requirements are met. On liquidation, holders of
class A shares are entitled to receive pro rata any remaining assets of DTC
after DTC satisfies or provides for the satisfaction of all of its liabilities
and the obligations on its preferred stock, if any. Holders of class A shares do
not have preemptive rights to subscribe for or purchase any shares of capital
stock or other securities of DTC. All class A shares issued in the merger would
be fully paid and nonassessable.

DTC Class B Non-Voting Common Stock

     With the exception of the right to vote, holders of class B shares have the
same rights and preferences as the holders of class A shares. The holders of
class B shares have no voting rights as to any matter affecting DTC.

DTC PREFERRED STOCK

     DTC's charter authorizes the board to issue, without further shareholder
approval, up to 20,000,000 shares of DTC preferred stock from time to time in
one or more series with such designations, powers, preferences and relative
voting, distribution, dividend, liquidation, transfer, redemption, merger and
other rights, preferences, qualifications, limitations or restrictions as may be
provided for the issue of such series by resolution and amendment to DTC's
charter adopted by DTC's board. This generally is referred to as "blank check"
preferred stock. The DTC preferred

                                       52
<PAGE>   57

stock could have priority over class A shares or class B shares as to dividends
and as to the distribution of DTC's assets upon any liquidation, dissolution or
winding up of DTC.

STATUTORY PROVISIONS AFFECTING CONTROL OF DTC

     The following discussion concerns the provisions of the Tennessee Business
Corporation Act which would affect control of DTC if the merger is approved and
consummated.

     The matters discussed below may have an anti-takeover impact and may make
tender offers, proxy contests and certain mergers more difficult to consummate.

Control Share Acquisition Act

     Under Sections 48-103-301 through 48-103-312 of the Tennessee Business
Corporation Act which make up the "Control Share Acquisition Act", the "control
shares" of stock acquired by an acquiring person in a "control share
acquisition" that exceed certain thresholds of voting power do not have voting
rights unless the holders of the other voting shares vote to grant voting rights
to the acquiring person's shares. The Control Share Acquisition Act also
contains other provisions applicable to a control share acquisition. A
corporation is not subject to the Control Share Acquisition Act unless it
affirmatively elects in its charter or bylaws to be so subject. Neither the
charter nor the bylaws of DTC elect to be subject to the Control Share
Acquisition Act, and therefore such Act is not applicable to DTC unless DTC's
charter or bylaws are subsequently amended to "opt in" to the Control Share
Acquisition Act.

Business Combination Act

     Under Sections 48-103-201 through 48-103-209 of the Tennessee Business
Corporation Act which make up the "Business Combination Act", a "resident
domestic corporation" such as DTC may not engage in a "business combination"
with an "interested shareholder" for a five-year period following such
interested shareholder's acquisition date and may engage in a "business
combination" with an "interested shareholder" after the expiration of such
five-year period only if certain conditions specified in the statute are met.
Generally, an "interested shareholder" is one that directly or indirectly
beneficially owns 10% or more of the outstanding voting shares of the
corporation or is an affiliate or associate of the corporation and at any time
within the last five years prior to the date in question was the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock.
A "business combination" means any of the following:

     - any merger or consolidation of the resident domestic corporation or any
       subsidiary with the interested shareholder or any affiliate or associate
       of the interested shareholder or with any other corporation that is, or
       after the merger or consolidation would be, an affiliate or associate of
       the interested shareholder;

     - any exchange of shares or securities convertible into shares of the
       resident domestic corporation with the interested shareholder or any
       affiliate or associate of the interested shareholder or with any other
       corporation that is, or after the exchange would be, an affiliate or
       associate of the interested shareholder;

     - any sale, lease, exchange, mortgage, pledge, transfer or other
       disposition, in one transaction or a series of transactions, to, with or
       proposed by or on behalf of the interested shareholder, or any affiliate
       or associate of the interested shareholder, of assets of the resident
       domestic corporation or any subsidiary that has an aggregate market value
       equal to 10% or more of the aggregate market value of all the assets,
       determined on a consolidated basis, of the resident

                                       53
<PAGE>   58

       domestic corporation or that has an aggregate market value equal to 10%
       or more of the aggregate market value of all of the outstanding shares of
       the resident domestic corporation or that represents 10% or more of the
       net income, determined on a consolidated basis, of the resident domestic
       corporation;

     - any transaction which results in the issuance or transfer by the resident
       domestic corporation or any subsidiary, in one or more transactions, of
       any shares or securities convertible into shares of the resident domestic
       corporation or any subsidiary to such interested shareholder or any
       affiliate or associate of such interested shareholder except pursuant to
       the exercise of warrants or rights to purchase shares or securities
       convertible into shares, or a dividend or distribution paid or made pro
       rata to all shareholders of the resident domestic corporation, or in
       connection with the exercise or merger of securities exercisable for or
       convertible into shares of the resident domestic corporation or any
       subsidiary which securities were issued outstanding prior to the
       interested shareholder's share acquisition date;

     - the adoption of any plan or proposal for the liquidation or dissolution
       of the resident domestic corporation, or any reincorporation of the
       resident domestic corporation in another state or jurisdiction, proposed
       by or on behalf of, or pursuant to any written or unwritten agreement,
       arrangement or understanding with, the interested shareholder or any
       affiliate or associate of the interested shareholder;

     - any transaction proposed by or on behalf of, or pursuant to any
       agreement, arrangement or understanding with, an interested shareholder
       or any affiliate or associate of such interested shareholder, which has
       the effect, directly or indirectly, of increasing the proportionate share
       of the outstanding shares of any class or series of shares or securities
       convertible into shares entitled to vote or securities that are
       exchangeable for, convertible into, or carry a right to acquire shares
       entitled to vote, of such resident domestic corporation or any subsidiary
       which are, directly or indirectly, owned or controlled by the interested
       shareholder or any affiliate or associate of the interested shareholder,
       except as a result of immaterial changes due to fractional share
       adjustments; or

     - any receipt by the interested shareholder or any affiliate or associate
       of the interested shareholder of the benefit, directly or indirectly,
       except proportionately as a shareholder of the resident domestic
       corporation, of any loans, advances, guarantees, pledges, financial
       assistance, security arrangements, restrictive covenants or any tax
       credits or other tax advantages provided by, through or to the resident
       domestic corporation or any subsidiary.

     Certain business combinations are excluded from the Business Combination
Act, including:

     - unless the charter provide otherwise, a business combination of a
       resident domestic corporation with, or proposed by or on behalf of, an
       interested shareholder or any associate or affiliate of the interested
       shareholder if the resident domestic corporation did not have, on the
       interested shareholder's acquisition date, a class of voting stock
       registered or traded on a national securities exchange or registered with
       the SEC pursuant to Section 12(g) of the Exchange Act, or, regardless of
       such registration, if the resident domestic corporation was, on the
       interested shareholder's share acquisition date, a holding company whose
       principal subsidiary was a domestic life insurance company;

     - unless the charter provides otherwise, a business combination of a
       resident domestic corporation with, or proposed by or on behalf of, an
       interested shareholder who was an interested shareholder prior to March
       11, 1988, unless subsequent to such date the interested shareholder
       increased such interested shareholder's proportion of the voting power of
       the resident domestic corporation's outstanding voting stock to a
       proportion in excess of the

                                       54
<PAGE>   59

       proportion of voting power such interested shareholder held prior to
       March 11, 1988, without prior board approval;

     - a business combination of a resident domestic corporation, the original
       charter or original bylaws of which contain a provision, or whose board
       of directors or shareholders adopt an amendment to the resident domestic
       corporation's bylaws within 90 days of March 11, 1988, or, if no class or
       series of its voting stock is registered or traded on a national
       securities exchange or registered with the SEC pursuant to Section 12(g)
       of the Exchange Act within 90 days of March 11, 1988, prior to the
       issuance of any voting stock registered or traded on a national
       securities exchange or registered with the SEC pursuant to Section 12(g)
       of the Exchange Act, expressly electing not to be governed by Sections
       205 and 206 of the Business Combination Act;

     - a business combination of a resident domestic corporation with, or
       proposed by or on behalf of, the interested shareholder who became an
       interested shareholder inadvertently, if the interested shareholder as
       soon as practicable divests itself of a sufficient amount of the voting
       stock of the resident domestic corporation so that it no longer is the
       beneficial owner, directly or indirectly, of 10% or more of the voting
       power of the outstanding voting stock of such corporation and would not
       at any time within the five-year period preceding the announcement date
       with respect to the business combination have been an interested
       shareholder but for such inadvertent acquisition; or

     - a business combination or the transaction which resulted in the
       shareholder becoming an interested shareholder that is approved by the
       board of directors of the resident domestic corporation prior to the
       interested shareholder's share acquisition date, as long as the proposed
       business combination satisfies any additional applicable requirements
       imposed by law and by the charter or bylaws of the resident domestic
       corporation.

     In addition, a resident domestic corporation otherwise subject to the
Business Combination Act shall not be subject to Sections 48-103-205 and
48-103-206 if an amendment to the charter or bylaws of the resident domestic
corporation is approved by a majority of the outstanding shares to expressly
provide that the resident domestic corporation shall not be subject to Sections
48-103-205 and 48-103-206, and further expressly provide that it is not to be
effective until two years after the vote.

     The board of directors has no present intention to opt out of the
provisions of the Business Combination Act and neither DTC's current charter nor
bylaws opt out of such provisions.

Greenmail Act

     Pursuant to the provisions of Sections 48-103-501 through 48-103-505 of the
Tennessee Business Corporation Act, which make up the "Greenmail Act", it is
unlawful for any Tennessee corporation which has a class of voting stock
registered or traded on a national securities exchange or registered with the
SEC pursuant to Section 12(g) of the Exchange Act, like DTC, to purchase,
directly or indirectly, any of its shares at a price above the market value of
such shares from any person who holds more than 3% of the class of the
securities to be purchased if such person has held such shares for less than two
years, unless the purchase has been approved by the affirmative vote of a
majority of the outstanding shares of each class of voting stock issued by the
corporation or the corporation makes an offer, of at least equal value per
share, to all holders of shares of such class.

                                       55
<PAGE>   60

OTHER PROVISIONS AFFECTING CONTROL OF DTC

     If the merger is approved and consummated, certain provisions of DTC's
charter and bylaws also may affect control of DTC. The following provisions may
have an anti-takeover impact and may make tender offers, proxy contests and
certain mergers more difficult to consummate.

Provisions Regarding The Board of Directors

     - Classified Board.  A classified board is one for which a certain number,
       but not all, of the directors are elected on a rotating basis each year.
       A classified board makes changes in the composition of the board of
       directors more difficult and thus a potential change in control of a
       corporation more difficult. The Tennessee Business Corporation Act
       permits a classified board of directors, divided into as many as three
       classes. DTC's charter provides that the board of directors is classified
       into three classes serving staggered, three-year terms. Thus, in any
       given year, only one-third of the directors would be elected by the
       shareholders. Classification of the board could have the effect of
       extending the time during which the existing board could control the
       operating policies of DTC even though opposed by the holders of a
       majority of the outstanding DTC stock. We currently have a classified
       board.

     - Nomination of Directors.  Under the bylaws of DTC, all nominations for
       directors by shareholders would be required to be delivered to DTC in
       writing at least 60 days prior to the first anniversary of the preceding
       year's annual meeting of shareholders or, in the case of a special
       meeting of shareholders at which a director or directors would be
       elected, at least 60 days before the special meeting. A nomination that
       is not received prior to these deadlines would not be placed on the
       ballot and such nominee would not be eligible for election. The board
       believes that advance notice of nominations by shareholders would afford
       a meaningful opportunity to consider the qualifications of the proposed
       nominees and, to the extent deemed necessary or desirable by the board,
       would provide an opportunity to inform shareholders about such
       qualifications. Although this nomination procedure would not give the
       board any power to approve or disapprove shareholder nominations for the
       election of directors, the nomination procedure could have the effect of
       precluding a nomination for the election of directors at a particular
       meeting if the proper procedures were not followed.

     - Removal of Directors.  Under the Tennessee Business Corporation Act,
       unless the charter provides that a director may be removed only for
       cause, a director of a corporation generally may be removed, with or
       without cause, by the shareholders if the number of votes cast to remove
       the director exceeds the number of votes cast not to remove the director.
       If a director is elected by a voting group of shareholders, only the
       shareholders of that voting group may participate in the vote to remove
       the director without cause. If cumulative voting is authorized, a
       director may not be removed if the number of votes sufficient to elect
       the director under cumulative voting is voted against the director's
       removal. If so provided by the charter, any or all of the directors may
       be removed for cause by a vote of a majority of the entire board of
       directors. Under DTC's charter, any director may be removed from office,
       but only for cause and only by the affirmative vote of 80% of the
       outstanding shares entitled to vote at an election of directors, voting
       together as a single voting class. DTC's charter does not provide for
       cumulative voting.

Supermajority Vote Provisions

     DTC's charter contains "supermajority" vote requirements for certain
business combinations. Article 9 provides that, in addition to any vote required
by law or other provisions of the charter or bylaws, the affirmative vote of not
less than 80% of the outstanding shares of "voting stock," which is

                                       56
<PAGE>   61

defined as all shares of DTC stock that are entitled to vote generally in the
election of directors, voting as a single class, would be required for the
approval of certain "business combinations" between DTC, or its subsidiaries,
and an "interested person" or an "affiliate" of an "interested person."

     A "business combination" is generally defined for purposes of Article 9 as
including mergers, sales of all or substantially all of the assets of the
corporation and certain other transactions. An "interested person" is defined as
a person, other than DTC or its majority owned subsidiaries, who, alone or
together with affiliated persons, beneficially own 5% or more of the voting
stock of the corporation, as well as certain other persons that are affiliated
with an interested person.

     These requirements would not apply when the transaction was approved by
66 2/3% of the directors who are not affiliates of an interested person and who
were directors before the time the interested person became an interested
person. These directors are called the "continuing directors".

Restrictions on Amendments to Charter and Bylaws of DTC

     Several provisions of DTC's charter require a greater-than-majority vote to
be amended. Specifically, Article 7 of the charter provides that no amendment to
the charter could alter, modify, change or repeal any of all of the following
charter provisions unless the amendment is adopted by the affirmative vote of
not less than 80% of the outstanding shares of voting stock held by shareholders
who are otherwise entitled to vote on the matter, voting together as a single
voting group:

     - Article 6 -- authorized capital stock and blank check preferred stock;

     - Article 7 -- amendments to the charter and bylaws;

     - Article 8 -- board of directors classification, removal, etc.;

     - Article 10 -- indemnification and limitation of certain director
       liability; or

     - Article 11 -- shareholder action.

     In addition, Article 7 of the charter requires a greater-than-majority vote
to alter, modify, change or repeal the following bylaw provisions:

     - Section 2.2 -- board of directors number and tenure;

     - Section 4.4 -- removal of directors;

     - Section 4.5 -- director vacancies;

     - Section 6.7 -- notice of shareholder business and nominations;

     - Section 6.8 -- procedure for election of directors;

     - Article 9 -- indemnification; and

     - Article 2 -- amendment of bylaw.

     However, the provisions of Article 7 of the charter would not apply to, and
such 80% vote would not be required for, any amendment, alteration, modification
or repeal which has first been approved by the affirmative vote of 66 2/3% of
the number of directors then in office. Also, Article 9.4 of the charter
requires the affirmative vote of at least 80% of the votes entitled to be case,
voting as a single class, to make, alter, amend, change, add to or repeal any
provision inconsistent with Article 9 of the charter, which provides for a
supermajority vote for certain business combinations.

                                       57
<PAGE>   62

            COMPARISON OF RIGHTS OF OUR MEMBERS AND DTC SHAREHOLDERS

     At the special meeting, our members will vote on our merger into DTC which
will change our form of organization. We are organized as a cooperative
association and are deemed a not-for-profit corporation under Tennessee law. DTC
is regulated as a for-profit business corporation under Tennessee law. The
following discussion describes certain significant differences between the
rights of a cooperative's members under provisions of Tennessee law relating to
cooperatives as compared to the rights of shareholders under provisions of
Tennessee law relating to for-profit business corporations.

MEMBERS VERSUS SHAREHOLDERS

DeKalb Telephone Cooperative

     A Tennessee cooperative is owned by its members. Under the provisions of
Tennessee law applicable to telephone cooperatives, no person, other than an
incorporator, may become a member of the cooperative unless that person agrees
to use telephone service furnished by the cooperative when telephone service is
available through its facilities. A cooperative's bylaws may provide that any
person, including an incorporator, must cease to be a member if that person
fails or refuses to use telephone service made available by the cooperative
within a specified time after having become a member. Our bylaws provide that a
member automatically shall cease to be a member if that member fails or refuses
to use telephone service furnished by us within 30 days after service is
available to that member. A member of a Tennessee cooperative is entitled to
only one vote on matters on which members must vote, regardless of the number of
membership interests that the member owns. A member who owns numerous membership
interests is not entitled to any additional voting power.

DTC

     A Tennessee for-profit corporation is owned by its shareholders. A
Tennessee for-profit corporation must have at least one class of voting capital
stock and at least one class of stock that is entitled to receive the net assets
of the corporation upon dissolution. However, the corporation may issue shares
of capital stock divided into different classes or series. In general, a holder
of shares of voting stock is entitled to one vote for each share of voting stock
that the person owns. This is significantly different from the law applicable to
Tennessee cooperatives, which, as discussed above, provides that each member may
only have one vote. The general rule for Tennessee cooperatives is one vote per
member, whereas the general rule for a for-profit corporation is one vote per
share.

AUTHORIZED STOCK

DeKalb Telephone Cooperative

     Our charter does not authorize the issuance of stock, as we are a
member-based, not-for-profit cooperative.

DTC

     DTC's charter authorizes stock consisting of 200,000,000 shares of common
stock, consisting of 199,000,000 class A voting shares and 1,000,000 class B
non-voting shares, no par value per share, and 20,000,000 shares of preferred
stock.

                                       58
<PAGE>   63

TRANSFERABILITY OF OWNERSHIP INTERESTS

DeKalb Telephone Cooperative

     The owner of membership interests in a Tennessee cooperative generally is
not able to transfer those membership interests unless the bylaws so provide. If
the bylaws do so provide, the bylaws generally limit transferability to other
persons or entities that are eligible to become members in the cooperative, and
only when such transferees satisfy the cooperative's membership requirements.
Our bylaws do not provide for the transferability of our membership interests.

DTC

     Generally, shares of stock in a for-profit corporation generally are freely
transferable, unless the transferor has agreed in some way or is required by
applicable securities laws not to transfer the stock or to transfer it only in
certain circumstances.

REQUIRED VOTE FOR MERGERS

DeKalb Telephone Cooperative

     Telephone cooperatives may merge with other cooperatives or other
corporations, whether not-for-profit or for-profit. To do so, the board of
directors of each entity involved in the merger must approve the proposition for
the merger and the proposed articles of merger. Before the merger may take
place, the proposition for the merger and the proposed articles of merger must
be approved by the members of any telephone cooperative involved in the merger.
Member approval is obtained upon the affirmative vote of not less than
two-thirds of the active members of any telephone cooperative voting at a
meeting.

DTC

     Under the Tennessee Business Corporation Act generally, a corporation's
board of directors and a majority of the outstanding shares of common stock
entitled to vote must approve a merger or share exchange. In accordance with the
Tennessee Business Corporation Act, submission by a corporation's board of
directors of that action may be conditioned on any basis, including conditions
regarding a super-majority voting requirement or that no more than a certain
number of shares indicate that they will seek dissenters' rights, if the rights
are otherwise available.

     Under the Tennessee Business Corporation Act generally, the shareholders of
a corporation need not vote on a merger or share exchange if the corporation is
the surviving corporation and the following results occur:

     - the charter remains unchanged after the transaction, subject to certain
       exceptions;

     - each shareholder of the corporation immediately before the transaction
       holds an identical number of shares, with identical rights and
       preferences, after the transaction;

     - the number of voting shares outstanding immediately after the transaction
       plus the number of voting shares issuable as a result of the transaction,
       either by conversion of securities issued pursuant to the transaction or
       the exercise of rights and warrants issued pursuant to the transaction,
       does not exceed by more than 20% the number of voting shares of the
       surviving corporation outstanding immediately before the transaction; and

     - the number of participating shares outstanding immediately after the
       transaction, plus the number of participating shares issuable as a result
       of the transaction, either by conversion or

                                       59
<PAGE>   64

       securities issued pursuant to the transaction or the exercise of rights
       and warrants issued pursuant to the transaction, does not exceed by more
       than 20% the total number of participating shares outstanding immediately
       before the transaction.

BOARD OF DIRECTORS

DeKalb Telephone Cooperative

     A director of a cooperative must be a member of the cooperative or of
another cooperative which is a member. A cooperative's board of directors may
not consist of less than five directors. Without the approval of the members, a
director of a Tennessee cooperative may not receive any salary for services as a
director and, except in emergencies, shall not be employed by the cooperative in
any capacity involving compensation. The bylaws of a Tennessee cooperative,
however, may provide that a fixed fee and expenses of attendance, if any, be
allowed to each director for attendance at each meeting of the board. Our bylaws
allow directors no more than $50 a day in compensation for each day spent on our
business, such as attendance at board meetings.

DTC

     A director of a Tennessee for-profit corporation is not required to be a
shareholder, unless the corporation's charter or bylaws require otherwise. There
generally are no minimum limits on the number of directors of a Tennessee
for-profit corporation except as the corporation may provide in its charter or
bylaws. Shareholder approval is not required for salary compensation for
directors and directors may be employed by the corporation in any capacity
involving compensation.

     The charter or bylaws of a Tennessee for-profit corporation may fix the
number of directors. Unless the charter or bylaws provide that the board of
directors have the power to fix or change the number of directors, including an
increase or decrease in the number of directors, only the shareholders may fix
or change the number of directors. The charter or bylaws may establish a
variable range for the size of the board of directors by fixing a minimum and
maximum number of directors. If a variable range is established, the number of
directors may be fixed or changed from time to time, within the minimum and
maximum, by the shareholders or the board of directors; provided, that unless
the charter or bylaws provided otherwise, only the shareholders may change the
range for the size of the board of directors or change from a fixed to a
variable-range size board or vice versa. If the charter or bylaws fix the number
of directors, the number of directors may be increased or decreased from time to
time by amendment to the charter or bylaws, as the case may be. DTC's charter
allows the board, from time to time by resolution adopted by at least 66 2/3% of
the board, to fix the number of DTC directors within the ranges of one to
fifteen total directors. This charter provision may not be amended, modified or
repealed unless such amendment, modification or repeal is adopted by the
affirmative vote of the holders of at least 80% of the outstanding shares of
DTC's outstanding capital stock entitled to vote, voting together as a single
class.

CUMULATIVE VOTING FOR DIRECTORS

DeKalb Telephone Cooperative

     The Tennessee Nonprofit Corporation Act provides that members do not have
the right to cumulate their votes in the election of directors unless authorized
in the charter or bylaws. Neither our charter nor bylaws provide for cumulative
voting rights.

                                       60
<PAGE>   65

DTC

     In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A shareholder may cast all such votes for a single
nominee or may allocate the votes among as many nominees as the shareholder may
choose. Without cumulative voting, a plurality of votes cast by the shares
entitled to vote at an annual meeting or any special meeting held to elect
directors would be necessary to elect all of the directors to be elected at that
meeting and no nominee could be elected without the support of a plurality of
the shares voting at the meeting. Under the Tennessee Business Corporation Act,
shareholders do not have cumulative voting rights unless those rights are
provided in the charter. DTC's charter does not provide for cumulative voting
rights.

LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS

DeKalb Telephone Cooperative

     The Tennessee Nonprofit Corporation Act provides that all directors and
members of the governing bodies of Tennessee telephone cooperatives, such as us,
whether or not compensated, shall be immune from suits arising from the conduct
of the cooperative's affairs. Such immunity will not be granted for willful or
wanton conduct or gross negligence.

DTC

     The Tennessee Business Corporation Act allows Tennessee for-profit
corporations to adopt a provision in its charter eliminating or limiting, with
certain exceptions, the personal liability of a director to the corporation or
its shareholders for monetary damages for breach of the director's fiduciary
duty as a director. Under the Tennessee Business Corporation Act, a Tennessee
for-profit corporation may not eliminate or limit director monetary liability
for:

     - breaches of the director's duty of loyalty to the corporation or its
       shareholders;

     - acts or omissions not in good faith or involving intentional misconduct
       or a knowing violation of law; or

     - unlawful dividends, stock repurchases or redemptions.

     This provision also may not limit a director's liability for violation of,
or otherwise relieve a corporation or its directors from the necessity of
complying with, federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission. DTC's charter
contains a provision stating that directors shall not be personally liable for
monetary damage to the corporation or its shareholders, except to the extent
required by the Tennessee Business Corporation Act.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

DeKalb Telephone Cooperative

     The Tennessee Nonprofit Corporation Act provision, applicable to
cooperatives, for the indemnification of directors and officers is substantially
the same as the Tennessee Business Corporation Act provision, applicable to
for-profit corporations, described below.

                                       61
<PAGE>   66

DTC

     The Tennessee Business Corporation Act provides that, unless the charter
provides otherwise, a Tennessee for-profit corporation shall indemnify a
director or officer who was wholly successful, on the merits or otherwise, in
the defense of any proceeding to which that person was a party because that
person is or was a director or officer, as the case may be, of the corporation
against reasonable expenses incurred by that person in connection with the
proceeding.

     In addition, a Tennessee for-profit corporation may indemnify a director,
officer, agent or employee made a party to a proceeding because of such person's
status as a director, officer, agent or employee, as the case may be, against
liability incurred in the proceeding if:

     - that person's conduct was in good faith;

     - that person reasonably believed, in the case of conduct in that person's
       official capacity with the corporation, that such person's conduct was in
       the corporation's best interests and, in all other cases, that such
       person's conduct was at least not opposed to the corporation's best
       interests; and

     - in the case of any criminal proceeding, that person had no reasonable
       cause to believe that the conduct was unlawful.

     However, a Tennessee for-profit corporation may not indemnify a director,
officer, agent or employee against liability incurred in connection with a
proceeding by or in the right of the corporation in which that person was
adjudged liable to the corporation or in connection with any other proceeding
charging improper personal benefit to that person, whether or not involving
action in such person's official capacity, in which that person was found liable
on the basis that personal benefit was improperly received by that person.

     A Tennessee for-profit corporation also may pay for or reimburse the
reasonable expenses incurred by a director, officer, agent or employee who is a
party to a proceeding in advance of final disposition of the proceeding if a
determination is made that the facts then known to those making the
determination would not preclude indemnification and that person furnishes the
corporation a written affirmation of that person's good faith belief that such
person has met the standard of conduct required by the Tennessee Business
Corporation Act for indemnification and a written undertaking to repay the
advance if it is ultimately determined that such person is not entitled to
indemnification.

     The Tennessee Business Corporation Act allows a director or officer of a
Tennessee for-profit corporation to apply to a court for indemnification unless
the corporation's charter provides otherwise. Upon application, a court may
order indemnification of such person if the court determines that person is
entitled to mandatory indemnification or is fairly and reasonably entitled to
indemnification in view of all relevant circumstances, whether or not the
director met the standard of conduct set forth in the Tennessee Business
Corporation Act or was found liable in connection with a proceeding by or in the
right of the corporation or in connection with any other proceeding charging
improper personal benefit to that person, but if that person was found liable in
such proceedings, the indemnification must be limited to reasonable expenses
incurred.

     DTC's charter and bylaws contain a provision that directors, officers,
agents and employees of DTC, as well as persons serving in such capacities for
another entity at the request of DTC, may be indemnified to the fullest extent
provided by law. DTC's charter provides that DTC may purchase and maintain
insurance to cover indemnification expenses, whether or not indemnification
would be permissible under the Tennessee Business Corporation Act in the absence
of insurance.

                                       62
<PAGE>   67

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of DTC pursuant
to the foregoing provisions, or otherwise, DTC has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and, therefore, is unenforceable.

AMENDMENTS TO CHARTER AND BYLAWS

DeKalb Telephone Cooperative

     A Tennessee cooperative may amend its charter by adoption of a resolution
of the board of directors followed by an affirmative vote of not less than
two-thirds of the active members voting at a meeting. A Tennessee cooperative
may amend its bylaws by a majority vote of the members voting at a meeting, at
which a quorum is present.

DTC

     With certain exceptions, an amendment to the charter of a Tennessee
for-profit corporation must first be proposed by its board of directors to be
submitted to the shareholders at an annual or special meeting. The board must
recommend the amendment to the shareholders, unless the board determines that
because of conflict of interest or other special circumstances, it should make
no recommendation and it communicates the basis for its determination to the
shareholders with the amendment. The amendment is adopted upon receiving the
affirmative vote of a majority of the shares entitled to vote, unless the
charter, Tennessee law or the board specify a higher percentage, or unless any
class of shares is entitled to vote as a class on the amendment, in which case
the amendment is adopted upon receiving the affirmative vote of a majority of
votes cast by holders of shares of each class entitled to vote as a class and of
the total number of shares entitled to vote.

     The Tennessee Business Corporation Act provides that shares of one class
are entitled to vote as a class if the amendment would do any of the following:

     - increase or decrease the aggregate number of authorized shares of such
       class;

     - effect an exchange or reclassification of all or parts of the shares of
       such class into shares of another class;

     - effect an exchange or reclassification, or create a right of exchange, of
       all or any part of the shares of another class into the shares of such
       class;

     - change the designations, preferences, limitations or relative rights of
       all or part of the shares of such class;

     - change the shares of all or part of the class into a different number of
       shares of the same class;

     - create a new class or change a class with subordinate and inferior rights
       into a class of shares, having rights or preferences with respect to
       distributions or dissolution that are prior, superior, or substantially
       equal to the shares of the class, or increase the rights, preferences or
       number of authorized shares of any class having rights or preferences
       with respect to distributions or to dissolution that are prior, superior,
       or substantially equal to the shares of the class;

     - authorize the issuance as a share dividend of shares of the class in
       respect of shares of another class;

     - limit or deny the existing preemptive rights of all or part of the shares
       of the class; or

                                       63
<PAGE>   68

     - cancel or otherwise affect rights to distributions or dividends that have
       accumulated but not yet been declared on all or part of the shares of the
       class.

     Also pursuant to the Tennessee Business Corporation Act, the board of
directors may amend the charter without the approval of the shareholders with
respect to certain routine matters.

     Under the Tennessee Business Corporation Act, a corporation's bylaws may be
amended or repealed by the board of directors unless the corporation's charter
or Tennessee law reserve that power, in whole or in part, to the shareholders of
the corporation or the shareholders in amending or repealing a particular bylaw
provide expressly that the board of directors may not amend or repeal that
bylaw. In addition, a corporation's shareholders may amend or repeal the
corporation's bylaws even though the bylaws may also be amended or repealed by
the board of directors.

     DTC's charter provides that the bylaws may be altered or repealed in
accordance with Tennessee law. DTC's charter requires a supermajority vote to
amend certain provisions of the charter and of the bylaws. See "Description of
DTC Capital Stock -- Other Provisions Affecting Control of DTC -- Restrictions
on Amendments to Charter and Bylaws of DTC."

SPECIAL MEETINGS OF MEMBERS/SHAREHOLDERS; ACTION WITHOUT MEETING

DeKalb Telephone Cooperative

     Special meetings of the members of a cooperative may be called by the board
of directors, by any three directors, by the president or by not less than 10%
of all the members.

     The Tennessee Nonprofit Corporation Act allows any action which may be
taken at a meeting of the members to be taken without a meeting if all of the
active members entitled to vote thereon sign a written consent setting forth the
action taken.

DTC

     Special meetings of the shareholders of a Tennessee for-profit corporation
may be called by the board of directors, the person(s) authorized to do so by
the charter or bylaws or, unless the charter provides otherwise, by the holders
of at least 10% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting. DTC's charter provides that the
holders of at least 20% of all the votes entitled to be cast on any issue
proposed to be considered at a proposed special meeting are necessary to call
such a special meeting. DTC's bylaws authorize a majority of the board to call a
special meeting of shareholders.

     Any action which may be taken at a meeting of the shareholders of a
Tennessee for-profit corporation may be taken without a meeting if all of the
shareholders entitled to vote thereon sign a written consent setting forth the
action taken.

QUORUM REQUIREMENTS

DeKalb Telephone Cooperative

     A quorum for a meeting of the members of a Tennessee cooperative is the
presence, in person, of the lesser of 2% of all members or 50 members. Thus, in
a Tennessee cooperative that has numerous members, such as we do, 50 active
members would constitute a quorum at a meeting of members and the majority of a
quorum may take action at the meeting unless the charter or other provisions of
law require a higher percentage for member actions.

                                       64
<PAGE>   69

DTC

     In general, under the Tennessee Business Corporation Act, a quorum of
shareholders in a for-profit corporation is present when the holders of a
majority of the shares entitled to vote at the meeting are present in person or
by proxy, although the corporation's charter may specify a greater percentage.
The Tennessee Business Corporation Act does not specify a maximum percentage of
shares or number of shareholders that may constitute a quorum.

DIVIDENDS AND OTHER DISTRIBUTIONS

DeKalb Telephone Cooperative

     The Tennessee Telephone Cooperative Act provides that all operating
revenues for a fiscal year in excess of the amounts necessary to pay expenses of
operating and maintaining the cooperative's facilities and interest during the
fiscal year shall be distributed to the cooperative's members. The distribution
may be, in the discretion of the board, either a refund or a general rate
reduction. A refund may be a credit on the cooperative's books as a capital
credit, in cash, or part capital credit and part cash payment. In addition, each
member's refund amount, other than a refund given as a general rate reduction,
shall be the same percentage of the total funds available for credit to members
as such member contributed to the total capital credits of the cooperative for
the period involved.

     Throughout our existence, we have accounted for the equity of our members
through capital credits. Each year we have mailed a statement to each capital
credit holder showing the holder's percentage of that period's capital credit.
Each member's capital credit account balance as of December 31, 1998 appears on
the page of that member's information statement/prospectus on which the mailing
label appears.

     No capital credits are issued on initial membership. To determine a
member's capital credits, at the end of each year each member's total capital
credits is calculated and then compared to total member capital credits for the
year, creating an allocation ratio which is then applied to our net income. The
resulting share of net income is then reflected on each member's individual
capital credit account and becomes part of that member's capital credit account
balance. Neither dividends nor interest has been or currently is paid on capital
credits. Such credits are accumulated on our books rather than paid in cash.

     Our bylaws allow the board to repay capital credits at any time in full or
in part in the order of priority according to the year in which the capital was
furnished, but only if our financial condition would not be impaired.

     The bylaws also authorize the board to repay to an estate the capital
credits of a deceased person at any time, if our financial condition would not
be impaired, upon written request by the deceased person's legal representative.
We have refunded the capital credits accumulated through June 30, 1999 to the
estates of deceased persons and to dissolved businesses which have made written
application for a refund. If the merger is approved and consummated, capital
credits would cease to exist and, accordingly, would not accumulate.

DTC

     A Tennessee for-profit corporation is not required to pay dividends on
shares of its capital stock. Instead, except to the extent restricted in the
corporation's charter or by covenants in agreements with lenders or others,
dividends and distributions are within the discretion of the corporation's board
of directors, provided that the corporation is solvent at the time of paying the
dividend and that paying the dividend would not render the corporation
insolvent.

                                       65
<PAGE>   70

DISSENTERS' RIGHTS

DeKalb Telephone Cooperative

     The Tennessee Telephone Cooperative Act does not provide dissenters' rights
to members of a Tennessee cooperative.

DTC

     A shareholder of a Tennessee for-profit corporation participating in
certain major corporate transactions, may, under varying circumstances, be
entitled to dissenters' rights pursuant to which the shareholder may receive
cash in the amount of the fair value of the shareholder's shares in lieu of the
consideration the shareholder would otherwise receive in the transaction.

     Dissenters' rights generally are available to shareholders of a Tennessee
for-profit corporation if:

     - the corporation sells, leases, exchanges or otherwise disposes of all or
       substantially all of its assets not in the usual and regular course of
       business, but only if the shareholder is otherwise entitled to vote on
       the sale, lease, exchange or other disposition;

     - the corporation consummates a merger, but only if shareholder approval is
       required and the shareholder is entitled to vote or if the corporation is
       a subsidiary that is merged with its parent under Section 48-21-105 of
       the Tennessee Business Corporation Act;

     - the corporation consummates a share exchange to which the corporation is
       a party as the corporation whose shares will be acquired, but only if the
       shareholder is entitled to vote; or

     - the corporation takes any action pursuant to a shareholder vote to the
       extent that the charter, bylaws or a resolution of the board provides
       that voting or nonvoting shareholders are entitled to dissenters' rights.

     Shareholders of a Tennessee for-profit corporation also have dissenters'
rights if an amendment to the charter would materially and adversely affect
rights in respect of a dissenter's shares because it:

     - alters or abolishes a preferential right of the shares;

     - creates, alters or abolishes a right in respect of redemption, including
       a provision respecting a sinking fund for the redemption or repurchase,
       of the shares;

     - alters or abolishes a preemptive right of the holder of the shares to
       acquire shares or other securities;

     - excludes or limits the right of the shares to vote on any matter, or to
       cumulate votes, other than a limitation by dilution through issuance of
       shares or other securities with similar voting rights; or

     - reduces the number of shares owned by the shareholder to a fraction of a
       share, if the factional share is to be acquired for cash.

     With respect to mergers, share exchanges, the sale, lease, exchange or
other disposition of all or substantially all of the assets of a corporation not
in the ordinary or regular course of business, and amendments to the charter
that materially and adversely affects rights in respect of a dissenter's shares,
dissenters' rights are not available under the Tennessee Business Corporation
Act as to shares that are listed on an exchange registered under Section 6 of
the Exchange Act or that are a "national market system security," as defined in
the rules promulgated pursuant to the Exchange Act.

                                       66
<PAGE>   71

PREEMPTIVE RIGHTS

DeKalb Telephone Cooperative

     The Tennessee Telephone Cooperative Act does not provide for preemptive
rights of members.

DTC

     The Tennessee Business Corporation Act does not provide for preemptive
rights unless a corporation's charter specifically so provides. DTC's charter
does not provide for preemptive rights.

                                 LEGAL MATTERS

     Certain legal matters in connection with the merger will be passed upon for
us and DTC by our special legal counsel, Yopp & Sweeney, PLC of Nashville,
Tennessee.

                                    EXPERTS

     The consolidated financial statements of DeKalb Telephone Cooperative as of
December 31, 1997 and 1998 and for each of the three years in the respective
periods ended December 31, 1996, 1997 and 1998 included in this information
statement/prospectus have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

                                       67
<PAGE>   72

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
PRO FORMA DATA

     Pro Forma Selected Financial Data......................   F-2

     Pro Forma Consolidated Statement of Income Data for the
      year ended December 31, 1998..........................   F-3

     Pro Forma Consolidated Balance Sheet Data as of
      September 30, 1999....................................   F-4

     Pro Forma Consolidated Statement of Income Data for the
      nine months ended September 30, 1999..................   F-5

     Notes to Pro Forma Selected Consolidated Financial
      Data..................................................   F-6

HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF DEKALB
  TELEPHONE COOPERATIVE, INC.

     Report of Independent Public Accountants...............   F-7

     Consolidated Balance Sheets as of December 31, 1997 and
      1998..................................................   F-8

     Consolidated Statements of Income for the years ended
      December 31, 1996, 1997 and 1998......................   F-9

     Consolidated Statements of Patronage Capital for the
      years ended December 31, 1996, 1997 and 1998..........  F-10

     Consolidated Statements of Cash Flows for the years
      ended December 31, 1996, 1997 and 1998................  F-11

     Notes to Consolidated Financial Statements.............  F-12

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF DEKALB
  TELEPHONE COOPERATIVE, INC.

     Consolidated Balance Sheets as of December 31, 1998 and
      September 30, 1999....................................  F-23

     Consolidated Statements of Income for the nine months
      ended September 30, 1998 and 1999.....................  F-24

     Consolidated Statements of Cash Flows for the nine
      months ended September 30, 1998 and 1999..............  F-25

     Notes to Consolidated Financial Statements.............  F-26
</TABLE>

                                       F-1
<PAGE>   73

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                       PRO FORMA SELECTED FINANCIAL DATA
                                  (UNAUDITED)

     The unaudited pro forma consolidated statement of income and patronage
capital data for the year ended December 31, 1998 and the nine months ended
September 30, 1999 have been prepared based on the historical consolidated
income statements of the Company, as adjusted to reflect the merger of the
Company with DTC Communications Corp. as described in this
prospectus/information statement as if this merger had occurred on January 1,
1998. The unaudited pro forma consolidated balance sheet data as of September
30, 1999 has been prepared based on the historical balance sheet of the Company,
as adjusted to reflect the merger of the Company with DTC Communications Corp.
as described in this prospectus/information statement as if this merger had
occurred on September 30, 1999. The pro forma consolidated statements of income
data may not be indicative of the future results of operations and what the
actual results of operations would have been had the merger described above been
effective January 1, 1998. The pro forma selected financial data should be read
in connection with the consolidated financial statements and notes thereto
included herein.

                                       F-2
<PAGE>   74

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
                      FOR THE YEAR ENDED DECEMBER 31, 1998
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                   HISTORICAL    ADJUSTMENTS      PRO FORMA
                                                   -----------   ------------    -----------
<S>                                                <C>           <C>             <C>
OPERATING REVENUE:
  Local telephone services revenue...............  $ 4,189,939   $         --    $ 4,189,939
  Network access services revenue................    8,876,861             --      8,876,861
  Wireless products and services revenue.........    3,462,958             --      3,462,958
  Miscellaneous revenue..........................    1,595,730             --      1,595,730
                                                   -----------   ------------    -----------
       Total operating revenue...................   18,125,488             --     18,125,488
                                                   -----------   ------------    -----------
OPERATING EXPENSES:
  Plant operations expense.......................    3,900,176             --      3,900,176
  Depreciation and amortization..................    4,585,799             --      4,585,799
  Customer operations expense....................    1,131,798             --      1,131,798
  Corporate operations expense...................    3,403,317             --      3,403,317
  Operating taxes................................      380,676             --        380,676
                                                   -----------   ------------    -----------
       Total operating expenses..................   13,401,766             --     13,401,766
                                                   -----------   ------------    -----------
       Total operating income....................    4,723,722             --      4,723,722
                                                   -----------   ------------    -----------
OTHER INCOME (EXPENSE):
  Loss on retirement of assets...................     (327,605)            --       (327,605)
  Interest expense...............................   (1,109,359)            --     (1,109,359)
  Interest income................................      712,644             --        712,644
  Other income...................................      510,119             --        510,119
                                                   -----------   ------------    -----------
       Total other income (expense)..............     (214,201)            --       (214,201)
                                                   -----------   ------------    -----------
       Income before income taxes................    4,509,521             --      4,509,521
PROVISION FOR INCOME TAXES.......................      106,845      1,610,445(a)   1,717,290
                                                   -----------   ------------    -----------
       Net income................................  $ 4,402,676   $  1,610,445    $ 2,792,231
                                                   ===========   ============    ===========
  Weighted average shares outstanding............                                  1,770,309
                                                                                 ===========
     Basic earnings per share....................                                $      1.58
                                                                                 ===========
     Diluted earnings per share..................                                $      1.58
                                                                                 ===========
</TABLE>

    The accompanying notes to pro forma selected consolidated financial data
                  are an integral part of this financial data.

                                       F-3
<PAGE>   75

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                   PRO FORMA CONSOLIDATED BALANCE SHEET DATA
                            AS OF SEPTEMBER 30, 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               HISTORICAL       ADJUSTMENTS        PRO FORMA
                                                              ------------      ------------      ------------
<S>                                                           <C>               <C>               <C>
                                                    ASSETS
CURRENT ASSETS:
  Cash......................................................  $  1,783,098      $         --      $  1,783,098
  Marketable securities.....................................    14,027,819          (128,092)(b)    12,421,161
                                                                                  (1,478,566)(c)
  Telecommunications accounts receivable....................     2,613,303                --         2,613,303
  Other receivables.........................................       197,341                --           197,341
  Materials and supplies....................................       357,290                --           357,290
  Prepaids and other current assets.........................       137,492                --           137,492
  Deferred tax assets.......................................        79,646                --            79,646
                                                              ------------      ------------      ------------
        Total current assets................................    19,195,989        (1,606,658)       17,589,331
                                                              ------------      ------------      ------------
PROPERTY, PLANT AND EQUIPMENT:
  Property, plant and equipment, at cost....................    60,429,826                --        60,429,826
  Accumulated depreciation..................................   (32,069,772)               --       (32,069,772)
                                                              ------------      ------------      ------------
        Net property, plant and equipment...................    28,360,054                --        28,360,054
  Property, plant and equipment under construction..........     4,593,548                --         4,593,548
                                                              ------------      ------------      ------------
        Total property, plant and equipment.................    32,953,602                --        32,953,602
                                                              ------------      ------------      ------------
OTHER ASSETS................................................       484,619                --           484,619
                                                              ------------      ------------      ------------
                                                              $ 52,634,210      $ (1,606,658)     $ 51,027,552
                                                              ============      ============      ============
                                            LIABILITIES AND EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $    820,064      $         --      $    820,064
  Advance billings and payments.............................        87,027                --            87,027
  Customer deposits.........................................       192,013                --           192,013
  Current maturities of long-term debt......................       859,171                --           859,171
  Accrued taxes.............................................       313,907                --           313,907
  Accrued salaries, wages and benefits......................       348,550                --           348,550
  Other accrued liabilities.................................       529,533                --           529,533
                                                              ------------      ------------      ------------
        Total current liabilities...........................     3,150,265                --         3,150,265
LONG-TERM DEBT:
  Rural Utilities Service, net of current maturities........    22,093,793                --        22,093,793
OTHER LIABILITIES:
  Postretirement benefits other than pension................       599,747                --           599,747
  Deferred tax liabilities..................................       623,127                --           623,127
                                                              ------------      ------------      ------------
        Total liabilities...................................    26,466,932                --        26,466,932
                                                              ------------      ------------      ------------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY:
  Patronage capital.........................................    26,167,278       (24,688,712)(b)            --
                                                                                  (1,478,566)(c)
                                                              ------------      ------------      ------------
        Total members' equity...............................    26,167,278       (26,167,278)               --
                                                              ------------      ------------      ------------
SHAREHOLDERS' EQUITY:
  Common stock, Class A, voting.............................            --        19,648,490(b)     19,648,490
  Common stock, Class B, non-voting.........................            --         4,912,130(b)      4,912,130
                                                              ------------      ------------      ------------
        Total stockholders' equity..........................            --        24,560,620        24,560,620
                                                              ------------      ------------      ------------
                                                              $ 52,634,210      $ (1,606,658)     $ 51,027,552
                                                              ============      ============      ============
</TABLE>

    The accompanying notes to pro forma selected consolidated financial data
                  are an integral part of this financial data.

                                       F-4
<PAGE>   76

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
                  FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                               HISTORICAL      ADJUSTMENTS      PRO FORMA
                                               -----------     -----------     -----------
<S>                                            <C>             <C>             <C>
OPERATING REVENUE:
  Local telephone services revenue...........  $ 3,299,437     $        --     $ 3,299,437
  Network access services revenue............    8,164,108              --       8,164,108
  Wireless products and services revenue.....    3,201,225              --       3,201,225
  Miscellaneous revenue......................    1,176,626              --       1,176,626
                                               -----------     -----------     -----------
          Total operating revenue............   15,841,396              --      15,841,396
                                               -----------     -----------     -----------
OPERATING EXPENSES:
  Plant operations expense...................    2,994,607              --       2,994,607
  Depreciation and amortization..............    3,687,565              --       3,687,565
  Customer operations expense................      936,156              --         936,156
  Corporate operations expense...............    2,422,343              --       2,422,343
  Operating taxes............................      365,223              --         365,223
                                               -----------     -----------     -----------
          Total operating expenses...........   10,405,894              --      10,405,894
                                               -----------     -----------     -----------
          Total operating income.............    5,435,502              --       5,435,502
                                               -----------     -----------     -----------
OTHER INCOME (EXPENSE):
  Interest expense...........................     (806,509)             --        (806,509)
  Interest income............................      561,578              --         561,578
  Other income...............................      223,670              --         223,670
                                               -----------     -----------     -----------
          Total other income (expense).......      (21,261)             --         (21,261)
                                               -----------     -----------     -----------
          Income before income taxes.........    5,414,241              --       5,414,241
PROVISION FOR INCOME TAXES...................      239,461       1,828,873(a)    2,068,334
                                               -----------     -----------     -----------
          Net income.........................  $ 5,174,780     $ 1,828,873     $ 3,345,907
                                               ===========     ===========     ===========
  Weighted average shares outstanding........                                    2,160,846
                                                                               ===========
     Basic earnings per share................                                  $      1.55
                                                                               ===========
     Diluted earnings per share..............                                  $      1.55
                                                                               ===========
</TABLE>

    The accompanying notes to pro forma selected consolidated financial data
                  are an integral part of this financial data.

                                       F-5
<PAGE>   77

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

            NOTES TO PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA
                                  (UNAUDITED)

(a)    To record an income tax provision for both the year ended December 31,
       1998 and the nine months ended September 30, 1999 as if the Company had
       been a taxable corporation.

(b)    To record the conversion of outstanding capital credits into shares of
       common stock at a conversion ratio of 10 - to - 1 and the cash payment of
       fractional shares.

(c)    To record the retirement of all capital credits earned prior to 1990.

NOTE:  The pro forma consolidated statement of income data does not include
       approximately $850,000 of non-recurring expenses that will be recorded by
       the Company in connection with the reorganization of the Company. These
       $850,000 of non-recurring expenses include expenses related to legal,
       consulting, accounting and other professional service fees.

                                       F-6
<PAGE>   78

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To DeKalb Telephone Cooperative, Inc.:

     We have audited the accompanying consolidated balance sheets of DeKalb
Telephone Cooperative, Inc., (a Tennessee cooperative) and subsidiary as of
December 31, 1997 and 1998 and the related statements of income, patronage
capital and cash flows for each of the three years in the period ended December
31, 1998. 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 audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of DeKalb Telephone
Cooperative, Inc. and subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.

                                          /s/ ARTHUR ANDERSEN LLP
Nashville, Tennessee
September 1, 1999 (except with respect to
the matter discussed in Note 11 as to which
the date is October 18, 1999)

                                       F-7
<PAGE>   79

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                  1997           1998
                                                              ------------   ------------
<S>                                                           <C>            <C>
                                         ASSETS
CURRENT ASSETS:
  Cash......................................................  $  1,660,085   $  2,098,624
  Marketable securities.....................................    12,485,539     12,152,700
  Telecommunications accounts receivable, less allowance for
     uncollectible accounts of $209,504 in 1997 and $257,018
     in 1998................................................     1,886,006      2,309,179
  Other receivables.........................................       188,696        208,533
  Materials and supplies....................................       191,680        241,210
  Prepaids and other current assets.........................       374,318        404,661
  Deferred tax assets.......................................        44,393         75,525
                                                              ------------   ------------
          Total current assets..............................    16,830,717     17,490,432
                                                              ------------   ------------
PROPERTY, PLANT AND EQUIPMENT:
  Property, plant and equipment, at cost....................    55,567,145     59,505,122
  Accumulated depreciation..................................   (28,199,391)   (29,995,236)
                                                              ------------   ------------
          Net property, plant and equipment.................    27,367,754     29,509,886
  Property, plant and equipment under construction..........     1,580,555      2,450,920
                                                              ------------   ------------
          Total property, plant and equipment...............    28,948,309     31,960,806
                                                              ------------   ------------
OTHER ASSETS................................................       140,136        416,270
                                                              ------------   ------------
                                                              $ 45,919,162   $ 49,867,508
                                                              ============   ============
                             LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $    804,506   $  2,009,225
  Advance billings and payments.............................        50,952         68,081
  Customer deposits.........................................       139,923        160,023
  Current maturities of long-term debt......................       845,394        818,258
  Accrued taxes.............................................       665,844        378,367
  Accrued salaries, wages and benefits......................       404,515        442,535
  Other accrued liabilities.................................       230,027        208,095
                                                              ------------   ------------
          Total current liabilities.........................     3,141,161      4,084,584
LONG-TERM DEBT:
  Rural Utilities Service, net of current maturities........    23,665,197     22,844,766
OTHER LIABILITIES:
  Postretirement benefits other than pension................       532,288        562,272
  Deferred tax liabilities..................................       234,593        387,025
                                                              ------------   ------------
          Total liabilities.................................    27,573,239     27,878,647
                                                              ------------   ------------
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY:
  Patronage capital.........................................    18,345,923     21,988,861
                                                              ------------   ------------
                                                              $ 45,919,162   $ 49,867,508
                                                              ============   ============
</TABLE>

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

                                       F-8
<PAGE>   80

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                    1996           1997           1998
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
OPERATING REVENUE:
  Local telephone services revenue.............  $ 3,704,232    $ 3,942,016    $ 4,189,939
  Network access services revenue..............    7,891,713      8,241,547      8,876,861
  Wireless products and services revenue.......    2,859,073      3,085,127      3,462,958
  Miscellaneous revenue........................    1,317,077      1,501,896      1,595,730
                                                 -----------    -----------    -----------
          Total operating revenue..............   15,772,095     16,770,586     18,125,488
                                                 -----------    -----------    -----------
OPERATING EXPENSES:
  Plant operations expense.....................    3,685,576      3,345,253      3,900,176
  Depreciation and amortization................    3,726,916      4,879,396      4,585,799
  Customer operations expense..................      906,029        910,398      1,131,798
  Corporate operations expense.................    2,657,818      3,318,639      3,403,317
  Operating taxes..............................      425,518        403,971        380,676
                                                 -----------    -----------    -----------
          Total operating expenses.............   11,401,857     12,857,657     13,401,766
                                                 -----------    -----------    -----------
          Total operating income...............    4,370,238      3,912,929      4,723,722
                                                 -----------    -----------    -----------
OTHER INCOME (EXPENSE):
  Loss on retirement of assets.................           --     (1,107,149)      (327,605)
  Interest expense.............................   (1,186,667)    (1,119,355)    (1,109,359)
  Interest income..............................      452,147        649,553        712,644
  Other income.................................      123,546        234,212        510,119
                                                 -----------    -----------    -----------
          Total other income (expense).........     (610,974)    (1,342,739)      (214,201)
                                                 -----------    -----------    -----------
INCOME BEFORE INCOME TAXES.....................    3,759,264      2,570,190      4,509,521
PROVISION FOR INCOME TAXES.....................      256,139        196,900        106,845
                                                 -----------    -----------    -----------
          Net income...........................    3,503,125      2,373,290      4,402,676
PRO FORMA INFORMATION ASSUMING MERGER WITH DTC
  (NOTE 11) (UNAUDITED)
ADDITIONAL PROVISION FOR INCOME TAXES..........    1,223,050        833,435      1,610,445
                                                 -----------    -----------    -----------
PRO FORMA NET INCOME...........................  $ 2,280,075    $ 1,539,855    $ 2,792,231
                                                 ===========    ===========    ===========
</TABLE>

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

                                       F-9
<PAGE>   81

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                  CONSOLIDATED STATEMENTS OF PATRONAGE CAPITAL
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                        1996          1997          1998
                                                     -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>
PATRONAGE CAPITAL, beginning of year...............  $14,124,948   $16,861,484   $18,345,923
  Net income.......................................    3,503,125     2,373,290     4,402,676
  Capital credits retired..........................     (766,589)     (888,851)     (759,738)
                                                     -----------   -----------   -----------
PATRONAGE CAPITAL, end of year.....................  $16,861,484   $18,345,923   $21,988,861
                                                     ===========   ===========   ===========
</TABLE>

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

                                      F-10
<PAGE>   82

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

<TABLE>
<CAPTION>
                                                        1996          1997          1998
                                                     -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income.......................................  $ 3,503,125   $ 2,373,290   $ 4,402,676
     Adjustments to reconcile net income to net
       cash provided by operating activities:
       Depreciation and amortization...............    3,726,916     4,879,396     4,585,799
       Deferred taxes..............................      254,260         8,200       121,300
       Loss on retirement of fixed assets..........           --     1,107,149       327,605
       Changes in assets and liabilities:
          Receivables..............................       16,058      (244,999)     (443,010)
          Materials and supplies...................      143,742        58,471       (49,530)
          Prepaids and other current assets........     (295,890)        4,036       (30,343)
          Accounts payable.........................     (266,958)      111,197     1,204,719
          Advance billings and payments............       (1,076)        3,732        17,129
          Customer deposits........................       17,125        18,700        20,100
          Accrued liabilities......................      (90,067)      257,656      (271,389)
          Postretirement benefits other than
             pension...............................      (22,689)     (318,051)       29,984
                                                     -----------   -----------   -----------
             Net cash provided by operating
               activities..........................    6,984,546     8,258,777     9,915,040
                                                     -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale (purchase) of marketable securities, net....   (1,842,015)   (4,034,650)      332,839
  Construction and acquisition of property, plant
     and equipment, net............................   (3,263,597)   (2,123,369)   (7,925,901)
  (Increase) decrease in other assets, net.........      (92,385)        2,246      (276,134)
                                                     -----------   -----------   -----------
             Net cash used in investing
               activities..........................   (5,197,997)   (6,155,773)   (7,869,196)
                                                     -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt.......................     (847,498)     (877,542)     (847,567)
  Retirement of capital credits....................     (766,589)     (888,851)     (759,738)
                                                     -----------   -----------   -----------
             Net cash used in financing
               activities..........................   (1,614,087)   (1,766,393)   (1,607,305)
                                                     -----------   -----------   -----------
NET INCREASE IN CASH...............................      172,462       336,611       438,539
CASH, beginning of year............................    1,151,012     1,323,474     1,660,085
                                                     -----------   -----------   -----------
CASH, end of year..................................  $ 1,323,474   $ 1,660,085   $ 2,098,624
                                                     ===========   ===========   ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash payments for income taxes...................  $     1,879   $    92,500   $   252,398
                                                     ===========   ===========   ===========
  Cash payments for interest.......................  $ 1,278,228   $ 1,229,349   $ 1,191,819
                                                     ===========   ===========   ===========
</TABLE>

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

                                      F-11
<PAGE>   83

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1997 AND 1998

1. SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

     DeKalb Telephone Cooperative, Inc. ("the Company") was formed under the
laws of the State of Tennessee in 1951 for the purpose of providing
telecommunications services to a rural region of eastern middle Tennessee. The
Company formed Advantage Cellular Systems, Inc. ("Advantage"), a wholly owned
subsidiary, in 1991 for the purpose of providing cellular telecommunications
services.

PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany transactions and
balances have been eliminated.

MARKETABLE SECURITIES

     In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("FAS 115"),
the Company considers its investment in debt securities as held-to-maturity. The
securities are reflected in the consolidated balance sheets at amortized cost,
and interest income is included in the consolidated statements of income as
earned.

MATERIALS AND SUPPLIES

     Materials and supplies are stated at the lower of cost or market with cost
determined by the average cost method.

PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment are stated at cost, including labor and other
direct costs associated with installation. The Company capitalizes interest
costs incurred during construction in the cost of property, plant and equipment.
Those capitalized interest charges were $88,530, $114,847, and $69,947 in 1996,
1997, and 1998, respectively. Improvements that significantly add to productive
capacity or extend the useful life are capitalized, while repairs and
maintenance are expensed as incurred.

     Depreciation is calculated on a straight-line basis at annual rates that
will amortize the depreciable property over its estimated useful life.
Individual depreciation rates are as follows:

<TABLE>
<S>                                                           <C>
Buildings...................................................          3.3%
Central office equipment....................................   8.0 - 10.0%
Poles, cables, wire and towers..............................          5.0%
Public telephone equipment..................................         10.0%
Furniture and office equipment..............................  10.0 - 12.5%
Vehicles and other work equipment...........................  10.0 - 20.0%
</TABLE>

                                      F-12
<PAGE>   84
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     When depreciable property, plant and equipment is retired in the normal
course of business, the amount of such property, plant and equipment is deducted
from the property, plant and equipment account and the accumulated depreciation
account. Gains or losses on disposition are amortized with the remaining net
investment in property, plant and equipment. When specifically identifiable
depreciable property, plant and equipment is retired outside the normal course
of business, the Company recognizes any gains or losses in the consolidated
statements of income. During 1997 and 1998, the Company recorded losses on
retirements of property, plant and equipment of $1,107,149 and $327,605,
respectively.

     The Company evaluates property, plant and equipment for impairment when
changes in circumstances indicate that carrying values may not be recoverable.
Under Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("FAS 121"), the need to recognize an impairment is based on estimated future
cash flows from an asset as compared to the carrying amount of that asset. If
recognition of an impairment is necessary, it is measured as the amount by which
the carrying amount of an asset exceeds the fair value of that asset.

HEALTH INSURANCE

     The Company has assumed self-insured risks for employee health insurance.
The Company has purchased stop-loss coverage that insures all benefits up to a
maximum of $400,000 per participant per year. The Company's deductible is
$35,000 per participant per year.

     The Company has established a trust fund to administer the processing and
payment of all health care claims. The Company contributes an amount monthly to
the trust fund representing an estimate of the health care costs expected to be
incurred, which amount is expensed as incurred. Management has evaluated the
adequacy of the contributions to the trust fund for each of the three years
ended December 31, 1998 and believes that the contributions are sufficient to
cover all claims relating to those years.

INCOME TAXES

     The Company is organized and operates as a cooperative. As such, the
Company is not subject to federal or state income taxes provided it meets the
requirements of the Internal Revenue Code to continue to qualify as a
cooperative. The Company is, however, subject to income taxes on income
unrelated to the provision of telephone service.

     The Company's wholly owned subsidiary, Advantage, is a taxable corporation.
Income taxes of Advantage are accounted for using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"). Under FAS
109, Advantage recognizes deferred tax assets and liabilities for future tax
consequences of events that have been previously recognized in its financial
statements or tax returns. The measurement of deferred tax assets and
liabilities is based on provisions of the enacted tax law.

MEMBERSHIP FEES AND PATRONAGE CAPITAL

     The Company does not charge its members membership fees. Patronage capital
is the net income retained by the Company and is allocated to members based on
their respective purchases of

                                      F-13
<PAGE>   85
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

services from the Company. The Company's board of directors approves all capital
credit retirements, which are paid in the year approved.

REVENUE RECOGNITION

     Local telephone services revenue and network access services revenue are
recognized as services are provided. Wireless products and services revenue are
recognized when products are delivered or services are provided to customers.
Due to the timing of the Company's billing cycles, at any point in time certain
services have been provided to customers but not yet billed. Revenue that has
been earned but not yet billed to customers amounts to $197,673 and $280,527 at
December 31, 1997 and 1998, respectively, and is included in telecommunications
accounts receivable in the consolidated balance sheets. Additionally, the
Company invoices customers one month in advance for certain recurring charges,
resulting in advance billings and payments of $50,952 and $68,081 at December
31, 1997 and 1998, respectively.

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 certain reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments ("FAS
107"), the Company calculates the fair value of financial instruments using
quoted market prices and the present value of future cash flows. At December 31,
1997 and 1998, the fair value of the Company's long-term debt was $22,171,213
and $21,462,612, respectively, compared to carrying values of $24,510,591 and
$23,663,024, respectively. For the Company's other financial instruments, there
were no material differences between fair values and carrying amounts.

RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS
130 requires that the changes in the amounts of certain items, including gains
and losses on certain securities, be shown in the financial statements. For
1996, 1997 and 1998, the Company's comprehensive income was equal to net income.

     Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information, ("FAS 131"). FAS 131 establishes standards for reporting
information about operating segments in the Company's consolidated financial
statements and requirements for related disclosure about the Company's products
and services, geographic areas and major customers. The Company has two
reportable segments-- Wireline Services and Wireless Products and Services-- and
has disclosed information for each of these segments in these consolidated
financial statements.

                                      F-14
<PAGE>   86
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). As permitted, the Company
has elected to adopt the provisions of SOP 98-1 during the year-ended December
31, 1998. Under the provisions of SOP 98-1, the Company began capitalizing and
amortizing the cost of its internal use software that it had previously expensed
as incurred. Consistent with SOP 98-1, the Company capitalizes direct costs
associated with the development of internal use software once the software
project has reached the application development stage and management has
determined that the software will be completed and used as originally intended.
Internal use software that has been capitalized is amortized on a straight-line
basis over useful lives ranging from 3 to 5 years. During 1998, the Company
capitalized approximately $500,000 of internal use software that previously
would have been expensed.

2. MARKETABLE SECURITIES

     Total investment earnings for December 31, 1996, 1997 and 1998 were
$452,147, $649,553 and $712,644, respectively, and consisted solely of interest
income.

     Marketable securities as of December 31, 1997 and 1998 are comprised of the
following:

<TABLE>
<CAPTION>
                                                                 1997          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
U.S. Treasury Securities, interest ranging from 5.5% to
6.4%, maturing 1999.........................................  $11,745,539   $11,337,700
Certificates of Deposit, interest ranging from 4.5% to 5.5%,
  maturing 1999.............................................      740,000       815,000
                                                              -----------   -----------
                                                              $12,485,539   $12,152,700
                                                              ===========   ===========
</TABLE>

     Because of the short-term nature of these investments, the carrying amount
approximates fair value.

3. OTHER ASSETS

     Other assets as of December 31, 1997 and 1998 are comprised of the
following:

<TABLE>
<CAPTION>
                                                                1997       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Local multipoint distribution service ("LMDS") license cost,
net of accumulated amortization of $8,677 in 1998...........  $     --   $199,560
Prepaid lease costs.........................................        --     83,334
Investment in Co Bank Stock.................................    89,501     82,741
Cash surrender value of life insurance policy...............    50,000     50,000
Deposits....................................................       635        635
                                                              --------   --------
                                                              $140,136   $416,270
                                                              ========   ========
</TABLE>

     The investment in LMDS license is being amortized using the straight-line
method over a ten-year useful life.

                                      F-15
<PAGE>   87
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment is stated at cost. Listed below are the major
classes of the property, plant and equipment as of December 31, 1997 and 1998.

<TABLE>
<CAPTION>
                                                                 1997          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Land........................................................  $   493,746   $   493,746
Buildings...................................................    4,088,422     4,436,081
Leasehold improvements......................................      108,374       116,277
Central office equipment....................................   12,897,832    13,552,529
Poles, cables and wire......................................   31,376,577    34,215,424
Furniture and office equipment..............................    1,821,853     1,770,099
Vehicles and other work equipment...........................    2,355,085     2,608,917
Paystation, internet and customer services equipment and
  towers....................................................    2,425,256     2,312,049
                                                              -----------   -----------
                                                              $55,567,145   $59,505,122
                                                              ===========   ===========
</TABLE>

5. LONG-TERM DEBT

     Long-term debt is represented by mortgage notes payable to the Rural
Utilities Service, a U.S. governmental agency. Following is a summary of
outstanding long-term debt.

<TABLE>
<CAPTION>
                                                                 1997          1998
                                                              -----------   -----------
<S>                                                           <C>           <C>
Notes payable to Rural Utilities Service, principal and
interest (at 2%) payable quarterly through 2007.............  $ 1,177,245   $   977,667
Notes payable to Rural Utilities Service, principal and
  interest (at 5%) payable quarterly through 2023...........   23,333,346    22,685,357
                                                              -----------   -----------
                                                               24,510,591    23,663,024
Less current maturities.....................................      845,394       818,258
                                                              -----------   -----------
                                                              $23,665,197   $22,844,766
                                                              ===========   ===========
</TABLE>

     The notes payable to Rural Utilities Service provide for various
restrictions on the retirement of capital credits by the Company. Substantially
all assets of the Company are pledged as security for the outstanding debt.

     The maturities of long-term debt for each of the five years after 1998 are
as follows:

<TABLE>
<CAPTION>
YEAR                                                            AMOUNT
- ----                                                          -----------
<S>                                                           <C>
1999........................................................  $   818,258
2000........................................................      859,171
2001........................................................      902,130
2002........................................................      947,236
2003........................................................      994,598
Thereafter..................................................   19,141,631
                                                              -----------
                                                              $23,663,024
                                                              ===========
</TABLE>

                                      F-16
<PAGE>   88
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. BENEFIT PLAN

     The Company has adopted the defined contribution retirement and security
program of the National Telephone Cooperative Association plan covering all
employees meeting certain age and length of service requirements. The Company
funds the plan by making quarterly contributions into the program based upon
salaries. The Company's contributions were $215,795 in 1996, $225,742 in 1997,
and $244,066 in 1998.

7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

     The Company has adopted Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits other than Pensions ("FAS
106"). FAS 106 requires accrual accounting for all postretirement benefits other
than pensions. Under the prescribed accrual method, the Company's obligation for
these postretirement benefits is to be fully accrued by the date employees
attain full eligibility for such benefits. Prior to the adoption of FAS 106, the
cost of health and life insurance benefits for retirees was recognized by
charging claims to expense as they were incurred. The cost of health benefits
for current and future associate retirees was recognized as determined under the
projected unit credit cost method.

     In conjunction with the adoption of FAS 106, for financial reporting
purposes, the Company elected to amortize the cost for the initial obligation
over twenty years.

     Substantially all of the Company's employees are covered under
postretirement health and life insurance plans. The determination of
postretirement benefit cost for postretirement health benefit plans is based on
comprehensive hospital, medical, surgical and dental benefit provisions.

     All of the following information is presented in accordance with the
revised disclosure requirements of Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits.

                                      F-17
<PAGE>   89
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following tables set forth the plan's funded status and the amount
recognized in the Company's consolidated financial statements as of December 31,
1997 and 1998.

<TABLE>
<CAPTION>
                                                                 1997          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
Reconciliation of benefit obligation:
  Obligation at January 1...................................  $1,927,479    $2,092,739
  Service cost..............................................      75,536        95,161
  Interest cost.............................................     132,862       151,770
  Liability (gain) or loss..................................      (3,841)      260,065
  Benefits paid.............................................     (39,297)      (37,545)
                                                              ----------    ----------
     Obligation at December 31..............................  $2,092,739    $2,562,190
                                                              ==========    ==========
Reconciliation of fair value of plan assets
  Fair value of plan assets at January 1....................  $  215,913    $  778,033
  Actual return on plan assets..............................     101,417       113,304
  Employer contributions....................................     500,000       200,000
  Benefits paid.............................................     (39,297)      (37,545)
                                                              ----------    ----------
     Fair value of plan assets at December 31...............  $  778,033    $1,053,792
                                                              ==========    ==========
Funded status
  Funded status at December 31..............................  $1,314,706    $1,508,398
  Unrecognized transition obligation........................    (963,356)     (894,568)
  Unrecognized prior service cost...........................    (108,723)      (99,383)
  Unrecognized gain.........................................     289,661        47,825
                                                              ----------    ----------
     Net amount recognized..................................  $  532,288    $  562,272
                                                              ==========    ==========
</TABLE>

     Periodic postretirement benefit cost is composed of the following for the
years ended December 31, 1996, 1997 and 1998:

<TABLE>
<CAPTION>
                                                               1996       1997       1998
                                                             --------   --------   --------
<S>                                                          <C>        <C>        <C>
Service cost...............................................  $ 60,036   $ 75,536     95,161
Interest cost..............................................   113,768    132,862    151,770
Expected return on plan assets.............................    (8,734)   (55,842)   (86,572)
Net amortization...........................................    61,416     72,196     78,128
                                                             --------   --------   --------
          Postretirement benefit cost......................  $226,486   $224,752   $238,487
                                                             ========   ========   ========
</TABLE>

     For measurement purposes of the postretirement benefit obligation, the
Company used discount rates of 7.0%, 7.0% and 6.5% for the years ended December
31, 1996, 1997 and 1998, respectively. For each of the years ended December 31,
1996, 1997 and 1998, the assumed rate of future increases in compensation levels
was 6.0%. The medical cost trend rate in 1998 was approximately 8.5%, decreasing
to an ultimate rate in 2005 of 5.5%. A one percentage point increase (decrease)
in the assumed health care cost trend rates for each future year would have
increased (decreased) the aggregate of the service and interest cost components
of 1998 net periodic postretirement benefit cost by approximately $60,000 and
would have increased (decreased) the accumulated postretirement benefit
obligation as of December 31, 1998 by approximately $480,000.

                                      F-18
<PAGE>   90
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. INCOME TAXES

     The provision for income taxes consisted of the following for the three
years ended December 31, 1998:

<TABLE>
<CAPTION>
                                                               1996       1997       1998
                                                             --------   --------   --------
<S>                                                          <C>        <C>        <C>
Current provision (benefit)
  Federal..................................................  $  1,681   $168,830   $(12,993)
  State....................................................       198     19,870     (1,462)
                                                             --------   --------   --------
                                                                1,879    188,700    (14,455)
                                                             ========   ========   ========
Deferred provision
  Federal..................................................   227,486      7,337    108,532
  State....................................................    26,774        863     12,768
                                                             --------   --------   --------
                                                              254,260      8,200    121,300
                                                             --------   --------   --------
                                                             $256,139   $196,900   $106,845
                                                             ========   ========   ========
</TABLE>

     The deferred tax assets and liabilities, at the respective income tax
rates, are as follows:

<TABLE>
<CAPTION>
                                                                1997       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Current deferred tax asset
  Allowance for uncollectible accounts receivable...........  $ 44,393   $ 75,525
                                                              ========   ========
Noncurrent deferred tax liability
  Tax depreciation in excess of financial reporting
     depreciation...........................................  $234,593   $387,025
                                                              ========   ========
</TABLE>

     The provisions for income taxes differ from the amounts computed using
statutory rates as follows:

<TABLE>
<CAPTION>
                                                              1996    1997    1998
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Provision at statutory rates................................   38%     38%     38%
  Deduction for income allocated to cooperative members.....  (31%)   (30%)   (36%)
                                                              ---     ---     ---
Effective tax rate..........................................    7%      8%      2%
                                                              ===     ===     ===
</TABLE>

9. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

     The Company currently has a five-year noncancellable operating lease with
IBM for computer equipment. Rent expense for the years ended December 31, 1996,
1997 and 1998 amounted to $37,716, $75,432, and $75,432, respectively.

                                      F-19
<PAGE>   91
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following is a schedule of future minimum lease payments under the
noncancellable operating lease:

<TABLE>
<CAPTION>
YEAR                                                           AMOUNT
- ----                                                          --------
<S>                                                           <C>
1999........................................................  $ 75,432
2000........................................................    75,432
2001........................................................    37,716
                                                              --------
Total.......................................................  $188,580
                                                              ========
</TABLE>

TELECOMMUNICATIONS LEGISLATION

     The Telecommunications Act of 1996 (the "96 Act") was passed in February
1996. The 96 Act is intended to promote competition in all sectors of the
telecommunications marketplace, while preserving and advancing telephone
service. As a result of the 96 Act, the Federal Communications Commission
("FCC") is in the process of issuing revised rules governing telecommunications
services. Presently, competition has not had a significant adverse impact on the
Company. However, as the regulations required by the 96 Act have not yet been
finalized, management cannot predict the ultimate effects that the 96 Act and
future competition will have on the Company.

LITIGATION

     The Company is also subject to various legal proceedings and claims that
arise in the ordinary course of its business. In the opinion of management, the
amount of ultimate liabilities with respect to these actions will not materially
affect the Company.

10. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION

SEGMENT INFORMATION

     In accordance with FAS 131, the Company has two reportable segments -
Wireline Services and Wireless Products and Services.

     Wireline Services include local telephone service and access services that
enable long-distance carriers to complete calls to or from locations outside of
the Company's wireline operating area. Wireline Services also provides billing
and collection services to other telecommunications companies.

     Wireless Products and Services includes wireless communications services
and the sale of cellular telephones and accessories.

                                      F-20
<PAGE>   92
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Segment results for the years ended December 31, 1996, 1997 and 1998 are as
follows:

<TABLE>
<CAPTION>
                                                        1996          1997          1998
                                                     -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>
WIRELINE SERVICES
  Local telephone services revenue.................  $ 3,704,232   $ 3,942,016   $ 4,189,939
  Network access services revenue..................    7,891,713     8,241,547     8,876,861
  Billing and collection services revenue..........      916,502     1,072,572     1,084,393
  Directory publication revenue....................      196,064       202,081       232,641
  Other miscellaneous revenue......................      204,511       227,243       278,696
                                                     -----------   -----------   -----------
               Total revenue.......................  $12,913,022   $13,685,459   $14,662,530
                                                     ===========   ===========   ===========
  Operating income.................................  $ 3,797,075   $ 3,530,519   $ 4,374,720
  Total assets.....................................   41,986,321    40,907,884    42,541,522
<CAPTION>
                                                        1996          1997          1998
                                                     -----------   -----------   -----------
<S>                                                  <C>           <C>           <C>
WIRELESS PRODUCTS AND SERVICES
  Local services revenue...........................  $ 1,709,174   $ 1,781,755   $ 1,974,819
  Roaming and toll revenue.........................    1,020,020     1,211,597     1,339,872
  Equipment sales and activation fees..............      129,879        91,775       148,267
                                                     -----------   -----------   -----------
               Total revenue.......................  $ 2,859,073   $ 3,085,127   $ 3,462,958
                                                     ===========   ===========   ===========
  Operating income.................................  $   573,163   $   382,410   $   349,002
  Total assets.....................................    3,932,841     5,011,278     7,325,986
</TABLE>

SIGNIFICANT CUSTOMER INFORMATION

     A single long-distance carrier provides a significant portion of the
Company's network access services and billing and collection revenue. For the
years ended December 31, 1996, 1997 and 1998, this customer provided $1,992,680,
$1,943,850 and $1,707,239, respectively, of the Company's total operating
revenues. Revenues from this significant customer are included in the Wireline
Services segment.

11. SUBSEQUENT EVENT

     On October 18, 1999, the board of directors of the Company approved a plan
of merger that effectively results in a reorganization of the Company. To effect
the transaction, the Company has formed a wholly-owned, taxable subsidiary, DTC
Communications Corp. ("DTC"), into which the Company will merge via an exchange
of all accumulated capital credits of the Company for shares of common stock of
DTC. In accordance with the Company's bylaws, the plan of merger must be voted
on and approved by the membership of the Company, which is expected to occur in
December 1999. If approved, the Company will be merged into DTC and DTC will
continue to carry on the Company's business activities.

     Prior to the merger, DTC has had no substantive operations, therefore the
financial position and results of operations immediately subsequent to the
merger will be identical to those of the Company.

     The following unaudited pro forma data is provided for information purposes
only and is subject to completion of the merger transaction described above.

                                      F-21
<PAGE>   93
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company, as a cooperative, does not have outstanding shares of stock.
Rather the Company has accumulated capital credits due to its active and
inactive members. For purposes of the pro forma data below, ten dollars of
capital credits are equal to one share of common stock.

     Pursuant to Statement of Financial Accounting Standards No. 128, Earnings
per Share, basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income by the weighted average number of common and common equivalent shares
outstanding during the year, which includes the additional dilution related to
conversion of convertible debt and/or preferred stock and the exercise of stock
options as computed under the treasury stock method. Because there were no
convertible securities outstanding during the years ended December 31, 1996,
1997 and 1998, diluted earnings per share was equal to basic earnings per share.

     As mentioned above, DTC is a taxable entity. The Company, except for the
Advantage subsidiary, has not been subject to federal or state income taxes. The
following unaudited pro forma amounts present basic earnings per share and
diluted earnings per share as if the Company had been a taxable corporation for
all three years in the period ended December 31, 1998:

<TABLE>
<CAPTION>
                                                               PRO FORMA -- UNAUDITED
                                                        ------------------------------------
                                                           1996         1997         1998
                                                        ----------   ----------   ----------
<S>                                                     <C>          <C>          <C>
Net income, as reported...............................  $3,503,125   $2,373,290   $4,402,676
Additional tax provision..............................   1,223,050      833,435    1,610,445
                                                        ----------   ----------   ----------
     Pro forma net income.............................  $2,280,075   $1,539,855   $2,792,231
                                                        ==========   ==========   ==========
     Weighted average shares outstanding..............   1,302,411    1,514,019    1,770,309
                                                        ==========   ==========   ==========
     Basic earnings per share.........................  $     1.75   $     1.02   $     1.58
                                                        ==========   ==========   ==========
     Diluted earnings per share.......................  $     1.75   $     1.02   $     1.58
                                                        ==========   ==========   ==========
</TABLE>

     The pro forma net income above does not include approximately $850,000 of
one-time non-recurring expenses that will be recorded by the Company in
connection with this proposed merger transaction. These costs consist of legal,
consulting, accounting and other professional service fees.

                                      F-22
<PAGE>   94

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                              DECEMBER 31,   SEPTEMBER 30,
                                                                  1998           1999
                                                              ------------   -------------
                                                                              (UNAUDITED)
<S>                                                           <C>            <C>
                                          ASSETS
CURRENT ASSETS:
  Cash......................................................  $  2,098,624   $  1,783,098
  Marketable securities.....................................    12,152,700     14,027,819
  Telecommunications accounts receivable, less allowance for
     uncollectible accounts of $257,018 in 1998 and $251,088
     in 1999................................................     2,309,179      2,613,303
  Other receivables.........................................       208,533        197,341
  Materials and supplies....................................       241,210        357,290
  Prepaids and other current assets.........................       404,661        137,492
  Deferred tax assets.......................................        75,525         79,646
                                                              ------------   ------------
          Total current assets..............................    17,490,432     19,195,989
                                                              ------------   ------------
PROPERTY, PLANT AND EQUIPMENT:
  Property, plant and equipment, at cost....................    59,505,122     60,429,826
  Accumulated depreciation..................................   (29,995,236)   (32,069,772)
                                                              ------------   ------------
          Net property, plant and equipment.................    29,509,886     28,360,054
  Property, plant and equipment under construction..........     2,450,920      4,593,548
                                                              ------------   ------------
          Total property, plant and equipment...............    31,960,806     32,953,602
                                                              ------------   ------------
OTHER ASSETS................................................       416,270        484,619
                                                              ------------   ------------
                                                              $ 49,867,508     52,634,210
                                                              ============   ============
                             LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $  2,009,225        820,064
  Advance billings and payments.............................        68,081         87,027
  Customer deposits.........................................       160,023        192,013
  Current maturities of long-term debt......................       818,258        859,171
  Accrued taxes.............................................       378,367        313,907
  Accrued salaries, wages and benefits......................       442,535        348,550
  Other accrued liabilities.................................       208,095        529,533
                                                              ------------   ------------
          Total current liabilities.........................     4,084,584      3,150,265
LONG-TERM DEBT:
  Rural Utilities Service, net of current maturities........    22,844,766     22,093,793
OTHER LIABILITIES:
  Postretirement benefits other than pension................       562,272        599,747
  Deferred tax liabilities..................................       387,025        623,127
                                                              ------------   ------------
          Total liabilities.................................    27,878,647     26,466,932
                                                              ------------   ------------
COMMITMENTS AND CONTINGENCIES:
MEMBERS' EQUITY:
  Patronage capital.........................................    21,988,861     26,167,278
                                                              ------------   ------------
                                                              $ 49,867,508   $ 52,634,210
                                                              ============   ============
</TABLE>

                                      F-23
<PAGE>   95

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF INCOME
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1998             1999
                                                              -------------    -------------
<S>                                                           <C>              <C>
OPERATING REVENUE:
  Local telephone services revenue..........................   $ 3,121,733      $ 3,299,437
  Network access services revenue...........................     6,527,984        8,164,108
  Wireless products and services revenue....................     2,494,971        3,201,225
  Miscellaneous revenue.....................................     1,180,793        1,176,626
                                                               -----------      -----------
          Total operating revenue...........................    13,325,481       15,841,396
                                                               -----------      -----------
OPERATING EXPENSES:
  Plant operations expense..................................     2,751,404        2,994,607
  Depreciation and amortization.............................     3,453,460        3,687,565
  Customer operations expense...............................       777,735          936,156
  Corporate operations expense..............................     2,267,484        2,422,343
  Operating taxes...........................................       322,523          365,223
                                                               -----------      -----------
          Total operating expenses..........................     9,572,606       10,405,894
                                                               -----------      -----------
          Total operating income............................     3,752,875        5,435,502
                                                               -----------      -----------
OTHER INCOME (EXPENSE):
  Loss on retirement of assets..............................      (437,822)              --
  Interest expense..........................................      (836,976)        (806,509)
  Interest income...........................................       567,472          561,578
  Other income..............................................       247,623          223,670
                                                               -----------      -----------
          Total other income (expense)......................      (459,703)         (21,261)
                                                               -----------      -----------
          Income before income taxes........................     3,293,172        5,414,241
PROVISION FOR INCOME TAXES..................................        77,451          239,461
                                                               -----------      -----------
          Net income........................................     3,215,721        5,174,780
PRO FORMA INFORMATION ASSUMING MERGER WITH DTC:
ADDITIONAL PROVISION FOR INCOME TAXES.......................     1,283,230        1,828,873
                                                               -----------      -----------
          Pro forma net income..............................     1,932,491        3,345,907
                                                               ===========      ===========
</TABLE>

                                      F-24
<PAGE>   96

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1998             1999
                                                              -------------    -------------
<S>                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................   $ 3,215,721      $ 5,174,780
     Adjustments to reconcile net income to net cash
       provided by operating activities:
     Depreciation and amortization..........................     3,453,460        3,687,565
     Deferred taxes.........................................       (49,652)         231,981
     Loss on retirement of fixed assets.....................       437,822               --
     Changes in assets and liabilities:
       Receivables..........................................      (238,735)        (292,932)
       Materials and supplies...............................       (22,838)        (116,080)
       Prepaids and other current assets....................       149,922          267,169
       Accounts payable.....................................     2,060,312       (1,189,161)
       Advance billings and payments........................        13,283           18,946
       Customer deposits....................................        17,253           31,990
       Accrued liabilities..................................       124,237          162,993
       Postretirement benefits other than pension...........       (62,525)          37,475
                                                               -----------      -----------
          Net cash provided by operating activities.........     9,098,260        8,014,726
                                                               -----------      -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of marketable securities, net....................    (1,071,522)      (1,875,119)
  Construction and acquisition of property, plant and
     equipment, net.........................................    (6,181,325)      (4,680,361)
  Increase in other assets, net.............................      (212,000)         (68,349)
                                                               -----------      -----------
          Net cash used in investing activities.............    (7,464,847)      (6,623,829)
                                                               -----------      -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt................................      (672,902)        (710,060)
  Retirement of capital credits.............................      (804,772)        (996,363)
                                                               -----------      -----------
          Net cash used in financing activities.............    (1,477,674)      (1,706,423)
                                                               -----------      -----------
NET INCREASE (DECREASE) IN CASH.............................       155,739         (315,526)
CASH, beginning of period...................................     1,660,085        2,098,624
                                                               -----------      -----------
CASH, end of period.........................................     1,815,824        1,783,098
                                                               ===========      ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash payments for income taxes............................       173,651          239,461
                                                               ===========      ===========
  Cash payments for interest................................       884,608          857,772
                                                               ===========      ===========
</TABLE>

                                      F-25
<PAGE>   97

               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. CONSOLIDATED FINANCIAL STATEMENTS

     The consolidated balance sheet as of September 30, 1999 and the
consolidated statements of income and cash flows for the periods ended September
30, 1998 and September 30, 1999 have been prepared by the Company in accordance
with the accounting policies described in its annual financial statements for
the year ended December 31, 1998 and should be read in conjunction with the
notes thereto.

     In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position at
September 30, 1999 and results of operations and changes in cash flows for all
periods presented have been made. The results of operations for the period ended
September 30, 1999 are not necessarily indicative of the operating results for
the full year.

2. PRO FORMA NET INCOME AND PER SHARE AMOUNTS

     As discussed in note 11 to the consolidated financial statements, the Board
of Directors of the Company approved a plan of merger with DTC Communications
Corporation ("DTC").

     The Company, as a cooperative, does not have outstanding shares of stock.
Rather the Company has accumulated capital credits due to its current and former
members. For purposes of the pro forma data below, ten dollars of capital
credits are equal to one share of common stock.

     Pursuant to Statement of Financial Accounting Standards No. 128, Earnings
per Share ("FAS 128"), basic earnings per share is computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is computed by
dividing net income by the weighted average number of common and common
equivalent shares outstanding during the year, which includes the additional
dilution related to conversion of convertible debt and/or preferred stock and
the exercise of stock options as computed under the treasury stock method.
Because there were no convertible securities outstanding during each of the nine
months ended September 30, 1998 and 1999, diluted earnings per share was equal
to basic earnings per share.

                                      F-26
<PAGE>   98
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     DTC is a taxable entity. The Company, except for its wholly owned
subsidiary, has not been subject to federal or state income taxes. The following
unaudited pro forma amounts present basic earnings per share and diluted
earnings per share as if the Company had been a taxable corporation for the nine
months ended September 30, 1998 and 1999, respectively:

<TABLE>
<CAPTION>
                                                                 PRO FORMA -- UNAUDITED
                                                         ---------------------------------------
                                                         SEPTEMBER 30, 1998   SEPTEMBER 30, 1999
                                                         ------------------   ------------------
<S>                                                      <C>                  <C>
Net income, as reported................................      $3,215,721           $5,174,780
Additional tax provision...............................       1,283,230            1,828,873
                                                             ----------           ----------
  Pro forma net income.................................      $1,932,491           $3,345,907
                                                             ==========           ==========
  Weighted average shares outstanding..................       1,708,710            2,160,846
                                                             ==========           ==========
  Basic earnings per share.............................      $     1.13           $     1.55
                                                             ==========           ==========
  Diluted earnings per share...........................      $     1.13           $     1.55
                                                             ==========           ==========
</TABLE>

3. SEGMENT AND SIGNIFICANT CUSTOMER INFORMATION

     As discussed in note 10 to the consolidated financial statements, the
Company has two reportable segments -- Wireline Services and Wireless Products
and Services.

     Wireline Services include local telephone service and toll calls as well as
access services that enable long-distance carriers to complete calls to or from
locations outside of the Company's wireline operating area. Wireline Services
also provides billing and collection services to other telecommunications
companies.

     Wireless Products and Services includes wireless communications services
and the sale of cellular telephones and accessories.

                                      F-27
<PAGE>   99
               DEKALB TELEPHONE COOPERATIVE, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Segment results for the nine months ended September 30, 1998 and 1999 are
as follows:

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
WIRELINE SERVICES
  Local telephone services revenue..........................  $ 3,121,733   $ 3,299,437
  Network access services revenue...........................    6,527,984     8,164,108
  Billing and collection services revenue...................      827,501       787,328
  Directory publication revenue.............................      173,247       214,125
  Other miscellaneous revenue...............................      180,045       175,173
                                                              -----------   -----------
               Total revenue................................  $10,830,510   $12,640,171
                                                              ===========   ===========
  Operating income..........................................  $ 3,513,316   $ 4,879,090
  Total assets..............................................   42,668,823    44,529,018
<CAPTION>
                                                                 1998          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
WIRELESS PRODUCTS AND SERVICES
  Local services revenue....................................  $ 1,450,523   $ 1,851,330
  Roaming and toll revenue..................................      946,870     1,168,943
  Equipment sales and activation fees.......................       97,578       180,952
                                                              -----------   -----------
               Total revenue................................  $ 2,494,971   $ 3,201,225
                                                              ===========   ===========
  Operating income..........................................  $   239,559   $   556,412
  Total assets..............................................    7,115,855     8,105,192
</TABLE>

SIGNIFICANT CUSTOMER INFORMATION

     A single long-distance carrier provides a significant portion of the
Company's network access services and billing and collection revenue. For the
nine months ended September 30, 1998 and 1999, this customer provided $1,271,540
and $1,310,548, respectively, of the Company's total operating revenues.
Revenues from this significant customer are included in the Wireline Services
segment.

                                      F-28
<PAGE>   100

                                   APPENDIX A

                     PROPOSED PLAN AND AGREEMENT OF MERGER

                                 BY AND BETWEEN

                       DEKALB TELEPHONE COOPERATIVE, INC.

                                      AND

                            DTC COMMUNICATIONS CORP.

                                       A-1
<PAGE>   101

                          AGREEMENT AND PLAN OF MERGER

                                       OF

                       DEKALB TELEPHONE COOPERATIVE, INC
                           (A TENNESSEE COOPERATIVE)

                                      AND

                            DTC COMMUNICATIONS CORP.
                           (A TENNESSEE CORPORATION)

     THIS AGREEMENT AND PLAN OF MERGER dated as of October 18, 1999 (the
"Agreement") is between DeKalb Telephone Cooperative, Inc., a Tennessee
cooperative ("Cooperative") and DTC Communications Corp., a Tennessee
corporation ("DTC"). The Cooperative and DTC are sometimes referred to herein as
the "Constituent Corporations."

                                    RECITALS

     A. DTC is a corporation duly organized and existing under the laws of the
State of Tennessee, with an authorized capital of 220,000,000 shares,
199,000,000 of which are designated "Class A Voting Common Stock" ("Class A
Common"), 1,000,000 of which are designated as "Class B Non-Voting Common Stock"
("Class B Common") (the Class A Common and the Class B Common being sometimes
herein referred to as the "Common Stock") and 20,000,000 of which are designated
"Preferred Stock." The Preferred Stock of DTC is undesignated as to series,
rights, preferences, privileges or restrictions. As of the date hereof, 100
shares of Class A Common were issued and outstanding, all of which were held by
the Cooperative, and no shares of either Class B Common or Preferred Stock were
issued and outstanding.

     B. The Cooperative is a corporation duly organized and existing under the
laws of the State of Tennessee, having in 1974 elected to convert to a rural
telephone cooperative under the provisions of the Telephone Cooperative Act,
presently found at T.C.A. Sections 65-29-101 et seq. The Cooperative has no
authorized capital; however, as a cooperative owned by its members, it has
patronage capital which, as of June 30, 1999, was approximately $25.5 million.

     C. The Board of Directors of the Cooperative has determined that, for the
purpose of effecting the conversion of the Cooperative to a for profit
corporation subject to the provisions of the Tennessee Business Corporation Act,
T.C.A. Sections 48-11-101 et seq., it is advisable and in the best interests of
the Cooperative and its members that the Cooperative merge with and into DTC
upon the terms and conditions herein provided.

     D. The respective Boards of Directors of DTC and the Cooperative have
approved this Agreement and have directed that this Agreement be submitted to a
vote of their respective sole shareholder and members and executed by the
undersigned officers.

     NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, DTC and the Cooperative hereby agree as follows:

                                       A-2
<PAGE>   102

                                   I. MERGER

     1.1  Merger.  In accordance with the provisions of this Agreement, the
Tennessee Business Corporation Act, the Tennessee Nonprofit Corporation Act and
the Telephone Cooperative Act, the Cooperative shall be merged with and into DTC
(the "Merger"), the separate existence of the Cooperative shall cease and DTC
shall survive the Merger and shall continue to be governed by the laws of the
State of Tennessee. DTC shall be, and is herein sometimes referred to as, the
"Surviving Corporation." The name of the Surviving Corporation shall be DTC
Communications Corp.

     1.2  Conditions Precedent.  Neither the Cooperative or DTC shall be
required to consummate the Merger if all of the following conditions have not
been satisfied or waived:

          (a) this Agreement and Merger shall have been adopted and approved by
     the sole shareholder of DTC and the members of the Cooperative in
     accordance with the requirements of the Tennessee Business Corporation Act,
     the Tennessee Nonprofit Corporation Act and the Telephone Cooperative Act;

          (b) the Cooperative and DTC shall have received all material licenses,
     permits, consents, approvals, authorizations, qualifications and orders of
     governmental authorities and parties to contracts with the Cooperative and
     its subsidiaries necessary for consummation of the Merger (other than those
     which, if not obtained, would not have a material adverse effect upon: (1)
     the Merger; (2) the financial condition or results of operations of the
     Cooperative and it subsidiaries taken as a whole; or (3) the continuation
     by DTC of the business and operations of the Cooperative and its
     subsidiaries after the consummation of the Merger);

          (c) no litigation or other proceeding shall have been instituted that
     seeks to prevent consummation of the Merger or to obtain material damages
     as a result of consummation of the Merger, and no restraining order or
     injunction issued by any court of competent jurisdiction shall be in effect
     prohibiting the consummation of the Merger; and

          (d) there shall not have been proposed, enacted or deemed applicable
     to the Merger any statute, rule, regulation or order by any governmental
     agency or other regulatory or administrative authority which, in the sole
     judgment of the Cooperative, might materially adversely affect or
     materially delay the Merger.

     1.3  Filing and Effectiveness.  The Merger shall become effective when the
following actions shall have been completed:

          (a) all of the conditions precedent to the consummation of the Merger
     specified in this Agreement shall have been satisfied or duly waived; and

          (b) executed Articles of Merger meeting the requirements of the
     Tennessee Business Corporation Act and the Tennessee Nonprofit Corporation
     Act shall have been filed with the Secretary of State of the State of
     Tennessee.

The date and time when the Merger shall become effective, as aforesaid, is
herein called the "Effective Date of the Merger."

     1.4  Effect of the Merger.  Upon the Effective Date of the Merger, the
separate existence of the Cooperative shall cease and DTC, as the Surviving
Corporation, (i) shall continue to possess all of its assets, rights, powers and
property as constituted immediately prior to the Effective Date of the Merger,
(ii) shall be subject to all actions previously taken by its and the
Cooperative's Boards of Directors, (iii) shall succeed, without other transfer,
to all of the assets, rights, powers and property of the Cooperative in the
manner more fully set forth in Section 48-21-108 of the Tennessee Business

                                       A-3
<PAGE>   103

Corporation Act and Section 48-61-105 of the Tennessee Nonprofit Corporation
Act, (iv) shall continue to be subject to all of the debts, liabilities and
obligations of the Cooperative as constituted immediately prior to the Effective
Date of the Merger, and (v) shall succeed, without other transfer, to all of the
debts, liabilities and obligations of the Cooperative in the same manner as if
DTC had itself incurred them, all as more fully provided under the applicable
provisions of the Tennessee Business Corporation Act and the Tennessee Nonprofit
Corporation Act.

                 II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS

     2.1  Charter. The Charter of DTC as in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Charter of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.

     2.2  Bylaws. The Bylaws of DTC as in effect immediately prior to the
Effective Date of the Merger shall continue in full force and effect as the
Bylaws of the Surviving Corporation until duly amended in accordance with the
provisions thereof and applicable law.

     2.3  Directors and Officers. The directors and officers of DTC immediately
prior to the Effective Date of the Merger shall be the directors and officers of
the Surviving Corporation until their successors shall have been duly elected
and qualified or until as otherwise provided by law or the Charter or Bylaws of
the Surviving Corporation.

                     III. MANNER OF CONVERSION OF STOCK AND
                              MEMBERSHIP INTERESTS

     3.1  DTC Common Stock. Upon the Effective Date of the Merger, each share of
Common Stock of DTC issued and outstanding immediately prior thereto, by virtue
of the Merger and without any action by DTC, the holder of such shares or any
other person, shall be canceled and returned to the status of authorized but
unissued shares.

     3.2  Cooperative Patronage Capital. Upon the Effective Date of the Merger,
the patronage capital of the Cooperative as of the Effective Date of the Merger,
by virtue of the Merger and without any action by the Constituent Corporations,
the members or any other person, shall be converted into and exchanged for the
right to receive the following (the "Merger Consideration"):

          (a) each person or entity who, as of the Effective Date of the Merger,
     is an active member of (i.e., one who has standard telephone service with)
     the Cooperative shall receive one (1) fully paid and nonassessable share of
     Class A Common of the Surviving Corporation for each ten dollars ($10.00)
     in patronage capital that the member has on the books of the Cooperative as
     of the Effective Date of the Merger;

          (b) each person or entity who, as of the Effective Date of the Merger,
     is an inactive member of (i.e., one who previously had, but as of the
     Effective Date of the Merger no longer has standard telephone service with)
     the Cooperative shall receive one (1) fully paid and nonassessable share of
     Class B Common of the Surviving Corporation for each ten dollars ($10.00)
     in patronage capital that the member has on the books of the Cooperative as
     of the Effective Date of the Merger; and

          (c) each person or entity that receives either Class A Common or Class
     B Common of the Surviving Corporation under subparagraphs (a) or (b) above
     shall receive cash for any fractional share that results from that person
     or entity's patronage capital account being an amount other than exact
     multiples of $10.00.

                                       A-4
<PAGE>   104

     3.3  Issuance of Certificates.  After the Effective Date of the Merger, and
in no event later than sixty (60) days after the Effective Date of the Merger,
DTC shall issue to each person or entity entitled to receive the Merger
Consideration any cash and certificates representing any Common Stock that the
person or entity is entitled to receive pursuant to Section 3.2.

     Until the certificates for such Common Stock shall have been issued by the
Surviving Corporation, the registered owner on the books and records of the
Cooperative of any patronage capital which, pursuant to the Merger, has been
converted into Common Stock of the Surviving Corporation shall have and be
entitled to exercise any voting and other rights with respect to and to receive
dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation to which holders of the Common Stock would be entitled.

                                  IV. GENERAL

     4.1  Further Assurances.  From time to time, as and when required by DTC or
by its successors or assigns, there shall be executed and delivered on behalf of
the Cooperative such deeds and other instruments, and there shall be taken or
caused to be taken by DTC and the Cooperative such further and other actions as
shall be appropriate or necessary in order to vest or perfect in or conform of
record or otherwise by DTC the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of the Cooperative and otherwise to carry out the purposes of this
Agreement. The officers and directors of DTC are fully authorized in the name
and on behalf of the Cooperative or otherwise to take any and all such action
and to execute and deliver any and all such deeds and other instruments.

     4.2  Abandonment.  At any time before the Effective Date of the Merger,
this Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either the Cooperative or of DTC, or of
both, notwithstanding the approval of this Agreement by the members of the
Cooperative or by the sole shareholder of DTC, or by both.

     4.3  Amendment.  The Boards of Directors of the Constituent Corporations
may amend this Agreement at any time prior to the filing of this Agreement (or
articles of merger with respect thereto) with the Secretary of State of the
State of Tennessee, provided that an amendment made subsequent to the adoption
of this Agreement by the members of the Cooperative and the sole shareholder of
DTC shall not: (a) alter or change the amount or kind of shares, securities,
cash, property and/or rights to be received in exchange for or on conversion of
all or any of the patronage capital of the Cooperative; (b) alter or change any
term of the Charter of the Surviving Corporation to be effected by the Merger;
or (c) alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the members of the Cooperative or
the holders of any class or series of capital stock of DTC.

     4.4  Agreement.  Executed copies of this Agreement will be on file at the
principal place of business of the Surviving Corporation at 111 High Street,
Alexandria, Tennessee 37012 and copies thereof will be furnished to any
shareholder or member of either Constituent Corporation, upon request and
without cost.

     4.5  Governing Law.  This Agreement shall in all respects be construed,
interpreted and enforced in accordance with and governed by the laws of the
State of Tennessee and, so far as applicable, the merger provisions of the
Tennessee Business Corporation Act and the Tennessee Nonprofit Corporation Act.

                     [Signatures appear on following page]
                                       A-5
<PAGE>   105

     IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Board of Directors of DTC Communications Corp., a Tennessee
corporation, and DeKalb Telephone Cooperative, Inc., a Tennessee cooperative, is
hereby executed on behalf of each of such two corporations by their respective
officers thereunto duly authorized.

                                        DEKALB TELEPHONE COOPERATIVE, INC.

                                        By: /s/ ROY N. PUGH
                                           -------------------------------------
                                        Title: President
                                            ------------------------------------

                                        DTC COMMUNICATIONS CORP.

                                        By: /s/ H. WAYNE GASSAWAY
                                           -------------------------------------
                                        Title: President & CEO
                                            ------------------------------------

                                       A-6
<PAGE>   106

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     NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT/PROSPECTUS IN
CONNECTION WITH THE OFFERING AND SOLICITATION MADE HEREBY. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY
THIS INFORMATION STATEMENT/PROSPECTUS IN ANY JURISDICTION TO OR FROM ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES THIS INFORMATION STATEMENT/PROSPECTUS OFFERS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A
CHANGE IN THE INFORMATION CONTAINED HEREIN OR IN THE AFFAIRS OF DEKALB TELEPHONE
COOPERATIVE OR DTC SINCE THE DATE HEREOF.

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