SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
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For the transition period from to
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Commission file number 33-95298

GALAXY TELECOM, L.P.
(Exact name of Registrant as specified in its charter)

Delaware 43-1697125
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(States of Other Jurisdictions of IRS Employer
Incorporation or Organization) Identification No.)

1220 North Main

Sikeston, Missouri 63801
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (573) 472-8200
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to section 12(g) of the Act: None.

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of the voting equity securities held by non-affiliates of
Galaxy Telecom, L.P.: $0

Aggregate market value of the voting equity securitiesheld by non-affiliates of
Galaxy Telecom Capital Corp.: $0

Number of shares of Galaxy Telecom Capital Corp. outstanding as of March 31,
2000: 100

DOCUMENTS INCORPORATED BY REFERENCE: Not applicable.

GALAXY TELECOM, L.P.
FORM 10-K
Year Ended December 31, 1999

TABLE OF CONTENTS

Item Topic Page
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PART I

1. Business............................................................ 3
2. Properties..........................................................29
3. Legal Proceedings...................................................29
4. Submission of Matters to a Vote of
Security Holders....................................................29

PART II

5. Market for the Registrant's Securities

and Related Security Holder Matters.................................30
6. Selected Financial Data.............................................30
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................31
7a. Qualitative and Quantitative Disclosures about
Market Risks........................................................41
8. Financial Statements and Supplementary Data........................F-1
9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure............................. 42

PART III

10. Directors and Executive Officers of the Registrant..................42
11. Executive Compensation............................................. 43
12. Security Ownership of Certain Beneficial
Owners and Management...............................................44
13. Certain Relationships and Related Transactions......................46

PART IV

14. Exhibits, Financial Statement Schedules

and Reports on Form 8-K.............................................50

Signatures..................................................................50

PART I

Item 1. Business.

General

The Company owns, operates and develops clusters of classic cable
television systems ("Systems"), primarily in rural and non-metropolitan areas in
the Midwestern and Southeastern United States. The Company seeks to be the
premier provider of cable and broadband services in its core service areas
(which include Southeastern Nebraska, Kansas, Southern Illinois, Western
Kentucky and Northern and Central Mississippi) by: (i) developing, upgrading and
acquiring cable television systems in these areas, and (ii) utilizing its fiber
optic network to provide enhanced cable television services, such as digital
cable and high-speed Internet access, and advanced telecommunications and broad
band network services.

The Partnership has incurred losses each year since its inception and has a
partnership deficit of $31.9 million at December 31, 1999. During 1999, the
Partnership continued implementation of a strategy whereby it would sell its
cable television systems in its non-core regions and focus on improving and
acquiring cable television systems in its core regions, which are primarily
located in Illinois, Kansas, Kentucky, Mississippi and Nebraska. In 1999 and
1998, the Partnership received proceeds from sales of its non-core cable
television systems of $10.1 million and $36.8 million, respectively, which was
primarily used to pay down the amounts due under its revolving line of credit.

At December 31, 1999, the Partnership was not in compliance with certain
covenants under its term loan agreement. As discussed in Note 7, on March 31,
2000 the Partnership amended its term loan agreement to modify financial
covenants and change the maturity date of all outstanding borrowings under the
term loan agreement.

Additionally, as part of this amended term loan agreement, the Partnership must
have a definitive sale agreement in force by May 31, 2000 to sell substantially
all the interests of the Partnership sufficient for the repayment of all
Partnership loans including the Senior Subordinated Notes. This definitive
agreement shall not contain any such contingencies allowing the purchaser to
terminate such an agreement arising from: (a) the failure of such purchaser to
obtain the financing necessary for purchase, (b) the failure of such purchaser
to obtain the approvals necessary for such purchase or (c) relating to the
completion of any due diligence review by such purchaser other than completion
of reasonable due diligence customarily to be completed in such transaction
after signing such agreement. Absent of such an agreement to sell substantially
all the assets of the Company triggers an event of default under the terms of
the amended loan agreement.

Management is actively pursuing the sale of the interests of the
Partnership in accordance with the amended term loan agreement. However,
entering into a definitive agreement as described above by May 31, 2000 is not
assured.

In light of the Partnership's current projected earnings and cash flow,
the Partnership believes it will have the financial resources to maintain its
current level of operations until December 31, 2000, the term loan maturity
date. However, cash generated from operations alone will not be sufficient to
pay the term loan on December 31, 2000 without proceeds from the sale of assets
or refinancing of the term loans. Additionally, such a sale as required by the
loan agreement would represent a change in control as defined in the Senior
Subordinated Loan Agreement and would represent an event of redemption.

Absence of the completion of the aforementioned definitive agreement, and
the Partnership's inability to meet its cash flow needs, raises substantial
doubt about its ability to continue as a going concern.

Galaxy believes there are significant advantages to acquiring and
operating classic cable television systems. Historically, in classic cable
television markets, cable television service is necessary in order to receive a
full complement of over-the-air television stations (including
network-affiliated stations). In addition, these markets generally offer fewer
competing entertainment alternatives than larger urban or suburban markets. As a
result, classic cable television systems usually have higher basic penetration
rates and lower churn rates than systems serving larger markets. As compared
with urban and suburban systems, classic systems have more programming
flexibility for a given channel capacity because they are generally in areas
with fewer over-the-air broadcast stations that must be carried and have fewer
local programming obligations. In addition, Galaxy believes that it and other
classic cable system operators have lower capital costs per subscriber than
urban and suburban operators do. Based on the generally lower cost of living in
its operating areas, Galaxy also believes that classic systems have lower labor
and marketing costs than many urban and suburban systems.

The three key individuals who manage Galaxy's day-to-day operations (the
"Senior Managers") have developed and refined the operating strategy utilized by
Galaxy to efficiently and economically provide high quality customer service to
classic cable television systems spread over a wide geographic area. Galaxy's
existing infrastructure includes two customer service centers that receive
customer calls through a toll-free telephone number. At the service centers,
customer service representatives can address virtually any request or problem a
customer may have through an on-line customer support computer system utilizing
advanced software. The central computer system is integrated with the Qualcomm
OmniTRACS(TM) satellite-based dispatch system, which has been installed in
virtually all of Galaxy's service vehicles. The OmniTRACS system provides the
customer service representatives with direct, real-time, two-way interactive
communication with Galaxy's field technicians and generates comprehensive
customer service information on a timely basis. The integration of the OmniTRACS
system with the centralized computer system allows Galaxy to control costs,
better manage the customer service function and provide its customers with high
quality service, generally within a 24-hour period.

Galaxy believes that consistently high quality performance from its local
field technicians is important in maintaining good community relations. Galaxy
has an ongoing program of training its field technicians not only in technical
areas but also in customer service and sales functions. Galaxy strives to have
its local field technicians represent Galaxy in each of their respective service
areas as well-trained, responsible and respected members of their communities.

Galaxy believes its real opportunity lies in the development of its
properties in Nebraska, Kansas, Illinois, Kentucky and Mississippi (the "Core
Areas"). The Core Areas are considered such due to Galaxy's opportunity to be
the dominant operator in these areas and the ability to generate additional
revenue through its fiber network (see "Technology and Engineering" discussed
below). The properties that are not in the Core Areas are currently in the
process of being sold, traded or re-evaluated for potential conversion to Core
Areas.

Background

The Senior Managers, Tommy L. Gleason, Jr., James M. Gleason and J. Keith
Davidson have been involved in the construction, acquisition, ownership,
management and operation of classic cable television systems as a team for more
than 15 years. They have collective experience in the cable television industry
exceeding 60 years. From 1987 through 1994, the Senior Managers operated
approximately 100 classic cable television systems for Galaxy Cablevision, L.P.
("Galaxy Cablevision"); a master limited partnership traded on the American
Stock Exchange. Prior thereto, between 1981 and 1987, the Senior Managers
constructed and operated cable television systems in Alabama, Illinois, Indiana,
Tennessee and Texas through a number of related entities.

In response to changes in the federal tax laws regarding master limited
partnerships, Galaxy Cablevision commenced in 1994 the liquidation of its cable
television holdings. Thereafter, the Senior Managers organized Galaxy Systems
Management, Inc. ("Galaxy Management") to acquire selected cable television
properties. Commencing in May 1994, Galaxy Management entered into definitive
agreements to acquire selected cable television systems from Galaxy Cablevision,
Vantage Cable Associates, L.P. ("Vantage Cable"), Vista Communications Limited
Partnership, III ("Vista Communications") and Chartwell Cable of Colorado, Inc.
("Chartwell"), (collectively the "Initial Systems"). Each of these agreements
was assigned to, and assumed by, Galaxy prior to the consummation of each of the
transactions. In order to facilitate Galaxy's acquisition of the Initial
Systems, funds managed by TA Associates, Spectrum Equity Investors and Fleet
Equity Partners (the "Equity Investors") and the Senior Managers, collectively,
invested equity capital of approximately $30 million in Galaxy. These
acquisitions represented 223 cable television systems.

During 1995, Galaxy entered into definitive agreements to acquire selected
cable television systems representing approximately 300 cable systems and 81,700
subscribers from Galaxy Cablevision, Phoenix Cable, Douglas Communications,
Friendship Cable and Vista Communications, for approximately $92.2 million, or
approximately $1,130 per subscriber.

During 1996, Galaxy entered into definitive agreements to acquire selected
cable television systems representing approximately 16,200 subscribers from
Cablevision of Texas, High Plains Cable, Midcontinent Cable, Five Rivers Cable
Company, Hurst Communications and CS Cable Services, Inc., for approximately
$15.8 million, or approximately $980 per subscriber. During 1996, Galaxy traded
one system located in Kansas representing approximately 7,000 subscribers for
assets comprising six cable television systems of Tele-Communications, Inc.
located in northern Mississippi representing approximately 10,400 subscribers.
Galaxy also traded assets comprising the Ranburn cable system in Ranburn,
Alabama serving approximately 110 subscribers for a similar system in Mexia,
Alabama serving approximately 230 subscribers.

During 1997, Galaxy entered into definitive agreements to acquire selected
cable television systems representing approximately 1,610 subscribers from TCI
Cable of the Midland., for approximately $1.7 million, or approximately $1,056
per subscriber. During 1997, Galaxy sold systems located in South Carolina,
Mississippi and Kansas representing approximately 3,080 subscribers for
approximately $3.3 million, or approximately $1,070 per subscriber.

1998 Acquisitions, Dispositions and Trades

Galaxy acquired and disposed of various assets comprising cable television
systems during 1998. Following is a brief discussion of each transaction.

On January 15, 1998, Galaxy sold its cable television systems located in
Wyoming and Idaho, representing 4,000 subscribers for $4.9 million or $1,225 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

On February 1, 1998, Galaxy sold its cable television system located in
Hooper, Nebraska, representing 242 subscribers for approximately $262,000, or
approximately $1,080 per subscriber. Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

On March 31, 1998, Galaxy sold two cable television systems located in
Olathe, Kansas, and Independence, Missouri, representing 269 subscribers for
approximately $190,000, or approximately $706 per subscriber. Galaxy used the
proceeds from this sale to pay down principal of the revolving note.

On March 31, 1998, Galaxy sold six cable television systems located in and
around Ottawa County, Kansas, representing 752 subscribers for approximately
$623,000, or approximately $830 per subscriber.

On March 31, 1998, Galaxy purchased one cable television system located in
Brooks and Colquitt Counties in Georgia, representing approximately 300
subscribers for approximately $141,000, or approximately $470 per subscriber.

On March 31, 1998, Galaxy traded four cable television systems located in
and around Sheridan County, Nebraska, representing approximately 850 subscribers
for one cable television system located in Jefferson County, Colorado,
representing approximately 730 subscribers.

On April 30, 1998, Galaxy sold seven cable television systems located in
and around Lincoln County, Kansas, representing approximately 500 subscribers
for approximately $395,000, or approximately $790 per subscriber. Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

On June 30, 1998, Galaxy sold one cable television system located in
Goessel, Kansas, representing approximately 100 subscribers for approximately
$110,000, or approximately $1,100 per subscriber. Galaxy used the proceeds from
this sale to pay down principal of the revolving note.

On June 30, 1998, Galaxy sold all of its cable television systems located
in central Georgia, representing approximately 5,100 subscribers for
approximately $6,120,000, or approximately $1,200 per subscriber. Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

On July 31, 1998, Galaxy two cable television systems located in Kansas,
representing 201 subscribers for approximately $171,000, or approximately $850
per subscriber.

On August 20, 1998, Galaxy sold 25 cable television systems, 13 systems
located in Iowa and 12 systems located in Missouri, representing approximately
3,972 subscribers for approximately $3,178,000, or approximately $800 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

On August 31, 1998, Galaxy sold nine cable television systems located in
Southwest Georgia, representing approximately 2,225 subscribers for
approximately $2,760,000, or approximately $1,240 per subscriber. Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

On August 31, 1998, Galaxy sold 23 cable television systems, 14 systems
located in Illinois and nine in Nebraska, representing approximately 3,210
subscribers for approximately $2,758,000, or approximately $860 per subscriber.
Galaxy used the proceeds from this sale to pay down principal of the revolving
note.

On November 30, 1998, Galaxy sold its cable television systems located in
Louisiana, representing 5,575 subscribers for approximately $9,500,000, or
approximately $1,700 per subscriber. Galaxy used the proceeds from this sale to
pay down principal of the revolving note.

On December 31, 1998, Galaxy sold one cable television system located in
Hawkins County, Tennessee, representing approximately 1,740 subscribers for
approximately $2,050,000, or approximately $1,177 per subscriber. Galaxy used
the proceeds from this sale to pay down principal of the revolving note.

On December 31, 1998, Galaxy sold 72 cable television systems located in
Illinois, Missouri and Kansas, representing approximately 8,300 subscribers for
approximately $6,200,000, or approximately $750 per subscriber. In addition,
Galaxy realized a 40% equity position in Galaxy American Communications, LLC
("GAC"). This equity has no current market value at the present time. Galaxy
used the proceeds from this sale to pay down principal of the revolving note.

1999 Acquisitions, Dispositions and Trades

On February 12, 1999, Galaxy sold one satellite master antenna television
system ("SMATV") located in Spring Creek, Georgia, representing approximately
1,000 subscribers for approximately $1,220,000, or approximately $1,220 per
subscriber, and recorded a gain on sale of approximately $1.0 million. Galaxy
used the proceeds from this sale to pay down principal of the revolving note.

On May 1, 1999, Galaxy traded 6 cable television systems,
representing approximately 7,500 subscribers for seven cable television systems,
representing approximately 7,100 subscribers from Mississippi Cablevision, Inc.
("MCI"), an affiliate of Telecommunications, Inc. The Galaxy cable television
systems are located primarily in Colorado, Iowa and South Dakota, while the MCI
cable television systems are located in Mississippi. The trade was accounted for
as a business combination in accordance with the Accounting Principles Board
Opinion No. 16 "Business Combinations." The estimated fair market value of the
cable television systems received was approximately $9.4 million or
approximately $1,300 per subscriber. The fair market value of the cable
television systems received was estimated by using the purchase price (price per
subscriber) for similar cable television systems bought from MCI by an affiliate
of Galaxy. The net historical cost of the cable television systems given up was
approximately $6.9 million, resulting in Galaxy recording a gain on sale of
approximately $2.5 million, net of expenses.

On June 23, 1999, Galaxy sold 8 cable television systems, located
primarily in Alabama, representing approximately 5,500 subscribers for
approximately $8.4 million, or approximately $1,540 per subscriber, and recorded
a gain on sale of approximately $1.8 million. Galaxy used the proceeds from this
sale to pay down principal of the revolving note.

On October 1, 1999, Galaxy sold seven satellite master antenna television
systems("SMATV's") and two cable systems located primarily in the Kansas City
area, representing approximately 1,165 subscribers for approximately $1.36
million, or approximately $1,161 per subscriber, and recorded a gain on sale of
approximately $244,000. Galaxy used the proceeds from this sale to pay down
principal of the revolving note.

Pending Dispositions

On March 31, 2000, Galaxy sold one cable television system, located in
Kansas, representing approximately 1,424 subscribers for approximately $3.5
million, or approximately $2,492 per subscriber. Galaxy will use the proceeds
from this sale to pay down principal of the term loan.

Cable Operations

The Company has been focusing on increasing its cash flow generated from
classic cable markets which are in or contiguous to its Core Systems. By
clustering Systems, the Company believes that it realizes economies of scale,
such as reduced payroll expenses, reduced local management and technical costs
per subscriber, reduced direct sales expenses, increased local advertising sales
and more efficient introduction and utilization of new technologies. The Company
will continue to explore acquiring systems in its core service areas and
divesting its Non-Core Systems.

The Company is in the midst of a significant capital expenditure plan
designed to upgrade and interconnect its Core Systems by installing fiber optic
cable and associated electronic equipment. Such installation allows the Company
to significantly increase the transmission capacity of the affected systems
(thereby providing the Company with the opportunity to add new programming
services, such as Digital Cable), increase the quality of such transmissions and
achieve operational efficiencies, including the reduction of headends and
related expenses. The Company has realized increased revenues and cash flow in
its Core Systems where the Company has implemented upgrades and
interconnectivity.

Cable Strategy. The Company's cable strategy is to achieve superior operating
performance by consolidating its operations within its Core Systems and
utilizing and expanding its fiber optic network beyond its current 1,400 miles
to offer a broader array of services while improving service quality and
lowering operating costs. The Company's cable strategy consists of the following
elements:

o Focus on Expansion of Core Systems. The Company intends to continue its
focused acquisition and consolidation strategy within its Core Systems. The
Company recently acquired cable systems from TCI that are contiguous to the Core
Systems operations in Northern Mississippi. The Company will continue to pursue
acquisitions of systems in close proximity to its Core Systems that can be
incorporated into its current or planned fiber network. The Company believes
that it will be able to further enhance subscriber cash flows as it completes
acquisitions complementary to its Core Systems, further upgrades and expands its
fiber network in its core service areas, and continues to divest its Non-Core
Systems.

o Implement Operating Efficiencies. Upon acquiring a System, the Company
implements extensive management, operational and technical changes designed to
improve operating efficiencies and increase operating cash flow. By centralizing
and upgrading customer support functions, the Company expects to reduce
administrative costs and better manage and train employees, while providing a
higher level of customer service. The Company also seeks to reduce technical
operating costs and capital expenditures by consolidating headend facilities.
The Company's goal is to continue to reduce the number of headends in its Core
System to fewer than 100, while assuming the same number of total subscribers.

o Strategically Upgrade Systems. The Company is currently upgrading and
interconnecting its system capabilities by significantly increasing the amount
of fiber optic cable in its Core Systems. In addition to the resulting reduction
in the number of headends required and increased channel capacity, the
installation of fiber optic cable will allow the Company to provide enhanced
services, including Digital Cable and high-speed Internet access via cable
modems. Digital Cable, which the Company is currently testing in one of its Core
Systems, includes near video-on-demand, multi-channel pay-per-view, inter-active
navigator and multiplex premium services by employing video compression
technology. This technology allows the Company to offer up to 12 digital
channels in the same frequency spectrum required to transmit a single analog
channel. Cable modems permit high-speed Internet access and enhanced web site
services. The Company has 44 cable modem customers as of December 31, 1999. The
fiber enhancement of the Company's Core Systems will also allow it to aggregate
larger numbers of subscribers on each headend. The Company believes this allows
it to increase advertising margins because the ad insertion equipment which the
Company installs in each headend will reach more subscribers.

o Enhance Customer Value. The Company strives to assure product quality and
reliable service. The Company's regional call centers incorporate advanced
computer technology and communications equipment which allow the Company to
effectively manage its Systems. The Company believes that by investing in
ongoing, recurring training and incentive plans for both its customer service
staff and technical personnel it is able to maintain a high level of commitment
to service among these important customer contact employees.

Telecommunications Services Operations

As the Company began to deploy fiber optic cable in Nebraska and Kansas to
interconnect its Systems, it was approached by a group of educational
institutions and state agencies about utilizing this network to provide them
with advanced telecommunications services. Upon further review of demand for
these services in Nebraska and Kansas, the Company realized that the offering of
video conferencing for distance learning, wide area network connections and an
intrastate virtual private telephone network (which includes four-digit dialing
and Internet access) (the "Telecom Services") represented an attractive new
business opportunity for the Company with the potential for high operating
margins. In July 1997, and September, 1997, the Company began to provide one or
more of these services to schools in Nebraska and Kansas, respectively. As of
December 31, 1999, the Company served 70 schools in Nebraska and 6 schools in
Kansas.

Markets Served. The Company has developed detailed business and network
architecture plans for each of Nebraska and Kansas in order to successfully
market to the educational institutions and state agencies in these states and
take advantage of the sizeable demand for such Telecom Services. The Nebraska
plans call for these services to be delivered over the Company's Nebraska fiber
optic network (the "Nebraska Network"), which was originally designed to serve
its cable television systems. As a result, the Telecom Services can be delivered
at little additional incremental cost to the Company. The Company has already
constructed 900 miles of fiber optic cable in Nebraska and 36 miles of fiber
optic cable in Kansas.

Although the Nebraska market represents a potentially large revenue
opportunity for the Company, the size of the Kansas market opportunity is
significantly greater. Kansas has approximately 2,350 schools and 109 state
agencies, and the Company currently intends on offering Telecom Services to many
of these schools and agencies which are inside service territories currently
served by the Company's Kansas Systems. Other of these educational sites and
state agencies, however, are in areas outside of the service territories served
by the Company's Kansas Systems. As a result, Galaxy intends to expand its
Kansas fiber optic network (the "Kansas Network") beyond the areas served by its
Kansas Systems. This expansion will only occur in areas where either a school or
state agency has entered into an exclusive long-term contract with the Company
to provide Telecom Services. The actual miles of fiber optic cable laid in the
Kansas Network will be dependent on the number schools and state agencies which
enter into contracts with the Company.

Telecommunications Strategy. The Company's telecommunications services
strategy is to significantly enhance profitability by leveraging its fiber optic
network and existing infrastructure to broaden its customer base through the
provision of telecommunications and broadband services.

o Expand Telecommunications Offerings. The Company has designed its fiber
optic network with significant excess capacity to support a wide array of
telecommunications services and to be compatible with technologies still under
development in the industry, including server-based applications such as virtual
LANs, e-commerce, and voice over the Internet. The Company's fiber optic network
can provide up to 150 megabit WAN connections, private intranet services,
high-speed Internet access and intrastate virtual private networks using
four-digit dialing for multi-site customers. The Company can resell its excess
capacity to competitive local exchange carriers ("CLECs") and long distance
companies operating in its service areas. As the fiber optic network is built
out, the Company expects to expand its customer base initially to include
additional schools, and eventually governmental entities, businesses, and
strategic partners all of which can be added to the network at little
incremental cost.

o Concentrate Operations Geographically. The Company intends to provide
the Telecom Services in Nebraska and Kansas where it believes it has a
competitive advantage to be the low cost, superior customer service provider.
The Company can build out its fiber optic network at lower incremental costs
than competitors in these states because of the Company's existing cable
infrastructure, lower labor costs than in urban markets and favorable
topography. In addition, the fact that the Company will be first-to-market with
Telecom Services in these states, the sparse population of areas served and the
lack of existing infrastructure in both states create significant time and cost
barriers to entry for potential competitors.

o Provide Customized Services. The Company tailors service offerings,
sales and marketing techniques and network deployment to meet the different
needs of its customers. By working closely with customers, the Company designs
and engineers the services for each customer to meet the particular needs of
that customer. The Company has found that many of its competitors only offer
communication connections to customers, and that those customers must then
determine how to effectively use the communication capability. The Company
offers turn-key solutions by providing scaleable technology and training
together with fiber optic connections, thereby permitting the customer to more
effectively use its fiber optic connection. The Company believes its ability to
tailor services provides a distinct advantage over its potential competition for
contracts.

o Pursue Demand-Driven Network Deployment. The Company utilizes a
demand-driven approach to network construction by marketing and securing
long-term contracts for its services before committing capital expenditures to
develop or expand its fiber plant. The Company seeks to secure 5-10 year
contracts which provide for the Company to be the exclusive provider to its
customers of the services rendered for the duration of the contract.
Furthermore, pursuant to the terms of certain customer contracts, the Company
receives up-front reimbursement for a portion of the capital expenditures
required to purchase the necessary equipment and add the customer to its
network.

o Develop Strategic Relationships. The Company continues to seek to enter
into mutually beneficial strategic relationships with telecommunications service
providers and other entities operating in the same regions as its Core Systems.
The Company has an agreement with Broadband Networks, Inc. ("BNI"), a
telecommunications system designer and integrator, pursuant to which BNI
provides system design, grant process and marketing support, and equipment
procurement and installation to Telecom Service customers of the Company. The
Company has developed a strategic relationship with Cable USA, a communications
provider serving areas in Nebraska not currently served by the Company, to
interconnect their respective fiber optic networks to offer their broadband
services over a larger network. The Company is also in discussions with certain
CLEC providers pursuant to which the Company will provide the CLEC with access
to its fiber network. This will give the CLEC a broader reach into the tertiary
and more rural markets See "Risk Factors-Reliance Upon Certain Key Vendors" and
"Company-Telecommunications Services Operations; Strategic Relationships.".

The Company feels that their fiber network in both markets will be an
affordable means to CLECs for the transportation of both local and long distance
traffic back to their switch locations. One such CLEC is Birch Telecom, a Kansas
City based operator, whom the Company is working to develop an agreement which
will give Birch a broader reach into the tertiary and more rural markets. The
Company has developed a strategic relationship with Cable USA in Nebraska to
interconnect their respective fiber optic networks to offer their broadband
services over a larger network. Cable USA is a cable television provider, a
certified competitive access provider, a long distance carrier, a cellular
provider and has also filed with the Nebraska Public Service Commission for
authorization to conduct CLEC services in the State.

Marketing, Rates and Collections

The Company aggressively markets and promotes its cable television systems
with the objective of increasing penetration and average revenue per subscriber.
The Company actively markets the basic and premium programming of the Systems
primarily through door-to-door selling efforts, telemarketing, and, to a lesser
degree, through media advertising and direct mail. Each of the Company's
customer service centers has a Marketing Director who coordinates direct
door-to-door campaigns throughout the geographic areas of the Systems and is
responsible for internal incentives for the customer service and technical
staffs. The Marketing Director also insures that the Company is providing high
quality sales and service by supervising and training direct sales
representatives and assessing picture and service quality within the Company's
Systems. Customer service representatives follow up by telephone contact with
the customer on three separate occasions, generally 10, 30 and 60 days following
a new installation, to assess the quality of the installation, the overall
service the customer is receiving and to assure customer satisfaction.

The Company's current monthly rates for full basic service range from
$15.00 to $31.20, and rates for premium services from $6.95 to $13.40 per
service. The Company's goal has been to standardize its programming, rates, and
premium security over all of the Systems. During the past two years emphasis has
been placed on adding core programming to standardize channel line-ups,
obtaining discounted programming rates for channel placement, and negotiating
programming contracts that offer attractive rates and launch support. The
Company has restructured its packaging strategy offering multiple premium
services to range from $7.95 to $28.95. For example, a customer can receive the
Starz/Encore package for as low as $7.95 or the Showtime/The Movie Channel
Package for $10.95. This has allowed the customer several premium package
choices, while uncomplicating the sales and training process. Standardization of
the Company's channel lineups, programs, and pricing has simplified training,
improved system performance, and reduced cost.

The Company uses Convergys' Cablemaster 2000 for its billing system. This
is a system developed specifically for the cable television industry. Convergys
operates the billing system at its service center in Florida, and produces
statements for customers on a monthly basis. Billing statements are printed and
mailed directly to customers, who have 15 days from their cycle billing date to
remit payment to the Company's central payment processing center in Sikeston,
Missouri. If after 15 days a customer has not made a payment, the customer is
charged a late payment fee. The Company aggressively pursues collection of past
due amounts by telephoning the customer at approximately 35 days past the due
date. If these measures fail, the customer is notified and then disconnected. A
final statement is sent to the customer within a week after disconnection and 30
days thereafter the customer's account is referred to a collection agency. The
Company has contact with the Convergys center via phone and computer interface
and has immediate access to all of its billing and customer information as if
the process were done in-house.

In addition to monthly and installation fees, additional potential sources
of revenue for cable operators are the sale of local spot advertising time on
locally originated and satellite-delivered programming. The Company is realizing
significant growth in local advertising as it consolidates headends. The Company
believes that significant growth can be sustained as the average number of
subscribers per headend increases with consolidation. Cable systems also
generate revenue through sales of products offered through home shopping
channels since the local cable system receives a commission each time one of its
subscribers makes a purchase. The Company has increased its carriage of both QVC
and Home Shopping Network and has received launch support from each programmer.
Consequently the Company has increased its revenue from home shopping 33% from
1997 to 1999. Other potential sources of revenue include pay-per-view movies and
events (such as concerts, sporting events, and other entertainment features).
The Company currently does not generate significant revenues from pay-per-view.
However, the Company believes that, through its planned roll out of Digital
Cable service, pay-per-view revenues will show significant growth over the next
few years.

Programming

The Company typically carries a wide array of programming on its basic
service. To enhance value for its customers, the Company selectively modernizes
and upgrades its cable plant to increase the number of channel offerings and
improve the quality of signal delivered to its customers. The Company regularly
evaluates the programming offered to its customers and has significantly
increased the number of basic channels offered in its systems over the past two
years. The Company has launched an aggregate of approximately 3,000 channels of
programming over that time period. The Company was also one of the first cable
operators to commit to provide The Disney Channel as part of its basic service,
and now carries the Disney channel only as a basic service. The Company also has
an ongoing program of repackaging its premium channels to improve customer value
and satisfaction.

The Company has various arrangements to obtain basic and premium
programming from program suppliers whose compensation is typically based on a
fixed fee per subscriber. The Company has negotiated programming arrangement
with premium service suppliers that offer cost incentives to the Company under
which premium service unit prices decline as certain premium service growth
thresholds are met. In addition to volume pricing discounts, some program
suppliers offer marketing support to the Company in the form of advertising
funds, promotional materials, rebates and other incentives. The Company's
programming arrangements generally are for a fixed period of time, typically
three to five years, and are subject to negotiated renewal, and may be
terminated in certain instances.

The Company is also a member of the National Cable Television Cooperative
(the "NCTC"), a purchasing cooperative that negotiates volume discounts on
behalf of its members for both programming and hardware, and benefits in the
aggregate nearly 10 million cable subscribers.

The Company has various retransmission consents with several commercial
broadcast stations. None of these consents require direct payment of fees for
carriage; however, in some cases the Company has entered into agreements with
certain stations to carry satellite-delivered cable programming which is
affiliated with the network carried by such stations. In one case, the Company
agreed to spend small amounts on advertising with the station on an annual basis
over the three-year term of the agreement. These agreements are in effect until
December 31, 2002. There can be no assurance that such agreements can or will be
renewed under similar terms. See "-Legislation and Regulation."

The Company's cable programming costs have increased in recent years and
are expected to continue to increase due to additional programming being
provided to customers, increased costs to produce or purchase cable programming
and other factors. The Company believes it will continue to have access to cable
programming services at reasonable price levels, although there can be no
assurances with respect thereto. The Company believes that a significant amount
of new cable television programming is becoming available and that the Company
will be able to identify and take advantage of available incentives associated
with channel position and additional channels to accommodate such expanding
programming. The Company expects it will be able to recover programming cost
increases through rate increases.

Service, Installation and Repair

As competition has increased in the cable television industry, the Company
has developed an infrastructure that attempts to maximize the value of services
provided to its customers by assuring the customer of a quality product and
reliable on time service. The Company has equipped its regional customer service
call centers with advanced computer technology and communications equipment that
allow the Company to efficiently manage geographically diverse classic cable
television systems. This centralizing of the customer service function has
allowed the Company to create an infrastructure that provides the customer with
superior service through a smaller number of high quality, well motivated
employees than through a series of small disjointed offices. The Company invests
significant resources in ongoing training and incentive plans for both its
customer service staff and field technical personnel to maintain a high level of
enthusiasm among these customer contact employees.

The Company has developed an integrated computer network with advanced
software systems to facilitate effective interaction with the customer, while
providing for ease of management oversight. The Company's computer network
integrates PC network functions, such as management reporting, internal and
external e-mail and Internet access, with its mainframe billing provided by
Convergys (formerly Cincinnati Bell Information Systems) all interfaced with the
OmniTRACS satellite based dispatch system. Not only does this integration allow
a customer service representative in the call center to schedule service with a
customer at the time of the call, but allows real time dispatch and follow
through from the field technical personnel. All of the Company's service
vehicles are equipped with a Qualcomm OmniTRACS unit which receives via
satellite and stores the individual service technician's work orders and service
orders. Based on the work load of the individual technician the customer service
representative can schedule any new work from a customer because as the
technician finishes each job that individual completes the order in the central
billing computer immediately through the OmniTRACS unit in the vehicle.
Therefore, at any time the actual work load and schedule of any individual
technician is available. This real time two way communication also allows any
manager with access to a PC to dial in from remote locations to access the
system to monitor these functions from anywhere. Management can monitor each of
the field technician's current work load, work history, status of all assigned
work and even the exact location of the individual vehicle as well as a history
of the vehicle's travels. This information allows management to efficiently
assign work by area or job type, and then monitor its progress in real time
without the costs and delays involved in fax machines, cell phones, and pagers.

Technology and Engineering

All of the plant in the Systems has a channel capacity of 36 channels or
more. Although many of the Systems presently have the capability to increase the
number of channels offered to subscribers without having to increase existing
bandwidth, the Company has an ongoing plan to increase all of its Systems to at
least 550 MgHz, which will allow up to 80 channels, by December, 2001. The
following table sets forth certain information with regard to the channel
capacities of the Systems as of December 31, 1999.

Up to 29 30 to 53 54 or more
Channels Channels Channels Total

--------- --------- --------- ------
Systems:
Number of systems 6 223 26 255
Percent of total systems 2.3% 87.5% 10.2% 100%
Miles of plant 56 4,821 995 5,872
Percent of total plant miles 1.0% 82.1% 16.9% 100%

The Company is currently offering Digital Cable in six systems to test its
marketing and roll-out strategies. This technology is allowing up to 12 channels
to be carried in the space of one analog channel. These digital signals allow
cable television systems to carry more and varied programming with improved
quality and reliability for both video and audio. This new service allows
systems to carry multichannel pay-per-view and multiplexed premium services
which is significantly increases the amount of programming available to the
customer. The Company intends to continue to add Digital Cable service to its
Core Systems over the next two years now that the technology is generally
available.

Franchises

Cable television systems generally are constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and provision of free service to
schools and certain other public institutions; and maintenance of insurance and
indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), the 1992 Cable Act and the 1996 Telecom Act. See "Legislation and
Regulation."

The table below illustrates the grouping of the franchises of the Systems
by date of expiration.

Year of Percentages
Franchise Number of of Total
Expiration Franchises Franchises
----------- ----------- ------------
2000-2001 57 11.1%
2002-2004 136 26.4%
After 2004 322 62.5%
-------- -------
Total 515 100.0%
======= ======

The 1984 Cable Act provides for among other things, an orderly franchise
renewal process in which franchise renewal may not be unreasonably withheld or,
if renewal is withheld, the franchise authority must pay the operator the "fair
market value" for the system covered by such franchise. In addition, the 1984
Cable Act establishes comprehensive renewal procedures that require that an
incumbent franchisee's renewal application be assessed on its own merit and not
as part of a comparative process with competing applications.

The Company believes that it generally maintains a good relationship with the
franchising communities it serves. The Company maintains internal procedures to
ensure effective communications with the franchising authorities by use of a
newsletter and individual contact from both the call center responsible for the
individual system and the Company's field management. Moreover, as the Company
has worked closely in some areas with the local schools, close relationships
with the local area and state politicians have become more commonplace.

The Company also believes that maintaining high quality and well trained
technical field personnel is important to good community relations. Because the
local technician may be the only Company representative an individual customer
may ever meet, the effectiveness of that interaction is important. To improve
that effectiveness, the Company has an ongoing training program for its field
personnel not only in the technical area, but in customer service and sales
functions. The Company strives to have its local field technicians represent the
Company in each of their respective service areas as well trained, experienced
and responsible members of the community.

Competition

Cable television competes for customers in local markets with other
providers of entertainment, news and information. The competitors in these
markets include broadcast television and radio, newspapers, magazines and other
printed sources of information and entertainment, as well as satellite and
wireless video distribution systems and directly competitive cable television
operations. Federal law prohibits cities from granting exclusive cable
franchises and from unreasonably refusing to grant additional, competitive
franchises. In addition, an increasing number of cities are exploring the
feasibility of owning their own cable systems in a manner similar to
city-provided utility services. The 1996 Telecom Act may initiate more
competition with cable service, because it allows local exchange carriers to
provide video services in their local service areas, in direct competition with
local cable companies (with certain regulatory safeguards).

The Company believes that of the competitive threats to the Company's
cable television business, four are the most substantial. (1) DBS, (2) MMDS, (3)
overbuilds by municipalities or telephone companies, and (4) SMATV systems.

There are two major DBS providers which currently serve approximately 11.8
million subscribers nationally as of December 31, 1999. The Company believes
that these providers are continuing to grow their subscriber base. Because of
the quality of the digitally compressed signal from these providers and their
ability to provide a wide range of video and audio offerings, they are an
effective competitor of cable television systems. The Company believes however,
that it can effectively compete with DBS because of its ability to offer local
and regional broadcast stations on it systems, many of which are not well
received with a home antenna, and the "whole house" nature of cable service vs.
DBS. The Company also believes that with its intended roll out of digital cable
service over the next two years, many of the competitive advantages DBS may have
today in offering digital picture and audio for multichannel pay-per-view,
multiplexed premiums, digital audio service, and narrow-cast basic services will
be negated. However, DBS service currently has some unique programming rights,
and is not subject to a variety of regulatory burdens imposed on franchise cable
operators (e.g. franchise fees). Although the effect of competition from these
DBS services cannot be specifically predicted, there has been significant growth
in DBS customers nationwide and the Company expects that such competition may
continue.

Wireless cable television systems have been competing with cable television
systems somewhat ineffectively in urban markets, but more effectively in rural
markets where cable systems frequently carry fewer programming choices. The
Company operates in several areas where it competes directly with wireless
operators. The Company believes that its operations have not been widely
effected by this competition, primarily because the MMDS signal used by wireless
cable operates in a "line-of-sight nature" and because of the number of large
trees within the communities it serves which obscure the line-of-sight and
impede the MMDS signal. Some wireless operators have announced plans to provide
a digital video service in the near future. Although the Company has no
knowledge of the digital plans of wireless operators with which it competes, the
Company does not believe that this additional service, if offered by such
operators, will materially affect its ability to compete with such operators.

Since the passage of the Telecom Act of 1996, and the announced
deregulation of the electric utility business, several local exchange carriers
(LECs) and local municipal owned power companies have built video systems to
directly compete with existing cable television systems. This process is known
as "overbuilding." The Company has experienced two instances of LEC overbuilds
in two small systems, one in Alabama and one in Kansas, and has been threatened
with an overbuild by one municipally owned power company in Mississippi. The
Company believes that this is an increasingly more likely threat to cable
systems in general, and has the potential to have more impact in individual
markets than the other forms of competition because the new operator is offering
a competing service, it is identical to the incumbent system with the same
competitive advantages. The Company believes that in areas where it is able to
complete its plan of fiber interconnect and offer a very high level of service,
it is less likely to face this type of competition because of its relationship
with its franchise authorities and customers. Typically, these overbuild
situations occur in systems where either the incumbent cable operator is not
offering a competitive service, or the relationship between the operator and the
franchise authority is strained in some way. The Telecom Act of 1996 permits
telephone companies to provide competitive video programming through several
means, subject to certain limitations, and has relaxed statutory and regulatory
restrictions on the ability of LECs, including the RBOCs, and their
subsidiaries, to compete with operators of cable television systems.

Cable television operators also compete with SMATV systems. These systems
are essentially small, closed cable systems which operate within specific
hotels, apartment or condominium complexes and individual residences. Due to the
widespread availability of earth stations, such SMATV systems can offer both
improved reception of local television stations and many offer the same
satellite-delivered program services which are offered by franchised cable
operators. SMATV systems currently benefit from operating advantages not
available to franchised cable television systems, including fewer regulatory
burdens (such as, in many cases, no rate regulation). The 1996 Telecom Act
broadens an exemption from regulation as a "cable system", which may exempt
additional SMATV systems from regulation.

The Telecom Act of 1996 also established a new framework for the delivery
of video programming -- the open video system ("OVS"). Under these rules, a LEC
or other entrant may provide in-region distribution of video programming to
subscribers, with certain regulatory conditions. The FCC has certified several
companies to provide OVS in various parts of the United States.

Telecommunications Services Operations

The Company has realized that the offering of Telecom Services represented
an attractive new business opportunity for the Company with the potential for
high operating margins.

Markets Served. The Company has developed detailed business and network
architecture plans for each of Nebraska and Kansas in order to successfully
market to the educational institutions and state agencies in these states and
take advantage of the sizeable demand for such Telecom Services. The Nebraska
plans call for these services to be delivered over the Company's Nebraska
Network, which was originally designed to serve its cable television systems. As
a result, the Telecom Services can be delivered at little additional incremental
cost to the Company.

Although the Nebraska market represents a potentially large revenue
opportunity for the Company, the size of the Kansas market opportunity is
significantly greater. Kansas has approximately 2,350 schools and 109 state
agencies representing 250 sites, and the Company currently intends on offering
Telecom Services to many of these schools and agencies which are inside service
territories currently served by the Company's Kansas Systems. Other of these
educational sites and state agencies, however, are in areas outside of the
service territories served by the Company's Kansas Systems. As a result, Galaxy
intends to expand its Kansas Network beyond the areas served by its Kansas
Systems. This expansion will only occur in areas where either a school or state
agency has entered into an exclusive long-term contract with the Company to
provide Telecom Services. The actual miles of fiber optic cable laid in the
Kansas Network will be dependent on the number schools and state agencies which
enter into contracts with the Company.

Services Offered. Telecom Services offered by the Company include:

o Full Motion Video Conferencing. The GRADES service platform offers fully
interactive video conferencing. Students participate in classroom learning in
multiple sites remote from the teaching resource. All user sites can participate
interactively in lectures, meetings, seminars, private consultations and
demonstrations. The conference is broadcast real time and interactive without
the choppy stop-motion video common to conferences that are held using
fractional video compression techniques over twisted pair copper systems. In
providing full motion video conferencing, GRADES utilizes proprietary EDCOMM
software developed by Broadband Networks Incorporated ("BNI"). This software
permits users to automatically schedule conferences in advance and the software
then connects the conference sites. Non-scheduled conferences can be easily
arranged on-demand with the simple use of remote control. The system allows each
user to originate up to four video sources and receive up to eighty sources.
This provides the ability for many simultaneous videoconferences at one time and
permits charts and exhibits to be viewed in addition to the lecturer. The GRADES
services can deliver a video conference to a conference classroom or directly to
the desktop of an individual student or administrator. This service has allowed
schools to share teaching resources and significantly upgrade their curriculum
in subjects such as higher level math, science, and language. With the addition
of colleges and universities to the network, high school students can receive
college level course work and credit, further enhancing the benefits to the user
schools. Teachers can also continue their education through participating in
graduate level course work at remote locations. In-service training over the
network allows teachers and administrators to remain at their schools and not
travel to a training location, increasing their available time for teaching.
Through an ATM Gateway in the network hierarchy, schools can take students on
interactive field trips to the Library of Congress, The Smithsonian Museums,
NASA, or any other location in the world. The ATM Gateway insures that
inter-connectivity and interoperability exist between all other conference
sources. The Company plans on offering this tool to schools, hospitals, nursing
homes, medical centers, state agencies and other multiple user sites where there
is a community of interest.

o WAN Connections. This service connects each site's local area network ("LAN")
over a fiber-based WAN backbone and provides for a distributed link for
communications between all sites connected to the network. The WAN network has
been configured in full compliance with the appropriate IEEE Standards for LANs
for physical and data link as defined by the International organization for
Standardization of Open Systems. The WAN is scaleable from 100 megabits to 1
gigabit of capacity based on the needs of the end user. For example, schools
will use the WAN connections to connect themselves to the State Department of
Education for the purpose of having a dedicated full-time data connection to any
network database. This type of dedicated connection provides a means of fast and
immediate file transfers maintaining accurate and up to date databases for
record, statistical information and general files that are accessible to any
user at any time. Other customers, such as banks and professional offices with
multiple locations, can use a WAN connection for file transfer, accessing a
central library and other data transfers at speeds not generally available at
competitive costs over existing networks. With WAN connections in place,
customers will not only have their own private intranet for e-mail and file
sharing for communications between locations in the same community, but will
also have the same ability to share digitized documentaries, training videos and
other specialty videos across the network and between all sites. This type of
service is in demand by schools as it allows dedicated high-speed access to
valuable shared resources. The Company plans on offering this service to health
care facilities for access to pharmacy and patient records, government agencies
for high-speed access to databases such as motor vehicle records, and banks and
multi-site businesses for file transfer, central database access and other
high-speed data transfers.

o High Speed Internet Connections. Customers connected to the fiber access will
be able to subscribe to high-speed Internet access. Customers that subscribe to
this service will be able to customize their bandwidth needs based on a minimum
connection speed per computer connected to the Internet. The Company's network
is designed to be dynamic, flexible and scaleable and will support the
customers' need for additional bandwidth as the number of computers at each
location increase. The Company plans to offer, through subcontractors, e-mail
services, web hosting and development, and back room technical support. Through
the fiber network, multiple location customers can aggregate their bandwidth
needs and can share in the expense of one large bandwidth connection out to the
Internet through one access point on the network. The Company is aggressively
pursuing this type of commercial Internet connection. The Company believes they
can provide high-speed Internet connections at affordable rates as compared to
the competition by leveraging its fiber network. The Company's strategy is to
take full advantage of its Internet service by not only providing commercial and
residential cable modem and dial-up Internet service to its cable television
customers, but to make high speed Internet connections available through other
cable operators or dial-up Internet service providers ("ISP's"). This is done
easily through an established fiber connection in each particular town. The
fiber network will give the cable operator or ISP in a connected town an
opportunity of providing Internet services with the back room support entity
already in place, at a fraction of the cost.

The Company has selected the ISP Channel to aid in the provision of high
speed Internet access in certain markets to residential and business customers.
The ISP Channel is a turn key high speed Internet access service provider and is
furnishing the necessary headend and related transmission equipment, connection
to the Internet, marketing and sales material and customer installation of cable
modems. The Company has chosen the ISP Channel because of their expertise in
marketing, end user support and their ability to be a technical resource in
providing such services. The Company is supplying sufficient cable system
bandwidth, which will allow the ISP Channel to provide such services. In return
the ISP Channel will share revenues derived from the end users Internet use.

o Four-Digit Dialing Connections. Multiple location customers that are
connected to the Company's fiber network will be able to subscribe to four digit
dialing which permits them to dial four digits and connect themselves to each
other at non-metered/flat rates. This eliminates usage-based short haul toll
charges sites now incurred when calling other sites outside the local telephone
exchange. The Company believes that because the majority of a school's short
haul toll calls are to other schools, the demand for this non-metered/flat rate
connection over a private line network will be significant. This service will
permit schools to save money by only using the local exchange carriers for calls
that go off the network. In addition, by aggregating all user sites at one PBX,
schools will then be able to negotiate volume discounts for long distance calls
with inter-exchange carriers.

The GRADES solution, when fully implemented, will allow the Company to
offer a full complement of telephone services to businesses, hospitals,
governmental offices and individual homes. The fiber network the Company is
constructing has been designed with the capacity to provide high speed data,
voice and video services to many users. The future Internet customers on the
network will not only have a high speed Internet connection for research or web
browsing, but will be able to subscribe to an Internet Protocol (IP) Telephone
service. IP Telephone is the technology that will allow the Company to deliver
high quality, low-cost telephone communications through the customer's Internet
connection. This is done through a translation of a typical voice signal to a
digitized and compressed packet of data, identical to the data being moved
around the Internet today, and then reconverted from data to voice on the other
end. The Company believes that this will be a service offering that will be
widely subscribed to by both the individual Internet customer as well as the
business customer.

Expand Telecommunications Offerings. The Company has designed its fiber
optic network with significant excess capacity to support a wide array of
telecommunications services and to be compatible with technologies still under
development in the industry, including server-based applications such as virtual
LANs, e-commerce, and voice over the Internet. The Company's fiber optic network
can provide up to 1 gigabit WAN connections, private intranet services,
high-speed Internet access and intrastate virtual private networks using
four-digit dialing for multi-site customers. The Company intends to resell its
excess capacity to competitive local exchange carriers ("CLECs") operating in
its service areas. As the fiber optic network is expanded, the Company expects
to expand its customer base to include additional schools, governmental
entities, and businesses, all of which can be added to the network at little
incremental cost.

Concentrate Operations Geographically. The Company intends to provide
these state-of-the-art telecommunications services in Nebraska and Kansas where
it believes it has a competitive advantage to be the low cost, superior customer
service provider.

Provide Customized Services. The Company tailors service offerings, sales
and marketing techniques and network deployment to meet the different needs of
customers. By working closely with customers, the Company designs and engineers
the services for each customer to meet the particular needs of that customer.
The Company believes its ability to tailor services provides a distinct
advantage over its potential competition for contracts.

o Develop Strategic Relationships. The Company continues to seek to enter
in mutually beneficial strategic relationships with telecommunications service
providers and other entities operating in the same regions as its Core Systems.
To date the Company has entered into arrangements with BNI, Birch Telecom, Cable
USA and MediaCity. In conjunction with Broadband Networks, Inc. ("BNI"), the
Company has commenced providing these services to these original schools.

See "Risk Factors-Reliance Upon Certain Key Vendors."

Marketing and Rates. The Company markets its Telecom Services to educational
institutions under the "GRADES" brand name. GRADES stands for Galaxy's Regional
Access Distance Education System. The Company's objective is to provide advanced
telecommunications services that offer schools and state agencies an integrated
solution to their need for video conferencing, data transfer, content services
(such as the Internet), and more efficient voice communications. When compared
to similar services offered by competitors using twisted pair copper technology,
the Company's telecommunications solutions provide a superior level of
functionality at greater speeds and at lower costs. The Company is currently
providing GRADES service to primary and secondary schools in both Nebraska and
Kansas and is in the process of negotiating contracts to provide GRADES service
to additional schools, colleges and universities in both states.

The Company ultimately intends to offer its Telecom Services and access to
its Nebraska and Kansas Networks to businesses, hospitals, and individual homes
in addition to educational institutions and state agencies. In fact, the Company
is currently working with 28 hospitals within the areas served by its Nebraska
Network to provide video and data services. The Company further believes that it
will have the opportunity to provide carriers carrier services as it continues
to build out its Nebraska and Kansas Networks. The Company is currently
negotiating with long distance carriers, independent local carriers and start-up
competitive local exchange carriers ("CLECs") in Nebraska and Kansas to give
them access to the Company's Nebraska and Kansas Networks. Such access would
allow these carriers to negotiate alternative back-haul agreements at
potentially more affordable pricing levels. The Company may also make its
headends available to other cable operators in an effort to give other cable
operators an affordable opportunity to consolidate their systems. This
consolidation would allow them to provide similar enhanced services as those
provided to Galaxy's subscriber base. See Telecommunications Services -
Strategic Relationships.

Service Contracts. In Nebraska, the GRADES contracting process is primarily
being orchestrated by Educational Service Units ("ESUs") located throughout
state. ESUs are administrative and purchasing centers for geographical groups of
school districts. The Company and each ESU negotiate the basic contract terms
and rate structure for the schools districts located within the area served by
that ESU. The individual school district then has an option of signing up for
the services offered pursuant to the terms of the contract. Each individual
school within a school district may subscribe to any level of service it
desires. The Company currently provides GRADES services to schools located in
four of Nebraska's nineteen ESUs. Those four ESUs represent a total of 250
schools. The Company is currently working on contracts with five additional ESUs
for similar GRADES service offerings. In Kansas, each individual school district
is responsible for negotiating its own contract with the Company.

The standard GRADES contract establishes the Company as the provider of video,
facsimile, NEBSAT access and internet access services during the term of the
contract. The contract has an initial term of four years, which may be extended
annually for a one-year period up to a total of ten years. Schools that enter
into the standard contract may terminate the contract for cause only, subject to
the payment of an early termination fee. A school may not terminate in order to
acquire similar services from another fiber optic cable network provider. In
addition to the recurring charges outlined in Telecommunication Services -
Marketing and Rates, the Company charges an up-front design, installation and
engineering fee which supports its cost of connecting the school to the fiber
optic cable network and the wiring of the classrooms and offices within the
school. The Company is responsible for maintenance and repair costs, and any
costs associated with technology migration and system upgrades chosen by the
Company. The schools pay a monthly fixed service charge, based on the services
received.

The Company has contracts with the 24 school districts and educational
service units (`ESUs") in Nebraska that receive GRADES services and an
additional 32 school districts and ESUs which are in the process of being
connected to the Nebraska Network. The Company also has a contract and is
providing service to one Kansas school district representing 6 schools and is in
the design stage with a Kansas ESU that represents over 125 schools. In
addition, the Company plans on responding to some of the 300 schools in Kansas
that have posted requests for proposal's ("RFPs") on the Internet as part of the
U.S. Government's Universal Service Fund ("USF") process. The RFPs range in
requests from Internet access to long distance service. The Company's strategy
is to respond to the posted RFPs based on geographic area which will provide,
along with the Southeast Kansas ESU, a substantial base for construction and
expansion of the Kansas Network.

Service, Installation and Repair. The Company plans to outsource the technical,
maintenance and equipment aspects of providing the GRADES services. The Company
has entered into a five year contract with BNI to assist in the initial design,
integration and ongoing support of all of the fiber network components. BNI is a
network design engineering company and a manufacturer of optical transmission
electronics, data modems and ethernet switches. BNI will provide advice and
expertise on the selection of other equipment and services needed from vendors
in order to provide a service with a specific requirement, such as bandwidth and
speed, security or media file service access. Currently, the Company and
Broadband Networks ("BNI") are engaged in a joint effort to bid on providing
telecommunications services to educational facilities, health facilities, state
agencies and other prospective users within the Kansas and Nebraska service
areas.

Technology and Engineering. The fiber network architecture being constructed
for the Company's cable television systems provides significant excess capacity
for new telecommunications service offerings. The Nebraska and Kansas Networks
are being designed in a fully redundant topology with multiple rings and will be
able to fully support Synchronous Optical Network (SONET) and Asynchronous
Transfer Mode (ATM) switching. The Nebraska and Kansas Networks provide up to 96
spare fibers on primary routes and 24 spare fibers on secondary routes. The
Company is taking advantage of this excess capacity through the provision of the
advanced telecommunications services and content delivery opportunities
described above. These new opportunities are expected to yield higher operating
margins than those that could be achieved by a similar independent startup
enterprise because of the Company's ability to capitalize upon the fiber optic
network that has been installed to support and enhance the delivery of its cable
television services. As of December 31, 1999, the Company had installed over
1,400 miles of fiber optic cable for use by its Systems in Nebraska, Kansas,
Kentucky and Mississippi.

The Company is also working closely with Kansas to substantially upgrade the
state's T-1 (1.54Mb) internal communications system to a system that will be
based on 100Mb Ethernet and provide faster Internet connections, full motion
video conferencing and four-digit dialing. These services will provide Kansas
with the ability to offer enhanced services at affordable rates, while at the
same time augmenting the current support infrastructure which supports the 109
state agencies and their approximately 250 sites across the State.

Regulation. The services provided by the Company over the Nebraska and Kansas
Networks are subject to state regulations only, and are not subject to FCC
regulations at this time. In Nebraska, the Company is currently certified
through the Nebraska Public Service Commission as an Intrastate Interexchange
Carrier over a private line network. This gives the Company the ability to
provide video, non-switched voice, IP telephone and data services. The Company's
statewide certificate and completed 1,400 mile fiber network will give the
Company a market equivalent to 330 towns (50% of Nebraska's towns) and a covered
population of 1,155,325 (70% of Nebraska's population).

The Company recently received its certification by the Kansas Corporation
Commission as an Intrastate Interexchange Carrier. This will also give the
Company the authority to provide video, non-switched voice and data services.
The Company's statewide certificate will give it a market equivalent to 87% of
Kansas' towns and 95% of its population.

Competition. The Company believes that there is a large and growing demand
for high bandwidth services such as those available in the GRADES service line.
The Company further believes that the secondary and tertiary markets that the
Company plans to compete in are under-served at this point for these services.
The primary competitors are the numerous facilities based established Incumbent
Local Exchange Carriers ("ILECs"). These competitors have financial and
technical resources, long-standing relationships with their customers and offer
services similar to those offered by the Company. Unlike the ILEC competitors,
the Company is deploying a network design to primarily consolidate the Company's
cable television business. The fiber optic networks that the Company is
employing are high bandwidth by their nature and are superior to the ILECs
primary networks which are twisted pair copper networks. Further, certain ILECs
(the former Bell Operating Companies) are subject to regulatory restrictions
that prohibit them from transporting services across an entire service area.

The Company's competitors are and will continue to deploy fiber networks.
However, the Company believes that the secondary and tertiary markets will not
be the primary focus of the major ILECs. There are numerous smaller
independently owned ILECs which serve the markets targeted by the Company. These
smaller ILECs typically serve markets that are rural, low-density population
areas and are adjacent to or are in some cases surrounded by the larger ILECs.
In order for the ILECs to compete it is often necessary for them to form a
consortium in order to cover the geographic requirements of a particular bid
from a customer such as a school district. These consortiums are often difficult
to form as each ILEC has different business objectives and strategies. Further,
the ILECs are typically highly regulated, have different cost structures, and
often required to meet regulatory requirements in pricing services.

In addition to ILECs, entities potentially capable of offering services
similar to GRADES include Interexchange Carriers ("IXCs") and other cable
television companies. IXCs have fiber optic networks that are capable of
providing competing services. However, the IXCs lack local infrastructure to
deliver the services to the end-user customer. While IXCs could build the
required local infrastructure, it is unlikely that they will do so in the
secondary and tertiary markets. Some IXCs have acquired CLECs which have fiber
optic local infrastructure. However, at this time, those networks are confined
to primary markets and it is unlike that they will pursue smaller markets in the
foreseeable future. While other cable television operators may pose a
competitive threat, they also are a source of strategic business partnerships.
The Company has been pursuing and will continue to pursue strategic business
relationships with other cable operators.

The Company intends to distinguish itself to customers on the basis
of functionality, creative product implementation, and price. The competition
proposes end-user services based upon the telephony model, which is a T-1
(1.54Mb) that provides inferior video quality, or T-3 (45Mb) which provides full
motion video but is limited to 4 channels as compared to GRADES which provides
up to 80 channels. The T-1 telephony model for data services is 7 times slower
than the 10Mb standard with GRADES and the GRADES pricing structure has proved
lower in all applications to date.

Legislation And Regulation

The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
regulations and legislation affecting the cable television industry. Other
existing federal, state and local regulations are currently the subject of
judicial proceedings, legislative hearings and administrative proposals which
could change, in varying degrees, the manner in which this industry operates.
Neither the outcome of these proceedings, nor their impact upon the cable
television industry or the Company, can be predicted at this time.

The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. The industry currently is
regulated by the FCC, some state governments and most local governments. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially altered
federal, state and local laws pertaining to cable television, telecommunications
and other services. Congress and the FCC have frequently revisited the subject
of cable regulation.

Cable Communications Policy Act of 1984. The 1984 Cable Act, which amended
the Communications Act of 1934 (the "Communications Act"), established
comprehensive national standards and for the regulation of cable television
systems and identified the boundaries of permissible federal, state and local
government regulation. Among other things, the 1984 Cable Act affirmed the right
of franchising authorities (state or local, depending on the practice in
individual states) to award one or more franchises within their jurisdictions.
It also prohibited non-grandfathered cable television systems from operating
without a franchise in such jurisdictions. The 1984 Cable Act provides that in
granting or renewing franchises, franchising authorities may establish
requirements for cable-related facilities and equipment, but may not establish
or enforce requirements for video programming or information services other than
in broad categories.

The Cable Television Consumer Protection and Competition Act of 1992. In
October 1992, Congress enacted the 1992 Cable Act. Although certain of the 1992
Act's provisions were amended by the 1996 Telecom Act (as described in greater
detail below), many of the 1992 Cable Act's provisions remain intact and are
summarized herein. The 1992 Cable Act permitted a much greater degree of
regulation of the cable industry with respect to, among other things; (i) cable
system rates for both basic and certain cable programming services; (ii) program
access and exclusivity arrangements; (iii) leased access terms and conditions;
(iv) customer and service requirements; and (v) television broadcast signal
carriage and retransmission consent. Additionally, the legislation encouraged
competition with existing cable television systems by allowing municipalities to
own and operate their own cable television systems without a franchise,
preventing franchising authorities from granting exclusive franchises or
unreasonably refusing to award additional franchises covering an existing cable
system's service area, and prohibiting (with certain exceptions) the common
ownership of cable systems and co-located MMDS or SMATV systems. This last
prohibition was limited by the 1996 Telecom Act to cases in which the cable
operator is not subject to effective competition. In addition, the FCC permits a
cable system to acquire a co-located SMATV system if it provides cable service
to the SMATV system in accordance with the terms of its cable television
franchise. The legislation required the FCC to initiate a number of rule-making
proceedings to implement various provisions of the statute.

Various cable operators have challenged the constitutionality of several
sections of the 1992 Cable Act (including the must carry requirements), although
the courts have disposed of most of these challenges. The must-carry
requirements remained in effect during the judicial proceedings. After several
appeals, the United States Supreme court upheld the must-carry requirements.

Rate Regulation. Prior to implementation of the 1992 Cable Act, most cable
systems were largely free to adjust cable service rates without governmental
approval. The 1992 Cable Act authorized rate regulation for certain cable
communications services and equipment in communities that are not subject to
"effective competition," which as defined, encompassed most cable systems. The
1992 Cable Act requires the FCC to resolve rate complaints for non-basic cable
services and to reduce any such rates found to be unreasonable. It also limits
the ability of many cable systems to raise rates for basic and certain non-basic
cable programming services (collectively, the "Regulated Services"). Cable
services offered on a per channel or on a per program basis generally are not
subject to rate regulation by either franchising authorities or the FCC.
Notwithstanding the above, the 1996 Telecom Act deregulated the CPS rates of
"small cable operators" as of February 8, 1996, and deregulates the CPS rates of
all other cable operators by March 31, 1999, and deregulated basic service rates
for cable systems serving 50,000 or fewer subscribers, where such systems
offered only a basic tier as of December 31, 1994.

The 1992 Cable Act requires communities to certify with the FCC before
regulating basic cable rates. Upon certification, the local community obtains
the right to approve basic rates. Certified franchising authorities are also
empowered to regulate rates charged for additional outlets and for the
installation, lease and sale of equipment used by customers to receive the basic
service tier, such as converters and remote control units. These equipment rates
must be based on actual cost plus a reasonable profit, as defined by the FCC.
Cable operators may be required to refund overcharges with interest. The 1992
Cable Act permits communities to certify at any time, so it is possible that
Galaxy's franchising authorities may choose in the future to certify to regulate
Galaxy's basic rates. As modified by the 1996 Telecom Act, FCC review of CPS
rates is triggered by franchising authority complaints which may be filed with
the FCC only if the local franchising authority receives multiple subscriber
complaints within 90 days of a rate increase.

The FCC's rate regulations do not apply where a cable operator
demonstrates that it is subject to "effective competition." Under the 1992 Cable
Act, a system is subject to effective competition where: (i) fewer than 30% of
the households in the franchise area subscribe to the cable service of a cable
system; (ii) the franchise area is served by at least two unaffiliated
comparable video programming distributors offering service to at least 50% of
the households in the franchise area and the number of households subscribing to
programming services offered by the MVPDs other than the largest MVPD exceeds
15% of the households in the franchise area; or (iii) a MVPD operated by the
franchising authority offers video programming to at least 50% of the households
in the franchise area. The 1996 Telecom Act also provides that effective
competition exists if a local exchange carrier or its affiliate provides
comparable video programming in the franchise area (except through
direct-to-home satellite services).

In implementing the 1992 Cable Act, the FCC adopted a benchmark
methodology as the principal method of regulating rates for Regulated Services.
Cable operators with rates above the allowable level under the FCC's benchmark
methodology may attempt to justify such rates using a cost-of-service
methodology. The FCC has instituted rate relief for small cable operators. Cable
operators with fewer than 400,000 nationwide subscribers are eligible to file a
streamlined cost-of service analysis to justify their per-channel rates in those
systems serving 15,000 or fewer subscribers. Per-channel rates that fall below a
prescribed benchmark are presumed reasonable.

The 1992 Cable Act also requires cable systems to permit customers to
purchase video programming offered by the operator on a per channel or a per
program basis without the necessity of subscribing to any tier of service, other
than the basic service tier, unless the system's lack of addressable converter
boxes or other technological limitations does not permit it to do so. The
statutory exemption for cable systems that do not have the technological
capability to offer programming in the manner required by the statute is
available until a system obtains such capability, but not later than December
2002. Systems facing effective competition are not subject to the tier
buy-through prohibition.

The 1996 Telecom Act allows cable operators to pass through franchise fees
and regulatory fees to subscribers without any prior notice. Cable operators are
allowed under the 1996 Telecom Act to offer bulk discounts for multi-dwelling
units. In addition, a cable operator need not maintain uniform rates throughout
a franchise area where there is effective competition. Franchising authorities
may not file complaints with the FCC unless they have actually received
subscriber complaints, and individual subscribers may not file complaints with
the FCC.

Carriage of Broadcast Television Signals. The 1992 Cable Act established
new signal carriage requirements. These requirements allow commercial television
broadcast stations which are "local" to a cable system, to elect every three
years whether to require the cable system to carry the station, subject to
certain exceptions, or whether to require the cable system to negotiate for
"retransmission consent" to carry the station. The first
must-carry/retransmission consent elections were made in June 1993, and the
second elections were made in October 1996. The third election was made in
October, 1999. The next election will be made in October, 2002. Stations are
generally considered local to a cable system where the system is located in the
station's Area of Dominant Influence ("ADI"), as determined by Arbitron. This
method for determining whether a station is local to a cable system will change.
The FCC has determined that, effective January 1, 2000, the market of a TV
station will be its designated market area ("DMA"), as determined by Nielsen.
Cable systems must obtain retransmission consent for the carriage of all
"distant" commercial broadcast stations, except for certain "superstations"
(i.e., commercial satellite-delivered independent stations such as WGN). All
commercial stations entitled to carriage were to have been carried by June 1993,
and any non-must-carry stations (other than superstations) for which
retransmission consent had not been obtained could no longer be carried after
October 5, 1993. Galaxy carries some stations pursuant to must-carry and others
pursuant to retransmission consent agreements. In some cases, Galaxy agreed to
carry additional services, like fX, pursuant to retransmission consent
agreements.

Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of: (i) a 50-mile
radius of the station's city of license; or (ii) the station's Grade B contour
(a measure of signal strength). Non-commercial stations are not given the option
to negotiate for retransmission consent. All non-commercial stations entitled to
carriage were to have been carried by December 1992.

Other Requirements Imposed on Cable Operators.

Registration Procedures and Reporting Requirements. Prior to commencing
operation in a particular community, all cable television systems must file a
registration statement with the FCC listing the broadcast signals they will
carry and certain other information. Additionally, cable operators periodically
are required to file various informational reports with the FCC. Cable operators
that operate in certain frequency bands are required on an annual basis to file
the results of their periodic cumulative leakage testing measurements. Operators
that fail to make this filing or who exceed the FCC's allowable cumulative
leakage index risk being prohibited from operating in those frequency bands in
addition to other sanctions.

Technical and Service Requirements. Historically, the FCC has imposed
technical standards applicable to the cable channels on which broadcast stations
are carried, and has prohibited franchising authorities from adopting standards
which were in conflict with or more restrictive than those established by the
FCC. The FCC has applied its standards to all classes of channels which carry
downstream National Television System Committee ("NTSC") video programming. The
FCC also has adopted standards applicable to cable television systems using
frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent harmful
interference with cable system signal leakage. The 1992 Cable Act requires the
FCC to update periodically its technical standards. The 1996 Telecom Act
requires regulations to assure compatibility among televisions, VCRs and cable
systems, leaving all features, functions, protocols and other product and
service options for selection through open competition in the market. The 1996
Telecom Act also prohibits States or franchising authorities from prohibiting,
conditioning or restricting a cable system's use of any type of subscriber
equipment or transmission technology.

The 1996 Telecom Act exempts from cable franchise requirements those
telecommunications services provided by a cable operator or its affiliate.
Franchise authorities may not require a cable operator to provide
telecommunications service or facilities, other than institutional networks, as
a condition of franchise grant, renewal or transfer. Similarly, franchise
authorities may not impose any conditions on the provision of such service under
the cable franchise.

Franchise Fees and Renewal. Although franchising authorities may impose
franchise fees under the 1984 Cable Act, as amended by the 1996 Telecom Act,
such payments cannot exceed 5% of a cable system's annual gross revenues derived
from the operation of the cable system to provide cable services. Franchise fees
apply only to revenues for cable services and do not apply to revenues that a
cable operator derives from providing new telecommunication services.
Franchising authorities are permitted to charge a fee for any telecommunications
provider's use of public right-of-way.

The 1984 Cable Act established renewal procedures and criteria designed to
protect incumbent franchisees against arbitrary denials of renewal. These formal
procedures are mandatory only if timely invoked by either the cable operator or
the franchising authority. Even after the formal renewal procedures are invoked,
franchising authorities and cable operators remain free to negotiate a renewal
outside the formal process. Although the procedures provide substantial
protection to incumbent franchisees, renewal is by no means assured, as the
franchisee must meet certain statutory standards. Even if a franchise is
renewed, a franchising authority may impose new and more onerous requirements
such as upgrading facilities and equipment, although the municipality must take
into account the cost of meeting such requirements.

The 1992 Cable Act made several changes to the process which may make it
easier in some cases for a franchising authority to deny renewal. The cable
operator's timely request to commence renewal proceedings must be in writing and
the franchising authority must commence renewal proceedings not later than six
months after receipt of such notice. Within a four-month period beginning with
the submission of the renewal proposal the franchising authority must grant or
deny the renewal. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
Franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped only if, after giving the cable
operator notice and opportunity to cure, the authority fails to respond to a
written notice from the cable operator of its failure or inability to cure.
Courts may not reverse a denial of renewal based on procedural violations found
to be "harmless error." To date, all of the material franchises relating to the
Company's Systems eligible for renewal have been renewed or extended at or prior
to their stated expirations. At any given time, one or more of the Company's
franchises may be involved in the renewal process. There can be no assurance
that all franchise authorities will continue to consent to franchise renewals
and/or franchise transfers to the Company in the future or that the terms and
conditions or any such renewals and/or transfers will be acceptable to the
Company and will not have a material adverse effect.

Channel Set-Asides. The 1984 Cable Act permits local franchising
authorities to require cable operators to set aside certain channels for public,
educational and governmental access programming. The 1984 Cable Act further
requires cable television systems with 36 or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties. The 1992 Cable Act requires leased access rates to
be set according to an FCC-prescribed formula. The 1996 Telecom Act explicitly
gives cable operators the right to refuse to carry any public access or leased
access program containing "obscenity, indecency or nudity."

Ownership. The 1996 Telecom Act eliminates the 1984 Cable Act provisions
prohibiting local exchange carriers ("LECs") from providing video programming
directly to customers within their local exchange telephone service areas. Under
the 1996 Telecom Act, LECs may provide video programming by radio-based systems,
common carrier systems, "open video" systems or cable systems. LECs that elect
to provide "open video" systems must allow others to use up to two-thirds of
their activated channel capacity. These LECs are relieved of regulation as
"common carriers," and are not required to obtain local franchises, but are
still subject to many other regulations applicable to cable systems. LECs
operating as cable systems are subject to all rules governing cable systems,
including franchising requirements.

The 1996 Telecom Act prohibits a LEC or its affiliate from acquiring more
than a 10 percent financial or management interest in any cable operator
providing cable service in its telephone service area. It also prohibits a cable
operator or its affiliate from acquiring more than a 10 percent financial or
management interest in any LEC providing telephone exchange service in its
franchise area. A LEC and cable operator whose telephone service area and cable
franchise area are in the same market may not enter into a joint venture to
provide telecommunications services or video programming. There are exceptions
to these limitations for rural facilities, very small cable systems, and small
LECs in non-urban areas, and the FCC has granted temporary waivers of this ban.

The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted Grade B contour covers any portion of the
community served by the cable system. The 1996 Telecom Act repeals this
statutory restriction on broadcast-cable cross-ownership, but does not require
the FCC to repeal its cross-ownership rule. The 1996 Telecom Act also eliminates
the FCC's restriction against the ownership or control of both a broadcast
network and cable system, but it authorizes the FCC to adopt regulations which
will ensure carriage, channel positioning and nondiscriminatory treatment of
non-affiliated broadcast stations by cable systems which are owned by a
broadcast network.

To prevent large, vertically integrated cable systems from unduly favoring
their affiliated programmers, the FCC imposes a 40% limit on the number of
channels which can be occupied by video programmers affiliated with the
particular cable system.

Anti-Trafficking. Transfers. The 1996 Telecom Act repealed the 1992 Cable
Act's three year holding requirement, which prevented a cable operator from
selling or transferring ownership of a cable system within 36 months of
acquisition. However, a local franchise may still require prior approval of a
transfer or sale. The 1992 Cable Act requires franchising authorities to act on
a franchise transfer request within 120 days after receipt of all information
required by FCC regulations and the franchising authority. Approval is deemed
granted if the franchising authority fails to act within such period.

Copyright. Cable television systems are subject to federal copyright
licensing carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of the royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations. Cable operators are liable for interest on underpaid and unpaid
royalty fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees. Adjustments in copyright royalty rates are now
made through an arbitration process supervised by the U.S. Copyright Office.

Various bills have been introduced in Congress in the past several years
that would eliminate or modify the cable television compulsory license. Without
the compulsory license, cable operators might need to negotiate rights from the
copyright owners for each program carried on each broadcast station in the
channel line-up.

Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and cable programming networks (such
as USA Network) has generally been licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP") and
BMI, Inc. ("BMI"), the two major performing rights organizations in the United
States. ASCAP and BMI offer "through to the viewer" licenses to the cable
networks which cover the retransmission of the cable networks' programming by
cable television systems to their subscribers.

Regulatory Fees and Other Matters. The FCC requires payment of annual
"regulatory fees" by the various industries it regulates, including the cable
television industry. In 1999, cable television systems were required to pay
regulatory fees of $0.48 per subscriber. Per-subscriber regulatory fees may be
passed on to subscribers as "external cost" adjustments to rates for basic cable
service. Fees are also assessed for other FCC licenses that cable operators
often use, including licenses for business radio, cable television relay systems
("CARS") and earth stations. These fees, however, may not be collected directly
from subscribers as long as the FCC's rate regulations remain applicable to the
cable system.

FCC regulations also address among other things, the carriage of local
sports programming; restrictions on origination and cablecasting by cable system
operators; privacy requirements; application of the rules governing political
broadcasts; non-duplication of network programming; deletion of syndicated
programming; Equal Employment Opportunity (EEO) requirements; customer service
standards; home wiring; record retention and limitations on advertising
contained in children's programming. The FCC has the authority to enforce its
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions.

Telecommunications Act of 1996. On February 8, 1996, the 1996 Telecom Act
was enacted. This legislation substantially altered the regulatory environment
for cable television, telecommunications and other services. Some of the
provisions of the 1996 Telecom Act became effective immediately, but other
provisions will not take effect until they are implemented by the FCC. This
legislation reverses some of the cable rate regulation established by the 1992
Cable Act over a three-year period. The rates for cable programming service
("CPS" or "non-basic") tiers offered by certain small cable operators in certain
small cable systems are deregulated immediately. The FCC's authority to regulate
the CPS tier rates of all other cable operators expired on March 31, 1999. Rates
for basic tiers (except for the small cable operator exception described
previously) will continue to be subject to regulation. The legislation also: (i)
eliminates the uniform rate requirements of the 1992 Cable Act where effective
competition exists; (ii) requires cable operators to fully block or scramble
both the audio and video on sexually-explicit or indecent programming or
channels primarily dedicated to sexually-oriented programming; (iii) adjusts the
pole attachment laws; and (iv) allows cable operators to enter
telecommunications markets which historically have been closed to them, while
also allowing most telecommunications providers to begin providing competitive
cable service in their local service areas, although buyouts of existing cable
operators are prohibited.

Cable programmers challenged the constitutionality of the provision of the
1996 Telecom Act requiring cable operators to scramble sexually-explicit or
indecent adult programming. Following a judicial challenge, the FCC's rules on
the scrambling of such programming became effective in May 1997.

Telecommunications Regulation. The 1996 Telecom Act has substantially
revised communications regulation in the United States. The legislation is
intended to allow providers to enter communications markets that have
historically been closed to them as a result of legal restrictions, as well as
practical and economic considerations. At the same time, implementation of the
1996 Telecom Act may leave incumbent providers in previously closed markets
sufficiently free from regulation that they will be able to defend their markets
aggressively. Galaxy is unable to predict the outcome of the proceedings that
will implement the legislation.

For example, the 1996 Telecom Act establishes local exchange competition
as a national policy by preempting laws that prohibit competition in the local
exchange and by establishing uniform requirements and standards for
interconnection, unbundling and resale. These standards will be developed and
implemented by the FCC in conjunction with the states in numerous proceedings
and through a process of negotiation and arbitration. By establishing national
standards for interconnection, unbundling, and resale of competitive local
exchange services, the 1996 Telecom Act significantly enhances Galaxy's
opportunity to enter this market.

At the same time, Galaxy's ability to compete in offering certain services
may be adversely affected, depending on the degree and form of regulatory
flexibility ultimately afforded LECs by the FCC and the states, as well as on
the pricing, scope and applicability of these interconnection requirements. In
addition, if Galaxy offers local exchange services within the meaning of the
1996 Telecom Act, other service providers may take advantage of the
interconnection duty to require Galaxy to use its local exchange facilities to
carry their customer traffic.

The 1996 Telecom Act also opens the way for Bell operating companies
("BOCs") and their affiliates to provide long distance telecommunications
services between a local access and transport area and points outside that area.
Prior to the 1996 Telecom Act, BOCs were generally prohibited from offering such
"interLATA" services. Under the 1996 Telecom Act such services may be offered
outside of a BOC's local exchange service states immediately. BOCs may offer
interLATA services inside such states (in-region) when the FCC determines either
that the BOC is providing access and interconnection to a competent exchange
service provider under a state-approved agreement or that no such provider has
requested such access and interconnection within ten months after enactment, and
the state has approved the BOC's general terms for providing such access and
interconnection. In either case, the FCC also must conclude that the BOC has
satisfied a "competitive checklist" of interconnection and other requirements
specified in the 1996 Telecom Act. These BOC preconditions have been held
unlawful by at least one federal court and are still being litigated. If Galaxy
decides itself to provide interLATA service, it will likely face vigorous
competition from BOC entrants, as well as from existing long distance carriers.

Telecommunications common carriers subject to the jurisdiction of the FCC
generally must file tariffs detailing the prices and terms and conditions of
services, and whether the terms offered by the carrier are just, reasonable and
nondiscriminatory. The 1996 Telecom Act provides that the FCC, in response to a
petition from a carrier, shall forbear from enforcing regulations, including
those requiring tariffs, under certain circumstances. Such actions could free
Galaxy from regulatory burdens, but might also increase the pricing flexibility
of its competitors.

State and Local Regulation. Cable systems are subject to state and local
regulation, typically imposed through the franchising process because a cable
television system uses local streets and rights-of-way. Regulatory
responsibility for essentially local aspects of the cable business such as
franchisee selection, billing practices, system design and construction, and
safety and consumer protection remains with either state or local officials and,
in some jurisdictions, with both. Cable television systems generally are
operated pursuant to nonexclusive franchises, permits or licenses granted by a
municipality or other state or local government entity. The Company holds cable
franchises in all areas in which they provide service where cable franchises are
required. Franchises generally are granted for fixed terms and in many cases are
terminable for noncompliance with material provisions. The terms and conditions
of franchises vary materially from jurisdiction to jurisdiction. Each franchise
generally contains provisions governing cable service rates, franchise fees,
franchise term, system construction and maintenance obligations, system channel
capacity, design and technical performance, customer service standards,
franchise renewal, sale or transfer of the franchise, territory of the
franchisee, indemnification of the franchising authority, use and occupancy of
public streets and types of cable services provided. State and local franchising
jurisdiction must be exercised consistently with federal law.

In the offering of its telecommunications services, the Company is also
subject to state regulation. The Company has been certified as an intrastate
interexchange carrier for a private line network in Nebraska and Kansas. As a
certificated carrier, the Company will have a variety of regulatory obligations.
State regulatory authorities generally have the authority to sanction a carrier
for non-compliance with applicable telecommunications laws and regulations
through the imposition of fines, sanctions, the revocation of operating
authority, and other penalties. There can be no assurance that the Company will
be able to obtain all necessary authorizations in the future.

Proposed Changes

Congress and the FCC have under consideration, and in the future may
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could affect, directly or indirectly, the operation, ownership
and profitability of Galaxy's broadcast and cable programming networks. In
addition to the changes and proposed changes noted above, such matters include,
for example, spectrum use fees, political advertising rates, potential
restrictions on the advertising of certain products (beer, wine and hard liquor,
for example), proposals to change the rates and structure of the cable
compulsory copyright license, and the rules and policies to be applied in
enforcing the FCC's equal opportunity regulations. Other matters that could
affect Galaxy's regulated media businesses include technological innovations and
developments generally affecting competition in the mass communications
industry, such as direct radio and television broadcast satellite service, the
continued establishment of wireless cable systems, digital television and radio
technologies, and the advent of telephone company participation in the provision
of video programming service.

Employees

As of December 31, 1999, Galaxy had approximately 342 full-time employees
and 67 part-time employees, none of whom are subject to a collective bargaining
agreement. Galaxy considers its relations with its employees to be excellent. In
addition, Galaxy Management employs 40 people who are dedicated primarily to
servicing Galaxy.

Item 2. Properties.

Galaxy owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave facilities and business offices, and
owns most of its service vehicles. Galaxy believes that its properties, both
owned and leased, are in good condition and are suitable and adequate for
Galaxy's business operations.

Galaxy's cables generally are attached to utility poles under pole rental
agreements with local public utilities, although in some areas the distribution
cable is buried in underground ducts or trenches. The physical components of
Galaxy's systems require maintenance and periodic upgrading to keep pace with
technological advances.

Item 3. Legal Proceedings.

Except as described below, there are no material pending legal proceedings to
which either of the Issuers is a party or to which any of its properties are
subject.

Certain customers in Mississippi have filed a class action in the
U.S. District Court for the Northern District of Mississippi alleging that
Galaxy illegally charges a late fee on monthly cable bills. Galaxy has denied
any liability with respect to this claim and is defending this action. Similar
class actions against other cable companies have been filed in several states,
some of which have been successful. At this point, Galaxy is unable to predict
the likely outcome or the potential for an adverse judgment, if any. An adverse
judgment against Galaxy could have a material, adverse affect on its business
and its ability to make timely payments of principal and interest on the Notes.

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

Not applicable.

PART II

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

There is no established public trading market for Galaxy's classes of
common equity.

Item 6. Selected Financial Data.

The combined statement of operations data for the calendar years 1996
through 1999 and the balance sheets data as of December 31, 1996 through 1999
set forth below have been derived from Galaxy's audited financial statements.
The data should be read in conjunction with the historical financial statements,
the notes related thereto and the other financial information included in the
exhibits and elsewhere herein.

1995 1996 1997 1998 1999
------------ --------- --------- --------- ---------
(Dollars in thousands)

Statements of Operations Data:

Revenues 29,995 $ 62,337 $ 68,808 67,291 56,914
------------ ------------ ------------ ------------ ------------
Operating expenses:
Systems operations 13,219 28,353 31,503 31,343 26,938
Selling, general and administrative 3,681 6,439 8,130 8,087 6,072
Management fee to affiliate 1,348 2,804 3,092 3,028 2,052
Depreciation and amortization 14,755 21,739 24,673 24,415 20,916
------------ ------------ ------------ ------------ ------------
Total operating expenses 28,711 59,335 67,398 66,873 55,978
------------ ------------ ------------ ------------ ------------
Operating income 1,284 3,002 1,410 418 935

Interest expense (10,422) (20,133) (21,037) (20,914) (18,847)
Other income (expense) 608 219 (421) (4,350) 5,676
------------ ------------ ------------ ------------ ------------
Net loss $ (8,530) $ (16,912) $ (20,048) $ (24,846) $ (12,236)
============ ============ ============ ============ ============
EBITDA (a) $ 11,490 $ 24,741 $ 26,083 $ 24,833 $ 21,851
============ ============ ============ ============ ============

Balance Sheet Data (at end of period):

Total assets 199,913 $ 217,498 $ 207,048 151,743 $ 137,530
Total long-term debt and other obligations 145,527 169,738 179,250 152,446 148,177
Partners' capital (deficit) 42,171 25,259 5,211 (19,635) (31,872)

Net cash provided by operating activities 7,646,964 13,520,488 4,104,091 1,384,698 5,455,226
Net cash provided by (used in) investing activities (98,492,590) (37,597,396) (13,279,244) 26,197,766 (2,807,995)
Net cash provided by (used in) financing activities 91,386,051 22,984,418 9,239,906 (27,771,785) (4,474,523)

(a) EBITDA represents income (loss) before interest expense, income taxes,
depreciation and amortization, and other income (expense). Although EBITDA
is not a measure of performance calculated in accordance with generally
accepted accounting principles ("GAAP"), management believes that it is
useful to an investor in evaluation the performance Galaxy because it is a
measure widely used in the cable industry to evaluate a cable company's
performance. Nevertheless, it should not be considered in isolation or as
a substitute for operating income, cash flows from operating activities or
any other measure for determining Galaxy's operating performance or
liquidity that is calculated in accordance with GAAP. As EBITDA is not a
measure calculated in accordance with GAAP, this measure may not be
comparable to similarly titled measures employed by other companies.

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

Results of Operations

Going Concern Uncertanties

The Partnership has incurred losses each year since its inception and has
a partnership deficit of $31.9 million at December 31, 1999. During 1999, the
Partnership continued implementation of a strategy whereby it would sell its
cable television systems in its non-core regions and focus on improving and
acquiring cable television systems in its core regions, which are primarily
located in Illinois, Kansas, Kentucky, Mississippi and Nebraska. In 1999 and
1998, the Partnership received proceeds from sales of its non-core cable
television systems of $10.1million and $38.6 million, respectively, which was
primarily used to pay down the amounts due under its revolving line of credit.

Additionally, as part of this amended term loan agreement, the Partnership
must have a definitive sale agreement in force by May 31, 2000 to sell
substantially all the interests of the Partnership sufficient for the repayment
of all Partnership loans including the Senior Subordinated Notes. This
definitive agreement shall not contain any such contingencies allowing the
purchaser to terminate such an agreement arising from: (a) the failure of such
purchaser to obtain the financing necessary for purchase, (b) the failure of
such purchaser to obtain the approvals necessary for such purchase or (c)
relating to the completion of any due diligence review by such purchaser other
than completion of reasonable due diligence customarily to be completed in such
transaction after signing such agreement. Absent of such an agreement to sell
substantially all the assets of the Company triggers an event of default under
the terms of the amended loan agreement.

Overview

In each of the past three years, the Systems have generated substantially
all of their revenues from fees for monthly basic and premium subscriptions and
from one-time charges such as installation and service charges. Minimal
additional revenues were generated from the sale of advertising and from home
shopping networks.

Total revenues decreased from 1997 through 1999, primarily as a result of
system dispositions. Total systems operations expenses and selling, general and
administrative expenses decreased from 1997 through 1999, primarily as a result
of system dispositions. Although Galaxy expects to experience increases in
programming expenses for the foreseeable future, Galaxy believes it will be able
to increase its rates for cable services to recover increases in the costs of
programming to the extent such increases exceed the general rate of inflation.
The high level of depreciation and amortization associated with the acquisitions
and capital expenditures related to continued construction and upgrading of the
Systems, together with interest costs related to Galaxy's financing activities,
have caused Galaxy to report net losses. Galaxy believes that such net losses
are common for cable television companies.

The following table sets forth for the periods indicated certain statement
of operations items expressed in dollar amounts (in thousands) and a percentage
of total revenues from continuing operations on a combined historical basis:

1997 1998 1999
-------------- ------------- -------------
% of % of % of
Amount Revenues Amount Revenues Amount Revenues
------- ------ ------- ------ ------- ------
(Dollars in Thousands)

Revenues $68,808 100.0% $67,291 100.0% 56,914 100.0%
------- ------ ------- ------ ------- ------
Operating expenses:
System operations 31,503 45.8% 31,343 46.6% 26,938 47.3%
Selling, general and administrative 8,130 11.8% 8,087 12.0% 6,072 10.7%
Management fee to affiliate 3,092 4.5% 3,028 4.5% 2,052 3.6%
Depreciation and amortization 24,673 35.9% 24,415 36.3% 20,916 36.7%
------- ------ ------- ------ ------- ------
Total operating expenses 67,398 98.0% 66,873 99.4% 55,978 98.3%
------- ------ ------- ------ ------- ------
Operating income (loss) 1,410 2.0% 418 0.6% 935 1.7%

Interest expense (21,037) (30.5%) (20,914) (31.1%) (18,847) (33.1%)
Interest income 24 0.0% 53 0.1% 77 0.1%
Gain (loss) on sale of assets (226) (0.3%) (4,088) (6.1%) 5,599 9.8%
Other income (expense),net (219) (0.3%) (315) (0.4%) - 0.0%
------- ------ ------- ------ ------- ------
Net loss $(20,048) (29.1%) $(24,846) (36.9%) $(12,236) (21.5%)
======= ====== ======= ====== ======= ======
EBITDA (a) 26,083 37.9% 24,833 36.9% 21,851 38.4%
======= ====== ======= ====== ======= ======

1999 Compared to 1998

Revenues decreased 15.4%, or approximately $10.4 million, from 1998 to
1999. The decrease in revenues resulted primarily from the sale of certain
Systems during 1999, resulting in a reduction in the number of basic subscribers
during 1999, offset somewhat by an increase in basic rates during the year.

Systems operations expenses decreased 14.1%, or approximately $4.4
million, from 1998 to 1999. The decrease in these expenses was due primarily to
the sale of certain Systems during 1999. Programming expenses increased from
24.4% of revenue in 1998 to 25.6% in 1999. As a result, system operations
expenses as a percentage of revenue increased from 46.6% in 1998 to 47.3% in
1999, respectively.

Selling, general and administrative expenses decreased 24.9%, or
approximately $2.0 million, from 1998 to 1999. Selling, general and
administrative expenses, as a percentage of revenues, decreased to 10.7% in 1999
from 12.0% in 1998. The decrease was a result of closing a call center, the sale
of some systems and the reimbursement of certain costs from affiliated companies
for shared services.

Management fees to affiliate decreased 32.2%, or approximately $1.0
million, from 1998 to 1999. Management fees are calculated as a percentage of
revenue. The decrease was a result of the reduction of this percentage in
accordance with the Management Agreement and a reduction in revenues discussed
above.

Depreciation and amortization expense decreased 14.3%, or approximately
$3.5 million, from 1998 to 1999. This decrease in expenses was due primarily to
the sale of certain Systems during 1999. As a percentage of revenues,
depreciation and amortization increased from 36.3% in 1998 to 36.7% in 1999.

Interest expense decreased 9.9%, or approximately $2.1 million, from 1998
to 1999. This decrease was a result of payments made to reduce Galaxy's
revolving note as a result of the sale of certain Systems during the year,
offset by an increase in amortization of intangible loan costs. Interest
expense, as a percentage of revenues, increased from 31.1% in 1998 to 33.1% in
1999. Interest income increased 45.3% from 1998 to 1999 due to higher cash
balances in 1999.

Gain (loss) on sale of assets went from a loss of 4.1 million, or 6.1% of
revenues in 1998 to a net gain of $5.6 million, or 9.8% of revenues in 1999.
This increase is directly attributable to the sale of certain Systems during
1999.

Other expense, net, was zero in 1999, as compared to a net expense of
$315,000 during 1998. During 1998, there were one-time non-operating charges to
write off current assets and liabilities realized at the time of the purchase of
the Initial Systems. There were no such expenses during 1999.

Galaxy pays no income taxes, although it is required to file federal and
state income tax returns for informational purposes only. All income or loss
flowed through to the partners of Galaxy as specified in the governing
partnership agreement.

As a combined result of the items discussed above, net loss decreased
45.5%, or approximately $11.3 million, from 1998 to 1999. As a percentage of
revenues, net loss decreased from 36.9% in 1998 to 23.8% in 1999.

EBITDA decreased 12.0%, or approximately $3.0 million, from 1998 to 1999,
due primarily to the sale of certain systems. As a percentage of revenues,
EBITDA increased from 36.9% in 1998 to 38.4% in 1999, primarily as a result of
the decrease in selling, general and administrative costs. EBITDA represents
income (loss) before interest expense, income taxes, depreciation and
amortization, and other income (expense). Although EBITDA is not a measure of
performance calculated in accordance with generally accepted accounting
principles ("GAAP"), management believes that it is useful to an investor in
evaluation the performance Galaxy because it is a measure widely used in the
cable industry to evaluate a cable company's performance. Nevertheless, it
should not be considered in isolation or as a substitute for operating income,
cash flows from operating activities or any other measure for determining
Galaxy's operating performance or liquidity that is calculated in accordance
with GAAP. As EBITDA is not a measure calculated in accordance with GAAP, this
measure may not be comparable to similarly titled measures employed by other
companies.

1998 Compared to 1997

Revenues decreased 2.2%, or approximately $1.5 million, from 1997 to 1998.
The decrease in revenues resulted primarily from the sale of certain Systems
during 1998, offset somewhat by an increase in basic rates during the year.

System operations expenses decreased 0.5%, or approximately $0.2 million,
from 1997 to 1998. The decrease in these expenses was due primarily to the sale
of certain Systems during 1998. Systems operations expenses, as a percentage of
revenues, increased from 45.8% in 1997 to 46.6% in 1998. The increase in these
expenses was primarily the result of increases in programming and other
subscriber related expenses that typically vary with revenues and the increased
number of channels carried.

Selling, general and administrative expenses decreased 0.5%, or
approximately $43,000, from 1997 to 1998. Selling, general and administrative
expenses, as a percentage of revenues, increased from 11.8% in 1997 to 12.0% in
1998. These changes were attributable to a decrease in the amount of
reimbursements from programmers for marketing campaigns from 1.3% of revenue in
1997 to 0.2% in 1998, offset by a decrease in other marketing expenses from 3.5%
of revenue in 1997 to 2.9% of revenue in 1998.

Management fees to affiliate decreased 2.1%, or approximately $64,000,
from 1997 to 1998. Management fees are calculated as a percentage of revenue.
The decrease was directly proportionate to the decrease in revenue.

Depreciation and amortization expense decreased 1.0%, or approximately
$258,000, from 1997 to 1998. This decrease was due to the reduction of fixed
assets as a result of the sale of certain Systems, offset by capital
expenditures. As a percentage of revenues, depreciation and amortization
increased from 35.9% in 1997 to 36.3% in 1998.

Interest expense decreased 0.6%, or approximately $123,000, from 1997 to
1998. This decrease was a result of payments made to reduce Galaxy's revolving
note as a result of the sale of certain Systems during the year, offset by an
increase in amortization of intangible loan costs.

Loss on sale of assets went from a net loss of $0.2 million, or 0.3% of
revenues during 1997 to a net loss of $4.1 million, or 6.1% of revenues in 1998.
This increase is directly attributable to the loss on sale of certain Systems
during 1998.

Other expense, net, increased from a net expense of $219,000 during 1997
to a net expense of $315,000 during 1998. This change of $0.1 million was a
result of one-time non-operating charges to write off current assets and
liabilities realized at the time of the purchase of the Initial Systems.

As a combined result of the items discussed above, net loss increased
23.9%, or approximately $4.8 million, from 1997 to 1998. As a percentage of
revenues, net loss increased from 29.1% in 1997 to 36.9% in 1998.

EBITDA decreased approximately $1.2 million, or 4.8%, from 1997 to 1998,
primarily due to the decrease in revenues. As a percentage of revenues, EBITDA
decreased from 37.9% in 1997 to 36.9% in 1998. EBITDA represents income (loss)
before interest expense, income taxes, depreciation and amortization, and other
income (expense). Although EBITDA is not a measure of performance calculated in
accordance with generally accepted accounting principles ("GAAP"), management
believes that it is useful to an investor in evaluation the performance Galaxy
because it is a measure widely used in the cable industry to evaluate a cable
company's performance. Nevertheless, it should not be considered in isolation or
as a substitute for operating income, cash flows from operating activities or
any other measure for determining Galaxy's operating performance or liquidity
that is calculated in accordance with GAAP. As EBITDA is not a measure
calculated in accordance with GAAP, this measure may not be comparable to
similarly titled measures employed by other companies.

1997 Acquisitions and Dispositions

Galaxy acquired and disposed of various assets comprising cable television
systems during 1997. Following is a brief discussion of each transaction.

TCI Cable of the Midland - Sarpey County Systems. On September 1, 1997,
Galaxy acquired certain assets comprising the cable television systems of TCI
Cable of the Midland (the "Sarpey County Systems"), located in Sarpey and
Douglas counties, Nebraska for a purchase price of approximately $875,000. At
September 1, 1997, the Sarpey County Systems passed approximately 3,000 homes
located in Nebraska, with approximately 80 miles of plant, for a density of 39
homes per mile. The Sarpey County Systems served approximately 1,613 basic
subscribers and had a basic penetration rate of approximately 52%.

On April 7, 1997, Galaxy sold its cable television system located in
Five Points, South Carolina, representing 311 basic subscribers for $372,645, or
approximately $1,200 per subscriber. Galaxy used most of the proceeds from this
sale to pay down principal of the revolving note.

On August 1, 1997, Galaxy sold its cable television systems located in
Lake Murray, South Carolina, representing 587 subscribers for $587,000 or $1,000
per subscriber. Galaxy retained ownership of all related equipment located in
the two head-end facilities. Galaxy used the proceeds from this sale to pay down
principal of the revolving note.

On December 31, 1997, Galaxy sold its cable television systems located in
Lauderdale County, Mississippi, representing 833 subscribers for $1.12 million
or $1,350 per subscriber. Galaxy used the proceeds from this sale to pay down
principal of the revolving note.

On December 31, 1997, Galaxy sold its cable television systems located in
South Kansas, representing 1,346 subscribers for $1.25 million or $932 per
subscriber. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

1998 Acquisitions, Dispositions and Trades

Galaxy acquired and disposed of various assets comprising cable television
systems during 1998. Following is a brief discussion of each transaction.

On March 31, 1998, Galaxy sold six cable television systems located in and
around Ottawa County, Kansas, representing 752 subscribers for approximately
$623,000, or approximately $830 per subscriber.

On July 31, 1998, Galaxy two cable television systems located in Kansas,
representing 201 subscribers for approximately $171,000, or approximately $850
per subscriber.

1999 Acquisitions, Dispositions and Trades

Pending Dispositions

Liquidity and Capital Resources

The cable television business requires substantial financing for
construction, expansion and maintenance of plant. Galaxy intends to continue
pursuit of a business strategy that includes selective acquisitions. Since
December of 1994 Galaxy received cash equity contributions of approximately
$44.6 million from the Equity Investors and the Senior Managers. Galaxy also
received equity from Vantage Cable totaling approximately $6.4 million. Galaxy
had an aggregate of $148.1 million of indebtedness as of December 31, 1999,
representing $119.6 million of senior subordinated notes (net of unamortized
discount of $0.4 million), $25.3 million drawn under Galaxy's revolving line of
credit (See "The Revolving Credit Facility and Term Loan"), and $3.2 million in
various other obligations. Net payments were made under Galaxy's revolving line
of credit of approximately $5.1 million during 1999. Except for the debt
repayments required under term loan, Galaxy anticipates that operating cash
flows, sales proceeds of assets sold outside its Core Areas and debt and equity
restructuring will provide sufficient funds necessary to meet debt service,
working capital and capital expenditure needs.

Galaxy provided net cash by operating activities of $1.4 million in 1998
and $5.5 million in 1999, respectively, an increase in net cash provided by
operating activities of $4.1 million. This increase is mainly due to a decrease
in the cash used for accounts payable and accrued expenses during 1999.

Galaxy provided net cash by investing activities of $26.2 million in 1998,
and used net cash in investing activities of $2.8 million in 1999, an increase
in net cash used in investing activities of $29.0 million. This increase is
mainly due to a decrease in proceeds from sale of assets and an increase in the
acquisition of capital assets.

Galaxy used net cash in financing activities of $27.7 million and $4.5
million in 1998 and 1999, respectively, a decrease in net cash used in financing
activities of $23.2 million, mainly due a decrease in net borrowings on the
Revolver.

At December 31, 1999, Galaxy was not in compliance with certain covenants
under its term loan agreement. On March 31, 2000 Galaxy amended its term loan
agreement to modify financial covenants and change the maturity date of all
outstanding borrowing under the term loan agreement and entered into a new $5
million Term Loan Agreement from three of the four lenders under the term loan
agreement. As discussed in Note 2 to the consolidated financial statements,
based on current estimates of operating cash flow, management does not believe
it will have sufficient cash to fund required debt payments on December 31,
2000. As required by the terms of Galaxy's amended term loan and new loan
agreement described in Note 2, Galaxy's partners are negotiating to sell their
Galaxy partnership interests to a third party. However, closing of such
transaction is not assured. Absent the completion of the aforementioned
transaction and the partnership's inability to meet its cash flow needs raises
substantial doubt about its ability to continue as a going concern.

Capital Expenditures

During 1999, Galaxy's capital expenditures (exclusive of system
acquisitions) were approximately $12.5 million. These capital expenditures were
used to add channels, construct wide-area networks for distance learning and
data services and purchase new computer equipment and software to enhance
communications and data traffic between employees and Galaxy subscribers. Galaxy
anticipates capital expenditures over the next two years will total
approximately $15.0 million. These capital expenditures will be used primarily
to continue the installation of fiber optic cable, purchase digital equipment
and to allow for the reduction in the number of headends. These expenditures
also include expansion and replacement of headend buildings; rewires of
associated electronic equipment and for the purchase of new vehicles, test
equipment and computer equipment. The remaining capital items include the
expenditures required to add new subscribers and the expansion and upgrade of
the cable television facilities. Absent the requirements of the term loan,
Galaxy would have expected to finance the anticipated capital expenditures
described above with cash flows generated from operations, proceeds from system
sales and other debt as necessary.

The Revolving Credit Facility and Term Loan

Galaxy's September 1995 Amended and Restated Loan Agreement ("the
Revolver") has been periodically amended and subsequently converted to a Term
Loan, with the latest amendment occurring in March 2000. Net proceeds from any
system sale will be used to reduce the commitment available under the Revolver.
On December 31, 2000, Galaxy is required to pay the outstanding principal
balance together with all accrued and unpaid interest, fees and expenses. The
Revolver requires Galaxy to maintain compliance with certain financial ratios
and other covenants, such as annualized cash flow to interest expense, capital
expense limits and basic subscribers to total long term debt. Galaxy is not
permitted to borrow additional funds under the Revolver without the prior
written consent of the lenders. At December 31, 1999, Galaxy was not in
compliance with certain covenants under its term loan agreement. On March 31,
2000 Galaxy amended its term loan agreement to modify financial covenants and
change the maturity date of all outstanding borrowing under the term loan
agreement

On March 31, 2000, Galaxy entered into a new $5 million Term Loan
Agreement from three of the four lenders under the Revolver ("New Loan"). The
New Loan also requires Galaxy to maintain compliance with certain financial
ratios and other covenants, such as annualized cash flow to interest expense,
capital expense limits and basic subscribers to total long term debt. The New
Loan restricts Galaxy's ability to borrow without the consent of the lenders.
The New Loan is due the earlier of December 31, 2000 or upon the occurrence of
certain events set forth in the Loan Agreement.

Under the March 2000 amendment to the Revolver and the New Loan, it is an
"Event of Default" with respect to each if a definitive agreement for the sale
of Galaxy and an entity affiliated with the Company or system asset sales of
substantially all the systems owned by Galaxy and the affiliate has not been
executed and delivered by May 31, 2000 with an unaffiliated third party buyer in
a form reasonably satisfactory to the majority lenders. There can be no
assurances that a definitive purchase agreement will be delivered by this date
or, in the event of Galaxy and the affiliate's failure or inability to comply,
that such provisions will be waived by the majority lenders.

Senior Subordinated Notes

Pursuant to an indenture dated September 28, 1995 (the "Indenture")
between Galaxy and Capital Corp., and the Bank of New York as trustee, Galaxy
issued $120.0 million aggregate principal amount of senior subordinated
obligations (the "Notes"). Absent a sale of assets as required of the term of
the term loan as discussed above which sale would be considered an event of
redemption, such notes mature October 2005. The Notes bear an interest rate of
12.375% per annum payable semiannually on April 1 and October 1, commencing
April 1, 1996.

The payment of principal and interest on the Notes is subordinated in
right of payment to the Revolver. The Notes will rank pari passu with all other
senior subordinated indebtedness of Galaxy, if any, and is senior to all
subordinated debt of Galaxy.

Inflation

Galaxy does not believe that inflation in the United States in recent
years has had a significant effect on results on operations.

Recent Accounting Pronouncements

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. This
statement, as amended, is effective for the Partnership beginning January 1,
2001, Management of the Partnership anticipates that the adoption of SFAS #133
will not have a significant effect on the Partnerships' results of operations or
its financial position.

Safe Harbor under the Private Securities Litigation Reform Act Of 1995

The statements contained in the Form 10-K relating to Galaxy's operating
results, and plans and objectives of management for future operations, including
plans or objectives relating to Galaxy's products and services, constitute
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results of Galaxy may differ materially
from those in the forward-looking statements and may be affected by a number of
factors. These factors include the receipt of regulatory approvals, the success
of Galaxy's implementation of digital technology, subscriber equipment
availability, tower space availability, and the absence of interference, as well
as other factors contained herein and in Galaxy's securities filings.

Galaxy's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including (i) business conditions and
growth in Galaxy's existing markets, (ii) the successful launch of systems and
technologies in new and existing markets, (iii) Galaxy's existing indebtedness
and the need for additional financing to fund subscriber growth and system and
technological development, (iv) government regulation, including FCC
regulations, (v) Galaxy's dependence on channel leases, (vi) the successful
integration of future acquisitions and (vii) numerous competitive factors,
including alternative methods of distributing and receiving video transmissions.

Notwithstanding any disposition of cable systems, modest increases in
revenues and subscribers are anticipated in 2000; however, the rate of increase
cannot be estimated with precision or certainty. Galaxy believes that general
and administrative expenses and depreciation and amortization expense will
continue to increase to support overall growth.

Because of the foregoing uncertainties affecting Galaxy's future operating
results, past performance should not be considered to be a reliable indicator of
future performance, and investors should not use historical results or trends as
determinative of Galaxy's future performance. In addition, Galaxy's
participation in a developing industry employing rapidly changing technology
will result in significant volatility in the market value of the Notes.

In addition to the matters noted above, certain other statements made in
this Form 10-K are forward looking. Such statements are based on an assessment
of a variety of factors, contingencies and uncertainties deemed relevant by
management, including technological changes, competitive products and services
and management issues. As a result, the actual results realized by Galaxy could
differ materially from the statements made herein. Readers of this Form 10-K are
cautioned not to place undue reliance on the forward looking statements made in
this Form 10-K or in Galaxy's other securities filings.

Item 7a. Qualitative and Quantitative Disclosures about Market Risks.

Galaxy is not directly exposed to any foreign exchange rates or commodity
price fluctuations.

Galaxy is exposed to changes in domestic interest rates due to our
floating-rate of interest (LIBOR interest rate) on certain debt.

Based on Galaxy's fixed/floating debt at December 31, 1999, a 1% increase
in market interest rates would increase our yearly interest expense and decrease
income by approximately $266,000. This amount was calculated using the
hypothetical interest rate on our floating rate debt at December 31, 1999,
assuming a constant level of variable-rate debt. This amount does not include
other results that could result from increased interest rates, such as a
downturn in overall economic activity, or actions the management could take to
lessen our risk. This also does not take into account any changes in our
financial structure that may result from higher interest rates.

F-25

Item 8. Financial Statement and Supplementary Data.

GALAXY TELECOM, L.P. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULE

Page

Consolidated Financial Statements:

Reports of Independent Accountants F-2

Consolidated Balance Sheets as of December 31, 1999 and 1998 F-4

Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-5

Consolidated Statements of Changes in Partners' Capital (Deficit)
for the Years Ended December 31, 1999, 1998 and 1997 F-6

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7

Notes to Consolidated Financial Statements F-8

Financial Statement Schedule:

Reports of Independent Accountants on Financial Statement Schedule F-20

Schedule II - Valuation and Qualifying Accounts

F-22

All other schedules are omitted as the required information is not applicable or
the information is presented in the consolidated financial statements, related
notes or financial statement schedule.

INDEPENDENT AUDITORS' REPORT

To the Partners of
Galaxy Telecom, LP:

We have audited the accompanying consolidated balance sheet of Galaxy Telecom,
L.P. and subsidiary ("the Partnership") as of December 31, 1999 and the related
consolidated statements of operations, changes in partners' capital (deficit),
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the 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 audit provides a
reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1999 and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Partnership's inability to meet its cash
flow needs and to comply with certain debt covenants raise substantial doubt
about its ability to continue as a going concern. Management's plan concerning
these matters is also described in Note 2. The 1999 financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

Deloitte & Touche LLP

March 17, 2000

(April 11, 2000 as to Notes 2,4 and to the term loan described in Note 7)

St. Louis, Missouri

Report of Independent Accountants

To the Partners
Galaxy Telecom, L.P.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, cash flows and changes in partners'
capital (deficit) as of and for each of the two years in the period ended
December 31, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of Galaxy Telecom, L.P. and its
subsidiary (the "Partnership") as of and for each of the two years in the period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of the Partnership for any period
subsequent to December 31, 1998.

PricewaterhouseCoopers LLP

Austin, Texas
February 19, 1999

GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

December 31,
------------------------------
1999 1998
------------- -------------
ASSETS

Cash and cash equivalents $ 386,485 $ 2,213,777
Subscriber receivables, net of allowance for doubtful accounts of
$87,449 and $116,572, respectively 4,431,946 4,334,563
Systems and equipment, net 94,568,015 104,197,674
Intangible assets, net 34,266,208 38,260,678
Prepaids and other 3,877,975 2,735,940
------------- -------------
Total assets $ 137,530,629 $ 151,742,632
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Accounts payable and accrued expenses $ 17,198,650 $ 14,854,052
Subscriber deposits and deferred revenue 4,026,920 4,078,407
Long-term debt and other obligations 148,176,701 152,445,620
------------- -------------
Total liabilities 169,402,271 171,378,079

Total partners' capital (deficit) (31,871,642) (19,635,447)
------------- -------------
Total liabilities and partners' capital (deficit) $ 137,530,629 $ 151,742,632
============= =============

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

GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,
--------------------------------------
1999 1998 1997
------------ ------------ ------------

Revenues $ 56,913,515 $ 67,291,506 $ 68,807,763
------------ ------------ ------------

Operating expenses:
Systems operations 26,938,188 31,343,006 31,502,762
Selling, general and administrative 6,071,542 8,086,624 8,129,733
Management fee to affiliate 2,052,074 3,028,118 3,092,354
Depreciation and amortization 20,916,494 24,415,370 24,672,569
------------ ------------ ------------
Total operating expenses 55,978,298 66,873,118 67,397,418
------------ ------------ ------------

Operating income (loss) 935,217 418,388 1,410,345

Interest expense (18,847,367) (20,914,341) (21,036,934)
Interest income 77,188 52,533 23,710
Gain (loss) on sale of assets 5,598,767 (4,088,370) (226,185)
Other income (expense), net -- (314,587) (218,818)
------------ ------------ ------------

Net loss $(12,236,195) $(24,846,377) $(20,047,882)
============ ============ ============

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

GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES

IN PARTNERS' CAPITAL (DEFICIT)

General Limited Partners
Partners Class B Class C Class D Class E Total Total
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance, December 31,
1996 $ 18,257,812 $ 1,000 $ 416,000 $ 6,384,000 $ 200,000 $ 7,001,000 $ 25,258,812

Net loss (18,257,812) (256) (106,366) (1,632,311) (51,137) (1,790,070) (20,047,882)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31,
1997 -- 744 309,634 4,751,689 148,863 5,210,930 5,210,930

Net Loss (19,635,447) (744) (309,634) (4,751,689) (148,863) (5,210,930) (24,846,377)
------------ ------------ ------------ ------------ ------------ ------------ ------------

Balance, December 31,
1998 (19,635,447) -- -- -- -- -- (19,635,447)

Net Loss (12,236,195) -- -- -- -- -- (12,236,195)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31,
1999 $(31,871,642) $ -- $ -- $ -- $ -- $ -- $(31,871,642)
============ ============ ============ ============ ============ ============ ============

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

GALAXY TELECOM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,
------------------------
1999 1998 1997
------------ ------------ ------------

Cash flows from operating activities:
Net loss $(12,236,195) $(24,846,377) $(20,047,882)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation expense 18,363,959 20,572,418 20,554,588
Amortization expense 2,552,535 3,842,952 4,117,981
Amortization included in interest expense 1,320,000 1,269,126 934,770
Provision for doubtful accounts receivable 991,364 1,209,797 1,992,318
Loss (gain) on disposal of cable systems (5,598,766) 4,088,370 226,185
Changes in assets and liabilities:
Subscriber receivables (1,088,747) (120,100) (1,418,451)
Prepaids and other (1,142,035) 561,633 (1,288,805)
Accounts payable and accrued expenses 2,344,598 (3,837,431) (1,637,383)
Subscriber deposits and deferred revenue (51,487) (1,355,690) 670,770
------------ ------------ ------------
Net cash provided by operating activities 5,455,226 1,384,698 4,104,091
------------ ------------ ------------

Cash flows from investing activities:

Acquisition of cable systems - net of trades -- (999,452) (825,000)
Proceeds from sales of cable systems 10,118,327 38,619,045 3,304,334
Purchase of capital assets (12,509,465) (11,337,085) (15,222,381)
Other intangible assets (416,857) (84,742) (536,197)
------------ ------------ ------------
Net cash provided by (used in) investing
activities (2,807,995) 26,197,766 (13,279,244)
------------ ------------ ------------

Cash flows from financing activities:

Borrowings under term debt and revolver 3,000,000 10,825,000 12,400,000
Payments under term debt and revolver (8,175,000) (39,550,000) (3,051,377)
Borrowings under other debt 3,151,427 4,014,110 259,386
Payments under other debt (2,305,346) (2,153,802) (368,103)
Payment of debt issue costs (145,604) (907,093) --

Net cash provided by (used in) financing
activities (4,474,523) (27,771,785) 9,239,906
------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents (1,827,292) (189,321) 64,753
Cash and cash equivalents, beginning of year 2,213,777 2,403,098 2,338,345
------------ ------------ ------------

Cash and cash equivalents, end of year $ 386,485 $ 2,213,777 $ 2,403,098
============ ============ ============

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

GALAXY TELECOM, L.P. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Galaxy Telecom, LP (the "Partnership"), a Delaware limited partnership, was
formed in December 1994 to acquire, develop, hold, improve, construct,
manage, operate and use cable television systems and related businesses in
fifteen states, predominantly including Mississippi, Nebraska, Kansas,
Missouri, Illinois, Kentucky, Iowa, Alabama, Georgia and Florida.

Partners - The general partners include Galaxy Telecom Investments, L.L.C.
and Galaxy Telecom, Inc. with 99% and 1% interests, respectively. The
limited partners include Galaxy Telecom Investments, L.L.C. (Class B),
Galaxy Telecom, Inc. (Class C and E), and Vantage Cable Associates, LP
(Class D). Class C, D and E limited partnership interests are subject to
reductions resulting from potential set-off adjustments to the respective
cable television system acquisitions.

Property Returns - The Partnership agreement establishes priority returns
for the general and certain limited partners compounded annually on the
respective partners' unreturned contributions. Limited partner priority
returns range from 9 percent to 10 percent through 1999, and thereafter up
to a maximum of 18 percent in annual 2 percent increments. General partner
priority returns increase to a maximum of 35 percent. The cumulative unpaid
priority return totaled approximately $144,543,000, $95,487,000 and
$57,553,000 at December 31, 1999, 1998 and 1997, respectively.

Distributions - First, to Class C, D and E limited partners in proportion
to their respective capital contributions to the extent of such capital
contributions and priority returns.

Second, to General and Class B limited partners in proportion to their
respective capital contributions to the extent of such capital
contributions.

Third, to general partners in proportion to their percentage interest to
the extent all distributions to the general partners equal the first
priority return.

Fourth, 94.05 percent to general partners in proportion to their percentage
interest and 5.95 percent to Class B limited partner to the extent all
distributions to the general partners equal to the second priority return.

Thereafter, 88.10 percent to the general partners in proportion to their
percentage interest and 11.90 percent to the Class B limited partner.

Distributions are restricted by the Senior Subordinated Notes and the Term
Loan agreement to those amounts which are necessary for the partners'
federal and state income taxes and certain fees.

Allocations - Partnership profits are allocated to the general partners and
the Class B limited partner in the same manner as the third, fourth and
subsequent distributions. Profits are allocated to the Class C, D and E
limited partners to the extent of their capital contributions and priority
return distributions to such partners. Partnership losses are allocated as
follows: first, to the general partners in proportion to their percentage
interest up to their capital amounts; secondly, to the limited partners in
proportion to their percentage interest up to their capital amounts; and
thereafter, to the general partners in proportion to their percentage
interest.

2. Going Concern Uncertainties

The Partnership has incurred losses each year since its inception and has a
partnership deficit of $31.9 million at December 31, 1999. During 1999, the
Partnership continued implementation of a strategy whereby it would sell
its cable television systems in its non-core regions and focus on improving
and acquiring cable television systems in its core regions, which are
primarily located in Illinois, Kansas, Kentucky, Mississippi and Nebraska.
In 1999 and 1998, the Partnership received proceeds from sales of its
non-core cable television systems of $10.1million and $38.6 million,
respectively, which was primarily used to pay down the amounts due under
its revolving line of credit.

At December 31, 1999, the Partnership was not in compliance with certain
covenants under its term loan agreement. As discussed in Note 7, on March
31, 2000 the Partnership amended its term loan agreement to modify
financial covenants and change the maturity date of all outstanding
borrowings under the term loan agreement.

Additionally, as part of this amended term loan agreement, the Partnership
must have a definitive sale agreement in force by May 31, 2000 to sell
substantially all the interests of the Partnership sufficient for the
repayment of all Partnership loans including the Senior Subordinated Notes.
This definitive agreement shall not contain any such contingencies allowing
the purchaser to terminate such an agreement arising from: (a) the failure
of such purchaser to obtain the financing necessary for purchase, (b) the
failure of such purchaser to obtain the approvals necessary for such
purchase or (c) relating to the completion of any due diligence review by
such purchaser other than completion of reasonable due diligence
customarily to be completed in such transaction after signing such
agreement. Absent of such an agreement to sell substantially all the assets
of the Company triggers an event of default under the terms of the amended
loan agreement.

In light of the Partnership's current projected earnings and cash flow, the
Partnership believes it will have the financial resources to maintain its
current level of operations until December 31, 2000, the term loan maturity
date. However, cash generated from operations alone will not be sufficient
to pay the term loan on December 31, 2000 without proceeds from the sale of
assets or refinancing of the term loans. Additionally, such a sale as
required by the loan agreement would represent a change in control as
defined in the Senior Subordinated Loan Agreement and would represent an
event of redemption.

3. Significant Accounting Policies

The significant policies followed are summarized below:

a. Basis of Consolidation - The consolidated financial statements include
the accounts of the Partnership and its wholly owned subsidiary, Galaxy
Telecom Capital Corp. ("Capital Corp."). All intercompany transactions
have been eliminated in consolidation. Capital Corp. was formed in
July 1995 and maintains a capitalization of $1,000 for the purpose of
co-issuing, with the Partnership, the Senior Subordinated Notes (see
Note 7). Capital Corp. does not have any operations other than its
related purpose as co-issuer. Investments in 20- to 50-percent-owned
affiliates are accounted for using the equity method (see Note 9).

b. Cash Equivalents - Cash equivalents include highly liquid investments
purchased with an original maturity of three months or less. There were
no cash equivalents at December 31, 1999 and 1998.

c. Concentrations of Credit Risk - Financial instruments which potentially
subject the Partnership to concentrations of credit risk are cash and
cash equivalents and subscriber and other receivables. The Partnership
invests excess cash in short-term liquid money instruments issued by
significant financial institutions. Cash balances in excess of the
federally insured limit were negligible in 1999 and totaled
approximately $3.0 million at December 31, 1998. Though limited
primarily to cable television subscribers, the concentration of credit
risk with respect to receivables is minimized by geographical
dispersion through approximately 255individual cable television systems
ranging in size from approximately 10 subscribers to approximately
3,000 subscribers located in small communities in the Midwest and
Southeast United States, and the large number of customers with
individually small balances on short payment terms.

d. Fair Value of Financial Instruments - Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments, requires certain disclosures regarding the fair value of
financial instruments. Cash and cash equivalents, subscriber
receivables, accounts payable and accrued expenses as reflected in the
financial statements approximate fair value because of the short-term
maturity of these instruments. The fixed rate Senior Subordinated Notes
(see Note 7) are valued using the closing bid price market quotes, and
as a result, the fair value of the Notes at December 31, 1999 and 1998
were $125,472,000 and $127,020,000, respectively. Based on borrowing
rates currently available to Galaxy for similar debt, the fair value of
the revolver debt and term loan approximates its carrying value at
December 31, 1999 and 1998.

e. Revenue Recognition - Revenues from subscribers are recognized in the
month that service is provided. Installation revenues are recognized
upon completion of the service provided to the subscriber, to the
extent of direct selling costs, with any remaining balance deferred and
recognized as revenue over the estimated period that subscribers are
expected to remain connected to the cable television system.

f. Marketing Costs - Marketing costs are charged to operations in the
period incurred and totaled approximately $1,045,000, $1,822,000 and
$1,516,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

g. Federal Income Taxes - The Partnership as an entity pays no income
taxes, although it is required to file federal and state income tax
returns for informational purposes only. All income or loss flows
through to the individual partners as specified in the Partnership
agreement. The differences between the results of operations presented
in these consolidated financial statements and taxable loss for federal
income tax reporting purposes result primarily from the use of
accelerated methods for computing tax depreciation.

h. Systems and Equipment - Systems and equipment are recorded at cost
including amounts for material and labor. Direct costs, including labor
associated with installations in homes not previously served by cable
television, are capitalized as subscriber drops. Expenditures for
maintenance and repairs are charged to operations as incurred and
equipment replacements and betterments are capitalized. When assets are
sold or retired, the related cost and accumulated depreciation are
removed from the respective accounts, and any resulting gain or loss is
credited or charged to operations.

i. Intangible Assets - Goodwill related to the acquisition of cable
television systems represents the excess of purchase price plus related
direct costs over the fair value of the net assets acquired. Other
intangible assets consist primarily of debt issuance costs. Debt
issuance costs and original issue discounts are amortized to interest
expense using the interest method. The intangible assets are amortized
over the life of the borrowings or the estimated useful lives of the
assets of 15 years using the straight-line method.

j. Impairment of Long-Lived Assets - In the event that facts and
circumstances indicate that the cost of long-lived assets other than
financial instruments may be impaired, an evaluation of recoverability
would be performed. If an evaluation of impairment is required, the
estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a
write-down is required.

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

l. Reclassifications - Certain prior year balances have been reclassified
to conform to the current year's presentation.

m. Recent Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued a Statement of Financial Accounting
Standards No. 133 ("SFAS 133"), Accounting for Derivative Instruments
and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments and for hedging
activities. It requires that derivatives be reported as assets and
liabilities at fair value and that changes in fair value be accounted
for depending on the intended use of the derivative and the resulting
designation. This statement, as amended, is effective for the
Partnership beginning January 1, 2001. Management of the Partnership
anticipates that the adoption of SFAS No. 133 will not have a
significant effect on the Partnership's results of operations or its
financial position.

n. Reporting Comprehensive Income - In 1998, Galaxy adopted SFAS No. 130,
Reporting Comprehensive Income, which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. Comprehensive loss
was the same as net loss reported at December 31, 1999 and 1998.

4. ACQUISITIONS AND DISPOSITIONS OF CABLE TELEVISION SYSTEMS

Acquisition - On May 1, 1999, Galaxy traded 18 cable television systems,
representing approximately 7,500 subscribers for seven cable television systems,
representing approximately 7,100 subscribers from Mississippi Cablevision, Inc.
("MCI"), an affiliate of Telecommunications, Inc. The Galaxy cable television
systems are located primarily in Colorado, Iowa and South Dakota, while the MCI
cable television systems are located in Mississippi. The estimated fair market
value of the cable television systems received was approximately $9.4 million or
approximately $1,300 per subscriber. The fair market value of the cable
television systems received was estimated by using the purchase price (price per
subscriber) for similar cable television systems bought from MCI by an affiliate
of Galaxy. The net historical cost of the cable television systems given up was
approximately $6.9 million, resulting in Galaxy recording a gain on sale of
approximately $2.5 million, net of expenses.

The excess of the purchase price over the fair value of the assets acquired
(franchise costs) was approximately $4.8 million and is being amortized on a
straight-line basis over 15 years. The trade was accounted for as a business
combination in accordance with the Accounting Principles Board Opinion No. 16,
Business Combinations, accordingly, the results of the acquired cable television
systems have been included in the statement of operations since the acquisition
date. Management believes that the pro forma results of the Partnership would
have been insignificant if the trade had occurred on January 1, 1999.

Dispositions - On February 12, 1999, Galaxy sold one satellite master antenna
television system ("SMATV") located in Spring Creek, Georgia, representing
approximately 1,000 subscribers for approximately $1,220,000, or approximately
$1,220 per subscriber, and recorded a gain on sale of approximately $1.0
million. Galaxy used the proceeds from this sale to pay down principal of the
revolving note.

On June 23, 1999, Galaxy sold 8 cable television systems, located primarily in
Alabama, representing approximately 5,500 subscribers for approximately $8.4
million, or approximately $1,540 per subscriber, and recorded a gain on sale of
approximately $1.8 million. Galaxy used a majority of the proceeds from this
sale to pay down principal of the revolving note.

On October 1, 1999, Galaxy sold seven satellite master antenna television
systems("SMATV's") and one cable system located primarily in the Kansas City
area, representing approximately 1,165 subscribers for approximately $1,360,000,
or approximately $1,161 per subscriber, and recorded a gain on sale of
approximately $244,000. Galaxy used the proceeds from this sale to pay down
principal of the revolving note.

1998 Acquisitions and Dispositions - During 1998, the Partnership acquired one
cable television system serving approximately 300 subscribers in Georgia for
approximately $141,000, and traded four cable television systems serving
approximately 850 subscribers in Nebraska for one cable television system
serving approximately 730 subscribers in Colorado.

During 1998, the Partnership disposed of the following cable systems:

Number Cash Paid

of Cable by Partnership Net
Systems Selling for Selling Cash
Region Sold Price Expense Received
------ ---- ----- ------- --------

Alabama 18 $ 2,760,000 $ 179,480 $ 2,580,520
Central 27 6,120,000 136,289 5,983,711
Illinois 36 2,596,300 48,780 2,547,520
Iowa 18 2,572,629 40,815 2,531,814
Kansas 20 1,579,146 24,896 1,554,250
Louisiana 5 9,500,000 39,701 9,460,299
Missouri 63 5,201,444 91,454 5,109,990
Nebraska 10 2,125,100 15,146 2,109,954
South Carolina 2 2,050,000 60,055 1,989,945
Wyoming 17 4,930,000 178,958 4,751,042
----------- ----------- ----------- -----------
Total 216 $39,434,619 $ 815,574 $38,619,045
=========== =========== =========== ===========

The aggregate sales price and related loss were as follows:

Systems and equipment $ 27,141,381
Intangible assets 15,566,034
----------
Assets sold 42,707,415

Net sales price 38,619,045
----------
Total loss on sale $ (4,088,370)

1997 Acquisition and Trades - During 1997, the Partnership acquired certain
cable television systems serving approximately 1,610 subscribers in
Nebraska for approximately $875,000. In 1998, the purchase price was
adjusted in accordance with the amended asset purchase agreement and the
Partnership paid an additional $853,000 in cash. The effect of this
adjustment on systems and equipment, franchise cost and net loss was
immaterial.

During 1997, the Partnership sold certain non-core cable television systems
serving approximately 3,080 subscribers in South Carolina, Mississippi and
Kansas for approximately $3.3 million.

Pending Transaction - On March 31, 2000, Galaxy sold one cable television
system, located in Kansas, representing approximately 1,424 subscribers for
approximately $3.5 million, or approximately $2,492 per subscriber. Galaxy will
use the proceeds from this sale to pay down principal of the term loan.

5. SYSTEMS AND EQUIPMENT

Systems and equipment consist of the following:

Estimated
Depreciation Useful Life December 31,
Method Term 1999 1998
------ ---- ---- ----

Cable television distribution
systems:

Head-end Straight-line 7 years $ 28,899,620 $ 28,390,239
Distribution plant Straight-line 12 years 97,040,462 91,011,687
Subscriber drops Straight-line 5 years 24,706,433 23,783,738
Other distribution -- -- 668,140 1,029,403
----------- -----------
151,314,655 144,215,067

Other:
Vehicles Straight-line 5 years 3,957,956 4,672,900
Buildings Straight-line 5 years 1,742,390 1,873,474
Furniture, fixtures and equipment Straight-line 5 years 3,841,024 5,479,623
Land -- -- 60,000 91,000
----------- -----------

160,916,025 156,332,064
Less accumulated depreciation (66,348,010) (52,134,390)
----------- -----------

Systems and equipment, net $ 94,568,015 $ 104,197,674
============= =============

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

Amortization Amortization December 31,
Method Period 1999 1998
Goodwill, franchise costs and
subscriber lists Straight-line 15 years $ 39,834,390 $ 41,306,900
Debt issuance costs:
Senior Subordinated NotesLevel Yield 10 years 5,403,197 5,403,197
Revolver and Term Loan Level Yield 7 years 3,432,516 3,286,912
Other Straight-line 15 years 725,545 1,114,325
----------- -----------
49,395,648 51,111,334

Less accumulated amortization (15,129,440) (12,850,656)
----------- -----------
Intangible assets, net $ 34,266,208 $ 38,260,678
============ ============

7. LONG-TERM DEBT

Outstanding long-term debt is as follows:

December 31,
1999 1998

Term loan with interest payable monthly, at an
adjusted LIBOR rate of LIBOR plus 3.25% (9.72125% at
December 31, 1999) $ 25,325,000.00$ --
Revolving credit facility with interest payable monthly, at an
adjusted LIBOR rate of LIBOR plus 3.25% (8.879% at
December 31, 1998) 30,500,000.00
12.375% senior subordinated notes, net of unamortized
discount of $345,000 and $405,000 at December 31, 1999
and 1998, respectively, with interest payable semiannually
on April 1 and October 1 119,655,000.00 119,595,000.00
Other, including capital leases 3,196,701.00 2,350,620.00

Total $ 148,176,701.00$ 152,445,620.00

Revolving Credit Facility - In March 2000, the Partnership amended the Revolving
Credit Facility which previously had been converted to a term loan in June 1999
whereby the amendment allowed the Partnership to borrow $5.0 million in addition
to their $25,325,000 term loan outstanding at December 31, 1999. Prior to
advancing funds under this agreement, the Partnership had funds available in an
account with the appropriate administrative agent when combined with the
proceeds of $5.0 million adequate to fund the Senior Subordinated Notes
semi-annual interest payment due April 1, 2000. The new amended loan agreement
bears interest at the Alternate Base Rate (ABR), as defined in the amendment, of
ABR plus 2%, payable quarterly, from the amendment date to June 30, 2000. After
June, 2000 the term loan bears interest at ABR plus 4% until maturity of the
loan. The entire term loan matures on December 31, 2000.

The partnership will owe an $800,000 fee which will be due and payable upon
repayment of the additional $5.0 million borrowing. The $800,000 fee shall be
reduced by 50% to $400,000 if the additional borrowing is paid in full by June
30, 2000. If the additional borrowing is not paid in full by June 30, 2000, but
paid in full by September 15, 2000 such fee shall be reduced by 25% to $600,000.

The amended senior term loan sets forth modified financial covenants including a
maximum total leverage ratio, a maximum senior debt leverage ratio, a maximum
senior debt to basic subscriber ratio, minimum interest coverage, debt service
coverage, fixed charge coverage ratios and restrictions on capital expenditures.

Senior Subordinated Notes - Pursuant to an indenture dated September 28, 1995
(the "Indenture") between the Partnership and Capital Corp., (together, the
"Issuers"), and the Bank of New York, which acquired Boatmen's Trust Company as
trustee (the "Trustee"), the Partnership issued $120 million aggregate principal
amount of senior subordinated obligations (the "Notes").

There are no mandatory sinking fund requirements for the Notes. However, the
Partnership may be obligated, under certain circumstances, to (a) make an offer
to purchase all outstanding Notes at a redemption price of 101% of the principal
amount thereof, plus accrued interest upon a change of control, as defined, and
(b) make an offer to purchase Notes with a portion of the net cash proceeds of
assets sales, as defined. Subsequent to September 2000, the Notes are subject to
optional redemption in whole or in part at annually decreasing redemption prices
ranging from 106.15% in 2000 to 100% in 2003 and thereafter. Subject to certain
conditions, the Partnership may at any time defease the Notes.

The payment of principal and interest on the Notes is subordinated in right of
payment to the term loan. The Notes will rank pari passu with all other senior
subordinated indebtedness of the Partnership, if any, and is senior to all
subordinated debt of the Partnership. Absent a change of control in the
Partnership (see Note 2) such notes are due 2005.

The Indenture contains various restrictive covenants, including limitations on
indebtedness, certain restricted payments and affiliate transactions as defined,
purchases, asset sales and capital expenditures in addition to reporting
requirements. The Indenture requires certain equity contributions ranging from
$5 million to $15 million based upon the consummation of certain cable
television system acquisitions. No such contributions were required in 1997,
1998 or 1999.

Five-Year Maturities - The required principal payments on the Company's
long-term debt and obligations under capital leases at December 31, 1999,
assuming no additional borrowings and assuming no accelerated payment
requirements of the Senior Subordinated Notes (see Note 2), are as follows:

[OBJECT OMITTED]

8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest payments during 1999, 1998 and 1997 were approximately $17.5 million,
$20.0 million and $20.8 million, respectively.

Noncash investing and financing transactions for the year ended December 31,
1999 were as follows:

Acquisition of cable systems through trades of current systems $9,440,402
Capital expenditures included in accounts payable 1,582,482

Noncash investing and financing transactions for the year ended December 31,
1998 were as follows:

Acquisition of cable systems through trades of current systems $ 975,099
Capital expenditures included in accounts payable 1,539,197

Noncash investing and financing transactions for the year ended December 31,
1997 were as follows:

Capital expenditures included in accounts payable $1,051,408
Acquisition of equipment through issuance of capital leases payable 212,800

9. INVESTMENT IN AFFILIATES

At December 31, 1999, the Partnership has a 40% membership interest in Galaxy
American Communications, L.L.C. ("GAC") for which the Partnership uses the
equity method of accounting. GAC was formed in September 1998 to acquire,
develop and operate cable television systems. During the period from inception
to December 31, 1998, GAC did not have any significant operations. 1999
summarized financial information for 100% of GAC is as follows:

Results of operations:
Revenue $ 11,532,000
Operating expenses 11,729,000
Operating income (194,000)
Net loss (4,560,000)

Financial position:
Total assets 33,028,000
Total liabilities 37,600,000

At December 31, 1999, the Partnership's investment balance in GAC was $-0- and
the Partnership had a receivable balance from GAC of approximately $308,000.

10. COMMITMENTS AND CONTINGENCIES

Leases - The Corporation leases certain office facilities and equipment under
capital and operating lease arrangements.

Future minimum payments for capital and noncancelable operating leases as of
December 31, 1999, are as follows:

Capital Operating
Leases Leases

2000 $ 23,733 $ 305,791
2001 25,274 293,278
2002 13,243 262,357
2003 235,250
2004 215,170

Net minimum lease payments 62,250 $1,311,846

Less amounts representing interest 4,935

Present value of minimum lease payments $ 57,315

The Partnership leases computer equipment and vehicles under capital lease
agreements which generally provide purchase options at the end of the original
lease terms.

Rent expense under the operating leases was $346,000, $304,000 and $346,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.

In addition, the Partnership, as an integral part of its cable operations, has
entered into short-term operating lease contracts for pole usage. Rent expense
approximated $1,058,000, $1,235,000 and $1,143,000 for the years ended December
31, 1999, 1998 and 1997, respectively, under such contracts.

Employee Benefits - The Partnership sponsors a defined contribution retirement
plan for eligible employees with a minimum six-months of service with the
Partnership or certain affiliates. The Partnership makes matching contributions
on behalf of each employee of an amount not to exceed the employee's
contribution or 8% of such employee's salary. The Partnership contributed
approximately $329,000, $217,000 and $198,000 to the plan during 1999, 1998 and
1997, respectively.

Franchises and Programming - Cable television systems are generally constructed
and operated under non-exclusive franchises granted by local governmental
authorities, which in addition to imposing certain operating conditions, impose
franchise fees not to exceed 5% of gross revenues. While such franchises are not
perpetual, renewal may not be unreasonably withheld without compensation to the
cable system operator. The Partnership has not experienced nor does it
anticipate non-renewal of existing franchise agreements.

The Partnership has various contracts to obtain basic and premium programming
from program suppliers whose compensation is typically based on a fixed fee per
subscriber. The Partnership has negotiated programming agreements with premium
service suppliers that offer cost incentives to the Partnership under which
premium unit prices decline as certain premium service growth thresholds are
met. In addition to volume pricing discounts, some program suppliers offer
marketing support to the Partnership in the form of advertising funds,
promotional materials, rebates and other incentives. The Partnership's
programming contracts are generally for a fixed period of time, typically three
to five years, and are subject to negotiated renewal.

Cable Service Rate Regulation - Galaxy's operations are subject to regulation at
the federal, state and local levels. Many aspects of such regulation are
currently the subject of judicial proceedings and administrative or legislative
proposals.

In October 1992, Congress enacted the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"). In 1993 and 1994, the Federal
Communications Commission ("FCC") adopted certain rate increases. As a result of
such actions, the Partnership's basic and tier service rates and its equipment
and installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as published by
FCC, and equipment and installation charges are based on actual costs. The rate
regulations do not apply to the relatively few systems which are subject to
"effective competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.

The Partnership believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting provisions.
However, the Partnership's rates for Regulated Services are subject to review by
the FCC, if a complaint has been filed, or review by the appropriate franchise
authority, if such authority has been certified. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be retroactive to one
year prior to the implementation of the rate reductions.

In February 1996, a telecommunications bill was signed into federal law which
significantly impacts the cable industry. Most notably, the bill allows cable
system operators to provide telephony services, allows telephone companies to
offer video services, and provides for deregulation of cable programming service
rates by 1999. The impact of the new bill cannot be determined at this time;
however, management does not expect the new bill to have a significant adverse
impact on the financial position or results of operations of the Partnership.

Management of Galaxy believes that it has complied in all material respects with
the provisions of the FCC rules and regulations and the provisions of local
franchising authorities. Accordingly, no provision has been made in the
financial statements for any potential refunds. These rules and regulations are,
however, subject to judgmental interpretations, and the impact of potential rate
changes or refunds ordered by local franchising authorities or the FCC could
cause Galaxy to make refunds and/or lower its rates for regulated services in
the future.

Litigation - Galaxy is subject to various legal and administrative proceedings
in the ordinary course of business. Management believes the outcome of any such
proceedings will not have a material adverse effect on the Partnership's
consolidated financial position, or future results of operations or cash flows.

Certain customers in Mississippi have filed a class action lawsuit in the U.S.
District Court for the Northern District of Mississippi alleging that the
Partnership illegally charged a late fee on monthly cable bills. The Partnership
has denied any liability with respect to this claim and is defending this
action. Similar class actions against other cable companies have been filed in
several states, some of which have been successful. At this point, management is
unable to predict the likely outcome or the potential for an adverse judgment,
if any. An adverse judgment against us could have a material, adverse affect on
the Partnership's consolidated financial position, or future results of
operations or cash flows. Management has not recorded any liability in the
consolidated financial statements that may arise from the adjudication of this
lawsuit.

11. RELATED PARTY TRANSACTIONS

Management Fee to Affiliate - The Partnership incurs management fees and
expenses pursuant to the terms of a management agreement with Galaxy Systems
Management, Inc. ("GSMI"), an affiliate of a general partner, under which it
manages the Partnership's business. In addition to reimbursing GSMI's expenses,
the Partnership pays GSMI a management fee monthly, in arrears based upon 3% of
gross revenues as defined in the management agreement. Management fees and
reimbursed expenses approximated $2,263,000, $3,294,000 and $3,409,000 for the
years ended December 31, 1999, 1998 and 1997. The management agreement's initial
term through December 31, 1999 was automatically extended for one year and is
subject to early termination upon the Partnership's sale or disposition of the
acquired cable television systems. Partnership obligations under the management
agreement are subordinate to the Partnership's long-term debt. There was no
management fee payable at December 31, 1999 and 1998. The Partnership also
provides and receives certain operational services from affiliates of a general
partner. Included in prepaids and other are advances to such affiliates
approximating $820,000 and $515,000 as of December 31, 1999 and 1998,
respectively, of which approximately $750,000 and $205,000 as of December 31,
1999 and 1998, respectively, represent receivables from GSMI.

On December 31, 1998, GAC issued debt of approximately $31 million. On December
31, 1998, the Partnership sold cable systems, comprising approximately 8,300
subscribers, to GAC for approximately $6.2 million and recorded a loss on the
sale of $4.3 million.

In December 1998, GSMI entered into a management agreement with GAC whereby GSMI
will operate and manage the GAC cable systems. For its management services, GSMI
will be paid a monthly fee of 2.5 percent of the gross monthly receipts from the
GAC cable systems.

In January 1999, the Partnership entered into a shared cost agreement with GAC
whereby the Partnership will provide services in connection with the
administration of the GAC cable systems. The Partnership was reimbursed
approximately $500,000 for costs incurred for administrative services provided
to GAC.

12. QUARTERLY DATA - UNAUDITED

The results of operations for each of the quarters in 1999 and 1998 were as
follows (thousands of dollars):

1999
First Second Third Fourth
Quarter Quarter Quarter Quarter

Revenue $ 14,569 $14,517 $14,184 $ 13,644
Operating income (loss) 516 543 706 (830)
Net income (loss) (3,323) 1,518 (3,901) (6,530)

1998
First Second Third Fourth
Quarter Quarter Quarter Quarter

Revenue $ 17,331 $17,472 $16,853 $ 15,636
Operating income (loss) 145 366 86 (179)
Net income (loss) (3,858) (6,571) (8,348) (6,069)

INDEPENDENT AUDITORS' REPORT To the Partners of Galaxy Telecom L.P.

We have audited the financial statements of Galaxy Telecom, L.P. and subsidiary
("the Partnership") as of December 31, 1999, and for the period ended December
31, 1999, and have issued our report thereon dated March 17, 2000 (April 11,
2000 as to Notes 2,4 and to the term loan described in Note 7); such report,
which includes an explanatory paragraph as to the uncertainty of the entity's
ability to continue as a going concern, is included elsewhere in this Form 10-K.
Our audit also included the financial statement schedule of Galaxy Telecom L.P.
and subsidiary, listed in the accompanying index on F-1. This financial
statement schedule is the responsibility of the Partnernship's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

St. Louis, Missouri
March 17, 2000

Report of Independent Accountants on

Financial Statement Schedule

To the Partners
Galaxy Telecom, L.P.

Our audits of the consolidated financial statements referred to in our report
dated February 19, 1999, appearing on page F-3 of this 1999 Annual Report on
Form 10-K, also included an audit of the financial statement schedule listed in
the accompanying index on page F-1 for the years ended December 31, 1998 and
1999.. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

PricewaterhouseCoopers LLP

Austin, Texas
February 19, 1999

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GALAXY TELECOM, LP AND SUBSIDIARY

Column A Column B Column C Column D Column E
- -------------------------------- ------------- ------------------------- ------------------- -----------
-------------------------
Additions
-------------------------
Charged
Balance at Charged to to Other Balance
Beginning Cost and Accounts Deductions at End of
Description of Period Expenses Describe Describe Period
- -------------------------------- ------------- -------------- --------- --------------------------------

Year ended December 31, 1999:
Reserve and allowances
deducted from asset
accounts-allowance for
uncollectible accounts $ 116,572 $ 991,364 $ - $ 1,020,487 (1) $ 87,449

Year ended December 31, 1998:
Reserve and allowances
deducted from asset
accounts-allowance for
uncollectible accounts $ 154,692 $ 1,614,118 $ - $ 1,652,238 (1) $ 116,572

Year ended December 31, 1997:
Reserve and allowances
deducted from asset
accounts-allowance for
uncollectible accounts $ 411,950 $ 1,992,318 $ - $ 2,249,576 (1) $ 154,692

(1) Uncollectible accounts written off, net of recoveries.

-61-

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

On January 20, 2000, the Company dismissed PricewaterhouseCoopers LLP as
the Company's independent accountant. The reports of PriceweaterhouseCoopers LLP
on the financial statements of the Company for each of the past two fiscal years
ending 12/31/98 and 12/31/97, respectively, contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.

Item 10. Directors and Executive Officers of the Registrants.

The general partners of Galaxy, Galaxy Telecom, Inc. ("Galaxy GP") and
Galaxy Telecom Investments, L.L.C. ("Galaxy Investments") (collectively, the
"General Partners"), have designated Galaxy GP as the managing general partner
of Galaxy, and, as such, Galaxy GP has responsibility for the overall management
of the business and operations of Galaxy. Galaxy Investments retains the right
to become the managing general partner at any time upon written notice to Galaxy
GP. The directors of Galaxy GP are also the managers of Galaxy Investments.

Galaxy is party to a Management Agreement with Galaxy Systems Management,
Inc. ("Galaxy Management") with respect to the day-to-day management and
operation of Galaxy's cable systems.

The executive officers of Galaxy Management and the directors of Galaxy GP
are:

Tommy L. Gleason, Jr.......54.....Chairman, Chief Executive Officer
and Director of Galaxy Management
and Galaxy GP

J. Keith Davidson........44.....Executive Vice President, CFO,
Secretary and Director of Galaxy
Management and Galaxy GP

James M. Gleason..........36.....President and Chief Operating Officer
of Galaxy Management and Galaxy GP

William P. Collatos......45.....Director of Galaxy GP
Kenneth T. Schiciano.......37.....Director of Galaxy GP
Richard D.Tadler...........43.....Director of Galaxy GP

Tommy L. Gleason, Jr. has served as Chaiman, Chief Executive Officer and a
director of Galaxy Management and Galaxy GP, and a manager of Galaxy Investments
since December 1994. Mr. Gleason is past President of CableMaxx, Inc., a
wireless cable television company. Since 1987, he has served as president and
director of Galaxy Cablevision Management, Inc., a general partner of the
managing general partner of Galaxy Cablevision, L.P. from which Galaxy acquired
the Galaxy Cablevision Systems. He was a director of Capital Bancorporation,
Inc. of Cape Girardeau, Missouri, and an individual general partner of Community
Investment Partners, a venture capital fund in St. Louis, Missouri. Mr. Gleason
began his cable television career in 1964, and from then until 1971 he was a
field engineer responsible for the operation of 45 headend facilities in 11
states. From 1971 through 1976, he was a product sales manager for Essex Wire
Corp. of Chicago, Illinois. From 1976 through 1982, he was President of Galaxy
Communications Systems, which operated 29 cable television systems in four
states. Prior to 1979, he engineered and built eight cable television systems in
Illinois. In 1988 and 1989, Mr. Gleason served as Secretary and Director of the
NCTC, he is currently a Director of the NCTC and the Immediate Past President.
Mr. Gleason was inducted into the Cable TV Pioneers in 1989.

J. Keith Davidson has served as Executive Vice President, Chief Financial
Officer, Secretary and a director of Galaxy Management and Galaxy GP and a
manager of Galaxy Investments since December 1994. From 1988 to 1994, Mr.
Davidson was the Chief Financial Officer and Assistant Secretary of Galaxy
Cablevision Management, Inc. Mr. Davidson has 18 years of experience in the
cable television industry. James M. Gleason has served as President and Chief
Operating Officer and a director of Galaxy Management since December 1994. Mr.
Gleason also presently serves as Chief Operating Officer of Galaxy GP. From 1988
to 1994, he served as Vice President - Administrative Operations of Galaxy
Cablevision Management, Inc. Mr. Gleason is responsible for field office
administration and customer service, computer operations, and was responsible
for implementing Galaxy Management's MIS operations. He has prior experience in
cable television system construction, mapping, marketing and operations. In
1992, Mr. Gleason served as Chairman of the Board of the NCTC. Mr. Gleason has
16 years of experience in the cable television industry and is the brother of
Tommy L. Gleason, Jr. William P. Collatos has served as a director of Galaxy GP
and a manager of Galaxy Investments since December 1994 and currently is a
managing general partner of Spectrum Equity Investors L.P., a private equity
firm that he co-founded in May 1994. From 1990 to 1994, Mr. Collatos was a
private equity investor. Mr. Collatos was an Associate and General Partner of
funds managed by Media Communications Partners and TA Associates, Inc., a
private equity capital firm ("TA Associates") from 1980 to 1990. From 1976 to
1980, Mr. Collatos worked in and subsequently ran the media-lending group at
Fleet National Bank. Kenneth T. Schiciano has served as a director of Galaxy GP
and a manager of Galaxy Investments since December 1994 and has been a Principal
of TA Associates since January 1995. Mr. Schiciano was a Vice President of TA
Associates from August 1989 to December 1994. Richard D. Tadler has served as
director of Galaxy GP and a manager of Galaxy Investments since December 1994.
Mr. Tadler has been a Managing Director of TA Associates since January 1994.
From 1987 to December 1993, Mr. Tadler was a general partner of TA Associates.
Mr. Tadler is a director of TechForce Corporation.

Item 11. Executive Compensation.

Management Agreement

Pursuant to the Management Agreement between Galaxy Management and Galaxy,
Galaxy Management, including Messrs. Tommy L. Gleason, Jr., J. Keith Davidson
and James Gleason, who are employed by Galaxy Management and are otherwise
referred to as the Senior Managers, manages all aspects of the day-to-day
business and operations of Galaxy. In connection therewith they undertake those
activities and services that are customary in the cable television industry for
the account and on behalf of Galaxy. For a more detailed description of the
Management Agreement, see Item 13 of this Part III ("Certain Relationships and
Related Transactions -- Management Agreement").

Executive Compensation

None of the employees of Galaxy are deemed to be executive officers of
Galaxy. The Senior Managers are employees of Galaxy Management and the services
of such individuals are provided to Galaxy, for which services Galaxy pays
Galaxy Management a fee pursuant to the Management Agreement. The Senior
Managers are compensated in their capacity as executive officers of Galaxy
Management and therefore receive no compensation from Galaxy. The general
partners of Galaxy receive no compensation for their services to Galaxy in such
capacity.

Director Compensation

Galaxy GP pays an annual retainer of $15,000 to its directors, other than
those who are salaried employees or executive officers of Galaxy Management. In
addition, Galaxy pays to such directors the ordinary and necessary out-of-pocket
expenses incurred by them to attend meetings of the Board of Directors of Galaxy
GP and committees thereof.

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

The following table sets forth certain information, as of December 31,
1999, concerning the beneficial ownership of (i) the units of general
partnership interests and limited partnership interests of Galaxy owned by each
person known by Galaxy to own beneficially more than 5.0% of any class of
Galaxy's partnership interests, (ii) equity securities of and member interests
in Galaxy GP and Galaxy Investments, respectively, owned by all executive
officers and directors of Galaxy GP and the managers of Galaxy Investments,
respectively, owned by all executive officers and directors of Galaxy GP and the
managers of Galaxy Investments as a group, and (iii) member interests in Galaxy
Management owned by the Senior Managers.

Name and Address No. of Units/ % of
Of Beneficial Owner Type of Interest Shares(1) Class
------------------- ---------------- --------- -----

Galaxy Telecom, Inc. Class A General Partnership Units of Company 133,333 *
1220 North Main Street Class C Limited Partnership Units of Company 416,000 100.0
Sikeston, Missouri 63801 Class E Limited Partnership Units of Company 200,000 100.0

Galaxy Telecom Investments, L.L.C. Class A General Partnership Units of Company 44,491,667 99.7
1220 North Main Street Class B Limited Partnership Units of Company 1,000 100.0
Sikeston, Missouri 63801

Farm Bureau Life Insurance Company Class D Limited Partnership Units of Company 6,384,000 100.0
Vantage Cable Associates, L.P.
5400 University Avenue
W. Des Moines, Iowa 50266

Galaxy Telecom Management, L.L.C. Class A Voting Common Stock of Galaxy GP 20,000 16.9
1220 North Main Street Common Interests in Galaxy Investments 990 99.0
Sikeston, Missouri 63801 Voting Preferred Interests in Galaxy Investments 288,459 7.3

TA Associates Group (2) Class A Voting Common Stock of Galaxy GP 63,281 53.3
c/o TA Associates, Inc. Common Interests in Galaxy Investments 8 *
125 High Street, Suite 2500 Voting Preferred Interests in Galaxy Investments 3,452,523 87.8
Boston, Massachusetts 02110

Spectrum Equity Investors, L.P. Class A Voting Common Stock of Galaxy GP 24,615 20.7
125 High Street, Suite 2600 Common Interests in Galaxy Investments 2 *
Boston, Massachusetts 02110

Fleet Equity Partners(3) Class A Voting Common Stock of Galaxy GP 5,810 4.9
111 Westminster Street Class B Nonvoting Common Stock of Galaxy GP 14,703 100.0
Providence, Rhode Island 02903 Common Interests in Galaxy Investments 2 *
Voting Preferred Interests in Galaxy Investments 192,646 4.9
Nonvoting Preferred Interests in Galaxy Investments 570,368 100.0

Tommy L. Gleason, Jr. Common Interests of Galaxy Management Limited 1,030,000 38.5

James M. Gleason Common Interests of Galaxy Management Limited 925,000 33.8

J. Keith Davidson Common Interests of Galaxy Management Limited 45,000 2.0

All executive officers and directors of Class A Voting Common Stock of Galaxy GP
Galaxy GP as a group (6 persons) (4) Common Interests in Galaxy Investments 107,896 91.0

All managers of Galaxy Investments as 998 99.8
a group (4 persons) (5) Voting Preferred Interests in Galaxy Investments 3,740,995 95.1

* Less than one percent.

(1) Share and unit ownership amounts have been rounded to the nearest
whole number.

(2) Includes 19,524 shares of Class A Voting Common Stock of Galaxy GP
("Class A Stock") owned by Advent Atlantic and Pacific II L.P., 7,040 shares of
Class A Stock owned by Advent Industrial II L.P., 3,282 Class A Stock owned by
Advent New York, L.P., 32,820 shares of Class A Stock owned by Advent VII L.P.,
and 615 shares of Class A Stock owned by TA Venture Investors Limited
Partnership. Includes 6 units of Common Interests in Galaxy Investments ("Common
Interests") owned by Advent VII Investor Corp. Includes 3,452,523 units of
Voting Preferred Interests in Galaxy Investments ("Voting Preferred Interests")
owned by Advent VII Investor Corp. All of the above beneficial owners are part
of an affiliated group of investment partnerships and companies referred to,
collectively, as the TA Associates Group. Messrs. Tadler and Schiciano,
Directors of Galaxy GP and managers of Galaxy Investments, are a Managing
Director and a Principal, respectively, of TA Associates, Inc., which is the
sole general partner of TA Associates VII L.P., TA Associates VI L.P. and TA
Associates AAP II Partners L.P. TA Associates VII L.P. is the sole general
partner of Advent VII L.P. TA Associates is the sole general partner of Advent
New York L.P. and Advent Industrial II L.P. TA Associates AAP II Partners L.P.
is the sole general partner of Advent Atlantic and Pacific II L.P. TA
Associates, Inc. exercises sole voting and investment power with respect to all
of the shares or units, as the case may be, held of record by the named
investment partnerships, with the exception of those shares of Class A Stock
held by TA Venture Investors Limited Partnership. Principals and employees of TA
Associates, Inc. (including Messrs. Tadler and Schiciano) comprise the general
partners of TA Venture Investors Limited Partnership. In such capacity, each of
Messrs. Tadler and Schiciano may be deemed to share voting and investment power
with respect to 615 shares of Class A Stock held of record by TA Venture
Investors Limited Partnership. Messrs. Tadler and Schiciano each disclaim
beneficial ownership of such shares, except to the extent of their respective
pecuniary interests.

(3) Includes 581 shares of Class A Stock and 1,470 shares of Class B
Nonvoting Common Stock of Galaxy GP ("Class B Stock") owned by Chisholm Partners
II L.P., and 5,229 shares and 13,233 shares of Class A Stock and Class B Stock,
respectively, owned by Fleet Growth Resources, Inc. Also includes 0.18 units of
Common Interests, 15,460 units of Voting Preferred Interests, and 45,775 units
of Nonvoting Preferred Interests in Galaxy Investments ("Nonvoting Preferred
Interests") owned by Chisholm Partners II L.P., 1.14 units of Common Interests,
124,030 units of Voting Preferred Interests and 367,215 units of Nonvoting
Preferred Interests owned by Fleet Growth Resources, Inc., and 0.49 units of
Common Interests, 53,156 units of Voting Preferred Interests and 157,378 units
of Nonvoting Preferred Interests owned by Fleet Equity Partners VII, L.P.

(4) Includes (i) 20,000 shares owned of record by Galaxy Management
Limited as to which Tommy L Gleason, Jr. and J. Keith Davidson may be deemed to
have shared voting and investment power, (ii) 63,281 shares owned of record by
TA Associates Group as to which shares Messrs. Tadler and Schiciano may be
deemed to have shared voting and investment power and (iii) 24,615 shares owned
of record by Spectrum Equity Investors, L.P. ("Spectrum") as to which shares Mr.
Collatos may be deemed to have shared voting and investment power.

(5) Includes (i) 990 Common Interests and 288,459 Voting Preferred
Interests owned of record by Galaxy Management Limited as to which shares
Messrs. Gleason, Jr. and Davidson may be deemed to have shared voting and
investment power, (ii) 6 Common Interests and 2,494,591 Voting Preferred
Interests owned of record by TA Associates Group as to which shares Messrs.
Tadler and Schiciano may be deemed to have shared voting and investment power
and (iii) 2 Common Interests and 915,583 Voting Preferred Interests owned of
record by Spectrum as to which shares Mr. Collatos may be deemed to have shared
voting and investment power.

Item 13. Certain Relationships and Related Transactions.

Management Agreement

Galaxy Management, which is owned by the Senior Managers, currently
manages all aspects of the day-to-day business and operations of Galaxy pursuant
to the Management Agreement. The term of the Management Agreement expired
December 31, 1999, but was automatically renewed for a successive one-year term.
Galaxy may terminate the Management Agreement with 90 days' written notice prior
to the expiration of the initial or any renewal term. Galaxy also has the option
to terminate the Management Agreement in the event (i) of a material breach of
the Management Agreement by Galaxy Management and failure to cure same or
commence cure within 30 days after receipt of notice from Galaxy, (ii) of an
unwaived and uncured default by Galaxy of any substantive covenant contained in
its financing documents, (iii) of a 10% reduction in Galaxy's gross revenues or
operating cash flow over the prior fiscal year or (iv) that none of Tommy L.
Gleason, Jr., nor James M. Gleason is involved in the management of Galaxy
Management. The Management Agreement also will terminate, with respect to any of
Galaxy's cable systems, upon the sale of such system by Galaxy. The Management
Agreement will terminate in its entirety upon the sale or other distribution of
all of Galaxy's systems or upon the dissolution or winding up of Galaxy, which
may be effected by the Equity Investors in certain circumstances pursuant to the
terms of the Equity Holders Agreement described below.

The Management Agreement provides that Galaxy Management is authorized to
perform management services including, among other things: operation and control
of the physical assets of the Systems; engineering and supervision of expansion
and construction activities relating to the Systems; negotiation, administration
and extension of franchise and pole attachment agreements and agreements with
utility companies; management of programming agreements; marketing; purchasing;
budgeting; billing, record-keeping, accounting and financial reporting; tax
return preparation; and hiring, supervision and termination of employees of
Galaxy. Galaxy Management is also authorized to establish and maintain bank
accounts for Galaxy ("System Operating Accounts") to deposit all funds collected
by each system and to make withdrawals therefrom for purposes of payment and
reimbursement of expenses incurred by or on behalf of Galaxy. Galaxy Management
is entitled to reimbursement from the System Operating Accounts on a monthly
basis of various expenses allocable to its management and operation of the
Systems and Galaxy, including truck and automobile expenses, travel expenses,
meals and entertainment, and third-party professional fees. For 1999, Galaxy
paid Galaxy Management approximately $211,000 in reimbursed expenses.

In return for its management services, Galaxy Management receives a
management fee, payable monthly, equal to a percentage of the gross revenues
derived by Galaxy from the Systems, excluding revenues from the sale of Systems
or franchises. The Management Agreement also provides that, prior to January 1,
1998, the dollar amount of the management fee may not increase as a result of
revenues attributable to acquired cable television systems until such time as
the gross revenues of Galaxy reach a certain minimum level. The management fee
is currently 3% of revenues. For the year ended December 31, 1999, Galaxy
incurred a management fee of $2,052,074. There can be no assurance that such
amounts are representative of the amount of annual fees to be paid to Galaxy
Management in the future.

The management fee may be reduced in the event other entities controlled
by Tommy L. Gleason, Jr., James M. Gleason and/or J. Keith Davidson acquire
other entertainment or telecommunications business assets, with the calculation
to determine any such reduction in the management fee based upon the percentage
of the gross revenues of such other assets compared to the gross revenues of
Galaxy. None of such persons presently intends, or intends to cause any such
entities, to make any such acquisitions. The Loan Agreement limits Galaxy's
ability to pay any accrued management fee and Galaxy Management's right to such
fee and reimbursement of expenses is restricted by the terms of the Affiliate
Subordination Agreement as defined below.

Galaxy believes that the terms of the Management Agreement are
substantially the same terms as could be obtained in arm's-length arrangements
with unaffiliated third parties.

Affiliate Subordination Agreement

Galaxy, Galaxy GP, Galaxy Investments, certain investors in Galaxy GP and
Galaxy Investments, Galaxy Telecom Management, L.L.C. ("Galaxy Management
Limited"), Tommy L. Gleason, Jr., James M. Gleason, Tommy L. Gleason, J. Keith
Davidson and the sellers of the Galaxy Cablevision Systems, Vista Communications
Systems and Vantage Cable Systems (collectively, the "Subordinated Parties") are
parties to an Affiliate Subordination Agreement dated as of December 23, 1994,
as amended in March 2000 (the "Subordination Agreement") with Fleet National
Bank and the Lenders under Galaxy's Loan Agreement (the "Senior Parties"). Under
the terms of the Subordination Agreement, all obligations and liabilities of
Galaxy, Galaxy GP and Galaxy Investments to make any payments of cash or other
property to any of the other Subordinated parties are subordinated in right of
payment and remedies to the prior final payment in full of the obligations and
liabilities of Galaxy, Galaxy GP and Galaxy Investments to the Senior Parties
under the Loan Agreement and the financing documents related thereto.

Equity Holders Agreement

Galaxy, Galaxy GP, Galaxy Investments, the Senior Managers, the Equity
Investors and Vantage Cable have entered into the Equity Holders Agreement
relating to the management of Galaxy GP and Galaxy Investments, the general
partners of Galaxy, and certain other matters. Under the Equity Holders
Agreement, each stockholder of Galaxy GP and each member of Galaxy Investments
has agreed to elect as directors or managers, as the case may be, three
designees of the Equity Investors and Tommy Gleason, Jr. and one other designee
of the Senior Managers. The current designees of the Equity Investors are
William P. Collatos, Kenneth T. Schiciano and Richard D. Tadler. J. Keith
Davidson is the current second designee of the Senior Managers. The Equity
Holders Agreement provides that James M. Gleason shall serve as a director and
manager if Tommy Gleason, Jr. is unable to serve.

The Equity Holders Agreement also restricts transfers of equity interests
in Galaxy GP and Galaxy Investments by the Senior Managers and provides the
Equity Investors with piggyback registration rights and, on or after December
23, 1998, demand registration rights with respect to equity interests in the
Company, Galaxy GP and Galaxy Investments. The Equity Investors have the right
to require the Company, Galaxy GP and Galaxy Investments to restructure in order
to facilitate a sale of the Company or its cable systems and to consummate such
a sale on or after December 23, 1998 or the occurrence of a payment default on
notes issued by Galaxy Investments to the Equity Investors.

The Equity Holders Agreement also provides that the Senior Managers and
their affiliates will first offer any opportunity to invest in a
telecommunications or entertainment business to Galaxy before making such
investment. If Galaxy elects not to make such investment, the Senior Managers
and the Equity Investors, if they so elect, may make such investments through
another entity. The decision of Galaxy as to whether or not to make such
investment will be made by the board of directors of the Managing General
Partner. Although the directors and executive officers of the Managing General
Partner have certain fiduciary obligations to its shareholders under applicable
corporate law and the Managing General Partner has fiduciary duties to the other
partners of Galaxy, there can be no assurance that a conflict of interest
relating to any such investment will be resolved in favor of Galaxy. Galaxy
presently does not have any agreements or policies governing possible conflicts
of interest.

Limited Partnership Interests in Galaxy

Galaxy Investments owns 100% of the Class B Limited Partnership Interests
in Galaxy, which it received in connection with the organization and initial
capitalization of Galaxy in December 1994. Galaxy GP received 100% of the Class
C Limited Partnership Interests in Galaxy in connection with Galaxy's
acquisitions of the Vista Communications Systems and the Galaxy Cablevision
Systems, respectively. In connection with its acquisition of the Vantage Cable
Systems, Galaxy issued approximately $6.4 million in the form of Class D Limited
Partnership Interests in Galaxy, out of the total consideration of approximately
$38.4 million paid for such Systems. Galaxy's ability to declare or pay any
dividend or make any other distributions to its general and limited partners is
restricted by the terms of the Indenture dated September 28, 1995.

Subject to such restrictions and at such time as Galaxy may make
distributions under the Loan Agreement, Galaxy GP may cause Galaxy to make
distributions to its Class C Limited Partners and Class D Limited Partners prior
to making distributions to other partners of Galaxy in accordance with the
Limited Partnership Agreement dated December 23, 1994, as amended, by and among
Galaxy GP, Galaxy Investments and Vantage Cable (the "Partnership Agreement").
Galaxy may make such distributions until the aggregate of such distributions
equals the amount of the capital contributions of each such class of limited
partners, plus certain priority rates of return. Under the Partnership
Agreement, Class C Limited Partners are entitled to a rate of return of 9%,
compounded annually on the previously unreturned capital contribution. The
Partnership Agreement provides that Class D Limited Partners are entitled to an
annually compounded rate of return of 10.0% per annum from December 23, 1994
until December 31, 1999, which rate of return increases each year thereafter in
increments of 2.0%, up to a maximum of 18.0%. Class B Limited Partners are
entitled to up to 11.90% of any distribution remaining after allocation of the
capital contributions of and priority rates of return to the Class C, D and E
Limited Partners and to the Class A General Partners. To date, Galaxy has made
no distributions to any of the general or limited partners of Galaxy. The
interests of each of the general and limited partners of Galaxy are also subject
to the terms of the Affiliate Subordination Agreement and the Equity Holders
Agreement.

Relationship of Agent with Equity Investors

Fleet National Bank, the Agent under the Revolving Credit Facility, is a
wholly owned subsidiary of Fleet Financial Group, Inc., a bank holding company
("Fleet Financial"). Fleet Equity Partners, one of the Equity Investors, is a
marketing name for Fleet Growth Resources, Inc., a wholly owned subsidiary of
Fleet Private Equity Company, Inc., which, in turn, is a wholly owned subsidiary
of Fleet Financial.

On December 31, 1998, Galaxy acquired a 40% interest in Galaxy American
Communications, LLC ("GAC"). This interest was acquired in conjunction with the
sale of cable television systems to GAC. There was no cash investment by Galaxy
and there is no present market value for this interest.

Galaxy Air Services, Inc.

Galaxy leases an aircraft from Galaxy Air Services, Inc. ("Galaxy Air"), a
corporation jointly owned by James Gleason and Tommy Gleason, Jr., at a rate of
$2,079.60 per hour, plus $400 per night for incidental costs related to
overnight trips. The Company paid a total of $215,066 to Galaxy Air during
fiscal 1999. Galaxy Air derives more than 75% of its revenues from the Company.
The Company believes that the arrangements with Galaxy Air are as favorable as
those that could have been obtained in arms-length negotiations with
unaffiliated third parties.

PART IV

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

(a)(1) Financial Statements. Reference is made to the Index on Page F-1
for a list of all financial statements filed as part of this
Report.

(a)(2) Financial Statement Schedules. Reference is made to the Index on
Page F-1 for a list of all financial statement schedules filed as
part of this Report.

(a)(3) Exhibits. See Exhibit Index.

(b) Reports on Form 8-K. No reports on Form 8-K were filed during
the last quarter of the period covered by this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

GALAXY TELECOM, L.P.
By: Galaxy Telecom Inc.

As General Partner

April 14, 2000 /s/ Tommy L. Gleason, Jr.
---------------------------
By: Tommy L. Gleason, Jr.
Chairman, Chief Executive Officer and Director

April 14, 2000 /s/ J. Keith Davidson
-----------------------
By: J. Keith Davidson

Executive Vice-President, Chief Financial
Officer and Director

April 14, 2000 /s/ James M. Gleason
----------------------
By: James M. Gleason

President, Chief Operating Officer and Director

INDEX TO EXHIBITS

2.1- Asset purchase agreement by and between Douglas Cable Communications,
Limited Partnership and Galaxy, dated as of July 19, 1995,
incorporated herein by reference to Exhibit 2.1 to the Registration
Statement on Form S-1 (Reg. No. 37-95278) (the "Form S-1").

2.2- Asset Purchase Agreement by and between Friendship Cable of Florida,
Friendship Cable of Georgia, Friendship Cable of South Carolina,
Buford Group, Inc. and Galaxy, dated as of July 19, 1995,
incorporated herein by reference to Exhibit 2.2 to the Form S-1.

2.3- Asset Purchase Agreement by and between Vista Communications Limited
Partnership I and Galaxy, dated as of August 31, 1995, incorporated
herein by reference to Exhibit 2.3 to the Form S-1.

2.4- Asset Purchase Agreement by and between Vista/Narragansett Cable,
L.P. and Galaxy, dated as of August 8, 1995, incorporated herein by
reference to Exhibit 2.4 to the Form S-1.

2.5- Asset Purchase Agreement by and between Phoenix Country Cable Joint
Venture and Galaxy, dated as of July 19, 1995, incorporated herein by
reference to Exhibit 2.5 to the Form S-1.

2.6- Agreement by and between Galaxy and Anderson Pacific Corporation,
dated as of August 4, 1995, incorporated herein by reference to
Exhibit 2.6 to the Form S-1.

3.1- Limited Partnership Agreement (the "Partnership Agreement") of
Galaxy, dated as of December 23, 1994, incorporated herein by
reference to Exhibit 3.1 to the Form S-1.

3.2- Certificate of Limited Partnership of the Company, dated December 23,
1994, incorporated herein by reference to Exhibit 3.2 to the Form
S-1.

3.3- Certificate of Incorporation of Galaxy Telecom Capital Corp.
("Capital Corp."), incorporated herein by reference to Exhibit 3.3
to the Form S-1.

3.4- Bylaws of Capital Corp., incorporated herein by reference to Exhibit
3.4 to the Form S-1.

3.5- Amendment No.1 to the Limited Partnership Agreement, dated as of
December 1, 1995, filed as Exhibit 3.5 to Galaxy's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference.

3.6- Amendment No.2 to the Limited Partnership Agreement, dated as of
December 29, 1995, filed as Exhibit 3.6 to Galaxy's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference.

4.1- Indenture by and among Galaxy, Capital Corp. and Boatman's Trust
Company, as Trustee, relating to the 12 3/8% Senior Subordinated
Notes due 2005, incorporated herein by reference to Exhibit 4.1 to
the Form S-1.

4.2- Form of Note (included in Exhibit 4.1).

10.1- Management Agreement by and between Galaxy Systems Management, Inc.
and Galaxy, dated as of December 23, 1994, incorporated herein by
reference to Exhibit 10.1 to the Form S-1.

10.2- Securities Purchase Agreement by and among Galaxy, Galaxy Telecom,
Inc. and Galaxy Telecom Investments, L.L.C. and the Purchasers and
other parties named therein, dated as of December 23, 1994 (the
"Securities Purchase Agreement"), incorporated herein by reference
to Exhibit 10.2 to the Form S-1.

10.3- Equity Holders Agreement by and among Galaxy, Galaxy Telecom, Inc.,
Vantage Cable Associates, L.P. and the Management Stockholders and
Purchasers named in the Securities Purchase Agreement, dated as of
December 23, 1994, incorporated herein by reference to Exhibit 10.3
to the Form S-1.

10.4- Contract by and between Galaxy and QUALCOMM Incorporated, dated as of
November 18, 1993, as amended, incorporated herein by reference to
Exhibit 10.5 to the Form S-1.

10.5- Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
Management, Inc.) and Galaxy Cablevision, L.P., dated as of May 16,
1994, incorporated herein by reference to Exhibit 10.6 to the Form
S-1.

10.6- Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
Management, Inc.) and Vantage Cable Associates, L.P., dated as of
June 8, 1994, as amended as of December 23, 1994, incorporated
herein by reference to Exhibit 10.7 to the Form S-1.

10.7- Asset Purchase Agreement by and between Galaxy (as assignee of Galaxy
Management, Inc.) and Chartwell Cable of Colorado, Inc., dated
November 11, 1994, incorporated herein by reference to Exhibit 10.8
to the Form S-1.

10.8- Asset Purchase Agreement by and between Galaxy and Galaxy
Cablevision, L.P., dated as of December 23, 1994, incorporated herein
by reference to Exhibit 10.9 to the Form S-1.

10.9- Agreement of Purchase and Sale by and between Galaxy (as assignee of
Galaxy Management, Inc.) and Vista Communications Limited Partnership
III, dated as of June 13, 1994, incorporated herein by reference to
Exhibit 10.10 to the Form S-1.

10.10- Affiliate Subordination Agreement by and among Galaxy and the other
parties named therein, dated as of December 23, 1994, incorporated
herein by reference to Exhibit 10.11 the Form S-1.

10.11- First Amendment to Securities Purchase Agreement, dated as of
December 1, 1995, filed as Exhibit 10.11 to Galaxy's Annual Report on
Form 10-K for the year ended December 31, 1995, is incorporated
herein by reference.

10.12- Amended and Restated Loan Agreement dated as of September 28, 1995 by
and among Galaxy and Fleet National Bank, as Agent, Lender and
Co-Arranger, and Internationale Nederlanden (U.S.) Capital
Corporation, as Lender and Co-Arranger, and the other Financial
Institutions party thereto. Filed as Exhibit 10.12 to Galaxy's Annual
Report on Form 10-K for the year ended December 31, 1996, is
incorporated herein by reference.

10.13- Amendment No. 1 of the Amended and Restated Loan Agreement dated
October 21, 1996 by and among Galaxy, Galaxy Telecom Capital Corp.
and Fleet National Bank. It was filed as Exhibit 10 to Galaxy's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
is incorporated herein by reference.

10.14- Amendment No. 2 of the Amended and Restated Loan Agreement dated
March 28, 1997 by and among Galaxy, Galaxy Telecom Capital Corp. and
Fleet National Bank, is incorporated herein by reference.

10.15- Amendment No. 3 of the Amended and Restated Loan Agreement dated
November 14, 1997 by and among Galaxy, Galaxy Telecom Capital Corp.
and Fleet National Bank, is incorporated herein by reference.

10.16- Amendment No. 4 of the Amended and Restated Loan Agreement dated
March 27, 1998 by and among Galaxy, Galaxy Telecom Capital Corp. and
Fleet National Bank, is incorporated herein by reference.

10.17- Amendment No. 5 of the Amended and Restated Loan Agreement dated
September 8, 1998 by and among Galaxy, Galaxy Telecom Capital Corp.,
Fleet National Bank, State Street Bank and Trust Company, The First
National Bank of Chicago and Union Bank. It was filed as Exhibit 10
to Galaxy's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is incorporated herein by reference.

10.18- Amendment No. 6 of the Amended and Restated Loan Agreement dated
March 31, 1999 by and among Galaxy, Galaxy Telecom Capital Corp.,
Fleet National Bank, State Street Bank and Trust Company, The First
National Bank of Chicago and Union Bank. It was filed as Exhibit 10
to Galaxy's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, is incorporated herein by reference.

10.19- Amendment No. 7 of the Amended and Restated Loan Agreement dated
March 31, 2000 by and among Galaxy, Galaxy Telecom Capital Corp.,
Fleet National Bank, State Street Bank and Trust Company, The First
National Bank of Chicago and Union Bank.

10.20- $5,000,000 Term Loan Agreement by and among Galaxy Telecom, L.P. and
Fleet National Bank as Agent and Lender and certain other banks dated
March 31, 2000.

12.1- Computation of Ratio of Earnings to Fixed Charges.

21.1- Subsidiaries of Galaxy incorporated herein by reference to Exhibit
21.1 to the Form S-1.

27.1- Financial Data Schedule.