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As filed with the Securities and Exchange Commission on September 25, 1998.

Registration No. 333-

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

GOLDEN SKY SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)

DELAWARE 4841 43-1749060
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)

605 WEST 47TH STREET, SUITE 300
KANSAS CITY, MO 64112
(816) 753-5544
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

KAREN C. WIEDEMANN, ESQ.
REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
45 ROCKEFELLER PLAZA
NEW YORK, NY 10111
(212) 841-5700
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)

Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this Registration
Statement.

If the securities being registered on this form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. / /

If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

CALCULATION OF REGISTRATION FEE

Title Of Each Proposed Maximum Proposed Maximum
Class Of Securities To Amount To Be Offering Aggregate Amount Of
Be Registered Registered Price Per Note(1) Offering Price(1) Registration Fee

12 3/8% Senior Subordinated
Notes due 2006, Series B $195,000,000 100% $195,000,000 $57,525

(1) Estimated solely for the purpose of calculating the registration fee.

The registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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Subject to completion, dated September 25, 1998

PROSPECTUS

GOLDEN SKY SYSTEMS, INC.
OFFER TO EXCHANGE ITS
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.

Golden Sky Systems, Inc., a Delaware corporation ("GSS" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"), to exchange $1,000 principal amount
of its 12 3/8% Senior Subordinated Notes due 2006, Series B ("New Notes"), which
will have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a registration statement of which this Prospectus
is a part, for each $1,000 principal amount of its issued and outstanding 12
3/8% Senior Subordinated Notes due 2006, Series A (the "Old Notes" and,
collectively with the New Notes, the "Notes"), of which $195,000,000 aggregate
principal amount is outstanding, from the holders thereof. The Company will not
receive any proceeds from the Exchange Offer and has agreed to pay all the
expenses incident to the Exchange Offer. The Company is a wholly-owned
subsidiary of Golden Sky Holdings, Inc., a Delaware corporation ("Holdings").

The terms of the New Notes are identical in all material
respects (including principal amount, interest rate and maturity) to the terms
of the Old Notes, except for certain transfer restrictions and registration
rights relating to the Old Notes. The Notes rank pari passu with all present and
future senior subordinated debt of the Company, and senior to all present and
future subordinated debt of the Company. As of August 31, 1998, the aggregate
amount of outstanding indebtedness (excluding the Notes) of the Company was
approximately $52.3 million. See "Description of the New Notes." Upon a Change
of Control (as defined herein), each holder of the New Notes may require the
Company to repurchase all or a portion of such holder's New Notes at a price
equal to 101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. In the event of a Change of
Control, the Company may not have sufficient funds to satisfy its obligation to
repurchase the New Notes and other debt that may come due as a result thereof.
See "Description of the New Notes -- Change of Control."

The New Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the registration rights
agreement relating to the Old Notes. Based on interpretations by the staff of
the Securities and Exchange Commission (the "Commission"), the Company believes
that the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holder's
business, and such holder has no arrangement with any person to participate in
the distribution of such New Notes. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by a broker-dealer as a result of market-making activities
or other trading activities. See "Plan of Distribution."

The Company will accept for exchange any and all Old Notes
that are validly tendered and not withdrawn on or prior to 5:00 p.m., New York
City time, on the date the Exchange Offer expires (the "Expiration Date"), which
will be , 1998 unless the Exchange Offer is extended.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for exchange. See "The
Exchange Offer."

Any Old Notes not tendered and accepted in the Exchange Offer
will remain outstanding and will be entitled to all the rights and will be
subject to the limitations applicable thereto under the Indenture (as defined
herein). Following consummation of the Exchange Offer, the holders of Old Notes
will continue to be subject to the existing restrictions upon transfer thereof,
and the Company will have no further obligation to such holders to provide for
registration under the Securities Act of the Old Notes held by them. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. See
"Risk Factors -- Consequences of the Exchange Offer to Non-Tendering Holders of
the Old Notes" and "The Exchange Offer -- Terms of the Exchange Offer."

The New Notes will initially be available only in book-entry
form. The Company expects that the New Notes issued pursuant to the Exchange
Offer will be issued in the form of one or more Global Notes (as defined
herein), which will be deposited with, or on behalf of, The Depository Trust
Company (the "Depositary") and registered in its name or in the name of Cede &
Co., its nominee. Beneficial interests in a Global Note representing the New
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary and its participants. After the initial issuance of
the Global Notes, a New Note in certificated form will be issued in exchange for
a Global Note only on the terms set forth in the Indenture. See "Description of
the New Notes -- Book Entry; Delivery and Form."

THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS
AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.

This Prospectus, together with the Letter of Transmittal, is
being sent to all registered holders of Old Notes as of , 1998.

The Company will not receive any cash proceeds from the
issuance of the New Notes offered hereby. No dealer-manager is being used in
connection with this Exchange Offer. See "Use of Proceeds" and "Plan of
Distribution."

The Exchange Offer is not being made to, nor will tenders be
accepted from or on behalf of, holders of the Old Notes in any jurisdiction in
which the making of the Exchange Offer or acceptance thereof would not be in
compliance with the laws of such jurisdiction or would otherwise not be in
compliance with any provision of any applicable security law.

SEE "RISK FACTORS" ON PAGE FOR A DESCRIPTION OF CERTAIN RISKS TO
BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The date of this Prospectus is , 1998.
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TABLE OF CONTENTS

Page

Additional Information ............................................................................... 2

Forward-Looking Statements ........................................................................... 3

Sources of Material Information ...................................................................... 3

Summary of the Prospectus ............................................................................ 5

Risk Factors ......................................................................................... 16

Use of Proceeds ...................................................................................... 27

The Exchange Offer ................................................................................... 28

Capitalization ....................................................................................... 33

Pro Forma Financial Statements ....................................................................... 34

Selected Consolidated Financial Data ................................................................. 39

Management's Discussion and Analysis of Results of Operations and Financial Condition ................ 40

Business ............................................................................................. 48

Management ........................................................................................... 62

Principal Stockholders ............................................................................... 66

Certain Relationships and Related Transactions ....................................................... 68

Description of Other Indebtedness .................................................................... 70

Description of the New Notes ......................................................................... 73

Certain Federal Income Tax Considerations ............................................................ 101

Plan of Distribution ................................................................................. 101

Legal Matters ........................................................................................ 103

Experts............................................................................................... 103

Index to Financial Statements ........................................................................ F-1

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration
statement on Form S-4 (the "Registration Statement") under the Securities Act
with respect to the New Notes. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. The Registration Statement
and the exhibits and schedules thereto may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, New York, New York 10048 and at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements and other information regarding registrants, including the Company,
that file such information electronically with the Commission. The address of
the Commission's Web site is http://www.sec.gov.

As a result of the filing of the Registration Statement with
the Commission, the Company will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports and
other information with the Commission. The Company's obligation to file periodic
reports with the Commission pursuant to the Exchange Act may be suspended if the
New Notes are held of record by fewer than 300 holders at the beginning of any
fiscal year of the Company, other than the fiscal year in which such
registration statement or registered exchange offer for the New Notes becomes
effective. However, the indenture, dated as of July 31, 1998 (the "Indenture"),
by and among the Company, as issuer, Argos Support Services Company, as
guarantor, PrimeWatch, Inc., as guarantor, and State Street Bank and Trust
Company of Missouri, N.A., as trustee (the "Trustee"), provides that the Company
must file with the Commission and provide the holders of the Notes with copies
of annual reports and other information, documents and reports specified in
Sections 13 and 15(d) of the Exchange Act as long as the Notes are outstanding.

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THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT THE COMPANY THAT IS NOT INCLUDED IN, OR DELIVERED WITH, THE
PROSPECTUS. THIS INFORMATION IS AVAILABLE WITHOUT CHARGE TO SECURITY HOLDERS
UPON WRITTEN OR ORAL REQUEST TO THE COMPANY AT 605 WEST 47TH STREET, SUITE 300,
KANSAS CITY, MISSOURI 64112, ATTENTION: INVESTOR RELATIONS, (816) 753-5544. IN
ORDER TO OBTAIN TIMELY DELIVERY OF SUCH INFORMATION, SECURITY HOLDERS MUST
REQUEST THE INFORMATION NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION
DATE OF THE EXCHANGE OFFER.

FORWARD-LOOKING STATEMENTS

This Prospectus contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company, or industry results, to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, among others: general economic and business conditions and
industry trends, including consolidation; the continued growth of the
direct-to-home television industry; uncertainties regarding business strategies,
including the Company's acquisition strategy; the ability of the Company to
obtain and retain subscribers; changes in the regulatory environment affecting
the Company; and actions of the Company's competitors. All statements herein
other than statements of historical fact, including, without limitation, the
statements under "Summary of the Prospectus," "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources," and "Business" regarding the Company's profitability,
financial position, liquidity and capital requirements are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurances that
those expectations will prove to have been correct. Certain other important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed in this Prospectus ,
including, without limitation, under "Risk Factors." All written forward-looking
statements by or attributable to the Company or persons acting on its behalf
contained in this Prospectus are expressly qualified in their entirety by the
Cautionary Statements.

SOURCES OF MATERIAL INFORMATION

THIS PROSPECTUS CONTAINS INFORMATION OBTAINED FROM SOURCES
OTHER THAN THE COMPANY CONCERNING, AMONG OTHER THINGS, THE COMPANY'S INDUSTRY
AND MARKETS, THE COMPANY'S PRINCIPAL DIRECT AND INDIRECT SUPPLIERS OF SERVICES,
DIRECTV, INC. ("DIRECTV"), THE NRTC (AS DEFINED HEREIN), THE RURAL DIRECTV
MARKETS (AS DEFINED HEREIN), AND THE NRTC'S RELATIONSHIP (CONTRACTUAL AND
OTHERWISE) WITH DIRECTV. SUCH INFORMATION IS MATERIAL TO UNDERSTANDING THE
COMPANY'S BUSINESS AND PROSPECTS. SPECIFICALLY, WHILE THE COMPANY'S SOLE
BUSINESS IS THE OFFERING OF DIRECTV SERVICES, THE COMPANY HAS NO DIRECT
CONTRACTUAL RELATIONSHIP WITH DIRECTV RELATING TO ITS PRINCIPAL MARKETS AND
OBTAINS THOSE SERVICES THROUGH THE NRTC. THE NRTC RECEIVES DIRECTV SERVICES
PURSUANT TO ARRANGEMENTS WITH DIRECTV THE TERMS OF WHICH HAVE BEEN KEPT
CONFIDENTIAL BY THE NRTC. THE COMPANY RELIES UPON THE NRTC TO HAVE ACCURATELY
REPRESENTED THE SCOPE AND TERM OF ITS ARRANGEMENTS WITH HUGHES (AS DEFINED
HEREIN) AND DIRECTV. UNDER THE COMPANY'S ARRANGEMENTS WITH THE NRTC, THE NRTC
PROVIDES SUBSTANTIAL SERVICES TO THE COMPANY, INCLUDING BILLING AND CUSTOMER
AUTHORIZATION, AND THE COMPANY RELIES UPON THE NRTC TO PROVIDE IT WITH ACCURATE
AND COMPLETE INFORMATION CONCERNING THE COMPANY'S CUSTOMERS. INFORMATION
CONCERNING THE NRTC AND ITS ARRANGEMENTS WITH DIRECTV IS BASED UPON INFORMATION
THAT HAS BEEN MADE AVAILABLE TO THE COMPANY BY THE NRTC OR IS OTHERWISE PUBLICLY
AVAILABLE. EXCEPT WHERE OTHERWISE INDICATED, INFORMATION REGARDING NUMBERS OF
HOUSEHOLDS AND/OR SUBSCRIBERS IN RURAL DIRECTV MARKETS IS BASED UPON INFORMATION
COMPILED BY CLARITAS, INC., WHICH THE COMPANY HAS SUPPLEMENTED WHERE NECESSARY
WITH INFORMATION COMPILED BY THE U.S. POSTAL SERVICE. OTHER INDUSTRY-RELATED
INFORMATION HAS BEEN

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DERIVED FROM SKY REPORT AND DBS DIGEST. WHILE THE COMPANY BELIEVES THESE AND
OTHER THIRD-PARTY SOURCES OF INFORMATION TO BE RELIABLE, IT HAS NOT
INDEPENDENTLY VERIFIED SUCH INFORMATION AND IS NOT IN A POSITION TO DO SO. THE
COMPANY MAKES NO REPRESENTATION AS TO THE ACCURACY OR COMPLETENESS OF SUCH
INFORMATION. SEE "RISK FACTORS -- RISKS RELATED TO RELATIONSHIP WITH NRTC."

The following trademarks owned by third parties are used in
this Prospectus: DIRECTV(R), DSS(R), and USSB(R).

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SUMMARY OF THE PROSPECTUS

The following summary is qualified in its entirety by, and
should be read in conjunction with, the more detailed information, including the
risk factors and consolidated financial statements and the notes thereto
included elsewhere in this Prospectus. As used herein, unless the context
requires otherwise, the term "Company" includes Golden Sky Systems, Inc. and its
consolidated subsidiaries. The term "NRTC" refers to the National Rural
Telecommunications Cooperative, an organization whose members are engaged in the
distribution of telecommunications and other services in rural America. The term
"Rural DIRECTV Markets" means those areas in the United States in which the NRTC
and certain of its members and affiliates (including the Company) have the
exclusive right to provide DIRECTV services to residential customers.

THE COMPANY

The Company is the second largest independent provider of
DIRECTV, the leading Direct Broadcast Satellite ("DBS") company serving the
continental United States. The Company markets and provides DIRECTV's
programming package ("DIRECTV Programming") on an exclusive basis to residential
customers in certain Rural DIRECTV Markets and on a non-exclusive basis to
residents of multiple dwelling units ("MDUs") and commercial customers. The
Company has obtained the exclusive right to provide DIRECTV Programming to homes
in its Rural DIRECTV Markets under agreements between the Company and the NRTC.
The NRTC and its DBS members and affiliates (including the Company) provide
DIRECTV Programming in Rural DIRECTV Markets pursuant to an agreement between
the NRTC and Hughes Communications Galaxy, Inc. ("Hughes"), DIRECTV's
predecessor-in-interest. The Company estimates that the Rural DIRECTV Markets
comprise approximately 9.0 million households, or approximately 9% of total U.S.
television households, but account for approximately 814,000, or approximately
22%, of total DIRECTV customers.

Since its formation by management in June 1996, the Company has:

- acquired 38 Rural DIRECTV Markets in 22 states with
approximately 1.5 million households and 100,000 subscribers
at the dates of acquisition;

- increased its subscriber base in these markets by over 65% in
aggregate, to approximately 166,000 as of August 31, 1998,
achieving a subscriber penetration rate of approximately 11.3%
through aggressive marketing and a local service-driven
approach to the customer;

- entered into contracts or binding letters of intent to acquire
five additional Rural DIRECTV Markets with approximately
265,000 households and 22,000 subscribers, representing a
current subscriber penetration rate of approximately 8.5%;

- commenced marketing and distributing DIRECTV Programming to
commercial and MDU customers in six cities near its Rural
DIRECTV Markets, with rights to provide such services on a
non-exclusive basis nationwide; and

- together with its corporate parent, raised $87.4 million of
equity capital from several institutional venture capital
firms and Company management, and secured $150.0 million of
senior bank financing.

Since inception, the Company's recurring revenue has increased
rapidly due to internal subscriber growth and a low average annual subscriber
disconnect ("churn") rate of approximately 8%. The Company's net internal
subscriber growth in its Rural DIRECTV Markets for the first eight months of
1998 totaled approximately 42,000. This represented over 7.5% of DIRECTV's net
new subscribers nationwide for the period, although total households in the
Company's Rural DIRECTV Markets represent less than 1.4% of all television
households in the continental United States. Although the Company incurs
substantial costs to add subscribers, it has relatively low recurring costs to
service them. The Company believes these factors provide an opportunity to
increase operating leverage and provide

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strong growth in EBITDA (as defined herein). The Company had EBITDA of $(5.4)
million for the year ended December 31, 1997 and $(7.7) million for the six
months ended June 30, 1998. EBITDA adjusted to exclude subscriber acquisition
costs would have been $2.0 million and $4.1 million, respectively, for such
periods.

The Company believes that its exclusive right to provide
DIRECTV Programming in its Rural DIRECTV Markets is attractive for the following
reasons:

- Limited Competition in Rural Markets. Competition from cable
television providers in Rural DIRECTV Markets is often
limited. Many households in rural markets are not passed by
traditional cable systems or are served by analog systems with
low channel capacity (i.e., less than 40 channels) and poor
quality signal relative to DBS service. Given the relatively
low housing density in these markets, the build-out of new
systems or upgrade of existing systems may not be cost
effective. Other entertainment options, such as theaters,
movies and sporting events, may also be limited. The Company
believes that this market environment contributes to a
subscriber penetration rate within the Rural DIRECTV Markets
that is currently almost three times the penetration rate for
DIRECTV in other U.S. markets.

- National Marketing, Distribution and Manufacturing Support.
DIRECTV supports local providers, such as the Company, with a
national marketing campaign including television and print
advertising. DIRECTV also supports its local providers with an
extensive retail distribution network, offering more channels
of distribution and more distribution points than competing
services. Three major consumer electronics manufacturers
currently compete to provide customers with satellite
receivers and related equipment required to receive DIRECTV
Programming ("DSS Equipment"). Management believes that
competition among DSS Equipment providers results in greater
availability, continued product innovation and lower equipment
costs.

- Consolidation Opportunity. Ownership of Rural DIRECTV Markets
has historically been fragmented, creating an opportunity for
the Company to grow through acquisitions, rationalize
operations and create operating leverage. Because most of the
operators from whom the Company has acquired or may acquire
Rural DIRECTV Markets have not engaged in significant
marketing efforts, the Company believes it has the potential
to increase subscriber penetration significantly following
acquisition.

In addition to its business in Rural DIRECTV Markets under
agreements with the NRTC, the Company has developed other business relationships
with DIRECTV and its affiliated companies. For example, the Company was chosen
in January 1998 by DIRECTV as a Master System Operator to market and provide
DIRECTV Programming nationally to residents of MDUs and commercial
establishments. In February 1998, the Company began marketing and providing
DIRECTV Programming to residents of MDUs and commercial establishments in six
major metropolitan areas near its rural territories. The Company intends to
focus its MDU and commercial activities on high-growth urban areas near its
Rural DIRECTV Markets to leverage its fixed cost base over a larger universe of
potential subscribers.

STRATEGY

The Company intends to leverage its competitive strengths by
pursuing the following strategies:

- Emphasize Direct Sales and Local Customer Service. The Company
believes a commitment to a strong local presence generates
rapid subscriber growth, higher customer satisfaction and
lower churn, and

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ultimately greater revenue and EBITDA. Management believes
that local presence differentiates the Company from other
major DIRECTV and DBS providers and is a key element in the
Company's strategy for attracting and retaining subscribers.
The Company has established a direct sales force and one or
more Company-owned stores in substantially all of its Rural
DIRECTV Markets to provide sales, installation and customer
service on a local basis. The Company complements its local
presence from its headquarters in Kansas City, Missouri with
centralized sales, marketing, operational and administrative
support, including overflow and after-hours customer support
from a call center that operates 24 hours a day, seven days a
week.

- Acquire Additional Rural DIRECTV Markets. The Company is
aggressively pursuing the acquisition of additional Rural
DIRECTV Markets held by original NRTC licensees, a majority of
which are owned by rural electric and television cooperatives
for whom offering DIRECTV Programming is an ancillary
business. The Company is one of two companies actively
consolidating Rural DIRECTV Markets. The Company estimates
that approximately 125 Rural DIRECTV Markets, comprised of
approximately 2.5 million households, are still owned by
original NRTC members.

- Develop Related Business Opportunities. The Company plans to
leverage its local sales and support infrastructure by
expanding its base of potential customers and product
offerings. The Company has commenced marketing to MDUs and
commercial establishments in six cities near its Rural DIRECTV
Markets, including Dallas/Ft. Worth, Texas; Denver, Colorado;
Ft. Myers, Florida; Kansas City, Missouri; Las Vegas, Nevada;
and Savannah, Georgia. In addition, the Company is evaluating
other telecommunications products and services that could be
offered to customers using the Company's existing marketing
and distribution infrastructure. In May 1998, the Company
commenced beta testing of DirecPC, a satellite-based Internet
access service provided by a corporate affiliate of Hughes.

OWNERSHIP AND MANAGEMENT

The Company was formed by management on June 25, 1996
("Inception") and completed its first Rural DIRECTV Market acquisition in
November 1996. To date, the Company, together with its parent, has raised an
aggregate $87.4 million of equity capital in financings led by investment funds
affiliated with Burr, Egan, Deleage & Co./Alta Communications, Spectrum Equity
Investors, L.P., BancBoston Ventures Inc., Norwest Equity Partners and
HarbourVest Partners LLC, including an aggregate $2.5 million investment by
management. Substantially all the proceeds of such financings have been
contributed to the Company.

The Company has assembled an experienced management team to
execute its business strategy. Rodney A. Weary, the Company's Chief Executive
Officer, has over 27 years of experience in building, consolidating and
expanding rural cable television systems. Mr. Weary also helped found and take
public Premiere Page, Inc., a regional paging company. William J. Gerski, the
Company's Vice President, Sales and Marketing, has 26 years of experience
building and leading sales forces in the communications industry, including
multi-channel subscription television services. The Company's management team
also includes executives with long-term affiliations with the NRTC and DIRECTV,
as well as others experienced in other aspects of the telecommunications
industry.

The Company's principal executive offices are located at 605
West 47th Street, Suite 300, Kansas City, Missouri 64112, and its telephone
number is (816) 753-5544.

PENDING ACQUISITIONS AND RECENT EVENTS

The Company is party to contracts or binding letters of intent
to purchase five additional Rural DIRECTV Markets for an aggregate cash purchase
price of approximately $54.2 million, which territories include approximately
265,000 households and 22,000 subscribers. These proposed acquisitions include a
Rural DIRECTV Market in California and Nevada from Volcano Vision, Inc.
("Volcano") for $30.0 million in cash that is more fully described below (the
"Volcano Acquisition"). Each of these proposed acquisitions, except one
immaterial pending acquisition,

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is included in the Pro Forma Financial Statements contained elsewhere in this
Prospectus. The Company is also negotiating to acquire one other Rural DIRECTV
Markets for a purchase price of approximately $8.0 million, which territory
includes approximately 35,000 households and 4,000 subscribers. There can be no
assurance that these proposed acquisitions will be consummated. The Company is
continually evaluating acquisition prospects and expects to continue to enter
into acquisition agreements and complete acquisitions of additional Rural
DIRECTV Markets consistent with its growth strategy.

In July 1998, the Company entered into an Asset Purchase
Agreement (the "Volcano Purchase Agreement") with Volcano. Pursuant to the
Volcano Purchase Agreement, Volcano will sell and the Company will purchase the
assets comprising a Rural DIRECTV Market in California and Nevada covering
approximately 168,000 households and 11,000 subscribers for a cash purchase
price of $30.0 million, subject to certain post-closing adjustments. The Rural
DIRECTV Market subject to the Volcano Purchase Agreement had approximate
revenues, EBITDA and operating income of $4.0 million, $388,000 and $115,000,
respectively, for the year ended December 31, 1997 and $2.6 million, $556,000
and $401,000, respectively, for the six months ended June 30, 1998. The closing
of the transactions contemplated by the Volcano Purchase Agreement is subject to
certain conditions, including receipt of requisite NRTC and DIRECTV approvals,
the expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1986, and Volcano having a minimum of 10,000
subscribers at the time of closing. In connection with the execution of the
Volcano Purchase Agreement, the Company deposited $900,000 in escrow as earnest
money, which sum will be returned to the Company upon the closing of the Volcano
Acquisition. The Company currently anticipates that the Volcano Acquisition will
be consummated in the fourth quarter of 1998, although there can be no assurance
that the conditions to closing will be satisfied or that the acquisition will
ultimately be consummated. The Company has been afforded a limited opportunity
to conduct due diligence to date and there can be no assurance that before or
following acquisition the Company will not discover material adverse information
not previously disclosed to it.

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THE OFFERING OF THE OLD NOTES

Old Notes ...................... The Old Notes were sold (the "Offering") by
the Company on July 31, 1998 to Merrill
Lynch, Pierce, Fenner & Smith Incorporated
and NationsBanc Montgomery Securities LLC
(the "Initial Purchasers") pursuant to a
Purchase Agreement, dated July 24, 1998 (the
"Note Purchase Agreement"). The Initial
Purchasers subsequently resold the Old Notes
to qualified Institutional buyers pursuant
to Rule 144A under the Securities Act and
pursuant to offers and sales that occurred
outside the United States within the meaning
of Regulation S under the Securities Act.

Registration Rights Agreement .. Pursuant to the Note Purchase Agreement, the
Company and the Initial Purchasers entered
into a Registration Rights Agreement, dated
July 31, 1998 (the "Registration Rights
Agreement"), which grants the holders of the
Old Notes certain exchange and registration
rights. The Exchange Offer is intended to
satisfy such exchange rights, which
terminate upon the consummation of the
Exchange Offer.

SUMMARY OF THE EXCHANGE OFFER

The Exchange Offer ............. The Company is offering to exchange up to
$195,000,000 aggregate principal amount of
its 12 3/8% Senior Subordinated Notes due
2006, Series B, for a like amount of its
12 3/8% Senior Subordinated Notes due 2006,
Series A. The terms of the New Notes are
identical in all material respects
(including principal amount, interest rate
and maturity) to the terms of the Old Notes,
except for certain transfer restrictions and
registration rights relating to the Old
Notes. See "Description of the New Notes."
The issuance of the New Notes is intended to
satisfy obligations of the Company contained
in the Registration Rights Agreement
relating to the Old Notes.

Expiration Date; Withdrawal of
Tender .................... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ,
1998, or such later date and time to which
it is extended. The tender of Old Notes
pursuant to the Exchange Offer may be
withdrawn at any time prior to the
Expiration Date.

Accrued Interest on the New
Notes and the Old Notes ... Each New Note will bear interest from the
most recent date to which interest has been
paid or duly provided for on the Old Note
surrendered in exchange for such New Note,
or, if no interest has been paid or duly
provided for on such Old Note, from July 31,
1998. Holders of Old Notes whose Old Notes
are accepted for exchange will not receive
accrued interest on such Old Notes for any
period from and after the last date to which
interest has been paid or duly provided for
on the Old Notes prior to the original issue
date of the New Notes, or, if no such
interest has been paid or duly provided for,
will not receive any accrued interest on
such Old Notes, and will be deemed to have
waived the right to receive any interest on
such Old Notes accrued from and after the
last date to which interest has been paid or
duly provided for on the Old Notes, or, if
no such interest has been paid or

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duly provided for, from and after July 31,
1998.

Procedures for Tendering ....... Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with any other required documentation, to
State Street Bank and Trust Company of
Missouri, N.A., as Exchange Agent, at the
address set forth herein and therein. The
Letter of Transmittal will contain a
representation by the tendering holder that,
among other things, (i) the New Notes to be
received pursuant to the Exchange Offer are
being acquired in the ordinary course of the
business of the person receiving such New
Notes, (ii) such holder has no arrangement
with another person to participate in the
distribution of such New Notes, (iii) such
holder is not an "affiliate" (as defined in
Rule 405 under the Securities Act) of the
Company, and (iv) if the tendering holder is
a broker or a dealer (as defined in the
Exchange Act), it acquired the Old Notes for
its own account as a result of market-making
activities or other trading activities, and
that it has not entered into any arrangement
with the Company or any "affiliate" of the
Company to distribute the New Notes to be
received in the Exchange Offer. In the case
of a broker-dealer that receives New Notes
for its own account in exchange for Old
Notes that were acquired by it as a result
of market-making or other trading
activities, the Letter of Transmittal will
also include an acknowledgment that the
broker-dealer will deliver a copy of this
Prospectus in connection with the resale by
it of New Notes received pursuant to the
Exchange Offer. See "Plan of Distribution."

Guaranteed Delivery
Procedures ................ Holders who wish to accept the Exchange
Offer and cannot complete the procedures for
tendering on a timely basis may effect a
tender according to the guaranteed delivery
procedures set forth in "The Exchange Offer
-- Procedures for Tendering."

Federal Income Tax
Consequences .............. The exchange pursuant to the Exchange Offer
will not result in any income, gain or loss
to the holders of the Notes or the Company
for Federal income tax purposes. See
"Certain Federal Income Tax Considerations."

Exchange Agent ................. State Street Bank and Trust Company of
Missouri, N.A. is serving as Exchange Agent
in connection with the Exchange Offer. The
address and telephone number of the Exchange
Agent are set forth in "The Exchange Offer
-- Exchange Agent."

Consequences of Exchanging
Old Notes Pursuant to
the Exchange Offer......... Generally, based on interpretations by the
staff of the Commission, the Company
believes that holders of Old Notes (other
than any holder that is an "affiliate" of
the Company within the meaning of Rule 405
under the Securities Act) who exchange their
Old Notes for New Notes pursuant to the
Exchange Offer may offer such New Notes for
resale, resell such New Notes, and otherwise
transfer such New Notes without

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compliance with the registration and
prospectus-delivery provisions of the
Securities Act; provided that such New Notes
are acquired in the ordinary course of such
holders' business and such holders have no
arrangement with any person to participate
in the distribution of such New Notes. Each
broker-dealer that receives New Notes for
its own account pursuant to the Exchange
Offer must acknowledge that it will deliver
a prospectus in connection with any resale
of such New Notes. See "Plan of
Distribution." To comply with the securities
laws of certain jurisdictions, it may be
necessary to qualify for sale or register
the New Notes prior to offering or selling
such New Notes. The Company does not
currently intend to register or qualify the
sale of the New Notes in any such
jurisdictions.

Untendered Old Notes ........... Following the consummation of the Exchange
Offer, holders of Old Notes eligible to
participate but who do not tender their Old
Notes will not have any further exchange
rights, and such Old Notes will continue to
be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Old Notes could be adversely
affected.

Consequences of Failure to
Exchange .................. If a holder of Old Notes does not exchange
such Old Notes for New Notes pursuant to the
Exchange Offer, such Old Notes will continue
to be subject to the restrictions on
transfer contained in the legend thereon. In
general, the Old Notes may not be offered or
sold unless registered under the Securities
Act, except pursuant to an exemption from,
or in a transaction not subject to, the
Securities Act and applicable state
securities laws. See "The Exchange Offer --
Consequences of Failure to Exchange."

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SUMMARY DESCRIPTION OF THE NEW NOTES

The form and terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer restrictions and
registration rights relating to the Old Notes. The Old Notes will evidence the
same debt as the New Notes, and both series of Notes will be entitled to the
benefits of the Indenture and treated as a single class of debt securities
thereunder. See "Description of the New Notes."

Securities Offered ............. $195,000,000 aggregate principal amount of
12 3/8% Senior Subordinated Notes due 2006,
Series B.

Maturity Date .................. August 1, 2006.

Interest Payment Dates ......... Interest on the New Notes will accrue at the
rate of 12 3/8% per annum and will be
payable semi-annually on each February 1
and August 1, commencing February 1, 1999.

Escrow Account ................. The Company has purchased certain Government
Securities (as defined herein), representing
an amount (the "Escrow Account") sufficient
to pay, together with interest received from
the investment thereof in Government
Securities, the first four semi-annual
interest payments on the Notes (estimated to
be $45.2 million), as security for repayment
of the first four scheduled interest
payments on the Notes. The Notes will be
secured by a security interest in the Escrow
Account to the extent set forth herein. The
Escrow Account will be held by the Escrow
Agent (as defined herein) under the Escrow
Agreement (as defined herein) pending
disbursement. See "Description of the New
Notes-- Escrow Account."

Optional Redemption ............ The New Notes will be redeemable, in whole
or in part, at the option of the Company on
or after August 1, 2003, at the redemption
prices set forth herein plus accrued and
unpaid interest, if any, to the date of
redemption. In addition, on or prior to
August 1, 2001, the Company may, at its
option, redeem up to 35% of the originally
issued aggregate principal amount of Notes,
at a redemption price equal to 112.375% of
the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the
date of redemption solely with the net
proceeds of a Public Equity Offering of the
Company or Holdings yielding gross proceeds
of at least $40 million and any subsequent
Public Equity Offerings (provided that, in
the case of any such sale or sales by
Holdings, all the net proceeds thereof are
contributed to the Company); provided,
further, that immediately after any such
redemption the aggregate principal amount of
Notes outstanding must equal at least 65% of
the originally issued aggregate principal
amount of New Notes. See "Description of the
New Notes -- Redemption."

Change of Control .............. Upon the occurrence of a Change of Control,
each holder of the Notes may require the
Company to repurchase all or a portion of
such holder's New Notes at a price equal to
101% of their principal amount plus accrued
and unpaid interest, if any, to the date of
repurchase. See "Description of the New
Notes -- Change of Control."

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Ranking ........................ The Notes will be unsecured (except as
described under "--Escrow Account") senior
subordinated obligations of the Company and
will be subordinated in right of payment to
all existing and future Senior Indebtedness
(as defined herein). As of June 30, 1998, on
a pro forma basis after giving effect to the
Included Acquisitions (as defined herein)
and the Offering, the Company would have had
approximately $247.3 million of outstanding
indebtedness, of which approximately $35.0
million would have been Senior Indebtedness,
and $17.3 million would have been
unsubordinated indebtedness that would not
constitute Senior Indebtedness.

Certain Covenants .............. The Indenture imposes certain limitations on
the ability of the Company to, among other
things, incur additional indebtedness, pay
dividends or make certain other restricted
payments, consummate certain asset sales,
enter into certain transactions with
affiliates, incur indebtedness that is
subordinate in right of payment to any
Senior Indebtedness and senior in right of
payment to the Notes, incur liens, permit
restrictions on the ability of subsidiaries
to pay dividends or make certain payments to
the Company, merge or consolidate with any
other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the
Company. See "Description of the New Notes--
Certain Covenants."

For additional information regarding the New Notes, see
"Description of the New Notes."

RISK FACTORS

Holders of the Old Notes should consider carefully all of the
information contained in this Prospectus prior to tendering their Old Notes in
the Exchange Offer. In particular, holders of Old Notes should consider the
factors set for under "Risk Factors" beginning on page of this Prospectus.

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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

The summary historical consolidated financial data for the
periods ended December 31, 1996 and 1997 and for the six-month periods ended
June 30, 1997 and 1998 were derived from the Consolidated Financial Statements
of the Company included elsewhere in this Prospectus, which, in the case of the
financial statements for the periods ended December 31, 1996 and 1997, are
audited. The summary consolidated financial statement data for the six-month
periods ended June 30, 1997 and 1998 have been derived from unaudited
consolidated financial statements of the Company, which, in the opinion of
management, include all adjustments necessary for a fair presentation of such
data. The financial information for the Included Acquisitions has been derived
from the respective historical financial statements of the acquired entities.

As used herein, the "Pro Forma" financial and operating data
reflect (i) the Company's acquisitions completed since Inception excluding three
acquisitions that are immaterial individually and in the aggregate (the
"Completed Acquisitions"); (ii) four pending acquisitions for which the Company
has entered into binding letters of intent or contracts (the "Pending Pro Forma
Acquisitions" and, together with the Completed Acquisitions, the "Included
Acquisitions"); and (iii) the Offering. The Pro Forma information does not
reflect one immaterial pending acquisition with a purchase price of less than
$500,000. See "Summary of the Prospectus -- Pending Acquisitions and Recent
Events." The Pro Forma information is presented as if each of these events had
occurred at the beginning of the period presented with respect to the statement
of operations data and as of June 30, 1998 with respect to the balance sheet
data. The summary Pro Forma data do not purport to be indicative of the results
of operations that would have been achieved had the Included Acquisitions,
borrowings under the Credit Facility and the Offering been consummated as of the
assumed dates, nor are the results intended to be indicative of the Company's
future results of operations. The following information should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition," the Company's Consolidated Financial Statements and
notes thereto, the Pro Forma Financial Statements and notes thereto, and the
individual financial statements and notes thereto of certain acquired businesses
appearing elsewhere in this Prospectus.

YEAR ENDED
December 31, 1997 SIX MONTHS ENDED JUNE 30,
Inception to ----------------------- -------------------------------------
December 31, Pro 1997 1998 1998
1996 Historical Forma Historical Historical Pro Forma
------------ ---------- -------- ---------- ---------- ---------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenue
Programming ......................... $ 219 $ 16,452 $ 50,150 $ 3,289 $ 30,466 $ 39,390
Equipment sales and installation ....... 57 3,824 8,134 517 5,560 6,040
Equipment lease ........................ 36 944 1,592 214 512 608
-------- -------- -------- -------- -------- --------
Total revenue ................ 312 21,220 59,876 4,020 36,538 46,038
Cost of Revenue
Programming ......................... 130 9,304 29,983 1,830 17,926 23,721
Equipment and installation .......... 60 4,265 9,603 551 5,886 6,521
-------- -------- -------- -------- -------- --------
Total cost of revenue ........ 190 13,569 39,586 2,381 23,812 30,242
-------- -------- -------- -------- -------- --------
Gross profit ................. 122 7,651 20,290 1,639 12,726 15,796
Expenses
System operations ................... 26 3,796 12,370 502 4,177 5,544
Sales and marketing ................. 70 6,875 10,427 980 10,961 11,116
Corporate ........................... 1,028 1,917 1,917 854 1,769 1,769
Depreciation and amortization ....... 97 7,515 28,240 1,929 10,019 15,009
Net interest expense ................ 61 2,918 26,754 126 4,942 13,282
Other ............................... 7 414 893 106 3,483 3,510
-------- -------- -------- -------- -------- --------
Total expenses ............... 1,289 23,435 80,601 4,497 35,351 50,230
-------- -------- -------- -------- -------- --------
Net loss ............................... $ (1,167) $(15,784) $(60,311) $ (2,858) $(22,625) $(34,434)
======== ======== ======== ======== ======== ========

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June 30, 1998
-------------------------------
December 31, 1997 Historical Pro Forma
----------------- ------------ ---------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents .... $ 13,632 $ 856 $ 1,433
Restricted cash .............. -- -- 50,445
Working capital (deficit) .... 3,827 (11,613) (10,674)
Total assets ................. 156,236 196,728 323,062
Total debt ................... 69,113 131,293 247,293
Stockholder's equity ......... 70,449 47,824 57,824

Six Months Ended June 30,
Inception to Year Ended 1997 1998 1998
December 31, 1996 December 31, 1997 Historical Historical Pro Forma
----------------- ----------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SUBSCRIBER AND HOUSEHOLD DATA)

OPERATING DATA:
EBITDA(1) ......................... $ (1,009) $ (5,351) $ (803) $ (7,664) $ (6,143)
Pre-SAC EBITDA(2) ................. (936) 1,965 211 4,121 5,968
Pre-SAC system cash flow(3) ....... 92 3,882 1,065 5,890 7,737
Capital expenditures .............. 105 998 13 1,360 1,360
Aggregate purchase price of
acquisitions .................... $ 5,256 $ 129,725 $ 33,045 $ 54,688 $ 122,500
Households at end of period(4)(5).. 21,800 1,134,600 300,200 1,394,600 1,729,700
Subscribers acquired in
acquisitions(5).................. 2,975 64,400 16,368 26,893 54,633
Subscribers added in existing
territories(5)................... 229 23,320 992 32,146 31,776
Subscribers at end of period(5)(6). 3,204 90,924 20,564 149,963 177,333
Subscriber acquisition costs,
per net subscriber added(5)...... $ 319 $ 314 $ 1,022 $ 371 $ 381
Penetration at end of period ...... 14.7% 8.0% 6.9% 10.7% 10.3%
Ratio of earnings to
fixed charges(7) ................ -- -- -- -- --

(1) EBITDA is earnings before interest expense, income taxes, and
depreciation and amortization. EBITDA should not be considered as an
alternative measure of the Company's net income, operating performance,
cash flow, liquidity or other measures of performance or financial
condition prepared in accordance with generally accepted accounting
principles. EBITDA is provided solely as supplemental disclosure.

(2) EBITDA before subscriber acquisition costs ("SAC"). SAC includes sales
and marketing expenses, equipment revenue, equipment costs,
installation revenue, and installation and other costs.

(3) Pre-SAC EBITDA before corporate expenses.

(4) Household numbers are rounded to the nearest hundred. Pro Forma
households include households as of the later of June 30, 1998 or
acquisition date for Completed Acquisitions and households as of the
most recent date for which information is available for Pending Pro
Forma Acquisitions.

(5) Household and subscriber data reflect 100% of the households or
subscribers comprising the Company's Rural DIRECTV Markets, including
two Rural DIRECTV Markets in which the Company acquired less than 100%
ownership. The Company receives 100% of the revenue generated by all
subscribers in its Rural DIRECTV Markets.

(6) For Completed Acquisitions, subscriber data are as of the later of June
30, 1998 or acquisition date. For Pending Pro Forma Acquisitions,
subscriber data are as of the date of the most recent available
information.

(7) The ratio of earnings to fixed charges is determined by dividing the
sum of net loss before interest expense and a portion of rent expense
representative of interest by the sum of interest expense and such
portion of rent expense. For the periods ended December 31, 1996 and
1997 and the six-month periods ending June 30, 1997 and 1998, the
deficiency of earnings to fixed charges was $1.2 million, $15.8
million, $2.9 million and $22.7 million, respectively.

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RISK FACTORS

In addition to the other information in this Prospectus,
prospective investors should consider carefully the following risk factors
before tendering their Old Notes in the Exchange Offer.

LIMITED OPERATING HISTORY; NET LOSSES AND NEGATIVE EBITDA

The Company has had a limited operating history, during which
time it has generated net losses and negative EBITDA. This is due primarily to
the costs incurred to acquire Rural DIRECTV Markets, to integrate acquired
operations and to expand the Company's sales and marketing activities, including
the creation of a direct sales force. The Company reported net losses of
approximately $(15.8) million and $(22.6) million for the year ended December
31, 1997 and the six months ended June 30, 1998, respectively, and EBITDA of
approximately $(5.4) million and $(7.7) million for the year ended December 31,
1997 and six months ended June 30, 1998, respectively. The extent to which the
Company actually experiences positive EBITDA in the future will depend upon a
number of factors, including the Company's ability to acquire new Rural DIRECTV
Markets, the time and expense required to integrate new operations and implement
adequate systems and controls and to train direct sales and other personnel, the
Company's ability to generate internal subscriber growth and introduce new
products and services, the degree of competition encountered by the Company, the
cost of programming services, and economic conditions generally. There can be no
assurance when or whether the Company will generate or sustain positive EBITDA.

SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE INDEBTEDNESS

The Company is highly leveraged and is expected to increase
its leverage as it pursues further acquisitions by borrowing additional funds
and by issuing additional seller notes. At June 30, 1998, on a Pro Forma basis,
the Company's total consolidated long-term indebtedness, including the current
portion, would have approximated $247.3 million, representing approximately 81%
of the Company's total capitalization, and the Company's earnings would have
been insufficient to cover its fixed charges by approximately $34.5 million. On
such Pro Forma basis, assuming satisfaction of the conditions to borrowing
(including satisfaction of the subscriber borrowing base requirements and
financial maintenance covenants), the Company would have had the ability to
borrow an additional $95.1 million under the Credit Facility and expects to do
so principally to fund additional acquisitions of Rural DIRECTV Markets.

The degree to which the Company is leveraged could have
adverse consequences to holders of the New Notes, including, but not limited to
the following: (i) the Company's ability to fund internally or obtain additional
debt or equity financing in the future for acquisitions, working capital,
operating losses, capital expenditures and other purposes could be impaired;
(ii) the Company's flexibility in planning for, or reacting to, changes to its
business and market conditions may be limited; (iii) the Company may be
constrained from competing with less highly leveraged competitors; and (iv) the
Company may be financially vulnerable in the event of a downturn in its business
or the economy generally. In addition, borrowings under the Credit Facility bear
interest at variable rates, which could further increase the Company's debt
service obligations in the event of an increase in interest rates generally.

The ability of the Company to meet its debt service
obligations, including in respect of the New Notes, will be dependent upon the
Company's future operating performance. Such operating performance can be
subject to many factors, some of which will be beyond the Company's control,
such as prevailing economic conditions and relations with the NRTC. See "--
Risks Related to Relationship with the NRTC." There can be no assurance that the
Company will be able to generate sufficient cash flow to service required
interest and principal payments. Borrowings under the revolving credit facility
established pursuant to the Credit Facility will be available to the Company
until June 2004, but commitments and borrowings are subject to quarterly
reductions commencing June 30, 2000. Borrowings under the term loan facility
established pursuant thereto are required to be repaid in 16 consecutive
quarterly installments commencing June 30, 2001, with the balance due in March
2005. If the Company does not have sufficient available resources to repay
indebtedness under the Credit Facility at such time, the Company may find it
necessary to refinance such indebtedness, and there can be no assurance that
such refinancing would be available, or available on reasonable

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terms. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources," "Description of Other
Indebtedness -- Credit Facility" and "Description of the New Notes."

SUBORDINATION OF THE NEW NOTES; ASSET ENCUMBRANCES

The New Notes will be general unsecured (other than the
first-priority security interest in the Escrow Account) obligations of the
Company and will be subordinate in right of payment to all Senior Indebtedness,
including indebtedness under the Credit Facility. As of June 30, 1998, on a Pro
Forma basis, the Company would have had $35.0 million of Senior Indebtedness
outstanding and $95.1 million of availability under the Credit Facility. The
Company also had approximately $17.3 million of unsubordinated indebtedness,
representing the Seller Notes (as defined herein) and obligations under capital
leases, to which the New Notes will not be subordinated. The Indenture permits
the Company to incur additional indebtedness, which may take the form of Senior
Indebtedness, subject to certain limitations, and the Company expects from time
to time to incur additional Senior Indebtedness. By reason of the subordination
provisions of the Indenture, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company, holders of
Senior Indebtedness must be paid in full before payment of amounts due on the
New Notes may be made. Accordingly, there may be insufficient assets remaining
after such payments of Senior Indebtedness to pay amounts due on the New Notes.

In addition, during the continuance of any default in payment
in respect of any Designated Senior Indebtedness (as defined herein), no payment
(subject to limited exceptions) may be made on account of the obligations with
respect to the Notes unless and until such default has been cured or waived or
has ceased to exist or such Designated Senior Indebtedness shall have been
discharged or paid in full in cash or cash equivalents. In addition, during the
continuance of any non-payment default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may immediately be
accelerated and after the receipt by the Trustee from the representatives of
holders of such Designated Senior Indebtedness of a written notice of such
default, no payment (subject to limited exceptions) may be made by the Company
on account of the Obligations (as defined herein) with respect to the Notes for
a specified period. If any Event of Default (as such term is defined in the
Indenture) occurs and is continuing, the Trustee or the holders of at least 25%
in principal amount of the then outstanding Notes may declare all the Notes to
be due and payable immediately. However, such a continuing Event of Default also
would permit the acceleration of all outstanding obligations under the Credit
Facility. In such an event, the subordination provisions of the Indenture would
prohibit any payments to holders of the Notes unless and until such obligations
(and any other accelerated Designated Senior Indebtedness) have been repaid in
full in cash or Cash Equivalents (as defined herein). See "Description of the
New Notes --Subordination."

The New Notes will not be secured by any assets of the Company
other than the Escrow Account that secures the first four interest payments on
the Notes. The obligations of the Company under the Credit Facility will be
secured by substantially all of its assets and those of its subsidiaries,
including the NRTC Agreements referred to below. If the Company becomes
insolvent or is liquidated, or if payment under the Credit Facility is
accelerated, the lenders under the Credit Facility would be entitled to exercise
the remedies available to a secured lender under applicable law and pursuant to
the terms of the Credit Facility. Accordingly, any claims of such lenders with
respect to such assets will be prior to any claim of the holders of the Notes
with respect to such assets. See "Description of Other Indebtedness -- Credit
Facility."

The Company's valuable assets are comprised primarily of its
rights under the agreements between the NRTC and its members, pursuant to which
the members acquired the right to distribute DIRECTV Programming in the Rural
DIRECTV Markets (collectively, the "NRTC Agreements") and the Company's interest
in its subscriber base. Because the NRTC Agreements are terminable upon a
bankruptcy or insolvency of the Company, and the nature of the Company's
interest in its subscriber base is the subject of uncertainty, there can be no
assurance as to the ability of creditors, including holders of Notes, to realize
upon these assets and to satisfy all or any part of their claims against the
Company. See "-- Risks Related to Relationship with the NRTC."

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RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS

The Credit Facility and the Indenture contain numerous
restrictive covenants that limit the discretion of the Company's management with
respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Company to incur
additional indebtedness, to create liens or other encumbrances, to pay dividends
or make certain other payments, investments, loans and guarantees and to sell or
otherwise dispose of assets and merge or consolidate with another entity. The
Credit Facility also contains a number of financial covenants that will require
the Company to meet certain financial ratios and financial condition tests, and
availability under the revolving credit facility of the Credit Facility depends
upon satisfaction of these covenants as well as minimum subscriber base
requirements. See "Description of Other Indebtedness -- Credit Facility" and
"Description of the New Notes -- Certain Covenants." The Company's ability to
meet these covenants and requirements can be affected by events beyond its
control, and, in any event, there can be no assurance that the Company will meet
such covenants and requirements. A failure to comply with the obligations in the
Credit Facility or the Indenture could result in an event of default under the
Credit Facility or an Event of Default under the Indenture that, if not cured or
waived, could permit acceleration of the relevant indebtedness and acceleration
of indebtedness under other instruments that may contain cross-acceleration or
cross-default provisions. In the event of an event of default under the Credit
Facility or an Event of Default under the Indenture, the lenders thereunder
could elect to declare all amounts outstanding thereunder, together with accrued
and unpaid interest, to be immediately due and payable. If the indebtedness
under the Credit Facility were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full that indebtedness
and the other indebtedness of the Company, including the Notes. Other
indebtedness of the Company and its subsidiaries that may be incurred in the
future may contain financial or other covenants more restrictive than those
applicable to the Notes.

SUBSTANTIAL CAPITAL REQUIREMENTS

The Company's operations have required and will continue to
require substantial capital to finance acquisitions of Rural DIRECTV Markets and
the costs associated with integrating acquired operations and expanding the
Company's sales and marketing activities in new markets, as well as general
working capital requirements and operating expenses. No assurance can be given
that actual cash requirements will not materially exceed the Company's estimated
capital requirements and available capital. Moreover, because the Company's
ability to access the total availability of the Credit Facility is dependent on
maintaining certain specified financial and operating covenants, there can be no
assurance that the Company will be able to draw funds under the Credit Facility
sufficient to finance its planned acquisitions and the continued development of
its operations. The amount of capital the Company requires will depend upon a
number of factors, including costs of future acquisitions, capital expenditures
and negative cash flow generally. No assurance can be given that, in the event
the Company were to require additional financing, such additional financing
would be available on terms satisfactory to the Company or at all. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Description of Other
Indebtedness -- Credit Facility."

RISKS ATTENDANT TO ACQUISITION STRATEGY

An essential part of the Company's business strategy is to
acquire additional Rural DIRECTV Markets. Since November 1996, the Company has
acquired the right to provide DIRECTV Programming in 38 Rural DIRECTV Markets,
and the Company is continually identifying additional potential acquisition
targets. The Company is aware of at least one other DIRECTV Programming provider
that is currently pursuing an acquisition strategy targeted on Rural DIRECTV
Markets that is similar to the Company's. The prices paid in acquisitions by the
Company are a function of numerous factors, including the demographics of the
particular Rural DIRECTV Market, the extent of penetration by the prior operator
and of other pay television operators in such market and the extent of
competition for the particular acquisition. Other acquirers of Rural DIRECTV
Markets may have greater financial resources than the Company.

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Each of the Company's potential acquisitions is subject to the
negotiation of a definitive agreement and, among other conditions, the prior
approval of Hughes and the NRTC, which approval may be beyond the Company's
control. See "-- Risks Related to Relationship with the NRTC" for a discussion
of the risks attendant to securing NRTC approval of acquisitions. In addition,
each acquisition is subject to conditions typical in acquisitions of this
nature, certain of which also may be beyond the control of the Company. There
can be no assurance that the anticipated benefits of any of the acquisitions
described herein or future acquisitions will be realized. The process of
integrating acquired operations into the Company's operations may result in
unforeseen operating difficulties, could divert management attention and may
require significant financial resources that would otherwise be available for
the ongoing development or expansion of the Company's existing operations. There
also can be no assurance that the Company will be able to identify suitable
acquisitions in the future or, if identified, to arrive at favorable prices and
terms. In addition, possible future acquisitions by the Company could result in
the incurrence of additional debt and contingent liabilities which could
materially adversely affect the Company's financial condition and results of
operations.

DEPENDENCE UPON DIRECTV

The Company obtains substantially all of its revenue through
the distribution of DIRECTV Programming and sales of related equipment. As a
result, the Company may be adversely affected by any material change in the
assets, financial condition, programming, technological capabilities or services
of DIRECTV or Hughes. Such adverse effects could result from possible
electronic, computer or other technical problems experienced by DIRECTV or
DIRECTV's failure to retain or renew its Federal Communications Commission
("FCC") licenses to transmit radio frequency signals from the orbital slots
occupied by its satellites, at least some of which licenses expire and are
subject to renewal in December 1999. In addition, there can be no assurance that
the satellites upon which the Company relies will be replaced upon the
expiration of their useful orbital lives or that services will not be disrupted
for any reason, including a delay in launching a successor satellite. There can
be no assurance that the Company could continue to provide DBS services
following any such event. While the Company has not been provided access to the
agreement between the NRTC and Hughes (the "Hughes Agreement"), it is relying
upon DIRECTV to continue to provide programming services on a basis consistent
with past practice. There can be no assurance that any change in the manner in
which DIRECTV performs its obligations under the Hughes Agreement or otherwise
provides services to the NRTC would not materially adversely affect the Company.
See "-- Risks Related to Relationship with the NRTC" and "-- Ability to Acquire
DBS Services from NRTC and DIRECTV after Expiration of NRTC Agreements."

RISKS RELATED TO RELATIONSHIP WITH THE NRTC

Rights Based Solely Upon NRTC Agreements. Virtually all of the
Company's business is comprised of the distribution of DIRECTV Programming to
residential households and commercial establishments in rural markets pursuant
to the NRTC Agreements. The NRTC has obtained such rights pursuant to the Hughes
Agreement. Under the NRTC Agreements, the NRTC has granted to the Company the
exclusive right to market, sell and retain revenue from DIRECTV Programming
(other than Non-Select Services (as defined herein)) transmitted over Hughes' 27
frequencies from the 101 degrees W.L. orbital location to identified residences
or identified areas, as applicable. The Company does not have a direct
contractual arrangement with Hughes (except with respect to its Systems Operator
and commercial licenses, which have not generated material revenue to date), and
the NRTC has declined to make available to the Company a copy of the Hughes
Agreement. Accordingly, the Company relies upon the NRTC to have accurately
represented the scope and term of its rights and obligations and to diligently
perform all of its obligations under the Hughes Agreement, as well as pursue any
rights and remedies which it may have against Hughes. The NRTC Agreements
provide that, in general, upon a default or breach by the NRTC under the Hughes
Agreement, the Company would have the right to acquire DIRECTV Programming
directly from DIRECTV either, at Hughes' option, (i) by the assumption by Hughes
of the NRTC's obligations under the NRTC Agreements or (ii) under a new
agreement between the Company and Hughes on terms no less favorable to the
Company than those in the NRTC Agreements. There can be no assurance as to the
actual scope of such right under the Hughes Agreement (e.g., whether Hughes is
obligated to exercise any such option) or as to the Company's ability to timely
and successfully exercise such right. There can be no assurance that the NRTC
will act or fail to act in a manner that will preserve the Company's ability to
offer DIRECTV Programming on a basis consistent with past practice. While Hughes
is an intended third party

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beneficiary under the NRTC Agreements and is entitled to enforce the NRTC
Agreements against the Company, the Company is not a third party beneficiary
under the Hughes Agreement.

The Company would also be materially adversely affected by the
termination of the NRTC Agreements by the NRTC prior to the expiration of their
respective terms. Such agreements may be terminated by the NRTC (i) as a result
of a termination of the Hughes Agreement, with the NRTC remaining responsible
for paying to the Company its pro rata portion of any refunds that the NRTC
receives from Hughes under the Hughes Agreement, (ii) if the Company fails to
make any payment due to the NRTC or otherwise breaches a material obligation of
the NRTC Agreements and such failure or breach continues for more than 30 days
after written notice from the NRTC or (iii) if the Company fails to keep and
maintain any letter of credit required to be provided to the NRTC in full force
and effect or to adjust the amount of the letter of credit as required by the
NRTC Agreements. If the NRTC Agreements are terminated by the NRTC, the Company
would no longer have the right to provide DIRECTV Programming in the Rural
DIRECTV Markets. There can be no assurance that the Company would be able to
obtain similar DBS services from other sources.

The NRTC Agreements also require the Company to comply with
policies of the NRTC promulgated from time to time. The Company and other
NRTC-affiliated DIRECTV providers have disputed certain policies proposed by the
NRTC in the past that they believed did not comply with the NRTC Agreements and
applicable law. For example, in 1998, the NRTC proposed new conditions to
securing its approval of acquisitions that included changes to all of the NRTC
Agreements which, if adopted, could have had material adverse financial
consequences to the Company. The dispute was resolved without any modifications
to the NRTC Agreements and the Company's then pending acquisitions were
approved. In addition, the NRTC has adopted a policy regarding its own interests
in the subscriber information of affiliated DIRECTV providers. The NRTC
Agreements provide that NRTC affiliates, including the Company, have
"substantial proprietary interests" in and rights to the information and data
with respect to their subscribers. The NRTC and its affiliates, including the
Company, have differed over the import of these rights and interests, which may
have consequences in the event that the Company's rights to offer DIRECTV
Programming through the NRTC are terminated or expire.

Reliance Upon NRTC for Certain Services and Information. The
NRTC Agreements provide that the NRTC supply the Company with certain support
services, including subscriber authorization and data reporting capability,
retail billing services and central office subscriber services. In addition to
the fees paid upon signing of the NRTC Agreements, the Company is required to
pay to the NRTC monthly operating fees, monthly security services fees, monthly
programming fees (based on accepted cable industry rate cards) and a "reasonable
margin" on the cost of providing DBS services to the Company. If the NRTC is
unable to provide these services for whatever reason, the Company would be
required to acquire the services from other sources or provide them for
themselves. There can be no assurance that the cost to the Company of acquiring
those services elsewhere or providing them internally would not exceed the
amounts payable to the NRTC under the NRTC Agreements or, alternatively, that
the Company would not be able to secure such services on a more economic basis
on its own but continue to be required to obtain such services from the NRTC.

The NRTC Agreements do not provide for direct or complete
access to or control by the Company of the management information systems of the
NRTC, including certain management information systems data concerning
individual subscribers of the Company. Therefore, although the Company is
entitled to verify the accuracy of individual customer financial accounts, it
must rely on the NRTC to accurately provide detailed general demographic and
other information regarding its subscribers, which information is critical to
the growth and development of the Company's ongoing marketing and sales
strategy. The Company must also rely upon the NRTC and DIRECTV to be Year 2000
compliant on a timely basis.

Potential Divergence of Interests from NRTC. The NRTC is a
cooperative whose members are engaged in the distribution of telecommunications
and other services in predominantly rural areas of the United States. The
Company is not an NRTC Member, but rather a non-voting affiliate. The interests
of NRTC and its affiliates, such as the Company, may conflict, and there can be
no assurance that the NRTC will act in the interest of the Company.

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ABILITY TO ACQUIRE DBS SERVICES FROM NRTC AND DIRECTV AFTER EXPIRATION OF NRTC
AGREEMENTS

The DIRECTV Programming offered by the Company to its
subscribers is acquired pursuant to the NRTC Agreements. The NRTC, in turn,
acquires the services through the Hughes Agreement. The NRTC Agreements (and
presumably the Hughes Agreement) expire when Hughes removes its current
satellite(s) from their assigned orbital locations. Although, according to
Hughes and United States Satellite Broadcasting, Inc. ("USSB"), which owns five
transponders on the first DIRECTV satellite, the three DIRECTV satellites have
estimated orbital lives of approximately 15 years from their respective launches
in December 1993, August 1994 and June 1995, there can be no assurance as to the
longevity of the satellites and thus no assurance as to how long the Company
will be able to obtain DBS services pursuant to the NRTC Agreements. The Company
is not certain whether the NRTC is entitled to services from all three DIRECTV
satellites as a contractual matter and, therefore, whether it will receive
services for the life of all three satellites. All of these uncertainties may
render it more difficult to refinance the Notes and other indebtedness, if
necessary, and affect the Company's ability to secure additional financing, if
necessary or desirable.

The Company believes that the Hughes Agreement provides the
NRTC with a right of first refusal to obtain DBS services (other than
programming services) in substantially the same form as such DBS services are
provided under the existing Hughes Agreement in the event that Hughes elects to
launch one or more successor satellites upon the removal of the present
satellites from their assigned orbital locations. The NRTC Agreements do not
expressly provide an equivalent right of first refusal for the NRTC members to
acquire DBS services through the NRTC should the NRTC exercise any right of
first refusal under the Hughes Agreement. The NRTC is not obligated to exercise
any right of first refusal. There can be no assurance that, upon removal of the
current satellites from their orbital locations at the end of their useful lives
(estimated to be in 2008 or 2009), the Company would continue to have access to
DIRECTV Programming or the exclusive right to control or dispose of its interest
in its subscriber base. See "-- Risks Related to Relationship with the NRTC --
Rights Based Solely Upon NRTC Agreements."

Any right of first refusal in the Hughes Agreement may not be
available to the NRTC if Hughes does not launch a successor satellite, which may
be the case, for example, if Hughes ceases to own the FCC licenses necessary to
transmit from its existing orbital locations. Such right of first refusal also
may not be available to the NRTC if the NRTC is in default under the Hughes
Agreement or if the NRTC is unable to raise sufficient funds from its then
existing members or others to purchase rights in any successor Hughes satellite.
Whether or not a right of first refusal exists, the terms and conditions,
including the financial terms, of any continuing relationship between the NRTC
and Hughes following the expiration of the NRTC Agreements cannot be predicted.
Moreover, the terms and conditions, including the financial terms under which
the NRTC may make available such rights to the Company and other NRTC members
and affiliates is unknown, which may impact the economics of the Company's
business and its ability to meet its obligations, including in respect of the
Notes. In the event the Company is unable to acquire DIRECTV Programming through
Hughes and the NRTC after the expiration of the NRTC Agreements, the Company
would be required to acquire such DBS services from others, or to attempt to
sell its subscriber base to one or more other DBS providers (which it may be
unable to do for contractual or other reasons) and cease or fundamentally change
its business operations.

ABILITY TO MANAGE GROWTH EFFECTIVELY

The Company has experienced a period of rapid growth,
primarily as a result of acquisitions. In order to achieve its business
objectives, the Company expects to continue to expand largely through
acquisitions of additional Rural DIRECTV Markets, which have placed and will
continue to place a significant strain on its management, operating systems and
procedures, financial resources, employees and other resources. This growth has
affected the preparation of financial and operating information, and the Company
is hiring additional personnel and implementing additional accounting practices
and procedures to address this concern. The Company will need to continue to
improve its operational systems and procedures and to hire and retain additional
qualified personnel as the size of its operations grows. If the Company is
unable to do so, the Company's financial condition and results of operations
could be materially adversely affected.

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DEPENDENCE ON KEY PERSONNEL

The Company's future success may depend to a significant
extent upon the performance of a number of the Company's key personnel,
including Rodney A. Weary, who is the Company's Chief Executive Officer. The
Company has employment and non-competition agreements with Mr. Weary and seven
other executives. See "Management." Although the Company maintains "key-man"
insurance on the life of Mr. Weary, the loss of Mr. Weary or other key
management personnel or the failure to recruit and retain additional qualified
personnel could have a material adverse effect on the Company's financial
condition and results of operations.

COMPETITION AND TECHNOLOGICAL CHANGE

The industry in which the Company operates is highly
competitive, and the Company expects to face intense competition from existing
and future competitors. The Company's competitors include a broad range of
companies engaged in the provision of communications and entertainment services,
including cable operators, other direct-to-home ("DTH") programming providers,
wireless cable operators, broadcast television networks and home video products
companies, as well as companies developing new technologies. Certain of these
competitors and potential competitors are well established companies and have
significantly greater financial and marketing resources than the Company. The
Company expects to compete primarily against providers of subscription
programming, such as cable and satellite operators. The Company also expects to
encounter a number of challenges in competing with cable television providers.
Cable operators generally have large installed customer bases, and many cable
television operators have significant investments in, and access to,
programming. The Company anticipates that many cable systems in the United
States will be upgraded to provide better quality programming and a better
signal than are currently available through cable, but that cable's programming
and signal will remain inferior to those available through DBS services. The
Company further believes that due to the expense of upgrading less densely
populated areas such as those within the Rural DIRECTV Markets, cable systems in
the Rural DIRECTV Markets in general will be upgraded more slowly (if at all)
than those in more densely populated areas. In order to substantially increase
its subscriber base, however, the Company may find it necessary to attract
customers who currently subscribe to cable.

The Company competes with companies offering programming
through various satellite broadcasting systems, although DIRECTV, USSB and
EchoStar Communications Corporation ("EchoStar") are the only current domestic
DBS operators. All other domestic DTH operators currently transmit from low
power or medium power satellites, which generally require the use of larger and,
in the case of low power DTH broadcasting, more expensive dishes. Several
companies, including medium power DTH operators, have announced plans to
broadcast from DBS satellites. Certain regional telephone operators have also
expressed an interest in becoming subscription television providers. The entry
of these competitors into the subscription television market would increase
competition substantially and could have a material adverse effect on the
financial condition and results of operations of the Company.

A variety of other technologies are under development that
could result in increased competition for the Company, including, among others,
the expansion of the Internet to include and use developing video and audio
compression technologies to develop the "information superhighway." There can be
no assurance that additional competitors will not enter the markets that the
Company serves or that the Company will be able to succeed against such
competition. Moreover, changes in technology could lower the cost of competitive
services to a level where the Company's services will become less competitive or
where the Company will need to reduce its service prices in order to remain
competitive. See "Business -- Competition."

REGULATION; PRIMETIME 24 LITIGATION

Unlike cable operators, DBS operators such as DIRECTV are free
to set prices and serve customers according to their business judgment, without
rate of return and other regulation. However, there are laws and regulations
that affect DIRECTV and, therefore indirectly, the Company. As an operator of a
privately owned United States satellite system, DIRECTV is subject to the
regulatory jurisdiction of the FCC, primarily with respect to (i) licensing of

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satellites, (ii) avoidance of interference with other broadcasting signals and
(iii) compliance with rules that the FCC has established specifically for DBS
satellite licenses.

State and local authorities in some jurisdictions (including
some residential developments) restrict or prohibit the use of satellite dishes
pursuant to zoning and other regulations. The FCC has adopted new rules that
preempt state and local regulations that affect satellite dishes that are (i)
three feet or less in diameter in any area or (ii) six feet or less in diameter
in any area where commercial or industrial uses are generally permitted by local
land use regulation. As the DSS dishes are only 18 inches in diameter, the FCC's
rules are expected to ease local regulatory burdens on the use of such dishes.
See "Business -- Regulation."

The Satellite Home Viewer Act of 1994 (the "SHVA") establishes
a "compulsory" copyright license that allows a DTH operator, for a
statutorily-established fee, to retransmit network programming to subscribers
for private home viewing so long as that retransmission is limited to those
persons in unserved households. In general, an "unserved household" is one that
cannot receive, through the use of a conventional outdoor rooftop antenna, a
sufficient over-the-air network signal, and has not, within 90 days prior to
subscribing to the DTH service, subscribed to a cable service that provides that
network signal. Certain television broadcast networks and their affiliates have
commenced litigation against PrimeTime 24 Joint Venture ("PrimeTime 24"), a
satellite provider of network programming, regarding alleged violations of the
SHVA. PrimeTime 24 provides network programming to several satellite providers,
including DIRECTV (and its distributors, including NRTC DBS members and
affiliates such as the Company) and providers of programming for C-band
satellite services. On July 10, 1998, a Federal District Court in Florida
granted a preliminary injunction effectively prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households in designated
geographic areas (based on off-air signal strength of television stations
affiliated with those networks or past subscription to cable) and to any
business. The preliminary injunction further requires the disconnection within
90 days of any such current PrimeTime 24 customers for CBS or Fox programming
that began receiving PrimeTime 24's network programming via satellite after
March 11, 1997, unless the local network affiliate consents or a signal-strength
test proves that a certain quality of off-air service is unavailable to the
customer. Absent other judicial, administrative or legislative action, the
preliminary injunction is expected to remain in effect until the disposition of
the matter on the merits, which the Company has been advised is expected to
occur in the Fall of 1998. In response to the injunction, the NRTC issued a
policy prohibiting its DBS members and affiliates, including the Company, from
making new sales of any PrimeTime 24 network programming (including ABC, NBC and
PBS programming, which are not subject to the preliminary injunction, as well as
CBS and Fox). There can be no assurance as to how long the preliminary
injunction or the NRTC's policy will remain in effect or as to what final relief
may ultimately be granted to the plaintiffs. In addition, on July 16, 1998, a
Federal District Court in North Carolina issued an order holding that PrimeTime
24 had violated the copyright provisions and reporting obligations under the
SHVA with respect to ABC network programming in the Raleigh-Durham market. On
August 19, 1998, the court issued a permanent injunction restraining PrimeTime
24 (and its distributors) from providing retransmission of any television
station affiliated with ABC to any household located within 75 miles of the
transmission tower of WTVD, the ABC affiliate serving the Raleigh-Durham market.
Similar litigation brought by an NBC affiliate is also pending in Texas. It is
unclear whether PrimeTime 24, and its agents and distributors, will be subjected
to claims of damages or other judicially ordered relief through these or other
proceedings. While the Company believes that it has complied to date with the
SHVA in providing network programming only to "unserved households" and the
Company does not believe that the interpretations of the SHVA applied by the
Florida and North Carolina federal courts will materially adversely affect the
Company's financial results or its ability to attract new subscribers, there can
be no assurance that the Company's inability to provide network services will
not have such effects. In addition, should the Company elect to continue to
offer network services, there can be no assurance that the costs of compliance
with those interpretations will not be material. The inability of DIRECTV and
the Company to provide network programming to subscribers in Rural DIRECTV
Markets could adversely affect the Company's average programming revenue per
subscriber and subscriber growth. See "Business -- Regulation."

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operators and by satellite providers is not possible, it has been estimated that
the new rates would be approximately 300% and 900% of the rates applicable to
cable providers in their provision of the superstation signals and network
signals, respectively. While the Company is aware of efforts to overturn this
decision, there can be no assurance that it will be overturned. Under the terms
of the NRTC Agreements, the Company may expect to have this cost passed along to
it, unless the NRTC elects to absorb all or a portion of the increased rate into
the margin that it earns on the provision of DIRECTV Programming.

RELIANCE ON SATELLITE TRANSMISSION TECHNOLOGY

There are numerous risks associated with satellite
transmission technology, in general, and DIRECTV's delivery of DBS services, in
particular. Satellite transmission of video, audio and other data is highly
complex and requires the manufacture and integration of diverse and advanced
components that may not function as expected. Although according to Hughes and
USSB the DIRECTV satellites used to provide the DBS services have estimated
orbital lives of approximately 15 years from their respective launches in
December 1993, August 1994 and June 1995, there can be no assurance as to the
longevity of the satellites or that loss, damage or changes in the satellites as
a result of acts of war, anti-satellite devices, electrostatic storms or
collisions with space debris will not occur. While the Company does not believe
that the loss of a single satellite would adversely affect its operations, the
loss of two or more satellites could have a material adverse effect on DIRECTV
and the Company. Furthermore, the digital compression technology used by DBS
providers is not standardized and is undergoing rapid change. Such changes or
other technological changes or innovations may require modifications to ground
station programming uplink facilities, satellites and subscriber equipment,
which modifications could be costly. Such costs would likely be passed through
by DIRECTV or the NRTC to the Company, and would be borne by the Company to the
extent it could not pass such costs through to its subscribers in the form of
higher fees.

RISK OF SIGNAL THEFT

The delivery of subscription programming requires the use of
encryption technology. Signal theft or "piracy" in the C-band DTH, cable
television and European DBS industries has been widely reported. There can be no
assurance that the encryption technology used in the DSS Equipment will remain
totally effective. If the DSS Equipment encryption technology is compromised in
a manner that is not promptly corrected, the Company's revenue could be
adversely affected.

DIRECTV and the Company are prohibited by law from providing
DIRECTV Programming outside the United States. Despite subscribers' assurances
that they receive programming within one of the Company's Rural DIRECTV Markets,
a portion of the Company's subscribers may, in fact, be receiving DIRECTV
Programming outside the Company's markets. If the Company must disconnect a
significant portion of its subscribers because they receive services outside the
Company's Rural DIRECTV Markets, the Company's financial condition and results
of operations could be adversely affected.

DEPENDENCE ON THIRD PARTY PROGRAMMERS

DIRECTV, and therefore the Company, is dependent on third
parties to provide high-quality programming that appeals to mass audiences.
DIRECTV's programming agreements have terms that expire on various dates with
different renewal and cancellation provisions. There can be no assurance that
any such agreements will be renewed or will not be canceled prior to expiration
of their original term. In the event any such agreements are not renewed or are
canceled, there is no assurance that DIRECTV would be able to obtain or develop
substitute programming, or that such substitute programming would be comparable
in quality, marketability or cost to the Company's existing programming. The
ability of the Company to compete successfully will depend on DIRECTV's ability
to continue to obtain desirable programming and attractively package it to its
customers at competitive prices. See "Business -- DIRECTV."

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Pursuant to the Cable Television Consumer Protection and
Competition Act of 1992 (the "Cable Act") and the FCC's rules, programming
developed by vertically integrated cable-affiliated programmers generally must
be offered to all multi-channel video programming distributors on
nondiscriminatory terms and conditions. The Cable Act and the FCC's rules also
prohibit certain exclusive programming contracts. The Company anticipates that
DIRECTV will continue to purchase a substantial percentage of its programming
from cable-affiliated programmers. Certain of the restrictions on
cable-affiliated programmers will expire in 2002 unless extended by the FCC or
Congress. As a result, any expiration of, amendment to, or interpretation of,
the Cable Act and the FCC's rules that permits the cable industry or programmers
to discriminate in the sale of programming against competing businesses, such as
that of DIRECTV, could adversely affect DIRECTV's ability, and therefore the
Company's ability, to acquire programming or acquire programming on a
cost-effective basis.

LIMITED CONSUMER ADOPTION OF SATELLITE TELEVISION

The Company believes that one of the largest hurdles to the
mass market adoption of DBS has been the cost to the subscriber of purchasing
the DSS Equipment, currently ranging from $99 to $299 depending upon the level
of features desired and number of television sets to be connected. While the
cost of such equipment has decreased over time, and the Company believes that
the suppliers of the subscriber equipment have strong incentives to supply
equipment at affordable prices as the subscriber base expands and as competition
increases among equipment vendors, there can be no assurance that such costs
will continue to decrease. To the extent that the cost of the equipment remains
an obstacle to increased demand for satellite services offered by the Company,
the growth of the Company's subscriber base could be delayed, adversely
affecting the Company's financial condition and results of operations.

Another potential hurdle to widespread adoption of DBS is that
subscribers do not receive local news and sports in the DIRECTV Programming. In
order to make such programming available to its subscribers, the Company
integrates an off-air antenna into its equipment package upon request by the
subscriber. While all of the major DBS providers, including DIRECTV, offer
broadcast network channels on an a la carte or package basis, it is unclear
whether FCC regulations prohibit satellite providers from selling network
programming to households that can receive a signal from that network's local
affiliate station using traditional off-air antennae. Certain subscribers may
not be willing to purchase DBS because of this uncertainty. See "-- Regulation;
PrimeTime 24 Litigation."

CERTAIN CONSEQUENCES OF ESCROW ACCOUNT RELATED TO BANKRUPTCY

The right of the Trustee under the Indenture and the Escrow
Agent under the Escrow Agreement to foreclose upon and sell collateral upon the
occurrence of an Event of Default is likely to be impaired significantly by
applicable bankruptcy law if a bankruptcy or reorganization case were to be
commenced by or against the Company or one or more of its subsidiaries. Under
applicable bankruptcy law, secured creditors such as the holders of the Notes
are prohibited from foreclosing upon or disposing of a debtor's property without
prior bankruptcy court approval. The Escrow Account is only pledged to secure
the first four scheduled interest payments on the Notes, including amounts
accruing following the commencement of any bankruptcy or reorganization case.
See "Description of the New Notes -- Escrow Account."

ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES

The New Notes are being offered to the holders of the Old
Notes. The Old Notes were sold to the Initial Purchasers on July 31, 1997 and
then resold to Qualified Institutional Buyers (as defined in Rule 144A under the
Securities Act) and pursuant to offers and sales outside the United States
within the meaning of Regulation S under the Securities Act and are eligible for
trading in the Private Offerings, Resale and Trading through Automated Linkages
(PORTAL) market. The New Notes are securities for which there currently is no
market. If the New Notes are traded, they may trade at a discount from their
face value, depending upon prevailing interest rates, the market for similar
securities, and other factors. The Company does not intend to apply for listing
of the New Notes on any securities exchange or the Nasdaq National Market.
Accordingly, there can be no assurance as to the development or liquidity of any
trading market for the New Notes.

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CONSEQUENCES OF THE EXCHANGE OFFER TO NON-TENDERING HOLDERS OF THE OLD NOTES

In the event the Exchange Offer is consummated, the Company
will not be required to register the Old Notes. In such event, the New Notes
would rank pari passu with the Old Notes, and the holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions from registration
requirements under the securities laws, including the Securities Act. A
reduction of the aggregate principal amount of the Old Notes outstanding as a
result of the consummation of the Exchange Offer may have an adverse effect on
the ability of holders of the Old Notes to transfer such Old Notes.

YEAR 2000 COMPLIANCE

Many existing computer systems and software products use only
two character fields to identify dates. These programs were designed and
developed without consideration of the upcoming turn of the century. Significant
uncertainty exists in the software industry concerning the potential
consequences of the Year 2000 phenomenon. If not corrected, these computer
applications could fail or create erroneous information from the Year 2000 date
change. This issue affects virtually all organizations and can be very costly
and time consuming to correct. There can be no assurance that the software
products currently used by the Company contain all necessary date code changes.
Management is currently conducting surveys of all of its vendors and other
pertinent relationships to assess their readiness for Year 2000 processing. The
Company is significantly reliant on contracted data processing services from the
NRTC and DIRECTV for customer purchase, billing and remittance processing
pursuant to the NRTC Agreements. The NRTC has informed the Company that the
computer systems that provide such services are not currently Year 2000
compliant, but that they will be Year 2000 compliant by April 1999. In addition,
there can be no assurance that such systems do not contain undetected errors or
defects associated with the Year 2000 date functions that may result in material
costs to the Company. Any adverse impact on subscribers in the Company's Rural
DIRECTV Markets could also have a material adverse effect on the Company's
business, financial condition and results of operations.

26
28
USE OF PROCEEDS

The Company will not receive any proceeds from the issuance of
New Notes pursuant to the Exchange Offer. The net proceeds to the Company from
the Offering were approximately $188.2 million, after deducting the Initial
Purchasers' discount and estimated expenses of the Offering. The Company placed
all of such net proceeds in the Escrow Account pending disbursement pursuant to
the terms of the Escrow Agreement. On August 5, 1998, upon the satisfaction of
certain conditions in the Escrow Agreement, approximately $143.0 million of such
net proceeds was released to the Company. The Company used such amount (i) to
repay approximately $83.3 million of outstanding indebtedness under the Credit
Facility (which may be reborrowed for permitted purposes, including to finance
the acquisition of Rural DIRECTV Markets), (ii) to finance the acquisition of
Rural DIRECTV Markets and related costs and expenses, and (iii) for general
corporate purposes and working capital needs of the Company. Approximately $45.2
million of the net proceeds of the Offering was retained in the Escrow Account
and invested in Government Securities and will be used to fund, together with
interest received from the investment thereon, the first four scheduled interest
payments on the outstanding Notes.

The Credit Facility currently provides for a $35.0 million
term loan facility and a $115.0 million revolving credit facility, with a $40.0
million sublimit for letters of credit. Interest on both the term loan and the
revolving credit facility is, at the Company's option, at either the lenders'
base rate plus an applicable margin or LIBOR plus an applicable margin. On a pro
forma basis, as of June 30, 1998, indebtedness incurred under the Credit
Facility was comprised of $35.0 million borrowed under the term loan facility.
Such borrowing was used, together with funds from the Company's equity
financings, to acquire the exclusive rights to provide DIRECTV Programming in
the Company's Rural DIRECTV Markets, to cover operating losses and for general
corporate purposes. See "Description of Other Indebtedness -- Credit Facility."

27
29
THE EXCHANGE OFFER

TERMS OF THE EXCHANGE OFFER

The holders of the Old Notes currently are entitled to certain
registration rights under the Registration Rights Agreement. Pursuant thereto,
the Company became obligated to file with the Commission a registration
statement covering the offer by the Company to the holders of the Old Notes to
exchange all of the Old Notes for the New Notes. The Exchange Offer being made
hereby, if consummated, will satisfy the Company's obligations under the
Registration Rights Agreement.

Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal, the Company will
accept all Old Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the Exchange Offer. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer.

Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, the Company believes that
the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by the holders
thereof (other than any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business, and such holders have no arrangement with any person to participate in
the distribution of such New Notes. See Morgan Stanley & Co., Inc., SEC
No-Action Letter (available June 5, 1991), Exxon Capital Holdings Corporation,
SEC No-Action Letter (available May 13, 1988), and Shearman & Sterling, SEC
No-Action Letter (available July 2, 1993).

If any person were to be participating in the Exchange Offer
for the purposes of distributing securities in a manner not permitted by the
Commission's interpretation, such person (i) could not rely on the position of
the staff of the Commission enunciated in Exxon Capital Holdings Corporation or
similar interpretive letters and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.

Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. See "Plan of Distribution."

As of the date of this Prospectus, there was $195,000,000
aggregate principal amount of the Old Notes outstanding. This Prospectus,
together with the Letter of Transmittal, is being sent to all such registered
holders as of the date of this Prospectus.

The Company shall be deemed to have accepted validly tendered
Old Notes when, as and if the Company has given written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purposes of receiving the New Notes from the Company and
delivering New Notes to such holders.

If any tendered Old Notes are not accepted for exchange
because of an invalid tender, certificates for any such unaccepted Old Notes
will be returned, without expense, to the tendering holder thereof as promptly
as practicable after the Expiration Date.

28
30
If Old Notes are not tendered, they shall remain outstanding
and shall continue to accrue interest from their date of issue, July 31, 1998,
at a rate of 12 3/8% per annum.

In the event the Exchange Offer is consummated, the Company
will not be required to register the Old Notes. In such event, holders of Old
Notes seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. See "Risk Factors --Consequences of the Exchange Offer to Non-Tendering
Holders of the Old Notes."

The term "Expiration Date" shall mean the expiration date set
forth on the cover page of this Prospectus, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended.

In order to extend the Expiration Date, the Company will
notify the Exchange Agent of any extension by written notice and will mail to
the record holders of Old Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.

In addition, the Company will issue notice of each such
extension by press release or other public announcement as contemplated by the
provisions of Rule 14e-1 promulgated under the Exchange Act.

INTEREST ON THE NEW NOTES

The New Notes will bear interest from July 31, 1998, payable
semiannually on February 1 and August 1 of each year, commencing February 1,
1999, at a rate of 12 3/8% per annum.

PROCEDURES FOR TENDERING

The tender to the Company of Old Notes by a holder thereof
pursuant to one of the procedures set forth below will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.

A holder of Old Notes may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Notes being tendered and any
required signature guarantees, to the Exchange Agent at its address set forth on
the back cover of this Prospectus on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.

If tendered Old Notes are registered in the name of the signer
of the Letter of Transmittal and the New Notes to be issued in exchange therefor
are to be issued (and any untendered Old Notes are to be reissued) in the name
of the registered holder (which term, for the purposes described herein, shall
include any participant in The Depository Trust Company (also referred to as a
book-entry transfer facility) whose name appears on a security listing as the
owner of Old Notes), the signature of such signer need not be guaranteed. In any
other case, the tendered Old Notes must be endorsed or accompanied by written
instruments of transfer in form satisfactory to the Company and duly executed by
the registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a commercial bank or trust company located or
having an office or correspondent in the United States, or by a member firm of a
national securities exchange or of the National Association of Securities
Dealers, Inc., which firm must also be a member of or participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program (any of the
foregoing being hereinafter referred to as an "Eligible Institution"). If the
New Notes and/or Old Notes not exchanged are to be delivered to an address other
than that of the registered holder appearing on the note register for the Notes,
the signature in the Letter of Transmittal must be guaranteed by an Eligible
Institution.

29
31
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER DOCUMENTS IS
AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSTANCE BE OBTAINED,
AND THE MAILING BE MADE SUFFICIENTLY FAR IN ADVANCE OF THE EXPIRATION DATE TO
PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION DATE.

The Exchange Agent will make a request promptly after the date
of this Prospectus to establish accounts with respect to the Old Notes at the
book-entry transfer facility for the purpose of facilitating the Exchange Offer,
and subject to the establishment thereof, any financial institution, that is a
participant in the book-entry transfer facility's system may make book-entry
delivery of Old Notes by causing such book-entry transfer facility to transfer
such Old Notes into the Exchange Agent's account with respect to the Old Notes
in accordance with the book-entry transfer facility's procedures for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's accounts at the book-entry transfer facility,
an appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth on the back cover page
of this Prospectus on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.

If a holder desires to accept the Exchange Offer, and time
will not permit a Letter of Transmittal or Old Notes to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its office listed on the back cover hereof on or prior to the
Expiration Date a letter, telegram or facsimile transmission from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Old Notes are registered and, if possible, the certificate
numbers of the Old Notes to be tendered, and stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange trading
days after the date of execution of such letter, telegram or facsimile
transmission by the Eligible Institution, the Old Notes, in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into the
Exchange Agent's account at the book-entry transfer facility), will be delivered
by such Eligible Institution together with a properly completed and duly
executed Letter of Transmittal (and any other required documents). Unless Old
Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.

A tender will be deemed to have been received as of the date
when (i) the tendering holder's properly completed and duly signed Letter of
Transmittal accompanied by the Old Notes (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of New Notes in exchange for Old Notes tendered
pursuant to a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided above) by an Eligible Institution
will be made only against deposit of the Letter of Transmittal (and any other
required documents) and the tendered Old Notes.

All questions as to the validity, form, eligibility (including
time of receipt) and acceptance for exchange of any tender of Old Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form or the acceptance for exchange of which may, in the opinion of the
Company's counsel, be unlawful. The Company also reserves the absolute right to
waive any of the conditions of the Exchange Offer or any defect or irregularity
in the tender of any Old Notes. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or incur any liability for failure to give such
notification.

By tendering, each holder will represent to the Company that,
among other things, (i) the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of such holder's business, (ii) such
holder

30
32
has no arrangement with any person to participate in the distribution of such
New Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company, and (iv) if such holder is a broker or a
dealer (as defined in the Exchange Act), that it acquired the Old Notes for its
own account as a result of market-making activities on other trading activities
and that it has not entered into any arrangement or understanding with the
Company or any "affiliate" of the Company to distribute the New Notes received
in the Exchange Offer.

WITHDRAWAL OF TENDERS

Except as otherwise provided herein, tenders of Old Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.

To withdraw a tender of Old Notes in the Exchange Offer, a
written transmission notice of withdrawal via telegram, telex, facsimile
transmission or letter must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee with respect to the Old
Notes register the transfer of such Old Notes into the name of the depositor
withdrawing the tender, and (iv) specify the name in which any such Old Notes
are to be registered, if different from that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer, and no New
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes that have been tendered but that are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.

CONDITIONS

The Exchange Offer is not subject to any conditions other than
that the Exchange Offer does not violate applicable law or any applicable
interpretation of the staff of the Commission.

EXCHANGE AGENT

State Street Bank and Trust Company of Missouri, N.A. has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
assistance and requests for additional copies of this Prospectus or of the
Letter of Transmittal and deliveries of completed Letters of Transmittal with
tendered Old Notes should be directed to the Exchange Agent addressed as
follows:

By Hand/Overnight Express: By Mail:

State Street Bank and Trust State Street Bank and Trust
Company of Missouri, N.A. Company of Missouri, N.A.

FEES AND EXPENSES

The expenses of soliciting tenders pursuant to the Exchange
Offer will be borne by the Company. The principal solicitation for tenders
pursuant to the Exchange Offer is being made by mail. Additional solicitations
may be made by officers and regular employees of the Company and their
affiliates in person, by telegraph or telephone.

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33
The Company will not make any payments to brokers, dealers, or
other persons soliciting acceptances of the Exchange Offer. The Company will,
however, pay the Exchange Agent reasonable and customary fees for its services
and will reimburse the Exchange Agent for its reasonable out-of-pocket expenses
in connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, Letters of Transmittal
and related documents to the beneficial owners of the Old Notes, and in handling
or forwarding tenders for exchange.

The expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, but not including transfer taxes, if any, relating to
the sale or disposition of the Old Notes by a holder of the Old Notes, will be
paid by the Company, and are estimated in the aggregate to be $__________ .

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34
CAPITALIZATION

The following table sets forth the cash and the total
capitalization of the Company as of June 30, 1998 (i) on an historical basis,
and (ii) on a Pro Forma basis to give effect to the Included Acquisitions and
the Offering. See "Summary of the Prospectus -- Pending Acquisitions and Recent
Events." The information set forth below should be read in conjunction with the
Company's Consolidated Financial Statements and notes related thereto, the
financial statements related to certain of the acquisitions and the Pro Forma
Financial Information included elsewhere in this Prospectus. See "Description of
Other Indebtedness -- Seller Notes," "Description of Other Indebtedness --
Credit Facility," "Use of Proceeds" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."

AS OF JUNE 30, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)

Cash and cash equivalents ........................ $ 856 $ 1,433
========= =========
Restricted cash(1) ............................... $ -- $ 50,445
========= =========
Long-term debt (including current maturities):
Credit Facility ................................ $ 114,000 $ 35,000
Seller Notes ................................... 16,407 16,407
Other .......................................... 886 886
Notes .......................................... -- 195,000
--------- ---------
Total long-term debt ................... 131,293 247,293
--------- ---------
Stockholder's equity:
Common Stock, $.01 par value, 1,000 shares
authorized, issued and outstanding .......... -- --
--------- ---------
Additional paid-in capital ..................... 87,400 97,400
Accumulated deficit ............................ (39,576) (39,576)
--------- ---------
Total stockholder's equity ............. 47,824 57,824
--------- ---------
Total capitalization .............. $ 179,117 $ 305,117
========= =========

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

(1) Represents the amount of the Escrow Account to fund, together with the
interest received thereon, the first four scheduled interest payments
on the Notes, and $5.3 million deposited with the managing agent of the
Credit Facility to fund the optional prepayment of borrowings under the
term loan facility.

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35
PRO FORMA FINANCIAL STATEMENTS

GENERAL

The following Pro Forma financial statements reflect (i) the
Company's Completed Acquisitions; (ii) the Pending Pro Forma Acquisitions, for
which the Company has entered into binding letters of intent or contracts; (iii)
borrowings under the Credit Facility; and (iv) the Offering. The Pro Forma
information is presented as if each of these events had occurred at the
beginning of the period presented with respect to the Statement of Operations
data and as if they had occurred on June 30, 1998 with respect to the Balance
Sheet data.

Historical information for the Company for the year ended
December 31, 1997 was derived from audited Consolidated Financial Statements of
the Company included elsewhere in this Prospectus. Historical information for
the Company as of June 30, 1998 and for the six months then ended has been
derived from the unaudited condensed consolidated financial statements of the
Company presented elsewhere in this Prospectus, which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such data. The financial information for
the Included Acquisitions has been derived from the respective historical
financial statements of the acquired entities. The Pro Forma financial
statements in this Prospectus do not reflect one immaterial pending acquisition
with a purchase price less than $500,000, but do reflect unaudited financial
information with respect to the other businesses to be acquired. See "Summary of
the Prospectus -- Pending Acquisitions and Recent Events."

The Pro Forma financial statements and notes thereto are
provided for informational purposes only and do not purport to be indicative of
actual or future results had the Included Acquisitions, the borrowings under the
Credit Facility and the Offering been completed on the dates indicated.

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36
STATEMENTS OF OPERATIONS:

Year ended December 31, 1997
-----------------------------
Included The Pro
Historical Acquisitions(1) Offering(2) Forma
---------- --------------- ----------- --------
(IN THOUSANDS)

Revenue
Programming ............................ $ 16,452 $ 33,698 $ -- $ 50,150
Equipment sales and installation ....... 3,824 4,310 -- 8,134
Equipment lease ........................ 944 648 -- 1,592
-------- -------- -------- --------
Total revenue ....................... 21,220 38,656 -- 59,876
Cost of Revenue
Programming ............................ 9,304 20,679 -- 29,983
Equipment, installation and other ...... 4,265 5,338 -- 9,603
-------- -------- -------- --------
Total cost of revenue ............... 13,569 26,017 -- 39,586
-------- -------- -------- --------
Gross profit ................... 7,651 12,639 -- 20,290
-------- -------- -------- --------
Expenses
Systems operations ..................... 3,796 8,574 -- 12,370
Sales and marketing .................... 6,875 3,552 -- 10,427
Corporate .............................. 1,917 -- -- 1,917
Depreciation and amortization .......... 7,515 19,869 856 28,240
Interest expense, net .................. 2,918 15,534 (20,638) 26,754
28,940
Other .................................. 414 479 -- 893
-------- -------- -------- --------
Total expenses ...................... 23,435 48,008 9,158 80,601
-------- -------- -------- --------
Net loss ................................. $(15,784) $(35,369) $ (9,158) $(60,311)
======== ======== ======== ========

Six months ended June 30, 1998
------------------------------
Included The Pro
Historical Acquisitions(3) Offering(2) Forma
---------- --------------- ----------- --------
(IN THOUSANDS)

Revenue
Programming ............................ $ 30,466 $ 8,924 $ -- $ 39,390
Equipment sales and installation ....... 5,560 480 -- 6,040
Equipment lease ........................ 512 96 -- 608
-------- -------- -------- --------
Total revenue ....................... 36,538 9,500 -- 46,038
Cost of revenue
Programming ............................ 17,926 5,795 -- 23,721
Equipment, installation and other ...... 5,886 635 -- 6,521
-------- -------- -------- --------
Total cost of revenue ............... 23,812 6,430 -- 30,242
-------- -------- -------- --------
Gross profit ................... 12,726 3,070 -- 15,796
-------- -------- -------- --------
Expenses
Systems operations ..................... 4,177 1,367 -- 5,544
Sales and marketing .................... 10,961 155 -- 11,116
Corporate .............................. 1,769 -- -- 1,769
Depreciation and amortization .......... 10,019 4,562 428 15,009
Write-off of deferred financing cost ... 2,577 -- -- 2,577
Interest expense, net .................. 4,942 4,335 (10,525) 13,282
14,530
Other .................................. 906 27 -- 933
-------- -------- -------- --------
Total expenses ...................... 35,351 10,446 4,433 50,230
-------- -------- -------- --------
Net loss ................................. $(22,625) $ (7,376) $ (4,433) $(34,434)
======== ======== ======== ========

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BALANCE SHEET:

As of June 30, 1998
-----------------------------
Included The Pro
Historical Acquisitions(4) Offering(5) Forma
---------- --------------- ----------- -----------
(IN THOUSANDS)

Current assets
Cash and cash equivalents ............. $ 856 $ -- $ 577 $ 1,433
Subscriber and other receivables ....... 8,752 663 -- 9,415
Inventory .............................. 2,888 33 -- 2,921
Prepaid expenses ....................... 783 -- -- 783
--------- --------- --------- ---------
Total current assets ........... 13,279 696 577 14,552
Restricted cash .......................... -- -- 50,445 50,445
Property, plant and equipment ............ 3,991 -- -- 3,991
Goodwill and other intangible assets,
net .................................... 175,502 67,766 -- 243,268
Deferred financing costs ................. 3,757 -- 6,850 10,607
Other assets ............................. 199 -- -- 199
--------- --------- --------- ---------
Total assets ................... $ 196,728 $ 68,462 $ 57,872 $ 323,062
========= ========= ========= =========
Current liabilities
Current maturities of long-term
debt and notes payable .............. $ 9,750 $ -- $ -- $ 9,750
Accounts payable ....................... 9,127 -- -- 9,127
Unearned revenue ....................... 3,794 634 -- 4,428
Current maturities of obligations
under capital leases ................ 289 -- -- 289
Other .................................. 1,932 -- (300) 1,632
--------- --------- --------- ---------
Total current liabilities ...... 24,892 634 (300) 25,226
--------- --------- --------- ---------
Long-term debt and notes payable,
less current maturities ................ 120,701 57,828 (136,828) 236,701
195,000
Obligations under capital leases,
less current maturities ................ 553 -- -- 553
Other long-term liabilities .............. 2,758 -- -- 2,758
--------- --------- --------- ---------
Total liabilities .............. 148,904 58,462 57,872 265,238
Stockholder's equity ..................... 47,824 10,000 -- 57,824
--------- --------- --------- ---------
Total liabilities and
stockholder's equity ......... $ 196,728 $ 68,462 $ 57,872 $ 323,062
========= ========= ========= =========

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38
NOTES TO PRO FORMA FINANCIAL STATEMENTS

(1) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions and Pending
Acquisitions for the year ended December 31, 1997:

Acquisitions Completed in 1997
----------------------------------------------
JANUARY 1,
1997 THROUGH
ACQUISITION PRO FORMA PRO 1998
DATES ADJUSTMENTS FORMA ACQUISITIONS
------------- ----------- --------- ------------
(In thousands)

Revenue
Programming ..................... $15,680 $ -- $ 15,680 $ 10,176
Equipment sales
and installation ............. 2,801 -- 2,801 1,087
Equipment lease ................. 347 -- 347 188
Other ........................... 1,113 (1,113)(a) -- 256
------- -------- -------- --------
Total revenue ................. 19,941 (1,113) 18,828 11,707
Cost of revenue
Programming ..................... 9,677 -- 9,677 6,056
Equipment,
installation and
other ......................... 3,216 -- 3,216 1,618
Other ........................... 450 (450)(a) -- 134
------- -------- -------- --------
Total cost of revenue ..... 13,343 (450) 12,893 7,808
------- -------- -------- --------
Gross profit .................. 6,598 (663) 5,935 3,899
------- -------- -------- --------
Expenses
Systems operations .............. 5,469 -- 5,469 1,839
Sales and marketing ............. 1,918 -- 1,918 1,058
Depreciation and
amortization ................. 1,329 (1,329)(b) 7,314 593
7,314 (c)
Interest expense, net ........... 101 (101)(d) 9,751 100
9,751 (e)
Other ........................... 258 -- 258 131
------- -------- -------- --------
Total expenses ................ 9,075 15,635 24,710 3,721
------- -------- -------- --------
Net loss before
income taxes and
other ....................... (2,477) (16,298) (18,775) 178
------- -------- -------- --------
Gain on sale of
wireless TV rights .............. -- -- -- --
Net profit on asset
disposal ........................ 4,971 (4,971)(a) -- --
------- -------- -------- --------
Net income (loss)
before income
taxes ....................... 2,494 (21,269) (18,775) 178
Income taxes ...................... 159 (159)(f) -- 36
------- -------- -------- --------
Net income (loss) ............. $ 2,653 $(21,428) $(18,775) $ 214
======= ======== ======== ========

Acquisitions Completed in 1998 and
Pending Acquisitions
----------------------------------

PENDING PRO FORMA PRO INCLUDED
ACQUISITIONS ADJUSTMENTS FORMA ACQUISITIONS
------------ ----------- --------- ------------

Revenue
Programming ..................... $ 7842 $ -- $ 18,018 $ 33,698
Equipment sales
and installation ............. 422 -- 1,509 4,310
Equipment lease ................. 113 -- 301 648
Other ........................... -- (256)(a) -- --
-------- -------- -------- ---------
Total revenue ................. 8,377 (256) 19,828 38,656
Cost of revenue
Programming ..................... 4,946 -- 11,002 20,679
Equipment,
installation and
other ......................... 504 -- 2,122 5,338
Other ........................... 0 (134)(a) -- --
-------- -------- -------- ---------
Total cost of revenue ..... 5,450 (134) 13,124 26,017
-------- -------- -------- ---------
Gross profit .................. 2,927 (122) 6,704 12,639
-------- -------- -------- ---------
Expenses
Systems operations .............. 1,266 -- 3,105 8,574
Sales and marketing ............. 576 -- 1,634 3,552
Depreciation and
amortization ................. 378 (971)(b) 12,555 19,869
12,555 (c)
Interest expense, net ........... (230) 130 (d) 5,783 15,534
5,783 (e)
Other ........................... 90 -- 221 479
-------- -------- -------- ---------
Total expenses ................ 2,080 17,497 23,298 48,008
-------- -------- -------- ---------
Net loss before
income taxes and
other ....................... 847 (17,619) (16,594) (35,369)
-------- -------- -------- ---------
Gain on sale of
wireless TV rights .............. 4,655 (4,655)(a) -- --
Net profit on asset
disposal ........................ 173 (173)(a) -- --
-------- -------- -------- ---------
Net income (loss)
before income
taxes ....................... 5,675 (22,447) (16,594) (35,369)
Income taxes ...................... (88) 52 -- --
-------- -------- -------- ---------
Net income (loss) ............. $ 5,587 $(22,395) $ (16,594) $(35,369)
======== ======== ======== =========

(a) To give effect to the elimination of other revenue and expense
related to operations not acquired.

(b) To give effect to the elimination of historical amortization
of intangible assets.

(d) To give effect to the elimination of interest income and
expense related to operations not acquired.

(e) To give effect to interest expense on borrowings under the
Credit Facility assumed to be issued in connection with the
Acquisitions.

(f) To give effect to the elimination of historical income tax
expense (benefit).

(2) To give effect to (i) additional interest expense, (ii) interest income
of $2,146,000 for the year ended December 31, 1997 and $1,219,000 for
the six months ended June 30, 1998 earned on the Escrow Account, which
is invested in Government Securities at an assumed interest rate of
5.36%, and (iii) amortization of deferred financing costs associated
with the Offering.

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(3) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions and Pending
Acquisitions for the six months ended June 30, 1998:

Acquisitions Completed Acquisitions Completed
January 1, 1998 through June 30, 1998 After June 30, 1998 and Pending Acquisitions
------------------------------------- ----------------------------------------------------
January 1,
1998 Through January 1,
Acquisition Pro forma Pro 1998 through Pending Pro forma Pro Included
Dates Adjustments forma June 30, 1998 Acquisitions Adjustments forma Acquisitions
------------ ----------- -------- ------------- ------------ ----------- -------- ------------
(IN THOUSANDS)

Revenue
Programming ......... $ 2,597 $ -- $ 2,597 $ 1,254 $ 5,073 $ -- $ 6,327 $ 8,924
Equipment sales
and installation ... 131 -- 131 117 232 -- 349 480
Equipment lease ...... 53 -- 53 5 38 -- 43 96
Other ................ 2 (2)(a) -- -- 0 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue .... 2,783 (2) 2,781 1,376 5,343 -- 6,719 9,500
Cost of revenue
Programming ......... 1,722 -- 1,722 837 3,236 -- 4,073 5,795
Equipment,
installation and
other ............ 326 -- 326 101 208 -- 309 635
Other ............... -- -- -- 0 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total cost
of revenue ..... 2,048 -- 2,048 938 3,444 -- 4,382 6,430
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ..... 735 (2) 733 438 1,899 -- 2,337 3,070
-------- -------- -------- -------- -------- -------- -------- --------
Expenses
Systems operations .. 557 -- 557 144 666 -- 810 1,367
Sales and
marketing .......... 39 -- 39 17 99 -- 116 155
Depreciation and
amortization ....... 99 (99)(b) 1,049 79 195 (274)(b) 3,513 4,562
1,049 (c) 3,513 (c)
Interest expense,
net ................ 22 (22) 1,444 25 (131) 106 (d) 2,891 4,335
1,444 (e) 2,891
Other ................ (7) -- (7) 20 14 -- 34 27
-------- -------- -------- -------- -------- -------- -------- --------
Total expenses ..... 710 2,372 3,082 285 843 6,236 7,364 10,446
-------- -------- -------- -------- -------- -------- -------- --------
Net loss before
income taxes
and other ......... 25 (2,374) (2,349) 153 1,056 (6,236) (5,027) (7,376)
-------- -------- -------- -------- -------- -------- -------- --------
Gain on sale of
wireless TV rights .... 1,956 (1,956) -- -- -- -- -- --
Net profit on asset
disposal .......... 8,421 (8,421) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss) before
income taxes ..... 10,402 (12,751) (2,349) 153 1,056 (6,236) (5,027) (7,376)
-------- -------- -------- -------- -------- -------- -------- --------
Income taxes ......... (3,000) 3,000 (f) -- (24) (45) 69 (f) -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income
(loss) .......... $ 7,402 $ (9,751) $ (2,349) $ 129 $ 1,011 $ (6,167) $ (5,027) $ (7,376)
======== ======== ======== ======== ======== ======== ======== ========

(a) To give effect to the elimination of other revenue and expense
related to operations not acquired.

(b) To give effect to the elimination of historical amortization
of intangible assets.

(d) To give effect to the elimination of interest income and
expense related to operations not acquired.

(e) To give effect to interest expense on borrowings under the
Credit Facility assumed to be issued in connection with the
Acquisitions.

(f) To give effect to the elimination of historical income tax
expense.

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40
(4) The following represents the unaudited balance sheet and pro forma
adjustments as of June 30, 1998, for the 1998 acquisitions completed
subsequent to June 30, 1998 and Pending Acquisitions:

As of June 30, 1998
----------------------------------------------
Completed Pending Pro forma Included
Acquisitions Acquisitions Adjustments Acquisitions
------------ ------------ -------------- ------------
(IN THOUSANDS)

Current Assets
Cash and cash equivalents ...................... $ 270 $ 478 $ (748) (a) $ --
Subscriber and other receivables ............... 242 575 (154) (a) 663
Inventory ...................................... 49 188 (204) (a) 33
Prepaid expenses ............................... 25 2 (27) (a) --
-------- -------- -------- --------
Total current assets .................... 586 1,243 (1,133) 696
Property, plant and equipment .................... 34 383 (417) (a) --
Goodwill and other intangible assets, net ........ 699 1,667 (2,366) (b) 67,766
67,766 (c)
Other assets ..................................... 151 250 (401) (a) --
-------- -------- -------- --------
Total assets ............................ $ 1,470 $ 3,543 $ 63,449 $ 68,462
======== ======== ======== ========
Current liabilities
Current maturities of long-term debt
and notes payable ........................... 169 -- (169) (e) --
Accounts payable ............................... 124 734 (858) (d) --
Unearned revenue ............................... 76 480 78 (d) 634
Other .......................................... 75 260 (335) (d) --
-------- -------- -------- --------
Total current liabilities ............... 444 1,474 (1,284) 634
-------- -------- -------- --------
Long-term debt and notes payable, less
current maturities ............................. 651 1,491 (2,142) (d) 57,828
57,828 (e)
-------- -------- -------- --------
Total liabilities ....................... 1,095 2,965 54,402 58,462
Stockholder's equity (deficit) ................... 375 578 (953) (d) 10,000
10,000 (f)
Total liabilities and stockholder's
equity (deficit) ...................... $ 1,470 $ 3,543 $ 63,449 $ 68,462
======== ======== ======== ========

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

(a) To give effect to assets not purchased.

(b) To give effect to the elimination of historical intangible
assets.

(d) To give effect to the elimination of liabilities not assumed
and historical equity.

(e) To give effect to new debt issued in connection with the
Acquisitions.

(f) To give effect to the contribution of acquired net assets of a
pending acquisition from the Company's parent.

(5) To give effect to proceeds from the Offering. The proceeds of the
Offering to the Company were $144.0 million ($195.0 million gross
proceeds less $45.2 million to fund the Interest Reserve Amount in the
Escrow Account and $5.8 million in closing costs). The balance of the
net proceeds were used to repay $83.3 million of borrowings and accrued
interest under the Credit Facility, and the remaining $60.7 million
will be used for future acquisitions and general corporate purposes and
working capital needs. See "Use of Proceeds."

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial data for the
periods ended December 31, 1996 and 1997 and for the six-month periods ended
June 30, 1997 and 1998 were derived from the consolidated financial statements
of the Company included elsewhere in this Prospectus, which, in the case of the
financial statements for the periods ended December 31, 1996 and 1997, are
audited. The selected consolidated financial statements data for the six-month
periods ended June 30, 1997 and 1998 have been derived from unaudited
consolidated statements of the Company, which, in the opinion of management,
include all adjustments necessary for a fair presentation of such data. The
following information should be read in conjunction with and "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the Company's Consolidated Financial Statements and notes thereto included
elsewhere in this Prospectus.

INCEPTION TO YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1997 1998
------------ ----------- -------- --------
(IN THOUSANDS)

STATEMENT OF OPERATIONS DATA:
Revenue
Programming ......................... $ 219 $ 16,452 $ 3,289 $ 30,466
Equipment sales and installation ....... 57 3,824 517 5,560
Equipment lease ........................ 36 944 214 512
-------- -------- -------- --------
Total revenue ................ 312 21,220 4,020 36,538
Cost of Revenue
Programming ......................... 130 9,304 1,830 17,926
Equipment and installation .......... 60 4,265 551 5,886
-------- -------- -------- --------
Total cost of revenue ........ 190 13,569 2,381 23,812
-------- -------- -------- --------
Gross profit ................. 122 7,651 1,639 12,726
Expenses
System operations ................... 26 3,796 502 4,177
Sales and marketing ................. 70 6,875 980 10,961
Corporate ........................... 1,028 1,917 854 1,769
Depreciation and amortization ....... 97 7,515 1,929 10,019
Net interest expense ................ 61 2,918 126 4,942
Other ............................... 7 414 106 3,483
-------- -------- -------- --------
Total expenses ............... 1,289 23,435 4,497 35,351
-------- -------- -------- --------
Net loss ............................... $ (1,167) $(15,784) $ (2,858) $(22,625)
======== ======== ======== ========

December 31,
--------------------------
1996 1997 June 30, 1998
--------- --------- -------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Cash and cash equivalents .... $ 479 $ 13,632 $ 856
Restricted cash .............. -- -- --
Working capital (deficit) .... (1,948) 3,827 (11,613)
Total assets ................. 6,383 156,236 196,728
Total debt ................... 4,450 69,113 131,293
Stockholder's equity ......... (1,166) 70,449 47,824

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

The following is a discussion of the historical consolidated
results of operations, liquidity and capital resources of the Company. This
discussion should be read in conjunction with the consolidated financial
statements of the Company and the notes related thereto appearing elsewhere in
this Prospectus.

OVERVIEW

The Company was formed in June 1996 to acquire rights to
distribute DIRECTV Programming in Rural DIRECTV Markets. The Company is an
affiliated associate member of the NRTC. The Company acquired its first DIRECTV
market territory in November 1996. Since Inception, the Company has acquired 38
territories with rights to provide DIRECTV Programming to approximately 1.5
million households. The aggregate purchase price for the Completed Acquisitions
totaled approximately $195.2 million, or approximately $133 per household.
Following each Completed Acquisition, the Company has created a strong local
presence in such Rural DIRECTV Market. The Company has established, or is in the
process of establishing, 59 offices in its territories and has established
dealer relationships with over 350 local retailers of DSS Equipment.

The Company has contracts or binding letters of intent
relating to the five Pending Pro Forma Acquisitions for an aggregate purchase
price of approximately $54.2 million. See "Summary of the Prospectus -- Pending
Acquisitions and Recent Events." The Rural DIRECTV Markets being purchased
include, in the aggregate, approximately 265,000 households and 22,000 current
subscribers.

In addition to growth by acquisitions, the Company has
increased its subscriber base through increased penetration of its Rural DIRECTV
Markets. Management believes that there is a substantial opportunity to increase
penetration through local marketing. Most of the NRTC members from which the
Company acquires Rural DIRECTV Markets generally have not engaged in significant
marketing efforts, but rather have relied primarily on the consumer to take the
initiative to acquire service.

The following table summarizes growth in subscribers following
acquisition for all Rural DIRECTV Markets acquired prior to June 30, 1998:

At Acquisition AT AUGUST 31, 1998 SUBSCRIBER
------------------------------------------ ---------------------------
Households Subscribers Penetration Subscribers Penetration Growth

Fourth Quarter 1996 21,800 2,975 13.6% 6,797 31.2% 128.5%
First Quarter 1997 184,400 13,270 7.2% 24,831 13.5% 87.1%
Second Quarter 1997 94,000 3,098 3.3% 7,201 7.7% 132.4%
Third Quarter 1997 405,000 22,914 5.7% 50,452 12.5% 120.2%
Fourth Quarter 1997 429,500 25,118 5.8% 39,303 9.2% 56.5%
First Quarter 1998 92,000 16,218 17.6% 18,884 20.5% 16.4%
Second Quarter 1998 168,000 10,675 6.4% 12,220 7.3% 14.5%

Since Inception, the Company has generated net losses as well
as negative EBITDA and operating cash flows, primarily due to (i) expenditures
in creating its sales and administrative infrastructure and other start-up
costs, (ii) marketing costs incurred in adding new subscribers, and (iii) debt
service costs from financing its rapid acquisition activity. The Company intends
to continue its focus on acquisitions and adding subscribers in its existing
territories, which will negatively impact short-term operating results. In
addition, the Company has continued to incur increasing monthly net losses with
a corresponding decline in stockholder's equity.

In particular, the Company has incurred significant sales and
marketing expense in its effort to rapidly build its subscriber base. Most of
this expense, including advertising and promotional expenses, sales force and
dealer commissions and equipment subsidies, are incurred at or before the time a
new subscriber is added to the system. As a result, revenue attributable to new
subscribers lags the expense incurred in acquiring them. The impact of this lag
generally increases with the rate at which the Company adds subscribers. Sales
and marketing expense has been a

41
43
significant contributor to the Company's net losses and negative EBITDA
experienced to date and may continue to negatively affect operating results in
the future as the Company continues to add new subscribers. However, as long as
a subscriber remains in service, future operating results benefit from a
recurring monthly revenue stream with minimal additional sales and marketing
expense. Because the Company's churn rate has historically averaged
approximately 8% annually, the Company believes that its investment in building
its subscriber base rapidly will enhance EBITDA and operating results in the
longer term.

The Company anticipates that its operating margins in the
future may be adversely affected by continued pressure on the retail prices of
DSS Equipment, which have historically declined and may not be accompanied by
reductions in wholesale cost, and by the potential need to increase marketing
efforts to continue to increase penetration of its markets. In addition, the
Company believes that competition from other consolidators of Rural DIRECTV
Markets may result in increased acquisition costs per subscriber in the future.
All of these trends may negatively affect the Company's results of operations
and financial condition.

As a result of the Company's historical and anticipated
significant growth rate, the historical operating results of the Company may not
be comparable from period to period.

RESULTS OF OPERATIONS

The following table presents certain items from the Company's
consolidated statements of operations as a percentage of revenue for the periods
noted.

Inception to Year ended Six months Ended
December 31, December 31, June 30,
1996 1997 1997 1998
------------ ------------ ----- -----

Revenue
Programming .......................... 70.2% 77.5% 81.8% 83.4%
Equipment sales and installation ..... 18.3 18.0 12.9 15.2
Equipment lease ...................... 11.5 4.5 5.3 1.4
----- ----- ----- -----
Total revenue ................. 100.0% 100.0% 100.0% 100.0%
Cost of revenue
Programming .......................... 41.7% 43.8% 45.5% 49.1%
Equipment and installation ........... 19.2 20.1 13.7 16.1
----- ----- ----- -----
Total cost of revenue ......... 60.9 63.9 59.2 65.2
----- ----- ----- -----
Gross profit .................. 39.1 36.1 40.8 34.8
Expenses
System operations .................... 8.3 17.9 12.5 11.4
Sales and marketing .................. 22.4 32.4 24.4 30.0
Corporate ............................ 329.5 9.0 21.2 4.8
Depreciation and amortization ........ 31.1 35.4 48.0 27.4
Net interest expense ................. 19.6 13.8 3.1 13.5
Other ................................ 2.2 2.0 2.7 9.6
----- ----- ----- -----
Total expenses ................ 413.1 110.5 111.9 96.7
----- ----- ----- -----
Net loss ............................... (374.0)% (74.4)% (71.1)% (61.9)%
===== ===== ----- -----

Revenue. The Company earns revenue by providing DIRECTV
Programming to subscribers within the territories in which it has acquired
distribution rights. Revenue earned from subscribers includes programming
revenue, equipment sales, installation revenue, and equipment lease revenue.
Programming revenue includes any combination of various monthly program service
plans, additional monthly premium channel program upgrades, seasonal sports
programming packages, one-time event programming on a pay-per-view basis, and
miscellaneous fee revenue related to providing programming to subscribers.
Equipment sales and installation revenue includes revenue from the sale, lease,
and installation of DSS Equipment necessary for subscribers to receive DIRECTV
Programming. Equipment lease revenue is comprised of revenue from the rental of
DSS Equipment to subscribers.

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44
Costs of Revenue. The Company's largest cost of providing
service to its subscribers is the wholesale cost of the DIRECTV Programming and
related programming services. The principal components of programming costs
include miscellaneous service fees and programming costs paid to the NRTC and a
5% royalty based on programming revenue paid to DIRECTV. Costs of revenue also
include the cost, up to an amount not exceeding the sales price to the
subscriber, of the DSS Equipment sold to subscribers and the salaries and other
costs incurred for the installation of DSS Equipment by Company employees or
outside contractors. The Company often subsidizes the cost of DSS Equipment to
subscribers by providing such equipment at a sales price below the Company's
cost. The Company records the cost of DSS Equipment up to the amount of the
subscribers' sales price in cost of revenues. Any excess of cost over sales
price is recorded in sales and marketing expense.

System Operations Expense. System operations expenses include
costs of the Company's central call center operations, field office operations
and other subscriber service expenses. The Company expects that these expenses
will increase as the Company continues to make acquisitions and open additional
field offices. However, many of these costs are fixed in nature, and the Company
does not expect that they will increase in direct proportion to revenue.

Sales and Marketing Expense. Sales and marketing expense
includes such costs as advertising, promotional expenses, marketing personnel
expenses, commission expenses to Company employees and outside sales agents, the
cost to the Company of DSS Equipment subsidies, and other marketing overhead
costs. The Company invests significantly to develop its sales and distribution
systems and to acquire new subscribers. A large part of sales and marketing
expense is comprised of costs related to the addition of new subscribers.
Although the Company anticipates continuing to incur such costs as it builds its
subscriber base, these costs are not expected to increase in direct proportion
to revenue.

Corporate Expense. Corporate expenses include corporate
general office and administration expenses incurred primarily at the Company's
Kansas City corporate office. The Company expects that these expenses will
increase as the Company grows and continues to expand infrastructure. However,
since many of these expenses are fixed in nature, general and administrative
expenses are not expected to increase in direct proportion to increases in
subscribers and revenue.

Depreciation and Amortization. Depreciation and amortization
includes amortization of goodwill and other intangible assets associated with
acquisitions, amortization of deferred finance costs and depreciation of
property, plant and equipment, equipment leased to customers, and capital lease
assets.

Income Taxes. The Company elected Subchapter S Corporation
status in 1996. As an S Corporation, the Company was generally not directly
subject to income taxation and recognized no income tax expense or benefit as an
S corporation. On February 12, 1997, the Company terminated its Subchapter S
Corporation status, and became subject to income taxation as a C Corporation
under Subchapter C of the Internal Revenue Code. The Company has recognized no
income tax benefits in any of the periods presented because it has incurred
operating losses in all periods, and realization of future tax benefits is
uncertain.

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

Programming revenue for the six months ended June 30, 1998
totaled $30,466,000, compared to $3,289,000 for the six months ended June 30,
1997. Equipment lease revenue amounted to $512,000, up from $214,000 for the
same period a year ago. The increase in programming and equipment lease revenue
is the result of the addition of subscribers from acquisitions and internal
growth. For the six months ended June 30, 1998, the Company had an average of
120,946 subscribers, compared to 13,530 average subscribers for the six months
ended June 30, 1997. Average monthly programming revenue per subscriber
approximated $41.98 and $40.51 for the same periods, respectively.

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45
Equipment sales and installation revenue amounted to
$5,560,000 for the six months ended June 30, 1998, compared to $517,000 for the
six months ended June 30, 1997. This revenue is associated with the addition of
new subscribers.

Programming costs were $17,926,000 for the six months ended
June 30, 1998, up from $1,830,000 for the same period a year ago. This increase
is commensurate with the increase in subscribers between the periods. For the
six months ended June 30, 1998, programming margin totaled $12,540,000, 41.1% of
programming revenue, compared to $1,459,000 for the six months ended June 30,
1997, 44.3% of programming revenue. The decline in gross margin percentage is
due to an increase in certain copyright costs effective January 1998 related to
network and superstation programming and a change in mix toward lower-margin
programing.

Costs related to equipment and installation totaled $5,886,000
for the six months ended June 30, 1998 and $551,000 for the six months ended
June 30, 1997. The Company typically provides equipment and installation at or
below its cost. The negative gross profit on equipment and installation for both
periods reflects the subsidization of installation costs by the Company.

System operations costs amounted to $4,177,000 for the six
months ended June 30, 1998 and $502,000 for the same period a year ago. The
increase in these costs corresponds with the addition of field offices and other
operations resources as the Company aggressively acquired additional markets in
1997. As a percentage of revenue, system operations costs declined to 13.7% for
the six months ended June 30, 1998 from 15.3% for the six months ended June 30,
1997.

Sales and marketing expenses totaled $10,961,000 for the six
months ended June 30, 1998, up from $980,000 for the same period the previous
year. The increase in sales and marketing expenses is mainly comprised of
increased advertising and promotion, DSS Equipment subsidies, sales commissions
and marketing personnel costs as the Company focused efforts on subscriber
growth in its expanding number of territories.

Corporate expenses were $1,769,000 for the six months ended
June 30, 1998 and $854,000 for the six months ended June 30, 1997. The increase
in corporate expenses is due to the addition of administrative resources to
support the increase the Company's growth. As a percentage of revenue, corporate
expenses decreased to 4.8% for the six months ended June 30, 1998 from 21.2% for
the same period a year ago. This decrease reflects the continued leveraging of
these costs, which are relatively fixed in nature, over increased revenue.

Depreciation and amortization amounted to $10,019,000 for the
six months ended June 30, 1998 and $1,929,000 for the six months ended June 30,
1997. This increase primarily results from increased amortization of goodwill
and other intangible assets resulting from the Company's acquisition activity
during the last three quarters of 1997 and first two quarters of 1998.

Interest expense totaled $4,971,000 for the six months ended
June 30, 1998 and $128,000 for the same period in 1997. The increase constitutes
the interest on borrowings under the Old Credit Facility and the Credit
Facility. Borrowings under the Credit Facility at June 30, 1998 amounted to
$114.0 million and were incurred to fund acquisitions and the operating losses
and working capital needs associated with the Company's growth.

Year Ended December 31, 1997 Compared to Period from Inception to December 31,
1996

Programming revenue for the year ended December 31, 1997
increased to $16,452,000 from $219,000 for the period from Inception to December
31, 1996 (the "1996 Period"). Equipment lease revenue was $944,000 for the year
ended December 31, 1997 compared to $36,000 for the 1996 Period. During 1997,
the Company acquired rights to provide DIRECTV Programming to approximately 1.2
million households, which added approximately 64,000 subscribers. In addition,
approximately 23,000 subscribers were added through the Company's sales and
marketing efforts. Accordingly, the increase in programming revenue is
attributable to the subscribers acquired by the Company from its 1997
acquisitions, the inclusion of a full year of revenue for the subscribers
initially acquired in 1996, and the

44
46
net addition of subscribers in 1997 resulting from the Company's sales and
marketing efforts within its existing territories subsequent to their
acquisition. Average monthly programming revenue per subscriber during the year
ended December 31, 1997 was approximately $37.61, consistent with the
approximate $35.44 average for the 1996 Period.

Equipment sales and installation revenue totaled $3,824,000
for the year ended December 31, 1997 compared to $57,000 for the 1996 Period.
The increase in equipment sales and installation revenue was driven by the
number of new subscribers added in 1997 as discussed above.

Programming costs were $9,304,000 for the year ended December
31, 1997 compared to $130,000 for the 1996 Period. The increase in programming
costs corresponds to the large increase in subscribers added by the Company in
1997. For the year ended December 31, 1997, programming gross profit totaled
$7,148,000, 43.4% of programming revenue, compared to $89,000 for the 1996
Period, 40.6% of programming revenue. The increase in programming gross profit
margin percentage for the year ended December 31, 1997 is primarily due to a
change in subscriber revenue mix toward packages with higher margins.

For the year ended December 31, 1997, equipment and
installation costs amounted to $4,265,000 compared to $60,000 for the 1996
Period. Gross profit (loss) on equipment sales and installation was $(441,000)
for the year ended December 31, 1998 and $(3,000) for the 1996 Period. The
negative gross profit on equipment and installation for both periods reflects
the subsidization of installation costs by the Company.

Systems operations costs totaled $3,796,000 for the year ended
December 31, 1997 and $26,000 for the 1996 Period. The Company opened its first
two field offices in November 1996 and had 36 field offices operating at
December 31, 1997. The increase in systems operations costs is comprised of the
costs from the addition of field offices and other operational support required
to sustain the high level of growth during 1997.

Sales and marketing expenses totaled $6,875,000 for the year
ended December 31, 1997 and $70,000 for the 1996 Period. Sales and marketing
expenses were primarily comprised of expenditures for advertising and promotion,
DSS Equipment subsidies, marketing personnel costs, and sales commissions to
Company employees and independent dealers associated with the acquisition of new
subscribers.

Corporate expenses were $1,917,000 for the year ended December
31, 1997 and $1,028,000 for the 1996 Period. The Company added accounting and
administrative resources during 1997 to support its growth. The decrease in
corporate expenses as a percentage of revenue from the 1996 Period to the year
ended December 31, 1997 reflects the start-up costs incurred in 1996 and the
leveraging of corporate expenses, many of which are relatively fixed in nature,
over increased revenue.

Depreciation and amortization totaled $7,515,000 for the year
ended December 31, 1997 compared to $97,000 for the 1996 Period. The majority of
these expenses consisted of the amortization of goodwill and contract rights
associated with acquisitions and depreciation of general office and field
operation assets. The increase for the year ended December 31, 1997 compared to
the 1996 Period primarily reflects increased amortization of goodwill and
contract rights resulting from the Company's significant acquisition activity
during 1997.

Interest expense amounted to $2,958,000 for the year ended
December 31, 1997 and $62,000 for the 1996 Period. This increase resulted
primarily from borrowings under the Old Credit Facility. Borrowings under the
Old Credit Facility at December 31, 1997 were approximately $60.0 million, and
were incurred to fund 1997 acquisitions by the Company and, to a lesser extent,
additional working capital needs associated with the Company's significant
growth during the year.

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LIQUIDITY AND CAPITAL RESOURCES

The Company's principal capital requirements are for funding
the acquisition of new Rural DIRECTV Markets and the costs associated with
integrating acquired operations and expanding the Company's sales and marketing
activities in new and existing markets. From Inception through June 30, 1998,
the aggregate cash purchase price of Rural DIRECTV Markets was approximately
$167.4 million, and net cash used in operating activities was approximately
$18.2 million. To date, the Company has obtained the capital necessary to fund
its acquisitions and operations from the issuance of preferred stock, borrowings
under its bank credit facilities, the Offering, and, to a lesser extent, the
issuance of promissory notes to sellers of Rural DIRECTV Markets. In 1997, cash
flows from financing activities totaled $137.0 million, comprised of $81.2
million from the issuance of preferred stock and $56.0 million of net borrowings
under the Company's bank credit facilities.

In May 1998, the Company entered into the Credit Facility,
which provides for lines of credit to fund acquisitions and working capital
requirements totaling $150.0 million, of which $35.0 million is in the form of
term loan availability and $115.0 million is in the form of revolving credit
availability (including a letter of credit sublimit of $40.0 million). Amounts
available under the term loan facility are subject to increase, and amounts
available under the revolving credit facility are subject to decrease, by up to
$15.0 million pending syndication of the Credit Facility by the agent banks. At
June 30, 1998, the Company had fully utilized its term loan facility and utilize
$98.9 million of its revolving credit facility, reflecting borrowings of $79.0
million and utilization of $19.9 million of the letter of credit sublimit. These
borrowings under the revolving credit facility were repaid in August 1998 from a
portion of the proceeds of the Offering.

In the Offering, on July 31, 1998, the Company issued an
aggregate principal amount of $195.0 million of senior subordinated notes
bearing interest at the rate of 12 3/8% per annum, which Old Notes mature August
1, 2006. The Company realized proceeds of approximately $189.2 million from the
Offering. Approximately $45.2 million of the net proceeds were placed in an
escrow account to fund the first four semi-annual interest payments on the Old
Notes when due. A portion of the approximately $144.0 million proceeds remaining
were used to repay the $83.3 million of outstanding borrowings under the
revolving credit facility. Approximately $3.0 million of the proceeds were used
to complete one pending acquisition of a Rural DIRECTV Market. The remaining net
proceeds, approximately $57.7 million, is held in short-term liquid investments,
for use in funding future acquisitions and working capital requirements of the
Company. The Company expects to re-borrow amounts under the revolving credit
facility in the future, principally to fund additional acquisitions of Rural
DIRECTV Markets.

The Company's future capital requirements will depend upon a
number of factors, particularly the extent of the Company's acquisition
activities, the rate of the Company's subscriber growth, marketing costs
required to secure additional subscribers, and working capital necessary to
accommodate the Company's anticipated growth, including to invest in new systems
and operations to support the Company's increased size. The Company currently
subsidizes a portion of the cost of subscriber equipment, and the extent of that
subsidy at any point may materially affect the Company's liquidity and capital
requirements. In addition, the Company's favorable working capital position
relies, in part, upon the existing terms of the NRTC Agreements and the timing
for making required payments to the NRTC. The Company anticipates total capital
expenditures of approximately $2.0 million for each of 1998 and 1999, primarily
related to expanding facilities and information systems for customer service
operations and field operation offices. In 1998 and 1999, the Company expects to
continue its acquisitions of Rural DIRECTV Markets and to step up its marketing
efforts in existing territories in order to increase penetration.

The Company is highly leveraged and is expected to increase
its leverage as it pursues further acquisitions by borrowing additional funds
under the Credit Facility or otherwise and by issuing additional seller notes.
Future capital may also be required to meet the Company's debt service
requirements, and, depending upon the timing of the Company's acquisitions,
additional sources of capital may need to be secured to pursue acquisitions. The
term loan amortizes in specified quarterly installments from June 20, 2001
through maturity on March 31, 2005. Availability under the revolving credit
facility reduces by specified amounts over the period from June 30, 2000 through
June 30, 2004; borrowings under the revolving credit facility mature on June 30,
2004. The approximately $13.8 million of

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Seller Notes mature as follows: $2.4 million in 1998, $8.5 million in 1999, $0.9
million in 2000, $1.0 million in 2001 and $1.0 million in 2002. See "Description
of Other Indebtedness."

YEAR 2000 COMPLIANCE

The Company has reviewed the Year 2000 compliance of its
internal systems and believes that such systems are Year 2000 compliant. The
Company therefore believes that it does not require additional technology and
that it has sufficient resources in order for its internal systems to be Year
2000 compliant. However, there can be no assurance that additional expenditures
will not be required in connection with the Year 2000 compliance of the
Company's systems. See "Risk Factors -- Year 2000 Compliance" and "Business --
Year 2000 Compliance."

RECENT ACCOUNTING DEVELOPMENTS

In 1997, the FASB issued SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. This statement, which is
effective for the Company's 1998 annual report, modifies existing segment
disclosure requirements. The Company does not expect implementation to have a
significant effect on the Company's financial statements.

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BUSINESS

GENERAL

The Company is the second largest independent provider of
programming by DIRECTV, the leading DBS company serving the continental United
States. The Company markets and provides DIRECTV Programming on an exclusive
basis to residential customers in certain Rural DIRECTV Markets and on a
non-exclusive basis to residents of MDUs and commercial customers. The Company
has obtained the exclusive right to provide DIRECTV Programming to homes in its
Rural DIRECTV Markets under agreements between the Company and the NRTC. The
NRTC and its DBS members and affiliates (including the Company) provide DIRECTV
Programming in Rural DIRECTV Markets pursuant to an agreement between the NRTC
and Hughes Communications Galaxy, Inc., DIRECTV's predecessor-in-interest. The
Company estimates that the Rural DIRECTV Markets comprise approximately 9.0
million households or approximately 9% of total U.S. television households, but
account for approximately 814,000, or approximately 22%, of total DIRECTV
customers.

Since its formation by management in June 1996, the Company has:

- acquired 38 Rural DIRECTV Markets in 22 states with
approximately 1.5 million households and 100,000 subscribers
at the dates of acquisition;

- increased its subscriber base in these markets by over 65% in
the aggregate, to approximately 166,000 as of August 31, 1998,
achieving a subscriber penetration rate of approximately 11.3%
through aggressive marketing and a local service-driven
approach to the customer;

To date, the Company, together with its parent, has raised an
aggregate $87.4 million of equity capital in financings led by investment funds
affiliated with Burr, Egan, Deleage & Co./Alta Communications, Spectrum Equity
Investors, L.P., BancBoston Ventures Inc., Norwest Equity Partners and
HarbourVest Partners LLC. and including an aggregate $2.5 million investment by
management. The Company has also secured $150.0 million of senior bank
financing. See "Management's Discussion of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions."

Since inception, the Company's recurring revenue has increased
rapidly due to internal subscriber growth and a low average annual churn rate of
approximately 8%. The Company's net internal subscriber growth in its Rural
DIRECTV Markets for the first eight months of 1998 totaled approximately 42,000.
This represented over 7.5% of DIRECTV's net new subscribers nationwide for the
period, although total households in the Company's Rural DIRECTV Markets
represented less than 1.4% of all television households in the continental
United States. Although the Company incurs substantial costs to add subscribers,
it has relatively low recurring costs to service them. The Company believes
these factors provide an opportunity to increase operating leverage and provide
strong growth in EBITDA. The Company had EBITDA of $(5.4) million for the year
ended December 31, 1997 and $(7.7) million for the six months ended June 30,
1998. EBITDA adjusted to exclude subscriber acquisition costs would have been
$2.0 million and $4.1 million, respectively, for such periods.

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The Company believes that its exclusive right to provide DIRECTV
Programming in its Rural DIRECTV Markets is attractive for the following
reasons:

- DIRECTV Programming. The Company believes that marketing
DIRECTV, the country's leading DBS provider, gives it a
competitive advantage over providers of other subscription
multichannel television services. DIRECTV offers more channels
than competing services at a comparable price, including a
wide variety of programming, exclusive sports packages (such
as NFL Sunday Ticket(TM)) and a large selection of
pay-per-view movies and events. The Company capitalizes on the
recognition of DIRECTV's brand name and on DIRECTV's
programming advantages to broaden the Company's subscriber
base in its Rural DIRECTV Markets. DIRECTV currently has over
50% of all DBS subscribers nationwide.

- Limited Competition in Rural Markets. Competition from cable
television providers in Rural DIRECTV Markets is often
limited. Many households in rural markets are not passed by
traditional cable systems or are served by analog systems with
a small channel capacity (i.e., less than 40 channels) and
poor quality signal relative to DBS service. Given the
relatively low housing density in these markets, the build-out
of new systems or upgrade of existing systems may not be
cost-effective. Other entertainment options, such as theaters,
movies and sporting events, may also be limited. The Company
believes that this market environment contributes to a
subscriber penetration rate within the Rural DIRECTV Markets
that is currently nearly three times the penetration rate for
DIRECTV in other U.S. markets.

- National Marketing, Distribution and Manufacturing Support.
DIRECTV supports local providers, such as the Company, with a
national marketing campaign, including television and print
advertising, and through alliances with strategic partners
such as Southwestern Bell, Bell Atlantic, GTE, and Home
Shopping Network, Inc. DIRECTV also supports its local
providers with an extensive retail distribution network,
offering more channels of distribution and more retail
distribution points than competing services. Three major
consumer electronics manufacturers currently compete to
provide customers with DSS Equipment. Management believes that
competition among DSS Equipment providers results in greater
availability, continued product innovation and lower equipment
costs compared to single-source DBS equipment required for
some competing services.

Pursuant to its agreements with the NRTC, the Company has the exclusive right to
provide DIRECTV Programming in its Rural DIRECTV Markets, and receives the
monthly service revenue from all DIRECTV subscribers in such markets regardless
of the subscribers' original point of purchase.

In addition to its business in Rural DIRECTV Markets under
agreements with the NRTC, the Company has developed other business relationships
with DIRECTV and its affiliated companies. For example, the Company was chosen
in January 1998 by DIRECTV to market and provide DIRECTV Programming nationally
to residents of MDUs and commercial establishments as a Master System Operator.
In February 1998, the Company began marketing and providing DIRECTV Programming
to residents of MDUs and commercial establishments in six major metropolitan
areas near its rural territories. The Company intends to focus its MDU and
commercial activities on high-growth urban areas near its Rural DIRECTV Markets
to leverage its fixed cost base over a larger universe of potential subscribers.

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STRATEGY

The Company intends to leverage its competitive strengths by
pursuing the following strategies:

- Emphasize Direct Sales and Local Customer Service. The Company
believes a commitment to a strong local presence generates
rapid subscriber growth, higher customer satisfaction and
lower churn, and ultimately greater revenue and EBITDA. The
Company has created a highly decentralized operating structure
that permits managers to respond quickly and flexibly to local
needs. Management believes that local presence differentiates
the Company from other major DIRECTV and DBS providers and is
a key element in the Company's strategy for attracting and
retaining subscribers. Since inception, the Company has opened
or is in the process of establishing a total of 59 offices in
its Rural DIRECTV Markets. The Company provides sales,
installation and customer service directly though these
offices and in conjunction with more than 350 local dealers.
The Company believes that focused local marketing
significantly enhances the existing national marketing efforts
of DIRECTV and its national distribution partners, and that
local customer service increases customer satisfaction and is
a major contributor to the Company's low churn rate. The
Company complements its local presence from its headquarters
in Kansas City, Missouri with centralized sales, marketing,
operational and administrative support, including overflow and
after-hours customer support from a call center that operates
24 hours a day, seven days a week.

- Acquire Additional Rural DIRECTV Markets. The Company is
aggressively pursuing the acquisition of additional Rural
DIRECTV Markets held by original NRTC licensees, a majority of
which are owned by rural electric and television cooperatives
for whom offering DIRECTV Programming is an ancillary
business. The Company is continually evaluating acquisition
prospects and expects to continue to enter into acquisition
agreements and complete acquisitions of additional Rural
DIRECTV Markets consistent with its growth strategy. The
Company is one of two companies actively consolidating Rural
DIRECTV Markets. The Company estimates that approximately 125
Rural DIRECTV Markets, comprised of approximately 2.5 million
households, are still owned by original NRTC members.

- Develop Related Business Opportunities. The Company plans to
leverage its local sales and support infrastructure by
expanding its base of potential customers and product
offerings. The Company has commenced marketing to MDUs and
commercial establishments in six cities near its Rural DIRECTV
Markets, including Dallas/Ft. Worth, Texas; Denver, Colorado;
Ft. Myers, Florida; Kansas City, Missouri; Las Vegas, Nevada;
and Savannah, Georgia. As of May 31, 1998, the Company had
access to approximately 6,000 MDUs via "right of entry"
agreements, with approximately 900 active subscribers. In
addition, the Company is evaluating other telecommunications
products and services that could be offered to customers using
the Company's existing marketing and distribution
infrastructure. In May 1998, the Company commenced beta
testing of DirecPC, a satellite-based Internet access service
provided by a corporate affiliate of Hughes.

SALES AND DISTRIBUTION

The Company offers DIRECTV Programming to consumer and business
segments in its Rural DIRECTV Markets through two separate but complementary
sales and distribution channels.

Direct Sales Force

The Company has established direct sales forces in all but one of
its Rural DIRECTV Markets, and has Company-owned full service retail stores
located in substantially all its Rural DIRECTV Markets. The Company currently
has approximately 150 direct salespeople and supports its direct sales staff and
its local offices with a creative,

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consistent advertising campaign. The Company also seeks to develop close
relationships with independent dealers of DBS equipment and provides marketing,
subscriber authorization, installation and customer service support to enhance
subscriber additions from such dealers. Wherever possible, the Company's
arrangements with dealers are exclusive. In connection with the sale of a DSS
unit and a subscription to DIRECTV Programming offered by the Company, a dealer
retains the proceeds from the sale of the equipment and earns a one-time
commission paid by the Company. The Company retains the ongoing monthly
subscription revenue from the subscriber. For certain equipment sold through the
indirect dealer network, the Company provides a subsidy, thus lowering the price
of the equipment for the consumer. The Company believes that it can increase
penetration more rapidly through its direct sales approach instead of relying,
as some DTH providers have, upon the consumer to take the initiative to purchase
the product and services.

Other Distribution Channels

In addition to the Company's direct sales force, the Company utilizes other
distribution channels to offer DIRECTV Programming to potential subscribers in
the Company's Rural DIRECTV Markets by (i) national retailers selected by
DIRECTV, (ii) consumer electronics dealers authorized by DIRECTV to sell DIRECTV
Programming and (iii) satellite dealers and consumer electronics dealers
authorized by five regional sales management agents selected by DIRECTV. Similar
to the Company's indirect dealer network, the Company pays a one-time commission
to these distribution channels for the sale of DIRECTV Programming to a
subscriber located in the Company's Rural DIRECTV Markets and the Company
receives all monthly programming revenue associated therewith, regardless of
what outlet originally sold DIRECTV Programming to the subscriber.

MARKETING

Management believes that direct broadcast satellite services can
compete favorably with medium and low power DTH, cable and other subscription
television services on the basis of superior signal quality, channel capacity,
programming choice and price. The Company complements the extensive existing
marketing effort of DIRECTV and its other national distribution partners through
focused local marketing and sales, including local print and radio advertising
to promote general market acceptance of DIRECTV Programming. The Company
believes that, to date, there has been no significant local presence to drive
such local marketing and sales efforts. In 1998, DIRECTV budgeted to spend
approximately $150 million on its national advertising campaigns.

The Company also implements support advertising programs for its
indirect distribution channels. The Company's marketing efforts emphasize the
value of premium subscription plan offerings in order to maximize revenue per
customer. Specific promotions, such as offering new subscribers an initial
month's service at no charge, have been implemented to motivate customers to
purchase such plans, and the Company has incentive-based sales compensation for
both the direct and dealer sales forces to promote and sell premium subscription
plans.

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

CUSTOMER SERVICE

The Company provides customer service from each of its local
offices. Offices are staffed from 10 a.m. to 7 p.m., six days a week. Local
managers are responsible for managing customer accounts receivable and churn.
The Company believes it can sustain its historical average churn rate of
approximately 8% annually by providing local customer service and aggressively
managing collections. Overflow and after hours assistance is provided 24 hours a
day, seven days a week, by the Company's call center located in Kansas City,
Missouri. The Company also provides professional installation services and
technical assistance in each of its offices.

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OVERVIEW OF THE DTH INDUSTRY

DTH services encompass all types of television transmission from
satellites directly to the home. The FCC has authorized two types of satellite
services for transmission of television programming: Broadcast Satellite
Services (commonly referred to as "DBS"), which operates at high power (120 to
240 watts per frequency channel) in the Ku-band, and Fixed Satellite Service
(commonly referred to as low power and medium power DTH), which includes low
power services transmitting in the C-band, as well as medium power (20 to 100
watts per frequency channel) services transmitting in the Ku-band. Both DBS and
medium power DTH satellites are used for digital satellite television services.
DBS provides high quality video and audio signals and can be received by an 18-
inch dish. Medium and low power DTH signals require home satellite dishes of 27
inches to six feet in diameter (depending on the geographical location of the
dish and wattage per frequency channel). See "-- DIRECTV." DIRECTV, USSB and
EchoStar are the only current domestic providers of DBS services. All other DTH
domestic satellite television providers currently provide medium or low power
DTH services. See "-- Competition."

A DBS system consists of an uplink center, one or more orbiting
satellites and the subscribers' receiving equipment. The uplink center collects
programming from on-site video equipment and from the direct feeds of
programmers. Through antennae located at the uplink center, the operator
transmits, or uplinks, the programming to transponders located on its
geostationary satellite. The transponders receive and amplify the digital signal
and transmit it to receiving dishes within the area covered by the satellite.
The digital signal is then transmitted via coaxial cable to the subscribers'
receiver, where it is converted into an analog signal which allows it to be
received by the subscribers' televisions. System security is maintained through
the use of reprogrammable access cards that must be inserted into each
subscriber's decoder box to unscramble programming signals.

DBS providers are afforded technological and regulatory advantages
over medium and low power DTH services. The FCC requires the satellites used to
provide DBS services to be spaced at greater intervals than medium and low power
DTH satellites (nine degree orbital spacing over North America compared to two
degree orbital spacing). The greater orbital spacing is intended to ensure that
the signals transmitted by DBS providers can be received by a small dish, free
of interference from adjacent satellites. The closer medium and low power DTH
satellite orbital spacing requires the use of a larger, 27-inch to six foot dish
to eliminate interference from nearby satellites. See "-- Competition -- Other
DTH Providers." In addition, DBS satellites are allowed to broadcast with much
higher power levels than medium and low power DTH satellites. The combination of
greater orbital spacing and higher power enables providers of DBS services to
obtain a superior balance of small dish size, signal quality in adverse weather
conditions and increased channel capacity.

DIRECTV

DIRECTV is a multichannel DBS programming service initially
introduced to U.S. television households in 1994. DIRECTV currently offers in
excess of 220 channels of near laser disc quality video and CD-quality audio
programming, and transmits via three high-power Ku band satellites (only two are
needed to support transmission of DIRECTV Programming), each containing 16
transponders. As of August 31, 1998, there were approximately 3.9 million
DIRECTV subscribers.

The Company believes that DIRECTV services are superior to those
provided by other DTH service providers and that DIRECTV's extensive
programming, including up to 80 channels of pay-per-view movies and events,
various sports packages and the exclusive NFL Sunday Ticket(TM), will continue
to contribute to the growth of DIRECTV's subscriber base and DIRECTV's market
share for DTH services in the future. In addition, the Company believes that
DIRECTV's national marketing campaign provides the Company with significant
marketing advantages over other DTH competitors. DIRECTV's share of current DBS
and medium power DTH subscribers was approximately 40.1% as of June 30, 1998.
DIRECTV obtained approximately 50% of all new subscribers to DBS and
medium-power DTH services for each calendar quarter in 1996, despite the entry
of two new competitors in the DTH market. DIRECTV added approximately 1.1
million new subscribers (net of churn) during the twelve months ended April 30,
1998, which was a greater increase than any other DBS or medium power DTH
provider and accounted for approximately 49.4%

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of all new DBS subscribers. Although DIRECTV's share of new subscribers can be
expected to decline as existing and new DTH providers aggressively compete for
new subscribers, the Company expects DIRECTV to remain the leading provider of
DBS and medium power DTH services in an expanding market.

The equipment required for reception of DIRECTV Programming (a DSS
unit) includes an 18-inch satellite antenna, a digital receiver approximately
the size of a standard VCR and a remote control, all of which are used with
standard television sets. Each DSS receiver includes a "smart card" that is
uniquely addressed to it. The smart card, which can be removed from the
receiver, prevents unauthorized reception of DIRECTV services and retains
billing information on pay-per-view usage, which information is sent at regular
intervals from the DSS receiver telephonically to DIRECTV's authorization and
billing system. The small size of the dish makes it more acceptable to housing
communities and organizations that prohibit the installation of larger dishes
due to their appearance. The DSS receiver captures and translates the signal and
interfaces with an easy to use on-screen electronic program guide with a
parental locking/ratings control function.

DSS units also enable subscribers to receive USSB programming. USSB
is a DBS service providing 28 channels of video programming transmitted via five
transponders it owns on DIRECTV's first satellite. USSB primarily offers Time
Warner and Viacom premium satellite programming services, such as multiple
channels of HBO and Showtime, which are not available through DIRECTV but which
are generally complementary to DIRECTV Programming. As of August 31, 1998, over
50% of DIRECTV's approximately 3.9 million subscribers received USSB
programming.

DSS Equipment is now produced by major manufacturers under brand
names including RCA, Sony, Hughes, and others. DSS Equipment is currently sold
at retail outlets throughout the U.S. for prices typically ranging from $99 to
$299, depending upon the generation of the equipment, the level of features and
the retail outlet. Prices for DSS Equipment have declined consistently since
introduction, further stimulating demand for DIRECTV services.

Programming

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

Total Choice(TM): Package of 45 video channels, 31 CD
audio channels, two Disney channels, an in-market regional sports
network and access to up to 60 channels of pay per view movies and
events, which retails for $29.99 per month. Total Choice(TM) is
DIRECTV's most popular offering. Total Choice(TM) Platinum, Gold,
Silver and Plus Encore offer additional programming at higher retail
prices.

Economy or Select Choice: Two packages of 19 to 33 video
channels and access to up to 60 channels of pay per view movies and
events, which retail for between $18.99 and $20.99 per month. The
Economy service is available only in the Rural DIRECTV Markets.

Plus DIRECTV: Package of 16 video channels, 31 CD audio
channels and access to up to 60 channels of pay per view movies and
events, which retails for $14.99 per month. Plus DIRECTV consists of

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channels not typically offered on most cable systems and is intended
to be sold to existing cable subscribers to augment their cable or
other satellite services.

NFL Sunday Ticket(TM): All out-of-market NFL Sunday
games for $159.00 per season. NFL Sunday Ticket(TM) is exclusive to
DIRECTV with respect to small dish providers through at least the
end of the 1999-2000 football season.

Encore Multiplex: Seven theme movie services (Love
Stories, Westerns, Mystery, Action, True Stories, WAM! and Encore)
for $4.00 per month.

Playboy: Adult service available monthly for $12.99.

PrimeTime 24 Network Package: ABC (East and West), NBC
(East and West), CBS (East and West), Fox and PBS available
individually for $1.21 per month or collectively for $6.67 per month
(available only to subscribers unable to receive networks
over-the-air and who have not subscribed to cable in the last 90
days). In accordance with a newly-issued NRTC policy, the Company is
not currently permitted to offer the PrimeTime 24 Network Package to
new subscribers. See "-- Regulation."

Sports Choice: Package of 24 channels (including over 18
regional sports networks) and five general sports networks (the Golf
channel, NewSport, Speedvision, Classic Sports Network and Outdoor
Life) for $10.00 per month on a stand alone basis.

NBA League Pass(SM): Approximately 800 out-of-market NBA
games for $159.00 per season.

NHL Center Ice(SM): Approximately 500 out-of-market NHL
games for $129.00 per season.

MLB Extra Innings: Approximately 800 out-of-market major
league baseball games for $139.00 per season.

ESPN Full Court: Hundreds of college basketball games
for $89.00 per season.

ESPN Game Plan: Up to ten college football games every
Saturday for $89.00 per season.

Some of the popular channels provided in the Total Choice package include HBO,
HBO2, TBS, the Disney Channel, the Family Channel, TNT, Cinemax, the Discovery
Channel, TNN, ESPN, ESPN2 and AMC.

DIRECTV does not generally provide local broadcast programming via
satellite. However, seamless switching between satellite and broadcast
programming provided by other sources is possible with all DSS units. In
addition, DIRECTV provides programming from affiliates of the national broadcast
networks to subscribers who are unable to receive networks over the air and do
not subscribe to cable.

RELATIONSHIP WITH THE NRTC AND DIRECTV

The NRTC acquired the right to provide DIRECTV Programming to
residential households in 1992 and commercial establishments located in the
Rural DIRECTV Markets in 1994, pursuant to the Hughes Agreement. The NRTC
subdivided its rights to provide such services into approximately 250
geographically based Rural DIRECTV Markets, then sold a portion of its rights to
the individual Rural DIRECTV Markets to NRTC members pursuant to the NRTC
Agreements. The Company acquired from the NRTC the exclusive right to provide
DIRECTV Programming in each of its Rural DIRECTV Markets pursuant to an NRTC
Agreement, which is assigned to the Company with the consent of the NRTC and
DIRECTV when the Company acquires such Rural DIRECTV Market.

Pursuant to the NRTC Agreements, the Company is obligated to
promote, market and sell DIRECTV Programming in accordance with NRTC procedures
and to take all reasonable steps to ensure that DIRECTV Programming is not
received at any unauthorized locations or in any unauthorized manner. The
Company also purchases customer authorization, billing services and centralized
remittance processing services from the NRTC pursuant to the NRTC Agreements.
The NRTC Agreements also contain customary provisions regarding payment terms,
compliance with laws and indemnification and provide that both the NRTC and
DIRECTV must consent prior to the assignment or transfer by the NRTC Member
party thereto of its rights or obligations under the NRTC Agreements, which
consent shall not be unreasonably withheld. The NRTC Agreements also contain
termination provisions which allow the NRTC to terminate such agreements (i) as
a result of termination of the Hughes Agreement, with the NRTC remaining
responsible for paying to the Company its pro rata portion of any refunds that
the NRTC receives from Hughes under the Hughes Agreement, (ii) if the Company
fails to make any payment due to the NRTC or otherwise breaches a material
obligation of the NRTC Agreement and such failure or breach continues for more
than 30 days after written notice from the NRTC or (iii) if the Company fails to
keep and maintain any letter of credit required to be provided to the NRTC in
full force and effect or to adjust the amount of the letter of credit as
required by the NRTC Agreements. The NRTC Agreements also require the Company to
comply with policies of the NRTC promulgated from time to time. The Company and
other NRTC-affiliated DIRECTV providers have disputed certain policies proposed
by the NRTC in the past that they believed did not comply with the NRTC
agreements and applicable law. For example, in 1998, the NRTC proposed new
conditions to securing its approval of acquisitions that included changes to all
of the NRTC Agreements which, if adopted, could have had material adverse
financial consequences to the Company. The dispute was resolved without any
modifications to the NRTC Agreements and the Company's then pending acquisitions
were approved. In addition, the NRTC has adopted a policy regarding its own
interests in the subscriber information of NRTC members and affiliates. The NRTC
Agreements provide that NRTC members and affiliates, including the Company, have
"substantial proprietary interests" in and rights to the information and data
with respect to their subscribers. The NRTC and its affiliates, including the
Company, have differed over the import of these rights and interests, which may
have consequences in the event that the Company's rights to offer DIRECTV
Programming through the NRTC are terminated or expire.

Pursuant to the NRTC Agreements, the Company has obtained from the
NRTC the exclusive right in its Rural DIRECTV Markets to market, sell and retain
all of the revenue from subscribers derived from the sale of most programming
transmitted by the DIRECTV satellites over the 27 frequencies owned by Hughes.
The Company pays the NRTC for the wholesale cost of such programming and a fee
to DIRECTV based upon 5% of the programming revenue. The NRTC has the right to
choose to provide certain Non-Select Services, such as NFL Sunday Ticket(TM), as
DIRECTV and the content providers enter into new agreements. "Non-Select
Services" are services not generally included in the DIRECTV Programming
provided by the Company, because providers of such programming require minimum
subscriber guarantees, advance payments or other similar commitments, which the
NRTC declines to give. The Company retains 5% of the revenue from Non-Select
Services purchased by its subscribers and remits the balance to DIRECTV.

The NRTC Agreements (and presumably the Hughes Agreement) expire
when Hughes removes its current satellite(s) from their assigned orbital
locations. According to Hughes and USSB, the DIRECTV satellites have estimated
orbital lives of at least 15 years from their respective launches in December
1993 and 1994. The Company believes that the Hughes Agreement provides the NRTC
with a right of first refusal to obtain DBS Services (other than programming
services) in substantially the same form as such DBS Services are provided under
the existing Hughes Agreement in the event that Hughes elects to launch one or
more successor satellites upon the removal of the present satellites from their
assigned orbital locations. The NRTC Agreements do not expressly provide an
equivalent right of first refusal for the NRTC members to acquire DBS Services
through the NRTC should the NRTC exercise any right of first refusal under the
Hughes Agreement. The Company is an affiliate of the NRTC. See "Risk Factors --
Ability to Acquire DBS Services from NRTC and DIRECTV after Expiration of NRTC
Agreements."

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COMPETITION

The Company faces competition both for acquisitions of Rural DIRECTV
Markets from one other company, and within its exclusive Rural DIRECTV Markets
from a broad range of companies offering communications and entertainment
services, including cable operators, other satellite service providers, wireless
cable operators, telephone companies, television networks and home video product
companies. Many of the Company's competitors have greater financial and
marketing resources than the Company, and the business of providing subscription
and pay television programming is highly competitive. The Company believes that
quality and variety of programming, signal quality and service and cost will be
the key bases of competition. See "Risk Factors -- Competition and Technological
Change" and "Risk Factors -- Risks Attendant to Acquisition Strategy."

Competition for Acquisition of Rural DIRECTV Markets

The Company is aware that at least one other company, Pegasus
Communications Corporation ("Pegasus") is currently pursuing the same goal as
the Company of consolidating Rural DIRECTV Markets. Pegasus is currently the
largest independent provider of DIRECTV services and has substantially greater
financial resources than the Company. There can be no assurance that the
marketing and sales efforts or competing acquisition strategies of Pegasus or
other competitors will not have an adverse effect on the Company's ability to
execute its acquisition strategy.

Competing Subscription Television Providers

Cable Television Providers

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

The Company expects to encounter a number of challenges in competing
with cable television providers. First, cable operators have an entrenched
position in the marketplace. The Company believes that its current strategy of
targeting for acquisition Rural DIRECTV Markets which are not served by cable or
are underserved by cable partially offsets the cable industry's position in the
consumer marketplace. Second, the up-front costs to the consumer associated with
purchasing and installing DSS Equipment are higher than the up-front costs for
installation of cable television. However, prices for DSS Equipment have
declined consistently since introduction, and the Company believes that
competition among DSS Equipment vendors and technological improvements will
create continuing downward pressure on prices. Third, current DBS systems,
unlike cable, do not provide local broadcast programming via satellite, although
seamless switching between satellite and broadcast programming from other
sources is possible with all DSS units. In addition, DIRECTV provides
programming, from affiliates of the national broadcast networks to subscribers
who are unable to receive networks over the air and do not subscribe to cable.
The Company believes that the significant capital costs of upgrading cable
systems to provide similar services, combined with the marketing strength

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of DBS providers such as DIRECTV, presents DBS providers with an opportunity to
take substantial market share for pay television services from cable in the
Rural DIRECTV Markets.

Other DTH Providers

EchoStar, the only other DBS provider, commenced national
broadcasting of programming in March 1996 and currently broadcasts over 120
video channels and 30 audio channels. EchoStar has 21 licensed channel
frequencies at the 119 degrees W.L. full continental United States ("CONUS")
orbital position and has 69 frequencies in other partial CONUS orbital
locations. EchoStar reported approximately 1.6 million subscribers at August 31,
1998, representing a 14% market share of high-and medium-power DTH subscribers.
The Company believes that it can successfully compete with EchoStar in the DBS
market because of DIRECTV's brand name and its significantly larger distribution
networks and greater number of manufacturers of the equipment used to receive
DTH services.

PrimeStar, a medium-power DTH provider owned primarily by a
consortium of cable companies including TCI, launched the first digital DTH
satellite television service in 1994. As a result of the successful launch and
operation of a new satellite in early 1997, PrimeStar increased its programming
services to approximately 150 channels. This new satellite will potentially
enable PrimeStar to reduce its dish size to approximately 29 inches for most
subscribers within the continental United States. In addition, PrimeStar may
have access to significant DBS capacity via TSAT's DBS satellite, which is
capable of providing full-CONUS service, but the availability of such full-CONUS
DBS satellite to PrimeStar is subject to intense scrutiny by the U.S. Department
of Justice and the FCC. PrimeStar has announced plans to use such satellite to
provide a mix of sports, multi-channel movie services, pay-per-view services and
popular cable networks to traditional broadcast television, basic cable and
other analog programming customers. As of August 31, 1998, PrimeStar had
approximately 2.1 million subscribers.

Low power C-band operators reported approximately 2.0 million
subscribers representing 22.8% of the total market for DTH satellite services at
April 30, 1998. The C-band/TVRO market has been built primarily on subscribers
who live in markets not served by cable television. C-band equipment, including
the six- to eight-foot dish necessary to receive the low power signal, currently
costs approximately $2,000 and is distributed by local TVRO satellite dealers.
The Company believes that high and medium power DTH services have significant
advantages over low power C-band service in equipment cost, dish size and range
of programming packages. The number of C-band subscribers declined by
approximately 160,000 during the twelve months ended April 30, 1998.

Other Competitors

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

Certain regional telephone companies and other long distance
companies could become significant competitors in the future, as they have
expressed an interest in becoming subscription multichannel video programming
distributors. Furthermore, the Telecommunications Act of 1996 (the "1996 Act")
removes barriers to entry which previously inhibited local telephone companies
from competing, or made it more difficult for such telephone companies to
compete, in the provision of video programming and information services. Certain
telephone companies have received authorization to test market video and other
services in certain geographic areas using fiber optic cable and digital
compression over existing telephone lines. Estimates for the timing of
wide-scale deployment of such multi-channel video service vary, as several
telephone companies have pushed back or cancelled originally announced
deployment schedules.

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As more telephone companies begin to provide multichannel video
programming and other information and other communications services to their
customers, additional significant competition for subscribers will develop.
Among other things, telephone companies have an existing relationship with
substantially every household in their service area, substantial financial
resources, and an existing infrastructure and may be able to subsidize the
delivery of programming through their position as the sole source of local
wireline telephone service to the home.

Most areas of the U.S. are covered by traditional territorial
over-the-air VHF/UHF television broadcasters. Consumers can receive from three
to ten channels of over-the-air programming in most markets. These stations
provide local, network and syndicated programming free of charge, but each major
market is generally limited in the number of programming channels. On August 5,
1997, Congress approved the release of additional digital spectra for use by
VHF/UHF broadcasters.

REGULATION

Unlike a cable operator, DBS operators such as DIRECTV are free to
set prices and serve customers according to their business judgment, without
rate of return or other regulation or the obligation not to discriminate among
customers. However, there are laws and regulations that affect DIRECTV and,
therefore, affect the Company. As an operator of a privately owned United States
satellite system, DIRECTV is subject to the regulatory jurisdiction of the FCC,
primarily with respect to (i) the licensing of individual satellites (i.e., the
requirement that DIRECTV meet minimum financial, legal and technical standards),
(ii) avoidance of interference with radio stations and (iii) compliance with
rules that the FCC has established specifically for DBS satellite licenses. As a
distributor of television programming, DIRECTV is also affected by numerous
other laws and regulations. The Telecommunications Act of 1996 clarifies that
the FCC has exclusive jurisdiction over DTH satellite services and that criminal
penalties may be imposed for piracy of DTH satellite services. The
Telecommunications Act of 1996 also offers DTH operators relief from private and
local government-imposed restrictions on the placement of receiving antennae. In
some instances, DTH operators have been unable to serve areas due to laws,
zoning ordinances, homeowner association rules, or restrictive property
covenants banning the installation of antennae on or near homes. In August 1996,
the FCC promulgated rules designed to implement Congress' intent by prohibiting
any restriction, including zoning, land use or building regulation, or any
private covenant, homeowners' association rule, or similar restriction on
property within the exclusive use or control of the antenna user where the user
has a direct or indirect ownership interest in the property, to the extent it
impairs the installation, maintenance or use of a DBS receiving antenna that is
one meter or less in diameter or diagonal measurement, except where such
restriction is necessary to accomplish a clearly defined safety objective or to
preserve a recognized historic district. Local governments and associations may
apply to the FCC for a waiver of this rule based on local concerns of a highly
specialized or unusual nature. The FCC also issued a further notice of proposed
rule-making seeking comment on whether the 1996 Act applies to restrictions on
property not within the exclusive use or control of the viewer and in which the
viewer has no direct or indirect property interest. The 1996 Act also preempted
local (but not state) governments from imposing taxes or fees on DTH services,
including DBS. Finally, the 1996 Act required that multi-channel video
programming distributors such as DTH operators fully scramble or block channels
providing indecent or sexually explicit adult programming. If a multi-channel
video programming distributor cannot fully scramble or block such programming,
it must restrict transmission to those hours of the day when children are
unlikely to view the programming (as determined by the FCC). On March 24, 1997,
the U.S. Supreme Court let stand a lower court ruling that allows enforcement of
this provision pending a constitutional challenge. In response to this ruling,
the FCC declared its rules implementing the scrambling provision effective as of
May 18, 1997.

In addition to regulating pricing practices and competition within
the franchise cable television industry, the Cable Act was intended to establish
and support existing and new multi-channel video services, such as wireless
cable and DTH, to provide subscription television services. DIRECTV and the
Company have benefitted from the programming access provisions of the Cable Act
and implementing rules in that DIRECTV has been able to gain access to
previously unavailable programming services and, in some circumstances, has
obtained certain programming services at reduced cost. Any amendment to, or
interpretation of, the Cable Act or the FCC's rules that would permit cable
companies or entities affiliated with cable companies to discriminate against
competitors such as DIRECTV in

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making programming available (or to discriminate in the terms and conditions of
such programming) could adversely affect DIRECTV's ability to acquire
programming on a cost-effective basis, which would have an adverse impact on the
Company. Certain of the restrictions on cable-affiliated programmers will expire
in 2002 unless the FCC or Congress extends such restrictions.

The Cable Act also requires the FCC to conduct a rule-making
proceeding that will impose public interest requirements for providing video
programming on DTH licensees, including, at a minimum, reasonable and
non-discriminatory access by qualified candidates for elective office and the
obligation to set aside four to seven percent of the licensee's channel capacity
for non-commercial programming of an educational or informational nature. Within
this set-aside requirement, DTH providers must make capacity available to
"national educational programming suppliers" at below-cost rates. The FCC is
conducting a rule-making proceeding to implement this statutory provision.

While DTH operators like DIRECTV currently are not subject to the
"must carry" requirements of the Cable Act, the cable and broadcast television
industries have argued that DTH operators should be subject to these
requirements. In the event the "must carry" requirements of the Cable Act are
revised to include DTH operators, or to the extent that new legislation of a
similar nature is enacted, DIRECTV's future plans to provide local programming
will be adversely affected, and such must-carry requirements could cause the
displacement of possibly more attractive programming.

The SHVA establishes a "compulsory" copyright license that allows a
DTH operator, for a statutorily-established fee, to retransmit network
programming to subscribers for private home viewing so long as that
retransmission is limited to those persons in unserved households. In general,
an "unserved household" is one that cannot receive, through the use of a
conventional outdoor rooftop antenna, a sufficient over-the-air network signal,
and has not, within 90 days prior to subscribing to the DTH service, subscribed
to a cable service that provides that network signal. Certain television
broadcast networks and their affiliates have commenced litigation against
PrimeTime 24, a satellite provider of network programming, regarding alleged
violations of the SHVA. PrimeTime 24 provides network programming to several
satellite providers, including DIRECTV (and its distributors, including NRTC DBS
members and affiliates such as the Company) and providers of programming for
C-band satellite services. On July 10, 1998, a Federal District Court in Florida
granted a preliminary injunction effectively prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households in designated
geographic areas (based on off-air signal strength of television station
affiliated with those networks or past subscription to cable) and to any
business. The preliminary injunction further requires the disconnection within
90 days of any such current PrimeTime 24 customers for CBS or Fox programming
that began receiving PrimeTime 24's network programming via satellite after
March 11, 1997, unless the local network affiliate consents or a signal-
strength test proves that a certain quality of off-air service is unavailable to
the customer. Absent other judicial, administrative or legislative action, the
preliminary injunction is expected to remain in effect until the disposition of
the matter on the merits, which the Company has been advised is expected to
occur in the Fall of 1998. In response to the injunction, the NRTC issued a
policy prohibiting its DBS participants, including the Company, from making new
sales of any PrimeTime 24 network programming (including ABC, NBC and PBS
programming, which are not subject to the preliminary injunction, as well as CBS
and Fox). There can be no assurance as to how long the preliminary injunction or
the NRTC's policy will remain in effect or as to what final relief may
ultimately be granted to the plaintiffs. In addition, on July 16, 1998, a
Federal District Court in North Carolina issued an order holding that PrimeTime
24 had violated the copyright provisions and reporting obligations under the
SHVA with respect to ABC network programming in the Raleigh-Durham market. On
August 19, 1998, the court issued a permanent injunction restraining PrimeTime
24 (and its distributors) from providing retransmission of any television
station affiliated with ABC to any household located within 75 miles of the
transmission tower of WTVD, the ABC affiliate serving the Raleigh-Durham market.
Similar litigation brought by an NBC affiliate is also pending in Texas. It is
unclear whether PrimeTime 24, and its agents and distributors, will be subjected
to claims of damages or other judicially ordered relief through these or other
proceedings.

Approximately half of the Company's current subscribers receive some
or all of PrimeTime 24's network programming series. The Company believes,
however, that a material portion of such subscribers will be unaffected by the
preliminary injunction, either because they live in areas where the off-air
network signal strength falls below

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the standard applied by the court or because they received PrimeTime 24's
network programming prior to March 11, 1997. The Company also believes that its
local presence and trained technical personnel will enable it to work with
customers to develop appropriate alternative means of receiving network
programming. The Company has been advised by the NRTC that a database is
currently under development that will enable the Company to determine which of
its customers would be required to be disconnected under the terms of the
preliminary injunction, but such information is not currently available.
However, the court in the North Carolina litigation against PrimeTime 24
suggested that only sampling signal strength could satisfy the requirements of
the SHVA. The Company's monthly revenue per subscriber for PrimeTime 24 network
services (net associated programming costs) varies from $.90 to $4.50, depending
on how many of the seven available networks the customer subscribes to. While
the Company believes that it has complied to date with the SHVA in providing
network programming only to "unserved households" and the Company does not
believe that the interpretations of the SHVA applied by the Florida and North
Carolina federal courts will materially adversely affect the Company's financial
results or its ability to attract new subscribers, there can be no assurance
that the Company's inability to provide network services will not have such
effects. In addition, should the Company elect to continue to offer network
services, there can be no assurance that the costs of compliance with those
interpretations will not be material. The inability of DIRECTV and the Company
to provide network programming to subscribers in Rural DIRECTV Markets could
adversely affect the Company's average programming revenue per subscriber and
subscriber growth.

In October 1997, the United States Copyright Office recommended that
the compulsory copyright fees for the retransmission of television
"superstations" and broadcast network affiliates by satellite providers be
increased. The new rates took effect on January 1, 1998. Although an exact
comparison between copyright fees payable by cable operators and by satellite
providers is not possible, it has been estimated that the new rates would be
approximately 300% and 900% of the rates applicable to cable providers in their
provision of the superstation signals and network signals, respectively. While
the Company is aware of efforts to overturn this decision, there can be no
assurance that it will be overturned. Under the terms of the NRTC Agreements,
the Company may expect to have this cost passed along to it, unless the NRTC
elects to absorb all or a portion of the increased rate into the margin that it
earns on the provision of DIRECTV Programming.

YEAR 2000 COMPLIANCE

Many existing computer systems and software products use only two
character fields to identify dates. These programs were designed and developed
without consideration of the upcoming turn of the century. Significant
uncertainty exists in the software industry concerning the potential
consequences of the Year 2000 phenomenon. If not corrected, these computer
applications could fail or create erroneous information from the Year 2000 date
change. This issue affects virtually all organizations and can be very costly
and time consuming to correct. There can be no assurance that the software
products currently used by the Company contain all necessary date code changes.
Management is currently conducting surveys of all of its vendors and other
pertinent relationships to assess their readiness for Year 2000 processing. The
Company is significantly reliant on contracted data processing services from the
NRTC and DIRECTV for customer purchase, billing and remittance processing
pursuant to the NRTC Member Agreements. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that they will be Year 2000 compliant by April 1999. In addition,
there can be no assurance that such systems do not contain undetected errors or
defects associated with the Year 2000 date functions that may result in material
costs to the Company. Any adverse impact on subscribers in the Company's Rural
DIRECTV Markets could also have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk Factors --
Year 2000 Compliance."

FACILITIES

The Company is headquartered in leased space in Kansas City,
Missouri and has 59 existing or pending offices and operations in 22 states. The
Company expects these facilities to be adequate for its needs in the foreseeable
future. Management believes that the Company will be able to lease office and
retail space in its Rural DIRECTV Markets as needed on acceptable terms.

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MANAGEMENT AND EMPLOYEES

The Company has assembled an experienced management team to execute
its business strategy. Certain members of the senior management team have
significant experience working together. The Company's executive team brings to
the Company extensive business acquisition experience in the telecommunications
industry, as well as experience in the sales and delivery of a full array of
communications services to customers in rural America. As of August 31, 1998,
the Company had approximately 600 employees. The Company is not a party to any
collective bargaining agreement and considers its relations with its employees
to be good.

LEGAL PROCEEDINGS

The Company is not currently party to any material legal
proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the
executive officers and directors of the Company as of September 18, 1998.

NAME Age Position
- ---- --- --------

Rodney A. Weary .................... 47 Chairman of the Board, Chief Executive Officer
and Director
John R. Hager....................... 36 Vice President, Finance and Controller
William J. Gerski................... 45 Vice President, Sales and Marketing
Laquita Allen....................... 60 Vice President, Affiliate Relations
Jo Ellen Linn....................... 36 Secretary and General Counsel
Robert F. Benbow(1)................. 62 Director
William O. Charman.................. 35 Director
William P. Collatos(1).............. 44 Director
William A. Johnston(1)(2)........... 46 Director
Robert B. Liepold(2)................ 72 Director
Erik M. Torgerson(2)................ 33 Director

- ----------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.

BACKGROUND OF EXECUTIVE OFFICERS

Rodney A. Weary. Mr. Weary founded the Company in June 1996 and has
been its Chief Executive Officer since Inception. From 1988 to December 1994,
Mr. Weary was a co-founder, officer and director of Premiere Page, a paging
company. From 1986 to 1992, he was a principal shareholder in W.K. Cellular,
Inc., which owned and operated cellular license R.S.A. 5 in Indiana. Mr. Weary
formed Cable Video Entertainment, Inc. in 1986 by acquiring traditional cable
systems located in three states. He served as President of Cable Video
Entertainment, Inc. until it was sold in 1995. Mr. Weary was involved in the
formation of the Missouri Cable Television Association in the 1970s, and has
served in many capacities for both it and the four-state Mid-America Cable
Television Association.

John R. Hager. Mr. Hager has been Vice President, Finance and
Controller of the Company since August 1998. From February 1997 until August
1998, Mr. Hager was Vice President - Controller of EchoStar Communications
Corporation. He was the Controller of American Telecasting, Inc. from August
1993 until February 1997. Prior to joining American Telecasting in 1993, Mr.
Hager was with Ernst & Young, where he was an Audit Senior Manager.

William J. Gerski. Mr. Gerski has been Vice President, Sales and
Marketing of the Company since May 1997. From 1996 to 1997, Mr. Gerski was
Regional Director of Marketing and Sales at American Telecasting Incorporated.
In 1996, Mr. Gerski was Vice President of Marketing and Sales of Bell Atlantic
Video Services. From 1990 through 1995, Mr. Gerski was Corporate Director of
Sales at Adelphia Cable Communications. He has served on the Executive Board of
Directors of the Southern California Cable Association and the Los Angeles,
Chicago, and Cleveland Cable Co-ops.

Laquita Allen. Ms. Allen has been Vice President, Affiliate
Relations of the Company since May 1997. She previously spent five years with
the NRTC, where she was Regional Business Manager (from the inception of the DBS
project). Prior to joining the NRTC in 1992, Ms. Allen was General Manager of
the first cellular system in East Texas and was employed by United Telephone and
its subsequent owners, Centel Cellular (Centel Telephone) for five years.

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Jo Ellen Linn. Ms. Linn has been Secretary and General Counsel of
the Company since Inception. Ms. Linn was previously General Counsel to Cable
Video Management, Inc., a communications management company and the former Cable
Video Enterprises, Inc., which owned and operated domestic cable television
systems. From 1988 to 1990, Ms. Linn was Vice President and General Counsel of
the cable brokerage firm Hardesty, Puckett & Company (now HPC Puckett &
Company). Ms. Linn is licensed to practice law in Kansas and Texas.

BACKGROUND OF DIRECTORS

Robert F. Benbow. Mr. Benbow has been a Director of the Company
since February 1997. He is a Vice President of Burr, Egan, Deleage & Co. and a
General Partner of Alta Communications VI, L.P. Prior to joining Burr, Egan
Deleage & Co. in 1990, Mr. Benbow spent 22 years with the Bank of New England
N.A., where he was Senior Vice President responsible for special industries
lending in the areas of media, project finance and energy. He serves as a
Director of Teletrac, Inc., a major metropolitan wireless provider of location
and two way messaging services for fleets of commercial vehicles, and Preferred
Networks, Inc.

William O. Charman. Mr. Charman has been a Director of the Company
since March 1997. He has served as a Vice President of BancBoston Capital since
1995. From 1993 to 1995, Mr. Charman was a Director and team leader for Bank of
Boston's Media & Communications Group in London. Mr. Charman was a Director in
Bank of Boston's Media & Communications Group in Boston from 1987 to 1993. Mr.
Charman is a Director of Cambridge Communications, MultiTechnology Services and
Prime Communications.

William P. Collatos. Mr. Collatos has been a Director of the Company
since March 1997. He is a Managing General Partner of Spectrum Equity Investors.
Prior to the founding of Spectrum, he was an Associate and then General Partner
of funds managed by TA Associates from 1980 to 1990 and a founding General
Partner of Media/Communications Partners. Prior to joining TA Associates, Mr.
Collatos was in charge of the media lending group at Fleet National Bank in
Providence, Rhode Island. He is a Director of Galaxy Telecom Systems, Inc., TSR
Paging, Inc., Internet Network Services, Ltd., ITXC, Inc. and CTC Communications
Corporation.

William A. Johnston. Mr. Johnston has been a Director of the Company
since November 1997. He is a Managing Director of HarbourVest Partners, LLC and
has served in a variety of capacities for HarbourVest Partners, LLC and its
predecessor, Hancock Venture Partners, Inc., since 1983. He is a Director of
African Communications Group, Inc., Epoch Internet, Inc., Formus
Communications, Inc., The Marks Group, Inc. and V-I-A Internet, Inc.

Robert B. Liepold. Mr. Liepold has been a Director of the Company
since Inception. Mr. Liepold has been President and Chief Executive Officer of
KCWB-TV, an independent commercial television station operating in Kansas City,
Missouri, since 1994. Since 1983, Mr. Liepold has been a consultant to the
telecommunications industry. From 1978 through 1983, he was Executive Vice
President of Sprint/United Telecom. He is a Director of KCWB-TV, Com-21 and W.K.
Communications.

Erik M. Torgerson. Mr. Torgerson has been a Director of the Company
since November 1997. He is an Investment Manager at Norwest Venture Capital.
Prior to joining Norwest Venture Capital in 1993, Mr. Torgerson was with Arthur
Anderson & Co.'s financial consulting and audit practice. Mr. Torgerson serves
as a director of Command Tooling Systems, LLC, Seasonal Specialties, LLC,
TelcoPlus Communications, Inc. and InSTEP, LLC.

Each Director of the Company has been elected pursuant to the terms
of the Stockholders' Agreement. See "Certain Relationships and Related
Transactions -- Stockholders' Agreement."

All directors are elected annually and hold office until the next
annual meeting of stockholders and until their successors are duly elected and
qualified. Directors do not receive an annual retainer or meeting attendance
fees. However, the Company reimburses non-management directors for expenses
incurred in attending meetings of the Board of Directors.

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During 1997, the Board of Directors of the Company held 13 meetings.
The only standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The current members of the Audit Committee are
Messrs. Liepold, Johnston and Torgerson. The Audit Committee periodically
consults with the Company's management and independent public accountants on
financial matters, including the Company's internal financial controls and
procedures. The Audit Committee was formed in February 1997. The current members
of the Compensation Committee are Messrs. Benbow, Collatos and Johnston. The
Compensation Committee approves compensation arrangements for the Company's
executive officers and administers the Company's Stock Option Plan. The
Compensation Committee was formed in February 1997.

EXECUTIVE COMPENSATION

The following table sets forth certain compensation information for the
fiscal year ended December 31, 1997 as to the Chief Executive Officer and the
three other highest paid executive officers of the Company whose total annual
salary and bonus exceeded $100,000 for such year:

LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
----------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) ($)
- ------------------------------------- ----- -------- ----------- -------------- ------------

Rodney A. Weary 1997 $198,818.00 $ 50,000.00 21,884 --
Chief Executive Officer, Chairman
of the Board of Directors

Robert B. Weaver
Chief Financial Officer(1) 1997 $ 96,470.00 $ 45,000.00 12,505 $40,000(2)

William J. Gerski 1997 $ 60,259.00 $ 50,000.00 12,182 --
Vice President, Sales and Marketing

Jo Ellen Linn 1997 $ 80,926.00 $ 25,000.00 2,501 --
Secretary and General Counsel

- ---------

(1) Effective September 11, 1998, Mr. Weaver resigned as Chief
Financial Officer of the Company.

(2) The amount shown represents a relocation allowance.

OPTION GRANTS

The following table sets forth certain information concerning grants
of stock options to the named executive officers during the fiscal year ended
December 31, 1997:

Individual Grants
---------------------------------------------------------------
POTENTIAL
REALIZABLE VALUE AT
Percent of ASSUMED ANNUAL
Total RATES OF STOCK
Number of Options/ PRICE APPRECIATION
Securities SARs Granted FOR OPTION TERM
Underlying to Employees Exercise of ----------------------------
Option/SARs in Fiscal Base Price Expiration
NAME Granted (#) Year ($/Sh) Date 5%($) 10%($)
- ------------------ ----------- ------------ ----------- ---------- ------- --------

Rodney A. Weary 21,884 35.0% $ 1.00 10/8/07 $13,763 $34,877
Robert B. Weaver 12,505 20.0 $ 1.00 10/8/07 $ 7,864 $19,930
William J. Gerski 12,182 19.5 $ 1.00 10/8/07 $ 7,661 $19,415
Jo Ellen Linn 2,501 4.0 $ 1.00 10/8/07 $ 1,573 $ 3,986

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EMPLOYMENT AGREEMENTS

In January 1997, the Company entered into substantially similar
non-competition agreements with Rodney A. Weary, Robert B. Weaver and Jo Ellen
Linn, the terms of which preclude each of them from competing with the Company
during their respective periods of employment and for two years thereafter in
any market in North America in which the Company operates or intends to operate.

In February 1997, the Company and Mr. Weary entered into an
agreement pursuant to which Mr. Weary agreed to serve as the President and Chief
Executive Officer of the Company through February 2000. Such agreement may be
extended according to its terms. Under the agreement, Mr. Weary is paid
compensation in an amount not less than $200,000 per year and is eligible to
participate in the Stock Option Plan.

In February 1997, the Company entered into substantially similar
employment agreements with Mr. Weaver and Ms. Linn, pursuant to which each of
them agreed to serve the Company in their present capacity through February
2000. Such agreements may be extended according to their terms. Under the
agreements, Mr. Weaver was paid compensation in an amount not less than $80,000
per year and Ms. Linn is paid compensation in an amount not less than $82,500
per year. Each was also eligible to participate in the Stock Option Plan. On
September 11, 1998, Mr. Weaver resigned his position as Chief Financial Officer
of the Company.

In November 1997, the Company entered into substantially similar
employment and non-competition agreements with Mr. Gerski and Ms. Allen,
pursuant to which each of them agreed to serve the Company in their present
capacity through November 2000. Such agreements may be extended according to
their terms. Under the agreements, Mr. Gerski is paid compensation in an amount
not less than $100,000 per year, and Ms. Allen is paid compensation in an amount
not less than $80,000 per year. Each is also eligible to participate in the
Stock Option Plan.

In September 1998, the Company entered into an employment and
non-competition agreement with Mr. Hager.

STOCK OPTION PLAN

In July 1997, the Board of Directors of the Company adopted the
Stock Option Plan pursuant to which the Company may, at the direction of the
Compensation Committee of the Company's Board of Directors, grant incentive
stock options, non-qualified stock options or restricted stock options to
officers, directors and employees of the Company. The Stock Option Plan was
approved by the stockholders of the Company on July 24, 1997. The Stock Option
Plan was assumed by Holdings and approved by its stockholders effective
September 9, 1997.

401(k) PLAN

The Company maintains a 401(k) Savings Plan for its full-time
employees which permits employee contributions up to 15% of annual compensation
to the plan on a pre-tax basis. In addition, the Company may make contributions
on a discretionary basis as a percentage of each participating employee's annual
compensation. The Company may also make additional discretionary contributions
to the Plan in any plan year up to the annual 401(k) plan contribution limits as
defined in the Internal Revenue Code. The Plan is administered by the
Compensation Committee of the Board of Directors of the Company.

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PRINCIPAL STOCKHOLDERS

All of the issued and outstanding capital stock of the Company is
owned by Holdings. The following table sets forth certain information as of
September 25, 1998, regarding the ownership of Holdings' Common Stock, Series A
Convertible Participating Preferred Stock, $.01 par value ("Series A Preferred
Stock"), and Series B Convertible Participating Preferred Stock, $.01 par value
("Series B Preferred Stock"), by (i) certain stockholders or groups of related
stockholders who, individually or as a group, are the beneficial owners of 5% or
more of any class of Holdings' capital stock and (ii) the executive officers and
directors of the Company. Because only 100 shares of Common Stock are currently
outstanding, beneficial ownership percentages of the Common Stock presented
below are significantly affected by the securities convertible into or
exercisable for Common Stock held by each stockholder. Except as required by
law, holders of the Common Stock do not vote as a separate class on matters
presented for stockholder approval.

Shares Beneficially Owned
------------------------------------------------------------------------
Series A SERIES B
Preferred Stock PREFERRED STOCK
------------------------------- ----------------------------------
Percent Percent
NAME(1) Shares of Class Shares of Class
- ------------------------------------------------- ----------- ----------------- ------------- -----------------

PRINCIPAL STOCKHOLDERS:
Alta Subordinated Debt Partners
III, L.P.(3)................................. 55,532.00 13.3 11,125.24 4.9
Alta Communications VI, L.P.(3)................ 92,365.00 22.1 18,504.38 8.1
Alta-Comm S By S, LLC(3)....................... 2,103.00 * 421.84 *

Spectrum Equity Investors L.P.(4).............. 50,000.00 12.0 -- --
Spectrum Equity Investors II L.P.(4)........... 100,000.00 23.9 -- --

BancBoston Ventures Inc.(5).................... 75,000.00 17.9 12,521.44 5.5

Norwest Equity Partners VI, LP(6).............. -- -- 50,083.75 21.9
Norwest Venture Partners VI, LP(6)............. -- -- 25,041.87 11.0

HarbourVest Partners V-Direct Fund
L.P.(7)...................................... -- -- 75,125.62 32.9

Lion Investments Limited(8).................... -- -- 5,010.76 2.2
Westpool Investment Trust plc(8)............... -- -- 15,031.27 6.6

General Electric Capital Corporation(9)........ -- -- 15,000.00 6.6

EXECUTIVE OFFICERS AND DIRECTORS:
Rodney A. Weary(10)............................ 16,030.00 3.8 -- --
John R. Hager.................................. -- -- -- --
William J. Gerski(11).......................... -- -- -- --
Laquita J. Allen(12)........................... -- -- -- --
Jo Ellen Linn(13).............................. 430.00 * -- --
Robert F. Benbow(14)........................... 150,000.00 35.9 30,051.46 13.2
William O. Charman(15)......................... 75,000.00 17.9 12,521.44 5.5
William P. Collatos(16)........................ 150,000.00 35.9 -- --
William A. Johnston(17)........................ -- -- 75,125.62 32.9
Robert B. Liepold(18).......................... 1,000.00 * -- --
Erik M. Torgerson(19).......................... -- -- 50,083.75 21.9
All Executive Officers and
Directors as a group (11 persons)............ 392,460.00 93.5 167,782.27 73.4

Shares Beneficially Owned
---------------------------------

COMMON STOCK
---------------------------------
Percent
NAME(1) Shares(2) of Class
- ------------------------------------------------- --------------- -------------

PRINCIPAL STOCKHOLDERS:
Alta Subordinated Debt Partners
III, L.P.(3)................................. 2,116.00 96.1
Alta Communications VI, L.P.(3)................ 3,522.00 97.9
Alta-Comm S By S, LLC(3)....................... 81.00 45.0

Spectrum Equity Investors L.P.(4).............. 12.00 12.0
Spectrum Equity Investors II L.P.(4)........... 25.00 25.0

BancBoston Ventures Inc.(5).................... 19.00 19.0

Norwest Equity Partners VI, LP(6).............. -- --
Norwest Venture Partners VI, LP(6)............. -- --

HarbourVest Partners V-Direct Fund
L.P.(7)...................................... -- --

Lion Investments Limited(8).................... -- --
Westpool Investment Trust plc(8)............... -- --

General Electric Capital Corporation(9)........ -- --

EXECUTIVE OFFICERS AND DIRECTORS:
Rodney A. Weary(10)............................ 9,726.22 99.6
John R. Hager.................................. -- --
William J. Gerski(11).......................... 5,414.22 98.2
Laquita J. Allen(12)........................... 788.00 88.7
Jo Ellen Linn(13).............................. 1,111.58 93.9
Robert F. Benbow(14)........................... 5,719.00 98.9
William O. Charman(15)......................... 19.00 19.0
William P. Collatos(16)........................ 37.00 37.0
William A. Johnston(17)........................ -- --
Robert B. Liepold(18).......................... 1,670.22 96.4
Erik M. Torgerson(19).......................... -- --
All Executive Officers and
Directors as a group (11 persons)............ 24,485.24 100.0

- ----------
* Less than 1%
(1) Except as otherwise noted below, the persons named in the table have
sole voting power and investment power with respect to all shares
set forth in the table.

(2) Includes shares issuable upon exercise of warrants and options
exercisable within 60 days of the date hereof.

(3) The address is c/o Alta Communications, Inc., One Embarcadero
Center, Suite 4050, San Francisco, California 94111, Attn: Robert
Benbow.

(4) The address is 125 High Street, Suite 2600, Boston, MA 02110, Attn:
William P. Collatos.

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68

(5) The address is 175 Federal Street, 10th Floor, Boston, Massachusetts
02110, Attn: William O. Charman.

(6) The address is c/o Norwest Venture Capital Management, Inc., 2800
Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota
55402, Attn: Erik M. Torgerson.

(7) The address is c/o HarbourVest Partners, LLC, One Financial Center,
44th Floor, Boston, Massachusetts 02111, Attn: William A. Johnston.

(8) The address is c/o London Merchant Securities, Carlton House, 33
Robert Adam Street, London WIM 5AH, England, Attn: Iain MacPhail.

(9) The address is 120 Long Ridge Road, 3rd Floor, Stamford, Connecticut
06927, Attn: Peter Foley.

(10) 16,030 shares of Series A Preferred Stock and 4 shares of Common
Stock are held by the Rodney A. Weary Revocable Trust Dated 10/25/95
and may be deemed to be beneficially owned by Mr. Weary. In
addition, through the Stock Option Plan, Mr. Weary beneficially owns
9,726.22 shares of Common Stock as to which options have vested or
will have vested within 60 days, out of a pool of 21,884 shares
available to him.

(11) Through the Stock Option Plan, Mr. Gerski beneficially owns 5,414.22
shares of Common Stock as to which options have vested or will have
vested within 60 days, out of a pool of 12,182 shares available to
him.

(12) Through the Stock Option Plan, Ms. Allen beneficially owns 788.00
shares of Common Stock as to which options have vested or will have
vested within 60 days, out of a pool of 1,773 shares available to
her.

(13) Ms. Linn beneficially owns 430 shares of Series A Preferred Stock.
In addition, through the Stock Option Plan, Ms. Linn beneficially
owns 1,111.58 shares of Common Stock as to which options have vested
or will have vested within 60 days, out of a pool of 2,501 shares
available to her.

(14) Shares held by Alta Subordinated Debt Partners III, L.P., Alta
Communications VI, L.P. and Alta-Comm S By S, LLC, which may be
deemed to be beneficially owned by Mr. Benbow. In addition, Alta
Subordinated Debt Partners III, L.P., Alta Communications VI, L.P.
and Alta-Comm S By S, LLC own warrants to purchase 5,682 shares of
Common Stock, respectively. Mr. Benbow disclaims beneficial
ownership of such shares, except to the extent of his proportionate
pecuniary interest, if any.

(15) Shares held by BancBoston Ventures Inc., which may be deemed to be
beneficially owned by Mr. Charman.

(16) Shares held by Spectrum Equity Investors L.P. and Spectrum Equity
Investors II L.P., which may be deemed to be beneficially owned by
Mr. Collatos.

(17) Shares held by HarbourVest Partners V-Direct Fund L.P., which may be
deemed to be beneficially owned by Mr. Johnston.

(18) Mr. Liepold beneficially owns 1,000 shares of Series A Preferred
Stock. In addition, through the Stock Option Plan, Mr. Liepold
beneficially owns 1,670.22 shares of Common Stock as to which
options have vested or will have vested within 60 days, out of a
pool of 3,758 shares available to him.

(19) Shares held by Norwest Equity Partners VI, LP, which may be deemed
to be beneficially owned by Mr. Torgerson.

In connection with a binding letter of intent for a Pending Pro
Forma Acquisition, it is contemplated that the Company will issue 51,000 shares
of Series C Senior Convertible Preferred Stock, $.01 par value ("Series C
Preferred Stock"). Such shares of Series C Preferred Stock are expected to vote
on a common equivalents basis together with the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Common Stock and are expected to
be initially convertible into Common Stock on a one-to-one basis.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

STOCK PURCHASE AGREEMENTS

On February 12, 1997, pursuant to the Stock Purchase Agreement dated
as of such date by and among the Company, Rodney A. Weary, and the investors
named therein, the Company sold an aggregate 199,000 shares of Series A
Preferred Stock and 75 shares of Common Stock to such investors. At a subsequent
closing on February 28, 1997, the Company issued certain of such investors an
additional 207,000 shares of Series A Preferred Stock and 25 shares of Common
Stock in the aggregate. Such transactions resulted in proceeds to the Company of
approximately $40.6 million in the aggregate. The Company subsequently sold an
aggregate 12,000 shares of Series A Preferred Stock to certain investors who had
not previously purchased either Series A Preferred Stock or Common Stock. Such
transactions resulted in proceeds to the Company of approximately $35.6 million,
in addition to conversion of approximately $2.4 million in stock subscriptions
and $3.8 million in short term borrowings.

Pursuant to an Agreement and Plan of Merger dated as of September 9,
1997 by and among the Company, GSS Mergersub Inc., a wholly-owned subsidiary of
Golden Sky Holdings, Inc. ("Holdings"), and Holdings, GSS Mergersub Inc. merged
with and into the Company, with the Company being the surviving corporation.
Upon the consummation of such merger, each share of Series A Preferred Stock of
the Company was converted into a share of Series A Preferred Stock of Holdings,
each share of Common Stock of the Company was converted into a share of Common
Stock of Holdings, and each share of capital stock of GSS Mergersub Inc. was
converted into a share of Common Stock of the Company, thereby causing the
Company to be a wholly-owned subsidiary of Holdings. Pursuant to a letter
agreement dated as of September 9, 1997 by and between Holdings and the Company,
the Company assigned and Holdings assumed all of the rights and obligations of
the Company under the Series A Stock Purchase Agreement.

Pursuant to a Note Purchase Agreement dated as of November 6, 1997
by and among the Company and certain outside investors, the Company issued and
sold to such investors an aggregate $10.0 million principal amount of
convertible promissory notes of the Company ("Series B Convertible Notes"). Each
Series B Convertible Note (together with accrued interest thereon, if any) was
automatically convertible into a specified number of shares of Series B
Preferred Stock upon the consummation of a qualified Series B Preferred Stock
financing. On November 24, 1997, pursuant to the Stock Purchase Agreement dated
as of such date by and among Holdings, the Company, Rodney A. Weary and the
investors named therein, the Company issued an aggregate 228,442 shares of
Series B Preferred Stock at a purchase price of $200 per share to certain of
such investors upon conversion of the Series B Convertible Notes. Such Stock
Purchase Agreement provides that certain actions by the Company, including the
incurrence of indebtedness in excess of $1.0 million and the granting of liens
securing indebtedness in excess of $1.0 million, require the approval of a
supermajority of the members of the Company's Board of Directors.

Subject to certain exceptions, Holdings and its subsidiaries
(including the Company) are prohibited under the terms of each of the Stock
Purchase Agreements from paying any dividends or making any distributions of
cash, property or securities of Holdings or any subsidiary with respect to any
shares of its capital stock, or directly or indirectly redeeming, purchasing or
otherwise acquiring for consideration any shares of its capital stock. Such
prohibitions could have the effect of limiting the cash available for the
Company to service its indebtedness.

STOCKHOLDERS' AGREEMENT

Holdings and its stockholders have entered into a stockholders'
agreement dated as of November 24, 1997 (the "Stockholders' Agreement"). Under
the Stockholders' Agreement, Holdings and certain of its stockholders were
granted a right of first offer and a co-sale option with respect to shares of
Holdings' capital stock offered in transactions not otherwise expressly
permitted under the Stockholders' Agreement. In addition, certain of the holders
of Series A and Series B Preferred Stock were granted the right, upon the
affirmative vote of 58% of the outstanding shares of each such class, to cause
the other holders to (i) dispose of all their shares of capital stock of
Holdings in connection with a sale of all outstanding shares of Holdings capital
stock or (ii) vote for the merger or consolidation of Holdings with an
unaffiliated acquiring entity or the sale of all or substantially all the assets
of Holdings. Such rights shall terminate

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70

immediately upon an initial public offering of Holdings' Common Stock meeting
certain criteria or a sale of Holdings. The election of directors is also
established by the Stockholders' Agreement. Under the Stockholders' Agreement,
Holdings has agreed, subject to certain conditions, to effect up to four demand
registrations of the Common Stock held by its stockholders for a sale to the
public under applicable federal and state securities laws. In addition, the
stockholders have certain "piggy-back" registration rights and rights to
registration on Form S-3, subject to certain conditions. In consideration for
such registration rights, under the Stockholders' Agreement the stockholders
have agreed not to sell or otherwise dispose of shares of the Company's Common
Stock for 180 days following any initial public offering by Holdings upon the
request of Holdings or the underwriter for such offering. The obligations of the
Company to register shares of its Common Stock under the Stockholders' Agreement
will terminate as to any party thereto (other than Holdings) seven years after
an initial public offering of the Company's securities, or, as to any party
holding less than 2% of Holdings' outstanding Common Stock, at such time after
the first anniversary of an initial public offering when all such shares can be
legally transferred in a three-month period under Rule 144 under the Securities
Act (as reasonably determined by Holdings).

FORMER CABLE-VIDEO MANAGEMENT, INC. ARRANGEMENT

On July 1, 1996, the Company entered into a management agreement
with Cable-Video Management, Inc. ("CVM"), which is owned by Rodney A. Weary,
the Company's Chief Executive Officer, to administer the Company's first
Acquisition. The management agreement was terminated effective September 30,
1996. During the term of the agreement, total management fees of $280,000 were
paid to CVM, and the Company reimbursed CVM for salaries and other miscellaneous
expenses totaling approximately $343,000. Upon termination of the management
agreement, the Company purchased the assets of CVM for $44,000.

CONSULTING ARRANGEMENT WITH ROBERT B. LIEPOLD

The Company has an oral consulting agreement with Robert B. Liepold,
a vice president and director of the Company, to provide expertise on an "as
needed" basis at the rate of $200 per hour in fiscal 1997 and at the rate of
$7,000 per month in 1998. In 1997, the Company paid an aggregate $77,000 to Mr.
Liepold in connection with such services. As of August 31, 1998, the Company had
paid an aggregate $56,000 to Mr. Liepold in 1998.

PAYMENTS TO AFFILIATES OF RODNEY A. WEARY

The Company utilizes the air transportation services of a company
owned by Rodney A. Weary, the Company's Chief Executive Officer. The Company
paid $109,000 in 1997 and $31,000 in 1996 in connection with such services. In
October 1997, the Company entered into an agreement to lease an aircraft from
Mr. Weary. The lease is cancelable with six months' notice and requires monthly
payments equal to the greater of $15,000 or a fixed hourly operating charge
based on prevailing market rates.

In 1997, Mr. Weary loaned $150,000 to the Company at an interest
rate of 10% per annum. In 1996, Mr. Weary made a short-term loan in the
principal amount of $381,000 to the Company at an annual interest rate of 10%.
All such amounts were repaid by the Company prior to December 31, 1997.

Also in 1997, the Company paid $66,000 to a company affiliated with
Mr. Weary, which payment was reimbursement relating to consulting services
rendered to the Company.

In 1997, F.G. Weary, the father of Rodney A. Weary, loaned $215,000
to the Company at an interest rate of 10% per annum. Such loan, together with
accrued interest, was repaid by the Company prior to December 31, 1997.

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DESCRIPTION OF OTHER INDEBTEDNESS

CREDIT FACILITY

The Amended and Restated Credit Agreement, dated as of July 7, 1997,
amended and restated as of May 8, 1998, among Holdings, the Company, the banks
party thereto from time to time, Paribas (formerly known as Banque Paribas), as
Syndication Agent, Fleet National Bank, as Administrative Agent, and General
Electric Capital Corporation, as Documentation Agent (the "Credit Facility"),
provides for a $35.0 million term loan facility and a $115.0 million revolving
credit facility, with a $40.0 million sublimit for letters of credit. Amounts
available under the term loan facility are subject to increase, and amounts
available under the revolving credit facility are subject to decrease, by up to
$15.0 million pending syndication of the Credit Facility by the agent banks. All
the proceeds of borrowings pursuant to the term loan facility ("Term Loans") and
up to $100.0 million of the proceeds of borrowings pursuant to the revolving
credit facility ("Revolving Loans") will be used to repay existing indebtedness
and for working capital purposes. The remaining proceeds of Revolving Loans may
be used to effect acquisitions of Rural DIRECTV Markets and for general
corporate, capital expenditure and working capital purposes.
Capitalized terms used in this section but not defined herein have the meaning
ascribed to such terms as the Credit Facility.

The term loan facility is to be repaid in 16 consecutive quarterly
installments commencing June 30, 2001 with the remaining balance due March 31,
2005. Each of the quarterly payments due from June 30, 2001 through March 31,
2003 shall be in the amount of $87,500; each of the quarterly installments due
from June 30, 2003 through March 31, 2004 shall be in the amount of $175,000;
the quarterly installment due on June 30, 2004 shall be in the amount of
$2,100,000; and each of the quarterly installments due from September 30, 2004
through March 31, 2005 shall be in the amount of $10,500,000. Borrowing under
the revolving credit facility will be available to the Company until June 30,
2004; however, the revolving loan commitment will be reduced quarterly
commencing June 30, 2000 by $4,312,500 at the end of each quarter from June 30,
2000 through March 31, 2001, by $5,750,000 at the end of each quarter from June
30, 2001 through March 31, 2002, by $7,187,500 at the end of each quarter from
June 30, 2002 through March 31, 2003, by $8,625,000 at the end of each quarter
from June 30, 2003 through March 31, 2004, and by $11,500,000 on June 30, 2004.
The making of each loan under the Credit Facility is subject to the satisfaction
of certain conditions, which include not exceeding a certain "borrowing base"
based on the number of paying subscribers within the Rural DIRECTV Markets
served by the Company and in Rural DIRECTV Markets to be acquired by the
Company. In addition, the Credit Facility provides that the Company will be
required to make mandatory repayments of the Credit Facility from, subject to
certain exceptions, the net proceeds of certain sales or other dispositions by
the Company or any of its subsidiaries of capital stock or material assets, and
with a percentage of any excess operating cash flow with respect to any fiscal
year equal to 75% or 50% in the event that there exists no default or event of
default (as such terms are used in the Credit Facility) and the ratio of
Consolidated Indebtedness to Annualized Consolidated EBITDA (the "Debt: Earnings
Ratio") for the preceding four fiscal quarters is equal to or less than 4:1.

Borrowings by the Company under the Credit Facility are
unconditionally and irrevocably guaranteed by Holdings and each of the Company's
direct and indirect subsidiaries (excluding South Plains DBS Limited Partnership
and DCE Satellite Entertainment, LLC), and such borrowings are secured by (i) an
equal and ratable pledge by Holdings of all of the capital stock of the Company,
(ii) an equal and ratable pledge of all of the capital stock of the Company's
subsidiaries, (iii) a first priority security interest in all of their assets,
and (iv) a collateral assignment of the Company's NRTC Agreements.

The Credit Facility provides that the Company may elect that all or
a portion of the borrowings under the Credit Facility bear interest at a rate
per annum equal to either (i) the Base Rate plus the Applicable Margin or (ii)
the Quoted Rate plus the Applicable Margin. When applying the Base Rate with
respect to Revolving Loans, the Applicable Margin will be 2.25% per annum, less
the then applicable Leverage Reduction Discount. When applying the Quoted Rate
with respect to Revolving Loans, the Applicable Margin will be 3.50% per annum,
less the then applicable Leverage Reduction Discount. When applying the Base
Rate with respect to Term Loans, the Applicable Margin will be 2.50% per annum,
less the then applicable Leverage Reduction Discount. When applying the Quoted
Rate with respect to Term Loans, the Applicable Margin will be 3.75% per annum,
less the then applicable Leverage

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Reduction Discount. As used herein, the "Base Rate" means the higher of (i)
0.50% in excess of the Federal Funds rate and (ii) the prime lending rate. As
used herein, the "Quoted Rate" means (a) the quotation offered to the
Administrative Agent in the New York interbank Eurodollar market for U.S. dollar
deposits of amounts in immediately available funds comparable to the outstanding
principal amount of the loan of the Administrative Agent for which an interest
rate is then being determined with maturities comparable to the interest period
applicable to such loan as determined by the Administrative Agent's Treasury
Funding Management on the date which is two business days prior to the
commencement of such interest period, divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (b) a percentage equal to the remainder of 100%
minus the then stated maximum rate of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable to any member bank of the Federal Reserve System in respect
of Eurocurrency funding or liabilities as defined in Regulation D of the Board
of Governors of the Federal Reserve System (or any successor category of
liabilities under such Regulation D). As used herein, the "Leverage Reduction
Discount" has the following meanings: (i) on the Restatement Effective Date (as
defined in the Credit Agreement) and during any period during which clause (ii)
or (iii) below, as the case may be, does not apply, the Leverage Reduction
Discount is 0%; (ii) in the case of Revolving Loans, from and after the Start
Date to and including the End Date (each as defined in the Credit Agreement) and
subject to (iv) below, the following percentage, to the extent but only to the
extent that as of the last day of the most recent fiscal quarter, when (w) the
Debt:Earnings Ratio is less than 7:1 but greater than or equal to 6:1, the
Leverage Reduction Discount is 0.25%; (x) the Debt:Earnings Ratio is less than
6:1 but greater than or equal to 5:1, the Leverage Reduction Discount is 0.75%;
(y) the Debt:Earnings Ratio is less than 5:1 but greater than or equal to 4:1,
the Leverage Reduction Discount is 1.00%; and (z) the Debt:Earnings Ratio is
less than 4:1, the Leverage Reduction Discount is 1.50%; (iii) in the case of
Term Loans, the Leverage Reduction Discount is 0.75% when the Debt:Earnings
Ratio at the end each of the two most recent fiscal quarters has been less than
or equal to 6:1; and (iv) notwithstanding clauses (ii) and (iii) above, any time
there exists a Default or Event of Default or the Consolidated EBITDA for the
most recent fiscal quarter was less than or equal to zero, the Leverage
Reduction Discount shall be 0%.

The Credit Facility contains a number of significant covenants that,
among other things, limit the ability of the Company and its subsidiaries to
incur additional indebtedness and guaranty obligations, create liens and other
encumbrances, make certain payments, investments, loans and advances, pay
dividends or make other distributions in respect of its capital stock, sell or
otherwise dispose of assets, make capital expenditures, merge or consolidate
with another entity, create subsidiaries, make amendments to its organizational
documents or transact with affiliates. In addition, the Credit Facility requires
the maintenance of certain specified financial and operating covenants,
including minimum interest coverage ratios and limits on general and
administrative expenses.

The Company will pay a commitment fee on the unused amounts under
the revolving loan commitments calculated at 0.5% per annum, payable quarterly
in arrears.

Pursuant to a recent amendment to the NRTC Agreements, the Company
and all other NRTC members whose monthly obligations to the NRTC have exceeded
$500,000 in the past six months are required to keep and maintain in full force
and effect a standby letter of credit in favor of the NRTC to secure their
respective payment obligations to the NRTC under the NRTC Agreements. The
initial amount of the letter of credit issued at the request of the Company
pursuant to the Credit Facility is equal to three times the Company's single
largest monthly invoice from the NRTC, and must be increased as the Company
makes additional acquisitions of Rural DIRECTV Markets and when the Company's
obligations to the NRTC exceed the amount of the original letter of credit by
67%.

SELLER NOTES

In connection with the acquisition of the Company's Rural DIRECTV
Market in Clark County, Nevada, the Company issued a promissory note (the
"TEG-DBS Note") in favor of TEG-DBS Services, Inc. Pursuant to the TEG-DBS Note,
the Company is obligated to pay to TEG-DBS the principal sum of $2,500,000,
which amount is due and payable on June 12, 1999, together with interest accrued
on the unpaid principal amount at the rate of 10% per annum, which interest is
payable in quarterly installments. The obligations of the Company pursuant to
the TEG-DBS Note are secured by assets of TEG-DBS acquired by the Company, as
described in the Security Agreement, dated June 12,

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1997 between the Company and TEG-DBS. As of March 31, 1998, the entire principal
amount of the TEG-DBS Note was outstanding. A failure by the Company to make a
payment under the TEG-DBS Note would entitle TEG-DBS, at its sole option to (i)
a late payment penalty equal to 2% of the payment amount or (ii) to accelerate
the payment by the Company of all amounts due pursuant to the TEG-DBS Note.

In connection with the acquisition of the Company's Rural DIRECTV
Market in Missoula, Montana, the Company issued a note payable in favor of
Western Montana Entertainment Television, Inc. in the principal amount of $3.75
million, dated December 22, 1997 (the "Western Montana Note"). The Western
Montana Note bears interest at an annual rate of 7%. Four annual installments of
principal and interest of $1,121,868 are payable commencing January 5, 1999. The
Western Montana Note is secured by a letter of credit.

In connection with the acquisition of the Company's Rural DIRECTV
Market in Enfield, North Carolina, the Company issued a note payable in favor of
Halifax Electric Membership Corporation in the principal amount of $5.0 million,
dated May 8, 1998 (the "Halifax Note"). The Halifax Note bears interest at an
annual rate of 7%. Interest is payable in quarterly installments. Principal is
payable in equal annual installments of $1.0 million on January 1 of each year,
commencing January 1, 1999. The Halifax Note is secured by a letter of credit.

In connection with the acquisition of the Company's Rural DIRECTV
Market in Summerdale, Alabama, the Company issued a note payable in favor of
Baldwin County Electric Membership Corporation in the principal amount of $5.16
million, dated June 29, 1998 (the "Alabama Note"). The Alabama Note bears
interest at an annual rate of 8%. Principal and accrued interest is payable, in
full, on January 15, 1999. The Alabama Note is secured by a letter of credit.

The TEG-DBS Note, the Western Montana Note, the Halifax Note and the
Alabama Note are collectively referred to herein as the "Seller Notes."

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DESCRIPTION OF THE NEW NOTES

The New Notes will be issued under the Indenture, a copy of which will
be made available to holders of Old Notes upon request. The terms of the New
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The New Notes are subject to all such terms, and prospective
holders of New Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Trust Indenture Act, and to all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part of the Indenture by reference to the Trust Indenture
Act, as in effect on the date of the Indenture. As used in this section, the
"Company" refers to Golden Sky Systems, Inc. only. The definitions of certain
capitalized terms used in the following summary are set forth below under "--
Certain Definitions."

GENERAL

The New Notes will be general senior subordinated obligations of the
Company secured to the limited extent described under "-- Escrow Account." The
New Notes will be issued only in fully registered form without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
Principal of, premium, if any, and interest on the New Notes are payable, and
the New Notes are exchangeable and transferable, at the office or agency of the
Company in the City of New York maintained for such purposes (which initially
will be the corporate trust office of the Trustee). No service charge will be
made for any registration of transfer, exchange or redemption of the New Notes,
except in certain circumstances for any tax or other governmental charge that
may be imposed in connection therewith.

MATURITY, INTEREST AND PRINCIPAL

The New Notes are limited to $195,000,000 aggregate principal amount
and will mature on August 1, 2006. Interest on the New Notes will accrue at a
rate of 12 3/8% per annum and will be payable in cash semi-annually in arrears
on each February 1 and August 1 (each, an "Interest Payment Date"), commencing
February 1, 1999, to registered holders of New Notes on the January 15 or July
15, as the case may be, immediately preceding such Interest Payment Date.
Interest on the New Notes will accrue from the most recent Interest Payment Date
to which interest has been paid or duly provided for on the Old Note surrendered
in exchange for such New Note, or, if no interest has been paid or duly provided
for on such Old Note, from July 31, 1998. Interest will be computed on the basis
of a 360-day year of twelve 30-day months. If the Company defaults on any
payment in respect of the New Notes (whether upon redemption or otherwise),
interest on overdue principal and premium and, to the extent permitted by law,
on overdue installments of interest will accrue on the amount in default at the
rate of interest borne by the New Notes.

REDEMPTION

Optional Redemption. The New Notes will be redeemable, at the option of
the Company, in whole or in part, on or after August 1, 2003 upon not less than
30 nor more than 60 days' written notice at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest thereon, if any, to the applicable redemption date, if redeemed during
the twelve-month period beginning on August 1 of each of the years indicated
below:

YEAR Percentage

2003 112%
2004 110%
2005 and thereafter 108%

Optional Redemption upon Public Equity Offerings. On or prior to August
1, 2001, the Company may, at its option, redeem up to 35% of the originally
issued aggregate principal amount of the New Notes, at a redemption price in
cash equal to 112.375% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to

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the date of redemption solely with the net proceeds of a Public Equity Offering
of the Company or Holdings yielding gross proceeds of at least $40 million and
any subsequent Public Equity Offerings (provided that, in the case of any such
Public Equity Offering or Public Equity Offerings by Holdings, all the net
proceeds thereof are contributed to the Company); provided, further, that not
less than 65% of the originally issued aggregate principal amount of Notes is
outstanding following such redemption. Notice of any such redemption must be
given not later than 60 days after the consummation of any sale resulting in the
requisite gross proceeds.

Mandatory Redemption. The Company will not be required to make any
mandatory sinking fund payments in respect of the New Notes. However, (i)
following the occurrence of a Change of Control, the Company will be required to
make an offer to purchase all outstanding New Notes at a price equal to 101% of
the principal amount thereof (determined at the date of purchase), plus accrued
interest thereon, if any, to the date of purchase and (ii) upon the occurrence
of an Asset Sale, the Company may be obligated to make an offer to purchase all
or a portion of the outstanding New Notes at a price equal to 100% of the
principal amount thereof (determined at the date of purchase), plus accrued and
unpaid interest, if any, to the date of purchase. See "-- Change of Control" and
"-- Certain Covenants --Disposition of Proceeds of Asset Sales."

Selection; Effect of Redemption Notice. In the case of a partial
redemption, selection of the New Notes for redemption will be made pro rata, by
lot or such other method as the Trustee in its sole discretion deems appropriate
and just; provided that any redemption pursuant to the provisions relating to a
Public Equity Offering shall be made on a pro rata basis or on as nearly a pro
rata basis as practicable (subject to DTC procedures). No New Notes of a
principal amount of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of New Notes to be redeemed at
its registered address. If any New Note is to be redeemed in part only, the
notice of redemption that relates to such New Note shall state the portion of
the principal amount thereof to be redeemed. A new New Note in a principal
amount equal to the unredeemed portion thereof will be issued in the name of the
holder thereof upon surrender for cancellation of the original New Note. Upon
giving of a redemption notice, interest on New Notes called for redemption will
cease to accrue from and after the date fixed for redemption (unless the Company
defaults in providing the funds for such redemption) and such New Notes will
cease to be outstanding.

ESCROW ACCOUNT

The New Notes will be collateralized, pending disbursement pursuant to
the Escrow Agreement, by a pledge of the Escrow Account (funds and investments
held from time to time in the Escrow Account are referred to as the "Escrow
Collateral"). The Escrow Account represents funds that, together with the
proceeds from the investment thereof, will be sufficient to pay interest on the
outstanding Notes for the first four scheduled interest payments (but not any
Additional Interest that may arise under the Registration Rights Agreement).

The Escrow Agreement provides for the grant by the Company to the
Trustee, for the benefit of the holders, of security interests in the Escrow
Collateral. All such security interests will collateralize the payment and
performance when due of the Company's secured obligations under the Indenture
and the Notes, as provided in the Escrow Agreement. The Liens created by the
Escrow Agreement are intended to be first priority security interests in the
Escrow Collateral. The ability of holders to realize upon any such funds or
securities may be subject to certain bankruptcy law limitations in the event of
the bankruptcy of the Company.

Pursuant to the Escrow Agreement, funds may be disbursed from the
Escrow Account only to pay interest on the Notes (or, if a portion of the Notes
has been retired by the Company, funds representing the lesser of (i) the excess
of the amount sufficient to pay interest through and including August 1, 2000 on
the Notes not so retired and (ii) the interest payments that have not previously
been made on such retired Notes for each Interest Payment Date through the
Interest Payment Date to occur on August 1, 2000 shall be paid to the Company if
no Default then exists under the Indenture).

The Escrow Agreement provides that Escrow Collateral contained in the
Escrow Account be held by the Escrow Agent, as directed by the Company, in the
form of cash and certain other permitted investments in which it will maintain a
perfected security interest. Funds contained in the Escrow Account have been
invested in Government Securities, and interest earned on Government Securities
will be placed in the Escrow Account. Upon the acceleration of the maturity of
the Notes, the Escrow Agreement provides for the foreclosure by the Trustee upon
the net proceeds

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of the Escrow Account. Under the terms of the Indenture, the proceeds of the
Escrow Account shall be applied, first, to amounts owing to the Trustee in
respect of fees and expenses of the Trustee and, second, to the secured
obligations under the Notes and the Indenture. Under the Escrow Agreement,
assuming that the Company makes the first four scheduled interest payments on
the Notes in a timely manner with funds or Government Securities held in the
Escrow Account, all of the Government Securities will be released from the
Escrow Account.

CHANGE OF CONTROL

The Indenture provides that, following the occurrence of a Change of
Control (the date of such occurrence being the "Change of Control Date"), the
Company will be obligated, within 30 days after the Change of Control Date, to
make an offer to purchase (a "Change of Control Offer") on a business day not
later than the 60th day following the Change of Control Date (the "Change of
Control Payment Date") all of the then outstanding Notes at a purchase price
(the "Change of Control Purchase Price") in cash equal to 101% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the Change
of Control Payment Date. The Company will be required to purchase all Notes
properly tendered and not withdrawn pursuant to the Change of Control Offer.

The Indenture provides that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control, the Company covenants to either (i) repay in full and terminate all
commitments under all Indebtedness under the Credit Facility and all other
Senior Indebtedness the terms of which require repayment upon a Change of
Control or offer to repay in full and terminate all commitments under all
Indebtedness under the Credit Facility and all other such Senior Indebtedness
and to repay the Indebtedness owed to each lender which has accepted such offer
or (ii) obtain the requisite consents under the Credit Facility and all other
Senior Debt to permit the repurchase of the Notes as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase Notes pursuant to the provisions
described herein. The Company's failure to comply with the two immediately
preceding sentences shall constitute an Event of Default described in clause
(iv) and not in clause (ii) under "-- Events of Default."

In order to effect such Change of Control Offer, the Company will, not
later than the 30th day after the Change of Control Date, be obligated to mail
to each holder of Notes notice of the Change of Control Offer, which notice will
govern the terms of the Change of Control Offer and will state, among other
things, the procedures that holders must follow to accept the Change of Control
Offer. The Change of Control Offer will be required to be kept open for a period
of at least 20 business days.

If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to pay the purchase price for
all of the Notes that might be tendered by holders of Notes seeking to accept
the Change of Control Offer. If the Company fails to purchase all of the Notes
tendered for purchase, such failure will constitute an Event of Default under
the Indenture. See "-- Events of Default" below.

The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other applicable
securities laws or regulations and any applicable requirements of any securities
exchange on which the Notes are listed, in connection with the repurchase of
Notes pursuant to a Change of Control Offer, and any violation of the provisions
of the Indenture relating to such Change of Control Offer occurring as a result
of such compliance shall not be deemed a Default or an Event of Default under
the Indenture.

SUBORDINATION

The payment of all Obligations on the New Notes will be subordinated in
right of payment, as described below, to the prior payment in full in cash or
Cash Equivalents of all Obligations with respect to Senior Indebtedness. To the
extent holders of Notes realize upon Escrow Collateral prior to the Release Date
following an exercise of remedies under the Indenture, the following
subordination provisions will not apply.

The Indenture provides that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, or any assignment for the benefit of creditors
or other marshalling of assets or liabilities of the Company, all Obligations
with respect to Senior Indebtedness must be paid in cash or cash equivalents in
full before any payment or distribution

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(excluding any payment or distribution of Permitted Junior Securities, payments
from the Escrow Account and any payment from the trust described under
"--Defeasance or Covenant Defeasance of Indenture") is made on account of the
Obligations with respect to the Notes or for the acquisition, redemption or
other purchase of any Obligations with respect to the Notes for cash, property
or otherwise.

During the continuance of any default in the payment of any Designated
Senior Indebtedness pursuant to which the maturity thereof may immediately be
accelerated beyond any applicable grace period and after receipt by the Trustee
from representatives of holders of such Designated Senior Indebtedness of
written notice of such default, no payment or distribution of any assets of any
kind or character shall be made by or on behalf of the Company or any other
Person on its behalf (excluding any payment or distribution of Permitted Junior
Securities, payments from the Escrow Account and any payment from the trust
described under "-- Defeasance or Covenant Defeasance of Indenture") shall be
made on account of the Obligations with respect to, or the purchase, redemption
or other acquisition of, the Notes unless and until such default has been cured
or waived or has ceased to exist or such Designated Senior Indebtedness shall
have been discharged or paid in full in cash or Cash Equivalents.

During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may
immediately be accelerated (a "Non-payment Default") and after the receipt by
the Trustee and the Company from the representatives of holders of such
Designated Senior Indebtedness of a written notice of such Non-payment Default,
neither the Company nor any other Person on its behalf shall make any payment or
distribution of any kind or character (excluding any payment or distribution of
Permitted Junior Securities, payments from the Escrow Account and any payment
from the trust described under "-- Defeasance or Covenant Defeasance of
Indenture") may be made by the Company on account of the Obligations with
respect to, or the purchase, redemption or other acquisition of, the Notes for
the period specified below (the "Payment Blockage Period").

The Payment Blockage Period will commence upon the receipt of notice of
a Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness and will end on the earliest to occur of the
following events: (i) 179 days shall have elapsed since the receipt of such
notice of a Non-payment Default (provided such Designated Senior Indebtedness
shall not theretofore have been accelerated), (ii) such default is cured or
waived or ceases to exist or such Designated Senior Indebtedness is discharged
or (iii) such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the representatives of holders of
Designated Senior Indebtedness initiating such Payment Blockage Period. After
the end of any Payment Blockage Period the Company shall promptly resume making
any and all required payments in respect of the Notes, including any missed
payments. Notwithstanding anything in the subordination provisions of the
Indenture or the Notes to the contrary, (x) in no event shall a Payment Blockage
Period extend beyond 179 days from the date of the receipt by the Trustee of the
notice initiating such Payment Blockage Period, (y) there shall be a period of
at least 181 consecutive days in each 360-day period when no Payment Blockage
Period is in effect and (z) not more than one Payment Blockage Period with
respect to the Notes may be commenced within any period of 360 consecutive days.
No Non-payment Event of Default with respect to Designated Senior Indebtedness
that existed or was continuing on the date of the commencement of any Payment
Blockage Period with respect to the Designated Senior Indebtedness initiating
such Payment Blockage Period may be, or be made, the basis for the commencement
of a second Payment Blockage Period, whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period based upon any new events that,
in either case, would give rise to an event of default pursuant to any
provisions under which an event of default previously existed or was continuing
shall constitute a new event of default for this purpose).

In the event that, notwithstanding the foregoing, the Company makes any
payment or distribution to the Trustee or any holder of any Note prohibited by
the subordination provision of the Indenture, then such payment or distribution
will be required to be paid over and delivered to the holders (or their
representative) of Designated Senior Indebtedness.

If the Company fails to make any payment on the Notes when due or
within any applicable grace period, whether or not on account of the
subordination provisions referred to above, such failure would constitute an
Event of Default under the Indenture and would enable the holders of the Notes
to accelerate the maturity thereof. See "-- Events of Default."

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By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Company who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes, and funds that would be
otherwise payable to the holders of the Notes will be paid to the holders of
Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in
full, and the Company may be unable to meet its obligations fully with respect
to the Notes.

As of June 30, 1998, on a Pro Forma basis, the Company would have had
outstanding $35.0 million of Senior Indebtedness and $95.1 million of
availability under the Credit Facility. The Indenture limits, but does not
prohibit, the incurrence by the Company of additional Indebtedness that is
senior to the Notes, but prohibits the incurrence of any Indebtedness
contractually subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes. See "Risk Factors --
Subordination of the Notes; Asset Encumbrances."

CERTAIN COVENANTS

Set forth below are certain covenants that are contained in the
Indenture.

Limitation on Additional Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, Incur, contingently or otherwise, any Indebtedness (including any
Acquired Indebtedness), except for Permitted Indebtedness; provided that the
Company will be permitted to Incur Indebtedness, and any Restricted Subsidiary
will be able to Incur Acquired Indebtedness, if, at the time of and immediately
after giving pro forma effect to such Incurrence (including the application of
the net proceeds therefrom), the Debt to Operating Cash Flow Ratio of the
Company would be less than or equal to 6.5 to 1.0.

Limitation on Restricted Payments. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment unless:

(i) no Default shall have occurred and be continuing at the
time of or after giving effect to such Restricted Payment;

(ii) immediately after giving effect to such Restricted
Payment, the Company would be able to incur $1.00 of Indebtedness under
the Debt to Operating Cash Flow Ratio set forth in the covenant
"Limitation on Additional Indebtedness"; and

(iii) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments and
Designation Amounts declared or made on or after the Issue Date does
not exceed an amount equal to the sum of, without duplication, (a) the
difference between (x) the Cumulative Operating Cash Flow determined
for the period commencing on the Issue Date and ending on the last day
of the most recent fiscal quarter immediately preceding the date of
such Restricted Payment and (y) 150% of Cumulative Consolidated
Interest Expense determined for the period commencing on the Issue Date
and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment, plus (b) the
aggregate net cash proceeds received by the Company either (x) as
capital contributions to the Company after the Issue Date or (y) from
the issue and sale (other than to a Subsidiary of the Company) of its
Qualified Equity Interests after the Issue Date, plus (c) the aggregate
net cash proceeds received by the Company or any Restricted Subsidiary
after the Issue Date upon the conversion of, or exchange for,
Indebtedness of the Company or a Restricted Subsidiary that has been
converted into or exchanged for Qualified Equity Interests of the
Company, plus (d) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment (other than an Investment
made pursuant to clause (iv) of the following paragraph) made after the
Issue Date, an amount (to the extent not included in the computation of
Cumulative Operating Cash Flow) equal to the lesser of: (i) the return
of capital with respect to such Investment and (ii) the amount of such
Investment that was treated as a Restricted Payment, plus (e) so long
as the Designation thereof was treated as a Restricted Payment made
after the Issue Date, with respect to any Unrestricted Subsidiary that
has been redesignated as a Restricted Subsidiary after the Issue Date
in accordance with "--Designation of Unrestricted Subsidiaries" below,
the Company's proportionate interest equal to the Fair Market Value of
any Unrestricted Subsidiary that has been redesignated as a Restricted
Subsidiary after the Issue Date in accordance with "-- Designation of
Unrestricted Subsidiaries" below not to exceed in any case the
Designation Amount with respect to such Restricted Subsidiary upon its
Designation, minus (f) the greater

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of (i) $0 and (ii) the Designation Amount (measured as of the date of
Designation) with respect to any Subsidiary of the Company that has
been Designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "--Designation of Unrestricted Subsidiaries" below and
minus (g) 50% of the aggregate principal amount of outstanding
Indebtedness included in the calculation of clause (d) of the
definition of Permitted Indebtedness at the time of such Restricted
Payment. For purposes of the preceding clauses (b) and (c) and without
duplication and for purposes of the definition of Total Incremental
Invested Equity, the value of the aggregate net cash proceeds received
by the Company upon the issuance of Qualified Equity Interests either
upon the conversion of convertible Indebtedness or in exchange for
outstanding Indebtedness or upon the exercise of options, warrants or
rights will be the net cash proceeds received upon the issuance of such
Indebtedness, options, warrants or rights plus the incremental cash
received by the Company upon the conversion, exchange or exercise
thereof.

The provisions of this covenant shall not prohibit: (i) the payment of
any dividend or other distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with the
provisions of the Indenture; (ii) so long as no Default shall have occurred and
be continuing, the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company (A) in exchange for or conversion into or (B)
out of the net cash proceeds of the substantially concurrent issue and sale
(other than to a Subsidiary of the Company) of Equity Interests of the Company
(other than Disqualified Equity Interests); provided that any such net cash
proceeds pursuant to the immediately preceding subclause (B) are excluded from
clause (iii)(b) of the preceding paragraph; (iii) so long as no Default shall
have occurred and be continuing, the purchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Indebtedness made by
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in which cash is paid in lieu of fractional shares
or scrip), or out of the net cash proceeds of a substantially concurrent issue
or sale (other than to a Subsidiary of the Company) of, (A) Equity Interests
(other than Disqualified Equity Interests) of the Company; provided that any
such net cash proceeds, to the extent so used, are excluded from clause (iii) of
the preceding paragraph, and/or (B) other Subordinated Indebtedness, having a
Weighted Average Life to Maturity that is equal to or greater than the Weighted
Average Life to Maturity of the Subordinated Indebtedness being purchased,
redeemed, defeased or otherwise acquired or retired; (iv) Investments
constituting Restricted Payments in Persons engaged primarily in a Permitted
Business in an amount not to exceed $10.0 million outstanding at any time; (v)
the making of any Investment in or payment of any dividend or distribution to
Holdings for bona fide costs and operating expenses of Holdings directly related
to the operations of the Company and its Subsidiaries; and (vi) the payment of
any dividend or distribution to Holdings to enable it to purchase, redeem, or
otherwise acquire or retire for value Equity Interests of Holdings held by
employees or former employees of Holdings, the Company or any Subsidiary of
Holdings or the Company (or their estates or beneficiaries under their estates)
upon death, disability, retirement or termination of employment, not to exceed
$1.0 million in any year or $3.0 million in the aggregate since the Issue Date
plus, in each case, the amount of the net proceeds received by the Company,
Holdings or any such Subsidiary from life insurance policies on the life of the
employee whose Equity Interests are being purchased, redeemed or otherwise
acquired or retired for value.

In no event shall a Restricted Payment made on the basis of
consolidated financial statements prepared in good faith in accordance with GAAP
be subject to rescission or constitute a Default by reason of any requisite
subsequent restatement of such financial statements which would have made such
Restricted Payment prohibited at the time that it was made.

In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iv) and (vi) of the second
preceding paragraph shall be included as Restricted Payments and amounts
expended pursuant to clauses (ii), (iii) and (v) shall be excluded. The amount
of any non-cash Restricted Payment shall be deemed to be equal to the Fair
Market Value thereof at the date of the making of such Restricted Payment.

Limitation on Other Senior Subordinated Debt. The Indenture provides
that the Company will not, directly or indirectly, Incur, contingently or
otherwise, any Indebtedness that is both (i) subordinate in right of payment to
any other Indebtedness of the Company and (ii) senior in right of payment to the
Notes.

Limitation on Liens. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any Restricted Subsidiary, whether now owned or hereafter
acquired, or any proceeds therefrom to

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secure any Indebtedness unless (i) in the case of Liens securing Subordinated
Indebtedness, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens and (ii) in all other cases,
contemporaneously therewith effective provision is made to secure the Notes
equally and ratably with such Indebtedness with a Lien on the same properties
and assets securing Indebtedness for as long as such Indebtedness is secured by
such Lien except for (i) Liens on property or assets of the Company (other than
the Escrow Account) securing any Senior Indebtedness or on property or assets of
Restricted Subsidiaries securing guarantees of Senior Indebtedness or on any
property or assets of the Company or any Restricted Subsidiary securing any
unsubordinated Indebtedness of any Restricted Subsidiary, (ii) Permitted Liens
on property or assets (other than the Escrow Account) or (iii) Liens on the
Escrow Account to secure the Notes.

Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries. The Indenture provides that the Company will not, and
will not cause or permit any Restricted Subsidiary to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Restricted Subsidiary to (a) pay dividends
or make any other distributions to the Company or any other Restricted
Subsidiary on its Equity Interests or with respect to any other interest or
participation in, or measured by, its profits, or pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (b) make loans or advances to,
or guarantee any Indebtedness or other obligations of, the Company or any other
Restricted Subsidiary, or (c) transfer any of its properties or assets to the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) the Credit Facility or any other
agreement of the Company or the Restricted Subsidiaries outstanding on the Issue
Date, in each case as in effect on the Issue Date, and amendments, restatements,
renewals, replacements or refinancings thereof; provided, however, that any such
amendment, restatement, renewal, replacement or refinancing is no more
restrictive in the aggregate with respect to such encumbrances or restrictions
than those contained in the Credit Facility or such other agreement on the Issue
Date; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity
Interests of an Acquired Person acquired by the Company or any Restricted
Subsidiary as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred by such Acquired Person in connection with, as a
result of or in contemplation of such acquisition); provided, however, that such
encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary, or the properties or assets of the Company or any
Restricted Subsidiary, other than the Acquired Person; (iv) customary
non-assignment provisions in leases and other contracts entered into in the
ordinary course of business and consistent with past practices (including,
without limitation, non-assignment provisions in agreements between the Company
or any Restricted Subsidiary and the NRTC with respect to DBS services); (v)
Purchase Money Indebtedness for property acquired in the ordinary course of
business that only imposes encumbrances and restrictions on the property so
acquired; (vi) any agreement for the sale or disposition of the Equity Interests
or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (vi) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "--Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; or (vii) refinancing Indebtedness
permitted under clause (h) of the definition of Permitted Indebtedness;
provided, however, that the encumbrances and restrictions contained in the
agreements governing such Indebtedness are no more restrictive in the aggregate
than those contained in the agreements governing the Indebtedness being
refinanced immediately prior to such refinancing.

Disposition of Proceeds of Asset Sales. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, make any
Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may
be, receives consideration at the time of such Asset Sale at least equal to the
Fair Market Value of the assets sold or otherwise disposed of and (b) at least
85% of such consideration consists of (A) cash or Cash Equivalents, (B)
properties and capital assets to be used in a Permitted Business and/or (C)
Equity Interests in one or more Persons that are primarily engaged in a
Permitted Business so long as upon the consummation of any sale in accordance
with this clause (C), such Person becomes a Wholly Owned Restricted Subsidiary;
provided, however, that, in the case of sales pursuant to clauses (B) and (C)
not involving solely an exchange of a Permitted Business and cash (if any), if
the Fair Market Value of the assets sold or otherwise disposed of in a single
transaction or series of transactions exceeds $5.0 million, the Company shall be
required to obtain the written opinion from an Independent Financial Advisor
(and file such opinion with the Trustee) stating that the terms of such Asset
Sale are fair, from a financial point of view, to the Company or the Restricted
Subsidiary involved in such Asset Sale. The amount of any (i) Indebtedness
(other than any Subordinated Indebtedness) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully released shall
be deemed to be cash for purposes of determining the percentage of cash
consideration received by the Company or the Restricted

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Subsidiaries and (ii) notes or other similar obligations received by the Company
or the Restricted Subsidiaries from such transferee that are immediately
converted, sold or exchanged (or are converted, sold or exchanged within thirty
days of the related Asset Sale) by the Company or the Restricted Subsidiaries
into cash shall be deemed to be cash, in an amount equal to the net cash
proceeds realized upon such conversion, sale or exchange for purposes of
determining the percentage of cash consideration received by the Company or the
Restricted Subsidiaries. Notwithstanding the foregoing, during the term of the
Notes, the Company and the Restricted Subsidiaries may engage in Asset Sales
involving $10.0 million or more without complying with clause (b) of the first
sentence of this paragraph.

Notwithstanding the foregoing, the Company or such Restricted
Subsidiary, as the case may be, may (i) apply the Net Cash Proceeds of any Asset
Sale within 365 days of receipt thereof to repay Senior Indebtedness and
permanently reduce any related commitment, (ii) apply such Net Cash Proceeds to
repay Specified Indebtedness and, by written notice to the Trustee and the
holders (the "Permitted Debt Reduction"), elect to permanently reduce the amount
of Specified Indebtedness that may be incurred as Permitted Indebtedness under
the covenant "Limitation on Additional Indebtedness" by an amount equal to the
amount of such Net Cash Proceeds; or (iii) apply such Net Proceeds to acquire,
construct or improve properties and capital assets to be used on a Permitted
Business within 365 days after the receipt thereof or (iv) any combination of
the foregoing.

To the extent that all or part of the Net Cash Proceeds of any Asset
Sale are not applied within 365 days of such Asset Sale as described in clause
(i), (ii) or (iii) of the immediately preceding paragraph (such Net Cash
Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days
after such 365th day, make an offer to purchase ("Offer to Purchase") all
outstanding Notes up to a maximum principal amount of Notes equal to the Note
Pro Rata Share, at a purchase price in cash equal to 100% of the principal
amount of Notes, plus accrued and unpaid interest (including Additional
Interest, if any) thereon, if any, to the Purchase Date; provided, however, that
the Offer to Purchase may be deferred until there are aggregate Unutilized Net
Cash Proceeds equal to or in excess of $10.0 million, at which time the entire
amount of such Unutilized Net Cash Proceeds, and not just the amount in excess
of $10.0 million, shall be applied as required pursuant to this paragraph.

In the event that the terms of any Other Pari Passu Indebtedness
requires that an offer to purchase be made to repurchase such Indebtedness upon
the consummation of any Asset Sale (the "Other Indebtedness"), the Company may
use the Unutilized Net Cash Proceeds otherwise required to be used to make an
Offer to Purchase to make an offer to purchase or to retire such Other Pari
Passu Indebtedness and to make an Offer to Purchase so long as the amount of
such Unutilized Net Cash Proceeds available to be applied to purchase the Notes
is not less than the Note Pro Rata Share. With respect to any Unutilized Net
Cash Proceeds, the Company shall make the Offer to Purchase in respect thereof
at the same time as the analogous offer to purchase is made under any Other
Indebtedness and the Purchase Date in respect thereof shall be the same under
the Indenture as the Purchase Date in respect thereof pursuant to any Other
Indebtedness.

With respect to any Offer to Purchase effected pursuant to this
covenant, to the extent that the principal amount of the Notes tendered pursuant
to such Offer to Purchase exceeds the Note Pro Rata Share to be applied to the
purchase thereof, such Notes shall be purchased pro rata based on the principal
amount of such Notes tendered by each holder.

In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.

Each holder of Notes shall be entitled to tender all or any portion of
the Notes owned by such holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal face amount and subject to any proration among
tendering holders as described above.

Limitation on Issuances and Sales of Preferred Equity Interests by
Restricted Subsidiaries. The Indenture provides that the Company (i) will not
permit any Restricted Subsidiary to issue any Preferred Equity Interests (other
than to the Company or a Restricted Subsidiary) and (ii) will not permit any
Person (other than the Company or a Restricted Subsidiary) to own any Preferred
Equity Interests of any Restricted Subsidiary.

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Limitations on Conduct of Business of the Company. The Company will
not, and will not permit any of the Restricted Subsidiaries to, be primarily
engaged in any business, except for a Permitted Business.

Limitation on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit, cause or suffer any Restricted
Subsidiary to, conduct any business or enter into any transaction (or series of
related transactions that are similar or part of a common plan) with or for the
benefit of any of their respective Affiliates or any beneficial holder of 10% or
more of the Common Stock of the Company or any officer or director of the
Company (each, an "Affiliate Transaction"), unless the terms of the Affiliate
Transaction are set forth in writing, and are fair and reasonable to the Company
or such Restricted Subsidiary, as the case may be. Each Affiliate Transaction
involving aggregate payments or other Fair Market Value in excess of $5.0
million shall be approved by a majority of the Board of Directors, such approval
to be evidenced by a board resolution stating that the Board has determined that
such transaction or transactions comply with the foregoing provisions. In
addition to the foregoing, each Affiliate Transaction involving aggregate
consideration of $10.0 million or more shall be approved by a majority of the
Disinterested Directors; provided that, in lieu of such approval by the
Disinterested Directors, the Company may obtain a written opinion from an
Independent Financial Advisor stating that the terms of such Affiliate
Transaction to the Company or the Restricted Subsidiary, as the case may be, are
fair from a financial point of view.

Notwithstanding the foregoing, the restrictions set forth in this
covenant shall not apply to (i) transactions with or among the Company and any
Restricted Subsidiary or between or among Restricted Subsidiaries; (ii)
customary directors' fees, indemnification and similar arrangements, consulting
fees, employee salaries, bonuses or employment agreements, compensation or
employee benefit arrangements and incentive arrangements with any officer,
director or employee of the Company entered into in the ordinary course of
business (including customary benefits thereunder) and payments under any
indemnification arrangements permitted by applicable law; (iii) any transactions
undertaken pursuant to any other contractual obligations in existence on the
Issue Date (as in effect on the Issue Date); (iv) any Restricted Payments made
in compliance with "-- Limitation on Restricted Payments" above; (v) loans,
advances and reimbursements to officers, directors and employees of the Company
and the Restricted Subsidiaries for travel, entertainment, moving and other
relocation expenses, in each case made in the ordinary course of business and
consistent with past business practices; (vi) the pledge of Equity Interests of
Unrestricted Subsidiaries to support the Indebtedness thereof; and (vii) the
sale of products or property by any Person to the Company or a Restricted
Subsidiary, or by the Company or any Restricted Subsidiary to any Person, in the
ordinary course of business and consistent with past practice and (viii) the
issuance and sale by the Company of Qualified Equity Interests.

Limitation on Guarantees by and Certain Indebtedness of Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly or
indirectly, by way of the pledge of any intercompany note or otherwise, to
assume, guarantee or in any other manner become liable with respect to (x) any
Indebtedness of the Company or (y) any Indebtedness of any such Restricted
Subsidiary that is expressly subordinated in right of payment to any other
Indebtedness of such Restricted Subsidiary, except for Indebtedness incurred
under clause (f), (g) or (j) of the definition of "Permitted Indebtedness,"
unless, in either such case, (a) such Restricted Subsidiary executes and
delivers, or has executed and delivered, a supplemental indenture to the
Indenture providing a guarantee of payment of the Notes by such Restricted
Subsidiary in the form required by the Indenture (the "Guarantee") and (b) if
such assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Indebtedness that is expressly subordinated to the Notes,
the guarantee or other instrument provided by such Restricted Subsidiary in
respect of such subordinated Indebtedness shall be subordinated to the Guarantee
pursuant to subordination provisions not less favorable to the holders of the
Notes than those contained in the indenture or similar document governing such
subordinated Indebtedness. Any Restricted Subsidiary that has provided a
Guarantee is herein referred to as a "Guarantor." The Company may elect to cause
any Restricted Subsidiary to become a Guarantor. Any Guarantee shall contain
subordination provisions and definitions that are substantively the same as
those applicable to the Notes.

Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any such Restricted Subsidiary,
upon: (i) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Indebtedness in connection with which such Guarantee
was executed and delivered pursuant to the preceding paragraph or otherwise; or
(ii) any sale or other disposition (by merger or otherwise) to any Person which
is not a Restricted Subsidiary of the Company, of all of the Company's Equity
Interests in, or all or substantially all of the assets of, such Restricted
Subsidiary; provided, however, that (a) such sale or disposition of such Equity
Interests or assets is otherwise in compliance with the terms of the Indenture
and (b) such

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assumption, guarantee or other liability of such Restricted Subsidiary has been
released by the holders of the other Indebtedness so guaranteed.

Reports. The Indenture provides that, whether or not the Company has a
class of securities registered under the Exchange Act, the Company shall furnish
without cost to each holder of Notes and file with the Trustee and, following
the effectiveness of any Exchange Offer Registration Statement or a Shelf
Registration Statement, file with the SEC (i) within the applicable time period
required under the Exchange Act, after the end of each fiscal year of the
Company, the information required by Form 10-K (or any successor form thereto)
under the Exchange Act with respect to such period, (ii) within the applicable
time period required under the Exchange Act after the end of each of the first
three fiscal quarters of each fiscal year of the Company, the information
required by Form 10-Q (or any successor form thereto) under the Exchange Act
with respect to such period and (iii) any current reports on Form 8-K (or any
successor forms) required to be filed under the Exchange Act.

Designation of Unrestricted Subsidiaries. (a) The Company may designate
after the Issue Date any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation") only if:

(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;

(ii) at the time of and after giving effect to such
Designation, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the proviso in "--Limitation
on Additional Indebtedness" above; and

(iii) the Company would be permitted to make an Investment
(other than a Permitted Investment) at the time of Designation
(assuming the effectiveness of such Designation) pursuant to the first
paragraph of or subclause (iv) of the second paragraph "-- Limitation
on Restricted Payments" above in an amount (the "Designation Amount")
equal to the Fair Market Value of the Company's proportionate interest
of the Company and the Restricted Subsidiaries in such Subsidiary on
such date.

Notwithstanding the above, no Subsidiary of the Company shall be
designated an Unrestricted Subsidiary if such Subsidiary distributes, directly
or indirectly, DIRECTV Services pursuant to an agreement with the NRTC or has
any right, title or interest in the revenue or profits in, or holds any Lien in
respect of, any such agreement.

Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, or (z) be directly or indirectly liable for any Indebtedness that
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary, except, in the
case of clause (x) or (y), to the extent otherwise permitted under the terms of
the Indenture, including, without limitation, pursuant to "-- Limitation on
Restricted Payments" above and "--Disposition of Proceeds of Asset Sales" above.

(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:

(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation;
and

(ii) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if
incurred at such time, have been permitted to be incurred for all
purposes of the Indenture.

All Designations and Revocations must be evidenced by resolutions of
the Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.

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CONSOLIDATION, MERGER, SALE OF ASSETS, ETC.

The Company shall not consolidate with or merge with or into (whether
or not the Company is the Surviving Person) any other entity and the Company
shall not, and shall not cause or permit any Restricted Subsidiary to, sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of the Company's properties and assets (determined on a consolidated basis for
the Company and the Restricted Subsidiaries) to any entity in a single
transaction or series of related transactions, unless: (i) either (x) the
Company shall be the Surviving Person or (y) the Surviving Person (if other than
the Company) shall be a corporation, partnership or limited liability company
organized and validly existing under the laws of the United States of America or
any State thereof or the District of Columbia, and shall expressly assume by a
supplemental indenture the due and punctual payment of the principal of,
premium, if any, and interest on all the Notes and the performance and
observance of every covenant of the Indenture, the Escrow Agreement and the
Registration Rights Agreement to be performed or observed on the part of the
Company; (ii) immediately thereafter, no Default shall have occurred and be
continuing; (iii) immediately after giving effect to any such transaction
involving the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur, on a pro forma
basis after giving effect to such transaction as if it had occurred at the
beginning of the latest fiscal quarter for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness under the proviso in "-- Limitation on Additional Indebtedness"
above; and (iv) the Company has delivered to the Trustee an opinion of counsel
to the effect that the holders of the Notes will not recognize gain or loss for
federal income tax purposes as a result of such transaction.

For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interests of which constitute all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.

In the event of any transaction (other than a lease) described in and
complying with the conditions listed above in which the Company is not the
Surviving Person and the Surviving Person is to assume all of the Obligations of
the Company under the Notes, the Indenture, the Escrow Agreement and the
Registration Rights Agreement pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company and the Company shall be discharged from
its Obligations under the Indenture, the Escrow Agreement, the Registration
Rights Agreement and the Notes.

The meaning of the phrase "all or substantially all" as used above
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions are applicable.

EVENTS OF DEFAULT

The following are "Events of Default" under the Indenture:

(i) default in the payment of interest on the Notes issued
thereunder when it becomes due and payable and continuance of such
default for a period of 30 days or more (provided such 30 day grace
period shall be inapplicable for the first four interest payments due
on the Notes); or

(ii) default in the payment of the principal of or premium, if
any, on the Notes when due (including the failure to make a payment to
purchase Notes pursuant to a Change of Control Offer); or

(iii) default in the performance, or breach, of any covenant
described under "Certain Covenants -- Disposition of Proceeds of Asset
Sales" or "-- Consolidation, Merger, Sale of Assets, Etc."; or

(iv) default in the performance, or breach, of any covenant in
the Indenture (other than defaults specified in clause (i), (ii) or
(iii) above) or the Escrow Agreement, and continuance of such default
or breach

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for a period of 30 days or more after written notice to the Company by
the Trustee or to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the outstanding Notes (in
each case, when such notice is deemed received in accordance with the
Indenture); or

(v) failure to perform any term, covenant, condition or
provision of one or more classes or issues of Indebtedness in an
aggregate principal amount of $15.0 million or more under which the
Company or a Restricted Subsidiary is obligated, and either (a) such
Indebtedness is already due and payable in full and has not been paid
in full (and such failure continues for a period of 30 days or more) or
(b) such failure results in the acceleration of the final maturity of
such Indebtedness (which acceleration has not been rescinded or amended
prior to any declaration of acceleration of the Notes); or

(vi) the Company shall assert or acknowledge in writing that
the Escrow Agreement is invalid or unenforceable or any Guarantor shall
assert or acknowledge in writing the invalidity of its Guarantee.

(vii) one or more judgments, orders or decrees, not subject to
appeal, for the payment of money of $15.0 million or more, either
individually or in the aggregate (in all cases net of amounts covered
by insurance for which coverage is not being challenged or denied),
shall be entered against the Company or any of the Company's
Significant Restricted Subsidiaries or any of their respective
properties and shall not be discharged, paid or stayed within 60 days
after the right of appeal has expired; or

(viii) certain events of bankruptcy, insolvency,
reorganization, administration or similar proceedings with respect to
the Company, any Guarantor or any of the Company's Significant
Restricted Subsidiaries shall have occurred.

If an Event of Default with respect to the Notes (other than an Event
of Default with respect to the Company described in clause (viii) of the
preceding paragraph) occurs and is continuing, the Trustee or the holders of at
least 25% in aggregate principal amount of the outstanding Notes by notice in
writing to the Company may declare the unpaid principal of (and premium, if any)
and accrued interest to the date of acceleration on all the outstanding Notes to
be due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary, but subject to the
provisions limiting payment described above under "-- Subordination," will
become immediately due and payable; provided, however, that if there are any
amounts or commitments outstanding under the Credit Facility if an Event of
Default shall have occurred and be continuing (other than an Event of Default
with respect to the Company described in clause (viii) of the preceding
paragraph), the Notes shall not become due and payable until the earlier to
occur of (x) five business days following delivery of written notice of such
acceleration of the Notes to the agent under the Credit Facility, but only if
such Event of Default is then continuing and (viii) the acceleration (ipso facto
or otherwise) of any Indebtedness under the Credit Facility. If an Event of
Default specified in clause (viii) of the preceding paragraph with respect to
the Company occurs under the Indenture, the outstanding Notes will ipso facto
become immediately due and payable without any declaration or other act on the
part of the Trustee or any holder of the Notes.

Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (v) above shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or paid or such Event of
Default shall have been cured or waived by the holders of such Indebtedness and
written notice of such discharge, cure or waiver, as the case may be, shall have
been given to the Trustee by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Notes and no other
Event of Default shall have occurred which has not been cured or waived during
such 30-day period.

Any such declaration with respect to the Notes may be annulled as to
past Events of Default and Defaults (except, unless theretofore cured, an Event
of Default or a Default in payment of principal of (and premium, if any) or
interest on the Notes) upon the conditions provided in the Indenture. For
information as to waiver of defaults, see "-- Amendment and Waivers" below.

The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the outstanding
Notes, give the holders of the Notes notice of all uncured Defaults or Events

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of Default known to it; provided, however, that, except in the case of an Event
of Default in payment with respect to such Notes or a Default or Event of
Default in complying with "Consolidation, Merger, Sale of Assets, Etc." above,
the Trustee shall be protected in withholding such notice if and so long as a
committee of its trust officers in good faith determines that the withholding of
such notice is in the interest of the holders of the Notes.

No holder of any Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such holder
shall have previously given to the Trustee written notice of a continuing Event
of Default thereunder and unless the holders of at least 25% of the aggregate
principal amount of the outstanding Notes under the Indenture shall have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee, and the Trustee shall have not received from the
holders of a majority in aggregate principal amount of outstanding Notes a
direction inconsistent with such request and shall have failed to institute such
proceeding within 45 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal of
and premium, if any, or interest on such Note on or after the respective due
dates expressed in such Note.

The Company is required to furnish to the Trustee annually a statement
as to the performance by it of certain of its obligations under the Indenture
and as to any default in such performance.

DEFEASANCE

The Company may at any time terminate all of its obligations with
respect to the Notes ("defeasance"), except for certain obligations, including
those regarding any trust established for a defeasance and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes as required by the Indenture and to maintain agencies in
respect of Notes. The Company may at any time terminate its obligations under
certain covenants set forth in the Indenture, some of which are described under
"-- Certain Covenants" above, and any omission to comply with such obligations
shall not constitute a Default with respect to the Notes ("covenant
defeasance"). To exercise either defeasance or covenant defeasance, the Company
must irrevocably deposit in trust, for the benefit of the holders of the Notes,
with the Trustee money (in United States dollars) or U.S. government obligations
(denominated in United States dollars), or a combination thereof, in such
amounts as will be sufficient to pay the principal of, and premium, if any, and
interest on the Notes to redemption or maturity and comply with certain other
conditions, including the delivery of a legal opinion as to certain tax matters.

SATISFACTION AND DISCHARGE

The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation; or (b) (i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust for the purpose an amount of money sufficient to pay and discharge the
entire indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal amount, premium, if any, and accrued interest to the
date of such deposit; (ii) the Company has paid all sums payable by it under the
Indenture; and (iii) the Company has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Notes at maturity
or on the redemption date, as the case may be. In addition, the Company must
deliver an officers' certificate and an opinion of counsel stating that all
conditions precedent to satisfaction and discharge have been complied with.

AMENDMENT AND WAIVERS

From time to time, the Company, when authorized by resolutions of the
Company's board of directors, and the Trustee, without the consent of the
holders of the Notes, may amend, waive or supplement the Indenture or the Notes
for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the Trust Indenture Act or making any change that does not
adversely affect the rights of any holder. Other amendments and modifications of
the Indenture and the Notes may be made by the Company and the Trustee by
supplemental indenture with the consent of the holders of not less than a

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majority of the aggregate principal amount of the outstanding Notes; provided
that no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby, (i) reduce the principal amount of,
change the fixed maturity of, or alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or amounts owing thereon are
payable, (iii) reduce the percentage of the aggregate principal amount
outstanding of Notes which must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Notes, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
the Notes, (v) waive a default in payment with respect to the Notes, (vi) reduce
the rate or extend the time for payment of interest on the Notes, (vii)
following the occurrence of a Change of Control or an Asset Sale, alter the
Company's obligation to purchase the Notes in accordance with the Indenture or
waive any default in the performance thereof, (viii) affect the ranking of the
Notes in a manner adverse to the holder of the Notes, (ix) release any Guarantee
except in compliance with the terms of the Indenture or (x) release any Liens
created by the Escrow Agreement except in accordance with the terms of the
Escrow Agreement.

REGARDING THE TRUSTEE AND ESCROW AGENT

State Street Bank and Trust Company of Missouri, N.A. serves as Trustee
under the Indenture and Escrow Agent under the Escrow Agreement.

GOVERNING LAW

The Indenture and the Escrow Agreement provides that the Indenture and
the Notes and the Escrow Agreement, respectively, are governed by and construed
in accordance with laws of the State of New York without giving effect to
principles of conflicts of law.

CERTAIN DEFINITIONS

Set forth below is a summary of certain defined terms used in the
Indenture or the Escrow Agreement. Reference is made to the Indenture for the
full definition of all such terms, as well as any other capitalized terms used
herein for which no definition is provided.

"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.

"Acquired Person" means, with respect to any specified Person, any
other Person that merges with or into or becomes a Subsidiary of such specified
Person.

"Acquisition" means (i) any capital contribution (by means of transfers
of cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated or merged with or into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.

"Additional Interest" has the meaning provided in the Registration
Rights Agreement.

"Affiliate" means, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise; provided, however, that (i) beneficial ownership of 10.0% or more of
the voting power of the then outstanding voting securities of a Person shall be
deemed to be control; and (ii) no individual, other than a director of the
Company or an officer of the Company with a policy making function, shall be
deemed an Affiliate of

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the Company or any of the Company's Subsidiaries solely by reason of such
individual's employment, position or responsibilities by or with respect to the
Company or any of the Company's Subsidiaries.

"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease (that has the effect of a disposition) or other disposition (including,
without limitation, any merger, consolidation or sale-leaseback transaction) to
any Person other than the Company or a Restricted Subsidiary, in one transaction
or a series of related transactions, of (i) any Equity Interest of any
Restricted Subsidiary; (ii) any material license, franchise or other
authorization of the Company or any Restricted Subsidiary; (iii) any assets of
the Company or any Restricted Subsidiary that constitute substantially all of an
operating unit or line of business of the Company or any Restricted Subsidiary;
or (iv) any other property or asset of the Company or any Restricted Subsidiary
outside of the ordinary course of business (including the receipt of proceeds
paid on account of the loss of or damage to any property or asset, except to the
extent used to repurchase or repair such property or asset, and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceedings). The term "Asset Sale" shall not include (a) any transaction
consummated in compliance with "-- Consolidation, Merger, Sale of Assets, Etc."
above and the creation of any Lien not prohibited by "-- Certain Covenants --
Limitation on Liens" above; provided, however, that any transaction consummated
in compliance with "-- Consolidation, Merger, Sale of Assets, Etc." above
involving a sale, conveyance, assignment, transfer, lease or other disposal of
less than all of the properties or assets of the Company and the Restricted
Subsidiaries shall be deemed to be an Asset Sale with respect to the properties
or assets of the Company and Restricted Subsidiaries that are not so sold,
conveyed, assigned, transferred, leased or otherwise disposed of in such
transaction; (b) sales of property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; and
(c) any transaction consummated in compliance with "-- Certain Covenants --
Limitation on Restricted Payments" above.

"Board of Directors" means (i) in the case of a Person that is a
corporation, the board of directors of such Person and (ii) in the case of any
other Person, the board of directors, board of managers, management committee or
similar governing body of such Person (or in the case of a limited partnership,
of such Person's general partner, or in the case of a limited liability company,
of such Person's manager), or any authorized committee thereof responsible for
the management of the business and affairs of such Person.

"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.

"Cash Equivalents" means (i) any evidence of Indebtedness (with, for
purposes of the covenant "Disposition of Proceeds of Asset Sales" only, a
maturity of 365 days or less) issued or directly and fully guaranteed or insured
by the United States or any agency or instrumentality thereof that (provided
that the full faith and credit of the United States is pledged in support
thereof or such Indebtedness constitutes a general obligation of such country)
have maturities of not more than six months from the date of acquisition; (ii)
time deposits, certificates of deposit or acceptances (with, for purposes of the
covenant "Disposition of Proceeds of Asset Sales" only, a maturity of 365 days
or less) of any financial institution that is a member of the Federal Reserve
System, in each case having combined capital and surplus and undivided profits
(or any similar capital concept) of not less than $200.0 million and whose
senior unsecured debt is rated at least "A-1" by S&P or "P-1" by Moody's; (iii)
commercial paper with a maturity of 365 days or less issued by a corporation
(other than an Affiliate of the Company) organized under the laws of the United
States or any State thereof and rated at least "A-1" by S&P or "P-1" by Moody's
and in each case maturing not more than six months after the date of
acquisition; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above and entered
into with any bank meeting the qualifications specified in clause (ii) above;
and (v) money market funds that invest substantially all of their assets in
securities described in the preceding clauses (i) through (iv).

"Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders, is
or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Equity Interests of
the Company; or (b) the Company consolidates with, or merges with or into,
another person or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person,

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or any Person consolidates with, or merges with or into, the Company, in any
such event pursuant to a transaction in which the outstanding Voting Equity
Interests of the Company are converted into or exchanged for cash, securities or
other property, other than any such transaction where (i) the outstanding Voting
Equity Interests of the Company are converted into or exchanged for (1) Voting
Equity Interests (other than Disqualified Equity Interests) of the surviving or
transferee corporation or its parent corporation and/or (2) cash, securities and
other property in an amount that could be paid by the Company as a Restricted
Payment under the Indenture and (ii) immediately after such transaction no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Permitted Holders, is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the total Voting Equity Interests of the surviving or transferee corporation or
its parent corporation, as applicable; or (c) during any consecutive two-year
period, individuals who at the beginning of such period constituted the Board of
Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason (other
than by action of the Permitted Holders) to constitute a majority of the Board
of Directors then in office; or (d) the approval by stockholders of the Company
of any liquidation or dissolution of the Company.

"Change of Control Date" has the meaning set forth under "-- Change of
Control" above.

"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such Person's common stock whether
outstanding at the Issue Date, and includes, without limitation, all series and
classes of such common stock.

"Consolidated Income Tax Expense" means, with respect to the Company
for any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.

"Consolidated Interest Expense" means, with respect to the Company for
any period, without duplication, the sum of (i) the interest expense of the
Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount; (b) the net cost under Interest Rate
Protection Obligations (including any amortization of discounts); (c) the
interest portion of any deferred payment obligation; (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; and (e) all capitalized interest and all accrued
interest; (ii) the interest component of Capital Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by the Company and the Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP; and (iii) dividends and distributions in respect of
Disqualified Equity Interests actually paid in cash by the Company during such
period as determined on a consolidated basis in accordance with GAAP.

"Consolidated Net Income" means, with respect to any period, the net
income of the Company and the Restricted Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, adjusted, to the extent
included in calculating such net income, by excluding, without duplication, (a)
all extraordinary gains or losses and all gains and losses from the sales or
other dispositions of assets out of the ordinary course of business (net of
taxes, fees and expenses relating to the transaction giving rise thereto) for
such period; (b) that portion of such net income derived from or in respect of
investments in Persons other than Restricted Subsidiaries, except to the extent
actually received in cash by the Company or any Restricted Subsidiary (subject,
in the case of any Restricted Subsidiary, to the provisions of clause (e) of
this definition); (c) the portion of such net income (or loss) allocable to
minority interests in any Person (other than a Restricted Subsidiary) for such
period, except to the extent actually received in cash by the Company or any
Restricted Subsidiary (subject, in the case of any Restricted Subsidiary, to the
provisions of clause (e) of this definition); (d) net income (or loss) of any
other Person combined with the Company or any Restricted Subsidiary on a
"pooling of interests" basis attributable to any period prior to the date of
combination; and (e) the net income of any Restricted Subsidiary to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is not at the time (regardless of any waiver)
permitted, directly or indirectly, by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulations applicable to that Restricted Subsidiary or its Equity
Interest holders.

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"Consolidated Operating Cash Flow" means, with respect to any period,
Consolidated Net Income for such period increased (without duplication) by the
sum of (a) Consolidated Income Tax Expense for such period to the extent
deducted in determining Consolidated Net Income for such period; (b)
Consolidated Interest Expense for such period to the extent deducted in
determining Consolidated Net Income for such period; (c) all dividends on
Preferred Equity Interests to the extent taken into account for computing
Consolidated Net Income for that period; and (d) depreciation, amortization and
any other non-cash items for such period to the extent deducted in determining
Consolidated Net Income for such period (other than any non-cash item that
requires the accrual of, or a reserve for, cash charges for any future period)
of the Company and the Restricted Subsidiaries, including, without limitation,
amortization of capitalized debt issuance costs for such period, all of the
foregoing determined on a consolidated basis in accordance with GAAP minus
non-cash items to the extent they increase Consolidated Net Income (including
the partial or entire reversal of reserves taken in prior periods, except to the
extent any such reserves were not permitted to be added back in the calculation
of Consolidated Operating Cash Flow for a prior period pursuant to clause (d)
above) for such period.

"Credit Facility" means the Amended and Restated Credit Agreement dated
as of July 7, 1997, amended and restated as of May 8, 1998, among Holdings, the
Company, the banks party thereto from time to time, Paribas (formerly known as
Banque Paribas), as Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as Documentation Agent,
including any deferrals, renewals, extensions, replacements, refinancings or
refundings thereof, or amendments, modifications or supplements thereto
(including, without limitation, any such deferrals, renewals, extensions,
replacements, refinancings, refundings, amendments, modifications or supplements
that increase the aggregate amount of commitments or borrowings thereunder or
add Subsidiaries of the Company as additional borrower or guarantor thereunder),
and any agreements providing therefor, whether by or with the same or any other
lender, creditor or group of lenders or creditors, and including related notes,
guarantees, security agreements, pledge agreements, mortgages, note agreements,
other collateral documents and note agreements and other instruments and
agreements executed in connection therewith.

"Cumulative Operating Cash Flow" means, as at any date of
determination, the positive cumulative Consolidated Operating Cash Flow realized
during the period commencing on the Issue Date and ending on the last day of the
most recent fiscal quarter immediately preceding the date of determination for
which consolidated financial information of the Company is available or, if such
cumulative Consolidated Operating Cash Flow for such period is negative, the
negative amount by which cumulative Consolidated Operating Cash Flow is less
than zero.

"DBS" means direct broadcast satellite.

"Debt to Operating Cash Flow Ratio" means the ratio of (a) an amount
equal to the Total Consolidated Indebtedness as of the date of calculation (the
"Determination Date") minus the amount of funds on deposit in the Escrow Account
as of the Determination Date to (b) four times the Consolidated Operating Cash
Flow for the latest fiscal quarter for which financial information is available
immediately preceding such Determination Date (the "Measurement Period"). For
purposes of calculating Consolidated Operating Cash Flow for the Measurement
Period immediately prior to the relevant Determination Date, (I) any Person that
is a Restricted Subsidiary on the Determination Date (or would become a
Restricted Subsidiary on such Determination Date in connection with the
transaction that requires the determination of such Consolidated Operating Cash
Flow) will be deemed to have been a Restricted Subsidiary at all times during
such Measurement Period, (II) any Person that is not a Restricted Subsidiary on
such Determination Date (or would cease to be a Restricted Subsidiary on such
Determination Date in connection with the transaction that requires the
determination of such Consolidated Operating Cash Flow) will be deemed not to
have been a Restricted Subsidiary at any time during such Measurement Period,
and (III) if the Company or any Restricted Subsidiary shall have in any manner
(x) acquired (including through an Acquisition or the commencement of activities
constituting such operating business) or (y) disposed of (including by way of an
Asset Sale or the termination or discontinuance of activities constituting such
operating business) any operating business during such Measurement Period or
after the end of such period and on or prior to such Determination Date, such
calculation will be made on a pro forma basis in accordance with GAAP as if, in
the case of an Acquisition or the commencement of activities constituting such
operating business, all such transactions had been consummated on the first day
of such Measurement Period and, in the case of an Asset Sale or termination or
discontinuance of activities constituting such operating business, all such
transactions had been consummated prior to the first day of such Measurement
Period; provided, however, that such pro forma adjustment shall not give effect
to the Operating Cash Flow of any Acquired Person to the extent that such
Person's net income would be excluded pursuant to clause (e) of the definition
of Consolidated Net Income.

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"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.

"Designated Senior Indebtedness" means (a) any Indebtedness of the
Company outstanding under the Credit Facility (including guarantees) and (b) any
other Senior Indebtedness that, at the time of determination, has an aggregate
principal amount outstanding, together with any commitments to lend additional
amounts, of at least $50.0 million, if (in the case of Senior Indebtedness
described in this clause (b)) the instrument governing such Senior Indebtedness
expressly states that such Indebtedness is "Designated Senior Indebtedness" for
purposes of the Indenture, a Board Resolution setting forth such designation by
the Company has been filed with the Trustee and such designation is not
prohibited by the Credit Facility.

"Designation" has the meaning set forth in "-- Certain Covenants --
Designation of Unrestricted Subsidiaries" above.

"Designation Amount" has the meaning set forth in "-- Certain Covenants
- -- Designation of Unrestricted Subsidiaries" above.

"DIRECTV Services" means DBS television services and all other video,
audio, data packages, "a la carte" programming services and other services
offered by DIRECTV, Inc., the predecessor-in-interest of Hughes Communications
Galaxy, Inc., or its successors or assigns.

"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Company's Board of Directors
other than a director who (i) has any material direct or indirect financial
interest in or with respect to such transaction or series of related
transactions or (ii) is an employee or officer of the Company or an Affiliate
that is itself a party to such transaction or series of transactions or an
Affiliate of a party to such transactions or series of related transactions.

"Disposition" means, with respect to any Person, any merger,
consolidation or other business combination involving such Person (whether or
not such Person is the Surviving Person) or the sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of such
Person's assets.

"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof, in
whole or in part, or exchangeable into Indebtedness on or prior to the earlier
of the maturity date of the Notes or the date on which no Notes remain
outstanding.

"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose debt is rated Investment Grade at the time as of
which any investment or rollover therein is made.

"Equity Interest" in any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, or
member interests in such Person, including any Preferred Equity Interests.

"Escrow Account" shall mean the account established in the name of the
Escrow Agent and funded by the Company on the Closing Date pursuant to the
Indenture.

"Escrow Agent" means the Trustee (or any duly appointed successor
thereto).

"Escrow Agreement" means the Escrow Agreement dated as of July 31, 1998
between the Company and the Trustee, as trustee and as escrow agent.

"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.

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"Existing Indebtedness" means any Indebtedness of the Company and the
Restricted Subsidiaries in existence on the Issue Date until such amounts are
repaid.

"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.

"GAAP" means, at any date of determination, generally accepted
accounting principles in effect in the United States that are applicable at the
date of determination and that are consistently applied for all applicable
periods.

"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States are pledged.

"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit. A guarantee shall include,
without limitation, any agreement to maintain or preserve any other Person's
financial condition or to cause any other Person to achieve certain levels of
operating results.

"High Power Satellite Transmission Business" means the business of the
acquisition, transmission or sale of programming in the high power DBS business
utilizing broadcast satellite service (including any provision of such services
to cable operators or other media providers), which may utilize all or part of
satellites owned by DIRECTV, Inc. and all other activities relating thereto or
arising therefrom.

"Holdings" means Golden Sky Holdings, Inc. or any successor or assign
thereof that owns 100% of the Equity Interests of the Company.

"Incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing).

"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business that are
not overdue or that are being contested in good faith); (e) every Capital Lease
Obligation of such Person; (f) every net obligation under interest rate swap
agreements, interest rate cap agreements and interest rate collar agreements,
and other agreements or arrangements designed to protect such Person against
fluctuations in interest rates; (g) every obligation of the type referred to in
clauses (a) through (f) of another Person and all dividends of another Person
the payment of which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor, guarantor or
otherwise; and (h) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (g) above. Indebtedness
(a) shall never be calculated taking into account any cash and Cash Equivalents
held by such Person; (b) shall not include obligations of any Person (x) arising
from the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business, provided that

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such obligations are extinguished within two Business Days of their incurrence
unless covered by an overdraft line, (y) resulting from the endorsement of
negotiable instruments for collection in the ordinary course of business and
consistent with past business practices and (z) under standby letters of credit
to the extent collateralized by cash or Cash Equivalents; (c) that provides that
an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be deemed to be incurred or
outstanding in an amount equal to the accreted value thereof at the date of
determination; (d) shall include the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Equity Interests
of the Company or any Restricted Subsidiary; and (e) shall not include
obligations under performance bonds, performance guarantees, surety bonds and
appeal bonds, letters of credit or similar obligations, Incurred in the ordinary
course of business (including standby letters of credit securing obligations to
the NRTC Incurred in the ordinary course of business that are not overdue or
that are being contested in good faith by appropriate proceedings) (other than
obligations under or in respect of any direct or indirect credit support for
obligations of any Unrestricted Subsidiary).

"Independent Financial Advisor" means a nationally recognized
accounting, appraisal or investment banking firm or consultant with experience
advising DBS businesses that is, in the judgment of the Company's Board of
Directors, qualified to perform the task for which it has been engaged (i) that
does not, and whose directors, officers and employees or Affiliates do not, have
a direct or indirect financial interest in the Company and (ii) that, in the
judgment of the Board of Directors of the Company, is otherwise independent and
qualified to perform the task for which it is to be engaged.

"Insolvency or Liquidation Proceeding" means, with respect to any
Person, any liquidation, dissolution or winding up of such Person, or any
bankruptcy, reorganization, insolvency, receivership or similar proceeding with
respect to such Person, whether voluntary or involuntary.

"interest" means, with respect to the Notes, the sum of any cash
interest and any Additional Interest on the Notes.

"Interest Rate Protection Obligations" means, with respect to any
Person, the Obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.

"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. In no event
will the issuance by the Company of Qualified Equity Interests of the Company in
exchange for any such capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness constitute an Investment. The amount of
any Investment shall be the original cost of such Investment, plus the cost of
all additions thereto, and minus the amount of any portion of such Investment
repaid to such Person in cash or other property or assets that would not
otherwise constitute an Investment as a repayment of principal or a return of
capital, as the case may be, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment. In determining the amount of any Investment or any repayment in
respect of an Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in good faith by the Board of Directors (or
comparable body) of the Person making such transfer or receiving such repayment.

"Investment Grade" means, with respect to a security, that such
security is rated by at least two nationally recognized statistical rating
organizations in one of each such organization's four highest generic rating
categories.

"Issue Date" means the original issue date of the Notes.

"Lien" means any lien, mortgage, charge, security interest,
hypothecation, assignment for security or encumbrance of any kind (including any
conditional sale or capital lease or other title retention agreement, any lease
in the nature thereof, and any agreement to give any security interest).

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"Marketable Securities" means: (a) Government Securities; (b) any
certificate of deposit maturing not more than 365 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (c)
commercial paper maturing not more than 365 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with an
Investment Grade rating, at the time as of which any investment therein is made,
issued or offered by an Eligible Institution; (d) any bankers' acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(e) any fund investing substantially in investments of the types described in
clauses (a) through (d) above.

"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.

"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets that are the subject of such
Asset Sale (provided that the amount of any such reserves shall be deemed to
constitute Net Cash Proceeds at the time such reserves shall have been released
or are not otherwise required to be retained as a reserve); and (e) with respect
to Asset Sales by Restricted Subsidiaries, the portion of such cash payments
attributable to Persons holding a minority interest in such Restricted
Subsidiary.

"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to immediately
accelerate the maturity of any Designated Senior Indebtedness.

"Note Pro Rata Share" means the amount of the applicable Unutilized Net
Cash Proceeds obtained by multiplying the amount of such Unutilized Net Cash
Proceeds by a fraction, (i) the numerator of which is the aggregate principal
amount of Notes outstanding at the time of the applicable Asset Sale with
respect to which the Company is required to use Unutilized Net Cash Proceeds to
repay or make an Offer to Purchase or repay and (ii) the denominator of which is
the sum of (a) the aggregate accreted value and/or principal amount, as the case
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale and (b) the aggregate principal amount of all Notes outstanding at
the time of the applicable Offer to Purchase with respect to which the Company
is required to use the applicable Unutilized Net Cash Proceeds to offer to repay
or make an Offer to Purchase or repay.

"NRTC" means the National Rural Telecommunications Cooperative and any
successor entity to it.

"Obligations" means any principal, interest (including, without
limitation, Post-Petition Interest), premium, penalties, fees, indemnifications,
reimbursement obligations, damages and other liabilities payable under the
documentation governing any Indebtedness, including the Notes.

"Offer" has the meaning set forth under "-- Certain Covenants --
Disposition of Proceeds of Asset Sales."

"Other Pari Passu Debt" means Indebtedness of the Company or any
Guarantor that neither constitutes Senior Indebtedness nor Subordinated
Indebtedness.

"Payment Default" means any default, after any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.

"Permitted Acquisition Deposits" means any advance or payment of funds,
whether as consideration for an option to purchase or as a deposit, binder or
earnest money, whether or not refundable, and whether or not made into escrow,
made pursuant to any written agreement, term sheet, letter of intent or other
instrument providing for the Acquisition of any High Power Satellite
Transmission Business.

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"Permitted Business" means those businesses in which the Company and
the Restricted Subsidiaries are engaged on the Issue Date or business reasonably
related thereto (including, without limitation, the High Power Satellite
Transmission Business and the business of satellite data transmission).

"Permitted Holders" any of (i) means Burr, Egan, Deleage & Co.,
Spectrum Equity Investors, L.P., BancBoston Ventures Inc., Norwest Equity
Partners and HarbourVest Partners, LLC and (ii) their respective Affiliates.

"Permitted Indebtedness" means the following Indebtedness (each of
which shall be given independent effect):

(a) Indebtedness under the Notes and the Indenture and other
Indebtedness of the Company, and any guarantee thereof by a Guarantor,
so long as the aggregate principal amount of such Indebtedness and of
the Notes does not exceed $195.0 million;

(b) Indebtedness of the Company and/or any Restricted
Subsidiary outstanding on the Issue Date;

(c) (1) Indebtedness under the Credit Facility of the Company,
and, without duplication, any guarantee thereof by a Guarantor,
Incurred in an aggregate principal amount at any one time outstanding
not to exceed $150.0 million, which amount shall be reduced by (x) any
permanent reduction of commitments thereunder and (y) any other
repayment accompanied by a permanent reduction of commitments
thereunder (other than in connection with any refinancing thereof where
the aggregate principal amount outstanding and commitments thereunder
immediately prior thereto are not greater than such amounts immediately
thereafter); and (2) Indebtedness of the Company, and, without
duplication, any guarantee thereof by a Guarantor, incurred to fund
Asset Acquisitions of Permitted Businesses, Capital Lease Obligations,
Investments permitted under the Indenture and working capital to
support a Permitted Business in an aggregate principal amount at any
one time outstanding not to exceed $65.0 million, which amount shall be
reduced by any permanent reduction of commitments thereunder;

(d) Indebtedness of the Company such that, at the time of and
after giving effect to the Incurrence thereof, the total aggregate
principal amount of Indebtedness Incurred under this clause (d) and any
refinancing thereof (whether initial or successive) Incurred pursuant
to and otherwise incurred in compliance with the Indenture would not
exceed 200% of Total Incremental Invested Equity;

(e) (x) Indebtedness of any Restricted Subsidiary owed to and
held by the Company or any Restricted Subsidiary and (y) Indebtedness
of the Company owed to and held by any Restricted Subsidiary that is
unsecured and subordinated in right of payment to the payment and
performance of the Company's obligations under any Senior Indebtedness,
the Indenture and the Notes (or pledged to secure any Senior
Indebtedness); provided, however, that an Incurrence of Indebtedness
that is not permitted by this clause (e) shall be deemed to have
occurred upon (i) any sale or other disposition of any Indebtedness of
the Company or any Restricted Subsidiary referred to in this clause (e)
to a Person (other than the Company or any Restricted Subsidiary) or
(ii) the designation of a Restricted Subsidiary that holds Indebtedness
of the Company or any other Restricted Subsidiary as an Unrestricted
Subsidiary;

(f) Interest Rate Protection Obligations of the Company or any
Restricted Subsidiary relating to Indebtedness of the Company or such
Restricted Subsidiary (which Indebtedness (i) bears interest at
fluctuating interest rates and (ii) is otherwise permitted to be
incurred under this covenant) and guarantees by the Company or any
Restricted Subsidiary of such Interest Rate Protection Obligations;
provided, however, that the notional principal amount of such Interest
Rate Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate;

(g) indemnification obligations of the Company or any
Restricted Subsidiary and guarantees thereof under agreements providing
for the disposition of assets or one or more businesses or Restricted
Subsidiaries; provided, however, that such obligations do not exceed at
any time the Fair Market Value of the gross proceeds received by the
Company and the Restricted Subsidiaries for such disposition;

(h) Indebtedness to the extent representing a replacement,
renewal, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness Incurred in compliance with the Debt to
Operating

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Cash Flow Ratio of the covenant "Limitation on Additional Indebtedness"
or clause (a), (b), (c)(2), (i) or (k) of this definition; provided,
however, that (i) any such refinancing shall not exceed the sum of the
principal amount (or, if such Indebtedness provides for a lesser amount
to be due and payable upon a declaration of acceleration thereof at the
time of such refinancing, an amount no greater than such lesser amount)
of the Indebtedness being refinanced, plus the amount of accrued
interest or dividends thereon, plus the amount of an reasonably
determined prepayment premium necessary to accomplish such refinancing
and such reasonable fees and expenses incurred in connection therewith,
(ii) Indebtedness representing a refinancing of Indebtedness (other
than Senior Indebtedness and Guarantor Senior Indebtedness) shall have
a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being refinanced,
(iii) Indebtedness that is pari passu with the Notes or a Guarantee may
only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes (and supported by a
guarantee that is pari passu or subordinate in right of payment with
such Guarantee), and Subordinated Indebtedness may only be refinanced
with Subordinated Indebtedness, (iv) with respect to any refinancing of
Indebtedness Incurred pursuant to subparagraph (i) or (k) of this
definition, such refinancing pursuant to this clause (h) shall also be
deemed to be Incurred pursuant to clause (i) or (k), as the case may
be, of this paragraph (for the avoidance of doubt, the result of which
is that a refinancing does not create new debt incurrence capacity
under such clauses) and (v) Indebtedness of the Company Incurred under
clause (b) of this definition may only be refinanced with Indebtedness
of the Company;

(i) Indebtedness of the Company or any Restricted Subsidiary
Incurred to finance the acquisition of the exclusive right to
distribute DIRECTV Services within designated Rural DIRECTV Markets;
provided, however, that such Indebtedness shall be Permitted
Indebtedness under this subparagraph (i) in an amount not greater than
the face amount of any letter of credit issued under the Credit
Facility to support such Indebtedness, it being understood that the
issuance of such letter of credit (but only for so long as such letter
of credit remains outstanding) constitutes a reduction in the amount of
Permitted Indebtedness available to be Incurred under clause (c) of
this definition;

(j) Indebtedness in the form of Liens permitted under clause
(b) of the definition of Permitted Liens; and

(k) in addition to the items referred to in subparagraphs (a)
through (j) above, Indebtedness of the Company or any of the Restricted
Subsidiaries (including any Indebtedness under the Credit Facility that
utilizes this clause (k)) having an aggregate principal amount for the
Company and the Restricted Subsidiaries not to exceed $25.0 million at
any time outstanding.

Indebtedness of any Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary (or is merged into or
consolidated with the Company or any Restricted Subsidiary), whether or not such
Indebtedness was Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary (or being merged into or consolidated
with the Company or any Restricted Subsidiary), shall be deemed Incurred at the
time any such Person becomes a Restricted Subsidiary or merges into or
consolidates with the Company or any Restricted Subsidiary.

"Permitted Investments" means (a) Cash Equivalents; (b) Investments by
the Company or any Restricted Subsidiary in any Person that is or will become
immediately after such Investment a Restricted Subsidiary or that will merge or
consolidate into the Company or a Restricted Subsidiary; (c) Investments in the
Company by any Restricted Subsidiary; (d) Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; (e) loans and advances to
employees made in the ordinary course of business not to exceed $1.0 million in
the aggregate at any one time outstanding; (f) Interest Rate Protection
Obligations; (g) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under "-- Certain Covenants -- Disposition of
Proceeds of Asset Sales" above not to exceed 25% of the total consideration for
such Asset Sales (determined and computed as set forth under "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales"); (h) transactions with
officers, directors and employees of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including compensation or
employee benefit arrangements with any such director or employee) and consistent
with past business practices; (i) Investments existing as of the Issue Date and
any amendment, extension, renewal or modification thereof to the extent that any
such amendment, extension, renewal or modification does not require the Company
or any Restricted Subsidiary to make any additional

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cash or non-cash payments or provide additional services in connection
therewith; (j) Investments in Marketable Securities by the Escrow Agent and held
in the Escrow Account; and (k) Permitted Acquisition Deposits.

"Permitted Junior Securities" means any securities of the Company or
any other Person that are (i) equity securities without special covenants or
(ii) subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding, to the same extent as, or to a greater extent than, the
Notes are subordinated as provided in the Indenture, in any event pursuant to a
court order so providing and as to which (a) the rate of interest on such
securities shall not exceed the effective rate of interest on the Notes on the
date of the Indenture, (b) such securities shall not be entitled to the benefits
of covenants or defaults materially more beneficial to the holders of such
securities than those in effect with respect to the Notes on the date of the
Indenture, (c) such securities shall not provide for amortization (including
sinking fund and mandatory prepayment provisions) commencing prior to the date
six months following the final scheduled maturity date of the Senior
Indebtedness (as modified by the plan of reorganization or readjustment pursuant
to which such securities are issued) and (d) the principal amount thereof shall
not exceed the principal amount and accrued and unpaid interest of the Notes in
respect of which such securities are issued.

"Permitted Liens" means (a) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business that secure
payment of obligations not more than 60 days past due or that are being
contested in good faith and by appropriate proceedings; (c) Liens existing on
the Issue Date; (d) Liens securing only the Notes; (e) Liens in favor of the
Company or any Restricted Subsidiary so long as held by the Company or any
Restricted Subsidiary; (f) Liens for taxes, assessments or governmental charges
or claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently conducted;
provided, however, that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (g) easements,
reservation of rights of way, restrictions and other similar easements,
licenses, restrictions on the use of properties, or minor imperfections of title
that in the aggregate are not material in amount and do not in any case
materially detract from the properties subject thereto or interfere with the
ordinary conduct of the business of the Company and the Restricted Subsidiaries;
(h) Liens resulting front the deposit of cash or notes in connection with
contracts, Permitted Acquisition Deposits, tenders or expropriation proceedings,
or to secure workers' compensation, surety or appeal bonds, costs of litigation
when required by law and public and statutory obligations or obligations under
franchise arrangements and agreements with the NRTC entered into in the ordinary
course of business; (i) Liens securing Indebtedness consisting of Capital Lease
Obligations, Purchase Money Indebtedness, mortgage financings, industrial
revenue bonds or other monetary obligations, in each case incurred solely for
the purpose of financing all or any part of the purchase price or cost of
construction or installation of assets used in the business of the Company or
the Restricted Subsidiaries, or repairs, additions or improvements to such
assets; provided, however, that (I) such Liens secure Indebtedness in an amount
not in excess of the original purchase price or the original cost of any such
assets or repair, addition or improvement thereto (plus an amount equal to the
reasonable fees and expenses in connection with the incurrence of such
Indebtedness), (II) such Liens do not extend to any other assets of the Company
or the Restricted Subsidiaries (and, in the case of repairs, additions or
improvements to any such assets, such Lien extends only to the assets (and
improvements thereto or thereon) repaired, added to or improved), (III) the
Incurrence of such Indebtedness is permitted by "--Certain Covenants --
Limitation on Additional Indebtedness" above, and (IV) such Liens attach within
90 days of such purchase, construction, installation, repair, addition or
improvement; (j) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); (k) Liens securing letters of
credit entered into in the ordinary course of business; (1) Liens on and pledges
of the Equity Interests of any Unrestricted Subsidiary securing any Indebtedness
of such Unrestricted Subsidiary; and (m) any calls or rights of first refusal
with respect to any partnership interests; and (n) Liens on the proceeds of
Indebtedness that are pledged (or any Investment made therewith are pledged) to
secure payments in respect of such Indebtedness.

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.

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"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding with respect to such
Person in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing such Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.

"Preferred Equity Interest," in any Person, means an Equity Interest of
any class or classes (however designated) that is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Equity
Interests of any other class in such Person.

"principal" of a debt security means the principal of the security,
plus, when appropriate, the premium, if any, on the security.

"Public Equity Offering" means an underwritten public offering of
Equity Interests (other than Disqualified Equity Interests) of the Company made
on a primary basis by the Company pursuant to a registration statement filed
with and declared effective by the Commission in accordance with the Securities
Act.

"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property;
provided, however, that the aggregate principal amount of such Indebtedness does
not exceed the lesser of the Fair Market Value of such property or such purchase
price or cost, including any refinancing of such Indebtedness that does not
increase the aggregate principal amount (or accreted amount, if less) thereof as
of the date of refinancing.

"Qualified Equity Interest" in any Person means any Equity Interest in
such Person other than any Disqualified Equity Interest.

"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Equity Interests of the
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company (other than dividends or
distributions payable solely in Equity Interests (other than Disqualified Equity
Interests) of the Company) or in options, warrants or other rights to purchase
Equity Interests (other than Disqualified Equity Interests) of the Company; (ii)
the purchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company (other than any such Equity Interests owned by
the Company or a Wholly Owned Restricted Subsidiary); (iii) the purchase,
redemption, defeasance or other acquisition or retirement for value prior to any
scheduled repayment, sinking fund or maturity of any Subordinated Indebtedness
(other than any Subordinated Indebtedness held by a Wholly Owned Restricted
Subsidiary); or (iv) the making by the Company or any Restricted Subsidiary of
any Investment (other than a Permitted Investment) in any Person.

"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a resolution of
the Board of Directors of the Company delivered to the Trustee, as an
Unrestricted Subsidiary pursuant to "-- Certain Covenants -- Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of such covenant.

"SEC" means the Securities and Exchange Commission.

"Seller Notes" means any promissory notes issued by the Company to any
Person selling any assets or properties to the Company or any Restricted
Subsidiary in an Asset Acquisition, including those outstanding on the Issue
Date.

"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Credit Facility; (b) all Interest Rate Protection Obligations
of the Company; (c) all Obligations of the Company under standby letters of
credit; and (d) all other Obligations relating to Indebtedness of the Company
for borrowed money, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under

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which such Indebtedness of the Company for money borrowed is Incurred expressly
provides that such Indebtedness for money borrowed is not senior or superior in
right of payment to the Notes, and all renewals, extensions, modifications,
amendments or refinancings thereof. Notwithstanding the foregoing, Senior
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between the Company and any Subsidiary of the Company; (c)
to the extent that it may constitute Indebtedness, any Obligation in respect of
any trade payable Incurred for the purchase of goods or materials, or for
services obtained, in the ordinary course of business; (d) that portion of any
Indebtedness that is Incurred in violation of the Indenture; provided, however,
that such Indebtedness shall be deemed not to have been Incurred in violation of
the Indenture for purposes of this clause (d) if (I) the holder(s) of such
Indebtedness or their representative or the Company shall have furnished to the
Trustee an opinion of independent legal counsel, unqualified in all material
respects, addressed to the Trustee (which legal counsel may, as to matters of
fact, rely upon an officers' certificate of the Company) to the effect that the
Incurrence of such Indebtedness does not violate the provisions of the Indenture
or (II) in the case of any Obligations under the Credit Facility, the holder(s)
of such Obligations or their agent or representative shall have received a
representation from the Company to the effect that the Incurrence of such
Indebtedness does not violate the provisions of the Indenture; (e) Indebtedness
evidenced by the Notes; (f) Indebtedness of the Company that is expressly
subordinate or junior in right of payment to any other Indebtedness of the
Company; (g) Indebtedness represented by the Seller Notes; (h) to the extent
that it may constitute Indebtedness, any obligation owing under leases (other
than Capital Lease Obligations) or management agreements; and (i) any obligation
that by operation of law is subordinate to any general unsecured obligations of
the Company.

"Significant Restricted Subsidiary" means, at any date of
determination, (a) any Restricted Subsidiary that, together with its
Subsidiaries that constitute Restricted Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 5.0% of the consolidated
revenues of the Company and the Restricted Subsidiaries or (ii) as of the end of
such fiscal year owned more than 5.0% of the consolidated assets of the Company
and the Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary that, when aggregated
with all other Restricted Subsidiaries that are not otherwise Significant
Restricted Subsidiaries and as to which any event described in clause (v), (vii)
or (viii) of "-- Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.

"Specified Indebtedness" means (i) any Senior Indebtedness, (ii) any
Guarantor Senior Indebtedness and (iii) any Indebtedness of any Restricted
Subsidiary (other than a Guarantor) that is not subordinated to any other
Indebtedness of such Restricted Subsidiary; provided that, to the extent such
Indebtedness has been guaranteed, it must have been guaranteed by a Guarantor on
a senior basis.

"Stated Maturity," when used with respect to any Note or any
installment of interest thereon, means the date specified in such Note as the
fixed date on which the principal of such Note or such installment of interest
is due and payable.

"Subordinated Indebtedness" means any Indebtedness of the Company or
any Guarantor that is expressly subordinated in right of payment to the Notes or
any Guarantees of such Guarantor, as applicable.

"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.

"Total Consolidated Indebtedness" means, as at any date of
determination, an amount equal to the aggregate amount of all Indebtedness and
Disqualified Equity Interests of the Company and the Restricted Subsidiaries
outstanding as of such date of determination.

"Total Incremental Invested Equity" means, at any date of
determination, the sum of, without duplication, (a) the aggregate net cash
proceeds received by the Company either (x) as capital contributions to the
Company after the Issue Date or (y) from the issue and sale (other than to a
Subsidiary of the Company by the Company) of its Qualified Equity interests
after the Issue Date, plus (b) the aggregate net proceeds received by the
Company or any Restricted Subsidiary after the Issue Date from the issuance
(other than to a Subsidiary of the Company) of Qualified Equity

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100
Interests upon the conversion of, or in exchange for, Indebtedness of the
Company or a Restricted Subsidiary that has been converted into or exchanged for
Qualified Equity Interests of the Company, minus (c) the aggregate amount of all
Restricted Payments made on or after the Issue Date and all Designation Amounts
arising after the Issue Date, but only to the extent the amount set forth in
this clause (c) would exceed the amount determined under subclause (a) of clause
(iii) of the first paragraph under the "Limitation on Restricted Payments"
covenant, plus (d) in the case of the disposition or repayment of any Investment
which has been deducted pursuant to clause (c) of this definition, an amount
equal to the lesser of the return of capital with respect to such Investment and
the amount of such Investment which has been deducted pursuant to such clause
(c), plus (e) in the case of any Revocation with respect to any Subsidiary that
was made the subject of Designation after the Issue Date and as to which a
Designation Amount has been deducted pursuant to clause (c) of this definition,
an amount equal to the lesser of such Designation Amount or the Fair Market
Value of the Investment of the Company and the Restricted Subsidiaries in such
Subsidiary at the time of Revocation.

"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to "-- Certain Covenants -- Designation of
Unrestricted Subsidiaries" above. Any such designation may be revoked by a
resolution of the Board of Directors of the Company delivered to the Trustee,
subject to the provisions of "-- Certain Covenants -- Designation of
Unrestricted Subsidiaries" above.

"Voting Equity Interests" means Equity Interests in a corporation or
other Person with voting power under ordinary circumstances entitling the
holders thereof to elect the Board of Directors or other governing body of such
corporation or such Person.

"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.

"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary
all of the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.

BOOK ENTRY; DELIVERY AND FORM

The Old Notes were initially issued in the form of a single, permanent
global certificate in definitive, fully registered form (the "Global Note"). The
Global Note was deposited on the date of the closing of the Old Notes Offering
with, or on behalf of, the DTC and registered in the name of Cede & Co., as
nominee of the DTC.

The Global Note. Pursuant to procedures established by DTC, (i) upon
the issuance of the Global Note, DTC or its custodian credited, on its internal
system, the principal amount of Old Notes of the individual beneficial interests
represented by such global securities to the respective accounts of persons who
have accounts with such depositary, and (ii) ownership of beneficial interests
in the Global Note is shown on, and the transfer of such ownership is effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially were
designated by or on behalf of the Initial Purchasers and ownership of beneficial
interests in the Global Note were limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. QIBs may
hold their interests in the Global Note directly through DTC if they are
participants in such system, or directly through organizations which are
participants in such system.

So long as DTC, or its nominee, is the registered owner or holder of
the Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.

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Payments of the principal of, premium (if any) and interest (including
Additional Interest) on, the Global Note are made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Trustee
or any Paying Agent has any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.

DTC or its nominee, upon receipt of any payment of principal, premium,
if any, or interest (including Additional Interest) in respect of the Global
Note, credits participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global Note
as shown on the records of DTC or its nominee. Payments by participants to
owners of beneficial interests in the Global Note held through such participants
are governed by standing instructions and customary practice, as is now the case
with securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments are the responsibility of such
participants.

Transfers between participants in DTC are effected in the ordinary way
in accordance with DTC rules and are settled in clearinghouse funds. If a holder
requires physical delivery of a Certificated Security for any reason, including
to sell Notes to persons in states which require physical delivery of the Notes,
or to pledge such securities, such holder must transfer its interest in the
Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.

DTC has advised the Company that it will take action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants.

DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").

Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.

Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.

SAME-DAY SETTLEMENT AND PAYMENT

The Indenture requires that payments in respect of the Notes (including
principal, premium, if any, and interest) be made in immediately available
funds. Secondary trading in long-term notes and debentures of corporate issuers
is generally settled in clearing-house or next-day funds. In contrast, the New
Notes are expected to be eligible to trade in the PORTAL Market and to trade in
the Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in the New Notes will therefore be required by the
Depositary to be settled in immediately available funds. No assurance can be
given as to the effect, if any, of such settlement arrangements on trading
activity in the New Notes.

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TRANSFER AND EXCHANGE

A Holder may transfer or exchange the New Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any New Note selected for redemption. Also, the Registrar
is not required to transfer or exchange any New Note for a period of 15 days
before a selection of the New Notes to be redeemed.

The registered holder of a New Note will be treated as the owner of it
for all purposes.

GOVERNING LAW

The Indenture and the New Notes are governed by and construed in
accordance with the laws of the State of New York.

THE TRUSTEE

The Trustee acts as trustee under the Indenture and may, from time to
time, act as depositary for funds of, make loans to, arid perform other services
for, the Company in the ordinary course of business.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following summary describes certain United States federal income
tax consequences of the exchange of Old Notes for New Notes as of the date
hereof. The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in federal income tax consequences
different from those discussed below. Persons considering the exchange of Old
Notes for New Notes should consult their own tax advisors concerning the federal
income tax consequences in light of their particular situations as well as any
consequences arising under the laws of any other taxing jurisdiction.

EXCHANGE OF NOTES

The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an "exchange" for federal income tax purposes, because
the New Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder of Old Notes
should be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there should be no federal income tax consequences to a
holder exchanging Old Notes for New Notes pursuant to the Exchange Offer.

PLAN OF DISTRIBUTION

Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 90 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. In
addition, for a period of 90 days after the Expiration Date, all dealers
effecting transactions in the New Notes may be required to deliver a Prospectus.

The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resole, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were

101
103
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of New Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
person may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. The Company has no
arrangement or understanding with any broker or dealer to distribute the New
Notes received in the Exchange Offer.

For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal.

102
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LEGAL MATTERS

The validity of the New Notes will be passed upon for the Company by
Reboul, MacMurray, Hewitt, Maynard & Kristol, New York, New York.

EXPERTS

The (i) consolidated financial statements of the Company for the year
ended December 31, 1997 and for the period from Inception (June 25, 1996) to
December 31, 1996, (ii) financial statements of Images DBS Kansas, L.C. for the
years ended December 31, 1996 and 1995, (iii) financial statements of Images DBS
Oklahoma, L.C. for the years ended December 31, 1996 and 1995, (iv) financial
statements of Total Communications, Inc. for the years ended December 31, 1996
and 1995,(v) financial statements of Thunderbolt Systems, Inc. for the years
ended December 31, 1996, 1995, and 1994, (vi) financial statements of JECTV for
the years ended December 31, 1996, 1995, and 1994, (vii) financial statements of
Cal-Ore Digital TV, Inc. for the year ended December 31, 1996, (viii) financial
statements of Direct Vision for the years ended December 31, 1996, 1995, and
1994, (ix) financial statements of Direct Broadcast Satellite (a segment of CTS
Communication Corporation) for the periods ended December 31, 1996, 1995, and
1994, (x) financial statements of Argos Support Services Company for the years
ended December 31, 1996 and 1995, (xi) financial statements of Satellite
Entertainment, Inc. for the years ended December 31, 1996, 1995 and 1994, (xii)
financial statements of GVEC Rural TV, Inc. for the years ended December 31,
1996, 1995 and 1994, and (xiii) financial statements of NRTC System No. 0093 for
the years ended December 31, 1996, 1995 and 1994 appearing in this Prospectus
have been audited by KPMG Peat Marwick LLP, independent auditors, as stated in
their reports, and are included herein in reliance upon the reports of such
firm.

The financial statements of (i) Triangle Communication System, Inc. for
each of the years in the three-year period ended December 31, 1997 and (ii)
Souris River Television, Inc. for each of the years in the two-year period ended
December 31, 1996 have been audited by Eide Helmeke PLLP, independent auditors,
as stated in their reports, and are included herein in reliance upon the reports
of such firm.

The financial statements of Western Montana DBS, Inc. dba Rocky
Mountain DBS for the six-month periods ended June 30, 1998 and 1997 have been
compiled by Loucks & Glassley, pllp, Certified Public Accountants, as stated in
their report, and are included herein in reliance upon the report of such firm.

The financial statements of Western Montana DBS, Inc. dba Rocky
Mountain DBS for each of the years in the three-year period ended December 31,
1996 and for the year ended December 31, 1997 have been audited by Loucks &
Glassley, pllp, independent auditors, as stated in their reports, and are
included herein in reliance upon the reports of such firm.

The financial statements of South Plains DBS Limited Partnership for
each of the years in the two-year period ended December 31, 1996 have been
audited by Bolinger, Segars, Gilbert & Moss, L.L.P., independent auditors, as
stated in their report, and are included herein in reliance upon the report of
such firm.

The financial statements of Direct Broadcast Satellite (a segment of
Nemont Communications Inc.) for the year ended December 31, 1997 have been
audited by CHMS, P.C., independent auditors, as stated in their report, and are
included herein in reliance upon the report of such firm.

The financial statements of Direct Broadcast Satellite (a segment of
SCS Communications & Security, Inc.) for each of the years in the two-year
period ended December 31, 1997 have been audited by Aldrich, Kilbride & Tatone
LLP, independent auditors, as stated in their report, and are included herein in
reliance upon the report of such firm.

The financial statements of PrimeWatch, Inc. for the year ended
December 31, 1997 have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.

The financial statements of Direct Broadcast Satellite (a division of
Baldwin County Electric Membership Corporation) for the year ended December 31,
1997 have been audited by Jackson Thornton & Co., P.C., independent auditors, as
stated in their report, and are included herein in reliance upon the report of
such firm.

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105
The financial statements of Direct Broadcast Satellite (a segment of
Volcano Vision, Inc.) for the six-month periods ended June 30, 1998 and 1997
have been compiled by Moss Adams L.L.P., Certified Public Accountants, as stated
in their report, and are included herein in reliance upon the report of such
firm.

The financial statements of Direct Broadcast Satellite (a segment of
Volcano Vision, Inc.) for the year ended December 31, 1997 have been audited by
Moss Adams LLP, independent auditors, as stated in their reports, and are
included herein in reliance upon the reports of such firm.

The financial statements of DBS Segment of Cumby Cellular, Inc. for the
six-month periods ended June 30, 1998 and 1997 have been compiled by Curtis
Blakely & Co., P.C., Certified Public Accountants, as stated in their report,
and are included herein in reliance upon the report of such firm.

The financial statements of DBS Segment of Cumby Cellular, Inc. for the
year ended December 31, 1997 have been audited by Curtis Blakely & Co., P.C.,
independent auditors, as stated in their report, and are included herein in
reliance upon the report of such firm.

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INDEX TO FINANCIAL STATEMENTS

Page
----

GOLDEN SKY SYSTEMS, INC.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Condensed Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997............... F-2
Condensed Consolidated Statements of Operations for the six-month periods ended June 30, 1998
and 1997 (unaudited)................................................................................... F-3
Condensed Consolidated Statements of Cash Flows for the six-month periods ended June 30, 1998
and 1997 (unaudited)................................................................................... F-4
Notes to unaudited condensed consolidated financial statements for the six-month periods ended
June 30, 1998 and 1997................................................................................. F-5
FISCAL YEAR 1997 AND FOR THE PERIOD FROM INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
Independent Auditors' Report.............................................................................. F-7
Consolidated Balance Sheets as of December 31, 1997 and 1996.............................................. F-8
Consolidated Statements of Operations for the year ended December 31, 1997 and for
the period from inception (June 25, 1996) through December 31, 1996.................................... F-9
Consolidated Statements of Stockholder's Equity (Deficit) for the year ended December 31,
1997 and for the period from inception (June 25, 1996) through December 31, 1996....................... F-10
Consolidated Statements of Cash Flows for the year ended December 31, 1997 and for
the period from inception (June 25, 1996) through December 31, 1996.................................... F-11
Notes to Consolidated Financial Statements................................................................ F-12
FINANCIAL STATEMENTS OF INCLUDED ACQUISITIONS
Triangle Communications System, Inc....................................................................... F-22
Western Montana DBS, Inc. dba Rocky Mountain DBS (unaudited).............................................. F-32
Western Montana DBS, Inc. dba Rocky Mountain DBS.......................................................... F-39
South Plains DBS Limited Partnership...................................................................... F-57
Souris River Television, Inc.............................................................................. F-67
Images DBS Kansas, L.C.................................................................................... F-76
Images DBS Oklahoma, L.C.................................................................................. F-85
Total Communications, Inc................................................................................. F-94
Thunderbolt Systems, Inc.................................................................................. F-104
JECTV (a segment of Jackson Electric Cooperative)......................................................... F-113
Cal-Ore Digital TV, Inc................................................................................... F-123
Direct Vision (a segment of Mankato Citizens Telephone Company)........................................... F-132
Direct Broadcast Satellite (a segment of CTS Communication Corporation)................................... F-141
Argos Support Services Company............................................................................ F-150
Satellite Entertainment, Inc. (a wholly-owned subsidiary of Ace Telephone Association).................... F-159
GVEC Rural TV, Inc........................................................................................ F-169
NRTC System No. 0093 (a segment of Cable and Communications Corporation).................................. F-179
Direct Broadcast Satellite (a segment of Nemont Communications Inc.)...................................... F-188
Direct Broadcast Satellite (a segment of SCS Communications & Security, Inc.)............................. F-197
PrimeWatch, Inc........................................................................................... F-205
Direct Broadcast Satellite (a division of Baldwin County Electric Membership Corporation)................. F-215
Direct Broadcast Satellite (a segment of Volcano Vision, Inc.) (unaudited)................................ F-222
Direct Broadcast Satellite (a segment of Volcano Vision, Inc.)............................................ F-230
DBS Segment of Cumby Cellular, Inc. (unaudited)........................................................... F-240
DBS Segment of Cumby Cellular, Inc........................................................................ F-247

Financial statements of the Company's parent consolidated with the
Company and its subsidiaries have been omitted, as (1) the Parent's only
subsidiary is the Company, (2) the Parent has no operations of its own, and (3)
management of the Parent is also management of the Company.

F-1
107
GOLDEN SKY SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)

JUNE 30, DECEMBER 31,
1998 1997
--------- -----------
(UNAUDITED)

ASSETS
Current Assets:
Cash and cash equivalents ................................................. $ 856 13,632
Subscriber receivables .................................................... 7,075 3,843
Other receivables ......................................................... 987 335
Earnest Deposits .......................................................... 690 --
Inventory ................................................................. 2,888 2,174
Prepaid expenses .......................................................... 783 127
--------- --------
Total current assets ................................................... 13,279 20,111
Equipment leased to customers (net of accumulated depreciation of $983 and
$612) ..................................................................... 569 909
Furniture, fixtures and equipment (net of accumulated depreciation of $961
and $449) ................................................................. 3,422 2,027
Goodwill and other intangible assets (net of accumulated authorization of
$15,772 and $6,890) (note 2) .............................................. 175,502 129,896
Deferred financing costs (net of accumulated authorization of $211 and $215) . 3,757 3,106
Other assets ................................................................. 199 187
--------- --------
Total assets ........................................................... $ 196,728 156,236
========= ========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Current Liabilities:
Current maturities of long-term debt and notes payable ................. $ 9,750 2,361
Trade accounts payable ................................................. 9,115 8,471
Payable to parent ...................................................... 12 586
Unearned revenue ....................................................... 3,794 2,630
Interest payable ....................................................... 768 786
Current maturities of obligations under capital leases ................. 289 177
Accrued payroll and other liabilities .................................. 1,164 1,273
--------- --------
Total current liabilities ........................................... 24,892 16,284
Minority interest in consolidated partnerships ............................ 2,758 2,928
Long-term debt and notes payable, less current maturities ................. 120,701 66,283
Obligations under capital leases, less current maturities ................. 553 292
--------- --------
Total liabilities ................................................... 148,904 85,787
--------- --------
Commitments and contingencies
Stockholder's equity:
Common stock, par value $.01; 1,000 shares authorized, issued and
outstanding ............................................................ -- --
Additional paid-in capital ................................................ 87,400 87,400
Accumulated deficit ...................................................... (39,576) (16,951)
--------- --------
Total stockholder's equity .......................................... 47,824 70,449
--------- --------
Total liabilities and stockholder's equity .......................... $ 196,728 156,236
========= ========

See accompanying notes to condensed consolidated financial statements.

F-2
108
GOLDEN SKY SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

1998 1997
-------- ------

Revenue:
Programming ......................... $ 30,466 3,289
Equipment sales ..................... 4,550 409
Installation ........................ 1,010 108
Equipment lease ..................... 512 214
-------- ------
Total revenue .................. 36,538 4,020
-------- ------
Cost of revenue:
Programming costs ................... 17,926 1,830
Equipment costs ..................... 4,395 378
Installation and other .............. 1,491 173
-------- ------
Total cost of revenue .......... 23,812 2,381
-------- ------
Gross profit ................... 12,726 1,639
-------- ------
Expenses:
Systems operations .................. 4,177 502
Sales and marketing ................. 10,961 980
Corporate ........................... 1,769 854
Depreciation and amortization ....... 10,019 1,929
Provision for doubtful accounts ..... 906 106
-------- ------
Total expenses ................. 27,832 4,371
Operating loss ................. (15,106) (2,732)
Nonoperating items:
Write off of deferred financing costs (2,577) --
Interest and investment income ...... 29 2
Interest expense .................... (4,971) (128)
-------- ------
Net loss before income tax ..... (22,625) (2,858)
Income taxes ........................... -- --
-------- ------
Net loss ....................... $(22,625) (2,858)
======== ======

See accompanying notes to condensed consolidated financial statements.

F-3
109
GOLDEN SKY SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)

1998 1997
-------- --------

Operating activities:
Net loss .................................................................. $(22,625) (2,858)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization .......................................... 10,019 1,929
Provision for doubtful accounts ........................................ 906 106
Write off of deferred financing costs .................................. 2,577 --
Change in operating assets and liabilities, net of acquisitions:
Subscriber receivables, net of unearned revenue ..................... (2,941) (1,124)
Other receivables ................................................... (652) (265)
Inventory ........................................................... (679) (391)
Prepaid expenses and other assets ................................... (633) (189)
Trade accounts payable .............................................. 644 1,138
Payable to Parent ................................................... (574) --
Accrued interest payable ............................................ (18) (20)
Accrued payroll and other accrued liabilities ....................... (263) 182
-------- --------
Net cash used in operating activities ............................ (14,239) (1,492)
-------- --------
Investing activities:
Acquisitions of rural DBS territories ..................................... (44,514) (30,188)
Payment of earnest deposits ............................................... (690) (1,020)
Purchases of furniture, fixtures and equipment ............................ (1,360) (13)
-------- --------
Net cash used in investing activities ............................ (46,564) (31,221)
-------- --------
Financing activities:
Proceeds from issuance of notes payable ................................... -- 2,115
Principal payments on notes payable ....................................... (2,350) (2,815)
Proceeds from credit agreement ............................................ 54,000 --
Financing costs ........................................................... (3,494) (50)
Proceeds from issuance of cumulative participating preferred stock ........ -- 34,350
Principal payments on obligations under capital leases .................... (129) --
-------- --------
Net cash provided by financing activities ............................ 48,027 33,600
-------- --------
Net increase (decrease) in cash and cash equivalents ................. (12,776) 887
Cash and cash equivalents, beginning of period ............................... 13,632 479
-------- --------
Cash and cash equivalents, end of period ..................................... $ 856 $ 1,366
======== ========

See accompanying notes to condensed financial statements.

F-4
110
GOLDEN SKY SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997

(1) INTERIM FINANCIAL STATEMENTS

The condensed consolidated financial statements of Golden Sky Systems,
Inc. and subsidiaries (the "Company") have been prepared in accordance with the
Securities and Exchange Commission's instructions for interim financial
statements under Regulation S-X. To the extent that information and footnotes
required by generally accepted accounting principles for complete financial
statements are contained in or consistent with the audited consolidated
financial statements, such information and footnotes have not been duplicated
herein. The December 31, 1997 condensed consolidated balance sheet has been
derived from the audited consolidated financial statements as of that date. In
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of financial statements,
have been reflected herein. The results of interim periods are not necessarily
indicative of the results expected for the full year.

(2) ACQUISITIONS AND INTANGIBLE ASSETS

The Company accounts for its acquisitions under the purchase method.
During the six-month period ended June 30, 1998, the Company acquired the rights
to ten direct broadcast satellite territories in Montana, North Dakota, Iowa,
Colorado, Georgia, North Carolina, Oregon, and Alabama with approximately 26,900
subscribers. The total cost of these acquisitions, including direct costs, was
$54,668,000, which was allocated as follows (in thousands):

Working Capital, net .. $ 180
Noncompete agreements.. 1,287
Customer Lists ........ 2,951
Goodwill .............. 50,250
-------
$54,668
=======

Intangible assets, which are amortized using the straight-line method over
the estimated useful lives, consist of the following at June 30, 1998 (dollars
in thousands):

Goodwill ...................... $ 172,219
Customer Lists ................ 12,854
Noncompete Agreements ......... 6,201
Less: accumulated amortization (15,772)
---------
$ 175,502
=========

Subsequent to June 30, 1998, the Company acquired four additional
territories in Wisconsin, Texas and Missouri with approximately 5,800
subscribers. The aggregate purchase price of these acquisitions was $13,656,000.
The aggregate purchase price was allocated based on the estimated fair values of
assets and liabilities acquired, resulting in intangible assets of $13,586,000.

(3) REGULATORY DEVELOPMENTS

Certain television broadcast networks and their affiliates have commenced
litigation against a number of satellite providers of network programming,
regarding alleged violations of the Satellite Home Viewer Act (SHVA). PrimeTime
24, which provides network programming to several satellite providers, including
DirecTV, is one such programming service offered by the Company. On July 10,
1998, the Federal District Court, Southern District of Florida granted a
preliminary injunction that has the effect of prohibiting PrimeTime 24 from
providing CBS and Fox network programming to certain households and businesses
in designated geographic areas. The preliminary injunction further requires the
disconnection within 90 days of certain current Prime Time 24 customers for CBS
and

F-5
111
GOLDEN SKY SYSTEMS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1998 AND 1997

Fox programming. The Company believes that it has complied to date with the SHVA
in providing network programming to only those customers eligible for such
programming services and has disconnected subscribers whose eligibility was
challenged by local broadcasters. Approximately half of the Company's current
subscribers receive some or all of PrimeTime 24's network programming. The
Company believes, however, that a material portion of such subscribers will be
unaffected by the preliminary injunction. The Company's monthly revenue per
subscriber for Prime Time 24 network services ranges from $.90 to $4.50.
Although the Company does not believe the preliminary injunction will materially
adversely affect the Company's operating results, subscriber churn rate or its
ability to attract new subscribers, there can be no assurance that the Company's
inability to provide CBS and Fox network services under the preliminary
injunction will not have such effects.

(4) AMENDED CREDIT FACILITY

On May 8, 1998, the Company entered into a seven year, $150 million
amended credit facility with a syndicate of lenders which provides for a term
loan commitment of $35 million and a revolving loan commitment of $115 million.
Outstanding loans under this agreement carry interest at variable rates (based
on the prime rate and LIBOR) which approximated 10% as of June 30, 1998.
Outstanding term and revolving loans under the amended credit facility were $114
million at June 30, 1998. In May 1998, the Company wrote off deferred financing
costs with a net book value of $2.6 million relating to the previous credit
agreement.

(5) SUBSEQUENT EVENTS

On July 31, 1998, the Company issued an aggregate principal amount of
$195.0 million of senior subordinated notes, bearing interest at a rate of
12 3/8%, which mature August 1, 2006. The Company realized net proceeds of
approximately $189.2 million. Approximately $45.2 million of the net proceeds
were placed in an escrow account to fund the first four semi-annual interest
payments when due. A portion of the approximately $144.0 million proceeds
remaining were used to repay the $83.3 million outstanding borrowings under the
revolving line of credit facility. Proceeds of approximately $3.0 million were
used to acquire one pending acquisition of a rural DIRECTV market. The remaining
net proceeds, approximately $57.7 million, is held in short term, liquid
investments, for use in funding future acquisitions and working capital
requirements.

F-6
112
INDEPENDENT AUDITORS' REPORT

Board of Directors and Investors
Golden Sky Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Golden Sky
Systems, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholder's equity (deficit) and cash flows for the
year ended December 31, 1997 and for the period from inception (June 25, 1996)
through December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Golden Sky
Systems, Inc. as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the year ended December 31, 1997 and for the
period from inception (June 25, 1996) through December 31, 1996, in conformity
with generally accepted accounting principles.

KPMG Peat Marwick LLP

April 24, 1998

F-7
113
GOLDEN SKY SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)

1997 1996
--------- ------

ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 13,632 479
Subscriber receivables (note 2) ................................................ 3,843 149
Other receivables .............................................................. 335 123
Earnest deposits ............................................................... -- 320
Inventory ...................................................................... 2,174 31
Prepaid expenses ............................................................... 127 --
--------- ------
Total current assets ................................................... 20,111 1,102
Equipment leased to customers (net of accumulated depreciation of $612 and $9)
(note 5) ...................................................................... 909 103
Furniture, fixtures and equipment (net of accumulated depreciation of $449 and $7) 2,027 90
Goodwill and other intangible assets (net of accumulated amortization of
$6,890 and $81) (notes 3 and 4) ................................................ 129,896 5,071
Deferred financing costs (net of accumulated amortization of $215) ............... 3,106 --
Other assets ..................................................................... 187 17
--------- ------
Total assets ........................................................... $ 156,236 6,383
========= ======
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Liabilities:
Current liabilities:
Current maturities of long-term debt and notes payable (notes 3 and 7) ...... $ 2,361 2,450
Trade accounts payable ...................................................... 8,471 372
Payable to Parent (note 8) .................................................. 586 --
Unearned revenue ............................................................ 2,630 136
Interest payable ............................................................ 786 53
Current maturities of obligations under capital leases (note 6) ............. 177 --
Accrued payroll and other liabilities ....................................... 1,273 39
--------- ------
Total current liabilities .............................................. 16,284 3,050
Minority interest in consolidated partnerships (note 3) ........................ 2,928 --
Long-term debt and notes payable, less current maturities (notes 3 and 7) ...... 66,283 2,000
Obligations under capital leases, less current maturities (note 6) ............. 292 --
--------- ------
Total liabilities ...................................................... 85,787 5,050
--------- ------
Commitments and contingencies (note 11) .......................................... -- --
Investors' subscription to purchase Series A convertible participating
redeemable preferred stock ..................................................... -- 2,499
Stockholder's equity (deficit)
Common stock, par value $.01; 1,000 shares authorized, issued and outstanding .. -- --
Additional paid-in capital ..................................................... 87,400 1
Accumulated deficit ............................................................ (16,951) (1,167)
--------- ------
Total stockholder's equity (deficit) ................................... 70,449 (1,166)
--------- ------
Total liabilities and stockholder's equity (deficit) ................... $ 156,236 6,383
========= ======

See accompanying notes to consolidated financial statements.

F-8
114
GOLDEN SKY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

1997 1996
-------- ------

Revenue:
Programming ................... $ 16,452 219
Equipment sale ................ 3,281 44
Installation .................. 543 13
Equipment lease ............... 944 36
-------- ------
Total revenue .......... 21,220 312
-------- ------
Cost of revenue:
Programming costs ............. 9,304 130
Equipment costs ............... 3,281 44
Installation and other ........ 984 16
-------- ------
Total cost of revenue .. 13,569 190
-------- ------
Gross profit ........... 7,651 122
-------- ------
Expenses:
Systems operations ............ 3,796 26
Sales and marketing ........... 6,875 70
Corporate ..................... 1,917 1,028
Depreciation and amortization . 7,515 97
Provision for doubtful accounts 414 7
-------- ------
Total Expenses ......... 20,517 1,228
-------- ------
Operating loss ......... (12,866) (1,106)
-------- ------
Nonoperating items:
Interest and investment income ... 40 1
Interest expense ............... (2,958) (62)
-------- ------
Net loss before income taxes .. (15,784) (1,167)
Income taxes (note 10) ........... -- --
Net loss ............... $(15,784) (1,167)
======== ======

See accompanying notes to consolidated financial statements.

F-9
115
GOLDEN SKY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

Additional
Common paid-in Accumulated
stock capital deficit Total
------------ ---------- ----------- -------

Balance at inception (June 25, 1996) ......... $ -- -- -- --
Issuance of 1,000 shares of common stock ..... -- 1 -- 1
Net loss ..................................... -- -- (1,167) (1,167)
------------ ------- ------- -------
Balance at December 31, 1996 ................. -- 1 (1,167) (1,166)
Cancellation of originally issued common stock
(note 9) ................................... -- (1) -- (1)
Issuance of 1,000 shares of new common stock
(note 9) ................................... -- -- -- --
Contribution from Parent (note 9) ............ -- 87,400 -- 87,400
Net loss ..................................... -- -- (15,784) (15,784)
------------ ------- ------- -------
Balance at December 31, 1997 ................. $ -- 87,400 (16,951) 70,449
============ ======= ======= =======

See accompanying notes to consolidated financial statements.

F-10
116
GOLDEN SKY SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR END DECEMBER 31, 1997 AND FOR THE PERIOD FROM
INCEPTION (JUNE 25, 1996) THROUGH DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

1997 1996
--------- ------

Operating activities:
Net loss .................................................................... $ (15,784) (1,167)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................ 7,515 97
Provision for doubtful accounts .......................................... 414 7
Change in operating assets and liabilities, net of acquisitions:
Subscriber receivables, net of unearned revenue ........................ (2,915) (20)
Other receivables ...................................................... (161) (123)
Inventory .............................................................. (1,604) (31)
Prepaid expenses and other assets ...................................... (203) (17)
Payable to Parent ...................................................... 586 --
Trade accounts payable ................................................. 7,515 372
Interest payable ....................................................... 733 53
Accrued payroll and other accrued liabilities .......................... 744 39
Net cash used in operating activities ............................... (3,160) (790)
--------- ------
Investing activities:
Acquisitions of rural direct broadcast satellite (DBS) territories .......... (120,051) (2,806)
Purchases of furniture, fixtures and equipment .............................. (998) (105)
Deposits .................................................................... 320 (320)
--------- ------
Net cash used in investing activities ............................... (120,729) (3,231)
--------- ------
Financing activities:
Principal payments on notes payable ......................................... (17,818) (396)
Proceeds from issuance of notes payable ..................................... 77,116 2,396
Financing costs ............................................................. (3,321) --
Proceeds from Investors' subscriptions to purchase cumulative
participating preferred stock ............................................ -- 2,499
Proceeds from issuance of cumulative participating preferred stock .......... 35,550 --
Cash contributions from Parent .............................................. 45,600 --
Proceeds from issuance of common stock ...................................... -- 1
Principal payments on obligations under capital leases ...................... (85) --
--------- ------
Net cash provided by financing activities ........................... 137,042 4,500
--------- ------
Net increase in cash and cash equivalents ........................... 13,153 479
Cash and cash equivalents, beginning of period ................................ 479 --
--------- ------
Cash and cash equivalents, end of period ...................................... $ 13,632 479
--------- ------
Supplemental disclosure of cash flow information:
Cash paid for interest ...................................................... $ 2,225 9
========= ======
Supplemental disclosure of noncash investing and financing activities:
Issuance of notes payable to seller for acquisitions of rural DBS territories
(note 7) ................................................................. $ 8,600 2,450
Conversion of notes payable and subscriptions to preferred stock (note 7) ... $ 6,250 --
Capital lease obligations (note 6) .......................................... $ 554 --

See accompanying notes to consolidated financial statements.

F-11
117
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Golden Sky Systems, Inc. (GSS) is a Delaware corporation formed on June
25, 1996 for the purpose of acquiring, owning and operating rural direct
broadcast satellite (DBS) television territories throughout the United States.
GSS is an affiliated associate member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications Galaxy,
Inc. (Hughes) to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in rural territories of the United States. The
marketing rights give the owner exclusive rights to distribute DirecTV service
within the contract area. In 1994, Hughes launched the satellites that provide
programming for DirecTV. At December 31, 1997, GSS had the operating rights for
certain territories in sixteen states.

GSS is a wholly owned subsidiary of Golden Sky Holdings, Inc. (the
Parent). The Parent is a Delaware corporation formed on September 9, 1997 for
the purpose of holding all the common and preferred stock of GSS. Upon the
formation of the Parent, all the shareholders of the outstanding common and
preferred stock of GSS were issued equivalent shares of the Parent's stock with
identical features to GSS's common and preferred stock. The Parent has no
significant assets or liabilities other than its investment in GSS and
intercompany accounts with GSS.

Principles of Consolidation

The 1997 consolidated financial statements include the accounts of GSS and
its affiliates (the Company). Affiliates include Argos (a wholly-owned
subsidiary of GSS) and two partnerships in which GSS has a controlling interest.
Significant intercompany transactions and balances have been eliminated.
Minority interest in consolidated partnerships represents the cumulative
earnings and losses, after capital contributions, attributable to minority
partners.

Revenue Recognition

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. At December 31, 1997
and 1996, cash and cash equivalents include cash on hand, demand deposits and
money market accounts.

Inventory

Inventory is stated at the lower of cost (first-in, first-out) or market
and consists of receivers, satellite dishes and accessories. Equipment is sold
to customers in conjunction with commencement of programming service. The excess
of the Company's cost of such equipment over the selling price is classified as
sales and marketing expense.

Earnest Deposits

Earnest deposits include amounts deposited in good faith for the purchase
of new DBS territories (note 3).

F-12
118
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make a number of
estimates and assumptions which affect the reported amounts of assets and
liabilities, as well as the reported amounts of revenue and expenses during the
period. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and cash equivalents and earnest deposits -- The carrying
amounts approximate fair value because of the short maturity of those
instruments.

Receivables and payables -- These assets are carried at cost, which
approximates fair value, as a result of the short-term nature of the
instruments.

Long-term debt and notes payable -- The carrying value of these
financial instruments approximates fair value as interest rates are
variable or approximate market rates.

Long-lived Assets

Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally eleven to twelve years. The Company assesses
the recoverability of intangible assets by determining whether the amortization
of the goodwill balances over their remaining lives can be recovered through
undiscounted future operating cash flows of the acquired operations. The amount
of goodwill impairment, if any, is measured based on projected discounted future
operating cash flows using a discount rate reflecting the Company's average cost
of funds.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment, consisting primarily of computer and
office equipment, is recorded at cost. Depreciation is over the estimated useful
lives which range from two to five years. Included in furniture, fixtures and
equipment at December 31, 1997 is $311,000 of unamortized computer software
costs.

F-13

119
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

Advertising Costs

Advertising costs, which are expensed as incurred, aggregated $1,440,000
and $33,000, respectively, for the periods ended December 31, 1997 and 1996.

Systems Operations Expense

Systems Operations expense includes payroll and other administrative costs
related to the Company's regional offices.

Revenue Rights

Prior to its acquisition, Argos sold revenue rights to investors. These
rights entitle investors to receive a percentage of any positive net programming
revenue less certain identified costs and administrative expenses from certain
territories. These rights are reported as a component of accrued payroll and
other liabilities in the accompanying consolidated financial statements. In
connection with the acquisition of Argos by GSS, Argos purchased a portion of
the outstanding revenue rights and has outstanding offers to purchase the
remaining rights for $582,000. Ultimate amounts paid, if any, could exceed this
amount.

Income Taxes

GSS elected to be taxed as an S Corporation for federal income tax
purposes in 1996. As an S Corporation, GSS was generally not directly subject to
income taxation. On February 12, 1997, GSS terminated its S Corporation status,
and will thereafter be subject to income taxation as a C Corporation under
Subchapter "C" of the Internal Revenue Code. Upon formation, the Parent elected
to be taxed as a C Corporation for federal income tax purposes. Pro forma income
taxes have not been presented because the Company has incurred operating losses
in all periods

(2) SUBSCRIBER RECEIVABLES

Subscriber receivables consist primarily of amounts due from subscribers
for monthly programming fees and for receivables related to acquisitions.
Accounts receivable as of December 31, 1997 and 1996 are as follows (dollars in
thousands):

1997 1996
------- ----

Accounts receivable:
Programming ...................... $ 3,934 153
Equipment receivables ............ 47 --
Allowances for doubtful accounts.. (138) (4)
------- ----
$ 3,843 149
======= ====

(3) ACQUISITIONS

Since inception, the Company has acquired the DirecTV distribution rights
and related assets from independent providers as follows:

F-14
120
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

- A territory in Tennessee was acquired on November 15, 1996. A
portion of the purchase price was paid in the form of a $650,000
note payable to the seller.

- A territory in Tennessee was acquired on November 22, 1996. A
portion of the purchase price was paid in the form of a $1,800,000
note payable to the seller.

- Territories in Kansas and Oklahoma were acquired on February 12,
1997.

- A territory in Texas was acquired on February 28, 1997.

- A territory in Missouri was acquired on March 11, 1997.

- A territory in Texas was acquired on April 11, 1997.

- A territory in Colorado was acquired on May 1, 1997. As a portion of
the purchase price, the Company has a $2,350,000 note payable to the
seller.

- A territory in Nevada was acquired on June 12, 1997. As a portion of
the purchase price, the Company has a $2,500,000 note payable to the
seller.

- A territory in Texas was acquired on July 8, 1997.

- Territories in Minnesota and Michigan were acquired on July 14,
1997.

- A territory in Minnesota was acquired on July 15, 1997.

- Territories in Texas, Utah and Florida were acquired on August 8,
1997.

- A territory in Texas was acquired on August 26, 1997.

- A territory in Minnesota was acquired on September 2, 1997.

- A territory in Iowa was acquired on October 1, 1997.

- Territories in Iowa and Michigan were acquired on October 31, 1997.

- A territory in North Dakota was acquired on November 21, 1997.

- Territories in California and Oregon were acquired on December 9,
1997.

- A territory in Montana was acquired on December 17, 1997.

- A territory in Montana was acquired on December 22, 1997. As a
portion of the purchase price, the Company has a $3,750,000 note
payable to the seller.

- A territory in Oklahoma was acquired on December 24, 1997.

F-15
121
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

The Company accounts for its acquisitions under the purchase method. The
results of operations of the acquired territories have been included in the
consolidated financial statements since the dates of acquisition. Also in 1997,
the Company acquired controlling equity interests in two partnerships which own
and operate DBS territories in Wisconsin and Texas. The Company has recorded
minority interest obligations relating to these partnerships of $2,928,000 at
December 31, 1997, which represents the equity interest of minority partners.

The aggregate of the purchase prices, including direct costs, of the above
transactions was $129,725,000 and $5,256,000 for the periods ended December 31,
1997 and 1996, respectively. These amounts have been allocated based on the
estimated fair values of assets and liabilities acquired as follows (dollars in
thousands):

1997 1996
--------- ------

Working capital, net ... $ (20) (31)
Investment in leases ... 1,400 112
Property and equipment.. 553 23
Minority interest ...... (2,931) --
Noncompete agreements .. 4,879 35
Customer lists ......... 9,450 453
Goodwill ............... 116,394 4,664
--------- ------
$ 129,725 5,256
========= ======

The following table reflects unaudited pro forma results of operations of
the Company as if the acquisitions had taken place on June 25, 1996 (inception
date) (dollars in thousands):

1997 1996
-------- -------

Revenue ... $ 39,937 16,557
Net loss .. $(26,654) (13,291)

In management's opinion, the unaudited pro forma results of operations are
not necessarily indicative of the actual results that would have occurred had
the acquisitions been consummated on June 25, 1996 or of future operations of
the Company.

In connection with the acquisitions noted above, the Company purchased
approximately 69,000 subscribers. Subscriber activity for the year ended
December 31, 1997 and the period from inception (June 25, 1996) through December
31, 1996 was as follows:

1997 1996
------- -----

Gross subscribers, beginning of period ................. $ 3,204 --
Subscribers acquired in acquisition of territories ..... 65,706 2,975
New subscribers enrolled in existing territories ....... 22,014 229
------- -----
Gross subscribers, end of period ....................... 90,924 3,204
Less subscribers allocated to minority interest partners (3,792) --
------- -----
Net subscribers, end of period ......................... $87,132 3,204
======= =====

From January 1, 1998 through April 24, 1998, the Company acquired seven
additional territories in Montana, Iowa, North Dakota, Oregon and Colorado. The
total cost of these DBS territories approximates $30,928,000. These

F-16
122
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

acquisitions were accounted for as purchases and resulted in goodwill and other
intangibles of approximately $31,088,000.

(4) GOODWILL AND OTHER INTANGIBLE ASSETS

Intangible assets which are amortized using the straight-line method over
the estimated useful lives consist of the following (dollars in thousands):

Estimated
1997 1996 useful life
----------- ------ -----------

Goodwill................................................ $ 121,969 4,664 11-12 years
Customer lists.......................................... 9,903 453 5 years
Noncompete agreements................................... 4,914 35 3 years
Less: accumulated amortization.......................... (6,890) (81)
----------- ------
$ 129,896 5,071
=========== ======

(5) LEASING ARRANGEMENTS FOR SUBSCRIBER EQUIPMENT

In addition to selling satellite television equipment, the Company leases
equipment to customers. The majority of these leases are at fixed monthly rental
charges. The leases are either short-term in nature or are month-to-month leases
without a minimum lease term in which the customer may return the equipment at
any time. The leases are accounted for as operating leases and the equipment is
depreciated over a two-year period.

(6) OBLIGATIONS UNDER CAPITAL LEASES

In 1997, the Company entered into various noncancelable long-term leases
for automobiles, as well as telephone, computer and office equipment. These
leases are accounted for as capital leases and are included as part of
furniture, fixtures and equipment at December 31, 1997. Assets under capital
lease are as follows at December 31, 1997 (dollars in thousands):

Capital lease assets, at cost.. $ 554
Less accumulated depreciation.. (57)
-----
Net capital lease asset ....... $ 497
=====

At December 31, 1997, future minimum lease payments due under capital
leases are as follows (dollars in thousands):

1998 ........................................................................ $ 270
1999 ........................................................................ 231
2000 ........................................................................ 120
-----
Total minimum lease payments ...................................... 621
Less executory costs ........................................................ (6)
Less amounts representing interest (at rates ranging from 5% to 33%) ........ (146)
Present value of net minimum lease payments ................................. 469
Less current maturities ..................................................... (177)
-----
Long-term obligations under capital leases ........................ $ 292
=====

F-17
123
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

(7) LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt and notes payable consist of the following at December 31,
1997 and 1996 (dollars in thousands):

1997 1996
-------- ------

Credit agreement-- term loans ............... $ 36,000 --
Credit agreement-- revolving loans .......... 24,000 --
Seller notes payable ........................ 8,600 2,450
Miscellaneous notes payable on equipment .... 44 --
Promissory note ............................. -- 2,000
-------- ------
68,644 4,450
Less current maturities ............... (2,361) (2,450)
-------- ------
Long-term debt and notes payable $ 66,283 2,000
======== ======

The Company has a credit agreement (the Credit Agreement) with a group of
financial institutions which provides for borrowings of $100,000,000 consisting
of (i) a $36,000,000 term loan and (ii) a revolving credit facility with a
maximum commitment of $64,000,000. The loans outstanding under the Credit
Agreement can be designated, at the Company's option, as base rate loans or
eurodollar loans, and bear interest at a variable rate which is calculated on a
base rate, such as the prime rate or LIBOR, plus an applicable margin. At
December 31, 1997, the effective rates on these loans ranged from 9% to 11%.

The Credit Agreement has a maximum borrowing base which is computed based
on the number of active subscribers at any given time. At December 31, 1997, the
Company had approximately $25,000,000 in available credit which is net of
standby letters of credit of approximately $1,800,000 securing payment of
wholesale programming costs. In anticipation of closing on three acquisitions in
January 1998, the Company borrowed $12,000,000 on December 29, 1997 under the
Credit Agreement, which is included in cash and cash equivalents at year-end.
The Credit Agreement requires a commitment fee of 1/2 of 1% per annum on the
available balance. In 1997, the Company incurred commitment fees of
approximately $117,000.

At December 31, 1997, the Company is not in compliance with a number of
financial covenants contained in the Credit Agreement. However, the Company has
obtained a waiver of these covenants through April 30, and expects to have a new
$150,000,000 credit agreement in place in early May 1998.

Scheduled maturities of the term loan are as follows: $3,600,000 in 2001,
$7,200,000 in 2002, $10,800,000 in 2003 and $14,400,000 in 2004. Availability
under the revolving credit facility reduces each quarter beginning in 1999 to
meet the following maximum commitments at December 31 of each year; $60,800,000
in 1999, $48,000,000 in 2000, $33,600,000 in 2001, $17,600,000 in 2002 and $0 by
June 30, 2003.

On November 19, 1996, the Company issued $2,000,000 in promissory notes to
a group of lenders under a Bridge Agreement. The notes had an interest rate of
10% and a maturity date of February 28, 1997. On February 12, 1997, these notes,
along with $1,750,000 in additional promissory notes issued on January 15, 1997,
were exchanged for Series A Convertible Participating Preferred Stock.

F-18
124
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

Under the Bridge Agreement, the Company issued warrants which are
exercisable for 5,682 shares of the Company's common stock at $.01 per share.
These warrants are immediately exercisable and have an expiration date of
February 12, 2007. At the date of issuance, the fair value of the warrants was
immaterial.

On November 6, 1997, in anticipation of the issuance of Series B
Convertible Participating Preferred Stock described in note 9, the Company
issued $10,000,000 in convertible promissory notes which had an interest rate of
14.5% and a maturity date of December 15, 1997. On November 24, 1997, these
notes, along with accrued interest of $73,000 and additional cash proceeds from
investors of $35,615,000, were converted into 228,442 shares of Series B
Convertible Participating Preferred Stock.

As described in note 3, the Company issued $2,450,000 10% seller notes in
connection with the 1996 acquisitions. These notes were paid in full in January
1997. The Company also issued three seller notes related to the 1997
acquisitions totaling $8,600,000. One of the notes is collateralized by an
outstanding letter of credit in the amount of $3,750,000. These notes bear
interest ranging from 7% to 15% and mature as follows: $2,350,000 in 1998,
$2,500,000 in 1999 and $3,750,000 in 2002.

Scheduled maturities of notes payable and long-term debt are as follows
(dollars in thousands):

1998 ................. $ 2,361
1999 ................. 3,348
2000 ................. 917
2001 ................. 4,581
2002 ................. 14,637
Thereafter ........... 42,800
-------
Total debt.. $68,644
=======

(8) RELATED PARTY TRANSACTIONS

The payable to Parent represents amounts due to the Parent for temporary
cash advancements.

Effective July 1, 1996, the Company entered into a management agreement
with Cable-Video Management, Inc. (CVM), which is owned by the Company's
president, to administrate the Company's initial acquisition. The agreement was
terminated effective September 30, 1996. In 1996, total management fees of
$280,000 were paid to CVM and are included in corporate expenses in the
accompanying consolidated statements of operations. Additionally, the Company
reimbursed CVM for salaries and other miscellaneous expenses in the amount of
$343,000 in 1996. Subsequent to the initial acquisition, the Company purchased
the assets of CVM for $44,000, which approximated book value.

The Company utilizes the air transportation services of a company which is
owned by the Company's president. The Company incurred costs of $109,000 in 1997
and $31,000 in 1996 associated with these services. In October 1997, the Company
entered into an agreement to lease an aircraft from the Company's president. The
lease is cancelable with six months notice and requires monthly payments equal
to the greater of $15,000 or a fixed hourly operating charge which is based on
prevailing market prices.

In 1997, the Company received a $150,000 short-term loan from the
Company's president bearing interest at 10%. The Company also received from a
shareholder a $215,000 short-term loan bearing interest at 10%. In 1996,

F-19
125
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

the Company's president provided a short-term loan for $381,000, bearing
interest at 10%. Prior to December 31, 1997, all of the above loans were repaid
according to their terms.

In 1997, the Company paid $66,000 to a company affiliated with the
president of the Company. This payment represented reimbursement of salary costs
for a consultant utilized by the Company.

A director of the Company, other than the president, provides consulting
services to the Company and was paid $77,000 in 1997 and $5,000 in 1996 for
these services.

(9) COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

During 1996, the Company issued 1,000 shares, par value $.01, for $1 per
share of common stock. In February 1997, the Company amended its certificate of
incorporation to cancel the original outstanding shares of common stock and
created new classes of common and preferred stock. The holder of the outstanding
shares of original common stock received ten shares of a Series A Convertible
Participating Preferred Stock (Series A CPPS).

During 1997, the Company issued a total of 418,000 shares of Series A CPPS
for $100 each. Upon the formation of the Parent in September 1997, all the
shareholders of the outstanding common stock and Series A CPPS of GSS were
issued equivalent shares of the Parent's stock with identical features to GSS's
common and preferred stock. In addition, in November 1997 the Parent issued
$45.6 million in Series B Convertible Participating Preferred Stock and remitted
the proceeds to the Company for the purpose of acquiring additional DBS
territories. These transactions are reflected as contributions of capital from
the Parent.

(10) INCOME TAXES

During the year ended December 31, 1997, the Company generated a net
operating loss for federal income tax purposes of approximately $12,182,000,
which is available to offset future taxable income through 2012.

Actual income tax expense (benefit) differs from expected expense
(benefit) computed by applying the statutory federal rate of 34% to pretax
income for the following reasons (dollars in thousands):

Period ending
December 31,
1997
-------------

Computed expected expense (benefit).... $(4,868)
Amortization of goodwill .............. 292
Other ................................. 12
Valuation allowance ................... 4,564
-------
Actual income taxes ......... $ --
=======

F-20
126
GOLDEN SKY SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 are presented below (dollars in thousands):

Deferred income tax assets:
Allowance for doubtful accounts .......... $ 52
Purchased intangibles .................... 500
Other intangibles ........................ 205
Property, plant and equipment ............ 7
Net operating losses ..................... 5,254
-------
Total gross deferred tax assets... 6,018
Valuation allowance ........................ (6,018)
Net deferred tax assets .......... $ --
=======

As a result of the purchase of Argos and the incorporation of the Parent,
the Company will file a consolidated federal income tax return for the taxable
period ended December 31, 1997. Prior to its acquisition, Argos filed a separate
corporate income tax return. During this period, Argos had cumulative federal
net operating losses of approximately $1,208,000 and $1,514,000 as of December
31, 1996 and August 8, 1997 (date of acquisition), respectively. These net
operating losses (which begin to expire in 2008) will be limited in their usage
to approximately $1,000,000 annually and will only be available to offset any
future taxable income of Argos.

(11) COMMITMENTS AND CONTINGENCIES

The Company has noncancelable operating leases for office space which
expire at various dates. Minimum lease payments are as follows (dollars in
thousands):

1998 ............ $ 984
1999 ............ 911
2000 ............ 733
2001 ............ 386
2002 ............ 263
------
Total.. $3,277
======

As described in note 1, at December 31, 1997, the Company has outstanding
offers to acquire revenue rights for $582,000.

(12) EMPLOYEE STOCK INCENTIVE PLAN

In July 1997, the Company approved an Employee Stock Incentive Plan. This
plan provides for grants to certain members of the Company's management of
options to purchase 62,525 shares of the Company's common stock for $1 per
share, which management estimates to be the fair market value at the date of
grant. All options have been granted at December 31, 1997. The options vest over
a three-year period and expire ten years from the date of grant. No options have
been exercised as of December 31, 1997.

F-21

127
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995

F-22
128
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Triangle Communication System, Inc.
Havre, Montana

We have audited the accompanying balance sheets of Triangle Communication
System, Inc. as of December 31, 1997, 1996, and 1995, and the related statements
of income, stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triangle Communication
System, Inc. at December 31, 1997, 1996, and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

Eide Helmeke PLLP

March 6, 1998
Sioux Falls, South Dakota

F-23
129
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

BALANCE SHEETS
DECEMBER 31, 1997, 1996, AND 1995

1997 1996 1995
----------- ----------- -----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 175,917 $ 356,571 $ 234,152
Accounts receivable ..................................... 22,466 7,298 520
Accounts receivable - affiliate ......................... 9,889 -- --
Contract receivable ..................................... 1,370 17,053 8,649
Inventory ............................................... 45,193 42,228 74,539
Prepaid expenses ........................................ 192,095 67,611 2,824
----------- ----------- -----------
Total current assets ............................... 446,930 490,761 320,684
----------- ----------- -----------
Property and equipment (net of accumulated
depreciation of $379,281 in 1997; $310,553
in 1996, and $283,058 in 1995) ........................... 152,523 209,260 158,527
----------- ----------- -----------
Intangible assets (net of accumulated amortization of
$105,354 in 1997; $77,360 in 1996; and $49,367 in 1995) 321,926 349,920 377,913
----------- ----------- -----------
OTHER ASSETS:
Investments in marketable equity securities (Note 2) ..... 1,851,588 1,433,695 1,485,128
Other investments (Note 3) ............................... 777,982 517,050 186,719
----------- ----------- -----------
Total other assets ................................. 2,629,570 1,950,745 1,671,847
----------- ----------- -----------
$ 3,550,949 $ 3,000,686 $ 2,528,971
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ......................................... $ 250,509 $ 135,875 $ 140,152
Accounts payable - affiliate ............................. 11,772 335,021 58,772
Unearned revenue ......................................... 214,848 219,569 17,807
Customer deposits ........................................ 3,590 1,048 840
Accrued taxes ............................................ 1,607 1,286 1,481
Other current liabilities ................................ 1,157 -- --
----------- ----------- -----------
Total current liabilities .......................... 483,483 692,799 219,052
----------- ----------- -----------
Deferred income taxes .................................... 656,859 432,702 451,835
----------- ----------- -----------
Total liabilities .................................. 1, 140,342 1,125,501 670,887
----------- ----------- -----------
SHAREHOLDER'S EQUITY:
Common stock, $100 par value, authorized 53,000
shares; issued and outstanding; 1997 - 10,595
shares, 1996 and 1995 - 8,095 shares ................... 1,059,500 809,500 809,500
Additional paid-in capital ............................... 315,000 315,000 315,000
Unrealized gain on equity securities ..................... 1,108,891 915,155 947,455
Accumulated deficit ...................................... (72,784) (164,470) (213,871)
----------- ----------- -----------
Total stockholder's equity ......................... 2,410,607 1,875,185 1,858,084
----------- ----------- -----------
Total liabilities and shareholder's equity ......... $ 3,550,949 $ 3,000,686 $ 2,528,971
=========== =========== ===========

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

F-24
130
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

1997 1996 1995
----------- ---------- -----------

REVENUES:
CATV program revenues .............................. $ 55,695 $ 58,658 $ 60,928
DBS program revenue ................................ 2,255,440 1,312,525 501,767
Cellular revenue ................................... 129,529 62,800 --
Rural TV service revenue ........................... 13,493 16,149 18,446
Equipment sales .................................... 170,863 188,802 449,343
Other .............................................. 50,241 52,030 28,384
----------- ---------- -----------
Total revenues ............................... 2,675,261 1,690,964 1,058,868
----------- ---------- -----------

COST OF REVENUES:
CATV program costs ................................. 13,924 14,406 14,767
DBS program costs .................................. 1,263,995 785,954 277,497
Cellular program costs ............................. 109,592 55,550 --
Rural TV program costs ............................. 10,333 12,034 13,250
Equipment costs .................................... 229,404 195,796 459,655
Rebates and coupon costs ........................... 469,207 162,154 61,437
----------- ---------- -----------
Total cost of revenues ....................... 2,096,455 1,225,894 826,606
----------- ---------- -----------
Gross profit ................................. 578,806 465,070 232,262
----------- ---------- -----------
EXPENSES:
Salaries, wages, and commissions ................... 180,134 129,063 81,954
Depreciation and amortization ...................... 96,721 55,489 49,692
Bad debt expense ................................... 12,808 13,262 4,810
Marketing .......................................... 75,111 84,097 103,695
Maintenance and installation ....................... 26,709 34,059 19,341
Other selling, general, and administrative expenses 106,511 75,955 36,077
----------- ---------- -----------
Total expenses ............................... 497,994 391,925 295,569
----------- ---------- -----------
NET INCOME BEFORE NONOPERATING INCOME
AND TAXES ............................................. 80,812 73,145 (63,307)
----------- ---------- -----------
NONOPERATING INCOME (LOSS):
Interest income .................................... 6,470 5,463 1,432
Loss in equity earnings of affiliate ............... (31,828) -- --
Gain on sale of cellular stock ..................... -- -- 15,501
----------- ---------- -----------
Total nonoperating income (loss) ............. (25,358) 5,463 16,933
----------- ---------- -----------
NET INCOME BEFORE TAXES ............................... 55,454 78,608 (46,374)
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 6) .................................. (36,232) 29,207 (17,231)
----------- ---------- -----------
NET INCOME ............................................ $ 91,686 $ 49,401 $ (29,143)
=========== ========== ===========

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

F-25
131
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

Unrealized
Common Additional Gain (Loss)
Stock $100 Paid-in on Securities Accumulated
Par Value Capital Available for Sale Deficit Total
----------- ---------- ------------------ ----------- ----------

Balance, January 1, 1995 ...... $ 569,500 $ 315,000 $ 951,493 $(184,728) $1,651,265
Net income .................... -- -- -- (29,143) (29,143)
Issuance of 2,400
shares of stock ............ 240,000 -- -- -- 240,000
Change in unrealized gain
on securities available-for-
sale ....................... -- -- (4,038) -- (4,038)
----------- --------- ---------- --------- ----------
Balance, December 31, 1995 .... 809,500 315,000 947,455 (213,971) 1,858,084
Net income .................... -- -- -- 49,401 49,401
Change in unrealized gain
on securities available-for-
sale ....................... -- -- (32,300) -- (32,300)
----------- --------- ---------- --------- ----------
Balance, December 31, 1996 .... 809,500 315,000 915,155 (164,470) 1,875,185
Net income .................... -- -- -- 91,686 91,686
Issuance of 2,500 shares of
stock ...................... 250,000 -- -- -- 250,000
Change in unrealized gain
on securities available-for-
sale ....................... -- -- 193,736 -- 193,736
----------- --------- ---------- --------- ----------
Balance, December 31, 1997 .... $ 1,059,500 $ 315,000 $1,108,891 $ (72,784) $2,160,607
=========== ========= ========== ========= ==========

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

F-26
132
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

1997 1996 1995
--------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................ $ 91,686 $ 49,401 $ (29,143)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization .................... 96,721 55,489 49,692
Noncash equity loss in affiliate ................. 31,828 -- --
(Gain) on sale of investments .................... -- -- (15,501)
(Increase) decrease in assets:
Accounts receivable .............................. (25,057) (6,778) 1,119
Contracts receivable ............................. 15,683 (8,404) (8,649)
Inventory ........................................ (2,965) 32,311 10,476
Other assets ..................................... (124,484) (64,787) 13,023
(Decrease) increase in liabilities:
Accounts payable ................................. 114,634 (4,277) 98,387
Accounts payable - associated company ............ (323,249) 276,249 23,039
Unearned revenue ................................. (4,721) 201,762 17,807
Customer deposits ................................ 2,542 208 (855)
Accrued taxes .................................... 321 (195) 1,481
Other current liabilities ........................ 1,157 -- --
--------- --------- ---------
Net cash (used in) provided by operating activities ... (125,904) 530,979 160,876
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................... (11,990) (78,229) (94,052)
Proceeds from the sale of investments ................. -- -- 15,552
Deposit on PCS license ................................ -- (211,616) --
(Increase) in other investments ....................... (292,760) (118,715) (182,643)
--------- --------- ---------
Net cash (used in) investing activities ......... (304,750) (408,560) (261,143)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock .............................. 250,000 -- 240,000
--------- --------- ---------
Net cash provided by financing activities ....... 250,000 -- 240,000
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS .................. (180,654) 122,419 139,733
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..........
356,571 234,152 94,419
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................ $ 175,917 $ 356,571 $ 234,152
========= ========= =========

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

F-27
133
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996, AND 1995

NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Triangle Communication System, Inc. is a rural telecommunications
provider, whose purpose is to engage in the business of transmitting television
impulses, and installing and maintaining television equipment.

Triangle Communication System, Inc. is a wholly owned subsidiary of
Triangle Telephone Cooperative Association, Inc. which was incorporated under
Montana state statute in 1980.

The company has four areas, of primary interest which include cable
television operations, rural television programming service for large satellite
dish owners, and a Direct Broadcast Satellite (DBS) franchise, which allows the
company to receive a commission from all DBS programming sold to rural customers
located throughout their franchise area. The company also receives commissions
for the sales and service of cellular phones for Commnet Cellular.

PROPERTY AND EQUIPMENT - These assets are stated at cost. The cost of
additions to plant includes contracted work, direct labor and materials, and
allocable overheads. When units of property are retired, sold, or otherwise
disposed of in the ordinary of business, their average book cost less net
salvage is charged to accumulated depreciation. Repairs and the replacement and
renewal of items determined to be of less than units of property are charged to
maintenance.

DEPRECIATION AND AMORTIZATION - Depreciation and amortization is computed
using the straight-line method based upon the estimated useful lives of the
various classes of property. Such provisions as a percentage of the average
balance of plant in service were as follows:

1997 1996 1995
---- ---- ----

CATV plant 6.2% 6.2% 6.2%
Franchise 6.6% 6.6% 6.6%

INVESTMENT SECURITIES - The company's investment securities are classified
as "available-for-sale." Accordingly, unrealized gains and losses and the
related deferred income tax effects are excluded for earnings and reported as a
separate component of stockholders' equity. Realized gains or losses are
computed based on specific identification of the securities sold.

All other investments are stated at cost.

CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
company considers all cash deposits, with maturities of less than three months,
to be cash and cash equivalents.

INVENTORIES - Inventories are stated at the lower of cost or market by
using the weighted average as cost.

INCOME TAXES - The company generally provides for income taxes resulting
from timing differences between amounts reported for financial accounting and
income tax purposes. The deferred tax assets and liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are received or settled.
Deferred taxes are also recognized for operating losses that are available to
offset future taxable income.

F-28
134
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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

NOTE 2 - INVESTMENT IN MARKETABLE EQUITY SECURITY

The cost and fair values of this marketable equity security
available-for-sale at December 3l, 1997, 1996, and 1995, were as follows:

Unrealized 1997 1996 1995
Cost Gain Fair Value Fair Value Fair Value
---- ---------- ---------- ---------- -----------

Commnet Cellular, Inc.- stock.... $85,838 $1,765,750 $1,851,588 $1.433.695 $ 1.485,128
======= ========== ========== ========== ===========

The market value of the above security increased by $417,893 in 1997. As
of December 31, 1997, the unrealized gain of $1,765,750 is included with
stockholders equity net of deferred income taxes of $656,859.

NOTE 3 - OTHER INVESTMENTS

1997 1996 1995
-------- -------- --------

Patronage capital credits from affiliated companies .. $ 58,071 $ 38,025 $ 9,310
Memberships and deposits ............................. 1,450 1,450 1,450
Cellular operating companies - capital stock (at cost) 959 959 959
Montana Advanced Information Network, Inc. -
capital stock (at cost) ........................... 365,000 15,000 150,000
Vision Net, Inc. - capital stock (at cost) ........... 250,000 250,000 25,000
Montana PCS Alliance LLC (at equity) ................. 51,695 211,616 --
Skyland Technologies, Inc. (at equity) ............... 50,807 -- --
-------- -------- --------
$777,982 $517,050 $186,719
======== ======== ========

NOTE 4 - FRANCHISE

The company purchased the Direct Broadcast System (DBS) franchise rights
to provide exclusive franchise rights for distribution of DirecTV satellite
television programming. The franchise rights give the company exclusive right to
the distribution of DirecTV service within the contract area, which includes
thirteen counties in Montana. The company began amortizing the franchise rights
in 1994 when programming service began.

Franchise Accumulated
Cost Amortization Net 1997 Net 1996 Net 1995
--------- ------------ -------- -------- --------

Direct Broadcast
System (DBS) ... $427,280 $105,354 $321,926 $349,920 $377,913
======== ======== ======== ======== ========

F-29
135
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 - PROPERTY AND EQUIPMENT

1997 1996 1995
-------- -------- --------

Support equipment ........... $ 25,419 $ 24,089 $ 23,090
Cable television equipment .. 175,844 166,885 166,885
Towers, antennas, and dishes 33,917 33,917 33,917
CATV - cable ................ 127,051 125,349 125,349
Cellular equipment .......... 169,573 169,573 --
-------- -------- --------
In service ......... 531,804 519,813 349,241
Under construction . -- -- 92,344
-------- -------- --------
531,804 519,813 441,585
Less accumulated depreciation 379,281 310,553 283,058
-------- -------- --------
$152,523 $209,260 $158,527
======== ======== ========

NOTE 6 - INCOME TAXES

The company files a consolidated tax return with its parent company,
Triangle Telephone Cooperative Association, Inc.; income tax expense is computed
by individual company using the separate return method. Details of income tax
are as follows:

1997 1996 1995
--------- --------- ---------

Provision for (benefit from) income taxes:
Federal tax at statutory rates ........... $ 27,599 $ 25,439 $ (15,025)
State tax at statutory rates ............. 4,870 3,768 (2,206)
Benefit of net operating loss carryforward
used on consolidated return with parent (68,701) -- --
--------- --------- ---------
Total (benefit from) provision
for income taxes .................. $ (36,232) $ 29,207 $ (17,231)
========= ========= =========
The components of deferred tax (assets) and
liabilities are as follows:
Deferred tax liabilities:
Unrealized gain on securities
available-for-sale ............... $ 656,859 $ 501,403 $ 520,536
Deferred tax (assets):
Net operating loss carryforwards ... -- (68,701) (68,701)
--------- --------- ---------
Net deferred tax liability ......... $ 656,859 $ 432,702 $ 451,835
========= ========= =========

NOTE 7 - RELATED PARTY TRANSACTIONS

Triangle Telephone Cooperative Association, Inc. owns 100% of the issued
and outstanding shares of Triangle Communication System, Inc. At December 31,
1997, the company had a receivable of $9,889 from its parent, Triangle Telephone
Cooperative Association, Inc. At December 31, 1996 and 1995, the company had an
outstanding liability with Triangle Telephone Cooperative Association, Inc. of
$320,086 and $47,081, respectively.

Triangle Communication System, Inc. has an operation and maintenance agreement
with Hill County Electric Cooperative, Inc. The agreement provides that the
operations of the two companies are, insofar as is possible, to be

F-30
136
TRIANGLE COMMUNICATION SYSTEM, INC.
HAVRE, MONTANA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

carried on jointly, and that Hill County Electric Cooperative, Inc. is to
operate and manage Triangle Communication System, Inc. Costs incurred in the
performance of services under the agreement that relate to joint operations are
to be apportioned and Triangle Communication System, Inc. is to reimburse Hill
County Electric Cooperative, Inc. at amounts specified in the agreement. Total
payments to Hill County Electric Cooperative, Inc. under this agreement in 1997
were approximately $157,000. A t December 31, 1997, 1996, and 1995, Triangle
Communication System, Inc. owed Hill County Electric Cooperative, Inc. $11,772,
$14,935, and $11,691, respectively.

The maintenance agreement may be terminated by either party by giving a
six month notice in writing to the other party.

NOTE 8 - SUBSEQUENT EVENT

In January 1998 the company entered into an agreement to sell its Direct
Broadcast System (DBS) franchise rights to Golden Sky Systems, Inc. The sale for
approximately $9.3 million will yield a net gain of approximately $8.6 million
to the company in 1998.

F-31
137
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997

(UNAUDITED)

F-32
138
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
BALANCE SHEETS
AS OF JUNE 30, 1998 AND 1997

(UNAUDITED)

ASSETS June 30,1998 June 30,1997
------------ ------------

Current Assets
Cash and Equivalents .................................... $ 397,024 $ 870,107
Trade Receivables, net of allowance for doubtful accounts
of $6,000 (Note 3) ................................... 195,178 219,399
Inventories ............................................. 20,371 21,449
Due from Golden Sky Systems, Inc. ....................... -- 2,408,750
---------- ----------
Total Current Assets ................................. 612,573 3,519,705
Furniture and Equipment
Furniture and Equipment ................................. 82,431 40,174
Accumulated Depreciation ................................ (43,669) (22,566)
---------- ----------
Net Furniture and Equipment .......................... 38,762 17,608
---------- ----------
Intangible Assets
Franchise Costs ......................................... 1,046,171 1,046,170
Accumulated Amortization ................................ (435,915) (331,297)
---------- ----------
610,256 714,873
---------- ----------
Other Assets
Prepaid Expenses ........................................ -- 746
NRTC Patronage Capital .................................. 128,275 91,730
---------- ----------
128,275 92,476
---------- ----------
$1,389,866 $4,344,662
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade Payables .......................................... $ 239,332 $ 241,813
Unearned Revenues ....................................... 195,630 561,402
Accrued Salaries and Other .............................. 18,708 16,051
---------- ----------
Total Current Liabilities ............................ 453,670 819,266
---------- ----------
Stockholders' Equity
Common Stock, No Par Value, Authorized 50,000 Shares,
10,463 Shares Issued and Outstanding ................. 1,124,739 1,124,739
Retained Earnings ....................................... (188,543) 2,400,657
---------- ----------
Total Stockholders' Equity ........................... 936,196 3,525,396
---------- ----------
$1,389,866 $4,344,662
========== ==========

See Selected Information.

F-33
139
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
INCOME STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30

(UNAUDITED)

1998 1997
------------ ------------

REVENUES
DSS Programming Revenues ............................... $2,206,978 $2,027,555
DSS Equipment Sales .................................... 95,420 67,905
Other DSS Sales ........................................ 14,967 14,945
---------- ----------
2,317,365 2,110,405
---------- ----------
COST OF REVENUES
Programming Costs ...................................... 1,343,334 958,645
DSS Equipment Costs .................................... 68,832 67,905
Other DSS Cost of Revenues ............................. 14,032 3,493
Rebates ................................................ 27,691 321,535
---------- ----------
Gross Profit ............................. 1,453,889 1,351,578
---------- ----------
863,476 758,827
---------- ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, Wages and Commissions ........................ 216,071 171,461
Amortization and Depreciation .......................... 67,227 62,519
Bad Debt Expense ....................................... 13,935 28,831
Marketing and Advertising .............................. 51,692 93,195
Other Selling, General and Administrative .............. 102,790 94,765
---------- ----------
Operating Income ......................... 451,715 450,771
---------- ----------
411,761 308,056
---------- ----------
OTHER INCOME (EXPENSE)
Interest Income ........................................ 143,581 70,634
Interest Expense ....................................... (3) (218)
---------- ----------
143,578 70,416
INCOME FROM CONTINUING OPERATIONS .............................. 555,339 378,472
DISCONTINUED OPERATIONS
Income from Operations of Colorado Franchise Territories -- 173,516
Gain on Sale of Colorado Franchise Territories ......... -- 4,654,996
---------- ----------
Net Income from Discontinued Operations .. -- 4,828,512
---------- ----------
NET INCOME ..................................................... $ 555,339 $5,206,984
========== ==========

See Selected Information.

F-34
140
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30

(UNAUDITED)

1998 1997
------------ ------------

Balance, Beginning of Period $ 2,171,945 $ (484,136
Net Income ................. 555,339 5,206,984
Dividends and Distributions (2,915,827) (2,322,191)
----------- -----------
Balance, End of Period ..... $ (188,543) $ 2,400,657
=========== ===========

See Selected Information.

F-35
141
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997

(UNAUDITED)

June 30,1998 June 30,1997
------------ ------------

Cash Flows from Operating Activities
Net income ............................................... $ 555,339 $5,206,984
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ................... 67,227 62,519
Gain on Sale of Colorado Franchise Territories
(Increase) decrease in: ...................... -- (4,654,996)
Trade Accounts Receivable .................... (976) 82,651
Inventories .................................. 2,071 (7,955)
Prepaids ..................................... 1,559 674
Accrued Interest - Golden Sky Systems ........ 235,000 (58,750)
Increase (decrease) in:
Trade Accounts Payable ....................... 54,660 (114,018)
Accrued Expenses ............................. (93,100) (9,222)
Unearned Revenues ............................ (55,224) 13,059
---------- ----------
Net Cash Provided by Operating Activities 766,556 520,946
---------- ----------
Cash Flows from Investing Activities
Purchase of Property, Plant and Equipment ................ (2,614) (5,288)
Proceeds from Sale of Franchise Territories .............. 2,350,000 2,425,038
---------- ----------
Net Cash Provided by Investing Activities 2,347,386 2,419,750
---------- ----------
Cash Flows from Financing Activities
Distributions to Stockholders ............................ (2,915,827) (2,322,191)
---------- ----------
Net Cash Used by Financing Activities ... (2,915,827) (2,322,191)
---------- ----------
Net Decrease in Cash ............................................. 198,115 618,505
Cash, Beginning of Period ........................................ 198,909 251,602
---------- ----------
Cash, End of Period .............................................. $ 397,024 $ 870,107
========== ==========

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for interest ................. $ 3 $ 218
========== ==========

See Selected Information.

F-36
142
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION
JUNE 30, 1998 AND 1997

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations -

Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was formed in
June 1993 for the purpose of acquiring and operating direct broadcast satellite
television operating rights. The Company is an affiliated associate member of
the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of Direct service within the contract area. In 1994,
Hughes launched the satellites that provided programming for DirecTV. At
December 31, 1997, the Company had the operating rights for five counties in
Montana and three counties in Idaho. The operating rights for three counties in
Colorado were sold in 1997.

Revenue Recognition -

Revenues are earned for monthly direct broadcast satellite services which are
billed to subscribers in advance. Subscribers may elect to prepay their service
charges for one or more months. Revenue is recognized in the month the service
is provided to the subscriber. Subscriber advance billings represent unearned
revenues and are deferred until the service is provided. Coupons issued by NRTC
may be used, with some restrictions, to pay a portion of a customer's account
receivable. No provision is made for the subsequent use of these coupons.

Use of Estimates -

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

Fair Value of Financial Instruments -

Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.

Intangible Assets -

Income Taxes -

Cash and Cash Equivalents -

For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with and original maturity of three months or
less to be cash equivalents. There were no cash equivalents at June 30, 1998 or
1997.

F-37
143
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS
SELECTED INFORMATION
JUNE 30, 1998 AND 1997

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Major Suppliers/Economic Dependency -

The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing, and
the determination of unearned revenue.

Discontinued Operations

In May of 1997, the Company contracted to sell its Colorado subscribers to
Golden Sky Systems, Inc. for $4,700,000. The Company estimates these customers
comprise some 21% of the customer base and account for some 31% of total
subscriber revenues ($402,000 from January 1, 1997, to May 1, 1997). Golden Sky
purchased the accounts receivable for the Colorado subscribers as well as
assuming the unearned revenue liability for those subscribers. Since the
unearned revenues exceeded the accounts receivable, there was an effective
increase in purchase price over the amount paid in cash. The Company had no
other assets related to the Colorado operations.

Subsequent Event

The Company has signed a letter of intent to be acquired by Golden Sky
Systems, Inc. Company shareholders will receive both cash and shares in Golden
Sky Holdings, Inc. in this transaction.

F-38
144
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

FINANCIAL STATEMENTS
DECEMBER 31, 1997

F-39
145
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Western Montana DBS, Inc.
dba Rocky Mountain DBS:

We have audited the accompanying balance sheet of Western Montana DBS, Inc.
dba Rocky Mountain DBS as of December 31, 1997, and the related statements of
income, retained earnings and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Western Montana DBS, Inc.
dba Rocky Mountain DBS as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Loucks & Glassley, pllp

June 19, 1998
Great Falls, Montana

F-40
146
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

BALANCE SHEET
AS OF DECEMBER 31, 1997

ASSETS
CURRENT ASSETS
Cash and Equivalents (Note 4) .............................................. $ 198,909
Trade Receivables, net of allowance for doubtful accounts of $6,000 (Note 3) 194,202
Inventories ................................................................ 22,442
Prepaid Expenses ........................................................... 1,559
Due from Golden Sky Systems, Inc. (Note 2) ................................. 2,585,000
-----------
Total Current Assets ............................................... 3,002,112
-----------
FURNITURE AND EQUIPMENT
Furniture and Equipment .................................................... 79,817
Accumulated Depreciation ................................................... (28,751)
-----------
Net Furniture and Equipment ............................................. 51,066
-----------
INTANGIBLE ASSETS
Franchise Costs ............................................................ 1,046,171
Accumulated Amortization ................................................... (383,606)
-----------
662,565
OTHER ASSETS
NRTC Patronage Capital (Note 5) ............................................ 128,275
-----------
128,275
$ 3,844,018
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Payables ............................................................. $ 184,672
Unearned Revenues .......................................................... 250,854
Accrued Salaries and Other ................................................. 111,808
-----------
Total Current Liabilities .......................................... 547,334
-----------
STOCKHOLDERS' EQUITY
Common Stock, No Par Value, Authorized 50,000 Shares,
10,463 Shares Issued and Outstanding .................................... 1,124,739
Retained Earnings .......................................................... 2,171,945
-----------
Total Stockholders' Equity ......................................... 3,296,684
-----------
$ 3,844,018
===========

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

F-41
147
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997

Revenues
DSS programming revenues ............................... $ 3,541,723
DSS equipment sales .................................... 113,153
Other DSS sales ........................................ 34,894
-----------
3,689,770
Cost of revenues
Programming costs ...................................... 2,013,749
DSS equipment costs .................................... 113,153
Other DSS cost of revenues ............................. 13,970
Rebates ................................................ 308,699
-----------
2,449,571
-----------
Gross profit ................................... 1,240,199
-----------
Selling, general & administrative expenses
Salaries, wages and commissions ........................ 449,121
Amortization and depreciation .......................... 121,013
Bad debt expense ....................................... 28,024
Marketing and advertising .............................. 181,469
Other selling, general and administrative .............. 168,028
-----------
947,655
-----------
Operating income ............................... 292,544
-----------
Other income (expenses)
Patronage income (Note 5) .............................. 36,545
Interest income ........................................ 255,889
Interest expense ....................................... (218)
-----------
292,216
-----------
Income from continuing operations ........................ 584,760
Discontinued Operations (Note 2)
Income from operations of Colorado franchise territories 173,516
Gain on sale of Colorado franchise territories ......... 4,654,996
-----------
Net income from discontinued operations ........ 4,828,512
-----------
Net income ............................................... $ 5,413,272
===========

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

F-42
148
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

STATEMENT OF RETAINED EARNINGS
AS OF DECEMBER 31, 1997

Balance, Beginning of Year $ (484,136)
Net Income (Loss) ......... 5,413,272
Dividends and Distributions (2,757,191)
-----------
Balance, End of Year ...... $ 2,171,945
===========

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

F-43
149
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997

Cash Flows from Operating Activities
Net income ........................................ $ 5,413,272
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization ................ 121,013
Gain on Sale of Colorado Franchise Territories (4,654,996)
(Increase) decrease in:
Trade Accounts Receivable ................. 83,627
Inventories ............................... (10,026)
Prepaids .................................. (139)
NRTC Patronage Capital .................... (36,545)
Accrued Interest-- Golden Sky Systems ..... (235,000)
Increase (decrease) in:
Trade Accounts Payable .................... (171,159)
Accrued Expenses .......................... 86,535
Unearned Revenues ......................... (297,489)
-----------
Net Cash Provided by Operating Activities 299,093
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment ......... (44,931)
Proceeds from Sale of Franchise Territories ....... 2,450,336
-----------
Net Cash Provided by Investing Activities 2,405,405
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to Stockholders ..................... (2,757,191)
-----------
Net Cash Used by Financing Activities ... (2,757,191)
Net Decrease in Cash ................................ (52,693)
Cash, Beginning of Year ............................. 251,602
-----------
Cash, End of Year ................................... $ 198,909
===========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest ............ $ 218
===========

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

F-44
150
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was formed
in June 1993 for the purpose of acquiring and operating direct broadcast
satellite television operating rights. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At December
31, 1997, the Company had the operating rights for five counties in Montana and
three counties in Idaho. The operating rights for three counties in Colorado
were sold in 1997 (Note 2).

Revenue Recognition

Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Coupons issued
by NRTC may be used, with some restrictions, to pay a portion of a customer's
account receivable. No provision is made for the subsequent use of these
coupons.

Inventories

Inventories are stated at the lower of average cost or market and consist
of receivers, satellite dishes, and satellite TV accessories.

Use of Estimates

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable are
carried at cost, which approximates fair value, as a result of the short-term
nature of the instruments.

Intangible Assets

F-45
151
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with and original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1997.

Major Suppliers/Economic Dependency

The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing, and
the determination of unearned revenue.

Property, Plant and Equipment

Property, plant and equipment consists principally of office equipment,
computer equipment and a vehicle. The assets are being depreciated over five to
seven years using accelerated depreciation methods. Depreciation expense for the
year ended December 31, 1997 is $9,475.

Marketing and Advertising

Advertising costs are charged to expense as incurred. The Company often
subsidizes the cost of equipment for new subscribers by providing such equipment
at a sales price below the Company's cost. The Company records the cost of the
equipment up to the amount of the sales price to the subscriber. Any excess cost
over sales price is recorded in sales and marketing expense.

NOTE 2 -- DISCONTINUED OPERATIONS

NOTE 3 -- ACCOUNTS RECEIVABLE

Trade receivables consist of amounts due from subscribers for monthly
programming fees. These unsecured receivables arise solely from customers in the
franchise territories listed in Note 1.

NOTE 4 -- CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at various banks. Cash accounts at the
banks are insured by the FDIC for up to $100,000. Amounts in excess of the
insured limits were approximately $342,012 at December 31, 1997.

F-46
152
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- NRTC PATRONAGE CAPITAL

The Company is a non-voting affiliate of NRTC and receives annual
patronage capital credits which are recorded as income. These cumulative capital
credits are not marketable and the value is dependent on the future financial
position of NRTC.

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

The Company occupies its offices on a month to month to month rental
arrangement. Rent expense was $9,923. A shareholder has sued the Company,
claiming a finders fee on the sale of the Colorado franchise territories to
Golden Sky Systems, Inc. Management is vigorously contesting this action both as
to liability and damages. No provision has been made in the financial statement
for this claim.

NOTE 7 -- SUBSEQUENT EVENT

The Company has signed a letter of intent to be acquired by Golden Sky
Systems, Inc. Company shareholders will receive both cash and shares in Golden
Sky Holdings, Inc. in this transaction.

F-47
153
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

F-48
154
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Western Montana DBS, Inc.
dba Rocky Mountain DBS:

We have audited the accompanying balance sheets of Western Montana DBS,
Inc. dba Rocky Mountain DBS as of December 31, 1996 and 1995 and the related
statements of earnings, accumulated deficit and cash flows for the years ended
December 31, 1996 and 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Western Montana DBS,
Inc. dba Rocky Mountain DBS at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years ended December 31, 1996, 1995, and
1994, in conformity with generally accepted accounting principles.

Loucks & Glassley, pllp

September 12, 1997
Great Falls, Montana

F-49
155
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995

1996 1995
---------- ----------

ASSETS
CURRENT ASSETS
Cash and Equivalents (Note 4) ..................................... $ 251,602 $ 107,722
Trade Receivables, net of allowance for doubtful accounts of $6,000
(Note 2) ....................................................... 277,829 107,336
Inventories ....................................................... 12,416 5,496
---------- ----------
Total Current Assets ...................................... 541,847 220,554
---------- ----------
FURNITURE AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION .............. 15,610 18,379
---------- ----------
INTANGIBLE ASSETS
Franchise Costs ................................................... 1,253,803 1,253,803
Accumulated Amortization .......................................... (334,358) (208,977)
---------- ----------
919,445 1,044,826
---------- ----------
OTHER ASSETS
Prepaid Expenses .................................................. 1,420 1,420
NRTC Patronage Capital (Note 5) ................................... 91,730 47,420
---------- ----------
93,150 48,840
---------- ----------
Total Assets .............................................. $1,570,052 $1,332,599
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade Payables .................................................... $ 355,831 $ 190,717
Unearned Revenues ................................................. 548,343 100,827
Accrued Salaries and Other ........................................ 25,273 4,078
---------- ----------
Total Current Liabilities ................................. 929,447 295,622
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock, No Par Value, Authorized 50,000 Shares, 10,463 Shares
Issued and Outstanding ......................................... 1,124,739 1,124,739
Accumulated Deficit ............................................... (484,134) (87,762)
---------- ----------
Total Stockholders' Equity ................................ 640,605 1,036,977
---------- ----------
Total Liabilities and Stockholders' Equity ................ $1,570,052 $1,332,599
========== ==========

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

F-50
156
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

INCOME STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
---------- ---------- ----------

REVENUES
DSS Programming Revenues ................ $2,588,681 $1,191,353 $ 62,544
DSS Equipment Sales ..................... 93,472 225,583 429,015
Other DSS Sales ......................... 31,362 33,120 --
---------- ---------- ----------
2,713,515 1,450,056 491,559
COST OF REVENUES
Programming Costs ....................... 1,763,043 771,093 40,479
Equipment Costs ......................... 66,930 205,200 391,056
Other DSS Cost of Revenues .............. 40,259 9,163 --
Rebates ................................. 274,529 23,546 --
---------- ---------- ----------
2,144,761 1,009,002 431,535
---------- ---------- ----------
Gross Profit .................... 568,754 441,054 60,024
---------- ---------- ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, Wages and Commissions ......... 206,113 118,064 40,038
Amortization and Depreciation ........... 131,654 133,411 88,147
Bad Debt Expense ........................ 16,202 12,512 --
Advertising ............................. 90,395 53,076 5,431
Other Selling, General and Administrative 132,304 117,990 32,656
---------- ---------- ----------
576,668 435,053 166,272
---------- ---------- ----------
Net Operating Income (Loss) ..... (7,914) 6,001 (106,248)
---------- ---------- ----------
OTHER INCOME (EXPENSES)
Patronage Income (Note 5) ............... 44,310 30,609 16,921
Interest Expense ........................ (1,268) (19,485) (15,589)
Interest Income ......................... 2,212 29 --
---------- ---------- ----------
45,254 11,153 1,332
---------- ---------- ----------
Net Income (Loss) ............... $ 37,340 $ 17,154 $ (104,916)
========== ========== ==========

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

F-51
157
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

STATEMENTS OF ACCUMULATED DEFICIT
AS OF DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
-------- -------- --------

Balance, Beginning of Year $ (87,762) $(104,916) $ --
Net Income (Loss) ......... 37,340 17,154 (104,916)
Dividends and Distributions (433,712) -- --
--------- --------- ---------
Balance, End of Year ...... $(484,134) $ (87,762) $(104,916)
========= ========= =========

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

F-52
158
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
---------- ---------- ----------

Cash Flows from Operating Activities
Net income (loss) ...................................... $ 37,340 $ 17,154 $ (104,916)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and Amortization ....................... 131,654 133,411 88,147
(Increase) decrease in:
Trade Accounts Receivable ......................... (170,493) (37,643) (69,693)
Inventories ....................................... (6,920) 69,871 (75,367)
Prepaids .......................................... -- (701) (719)
NRTC Patronage Capital ............................ (44,310) (30,499) (16,921)
Increase (decrease) in:
Trade Accounts Payable ............................ 165,114 26,357 164,360
Accrued Expenses .................................. 21,195 2,394 1,684
Unearned Revenues ................................. 447,516 74,091 26,736
Net Cash Provided by Operating Activities ...... 581,096 254,435 13,311
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment .............. (3,504) (3,131) (27,829)
Investment in NRTC Marketing Rights .................... -- -- (1,253,803)
---------- ---------- ----------
Net Cash Used by Investing Activities .......... (3,504) (3,131) (1,281,632)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Line of Credit Borrowings .............................. -- -- 487,534
Line of Credit Repayments .............................. -- (236,458) (251,076)
Borrowings from Stockholder ............................ -- -- 33,499
Repayment on Stockholder Loan .......................... -- (33,499) --
Distributions to Stockholders .......................... (433,712) -- --
Issuance of Common Stock ............................... -- -- 1,124,739
---------- ---------- ----------
Net Cash Provided (Used) by Financing Activities (433,712) (269,957) 1,394,696
---------- ---------- ----------
Net Increase (Decrease) in Cash .......................... 143,880 (18,653) 126,375
Cash, Beginning of Year .................................. 107,722 126,375 --
---------- ---------- ----------
Cash, End of Year ........................................ $ 251,602 $ 107,722 $ 126,375
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest ................. $ 1,268 $ 19,485 $ 15,589
========== ========== ==========

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

F-53
159
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations -

Western Montana DBS, Inc., dba Rocky Mountain DBS (the Company) was
formed in June 1993 for the purpose of acquiring and operating direct broadcast
satellite television operating rights. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide,
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At December
31, 1996, 1995 and 1994, the Company had the operating rights for five counties
in Montana, three counties in Idaho, and three counties in Colorado. The
Colorado operating rights were sold in 1997.

Revenue Recognition -

Revenues are earned for monthly direct broadcast satellite services
which are billed to subscribers in advance. Subscribers may elect to prepay
their service charges for one or more months. Revenue is recognized in the month
the service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Coupons issued
by NRTC may be used, with some restrictions, to pay a portion of a customer's
account receivable. No provision is made for the subsequent use of these
coupons.

Inventories

Inventories are stated at the lower of average cost or market and
consist of receivers, satellite dishes, and satellite TV accessories.

Use of Estimates

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments.

Intangible Assets

F-54
160
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income Taxes

Effective January 1, 1995, the Company elected to be taxed as a
Subchapter S Corporation. As such, any income tax is payable by the shareholders
and not the Company, therefore there is no income tax expense recorded. For the
five months ended December 31, 1994, the company incurred a loss and no income
taxes were due.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with and original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1995 or 1996.

Major Suppliers/Economic Dependency -

The Company's sole supplier is the NRTC. In addition, NRTC provides all
computer services relative to customer service, accounts receivable billing and
the determination of unearned revenue.

Property, Plant, and Equipment -

Property, plant and equipment consists principally of office equipment
and a vehicle. The assets are being depreciated over five to seven years using
accelerated depreciation methods.

Advertising -

Advertising costs are charged to expense as incurred.

NOTE 2 -- ACCOUNTS RECEIVABLE

Trade receivables consist of amounts due from subscribers for monthly
programming fees.

NOTE 3 -- RELATED PARTY TRANSACTIONS

During 1994, a shareholder advanced $33,499 to the Company. This
advance had no specific repayment terms and was repaid in 1995

NOTE 4 -- CONCENTRATION OF CREDIT RISK

The company maintains cash balances at various banks. Cash accounts at
the banks are insured by the FDIC for up to $100,000. Amounts in excess of the
insured limits were approximately $73,370 at December 31, 1996.

NOTE 5 -- NRTC PATRONAGE CAPITAL

The company is a non-voting affiliate of NRTC and receives annual
patronage capital credits which are recorded as income. These cumulative capital
credits are not marketable and the value is dependent on the future financial
position of NRTC.

F-55
161
WESTERN MONTANA DBS, INC.
dba ROCKY MOUNTAIN DBS

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- COMMITMENTS AND CONTINGENCIES

The company occupies its offices on a month to month to month rental
arrangement. Rent expense was $3,224 in 1994, $12,090 in 1995, and $18,000 in
1996.

NOTE 7 -- SUBSEQUENT EVENT

In May of 1997, the Company contracted to sell its Colorado subscribers
to Golden Sky Systems, Inc. The Company estimates these customers comprise some
21% of the customer base and account for some 31% of revenues.

F-56
162
SOUTH PLAINS DBS LIMITED PARTNERSHIP
TAHOKA, TEXAS

FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996 AND 1995
AND
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS

BOLINGER, SEGARS, GILBERT & MOSS, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
LUBBOCK, TEXAS

F-57
163
INDEPENDENT AUDITORS' REPORT

To the Partners
South Plains DBS Limited Partnership
Tahoka, Texas

We have audited the accompanying balance sheets of South Plains DBS
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of income, changes in partners' capital, and cash flows for the years 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 audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of South Plains DBS
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations, changes in partners' capital and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

Bolinger, Segars, Gilbert & Moss, L.L.P.
Certified Public Accountants

February 28, 1997

F-58
164
SOUTH PLAINS DBS LIMITED PARTNERSHIP

BALANCE SHEET
DECEMBER 31, 1996 AND 1995

December 31,
------------------------------
1996 1995
----------- -----------

ASSETS
CURRENT ASSETS
Cash ........................................................................... $ 195,586 $ 175,287
Accounts Receivable (Less allowance for uncollectibles of $2,875 in
1996 and $2,073 in 1995) ..................................................... 54,216 53,770
Inventory ...................................................................... 39,928 554,323
Prepaid Expenses ............................................................... 5,905 5,937
----------- -----------
$ 295,635 $ 789,317
----------- -----------
OTHER ASSETS
Investment in Associated Organizations ......................................... $ 61,084 $ 37,853
Franchise License (Less Accumulated Amortization of $339,114 in
1996 and $198,791 in 1995) ................................................... 1,064,115 1,204,438
Membership ..................................................................... 1,000 1,000
Deposits ....................................................................... 1,617 1,617
----------- -----------
$ 1,127,816 $ 1,244,908
----------- -----------
FIXED ASSETS
Office Furniture and Fixtures .................................................. $ 98,152 $ 99,119
Office Equipment ............................................................... 22,439 22,439
Leased Equipment ............................................................... 27,694 25,342
Leasehold Improvements ......................................................... 10,888 10,888
----------- -----------
$ 159,173 $ 157,788
Less: Accumulated Depreciation and Amortization ................................ 37,021 18,503
----------- -----------
$ 122,152 $ 139,285
----------- -----------
$ 1,545,603 $ 2,173,510
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts Payable-- Operating Partner ........................................... $ 202,090 $ 311,760
Accounts Payable-- Trade ....................................................... 20,504 96,042
Advance Billing ................................................................ 232,682 3,360
Equipment Deposits ............................................................. 2,210 62,014
Other Accrued Liabilities ...................................................... 4,100 17,221
----------- -----------
$ 461,586 $ 490,397
----------- -----------
NONCURRENT LIABILITIES
Line of Credit Outstanding-- RTFC .............................................. $ 1,724,642 $ 1,484,642
----------- -----------
PARTNERS' CAPITAL
Poka-Lambro Telecommunications, Inc. ........................................... $ (152,149) $ 47,136
South Plains Development Corporation ........................................... (152,149) 47,136
S.P.A.C.E., Inc. ............................................................... (152,149) 47,136
L. E. C. Development, Inc. ..................................................... (152,149) 47,136
Rural Vision Development Corporation ........................................... (32,029) 9,927
----------- -----------
$ (640,625) $ 198,471
----------- -----------
$ 1,545 603 $ 2,173,510
=========== ===========

See accompanying notes to financial statements

F-59
165
SOUTH PLAINS DBS LIMITED PARTNERSHIP

STATEMENT OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,1996 AND 1995

December 31,
------------------------------
1996 1995
----------- -----------

OPERATING REVENUES
Satellite Service Revenue ..................................... $ 1,410,801 $ 740,420
Equipment Sales and Installation .............................. 379,520 553,388
Subscriber Activations ........................................ 53,650 34,403
Miscellaneous Revenues ........................................ 67,287 6,154
----------- -----------
$ 1,911,258 $ 1,334,365
----------- -----------
COST OF SALES AND SERVICES
Equipment Sales and Installation .............................. $ 622,157 $ 547,157
Wholesale Service Costs ....................................... 999,466 517,744
----------- -----------
$ 1,621,623 $ 1,064,901
----------- -----------
GROSS PROFIT .................................................... $ 289,635 $ 269,464
----------- -----------
OPERATING EXPENSES
Advertising ................................................... $ 224,919 $ 319,592
Commercial Office Expenses .................................... 249,694 136,045
Depreciation and Amortization ................................. 159,442 154,140
General and Administrative .................................... 69,290 61,924
Legal and Accounting .......................................... 6,450 21,761
Management Expense ............................................ 143,122 128,984
Office Supplies and Expenses .................................. 25,782 19,978
Property Tax .................................................. 16,046 6,862
Rent Expense .................................................. 32,982 31,675
Repair and Maintenance ........................................ 16,072 22,649
Sales Commissions ............................................. 55,455 33,785
Utilities and Telephone ....................................... 32,236 29,921
Interest ...................................................... 102,975 75,689
Bad Debt Expense .............................................. 20,765 14,337
----------- -----------
$ 1,155,230 $ 1,057,342
----------- -----------
NET OPERATING LOSS .............................................. $ (865,595) $ (787,878)
----------- -----------
NON OPERATING INCOME (EXPENSES)
Interest Income ............................................... $ 6 $ --
Capital Credits ............................................... 31,780 46,533
Loss on Disposal of Assets .................................... (5,287) --
----------- -----------
NET LOSS ........................................................ $ (839,096) $ (741,345)
=========== ===========

See accompanying notes to financial statements

F-60
166
SOUTH PLAINS DBS LIMITED PARTNERSHIP

STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

Poka
Lambro South Rural
Telecom- Plains L.E.C. Vision
munications, Development S.P.A.C.E. Development, Development
Inc. Corporation Inc. Inc. Corporation Total
--------- --------- --------- --------- ------------ ---------

Balance --
January 1, 1995 $ 223,206 $ 223,206 $ 223,206 $ 223,206 $ 46,992 $ 939,816
Net Loss-- 1995 . (176,070) (176,070) (176,070) (176,070) (37,065) (741,345)
--------- --------- --------- --------- -------- ---------
Balance --
December 31,
1995 .......... $ 47,136 $ 47,136 $ 47,136 $ 47,136 $ 9,927 $ 198,471
Net Loss-- 1996 . (199,285) (199,285) (199,285) (199,285) (41,956) (839,096)
--------- --------- --------- --------- -------- ---------
Balance --
December 31,
1996 .......... $(152,149) $(152,149) $(152,149) $(152,149) $(32,029) $(640,625)
========= ========= ========= ========= ======== =========

See accompanying notes to financial statements

F-61
167
SOUTH PLAINS DBS, LIMITED PARTNERSHIP

STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

December 31,
----------------------------
1996 1995
--------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss .................................................................... $(839,096) $ (741,345)
Adjustments to Reconcile Net Loss to Net Cash
Used in Operating Activities
Depreciation and Amortization ............................................ 159,442 154,140
Loss on Disposal of Assets ............................................... 5,287
Capital Credits-- Non-Cash ............................................... (31,780) (46,533)
Accounts Receivable ...................................................... (446) 11,712
Inventory ................................................................ 514,395 226,129
Prepaid Expenses ......................................................... 32 (4,197)
Accounts Payable-- Trade ................................................. (75,538) (505,314)
Equipment Deposits ....................................................... (59,804) (2,900)
Advanced Billing ......................................................... 229,322 43,111
Other Accrued Liabilities ................................................ (13,120) 14,388
--------- -----------
Net Cash Used in Operating Activities .................................. $(111,306) $ (850,809)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Fixed Assets ................................................... $ (7,274) $ (67,199)
Investments in Associated Organizations ..................................... 8,549 8,680
--------- -----------
Net Cash Provided by (Used in) Investing Activities .................... $ 1,275 $ (58,519)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances an Line-of-Credit-- RTFC ........................................ $ 240,000 $ 1,484,642
Accounts Payable-- General Partner ....................................... (109,670) (490,727)
--------- -----------
Net Cash Provided by Financing Activities .............................. $ 130,330 $ 993,915
--------- -----------
INCREASE IN CASH .............................................................. $ 20,299 $ 84,587
--------- -----------
CASH-- BEGINNING OF YEAR ...................................................... 175,287 90,700
--------- -----------
CASH-- END OF YEAR ............................................................ $ 195,586 $ 175,287
--------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Year for:
Interest ................................................................. $ 102,975 $ 75,689
--------- -----------
Income Taxes ............................................................. $ 0 $ 0
========= ===========

See accompanying notes to financial statements

F-62
168
SOUTH PLAINS DBS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES

Nature of Operations

South Plains DBS Limited Partnership is a partnership among Poka Lambro
Telecommunications, Inc., South Plains Development Corporation, S.P.A.C.E.,
Inc., L.E.C. Development, Inc., and Rural Vision Development Corporation. The
partnership interests are as follows:

Poka Lambro Telecommunications, Inc. (General)......................... 23.75%
South Plains Development Corporation (General)......................... 23.75%
S.P.A.C.E., Inc. (General)............................................. 23.75%
L.E.C. Development, Inc. (General)..................................... 23.75%
Rural Vision Development Corporation (Limited)......................... 5.00%

The partnership was formed on August 27, 1992 to fund, establish and
provide direct broadcast satellite services to its franchised TVGSA (TV
Geographical Service Area). Poka Lambro Telecommunications, Inc. (the
Corporation) serves as the operating partner.

Operating Partner Responsibilities

The operating partner is responsible for the books and records of the
partnership and the oversight of operations. Costs incurred by the operating
partner associated with partnership operations are to be periodically
reimbursed, at cost.

Allowance for Uncollectible Accounts

The partnership records a monthly allowance for bad debts associated
with equipment sales. Accruals are charged to bad debt expense and recoveries
are charged back to the allowance.

The direct write-off method is used for bad debts associated with
satellite service. This method does not produce results materially different
from using the reserve method.

Inventory

Inventory is stated at average unit cost and consists primarily of the
direct broadcast satellite receivers and the related installation kits and
supplies.

Patronage Capital Certificates

Patronage capital from associated organizations is recorded at the
stated amount of the certificates.

Accounts Payable -- Operating Partner, Related Party Transactions

Accounts payable -- general partner represents costs borne by the
operating partner of the partnership which are to be reimbursed periodically.

F-63
169
SOUTH PLAINS DBS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Recognition of Income

Direct broadcast satellite television programming revenues are billed
in advance and are recognized when earned. Unearned amounts are classified as
advance billing on the balance sheet. All other revenues are recognized at the
time of the sales and at the time a service is provided.

Customer Billing and Collection of Digital Satellite TV (DSTV) Services

The National Rural Telecommunications Cooperative (NRTC), under
contractual arrangements with the partnership, performs the billing and
collection for the DSTV services provided to customers. The arrangements require
NRTC to remit monthly total revenue billed less applicable billing and service
expenses and to remit subsequent collection of this revenue. The sales revenue
and the customer receivables for the DSTV services, as reflected in the
financial statements, are recorded from the monthly billing and collection
reports provided by NRTC.

Concentration of Credit Risk

The partnership maintains its cash balances in federally insured
financial institutions. At times during the year, these cash balances exceeded
the insurance limit of $100,000.

Use of Estimates in the Preparation of Financial Statements

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

NOTE 2. ASSETS PLEDGED

All assets are pledged as security for the long-term debt due Rural
Telephone Finance Corporation.

NOTE 3. FRANCHISE LICENSE

The franchise license represents the cost paid to extend direct
broadcast satellite services to consumers located in the TVGSA. The partnership
is amortizing the cost over the term of the franchise, which is ten years.
Amortization of the license commenced during the calendar year ended December
31, 1994 as the satellite service began. Amortization for the years ended
December 31, 1996 and 1995 amounted to $140,323 and $140,323, respectively.

F-64
170
SOUTH PLAINS DBS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4. FIXED ASSETS

Fixed assets are stated at the original purchase cost.

The major classes of fixed assets are as follows:

December 31,
------------------------
1996 1995
-------- ---------

Office Furniture and Fixtures $ 98,152 $ 99,119
Office Equipment ............ 22,439 22,439
Lease Equipment ............. 27,694 25,342
Leasehold Improvements ...... 10,888 10,888
-------- --------
$159,173 $157,788
======== ========

Provision for the depreciation of fixed assets is computed using
straight-line rates as follows:

Office Furniture and Fixtures 7.50%
Office Equipment ............ 14.30%
Leased Equipment ............ 14.30%

Depreciation expense on the office furniture, fixtures and equipment
for the years ended December 31, 1996 and 1995 was $14,767 and $9,331,
respectively.

The leasehold improvements relate to improvements made at the
partnership's retail location and are being amortized over approximately a two
year period. Amortization of leasehold improvements for the years ended December
31, 1996 and 1995 amounted to $4,352 and $4,486, respectively.

NOTE 5. LINE OF CREDIT -- RTFC

In 1995, the partnership executed two line-of-credit agreements with
the Rural Telephone Finance Cooperative (RTFC). The partnership was approved for
a line of credit of $3,000,000 and $600,000 for DBS inventory purchases and
general operating expenses, respectively. For both loans the annual interest
rate is 6.9 percent. At December 31, 1996, the partnership had $1,649,642
outstanding on the inventory purchases loan and $75,000 outstanding on the
general operating expenses loan. Terms include quarterly interest payments at
6.9 percent, with the total principal outstanding due November 28, 1999. The
notes are secured by the assets of the partnership and are guaranteed by the
parent companies of the partners in proportion to each partner's ownership
percentage. Total interest expense for the years ended December 31, 1996 and
1995, was $102,975 and $75,689, respectively.

NOTE 6. EQUIPMENT DEPOSITS

Equipment deposits represent amounts collected from subscribers for the
purpose of reserving a satellite receiver. The deposits made by subscribers are
applied as down payments on the receivers when purchased. Upon request, deposits
are refunded and the reservations are withdrawn.

F-65
171
SOUTH PLAINS DBS LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. PARTNERS' CAPITAL ACCOUNTS

Capital calls are recognized as receivables from the partner upon
issuance of the call. If participating, the partners are required to fund the
calls within the time frame specified in the calls. Requests for capital are
issued as required by the operating partner. The capital accounts have been
adjusted for each partner's proportionate share of the accumulated losses as
reflected on the statement of changes in partners' capital.

NOTE 8. COMMITMENTS AND CONTINGENCIES

The partnership is liable to Poka Lambro Telecommunications, Inc., for
all costs incurred by the corporation in its capacity as operating partner. If
additional capital is necessary for the satisfaction of these commitments, this
capital will be provided by the above referenced capital calls of each partner.

The partnership has executed a non-cancelable operating lease for the
use of retail office space in Lubbock, Texas. The lease term is for four years
commencing on August 1, 1994. The minimum monthly rent requirements escalate on
an annual basis over the term of the lease. Future minimum rental payments
required under the terms of this lease are as follows at December 31, 1996:

1997.............................................................. $32,280
1998.............................................................. $19,040

Lease expense recognized under this lease for the year ended December
31, 1996 and 1995, amounted to $32,982 and $31,675, respectively.

The partnership also leases a copier and a fax machine for use in its
daily operations. The lease terms are for three years commencing on August 18,
1995. Rental expense recognized under the terms noted above amounted to $2,830
and $2,548 for the years ended December 31, 1996 and 1995, respectively.

Amounts reflected in the financial statements related to revenues and
billings from the National Rural Telecommunications Cooperative (NRTC) system
may be subject to adjustment in a subsequent accounting period. Differences from
these adjustments, if any, will normally be recorded in that accounting period,
if not material.

NOTE 9. INCOME TAXES

The partnership is not a taxable entity and the results of its
operations are includable in the tax returns of the partners. Accordingly,
income taxes are not reflected in the accompanying financial statements.

F-66
172
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

F-67
173
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Souris River Television, Inc.
Minot, North Dakota

We have audited the accompanying balance sheets of Souris River Television,
Inc. as of December 31, 1996, and 1995 and the related statements of earnings,
shareholder's equity and cash flows for the years ended December 31, 1996, and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Acquisition, Inc. at
December 31, 1996, and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996, and 1995, in conformity with generally
accepted accounting principles.

Eide Helmeke PLLP

October 23, 1997
Sioux Falls, South Dakota

F-68
174
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

BALANCE SHEETS
DECEMBER 31, 1996, AND 1995

1996 1995
---------- ----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 67,573 $ 32,720
Accounts receivable, net of allowance (Note 2) .................. 54,353 95,700
Accounts receivable-- associated company ........................ 377,704 26,124
Inventory ....................................................... 254,927 259,619
Notes receivable, current maturities (Note 3) ................... 105,984 172,166
Other current assets ............................................ 2,451
---------- ----------
Total current assets .................................... 862,992 586,329
Property and equipment (net of accumulated depreciation of
$1,186,886 in 1996 and $943,982 in 1995) (Note 4) ............ 1,076,776 1,086,569
---------- ----------
Intangible assets (net of accumulated amortization of $329,891 in
1996 and $206,182 in 1995) ................................... 907,205 1,030,914
---------- ----------
OTHER ASSETS:
Other investments ............................................... 71,741 19,449
Deferred income taxes (Note 5) .................................. 8,211
Notes receivable, less current maturities (Note 3) .............. 176,117 273,771
---------- ----------
Total other assets ...................................... 247,858 301,431
---------- ----------
$3,094,831 $3,005,243
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 112,410 $ 66,962
Unearned revenue ................................................ 326,924 109,937
Customer deposits ............................................... 85,500 58,300
Other current liabilities ....................................... 5,955 --
---------- ----------
Total current liabilities ............................... 530,789 235,199
---------- ----------
Deferred income taxes (Note 5) .................................. 74,223 --
---------- ----------
Total liabilities ....................................... 605,012 235,199
---------- ----------
SHAREHOLDER'S EQUITY:
Common stock, no par value, authorized 100,000 shares; issued and
outstanding 100 shares ....................................... 2,963,885 2,963,885
Accumulated deficit ............................................. (474,066) (193,841)
---------- ----------
Total stockholder's equity .............................. 2,489,819 2,770,044
---------- ----------
Total liabilities and shareholder's equity .............. $3,094,831 $3,005,243
========== ==========

See accompanying notes to financial statements.

F-69
175
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995

1996 1995
----------- -----------

REVENUES:
CATV program revenues ............................ $ 253,708 $ 261,159
DBS program revenue .............................. 1,464,579 567,480
Satellite program revenue ........................ 448,568 602,030
Equipment sales .................................. 549,432 819,901
Lease revenue .................................... 236,672 18,186
Other ............................................ 40,926 31,668
----------- -----------
Total revenues ........................... 2,993,885 2,300,424
----------- -----------
COST OF REVENUES:
CATV program costs ............................... 53,997 57,308
DBS program costs ................................ 866,008 324,845
Satellite program costs .......................... 339,783 379,333
Equipment costs .................................. 483,894 535,149
Rebate expense ................................... 139,414 14,343
----------- -----------
Total cost of revenues ................... 1,883,096 1,310,978
----------- -----------
Gross Profit ............................. 1,110,789 989,446
----------- -----------
EXPENSES:
Salaries, wages and commissions .................. 789,334 710,009
Depreciation and amortization .................... 384,189 218,727
Bad debt expense ................................. 35,967 50,899
Marketing ........................................ 170,664 129,993
Maintenance and installation ..................... 70,066 81,723
Other selling, general and administrative expenses 161,073 166,073
----------- -----------
1,611,293 1,357,424
----------- -----------
NET LOSS BEFORE INTEREST AND TAXES ................. (500,504) (367,978)
----------- -----------
INTEREST INCOME .................................... 41,119 50,206
----------- -----------
NET LOSS BEFORE TAXES .............................. (459,385) (317,772)
INCOME TAX BENEFIT (Note 5) ........................ 179,160 123,931
----------- -----------
NET LOSS ........................................... $ (280,225) $ (193,841)
=========== ===========

See accompanying notes to financial statements.

F-70
176
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995

Common Accumulated
Stock Deficits Total
----- -------- -----

Balance, January 1, 1995 .......................... $ -- $ -- $ --
Issuance of common stock for property and franchise
rights .......................................... 2,963,885 -- 2,963,885
Net loss, 1995 .................................... -- (193,841) (193,841)
---------- --------- ----------
Balance, December 31, 1995 ........................ 2,963,885 (193,841) 2,770,044
Net loss, 1996 .................................... -- (280,225) (280,225)
---------- ---------- -----------
Balance December 31, 1996 ......................... $2,963,885 $(474,066) $2,489,819
========== ========== ===========

See accompanying notes to financial statements.

F-71
177
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, AND 1995

1996 1995
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................................... $(280,225) $(193,841)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization .................................. 384,189 218,727
Bad debt expense ............................................... 35,967 50,899
Deferred income taxes .......................................... 82,434 (8,211)
(Increase) decrease in assets:
Accounts receivable ............................................ 41,347 (81,157)
Accounts receivable -- associated company ...................... (351,580) (26,124)
Inventory ...................................................... 4,692 (38,514)
Other assets ................................................... (2,451) --
(Decrease) increase in liabilities:
Accounts payable ............................................... 45,448 66,962
Unearned revenue ............................................... 164,695 90,488
Customer deposits .............................................. 27,200 57,650
Other liabilities .............................................. 5,955 (1,498)
---------- ----------
Net cash provided by operating activities .................... 157,671 135,381
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................... (250,687) (705,050)
Decrease (Increase) in notes receivable ........................... 127,869 (88,097)
Transfer of DBS franchise rights .................................. -- (1,154,623)
---------- ----------
Net cash (used in) investing activities ...................... (122,818) (1,947,770)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt -- associated company ........ -- (1,118,776)
Issuance of common stock .......................................... -- 2,963,885
---------- ----------
Net cash provided by financing activities .................... -- 1,845,109
---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................. 34,853 32,720
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................... 32,720 --
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................ 67,573 32,720
========== ==========

See accompanying notes to the financial statements.

F-72
178
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND NATURE OF OPERATIONS -- Souris River Television. Inc.
(the Company) is a wholly-owned subsidiary of Souris River Telecommunications
Cooperative (the Parent). The Company was formed in December 1994 for the
purpose of owning and operating direct broadcast satellite (DBS) and cable
television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted Hughes Communications Galaxy, Inc. (Hughes), to
provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive right to distribution of DirecTV service within the contract area. In
1994, Hughes launched the satellite that provides programming for DirecTV. At
December 31, 1996, and 1995, the Company had the operating rights for sixteen
counties in North Dakota.

REVENUE RECOGNITION -- Revenues are earned for monthly DBS and cable
television and satellite services and are billed to subscribers in advance.
Subscribers may elect to prepay their service charges for one or more months.
Revenue is recognized in the month the service is provided to the subscriber.
Subscriber advance billings represent unearned revenues and are deferred until
the service is provided.

INVENTORY -- Inventory is stated at the lower of average cost or market
and consists of receivers, satellite dishes. and satellite TV accessories.

USE OF ESTIMATES -- Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities to
prepare the balance sheets in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.

INTANGIBLE ASSETS -- The cost of acquiring the rights to provide
DirecTV satellite services are capitalized as intangible assets and are being
amortized on a straight-line basis over ten years which is the expected useful
life of the revenue stream of those services.

INCOME TAXES -- The Company is not directly subjected to income taxes
as its net losses are consolidated with the Parent's operations for tax filing
purposes. The Company records a receivable from the Parent for the tax benefits
arising from the net losses of the Company. All tax benefits arise from losses
from continuing operations.

INVESTMENTS AND OTHER ASSETS -- Investments and other assets are stated
at cost.

PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed by the straight-line method over the following
estimated useful lives.

CASH AND CASH EQUIVALENTS -- For purposes of reporting cash flows, the
company considers all deposits with a maturity of three months or less to be
cash equivalents.

F-73
179
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- ACCOUNTS RECEIVABLE

Trade receivables consist primarily of amounts due from subscribers for
monthly programming fees from cable television and direct broadcast satellite
services. Accounts receivables as of December 31, 1996, and 1995 are as follows:

1996 1995
-------- --------

Accounts receivable:
Programming-- DBS ............... $ 50,167 $ 88,695
Programming-- CATV .............. 6,552 9,203
Less allowance for uncollectibles (2,366) (2,198)
-------- --------
$ 54,353 $ 95,700
======== ========

NOTE 3 -- NOTES RECEIVABLE

Notes receivable consist primarily of amounts due from subscribers for
DBS and satellite equipment purchases financed by the Company, repayment of the
notes range from one to five years. Notes receivable as of December 31, 1996,
and 1995 are as follows:

1996 1995
-------- --------

Notes receivable, net of allowance $282,101 $445,937
Less amount due in one year .... 105,98 172,166
-------- --------
$176,117 $273,771
======== ========

NOTE 4 -- PROPERTY AND EQUIPMENT

1996 1995
--------------------------------- ------------------------------
Plant Depreciation Plant Depreciation
Balance Rate Balance Rate
---------- ------------- ----------- ------------

Land and support assets .......... $ 159,352 20.0% $ 178,083 20.0%
Towers and antennas .............. 81,994 6.7% 81,994 6.7%
CATV equipment ................... 671,460 6.7% 669,505 6.7%
CATV cable ....................... 397,957 6.7% 397,957 6.7%
Leased DBS equipment ............. 952,899 20.0% 703,012 20.0%
---------- ----------
Total plant in service ......... 2,263,662 2,030,551
Less accumulated depreciation 1,186,886 943,982
---------- ----------
$1,076,776 $1,086,569
========== ==========

NOTE 5 -- INCOME TAXES

The Company accounts for income taxes under the asset and liability
method whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be recovered or settled.

F-74
180
SOURIS RIVER TELEVISION, INC.
MINOT, NORTH DAKOTA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Income tax benefit for the year ended December 31, 1996 and 1995, is
comprised of the following:

1996 1995
--------- ---------

Current:
Federal .......................... $ 207,933 $ 131,712
State ............................ 53,661 33,990
--------- ---------
Total current tax benefit 261,594 165,702
--------- ---------
Deferred:
Federal .......................... (65,524) (33,203)
State ............................ (16,910) (8,568)
--------- ---------
Total deferred tax benefit (82,434) (41,771)
--------- ---------
Total income tax benefit . $ 179,160 $ 123,931
========= =========

The tax effects of temporary differences that result in tax assets and
liabilities at December 31, 1996 and 1995, are presented below. There are no
valuation allowances provided.

1996 1995
--------- ---------

Deferred income tax assets (liabilities):
Allowance for uncollectibles ....................... $ 31,790 $ 22,596
Depreciation ....................................... (106,013) (14,385)
--------- --------
Net deferred income tax assets (liabilities) $ (74,223) $ 8,211
========= ========

NOTE 5 -- RELATED PARTY TRANSACTIONS

Souris River Telecommunications Cooperative owns 100% of the
outstanding shares of Souris River Television, Inc. Souris River
Telecommunications Cooperative provides certain management, customer service,
billing and collection, and other services to the company on a contractual
basis. Payments under this contract for the years ended December 31, 1996 and
1995, were approximately $931,000 and $797,000 respectively.

Intercompany receivable balances arising from the various intercompany
transactions at December 31, 1996, and 1995 were $377,704, and $26,124,
respectively.

NOTE 6 -- SUBSEQUENT EVENT

On October 16, 1997, the Company contracted to sell 69% of their DBS
franchise area to Golden Sky Systems, Inc. The acquisition is expected to close
on November 21, 1997.

F-75
181
IMAGES DBS KANSAS, L.C.

FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-76
182
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Images DBS Kansas, L.C.:

We have audited the accompanying balance sheets of Images DBS Kansas, L.C.
as of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Images DBS Kansas, L.C. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

June 20, 1997

F-77
183
IMAGES DBS KANSAS L.C.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

ASSETS
Current assets:
Cash ..................................................................... $ 42,806 16,614
Accounts receivable:
Subscribers (net of allowance for doubtful accounts of
$38,480 and $8,686) ................................................. 238,422 327,119
Related parties ....................................................... 1,802 --
Prepaid expenses ......................................................... 1,124 4,674
---------- ----------
Total current assets ............................................. 284,154 348,407
Intangible assets (net of accumulated amortization of
$3,517 and $2,062) (note 1) .............................................. 3,762 5,217
Other assets ............................................................... 30,007 2,941
---------- ----------
Total assets ..................................................... $ 317,923 356,565
=========== ==========
LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable:
Vendors ............................................................... $ 128, 132 56,196
Related parties ....................................................... -- 5,078
Unearned revenue ......................................................... 226,611 72,543
Other liabilities ........................................................ 150,509 39,845
---------- ----------
Total current liabilities ........................................ 505,252 173,662
---------- ----------
Long-term liabilities:
Notes payable ............................................................ 1,078,447 650,877
Other long-term liabilities .............................................. 47,181 11,330
---------- ----------
Total long-term liabilities ...................................... 1,125,628 662,207
---------- ----------
Investors' capital:
Contributed capital ...................................................... 556,968 406,968
---------- ----------
Accumulated deficit ...................................................... (1,869,925) (886,272)
---------- ----------
(1,312,957) (479,304)
---------- ----------
Total liabilities and investors' capital ......................... $ 317,923 356,565
=========== ==========

See accompanying notes to financial statements.

F-78
184
IMAGES DBS KANSAS L.C.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- --------

Revenues:
Programming revenue ..................... $ 775,165 246,432
Equipment rental revenue ................ 212,172 57,433
Other revenues .......................... 12,923 18,160
----------- --------
Total revenues .................. 1,000,260 322,025
----------- --------
Cost of revenues:
Programming costs ....................... 678,105 213,679
Equipment rental costs .................. 361,427 76,886
----------- --------
Total cost of revenues .......... 1,039,532 290,565
----------- --------
Gross profit (loss) ............. (39,272) 31,460
----------- --------
Expenses:
Salaries and commissions ................ 450,819 267,232
Advertising ............................. 117,347 181,879
Bad debt expense ........................ 50,300 12,100
Other general and administrative expenses 267,690 222,932
Amortization expense .................... 1,455 1,455
----------- --------
887,611 685,598
----------- --------
Net operating loss .............. (926,883) (654,138)
Interest expense .......................... (56,770) (30,877)
----------- --------
Net loss ........................ $ (983,653) (685,015)
=========== ========

See accompanying notes to financial statements.

F-79
185
IMAGES DBS KANSAS L.C.

STATEMENTS OF INVESTORS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

Contributed Accumulated Total
capital deficit capital
-------- ---------- ----------

Balance at January 1, 1995 . $ 37,468 (201,257) (163,789)
Capital contributions ...... 369,500 -- 369,500
Net loss ................... -- (685,015) (685,015)
-------- ---------- ----------
Balance at December 31, 1995 406,968 (886,272) (479,304)
Capital contributions ...... 150,000 -- 150,000
Net loss ................... -- (983,653) (983,653)
-------- ---------- ----------
Balance at December 31, 1996 $556,968 (1,869,925) (1,312,957)
======== ========== ==========

See accompanying notes to financial statements.

F-80
186
IMAGES DBS KANSAS L.C.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
--------- ---------

Operating activities:
Net loss .......................................................... $(983,653) (685,015)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Amortization ................................................... 1,455 1,455
Bad debt expense ............................................... 50,330 12,100
Change in:
Accounts receivable ............................................ 36,595 (322,128)
Other assets ................................................... (27,066) (626)
Accounts payable ............................................... 66,858 21,532
Other liabilities .............................................. 110,664 21,513
Intangible assets .............................................. -- (6,672)
Other long-term liabilities .................................... 35,851 11,330
Prepaid expenses ............................................... 3,550 (3,885)
Unearned revenue ............................................... 154,068 69,744
--------- --------
Net cash used in operating activities ........................ (551,378) (880,652)
--------- --------
Investing activities-- capital contributions ........................ 150,000 369,500
--------- --------
Financing activities:
Payments on notes payable ......................................... (211,700) (82,500)
Proceeds from notes payable ....................................... 639,270 600,256
Net cash provided by financing activities .................... 427,570 517,756
--------- --------
Net change in cash ........................................... 26,192 6,604
Cash at beginning of period ......................................... 16,614 10,010
--------- --------
Cash at end of period ............................................... $ 42,806 16,614
========= ========

See accompanying notes to financial statements.

F-81
187
IMAGES DBS KANSAS, L.C.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Images DBS Kansas, L.C. (Images-KS) is a limited-liability company
which is in the primary business of promoting, marketing and selling direct
broadcast satellite (DBS) television services in seven counties in southeastern
Kansas. Images-KS is owned by the employees, officers and directors of Totah
Telephone Company, Inc. (Totah) and its subsidiaries.

In 1994, the Hughes Communications Galaxy, Inc. (Hughes) launched two
satellites to provide satellite television services. The National Rural
Telecommunications Cooperative (NRTC) contracted with Hughes to distribute DBS
television services throughout the United States. Totah became an affiliated
member of NRTC in order to acquire exclusive distribution rights for DirecTV
service within certain contract areas. Totah purchased the rights in seven
southeastern Kansas counties and entered into an agreement with Images-KS to
license all of Totah's rights and obligations under the agreement with the NRTC
to Images-KS. In return for this, Totah received a ten-percent license and
royalty fee of net programming revenues. Effective January 1, 1996, Totah
contributed the licensing rights to Total Communications, Inc. (Total), a wholly
owned subsidiary. Subsequent to this date, the ten percent license and royalty
fee paid by Images-KS is paid to Total. Total is in the primary business of
providing DBS equipment to the customers of Images-KS.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenues represent subscriber advance billings and
are deferred until the service is provided.

Equipment Rental

Images-KS leases satellite television equipment from Total and in turn
leases this equipment to its DBS customers. The lease terms to customers are
based on prevailing market conditions. The lease terms with Total are based on a
fixed percentage of equipment value.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets
and liabilities, as well as the reported amounts of revenues and expenses during
the period. Actual results could differ from these estimates.

Long-Lived Assets

F-82
188
IMAGES DBS KANSAS, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NRTC Patronage Capital

The NRTC declares and the Company receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Company has recorded an asset and an offsetting deferred income liability
for the noncash portion of the patronage dividend. The deferred income will be
recognized as revenue when cash distributions are declared by the NRTC.

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value as a result of the short-term
of the instruments. The carrying value of notes payable approximates fair value
as they bear interest at market rates.

Income Taxes

Images-KS is a limited-liability company. All taxes are the
responsibility of Images-KS's unit holders.

Intangible Assets

The costs of acquiring the rights to provide DirecTV satellite services
are capitalized as intangible assets and are being amortized on a straight-line
basis, over a ten-year period, which is the expected useful life of the revenue
streams of those services.

Accounts Receivable Subscribers

Accounts receivables subscribers consist of amounts due from
subscribers for monthly programming fees and equipment purchases financed by
Images-KS. Images-KS finances equipment purchases at 12% over a period of two to
three years. Balances as of December 31, 1996 and 1995 were $238,422 and
$327,119, respectively.

(2) RELATED PARTY TRANSACTIONS

As described in note 1, Images-KS is owned by the employees, officers
and directors of Totah and its subsidiaries. As a result, certain general and
administrative expenses and payroll-related changes occur between Images-KS and
Totah and its subsidiaries.

Related party receivables and payables as of December 31, 1996 and 1995
are as follows:

1996 1995
------- -------

Related party receivables from:
Total ....................... $58,580 18,193
Images DBS Oklahoma, L.C .... -- 1,980
------- -------
58,580 20,173
------- -------
Related party payables to:
Total ....................... 46,590 19,328
Images DBS Oklahoma, L.C .... 10,188 5,923
------- -------
56,778 25,251
------- -------
Net ................. $ 1,802 (5,078)
======= =======

F-83
189
IMAGES DBS KANSAS, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Related party notes payable and accrued interest as of December 31,
1996 and 1995 are as follows:

1996 1995
---------- -------

Total ......................... $ 732,722 494,616
Totah ......................... 179,449 --
Other ......................... 166,276 156,261
---------- -------
$1,078,447 650,877
========== =======

As a result of the acquisition of Images-KS (see note 3), all notes
payable were repaid on February 27, 1997.

(3) SUBSEQUENT EVENTS

In December 1996, Images-KS contracted to sell all of its DBS
operations to Golden Sky Systems , Inc. The effective date of the acquisition
was December 12, 1996. The final closing was consummated on February 12, 1997.

F-84
190
IMAGES DBS OKLAHOMA, L.C.

FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-85
191
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Images DBS Oklahoma, L.C.:

We have audited the accompanying balance sheets of Images DBS Oklahoma,
L.C. as of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Images DBS Oklahoma, L.C. at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

June 20, 1997

F-86
192
IMAGES DBS OKLAHOMA, L.C.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
----------- --------

ASSETS
Current assets:
Cash ......................................................... $ 47,362 11,055
Accounts receivable:
Subscribers -- (net of allowance for doubtful accounts of
$29,785 and $11,888) .................................... 240,589 336,278
Related parties ........................................... 33,965 --
Prepaid expenses ............................................. 5,028 14,333
----------- --------
Total current assets ................................. 326,944 361,666
Intangible assets (net of accumulated amortization of $3,517 and
$2,062) (note 1) ............................................. 3,762 5,217
Other assets ................................................... 55,939 18,415
----------- --------
Total assets ......................................... $ 386,645 385,298
=========== ========

LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable:
Vendors ................................................... $ 147,830 67,417
Related parties ........................................... -- 4,688
Unearned revenue ............................................. 280,870 75,802
Other liabilities ............................................ (155,053) 47,834
----------- --------
Total current liabilities ............................ 583,753 195,741
----------- --------
Long-term debt:
Notes payable ................................................ 746,895 495,613
Deferred payables ............................................ 55,556 13,911
----------- --------
Total long-term liabilities .......................... 802,451 509,524
Investors' capital:
Contributed capital .......................................... 559,966 409,966
Accumulated deficit .......................................... (1,559,525) (729,933)
----------- --------
Total investors' capital ............................. (999,559) (319,967)
----------- --------
Total liabilities and investors' capital ............. $ 386,645 385,298
=========== ========

See accompanying notes to financial statements.

F-87
193
IMAGES DBS OKLAHOMA, L.C.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- --------

Revenues:
Programming revenue ..................... $ 902,967 348,688
Equipment rental revenue ................ 138,049 51,284
Other revenues .......................... 12,566 17,809
----------- --------
Total revenues .................. 1,053,582 417,781
----------- --------
Cost of revenues:
Programming costs ....................... 780,879 269,704
Equipment rental costs .................. 286,161 67,788
----------- --------
Total cost of revenues .......... 1,067,040 337,492
----------- --------
Gross profit (loss) ............. (13,458) 80,289
----------- --------
Expenses:
Salaries and commissions ................ 256,134 197,560
Advertising ............................. 189,933 174,567
Bad debt expense ........................ 49,600 15,900
Other general and administrative expenses 279,631 208,574
Amortization expense .................... 1,455 1,455
----------- --------
776,753 598,056
----------- --------
Net operating loss .............. (790,211) (517,767)
Interest expense .......................... (39,381) (26,340)
----------- --------
Net loss ........................ $ (829,592) (544,107)
=========== ========

See accompanying notes to financial statements.

F-88
194
IMAGES DBS OKLAHOMA, L.C.

STATEMENTS OF INVESTORS' CAPITAL
FOR THE YEARS ENDED TO DECEMBER 31, 1996 AND 1995

Contributed Accumulated Total
capital deficit capital
----------- ----------- --------

Balance at January 1, 1995 . $ 40,466 (185,826) (145,360)
Capital contributions ...... 369,500 -- 369,500
Net loss ................... -- (544,107) (544,107)
-------- ---------- --------
Balance at December 31, 1995 409,966 (729,933) (319,967)
Capital contributions ...... 150,000 -- 150,000
Net loss ................... -- (829,592) (829,592)
-------- ---------- --------
Balance at December 31, 1996 $559,966 (1,559,525) (999,559)
======== ========== ========

See accompanying notes to financial statements.

F-89
195
IMAGES DBS OKLAHOMA, L.C.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
---------- -----------

Operating activities:
Net loss ........................................ $(829,592) (544,107)
Adjustments to reconcile income:
Amortization ................................. 1,455 1,455
Bad debt expense ............................. 49,600 15,900
Change in:
Accounts receivable .......................... 12,124 (336,244)
Other assets ................................. (37,524) (17,100)
Accounts payable ............................. 75,725 48,418
Other liabilities ............................ 107,219 20,576
Intangibles .................................. -- (6,672)
Deferred payables ............................ 41,645 13,911
Prepaid expenses ............................. 9,305 (13,780)
Unearned revenue ............................. 205,068 66,975
--------- --------
Net cash used in operating activities ... (364,975) (750,668)
--------- --------
Investing activities:
Capital contributions ........................... 150,000 369,500
--------- --------
Net cash provided by investing activities 150,000 369,500
--------- --------
Financing activities:
Payments on notes payable ....................... (227,695) (82,500)
Proceeds from notes payable ..................... 478,977 461,318
--------- --------
Net cash provided by financing activities 251,282 378,818
--------- --------
Net change in cash ...................... 36,307 (2,350)
Cash at beginning of period ....................... 11,055 13,405
--------- --------
Cash at end of period ............................. $ 47,362 11,055
========= ========

See accompanying notes to financial statements.

F-90
196
IMAGES DBS OKLAHOMA, L.C.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Images DBS Oklahoma, L.C. (Images-OK) is a limited-liability company
which is in the primary business of promoting, marketing and selling direct
broadcast satellite (DBS) television services in four counties in northeastern
Oklahoma. Images-OK is owned by the employees, officers and directors of Totah
Telephone Company, Inc. (Totah) and its subsidiaries.

In 1994, the Hughes Communications Galaxy, Inc. (Hughes) launched two
satellites to provide satellite television services. The National Rural
Telecommunications Cooperative (NRTC) contracted with Hughes to distribute DBS
television services throughout the United States. Totah became an affiliated
member of NRTC in order to acquire exclusive distribution rights for DirecTV
service within certain contract areas. Totah purchased the rights in seven
southeastern Oklahoma counties and entered into an agreement with Images-OK to
license all of Totah's rights and obligations under the agreement with the NRTC
to Images-OK. In return for this, Totah received a ten-percent license and
royalty fee of net programming revenues. Effective January 1, 1996, Totah
contributed the licensing rights to Total Communications, Inc. (Total), a
wholly-owned subsidiary. Subsequent to this date, the ten percent license and
royalty fee paid by Images-OK is paid to Total. Total is in the primary business
of providing DBS equipment to the customers of Images-OK.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenues represents subscriber advance billings and
is deferred until the service is provided.

Equipment Rental

Images-OK leases satellite television equipment from Total and in turn
leases this equipment to its DBS customers. The lease terms with customers are
based on prevailing market conditions. The lease terms with Total are based on a
fixed percentage of equipment value.

Use of Estimates

Long-lived Assets

F-91
197
IMAGES DBS OKLAHOMA, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NRTC Patronage Capital

Fair Value of Financial Instruments

Income Taxes

Images-OK is a limited-liability company. All taxes are the
responsibility of Images-OK's unit holders.

Intangible Assets

Accounts Receivable-subscribers

Accounts receivable-subscribers consist of amounts due from subscribers
for (1) monthly programming fees and (2) equipment purchases financed by the
Company. The Company finances equipment purchases at 12% over a period of two to
three years. Trade receivables as of December 31, 1996 and 1995 were $240,589
and $366,278, respectively.

(2) RELATED PARTY TRANSACTIONS

As described in note 1, Images-OK is owned by the employees, officers
and directors of Totah and its subsidiaries. As a result, certain general and
administrative expenses and payroll-related charges occur between Images-OK and
Totah and its subsidiaries.

F-92
198
IMAGES DBS OKLAHOMA, L.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Related receivables and payables as of December 31, 1996 and 1995 are
as follows:

1996 1995
------- -------

Related party receivables for:
Total ......................... $62,605 11,788
Images DBS Kansas, L.C ........ 10,188 5,923
Other related party receivables 9,723 2,768
------- -------
82,516 20,479
------- -------
Related party payables for:
Total ......................... 48,551 23,187
Images DBS Kansas, L.C ........ -- 1,980
------- -------
48,551 25,167
------- -------
Net ................... $33,965 (4,688)
======= =======

Related party notes payable plus accrued interest as of December 31,
1996 and 1995 are as follows:

1996 1995
------- -------

Total ....................................... $401,515 362,265
Totah ....................................... 166,276 --
Other ....................................... 179,104 133,348
-------- -------
$746,895 495,613
======== =======

As a result of the acquisition of Images-OK (see note 3), all notes
payable were repaid on February 27, 1997.

(3) SUBSEQUENT EVENTS

In December 1996, Images-OK contracted to sell all of its DBS
operations to Golden Sky Systems, Inc. The effective date of the acquisition was
December 12, 1996. The final closing was consummated on February 12, 1997.

F-93
199
TOTAL COMMUNICATIONS, INC.

FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-94
200
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Total Communications, Inc.

We have audited the accompanying balance sheets of Total
Communications, Inc. as of December 31, 1996 and 1995 and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Total
Communications, Inc. at December 31, 1996 and 1995, the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.

KPMG PEAT MARWICK LLP

June 20, 1997

F-95
201
TOTAL COMMUNICATIONS, INC.

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

ASSETS
Current assets:
Cash ............................................................ $ 163,452 22,384
Lease receivable (net of allowance for doubtful accounts of
$300,000 and $91,000) ........................................ 1,699,709 518,115
Accounts receivable-- related parties (net of allowance for
doubtful accounts of $108,314 and $32,207) ................... 514,288 232,594
Inventory ....................................................... 363,010 853,528
----------- ----------
Total current assets .................................... 2,740,459 1,626,621
Property and equipment (net of accumulated depreciation of $221,661
and $115,429)(note 2) ........................................... 386,910 409,166
Investment in affiliates .......................................... (83,017) 73,551
Intangible assets (net of accumulated amortization of $145,857 and
$0) (note 1) .................................................... 1,106,081 --
Notes receivable-- related parties (note 4) ....................... 1,134,237 856,881
Other assets ...................................................... 123,476 101,972
----------- ----------
Total assets ............................................ $ 5,408,146 3,068,191
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable:
Other ........................................................ $ 105,437 54,660
Related parties .............................................. 338,352 250,137
Notes payable (note 3) .......................................... 404,459 239,713
Customer deposits payable ....................................... 299,072 104,964
Other accrued expenses .......................................... 52,301 26,486
Unearned revenue ................................................ 34,234 19,811
----------- ----------
Total current liabilities ............................... 1,233,855 695,771
----------- ----------
Long-term liabilities:
Notes payable (note 3) .......................................... 4,007,462 2,653,607
Accrued interest payable ........................................ 104,946 27,800
Other ........................................................... 53,805 8,310
----------- ----------
Total long-term liabilities ............................. 4,166,213 2,689,717
----------- ----------
Shareholders' Equity (deficit):
Common stock, $1 par value, 12,500 shares authorized, 10,000
shares issued and outstanding ................................ 10,000 10,000
Additional paid-in capital ...................................... 1,841,938 590,000
Accumulated deficit ............................................. (1,843,860) (917,297)
----------- ----------
Total shareholders' equity (deficit) .................... 8,078 (317,297)
----------- ----------
Total liabilities and shareholders' equity .............. $ 5,408,146 3,068,191
=========== ==========

See accompanying notes to financial statements.

F-96
202
TOTAL COMMUNICATIONS, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

Revenues:
Equipment sales ............................. $ 2,615,634 1,372,908
Rental income ............................... 351,158 74,892
----------- ----------
Total revenues ...................... 2,966,792 1,447,800
----------- ----------
Cost of revenues-- equipment costs ............ 2,174,598 1,052,902
----------- ----------
Gross profit ........................ 792,194 394,898
----------- ----------
Expenses:
Salaries and commissions .................... 503,771 328,539
Depreciation and amortization ............... 258,464 115,429
Bad debt expense ............................ 296,833 118,907
Loss on asset disposal ...................... 98,135 4,885
Equity in losses of unconsolidated affiliates 156,569 72,754
Other general and administrative expenses ... 272,986 153,303
----------- ----------
Total expenses ...................... 1,586,758 793,817
----------- ----------
Net operating loss .................. (794,564) (398,919)
Interest:
Interest income ............................. 98,323 64,496
Interest expense ............................ (230,322) (143,073)
----------- ----------
Net interest expense ................ (131,999) (78,577)
----------- ----------
Net loss ............................ $ (926,563) (477,496)
=========== ==========

See accompanying notes to financial statements.

F-97
203
TOTAL COMMUNICATIONS, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

Additional
Common paid-in Accumulated
stock capital deficit Total
------- --------- ---------- ----------

Balance at January 1, 1995 ........... $10,000 590,000 (439,801) 160,199
Net loss ............................. -- -- (477,496) (477,496)
------- --------- ---------- ----------
Balance at December 31, 1995 ......... 10,000 590,000 (917,297) (317,297)
Noncash capital contributions (note 1) -- 1,251,938 -- 1,251,938
Net loss ............................. -- -- (926,563) (926,563)
------- --------- ---------- ----------
Balance at December 31, 1996 ......... $10,000 1,841,938 (1,843,860) 8,078
======= ========= ========== ==========

See accompanying notes to financial statements.

F-98
204
TOTAL COMMUNICATIONS, INC.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

Operating activities:
Net loss ........................................ $ (926,563) (477,496)
Adjustments to reconcile income:
Depreciation and amortization ................ 258,464 115,429
Bad debt expense ............................. 296,833 118,907
Change in:
Accounts receivable .......................... (369,527) (122,532)
Lease receivable ............................. (1,390,594) (586,303)
Inventory .................................... 490,518 (535,999)
Other assets ................................. (21,504) (101,972)
Deferred payable ............................. 391,068 165,661
Accrued interest ............................. 77,146 27,800
Accounts payable ............................. 138,992 (11,140)
Other accrued expenses ....................... 25,815 (2,195)
Customer deposits payable .................... 194,108 104,964
Other long-term liabilities .................. 45,495 (143,125)
Unearned revenue ............................. 14,423 19,811
----------- ----------
Net cash used in operating activities ... (775,326) (1,428,190)
----------- ----------
Investing activities:
Investments-- Images DBS ........................ 156,568 72,754
Notes receivable ................................ (277,356) (678,898)
Property and equipment .......................... (90,351) (224,853)
----------- ----------
Net cash used for investing activities .. (211,139) (830,997)
----------- ----------
Financing activities:
Payments on notes payable ....................... (4,012) (50,152)
Proceeds from notes payable ..................... 1,131,545 2,264,999
----------- ----------
Net cash provided by financing activities 1,127,533 2,214,847
----------- ----------
Net change in cash ...................... 141,068 (44,340)
Cash at beginning of period ....................... 22,384 66,724
----------- ----------
Cash at end of period ............................. $ 163,452 22,384
=========== ==========

See accompanying notes to financial statements.

F-99
205
TOTAL COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Total Communications, Inc. (the Company) is in the primary business of
providing direct broadcast satellite television systems (DBS) equipment to the
customers of Images DBS Kansas, Inc. (Images-KS) and Images DBS Oklahoma, Inc.
(Images-OK). The Company had a 9% and 6%, respectively, equity interest in
Images-KS and Images-OK, at December 31, 1996. In 1993, the Hughes
Communications Galaxy, Inc. (Hughes), along with the National Rural
Telecommunications Cooperative (NRTC) launched two satellites which provide DBS
(DirecTV) in the United States. The Company's indirect parent, Totah Telephone
Company, Inc. (Totah), became an affiliated associate member of NRTC in order to
provide exclusive marketing rights for distribution of DirecTV service within
the contract area. The marketing rights give the license owner exclusive rights
to distribution of DirecTV service within the contract area. In 1996, Totah
transferred these marketing rights, which had a book value of $1,251,938, to the
Company. In 1997, for a 10% investment fee, the Company assigned these rights to
Images DBS Kansas, L. C. (Images-KS) and Images DBS Oklahoma, L. C. (Images-OK).

At December 31, 1996, the Company's assigned operating rights covered
seven counties in southeastern Kansas and four counties in northeastern
Oklahoma.

Revenue Recognition

Equipment sales are recognized as revenue when the equipment is
delivered to the customer. Equipment lease revenue is recognized when earned.

Inventory

Inventory is stated at the lower of average cost or market and consists
entirely of Direct Satellite Systems which includes receivers, satellite dishes
and accessories.

Use of Estimates

Property, Plant and Equipment

Property, plant and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives.

F-100
206
TOTAL COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Long-lived Assets

Fair Value of Financial Instruments

Intangible Assets

The cost of acquiring the rights to provide DirecTV satellite services
are capitalized as intangible assets and are being amortized on a straight-line
basis over the expected useful life of the revenue stream of those services, ten
years. Intangible assets also include a one-time membership fee paid to the
NRTC, which is also being amortized on a straight-line basis over ten years.

Equipment Leases

The Company leases satellite television equipment to Images-KS and
Images-OK who in turn leases the equipment to DBS customers. The lease terms to
customers are based on prevailing market conditions, The lease terms between
Total and the Images' companies are based on a fixed percentage of equipment
value.

Income Taxes

The Company files consolidated income tax returns with its parent. No
income tax benefit has been provided in the accompanying statements of
operations as such benefits are not recoverable from the parent. Had the Company
filed separate tax returns, no tax benefit would have been recognized due to the
recurring losses of the Company. There are no significant differences between
book and tax basis which would result in deferred tax assets or liabilities.

(2) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 1996 and 1995 consists of

1996 1995
-------- -------

Equipment ................... $257,940 226,589
Automobiles ................. 143,494 120,028
Furniture and fixtures ...... 87,554 61,283
Leasehold improvement ....... 119,583 116,695
-------- -------
608,571 524,595
Less accumulated depreciation 221,661 115,429
-------- -------
$386,910 409,166
======== =======

F-101
207
TOTAL COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) NOTES PAYABLE

Notes payable consisted of the following at December 31, 1996 and 1995:

1996 1995
---------- ---------

Notes payable to Totah Telephone Company, bearing interest at
6.15%, principal and interest payments due quarterly on the
first day of each January, April, July and October
Maturing November 19, 1998 .................................. $1,752,569 861,740
Notes payable to Totah Telephone Company, bearing interest at
the Prevailing Bank Prime Rate plus 1.5%, guaranteed by
Total Customer Services, Inc., principal due on December
31, 1999. Interest payable quarterly on the first day of
each January, April, July and October ....................... 1,500,000 1,500,000
Notes payable to Shidler, unsecured, bearing interest at 8%,
maturing with principal and interest due on December 31, 1998 1,133,464 515,655
Notes payable to Bank IV, secured by automobile, bearing
interest at 9.75%, principal and interest due monthly,
maturing June 30, 1999 ...................................... 11,913 15,925
Note payable to Robertson, secured by automobile .............. 13,975 --
---------- ---------
$4,411,921 2,893,320
========== =========

As a result of the acquisition of Total (see note 5), all notes were
repaid on February 27, 1997.

(4) RELATED PARTY TRANSACTIONS

As described in note 1, Total is indirectly owned by Totah, The
employees, officers and directors of Totah and its subsidiaries own Images-KS
and Images-OK. As a result, certain general and administrative expenses and
payroll-related charges occur between Total, both the Images companies and other
subsidiaries of Totah.

Related party receivables and payables as of December 31, 1996 and 1995
are as follows:

1996 1995
-------- --------

Related party receivables from:
Images-OK ...................... $ 48,551 23,187
Images-KS ...................... 46,590 19,328
Other .......................... 527,461 222,286
-------- --------
622,602 264,801
-------- --------
Less allowance ................... 108,314 32,207
-------- --------
514,288 232,594
-------- --------
Related party payables from:
Images-OK ...................... 62,605 11,788
Images-KS ...................... 58,580 18,193
Other .......................... 217,167 220,156
-------- --------
338,352 250,137
-------- --------
Net receivable (payable) $175,936 (17,543)
======== ========

F-102
208
TOTAL COMMUNICATIONS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Related party notes receivable as of December 31, 1996 and 1995 are as
follows:

1996 1995
---------- -------

Images-OK .............................. $ 401,515 362,265
Images-KS .............................. 732,722 494,616
---------- -------
$1,134,237 856,881
========== =======

As a result of the acquisition of Total (see note 5), all notes
receivable were collected on February 27, 1997.

(5) SUBSEQUENT EVENTS

In December 1996, the Company contracted to sell all of its DBS
operations to Golden Sky Systems, Inc. The effective date of the acquisition was
December 12, 1996. The final closing was consummated on February 12, 1997.

F-103
209
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH
CENTRAL MISSOURI ELECTRIC COOPERATIVE)

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-104
210
INDEPENDENT AUDITORS' REPORT

The Board of Directors
North Central Missouri Electric Cooperative:

We have audited the accompanying balance sheets of Thunderbolt Systems,
Inc. (a wholly-owned subsidiary of North Central Missouri Electric Cooperative)
as of December 31, 1996 and 1995 and the related statements of operations,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Thunderbolt Systems,
Inc. at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31,
1996, in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

August 14, 1997

F-105
211
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

ASSETS
Current assets:
Cash ............................................................... $ 213,845 176,212
Accounts receivable (note 2) ....................................... 258,480 182,881
Inventory .......................................................... 271,976 324,430
----------- ----------
Total current assets ....................................... 744,301 683,523
Furniture, fixtures and equipment (net of accumulated depreciation
of $426,434 and $201,625) (note 3) ................................. 1,121,399 596,386
Intangible assets (net of accumulated amortization of $335,207 and
$196,501) .......................................................... 1,051,857 1,190,563
Other assets ......................................................... 248,070 193,948
----------- ----------
Total assets ............................................... $ 3,165,627 2,664,420
=========== ==========

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable (note 4) .......................................... $ 1,112,881 793,029
Unearned revenue ................................................... 183,928 54,186
Accrued interest (note 4) .......................................... 387,372 301,376
Other liabilities (note 6) ......................................... 170,865 71,908
----------- ----------
Total current liabilities .................................. 1,855,046 1,220,499
Notes payable (notes 4 and 5) ........................................ 2,166,775 1,946,287
----------- ----------
Total liabilities .......................................... 4,021,821 3,166,786
----------- ----------
Shareholder's equity:
Common stock (30,000 shares authorized, issued and outstanding,
$1 par value) ................................................... 30,000 30,000
Retained earnings .................................................. (886,194) (532,366)
----------- ----------
Total shareholder's equity ................................. (856,194) (502,366)
----------- ----------
Total liabilities and shareholder's equity ................. $ 3,165,627 2,664,420
=========== ==========

See accompanying notes to financial statements.

F-106
212
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
----------- ---------- --------

Revenues:
Program revenues .................................. $ 1,397,596 505,175 34,385
Equipment sales ................................... 101,290 211,070 202,707
Lease revenue (note 3) ............................ 316,908 100,763 --
Other revenues .................................... 257,578 409,953 477,823
----------- ---------- --------
Total revenues ............................ 2,073,372 1,226,961 714,915
----------- ---------- --------
Cost of revenues:
Program costs ..................................... 951,587 334,488 24,648
Equipment costs ................................... 212,777 198,137 171,893
Rebate expense .................................... 67,951 12,228 262
Other costs of revenues ........................... 193,826 312,419 355,184
----------- ---------- --------
Total cost of revenues .................... 1,426,141 857,272 551,987
----------- ---------- --------
Gross profit .............................. 647,231 369,689 162,928
----------- ---------- --------
Expenses:
Salaries, wages and commissions ................... 221,928 193,753 119,339
Amortization and depreciation ..................... 363,516 205,509 76,405
Bad debt expense .................................. 66,244 71,806 8,855
Marketing ......................................... 163,736 115,970 27,772
Other selling, general, and administrative expenses 15,909 19,055 7,881
----------- ---------- --------
831,333 606,093 240,252
----------- ---------- --------
Net operating loss ........................ (184,102) (236,404) (77,324)
Other income ........................................ 13,530 3,674 --
Interest income ..................................... 6,624 15,001 25,174
Interest expense .................................... (189,880) (141,350) (41,853)
----------- ---------- --------
Net loss .................................. $ (353,828) (359,079) (94,003)
=========== ========== ========

See accompanying notes to financial statements.

F-107
213
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)

STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Common Retained Total
stock earnings equity
------- -------- --------

Balance at December 31, 1993 $30,000 (79,284) (49,294)
Net loss ................... -- (94,003) (93,993)
------- -------- --------
Balance at December 31, 1994 30,000 (173,287) (143,287)
Net loss ................... -- (359,079) (359,079)
------- -------- --------
Balance at December 31, 1995 30,000 (532,366) (502,366)
Net loss ................... -- (353,828) (353,828)
------- -------- --------
Balance at December 31, 1996 $30,000 (886,194) (856,194)
======= ======== ========

See accompanying notes to financial statements.

F-108
214
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
--------- -------- --------

Operating activities Net loss ............................. $(353,828) (359,079) (94,003)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ........................ 363,516 205,509 76,405
Bad debt expense ..................................... 66,244 71,806 8,855
Change in:
Accounts receivable ................................ (141,843) (36,114) 54,374
Inventory .......................................... (300,381) 12,176 (175,975)
Other assets ....................................... (54,122) (14,694) --
Accounts payable ................................... 319,852 90,471 175,030
Unearned revenues .................................. 129,742 40,046 14,140
Accrued Interest ................................... 85,996 111,429 91,854
Other liabilities .................................. 98,957 43,513 (89,567)
--------- -------- --------
Net cash provided by operating activities ....... (214,133) (165,063) 61,113
--------- -------- --------
Cash flows from investing activities-- additions to
equipment ............................................... (396,988) (624,034) (14,401)
Cash flows from financing activities:
Proceeds from notes payable ............................. 390,991 620,346 --
Payments on notes to banks and others ................... (170,503) (43,849) --
--------- -------- --------
Net cash provided by financing activities ....... 220,488 576,497 --
Net change in cash .............................. 37,633 117,526 46,712
Cash at beginning of period ............................... 176,212 58,686 11,974
--------- -------- --------
Cash at end of period ..................................... $213,845 $176,212 58,686
========= ======== ========

See accompanying notes to financial statements.

F-109
215
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Thunderbolt Systems, Inc. (the Company) is a wholly-owned subsidiary of
North Central Missouri Electric Cooperative (the Parent). The Company's primary
business is the ownership and operation of direct broadcast satellite (DBS)
television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc.
(Hughes), to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. In 1994, Hughes launched the satellite that provides programming
for DirecTV. At December 31, 1996, 1995 and 1994, the Company had the operating
rights for twenty counties in central Missouri.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscribers. Unearned revenues represent subscriber advance billings for
one or more months and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and consists
of receivers, satellite dishes, and satellite TV accessories. The Company
wrote-down inventory in the amount of $103,500 and $37,832 in 1996 and 1995,
respectively, to reflect the decreasing fair value of the inventory.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make a number of estimates
and assumptions which affect the reported amounts of assets and liabilities, as
well as the reported amounts of revenues and expenses during the period. Actual
results could differ from these estimates.

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments. The carrying value of notes payable
approximates fair value as they bear interest at market rates.

Intangible Assets

F-110
216
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Long-lived Assets

Income Taxes

The Company is not directly subjected to income taxes as it's net
losses are consolidated with the Parent's operations for tax filing purposes.

(2) ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from subscribers
for monthly programming fees and for sales of satellite television equipment, as
well as other trade receivables relating to a coop store and C-Band satellite
services offered by the Company. Trade receivables as of December 31, 1996, and
1995 are as follows:

1996 1995
-------- -------

Accounts receivable:
DBS programming ................................. $209,446 98,849
DBS equipment sales ............................. 16,312 10,719
Other (net of allowance of $118,621 and $132,512) 32,722 73,313
-------- -------
$258,480 182,881
======== =======

(3) LEASES

In addition to selling satellite television equipment, the Company also
leases the equipment to customers at fixed monthly rental charges. These leases
are month-to month leases without a minimum lease term in which the customer may
return the equipment at any time.

These leases qualify as operating leases and accordingly, the leased
units are either purchased directly or transferred from the Company's inventory
of existing units at average cost and included in furniture, fixtures and
equipment at cost. Leased units are depreciated on a straight line basis over a
five year period, which approximates the average length of the rental period.
Rental income is recognized in the month earned.

The carrying amount of leased equipment included in furniture, fixtures
and equipment at December 31, 1996 and 1995 is as follows:

1996 1995
----------- --------

Cost ........................................ $ 1,364,173 620,347
Accumulated depreciation .................... (266,542) (53,397)
----------- --------
Net carrying cost ...................... $ 1,097,631 566,950
=========== ========

F-111
217
THUNDERBOLT SYSTEMS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF NORTH CENTRAL MISSOURI ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(4) RELATED PARTY TRANSACTIONS

The Company is party to various intercompany transactions with the
Parent for payroll and administrative expenses. Accordingly, the financial
statements include the following intercompany liabilities at December 31, 1996
and 1995:

1996 1995
---------- ---------

Accounts payable .................... $ 782,051 682,324
Long-term debt ...................... 1,369,790 1,369,790
Accrued interest .................... 387,372 301,376
---------- ---------
$2,539,213 2,353,490
========== =========

Long-term debt includes $1,280,790 due to the Parent for the purchase
of DBS franchise rights in 1994. This debt carries interest at a variable rate
which approximated 7% in 1996 and 1995.

(5) NOTES PAYABLE

In addition to the intercompany notes payable described above, the
Company is indebted to an outside credit leasing company for a series of notes
totaling $796,985 and $576,497 at December 31, 1996 and 1995, respectively.
These notes arose in connection with the acquisition of satellite television
equipment. The notes carry interest at fixed rates ranging from 8% to 10% and
have terms of 60 to 63 months. In conjunction with the sale of the Company
described in note 7, all outstanding notes payable and accrued interest were
repaid in the second quarter of 1997.

(6) NRTC PATRONAGE CAPITAL

(7) SUBSEQUENT EVENTS

On February 28, 1997, the Company contracted to sell its DBS
programming rights for sixteen of its twenty counties and the related DBS assets
to Golden Sky Systems, Inc. The acquisition closed on March 11, 1997.

F-112

218
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

F-113

219

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Jackson Electric Cooperative:

We have audited the accompanying balance sheets JECTV (the Segment)
as of December 31, 1996 and 1995 and the related statements of operations,
segment equity and cash flows for each of the years in the three-year period
ended December 31, 1996. These financial statements are the responsibility of
the Segment's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of JECTV as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

August 15, 1997, except at to notes 6 and 7, which are as of September 2 and
August 26, 1997 respectively

F-114

220

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
---------- ---------

ASSETS
Current assets:
Cash ............................................................... $ 429,507 177,492
Accounts receivable (note 2) ....................................... 152,778 106,540
Inventory .......................................................... 187,612 445,896
Notes receivable (note 3) .......................................... 289,100 441,175
---------- ---------
Total current assets ....................................... 1,058,997 1,171,103
Furniture, fixtures and equipment (net of accumulated depreciation
of $224,861 and $41,785) (note 5) .................................. 775,865 542,015
Intangible assets (net of accumulated amortization of $179,455 and
$107,673) .......................................................... 538,366 610,148
Other assets (note 4) ................................................ 75,488 17,731
---------- ---------
Total assets ............................................... $2,448,716 2,340,997
========== =========
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable (note 6) .......................................... $ 235,101 118,865
Unearned revenue ................................................... 176,368 54,189
Accrued interest (note 6) .......................................... 155,807 50,526
Other (note 4) ..................................................... 80,383 22,871
Note payable (note 6) .............................................. 1,451,796 1,340,630
---------- ---------
Total current liabilities .................................. 2,099,455 1,587,081
Segment equity ....................................................... 349,261 753,916
---------- ---------
Total liabilities and segment equity ....................... $2,448,716 2,340,997
========== =========

See accompanying notes to financial statements.

F-115

221

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
----------- ---------- --------

Revenues:
Programming revenues ................................. $ 1,609,572 723,437 29,503
Equipment sales ...................................... 359,579 644,505 469,865
Lease revenue (note 5) ............................... 197,417 48,022 --
Other revenues ....................................... 84,816 218,462 58,865
----------- ---------- --------
Total revenues ............................... 2,251,384 1,634,426 558,233
----------- ---------- --------
Cost of revenues:
Programming costs .................................... 1,007,875 447,331 30,582
Equipment costs ...................................... 421,622 604,891 395,433
Rebate expense ....................................... 78,703 14,882 472
Other costs of revenues .............................. 125,059 160,991 82,104
----------- ---------- --------
Total cost of revenues ....................... 1,633,259 1,228,095 508,591
----------- ---------- --------
Gross profit ................................. 618,125 406,331 49,642
----------- ---------- --------
Expenses:
Salaries, wages and commissions ...................... 225,449 179,332 76,991
Depreciation and amortization ........................ 256,858 105,566 39,435
Bad debt expense ..................................... 161,383 165,236 11,607
Marketing ............................................ 104,850 190,631 12,124
Other selling, general and administrative expenses ... 48,636 43,059 16,687
----------- ---------- --------
797,176 683,824 156,844
----------- ---------- --------
Operating loss ............................... (179,051) (277,493) (107,202)
Interest income ........................................ 40,867 31,437 --
Interest expense ....................................... (105,281) (50,526) --
----------- ---------- --------
Net loss ..................................... $ (243,465) (296,582) (107,202)
=========== ========== ========

See accompanying notes to financial statements.

F-116

222

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

Balance at December 31, 1993 ............... $ 717,821
Additional investment by Jackson Electric .. 730,719
Net loss ................................... (107,202)
-----------
Balance at December 31, 1994 ............... 1,341,338
Return of capital to Jackson Electric ...... (290,840)
Net loss ................................... (296,582)
-----------
Balance at December 31, 1995 ............... 753,916
Return of capital to Jackson Electric ...... (161,190)
Net loss ................................... (243,465)
-----------
Balance at December 31, 1996 ............... $ 349,261
===========

See accompanying notes to financial statements.

F-117

223

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

1996 1995 1994
----------- ---------- --------

Cash from operating activities:
Net loss .................................................. $ (243,465) (296,582) (107,202)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization .......................... 256,858 105,566 39,435
Bad debt expense ....................................... 161,383 165,236 11,607
Change in:
Accounts receivable .................................... (169,623) (87,112) (75,658)
Inventory .............................................. (27,017) (703,393) (157,278)
Other assets ........................................... (57,757) (17,731) --
Accounts payable ....................................... 116,236 96,037 22,828
Unearned revenue ....................................... 122,179 37,819 16,370
Accrued interest ....................................... 105,281 50,526 --
Other liabilities ...................................... 59,969 16,806 6,065
----------- ---------- --------
Net cash provided by (used in) operating activities .. 324,044 (632,828) (243,833)
----------- ---------- --------
Cash flows from investing activities:
Additions to equipment .................................... (136,082) (129,711) (34,857)
Issuance of notes receivable .............................. (79,957) (621,246) (174,863)
Payments on notes receivable .............................. 194,034 216,594 17,727
----------- ---------- --------
Net cash used in investment activities ............... (22,005) (534,363) (191,993)
----------- ---------- --------
Cash flows from financing activities:
Cash invested by (returned to) Jackson Electric ........... (161,190) (290,840) 730,719
Proceeds from issuance of debt ............................ 1,006,807 1,552,500 --
Payments on debt .......................................... (895,641) (211,870) --
----------- ---------- --------
Net cash provided by (used in) financing activities .. (50,024) 1,049,790 730,719
----------- ---------- --------
Net change in cash ................................... 252,015 (117,401) 294,893
Cash at beginning of period ................................. 177,492 294,893 --
----------- ---------- --------
Cash at end of period ....................................... $ 429,507 177,492 294,893
=========== ========== ========

See accompanying notes to the financial statements.

F-118

224

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

JECTV (the Segment) is a segment of Jackson Electric Cooperative
(the Company). The Segment was formed for the purpose of operating direct
broadcast satellite (DBS) television systems purchased by the Company. The
Company is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes), to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. Hughes controls the satellites that provide
programming for DirecTV. At December 31, 1996, 1995 and 1994, the Company had
the operating rights for seven counties in southeast Texas.

The Segment is not a separate subsidiary of the Company nor has it
been operated as a separate entity. The financial statements presented herein
have been derived from the records of the Company and have been prepared to
present the Segment's financial position, results of operations, and cash flows
on a stand-alone basis. Accordingly, the financial statements include certain
costs and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.

Revenue Recognition

Revenues are earned for monthly direct broadcast satellite services which
are billed to subscribers in advance. Subscribers may elect to prepay their
service charges for one or more months. Revenue is recognized in the month the
service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and
consists of satellite receivers, dishes, and accessories.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.

Fair Value of Financial Instruments

Financial instruments consisting of accounts receivable, notes
receivable, accounts payable, and long-term debt are carried at cost, which
approximates fair value.

F-119

225
JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Intangible Assets

Long-lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

Income Taxes

The Company, and thus the Segment, is not considered a taxable
entity for federal and state income tax purposes, as it is a not-for-profit
entity. Accordingly, no provision for income taxes is included in the
accompanying financial statements.

(2) ACCOUNTS RECEIVABLE

Accounts receivable consists of amounts due from subscribers for
monthly programming fees and for sales of satellite television equipment which
have been delivered but not paid for. Accounts receivable as of December 31,
1996 and 1995 are as follows:

1996 1995
-------- -------

Accounts receivable:
Programming and leases (net of allowance of $7,700 and $0) .. $124,839 99,858
Equipment sales (net of allowance of $14,200 and $0) ........ 27,939 6,682
-------- -------
$152,778 106,540
======== =======

(3) NOTES RECEIVABLE

The Segment provides customers the option of purchasing DBS
equipment on credit. These payment plans have terms of three years and carry
interest at 7% to 12%. Upon default by a customer, the Segment repossesses the
equipment and transfers the resale value of the equipment to inventory and
records an allowance for the balance of the unpaid note receivable.

F-120

226

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1996 and 1995, the net notes receivable balance
consists of the following:

1996 1995
--------- --------

Notes receivable ................. $ 447,711 561,788
Less allowance ................... (158,611) (120,613)
--------- --------
Notes receivable, net .. $ 289,100 441,175
========= ========

(4) NRTC PATRONAGE CAPITAL

The NRTC declares and the Segment receives a yearly patronage
dividend based on the NRTC's profitability. Of the total dividend, 20% is
received in cash and 80% is distributed the form of NRTC patronage capital
certificates, which will redeemed in cash at a future date at the discretion of
the NRTC. The Segment has recorded an asset and an offsetting deferred income
liability for the noncash portion of the patronage dividend. The deferred income
will be recognized as revenue when cash distributions are declared by the NRTC.
Deferred revenue included in other liabilities at December 31, 1996 and 1995 was
$75,488 and $17,731, respectively.

(5) LEASES

In addition to selling satellite television equipment, the Segment
also leases the equipment to customers at fixed monthly rental charges. These
leases have minimum lease terms of two years, which can be extended to up to
seven years at the lessee's option.

These leases qualify as operating leases and accordingly, the leased
units are transferred from the Segment's inventory of existing units and
included in furniture, fixtures and equipment at average cost along with related
installation costs. Leased units are depreciated on a straight line basis over a
five-year period, which approximates the average length of the rental term.
Rental income is recognized in the month earned.

The carrying amount of leased equipment included in furniture,
fixtures and equipment at December 1, 1996 and 1995 is as follows:

1996 1995
--------- --------

Cost ......................... $ 936,701 549,507
Accumulated depreciation ..... (202,871) (30,845)
--------- --------
Net carrying cost .. $ 733,830 518,662
========= ========

Future minimum lease payments to be received under the Segment's
equipment leases are approximately $113,000 in 1997 and $20,000 in 1998.

(6) RELATED PARTY TRANSACTIONS

The Segment is party to various intercompany transactions with the
Company. The Company purchased the DBS franchise rights under which the Segment
provides DBS programming for $717,821 prior to the commencement of DBS
operations in mid-1994.

F-121

227

JECTV
(A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company also has a revolving line of credit with a finance
company under which it borrows funds which are used primarily to operate the
Segment. A percentage of the outstanding debt and a percentage of the interest
paid to the finance company under the line of credit is allocated to the
Segment. The line of credit carries interest at a variable rate which ranged
from 7% to 6% in 1996 and 1995. Interest expense allocated to the Segment was
$105,281, $50,526, and $0 for the years ended December 31, 1996, 1995 and 1994,
respectively.

The Company also allocates certain salary costs associated with
operating the Segment to the Segment's expense accounts. All other expenses are
paid directly from the cash accounts of the Segment.

Intercompany liabilities included in the Segment's December 31, 1996
and 1995 balance sheets are as follows:

1996 1995
--------- ---------

Accounts payable .. $ 34,494 $ --
Long-term debt .... $1,451,796 $1,340,630
Accrued interest .. $ 155,807 $ 50,526

The line of credit noted above was paid off September 2, 1997 in
conjunction with the sale of the Segment noted in note 5.

(7) SUBSEQUENT EVENTS

On July 15, 1997, the Company contracted to sell substantially all
of the Segment's assets to Golden Sky Systems, Inc. The acquisition closed on
August 26, 1997.

F-122

228

CAL-ORE DIGITAL TV, INC.

FINANCIAL STATEMENTS
DECEMBER 31, 1996

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-123

229

INDEPENDENT AUDITORS' REPORT

Board of Directors and Investors
Golden Sky Systems, Inc.:

We have audited the accompanying balance sheet of Cal-Ore Digital
TV, Inc. (the Company) as of December 31, 1996 and the related statements of
operations, shareholders' equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cal-Ore Digital TV,
Inc. as of December 31, 1996 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

November 26, 1997, except as to note 5, which is as of December 8, 1997.

F-124

230

CAL-ORE DIGITAL TV, INC.

BALANCE SHEET
DECEMBER 31, 1996

ASSETS
Current assets:
Cash and cash equivalents .............................................................. $ 108,471
Accounts receivable .................................................................... 65,388
Income taxes receivable (note 1) ....................................................... 24,556
Inventory .............................................................................. 11,956
Prepaid expenses ....................................................................... 1,860
---------
Total current assets ........................................................... 212,231
Land ..................................................................................... 110,000
Furniture, fixtures and equipment (net of accumulated depreciation of $68,798)(note 2) ... 42,137
Intangible assets (net of accumulated amortization of $73,670) (note 4) .................. 294,681
Other assets (note 3) .................................................................... 17,323
---------
Total assets ................................................................... $ 676,372
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Current liabilities:
Trade accounts payable .............................................................. 72,763
Payable to affiliate (note 4) ....................................................... --
Unearned revenue .................................................................... 104,411
Interest payable .................................................................... --
Other liabilities (note 3) .......................................................... 20,257
---------
Total current liabilities ...................................................... 197,431
Shareholders' equity:
Common stock, par value $1, 10,000 shares authorized, 1,000 shares issued and
outstanding ......................................................................... 1,000
Additional paid-in capital ............................................................. 647,174
Accumulated deficit .................................................................... (169,233)
---------
Total shareholders' equity ..................................................... 478,941
---------
Total liabilities and shareholders' equity ..................................... $ 676,372
=========

See accompanying notes to financial statements.

F-125

231

CAL-ORE DIGITAL TV, INC.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996

Revenues:
Programming ........................... $ 563,573
Equipment and installation sales ...... 97,173
Lease and other (note 2) .............. 42,835
---------
Total revenues ................ 703,581
---------
Cost of revenues:
Programming costs ..................... 373,032
Equipment and installation costs ...... 106,027
Rebate expense ........................ 61,848
---------
Total cost of revenues ........ 540,907
---------
Gross profit .................. 162,674
---------
Expenses:
Selling, general and administrative ... 134,352
Depreciation and amortization ......... 74,569
Marketing ............................. 22,744
Provision for doubtful accounts ....... 9,740
---------
241,405
---------
Operating loss ................ (78,731)
Interest:
Interest and dividend income .......... 2,749
Interest expense ...................... (1,634)
---------
Net loss before income taxes .. (77,616)
---------
Income tax expense (note 1) ............. (8,404)
---------
Net loss ...................... $ (86,020)
=========

See accompanying notes to financial statements.

F-126

232

CAL-ORE DIGITAL TV, INC.

STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996

Additional Total
Common paid-in Accumulated shareholders'
stock capital deficit equity
------ ---------- ----------- -------------

Balance at December 31, 1995 ............. $1,000 547,174 (83,213) 464,961
Additional cash contribution by Cal-Ore
Telecommunications Company ............. -- 100,000 -- 100,000
Net loss ................................. -- -- (86,020) (86,020)
------ ------- -------- --------
Balance at December 31, 1996 ............. $1,000 647,174 (169,233) 478,941
====== ======= ======== ========

See accompanying notes to financial statements.

F-127

233

CAL-ORE DIGITAL TV, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996

Operating activities:
Net loss ..................................................................... $ (86,020)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 74,569
Provision for doubtful accounts ........................................... 9,740
Change in operating assets and liabilities:
Accounts receivable ..................................................... (37,551)
Income Tax Receivable ................................................... (6,336)
Inventory ............................................................... (307)
Prepaid expenses ........................................................ (980)
Trade accounts payable .................................................. 30,058
Unearned revenue ........................................................ 85,517
Interest payable ........................................................ (4,082)
Other liabilities ....................................................... (93)
---------
Net cash provided by operating activities ............................ 64,515
---------
Investing activities:
Purchases of furniture, fixtures, and equipment .............................. (4,065)
Purchase of land ............................................................. (110,000)
---------
Net cash used in investing activities ................................ (114,065)
---------
Financing activities:
Cash contribution from parent ................................................ 100,000
Repayment of loan to parent .................................................. (100,000)
---------
Net cash provided by financing activities ............................ --
---------
Net decrease in cash ................................................. (49,550)
Cash and cash equivalents, beginning of year ................................... 158,021
---------
Cash and cash equivalents, end of year ......................................... $ 108,471
=========
Supplemental disclosure of cash flow information:
Cash paid for interest ....................................................... $ 5,716
=========

See accompanying notes to financial statements.

F-128

234

CAL-ORE DIGITAL TV, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Cal-Ore Digital TV, Inc. (the Company) is a California corporation
formed in November 1993 for the purpose of acquiring, owning and operating
direct broadcast satellite (DBS) television systems. The Company is a
wholly-owned subsidiary of California Oregon Telecommunications Company (the
Parent), who has owned all 1,000 shares of the Company since the Company's
inception. The Company is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes), to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994, Hughes launched the satellites that
provide programming for DirecTV. At December 31, 1996, the Company had the
operating rights for portions of four counties in California and Oregon. These
rights were purchased by the parent in 1993 and transferred to the Company as a
contribution of capital in 1994.

Revenue Recognition

Programming revenue is recognized in the month the service is
provided to the subscriber. Unearned revenues represent subscriber advance
billings for one or more months and are deferred until the service is provided.
Equipment and installation sales and related costs are recognized when the
equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and
consists of receivers, satellite dishes, and satellite TV accessories.

Accounts Receivable

Accounts receivable consist primarily of amounts due from
subscribers for monthly programming and equipment lease billings.

Cash and Cash Equivalents

Cash and cash equivalents consists of cash in checking accounts and
money market checking accounts.

Intangible Assets

The cost of acquiring the rights to provide DirecTV satellite
services are capitalized as intangible assets and are being amortized on a
straight-line basis over fifteen years, which is the expected useful life of the
satellites providing DBS services.

F-129

235

CAL-ORE DIGITAL TV, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996

Use of Estimates

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which is practicable to
estimate that value:

Cash and Cash Equivalents -- The carrying amounts approximates fair
value because of the short maturity of those instruments.

Receivables and Accounts Payable -- These assets are carried at
cost, which approximates fair value, as a result of the short-term nature of the
instruments.

Long-lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment, consisting primarily of computer
and office equipment and equipment leased to customers, is recorded at cost.
Depreciation expense is recorded over the estimated useful lives which range
from two to seven years.

Income Taxes

The Company is a C Corporation for federal and state income tax
purposes and files its taxes on a consolidated basis with the Parent and its
other wholly-owned subsidiaries. The Company's income tax expense or benefit is
an allocation of the Parent's consolidated income tax expense or benefit and is
recoverable from the Parent.

(2) LEASING ARRANGEMENTS FOR SUBSCRIBER EQUIPMENT

In addition to selling satellite television equipment, in 1995 the
Company began leasing the equipment to customers under operating lease
arrangements. These leases are at fixed monthly rental charges ranging form $15
to $19 per month, and are month-to-month leases which can be terminated at any
time upon return of the DBS equipment to the Company. Accordingly, the Company
accounts for these leases as operating leases.

F-130

236

CAL-ORE DIGITAL TV, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996

The cost of leased equipment is included as a component of
furniture, fixtures, and equipment and depreciated over a two-year period. The
net amount of leased equipment included in furniture, fixtures, and equipment at
December 31, 1996 is as follows:

1996
--------

Cost .......................... $ 77,051
Accumulated Depreciation ...... (52,560)
--------
Net carrying value .. $ 25,491
========

Lease income under the above agreements is recognized billed to the
customer and totaled $25,464 in 1996.

(3) NRTC PATRONAGE DIVIDENDS

The NRTC declares and the Company receives a yearly patronage
dividend based on the NRTC's profitability. Of the total dividend, 20% is
received in cash and 80% is distributed in the form of NRTC patronage capital
certificates, which will redeemed in cash at a future date at the discretion of
the NRTC. The Company has recorded an asset and an offsetting deferred income
liability for the noncash portion of the patronage dividend. The deferred income
will be recognized as revenue when cash distributions are declared by the NRTC.
Deferred revenue included in other liabilities at December 31, 1996 was $17,323.

(4) RELATED-PARTY TRANSACTIONS

The Company was capitalized by the Parent in early 1994 through the
transfer of $26,000 in cash and franchise rights with a cost of $522,174. In
April 1994, the Company sold the franchise rights for a portion of one county in
California to Siskiyou Ruralvision, a related party which has a common board
member. These rights were sold at the Parent's cost of $153,823.

The Company also had a $100,000 account payable to the Parent at
December 31, 1995, as the result of a short-term loan made in June 1995 for
operating cash needs. This payable carried interest at 7% and was repaid in full
in 1996, along with $5,716 in accrued interest.

Employees of the Parent provide various accounting and
administrative duties for the Company. Accordingly, the Company's financial
statements include allocated selling, general, and administrative expenses in
the amount of $21,391, in 1996.

(5) SUBSEQUENT EVENTS

On September 24, 1997, the Company entered into a letter agreement
to sell its franchise rights and related DBS assets and liabilities to Golden
Sky Systems, Inc. The acquisition closed on December 8, 1997.

F-131

237

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-132

238

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Mankato Citizens Telephone Company:

We have audited the accompanying balance sheets of Direct Vision
(the Segment), a segment of Mankato Citizens Telephone Company, as of December
31, 1996 and 1995 and the related statements of operations, segment equity and
cash flows for the years ended December 31, 1996 and 1995 and the five-month
period ended December 31, 1994. These financial statements are the
responsibility of the Segment's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Direct Vision at
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1995 and the five-month period ended
December 31, 1994, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

May 30, 1997, except as to note 4,
which is as of July 15, 1997

F-133

239

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
---------- ---------

ASSETS
Current assets:
Inventory ......................................................... $ 59,336 138,396
Accounts receivable -- subscribers (note 3) ....................... 122,860 33,964
---------- ---------
Total current assets ...................................... 182,196 172,360
Intangible assets (net of accumulated amortization of $278,419 and
$163,211) (note 1) ................................................ 887,855 1,003,063
Other assets ........................................................ 11,870 11,563
---------- ---------
Total assets .............................................. $1,081,921 1,186,986
========== =========
LIABILITIES AND SEGMENT EQUITY
Liabilities:
Accounts payable:
Intercompany (note 2) .......................................... $ 319,609 328,486
Vendors ........................................................ 51,503 22,876
Unearned revenue .................................................. 200,408 24,045
---------- ---------
Total liabilities ......................................... 571,520 375,407
Segment equity ...................................................... 510,401 811,579
---------- ---------
Total liabilities and segment equity ...................... $1,081,921 1,186,986
========== =========

See accompanying notes to financial statements.

F-134

240

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

1996 1995 1994
--------- -------- --------

Revenues:
Programming revenues ............. $ 735,576 273,712 20,825
Equipment sales .................. 157,031 148,931 63,980
Other revenues ................... 10,773 6,977 1,341
--------- -------- --------
Total revenues ........... 903,380 429,620 86,146
--------- -------- --------
Cost of revenues:
Programming costs ................ 446,900 170,592 12,894
Equipment costs .................. 202,514 166,764 34,969
Rebate expense ................... 106,667 -- --
--------- -------- --------
Total cost of revenues ... 756,081 337,356 47,863
--------- -------- --------
Gross profit ............. 147,299 92,264 38,283
--------- -------- --------
Expenses:
Salaries and commissions ......... 197,840 165,493 50,894
Amortization ..................... 120,941 115,208 48,003
Marketing ........................ 100,508 49,591 40,734
Billing and other expenses ....... 29,188 12,522 2,797
--------- -------- --------
448,477 342,814 142,428
--------- -------- --------
Net loss ................. $(301,178) (250,550) (104,145)
========= ======== ========

See accompanying notes to financial statements.

F-135

241

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

SEGMENT
EQUITY
-----------

Balance at August 1, 1994 ........ $ --
Company contribution to segment .. 1,166,274
1994 net loss .................... (104,145)
-----------
Balance at December 31, 1994 ..... 1,062,129
1995 net loss .................... (250,550)
-----------
Balance at December 31, 1995 ..... 811,579
1996 net loss .................... (301,178)
-----------
Balance at December 31, 1996 ..... $ 510,401
===========

See accompanying notes to financial statements.

F-136

242

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

1996 1995 1994
--------- -------- ----------

Operating activities:
Net loss ................................................. $(301,178) (250,550) (104,145)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities -- amortization ..... 115,208 115,208 48,003
Change in:
Inventory ............................................. 79,060 (74,660) (63,736)
Accounts receivable -- subscribers .................... (88,896) (22,008) (11,956)
Other assets .......................................... (307) (7,230) (4,333)
Accounts payable -- vendor ............................ 28,627 17,077 5,799
Unearned revenue ...................................... 176,363 13,924 10,121
--------- -------- ----------
Net cash provided by (used in) operating
activities ..................................... 8,877 (208,239) (120,247)
--------- -------- ----------
Investing activities -- purchase of DBS regions ............ -- -- (1,166,274)
--------- -------- ----------
Financing activities:
Capital contribution by parent ........................... -- -- 1,166,274
Increase (decrease) in payable to parent ................. (8,877) 208,239 120,247
--------- -------- ----------
Net cash provided by (used in) financing
activities ..................................... (8,877) 208,239 1,286,521
--------- -------- ----------
Net change in cash ............................... -- -- --
Cash at beginning of period ................................ -- -- --
--------- -------- ----------
Cash at end of period ...................................... $ -- -- --
========= ======== ==========

See accompanying notes to financial statements.

F-137

243

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Direct Vision (the Segment) is a segment of Mankato Citizens
Telephone Company (the Company). The Company is a wholly-owned subsidiary of
Hickory Tech Corporation (the Parent). The Segment was formed in August 1994 for
the purpose of acquiring, owning and operating direct broadcast satellite (DBS)
television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communications Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994, Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1996, 1995 and 1994, the Company had the operating rights for seven counties in
southern Minnesota.

The financial statements presented represent the financial position
and operations of the Segment, which operates as part of the Company.
Accordingly, the Company funds the operations of the Segment. Were the Segment
an independent entity, these funds would have to be obtained from other sources.

Presentation

The Segment is not a separate subsidiary of the Company nor has it
been operated as a separate entity. The financial statements presented herein
have been derived from the records of the Company and have been prepared to
present the Segment's financial position, results of operations and cash flows
on a stand-alone basis. Accordingly, the financial statements include certain
costs and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.

Revenue Recognition

Revenues are earned for monthly direct broadcast satellite services
which are billed to subscribers in advance. Subscribers may elect to prepay
their service charges for one or more months. Revenue is recognized in the month
the service is provided to the subscriber. Subscriber advance billings represent
unearned revenues and are deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and
consists entirely of satellite receivers, dishes and accessories.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.

F-138

244

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments.

Intangible Assets

The cost of acquiring the rights to provide DirecTV satellite
services are capitalized as intangible assets and are being amortized on a
straight-line basis over ten years, which is the expected useful life of the
revenue stream of those services. Intangible assets also include a one-time
membership fee paid to the NRTC, which is also being amortized on a
straight-line basis over ten years.

Long-Lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

Income Taxes

The Segment is not directly subjected to income taxes as it's net
losses are consolidated with the Parent's operations for tax filing purposes. No
income tax benefit has been provided in the accompanying statements of
operations as such benefits are not recoverable from the Parent. There are no
significant differences between book and tax basis which would result in
deferred tax assets or liabilities.

(2) RELATED PARTY TRANSACTIONS

As described in note 1, the operations of the Segment are closely
related to those of the Company. As a result, substantially all cash
transactions relating to the Segment's operations are processed at the Company
level. Therefore, the Company is funding the cash operating losses and inventory
purchases of the Segment. The Company also absorbs certain immaterial overhead
costs such as rent and utilities.

Intercompany payables as of December 31, 1996 and 1995 are as
follows:

1996 1995
--------- --------

Intercompany payables for:
Cash operating losses ...... $ 269,702 190,847
Inventory purchases ........ 59,336 138,396
Other ...................... (9,429) (757)
--------- --------
$ 319,609 328,486
========= ========

F-139

245

DIRECT VISION
(A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994

(3) ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due from subscribers for
monthly programming fees and equipment purchases financed by the Segment.
Accounts receivable as of December 31, 1996 and 1995 are as follows:

1996 1995
-------- ------

Accounts receivable -- programming ............... $115,113 27,881
Accounts receivable -- financed equipment sales .. 7,747 6,083
-------- ------
$122,860 33,964
======== ======

(4) SUBSEQUENT EVENTS

On April 29, 1997, the Parent contracted to sell substantially all
of the Segment's assets and liabilities to Golden Sky Systems, Inc. The
acquisition closed on July 15, 1997.

F-140

246

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-141

247

INDEPENDENT AUDITORS' REPORT

The Board of Directors
CTS Communications Corporation:

We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of CTS Communications Corporation, as of
December 31, 1996 and 1995 and the related statements of operations, segment
equity and cash flows for the years ended December 31, 1996 and 1995 and the
period from July 29, 1994 (inception) to December 31, 1994. These financial
statements are the responsibility of the Segment's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Direct Broadcast
Satellite at December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996 and 1995 and the period
from July 29, 1994 (inception) to December 31, 1994, in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

October 10, 1997, except as to note 4,
which is as of November 7, 1997

F-142

248

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
-------- -------

ASSETS
Current assets:
Cash .............................................................. $168,051 66,616
Accounts receivable (note 2) ...................................... 67,287 25,328
Inventory ......................................................... 10,705 49,805
-------- -------
Total current assets ...................................... 246,043 141,749
Equipment ......................................................... 42,321 42,321
Less, accumulated depreciation .................................... 21,346 7,970
-------- -------
Equipment, net ................................................. 20,975 34,351
Intangible assets (net of accumulated amortization of $154,401 and
$90,513) (note 1) ................................................. 484,484 548,372
Other assets -- NRTC patronage capital (note 3) ..................... 12,788 4,644
-------- -------
Total assets .............................................. $764,290 729,116
======== =======
LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable .................................................. $ 70,980 34,377
Unearned revenue .................................................. 118,995 14,031
NRTC Patronage Capital ............................................ 12,788 4,644
-------- -------
Total current liabilities ................................. 202,763 53,052
Segment equity ...................................................... 561,527 676,064
-------- -------
Total liabilities and segment equity ...................... $764,290 729,116
======== =======

See accompanying notes to financial statements.

F-143

249

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994
(INCEPTION) TO DECEMBER 31, 1994

1996 1995 1994
--------- -------- --------

Revenues:
Programming revenues ............. $ 520,940 207,708 14,094
Equipment sales .................. 82,980 145,422 96,017
Other revenues ................... 280 152
--------- -------- --------
Total revenues ........... 604,200 353,282 110,111
--------- -------- --------
Cost of revenues:
Programming costs ................ 306,079 140,734 6,357
Equipment costs .................. 116,614 133,867 82,435
Rebate expense ................... 56,538 5,413
--------- -------- --------
Total cost of revenues ... 479,231 280,014 88,792
--------- -------- --------
Gross profit ............. 124,969 73,268 21,319
--------- -------- --------
Expenses:
Salaries, wages and commissions .. 116,459 98,247 12,281
Depreciation and amortization .... 77,264 71,250 27,233
Bad debt expense ................. 7,482 2,276 --
Marketing ........................ 43,061 44,202 88,409
--------- -------- --------
Total expenses ........... 244,266 215,975 127,923
--------- -------- --------
Operating loss ........... (119,297) (142,707) (106,604)
Other income ....................... 2,036 1,161
--------- -------- --------
Net loss ................. $(117,261) (141,546) (106,604)
========= ======== ========

See accompanying notes to financial statements.

F-144

250

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

STATEMENTS OF SEGMENT EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994
(INCEPTION) TO DECEMBER 31, 1994

SEGMENT
EQUITY
---------

Balance at July 1, 1994 .......... $ --
Company contribution to Segment .. 818,328
1994 net loss .................... (106,604)
---------
Balance at December 31, 1994 ..... 711,724
Company contribution to Segment .. 105,886
1995 net loss .................... (141,546)
---------
Balance at December 31, 1995 ..... 676,064
Company contribution to Segment .. 2,724
1996 net loss .................... (117,261)
---------
Balance at December 31, 1996 ..... $ 561,527
=========

See accompanying notes to financial statements.

F-145

251

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 AND THE
PERIOD FROM JULY 29, 1994
(INCEPTION) TO DECEMBER 31, 1994

1996 1995 1994
--------- -------- --------

Operating activities:
Net loss ................................................. $(117,261) (141,546) (106,604)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ......................... 77,264 71,250 27,233
Bad debt expense ...................................... 7,482 2,276 --
Changes in:
Accounts receivable ................................... (49,441) (19,051) (8,553)
Inventory ............................................. 39,100 (4,693) (82,539)
Accounts payable ...................................... 36,603 16,839 17,538
Unearned revenue ...................................... 104,964 10,000 4,031
--------- -------- --------
Net cash provided by (used in) operating
activities ..................................... 98,711 (64,925) (148,894)
--------- -------- --------
Investing activities:
Purchases of equipment ................................... -- -- (4,894)
Purchase of direct broadcast satellite contract
areas ................................................. -- -- (638,885)
--------- -------- --------
Net cash used for investing activities ........... -- -- (643,779)
--------- -------- --------
Financing activities -- cash investments by CTS
Communications Corporation ............................... 2,724 105,886 818,328
--------- -------- --------
Net change in cash .................................... 101,435 40,961 25,655
Cash at beginning of year .................................. 66,616 25,655 --
--------- -------- --------
Cash at end of year ........................................ $ 168,051 66,616 25,655
========= ======== ========

See accompanying notes to financial statements.

F-146

252

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Direct Broadcast Satellite (the Segment) is a segment of CTS
Communication Corporation (the Company). The Company is a wholly-owned
subsidiary of Climax Telephone Company (the Parent). The Segment was formed in
July 1994 for the purpose of acquiring, owning and operating direct broadcast
satellite (DBS) television systems. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with Hughes Communications Galaxy, Inc. (Hughes), to provide
exclusive marketing rights for distribution of DirecTV satellite television
programming in the United States. The marketing rights give the owner exclusive
rights to distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At December
31, 1996, 1995 and 1994, the Company had the operating rights for portions of
two counties in southern Michigan.

Presentation

The Segment is not a separate subsidiary of the Company nor has it
been operated as a separate entity. The financial statements presented herein
have been derived from the records of the Company and have been prepared to
present the Segment's financial position, results of operations and cash flows
on a stand-alone basis. Accordingly, the financial statements include certain
costs and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.

Revenue Recognition

Programming revenue is recognized in the month the service is
provided to the subscriber. Unearned revenue represents subscriber advance
billings and is deferred until the service is provided. Equipment sales are
recognized as revenue when the equipment is delivered to the customer. The
Company periodically offers rebates and coupons to customers, principally in
connection with prepayment plans; rebates are recorded when they are utilized.

Inventory

Inventory is stated at the lower of average cost or market and
consists entirely of satellite receivers, dishes and accessories.

Equipment

Equipment has been recorded at cost and is depreciated over the
estimated useful lives using the straight-line method. Estimated useful lives
range from three to seven years.

F-147

253

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Segment to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments.

Intangible Assets

Long-lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.

Income Taxes

The Segment's operating results are consolidated with the Parent's
operations for tax filing purposes. No income tax benefit has been provided in
the accompanying statements of operations as such benefits are not recoverable
from the Parent. There are no significant differences between book and tax basis
which would result in deferred tax assets or liabilities.

(2) ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due from subscribers for
monthly programming fees.

(3) NRTC PATRONAGE CAPITAL

The NRTC declares and the Segment receives a yearly patronage
dividend based on the NRTC's profitability. Of the total dividend, 20% is
received in cash and 80% is distributed in the form of NRTC patronage capital
certificates, which will be redeemed in cash at a future date at the discretion
of the NRTC. The Segment has recorded an asset and an offsetting deferred income
liability for the noncash portion of the patronage dividend. The deferred

F-148

254

DIRECT BROADCAST SATELLITE
(A SEGMENT OF CTS COMMUNICATION CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

income is recognized as revenue when cash distributions are declared by the
NRTC. Deferred revenue included in other liabilities was $12,788 and $4,644 at
December 31, 1996 and 1995, respectively.

(4) SUBSEQUENT EVENTS

On October 31, 1997, the Parent contracted to sell substantially all
of the Segment's assets and liabilities to Golden Sky Systems, Inc. The
acquisition closed on November 7, 1997.

F-149

255

ARGOS SUPPORT
SERVICES COMPANY

FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(WITH INDEPENDENT AUDITORS' REPORTS THEREON)

F-150

256

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Argos Support Services Company:

We have audited the accompanying balance sheet of Argos Support
Services Company (the Company) as of December 31, 1996 and 1995 and the related
statements of operations, shareholder's deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Argos Support
Services Company at December 31, 1996 and 1995, the results of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.

KPMG PEAT MARWICK LLP

August 8, 1997

F-151

257

ARGOS SUPPORT SERVICES COMPANY

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents ......................................... $1,271,024 227,358
Restricted cash (note 2) .......................................... 50,524 135,000
Trade receivables (net allowance of $3,732 and $0) ................ 473,905 117,684
Inventory ......................................................... 79,994 84,478
---------- ----------
Total current assets ...................................... 1,875,447 564,520
Furniture, fixtures and equipment (net of accumulated depreciation
of $45,777 and $15,680) ........................................... 91,681 44,783
Intangible assets (net of accumulated amortization of $269,920
and $161,952) ..................................................... 910,602 917,728
Other assets ........................................................ 55,806 13,419
---------- ----------
Total assets .............................................. $2,933,536 1,540,450
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Liabilities:
Current liabilities:
Trade payables ................................................. $ 417,615 470,571
Unearned revenues .............................................. 852,696 185,837
Notes payable-- current portion ................................ 21,085 --
Line of credit (note 2) ........................................ 50,000 --
Other current liabilities (note 1) ............................. 144,269 40,203
---------- ----------
Total current liabilities ................................. 1,485,665 696,611
---------- ----------
Long-term liabilities:
Line of credit (note 2) ........................................ -- 125,000
Notes payable, less current portion (note 3) ................... 10,883 11,577
Long-term debt (note 3) ........................................ 275,000 --
---------- ----------
Total long-term liabilities ............................... 285,883 136,577
---------- ----------
Total liabilities ......................................... 1,771,548 833,188
---------- ----------
Minority interest (note 5) .......................................... 529,472 842,091
---------- ----------
Shareholder's equity (deficit):
Capital stock ($1 par value; 10,000 shares authorized, 5,800
shares issued and outstanding) ................................. 5,800 5,000
Additional paid-in capital ........................................ 1,968,018 608,818
Accumulated deficit ............................................... 1,341,302) (748,647)
---------- ----------
Total shareholder's equity (deficit) ...................... 632,516 (134,829)
---------- ----------
Total liabilities and shareholder's equity (deficit) ...... $2,933,536 1,540,450
========== ==========

See accompanying notes to financial statements.

F-152

258

ARGOS SUPPORT SERVICES COMPANY

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

Revenues:
Program revenues ............................ $ 2,829,716 836,634
Equipment sales ............................. 912,118 936,914
Other revenues .............................. 23,746 9,110
----------- ----------
Total revenues ...................... 3,765,580 1,782,658
----------- ----------
Cost of revenues:
Programming costs ........................... 1,725,812 556,652
Equipment costs ............................. 683,726 864,008
Rebate expense .............................. 408,958 16,875
Other cost of revenues ...................... 58,594 110
----------- ----------
Total cost of revenues .............. 2,877,090 1,437,645
----------- ----------
Gross profit ........................ 888,490 345,013
----------- ----------
Expenses:
Salaries and wages .......................... 788,020 405,125
Amortization and depreciation ............... 138,065 114,949
Marketing ................................... 82,282 62,771
Bad debt expense ............................ 20,850 4,540
Professional fees ........................... 102,148 72,724
Other selling, general and administrative ... 361,576 333,355
----------- ----------
1,492,941 993,464
----------- ----------
Net loss before interest ............ (604,451) (648,451)
Interest income and expense:
Interest income ............................. 36,971 7,511
Interest expense ............................ (25,175) (8,725)
----------- ----------
Net loss ............................ $ (592,655) (649,665)
=========== ==========

See accompanying notes to financial statements.

F-153

259

ARGOS SUPPORT SERVICE COMPANY

STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

Common Additional Retained
stock paid-in capital earnings Total
------ --------------- ---------- ----------

Balance-- December 31, 1994 ... $5,000 608,818 (98,982) 514,836
Net loss ...................... -- -- (649,665) (649,665)
------ --------- ---------- ----------
Balance-- December 31, 1995 ... 5,000 608,818 (748,647) (134,829)
Sale of additional stock ...... 800 1,359,200 -- 1,360,000
Net loss ...................... -- -- (592,655) (592,655)
------ --------- ---------- ----------
Balance-- December 31, 1996 ... $5,800 1,968,018 (1,341,302) 632,516
====== ========= ========== ==========

See accompanying notes to financial statements.

F-154

260

ARGOS SUPPORT SERVICES COMPANY

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

1996 1995
----------- --------

Cash flow from operating activities
Net loss ....................................................... $ (592,655) (649,665)
Adjustments to reconcile net income to net used in operating
activities:
Depreciation and amortization ............................... 138,065 114,949
Bad debt expense ............................................ 20,850 4,540
Changes in:
Trade receivable ............................................ (377,071) (122,224)
Inventory ................................................... 4,484 (70,763)
Other assets ................................................ (42,387) (11,070)
Trade payables .............................................. (52,956) 469,571
Unearned revenues ........................................... 666,859 185,837
Other current liabilities ................................... 104,066 22,658
----------- --------
Net cash used in operating activities .................. (130,745) (56,167)
----------- --------
Cash flows from investing activities:
Additions to equipment ......................................... (76,995) (39,663)
Proceeds from maturities of restricted cash investments ........ 84,476 15,000
----------- --------
Net cash provided by (used in) investing activities .... 7,481 (24,663)
----------- --------
Cash flows from financing activities:
Proceeds from issuance of line of credit ....................... -- 125,000
Payments on line of credit ..................................... (75,000) (880,747)
Proceeds from issuance of debt and notes payable ............... 296,691 15,268
Payments on debt and notes payable ............................. (1,300) (53,691)
Proceeds from issuance of stock ................................ 1,360,000 --
Proceeds from sales of revenue sharing rights .................. -- 842,091
Purchase of investor's revenue sharing rights .................. (413,461) --
----------- --------
Net cash provided by financing activities .............. 1,166,930 47,921
----------- --------
Net change in cash ..................................... 1,043,666 (32,909)
Beginning of year cash and cash equivalents balance .............. 227,358 260,267
----------- --------
End of year cash and cash equivalents balance .................... $ 1,271,024 277,358
=========== ========
Cash paid for interest ........................................... $ 21,165 8,725
=========== ========

See accompanying notes to financial statements.

F-155

261

ARGOS SUPPORT SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Argos Support Services Company (the Company) was formed in March
1993 for the purpose of acquiring, owning and operating direct broadcast
satellite (DBS) television systems. The Company is an affiliated associate
member of the National Rural Telecommunications Cooperative (NRTC). The NRTC has
contracted with the Company to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the license owner exclusive rights to distribution of
DirecTV service within the contract area. In 1994, Hughes launched the
satellites that provide programming for DirecTV. At December 31, 1996 and 1995,
the Company has the operating rights for territories in Texas, Florida and Utah.

Revenue Recognition

Programming revenue is recognized in the month the service is
provided to the subscriber. Unearned revenues represent subscriber advance
billings and are deferred until the service is provided. Equipment sales are
recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and
consists entirely of Direct Satellite Systems which includes receivers,
satellite dishes and accessories.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make a
number of estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses during the period. Actual results could
differ from these estimates.

Fair Value of Financial Instruments

Financial instruments consisting of trade receivables, trade
payables and long-term liabilities are carried at cost, which approximates fair
value, as a result of the shortterm nature of the instruments.

Intangible Assets

F-156

262

ARGOS SUPPORT SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Long-Lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

NRTC Patronage Capital

The NRTC declares and the Company receives a yearly patronage
dividend based on the NRTC's profitability. Of the total dividend, 20% is
received in cash and 80% is distributed in the form of NRTC patronage capital
certificates, which will be redeemed in cash at a future date at the discretion
of the NRTC. The Company has recorded an asset and an offsetting deferred income
liability for the noncash portion of the patronage dividend. The deferred income
will be recognized as revenue when cash distributions are declared by the NRTC.
Deferred income included in other current liabilities was $48,107 and $10,804 at
December 31, 1996 and 1995, respectively.

Trade Receivables

Trade receivables consist of amounts due from subscribers for
monthly programming fees.

Depreciation

Depreciation on furniture, fixtures and equipment is computed on a
straight-line basis over the estimated useful lives of the assets, which range
from five to seven years.

Cash and Cash Equivalents

Money market investments are classified as cash and cash equivalents
for balance sheet and statement of cash flow purposes.

(2) RESTRICTED CASH

The Company maintains a line of credit with a local bank for
operating cash needs. As of December 31, 1996 and 1995, the Company had drawn
$50,000 and $125,000, respectively, on this line of credit, which carries an
interest rate of 8.5%, has a final maturity date of March 23, 1997 and is
secured by certificates of deposit held by the bank.

(3) NOTES PAYABLE AND LONG-TERM DEBT

Debt consist primarily of a $275,000 debenture payable to the
majority shareholder of the Company. The debenture requires semiannual
interest-only payments at 8.75% until maturity at April 1, 1999, at which time
the principal is due in full. The Company also has two notes payable to banks
totaling $31,968 at December 31, 1996.

F-157

263

ARGOS SUPPORT SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Scheduled repayments of long-term debt and notes payable outstanding
at December 31, 1996 are as follows:

1997................................................... $ 21,085
1998................................................... 3,543
1999................................................... 278,856
2000................................................... 3,484
--------
$ 306,968
=========

(4) INCOME TAXES

The Company accounts for income taxes under the asset and liability
method whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the financial
statement's carrying amounts of existing assets and liabilities and their
respective tax basis. Temporary differences, which relate primarily to
allowances on receivables and the carrying value of fixed assets, are not
significant to the financial statements.

The Company has not recorded current or deferred tax benefits
related to its taxable operating losses and temporary differences due to
uncertainty as to the likelihood that the results of future operations will
generate sufficient taxable income to realize net operating loss carryforwards
and deferred tax assets.

(5) MINORITY INTEREST

During 1995, the Company sold revenue rights to investors in return
for a cash investment of $842,091. These rights entitle investors to receive a
percentage of any positive net revenues on certain zip codes based on
programming revenues less programming costs related to the zip codes, less an
allocation of marketing and selling, general and administrative expenses. No
amounts were earned or paid on these revenue rights in 1995 or 1996.

As part of the pending sale of the Company described in note 6, the
Company has made offers to repurchase the revenue rights described above.
Repurchase amounts exceeding the original proceeds from the sale of the rights
are recorded as an intangible asset and amortized over the expected useful life
of the franchise. During 1996, the Company paid $413,461 to repurchase certain
revenue rights with a book value of $312,619. At December 31, 1996, the Company
has offered a total of $1,182,307 to buy back the revenue rights of the three
remaining investors having a book value of $529,472.

In August 1997, the Company purchased the rights of one of these
investors (book value of $250,000) for $600,000. As of August 9, 1997, the
Company has outstanding offers to purchase the rights of the remaining two
investors for $582,307. Ultimate amounts paid, if any, could exceed this amount.

(6) SUBSEQUENT EVENTS

On April 3, 1997, the Company's shareholders signed a letter of
interest to sell substantially all its outstanding common stock to Golden Sky
Systems, Inc. (GSS), which owned 20% of the outstanding common stock of the
Company. The acquisition closed on August 8, 1997.

F-158

264

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(WITH INDEPENDENT AUDITORS' REPORT THEREON)

F-159

265

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Ace Telephone Association:

We have audited the accompanying balance sheets of Satellite
Entertainment, Inc., a wholly-owned subsidiary of Ace Telephone Association, as
of December 31, 1996 and 1995 and the related statements of operations,
shareholder's equity and cash flows for the years ended December 31, 1996 and
1995 and the five-month period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Satellite
Entertainment, Inc. at December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years ended December 31, 1996 and 1995 and
the five-month period ended December 31, 1994, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

July 3, 1997, except as to note 6,
which is as of July 14, 1997.

F-160

266

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

BALANCE SHEETS
DECEMBER 31, 1996 AND 1995

1996 1995
----------- ----------

ASSETS
Current assets:
Cash ................................................................. $ 156,502 120,187
Accounts receivable, net of allowance of $33,598 in 1996 (note 2) .... 257,995 263,198
Inventory ............................................................ 79,008 131,142
----------- ----------
Total current assets ......................................... 493,505 514,527
Furniture, fixtures and equipment, net of accumulated depreciation of
$106,968 and $35,791 (note 5) ........................................ 326,377 358,245
Intangible assets (net of accumulated amortization of $278,851 and
$163,464) (note 1) ................................................... 875,006 990,393
Other assets ........................................................... 39,404 22,189
----------- ----------
Total assets ................................................. $ 1,734,292 1,885,354
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable (note 4) ............................................ $ 105,288 65,539
Unearned revenue ..................................................... 158,493 35,581
Other liabilities .................................................... 49,197 37,326
----------- ----------
Total current liabilities .................................... 312,978 138,446
Long-term liabilities:
Notes payable (note 4) ............................................... 350,000 600,000
----------- ----------
Total liabilities ............................................ 662,978 738,446
=========== ==========
Shareholder's equity:
Common stock ($1 par-- 50,000 shares issued and outstanding) ......... 50,000 50,000
Additional paid-in capital ........................................... 1,250,000 1,250,000
Accumulated deficit .................................................. (228,686) (153,092)
----------- ----------
Total shareholder's equity ................................... 1,071,314 1,146,908
----------- ----------
Total liabilities and shareholder's equity ................... $ 1,734,292 1,885,354
=========== ==========

See accompanying notes to financial statements.

F-161

267

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

1996 1995 1994
----------- ---------- --------

Revenues:
Program revenues ................. $ 1,216,893 542,511 47,779
Equipment sales .................. 231,025 378,892 317,902
Lease revenue (note 5) ........... 96,999 42,392 4,681
Other revenues ................... 138,594 82,838 58,004
----------- ---------- --------
Total revenues ........... 1,683,511 1,046,633 428,366
----------- ---------- --------
Cost of revenues:
Programming costs ................ 794,779 340,460 19,868
Equipment costs .................. 213,005 322,617 258,964
Rebate expense ................... 85,675 14,909 724
Other costs of revenue ........... 99,603 128,874 59,859
----------- ---------- --------
Total cost of revenues ... 1,193,062 806,860 339,415
----------- ---------- --------
Gross profit ............. 490,449 239,773 88,951
----------- ---------- --------
Expenses:
Salaries and commissions ......... 139,261 76,904 3,855
Depreciation and amortization .... 186,563 147,794 51,462
Bad debt expense ................. 56,587 4,274 --
Marketing ........................ 97,044 111,068 38,060
Other ............................ 84,791 64,656 13,110
----------- ---------- --------
564,246 404,696 106,487
----------- ---------- --------
Operating loss ........... (73,797) (164,923) (17,536)
Other income ..................... 4,129 5,431 --
Interest income .................. 17,002 12,707 4,170
Interest expense ................. (52,394) (64,989) (7,440)
----------- ---------- --------
Loss before tax benefit .. (105,060) (211,774) (20,806)
Income tax benefit (note 3) ........ 29,466 70,964 8,524
----------- ---------- --------
Net loss ................. $ (75,594) (140,810) (12,282)
=========== ========== ========

See accompanying notes to financial statements.

F-162

268

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

Additional
Common paid-in Retained Total
stock capital earnings equity
------- ---------- -------- ----------

Balance at August 1, 1994 ..... $ -- -- -- --
Sale of common stock .......... 50,000 1,250,000 -- 1,300,000
Net loss ...................... -- -- (12,282) (12,282)
------- --------- -------- ----------
Balance at December 31, 1994 .. 50,000 1,250,000 (12,282) 1,287,718
Net loss ...................... -- -- (140,810) (140,810)
------- --------- -------- ----------
Balance at December 31, 1995 .. 50,000 1,250,000 (153,092) 1,146,908
Net loss ...................... -- -- (75,594) (75,594)
------- --------- -------- ----------
Balance at December 31, 1996 .. $50,000 1,250,000 (228,686) 1,071,314
======= ========= ======== ==========

See accompanying notes to financial statements.

F-163

269

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE FIVE-MONTH PERIOD ENDED DECEMBER 31, 1994

1996 1995 1994
--------- -------- ----------

Operating activities:
Net loss ................................................. $ (75,594) (140,810) (12,282)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ......................... 186,563 147,794 51,462
Bad debt expense ...................................... 56,587 4,274 --
Change in:
Accounts receivable ................................... (51,384) (128,073) (139,399)
Inventory ............................................. 52,134 298,286 (429,428)
Other assets .......................................... (17,215) (22,189) --
Accounts payable ...................................... 39,749 (121,284) 186,823
Unearned revenue ...................................... 122,912 26,401 9,180
Other liabilities ..................................... 11,871 32,283 5,043
--------- -------- ----------
Net cash provided by (used in) operating
activities ..................................... 325,623 96,682 (328,601)
--------- -------- ----------
Investing activities:
Purchase of furniture, fixtures and equipment ............ (39,308) (255,942) (138,095)
Purchase of DBS regions .................................. -- -- (1,153,857)
--------- -------- ----------
Net cash used in investing activities ............ (39,308) (255,942) (1,291,952)
--------- -------- ----------
Financing activities:
Sale of common stock ..................................... -- -- 1,300,000
Proceeds from issuance of notes payable .................. -- -- 600,000
Payments on notes payable ................................ (250,000) -- --
--------- -------- ----------
Net cash provided by (used in) financing
activities ..................................... (250,000) -- 1,900,000
--------- -------- ----------
Net change in cash ............................... 36,315 (159,260) 279,447
Cash at beginning of period ................................ 120,187 279,447 --
--------- -------- ----------
Cash at end of period ...................................... $ 156,502 120,187 279,447
========= ======== ==========
Cash paid for interest ..................................... $ 62,528 56,299 --
========= ======== ==========

See accompanying notes to financial statements.

F-164

270

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Satellite Entertainment, Inc. (the Company) is a wholly-owned
subsidiary of Ace Telephone Association (the Parent). The Company was formed in
August 1994 for the purpose of owning and operating direct broadcast satellite
(DBS) television systems previously purchased by the Parent. The Company is an
affiliated associate member of the National Rural Telecommunications Cooperative
(NRTC). The NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes)
to provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive rights to distribution of DirecTV service within the contract area. In
1994, Hughes launched the satellite that provides programming for DirecTV. At
December 31, 1996, 1995 and 1994, the Company had the operating rights for three
counties in Minnesota and five counties in Michigan.

Revenue Recognition

Inventory

Inventory is stated at the lower of average cost or market and
consists of DBS receivers, satellite dishes and accessories as well as retail
inventory at a Radio Shack franchise owned and operated by the Company. Radio
Shack inventory had a carrying value at December 31, 1996 and 1995 of $30,079
and $31,139, respectively.

Use of Estimates

Fair Value of Financial Instruments

Financial instruments consisting of receivables, accounts payable
and notes payable are carried at cost, which approximates fair value, as a
result of the short-term nature of the instruments.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are carried at cost and
depreciated on a straight-line basis over their estimated useful lives, which
range from five to thirty years.

F-165

271

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Intangible Assets

The cost of acquiring the rights to provide DirecTV satellite
services are capitalized as intangible assets and are being amortized on a
straight-line basis over a period of ten years, which is the expected useful
life of the revenue stream of those services.

Long-lived Assets

Long-lived assets and certain identifiable intangibles held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

Income Taxes

The Company is not directly subjected to income taxes as its net
losses are consolidated with the Parent's operations for tax filing purposes.

(2) ACCOUNTS RECEIVABLE

Trade receivables consist primarily of amounts due from subscribers
for monthly programming fees and equipment purchases financed by the Company.
Trade receivables as of December 31, 1996, 1995 and 1994 are as follows:

1996 1995
-------- -------

Accounts receivable:
Programming ................ $121,727 65,884
Financed equipment sales ... 133,913 195,454
Other ...................... 2,355 1,860
-------- -------
$257,995 263,198
======== =======

(3) INCOME TAXES

The Company is not directly subjected to income taxes as it's net losses
are consolidated with the Parent's operations for tax filing purposes. The
Company records a receivable from the Parent for the tax benefits arising from
the net losses of the Company. All tax benefits arise from losses from
continuing operations. There are no significant differences between tax and book
basis resulting in deferred tax assets or liabilities.

F-166

272

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Total income tax benefit differs from expected income tax benefit as
follows:

1996 1995 1994
-------- ------- -----

Expected income tax benefit at 34% ....................... $ 35,720 72,003 7,074
Difference due to income tax benefit allocation made by
Parent ................................................. (6,254) (1,039) 1,450
-------- ------- -----
Total income tax benefit ....................... $ 29,466 70,964 8,524
======== ======= =====

If the Company had filed income taxes on a separate return basis, any tax
benefit and net operating loss carry-forward. would not be recognizable due to
the Company's recurring historical losses. Pro forma net income would therefore
be as follows:

1996 1995 1994
-------- ------- -------

$ 88,545 190,050 20,806
======== ======= ======

(4) RELATED PARTY TRANSACTIONS

The Company has a revolving line of credit with the Parent whereby
the Parent will loan the Company cash for operating purposes up to $1,000,000.
These borrowings carry interest at prime plus two percent and require quarterly
interest-only payments, with the unpaid principal balance due on April 27, 1999.
The unpaid balance of these borrowings totaled $350,000 and $600,000 at December
31, 1996 and 1995, respectively.

The Company is also party to various intercompany transactions with
the Parent and a subsidiary of the Parent, including interest accruals on the
line of credit noted above, intercompany cash receipts and tax benefits arising
from the Company's net losses. Net receivable balances due from the Parent
offset against accounts payable at December 31, 1996 and 1995 were $43,323 and
$34,486, respectively.

(5) LEASES

In addition to selling satellite television equipment, the Company
also leases the equipment to customers for a minimum one-year period at a fixed
monthly rental charge. After one year, the customer may continue to lease the
equipment on a month-to-month basis. All minimum rents due under such leases at
December 31, 1996, 1995 and 1994 are, therefore, due within the next calendar
year.

The above leases qualify for operating lease treatment and,
accordingly, the leased units are transferred from inventory to furniture,
fixtures and equipment at average cost when leased and depreciated on a
straight-line basis over a five-year period. Rental income is recognized in the
month earned. The carrying amount of leased equipment included in furniture,
fixtures and equipment at December 31, 1996 and 1995 is as follows:

1996 1995
--------- --------

Cost .......................... $ 299,744 286,104
Accumulated depreciation ...... (92,261) (28,935)
--------- --------
Net carrying cost ... $ 207,483 257,169
========= ========

F-167

273

SATELLITE ENTERTAINMENT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(6) NRTC PATRONAGE CAPITAL

The NRTC declares and the Company receives a yearly patronage
dividend based on the NRTC's profitability. Of the total dividend, 20% is
received in cash and 80% is distributed in the form of NRTC patronage capital
certificates, which will be redeemed in cash at a future date at the discretion
of the NRTC. The Company has recorded an asset and an offsetting-deferred income
liability for the noncash portion of the patronage dividend. The deferred income
will be recognized as revenue when cash distributions are declared by the NRTC.
Deferred revenue included in other liabilities was $38,239 and $21,724 at
December 31, 1996 and 1995, respectively.

(7) SUBSEQUENT EVENTS

On March 21, 1997, the Company contracted to sell substantially all
of its assets to Golden Sky Systems, Inc. The sale closed on July 14, 1997.

F-168
274
GVEC RURAL TV, INC.

Financial Statements
December 31, 1996, 1995 and 1994

(With Independent Auditors' Report Thereon)

F-169
275
INDEPENDENT AUDITORS' REPORT

The Board of Directors
GVEC Rural TV, Inc.,
Guadalupe Valley Electric Cooperative and
Guadalupe Valley Development Corporation:

We have audited the accompanying balance sheets of GVEC Rural TV, Inc.
as of December 31, 1996 and 1995 and the related statements of operations,
investors' capital and cash flows for each of the years in the three-year period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GVEC Rural TV, Inc.
at December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

August 8, 1997

F-170
276
GVEC RURAL TV, INC.

BALANCE SHEETS
As of December 31, 1996 and 1995

1996 1995
---- ----

ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 563,055 --
Accounts receivable (notes 2 and 7)........................................... 214,827 186,101
Inventory..................................................................... 47,348 286,718
Note receivable (note 3)...................................................... 50,000 50,000
--------------- ----------
Total current assets.................................................. 875,230 522,819
Intangible asset (net of accumulated amortization of $149,760 and
$93,600)...................................................................... 411,883 468,043
Other assets:
Lease receivable-- noncurrent (note 7)........................................ 492,593 558,065
Note receivable (note 3)...................................................... 30,000 80,000
NRTC patronage capital (note 5)............................................... 41,515 18,848
Organizational costs.......................................................... 31,436 39,295
--------------- ----------
Total assets.......................................................... $ 1,882,657 1,687,070
=============== ==========

LIABILITIES AND INVESTORS' CAPITAL
Current liabilities:
Accounts payable.............................................................. $ 122,258 45,604
Related party accounts payable (note 6)....................................... 16,707 --
Unearned revenue.............................................................. 108,106 24,571
Other liabilities (note 5)................................................... 43,164 18,848
--------------- ----------
Total current liabilities............................................. 290,235 89,023
--------------- ----------
Investors' capital:
Common stock -- class A, $1 par value; 100,000 shares authorized,
7,500 shares issued and outstanding........................................ 7,500 --
Common stock-- class B, $1 par value, 10,000 shares authorized,
2,500 shares issued and outstanding........................................ 2,500 --
Additional paid-in capital.................................................... 1,638,047 --
Retained earnings............................................................. (55,625) --
Segment equity................................................................ -- 1,598,047
--------------- ----------
Total investors' capital.............................................. 1,592,422 1,598,047
Total liabilities and investors' capital.............................. $ 1,882,657 1,687,070
=============== =========

See accompanying notes to financial statements.

F-171
277
GVEC RURAL TV, INC.

STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Revenues:
Programming revenues....................................... $ 752,079 336,503 36,346
Equipment sales............................................. 294,455 740,161 411,023
Other revenues.............................................. 241,862 219,011 181,728
---------------- --------- ----------
Total revenues...................................... 1,288,396 1,295,675 629,097
---------------- --------- ----------
Cost of revenues:
Programming costs........................................... 431,058 210,394 23,649
Equipment costs............................................. 298,919 545,565 273,326
Rebate expense.............................................. 14,558 10,900 --
Other cost of revenues...................................... 150,407 132,625 175,066
---------------- --------- ----------
Total cost of revenues.............................. 894,942 899,484 472,041
---------------- --------- ----------
Gross profit........................................ 393,454 396,191 157,056
---------------- --------- ----------
Expenses:
Salaries, wages and commissions............................. 213,107 259,808 112,910
Amortization................................................ 64,019 56,160 37,440
Bad debt expense............................................ 96,775 8,735 --
Other....................................................... 90,704 112,988 10,911
---------------- --------- ----------
Total expenses...................................... 464,605 437,691 161,261
---------------- --------- ----------
Operating loss...................................... (71,151) (41,500) (4,205)
Gain on sale of wireless TV rights (note 3)................... -- 230,000 --
---------------- --------- -----------
Income (loss) before interest....................... (71,151) 188,500 (4,205)
Other income.................................................. 2,141 3,537 --
Interest income............................................... 13,385 8,537 --
--------------- ---------- ----------
Income (loss)....................................... $ (55,625) 200,574 (4,205)
=============== ========== ===========

See accompanying notes to financial statements.

F-172
278
GVEC RURAL TV, INC.

STATEMENTS OF INVESTORS' CAPITAL For
the years ended December 31, 1996, 1995 and 1994

CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED SEGMENT TOTAL
STOCK STOCK CAPITAL EARNINGS EQUITY EQUITY
----- ----- ------- -------- ------ ------

Beginning balance --
December 31, 1993 $ -- -- -- -- 561,643 561,643
Cash investment by
GVEC -- -- -- -- 359,195 359,195
Net loss -- -- -- -- (4,205) (4,205)
---------- ---------- ---------- -------- -------- --------
Balance at
December 31, 1994 -- -- -- -- 916,633 916,633
Cash investment by
GVEC -- -- -- -- 480,840 480,840
Net income -- -- -- -- 200,574 200,574
---------- ---------- ---------- -------- -------- --------
Balance at
December 31, 1995 -- -- -- -- 1,598,047 1,598,047
Capitalization of GVEC
Rural TV, Inc. by
GVEC in exchange for
7,500 common shares 7,500 -- 1,590,547 -- (1,598,047) --
Sale of 2,500 common
shares to GVDC -- 2,500 47,500 -- -- 50,000
1996 net loss -- -- -- (55,625) -- (55,625)
---------- ---------- ---------- -------- -------- --------
Balance at
December 31, 1996 $ 7,500 2,500 1,638,047 (55,625) -- 1,592,422
========== ===== ========= ======= ======== =========

See accompanying notes to financial statements.

F-173
279
GVEC RURAL TV, INC.

STATEMENTS OF CASH FLOWS For the
years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Operating activities:
Net income (loss) .................................... $ (55,625) 200,574 (4,205)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization ...................................... 64,019 56,160 37,440
Bad debt expense .................................. 96,775 8,735 --
Gain on sale of wireless TV rights ................ -- (230,000) --
Changes in:
Accounts and leases receivable .................... (60,029) (530,311) (222,590)
Inventory ......................................... 239,370 (97,879) (188,839)
Other assets ...................................... -- (39,295) --
Accounts payable .................................. 88,661 34,243 11,361
Unearned revenues ................................. 83,535 16,933 7,638
Other liabilities ................................. 6,349 -- --
--------- ------- ------
Net cash provided by (used in) operating
activities ................................. 463,055 (580,840) (359,195)
--------- ------- ------
Investing activities:
Payments on notes receivable ......................... 50,000 100,000 --
--------- ------- ------
Net cash provided by investing activities .... 50,000 100,000 --
--------- ------- ------
Financing activities:
Cash investments by GVEC ............................. -- 480,840 359,195
Proceeds from issuance of stock ...................... 50,000 -- --
--------- ------- ------
Net cash provided by financing activities .... 50,000 480,840 359,195
--------- ------- ------
Net change in cash ........................... 563,055 -- --
Cash at beginning of year .............................. -- -- --
--------- ------- ------
Cash at end of year .................................... $ 563,055 -- --
========= ======= ======

See accompanying notes to financial statements.

F-174
280
GVEC RURAL TV, INC.

NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

GVEC Rural TV, Inc. (the Company) is a Texas Corporation organized for
the purpose of owning and operating direct broadcast services (DBS) television
systems to customers within its franchise areas which include four counties in
central Texas. The Company is an affiliated associate member of the National
Rural Television Cooperative (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes) to provide exclusive marketing rights for
distribution of DirecTV television programming in the United States. The
marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. In 1994, Hughes launched the satellites that
provide programming for DirecTV. The Company also provides C-Band satellite
television services.

The Company is owned by Guadalupe Valley Electric Cooperative (GVEC)
and Guadalupe Valley Development Corporation (GVDC).

Prior to January 1, 1996, the operations of the Company were reported
as a segment of GVEC. On January 1, 1996, GVEC incorporated its rural television
segment into a separate entity (the Company). This was achieved by GVEC's
contribution of certain assets in exchange for Company stock.

The financial statements presented as of and for the year ended
December 31, 1996 present the financial position and operations of the Company.
As of and for the years ended December 31, 1995 and 1994, the financial
statements represent the financial position and operation of GVEC's rural
television segment. This segment was not a separate subsidiary of GVEC nor was
it operated as a separate entity in 1995 or 1994. The financial statements for
1995 and 1994 presented herein have been derived from the records of GVEC and
have been prepared to present the segment's financial position, results of
operations and cash flows on a stand-alone basis. Accordingly, the financial
statements include certain costs and expenses which were allocated to the
segment by GVEC. Such allocated expenses may or may not be indicative of what
such expenses would have been had the segment been operated as a separate
entity.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenue represents subscriber advance billings and
is deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. Other revenues consist
primarily of the sale of C-Band equipment, G-Band program revenues and various
DBS maintenance revenue. These revenues are recognized in the same manner as DBS
programming and equipment sales.

Cash Equivalents

The Company considers all liquid investments purchased with a maturity
of ninety days or less to be cash equivalents.

Inventory

Inventory is stated at the lower of average cost or market and consists
primarily of receivers, satellite dishes and accessories.

F-175
281
GVEC RURAL TV, INC.

NOTES TO FINANCIAL STATEMENTS -- (Continued)

Use of Estimates

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value as a result of the short-term
nature of the instruments.

Intangible Assets

Long-lived Assets

Income Taxes

Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the financial reporting and tax
basis of certain assets.

Organizational Costs

The cost of legal and other professional fees associated with the
formation of GVEC Rural TV, Inc. on January 1, 1996 were capitalized and were
being amortized over a five-year period.

F-176
282
GVEC RURAL TV, INC.

NOTES TO FINANCIAL STATEMENTS -- (Continued)

(2) ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from subscribers
for monthly programming fees and for rental charges on leased equipment.
Accounts receivable as of December 31, 1996 and 1995 are as follows:

1996 1995
---- ----

Programming (net of allowance of $3,418 and $0 at December 31,
1996 and 1995)........................................................... $ 64,117 $ 42,784
Equipment leases-- current portion (note 7)................................ 122,967 130,904
Other...................................................................... 27,743 12,413
------------ -----------
$ 214,827 $ 186,101
============ ===========

(3) NOTE RECEIVABLE

In January 1995, the Company sold for $230,000 its rights to provide
certain wireless television services to an unrelated party. An initial payment
of $100,000 was received at the time of sale, and the buyer signed a note for
the remaining $130,000. The note was paid in full in March 1997.

(4) INCOME TAXES

The Company's deferred tax assets relate principally to nondeductible
reserves for bad debt and a net operating loss carryforward.

A summary of deferred tax assets at December 31, 1996 follows:

Deferred tax assets:
Temporary differences......................................................... $ 2,056
Net operating loss carryforward............................................... 7,552
-----------
Total deferred tax assets............................................. 9,608
Less asset valuation reserve.................................................... (9,608)
-----------
Net deferred tax assets............................................... $ --
===========

Due to outstanding net operating loss carryforwards, no provision for
income taxes was recorded in 1996. The net operating loss for tax purposes of
$22,211 as of December 31, 1996 expires in 2011.

In 1995 and 1994, the Company was not directly subject to income taxes,
as it was operated as a segment of GVEC. GVEC did not allocate tax expense
(benefit) to the segment and, accordingly, no provision for income taxes has
been made in 1995 or 1994.

(5) NRTC PATRONAGE CAPITAL

F-177
283
GVEC RURAL TV, INC.

NOTES TO FINANCIAL STATEMENTS -- (Continued)

(6) RELATED PARTY TRANSACTIONS

On January 1, 1996, GVEC contributed all of its satellite television
assets to GVEC Rural TV, Inc. in exchange for 100% of the issued and outstanding
7,500 shares of Class A common stock. These assets were recorded at historical
cost. GVDC purchased 100% of the issued and outstanding 2,500 shares of Class B
common stock in January 1996. Class A and B common shares have identical
features except that dividends may be declared separately on each issue at the
discretion of the Board of Directors. GVEC and GVEC Rural TV, Inc. share the
same Board of Directors as GVDC.

GVEC continues to perform management and accounting functions for GVEC
Rural TV, Inc. and bills GVEC Rural TV, Inc. for such services. A related
payable to GVEC of $16,707 exists at December 31, 1996.

(7) LEASES

In addition to selling satellite television equipment, the Company also
leases the equipment to customers for periods of three to seven years at a fixed
monthly rental charge. These leases qualify as sales-type capital leases and are
therefore recorded as sales of equipment.

Future minimum rental payments to be received, less a monthly handling
fee and an allowance for uncollectible accounts, are included in accounts
receivable. At December 31, 1996, 1995 and 1994, the net lease receivable was
$615,560, $688,969 and $202,500, respectively. The December 31, 1996 lease
receivable is to be received in subsequent years as follows:

1997....................................................... $122,967
1998....................................................... 122,967
1999....................................................... 122,967
2000....................................................... 122,967
2001....................................................... 114,689
Thereafter................................................. 41,401
Less allowance............................................. (32,398)
-------
Total................................................. $615,560
========

Lease receivables due within one year are classified as current
receivables on the Company's balance sheets.

(8) SUBSEQUENT EVENT

On June 3, 1997, the Company contracted to sell certain of its DBS
assets to Golden Sky Systems, Inc. The acquisition closed on July 8, 1997.

F-178
284
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

Financial Statements
December 31, 1996, 1995 and 1994

(With Independent Auditors' Report Thereon)

F-179

285
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Cable and Communications Corporation:

We have audited the accompanying balance sheets of NRTC System No.
0093, a segment of Cable and Communications Corporation, as of December 31, 1996
and 1995 and the related statements of operations, segment equity and cash flows
for each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of NRTC System No.
0093, a segment of Cable and Communications Corporation, at December 31, 1996
and 1995 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 1996 in conformity with
generally accepted accounting principles.

KPMG Peat Marwick LLP

November 14, 1997

F-180
286
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

BALANCE SHEETS
December 31, 1996 and 1995

1996 1995
---- ----
ASSETS

Current assets:
Cash and cash equivalents..................................................... $ 12,674 18,023
Accounts receivable........................................................... 86,951 37,820
Notes receivable, current portion (note 3).................................... 79,150 54,044
Inventory..................................................................... 24,630 25,424
Total current assets.................................................. 203,405 135,311
Franchise costs (net of accumulated amortization of $62,713 and $36,763
in 1996 and 1995, respectively)............................................... 196,737 222,687
Notes receivable, long-term portion (note 3).................................... 89,231 99,895
---------- -------
Total assets.......................................................... $ 489,373 457,893
========== =======

LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable.............................................................. $ 44,204 37,236
Due to related party (note 5)................................................. 13,050 6,165
Unearned revenue.............................................................. 60,324 14,033
Other liabilities............................................................. 5,075 3,388
---------- -------
Total current liabilities....................................................... 122,653 60,822
Segment equity.................................................................. 366,720 397,071
Commitments
Total liabilities and segment equity.................................. $ 489,373 457,893
=========== =======

See accompanying notes to financial statements.

F-181
287
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Revenues:
Programming revenues........................................ $ 553,123 292,826 21,057
Equipment sales............................................. 168,781 387,991 220,823
----------- ---------- ----------
Total revenues...................................... 721,904 680,817 241,880
----------- ---------- ----------
Cost of revenues:
Programming costs........................................... 391,977 186,048 13,000
Equipment costs............................................. 139,134 311,501 185,415
----------- ---------- ----------
Total cost of revenues.............................. 531,111 497,549 198,415
----------- ---------- ----------
Gross profit.................................................. 190,793 183,268 43,465
----------- ---------- ----------
Expenses:
Salaries, wages and benefits................................ 86,274 56,561 16,533
Amortization................................................ 25,950 25,950 10,813
Other general and administrative............................ 63,523 53,035 1,977
----------- ---------- ----------
Total expenses...................................... 175,747 135,546 29,323
----------- ---------- ----------
Net income.......................................... $ 15,046 47,722 14,142
=========== ========== ==========

See accompanying notes to financial statements.

F-182
288
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

STATEMENTS OF SEGMENT EQUITY For the
years ended December 31, 1996, 1995 and 1994

Balance at December 31, 1993..................................................................... $ 264,085
Net income....................................................................................... 14,142
-------------
Balance at December 31, 1994..................................................................... 278,227
Investments by parent............................................................................ 71,122
Net income....................................................................................... 47,722
-------------
Balance at December 31, 1995..................................................................... 397,071
Distributions to parent.......................................................................... (45,397)
Net income....................................................................................... 15,046
-------------
Balance at December 31, 1996..................................................................... $ 366,720
=============

See accompanying notes to financial statements.

F-183
289
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

STATEMENTS OF CASH FLOWS For the
years ended December 31, 1996, 1995 and 1994

1996 1995 1994
---- ---- ----

Operating activities:
Net income ............................................. $ 15,046 47,722 14,142
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Bad debt expense .................................... 1,128 9,101 --
Amortization ........................................ 25,950 25,950 10,813
Changes in:
Accounts receivable ............................... (49,131) (27,025) (10,795)
Notes receivable .................................. (15,570) (163,040) --
Inventory ......................................... 794 7,682 (33,106)
Accounts payable .................................. 6,968 21,915 15,321
Due to related party .............................. 6,885 (3,428) 14,228
Unearned revenues ................................. 46,291 7,562 6,471
Other liabilities ................................. 1,687 2,520 868
Customer deposits ................................. -- (7,989) 7,989
-------- ------ ------
Net cash provided by (used in) operating activities ...... 40,048 (79,030) 25,931
-------- ------ ------
Cash flows from financing activities--
Cash investments (distributions) by Cable &
Communications Corporation ........................ (45,397) 71,122 --
-------- ------ ------
Net increase (decrease) in cash and cash equivalents ..... (5,349) (7,908) 25,931
Cash and cash equivalents at beginning of year ........... 18,023 25,931 --
-------- ------ ------
Cash and cash equivalents at end of year ................. $ 12,674 18,023 25,931
======== ====== ======

See accompanying notes to financial statements.

F-184
290
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

NOTES TO THE FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

The NRTC System No. 0093 is a segment (the Segment) of Cable and
Communications Corporation (C&CC) which provides rural direct broadcasting
satellite (DBS) television service to customers within its franchise areas which
includes fifteen counties in eastern Montana. C&CC is a wholly-owned subsidiary
of Mid-Rivers Telephone Cooperative, Inc. (MRTC). MRTC is an affiliated
associate member of the National Rural Telecommunications Cooperative (NRTC).
The NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes) to
provide exclusive marketing rights for distribution of DirecTV television
programming in the rural territories of the United States. The marketing rights
give the owner exclusive rights to distribution of DirecTV service within the
contract area. In 1994, Hughes launched the satellites that provide programming
for DirecTV.

The financial statements presented as of and for the years ended
December 31, 1996, 1995 and 1994, represent the financial position and operation
of the Segment. The Segment was not operated as a separate entity or a separate
subsidiary of C&CC in 1996, 1995 or 1994. The financial statements presented
herein have been derived from the records of C&CC and have been prepared to
present the Segment's financial position, results of operations and cash flows
on a stand-alone basis. The financial statements do not include certain costs
and expenses which could be allocable to the segment by C&CC. Accordingly, costs
and expenses presented may or may not be indicative of what such expenses would
have been had the Segment been operated as a separate entity.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenue represents subscriber advance billings for
one or more months and is deferred until the service is provided. Equipment
sales are recognized as revenue when the equipment is delivered to the customer.
Other revenues consist primarily of various DBS service and maintenance revenue.
These revenues are recognized in the same manner as DBS programming and
equipment sales.

Cash Equivalents

The Segment considers all liquid investments purchased with a maturity
of ninety days or less to be cash equivalents.

Inventory

Inventory is stated at the lower of average cost (first-in, first-out)
or market and consists primarily of receivers, satellite dishes and accessories.

Use of Estimates

F-185
291
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Fair Value of Financial Instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value as a result of the short-term
nature of the instruments.

Intangible Assets

Long-lived Assets

Income Taxes

The Segment is not directly subject to income taxes, as it is operated
as a segment of C&CC. C&CC did not allocate tax expense to the segment and,
accordingly, no provision for income taxes has been made.

(2) ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts due from subscribers
for monthly programming fees.

(3) NOTES RECEIVABLE

The Segment finances DBS equipment sales to customers. These sales
contracts are executed for periods varying from twelve to thirty-six months.
These notes are amortized through monthly payments. The contracts are
collateralized by security interests in the equipment purchased. Notes
receivable as of December 30, 1996 and 1995 are as follows:

1996 1995
---- ----

Notes receivable (net of allowance of $10,229 and
$9,101 in 1996 and 1995, respectively) ........ $168,381 153,939
Less current portion ............................ 79,150 54,044
------ ------
$ 89,231 99,895
======== ======

F-186
292
NRTC SYSTEM NO. 0093
A Segment of Cable and Communications Corporation

NOTES TO THE FINANCIAL STATEMENTS -- (Continued)

(4) NRTC PATRONAGE CAPITAL

The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. The patronage dividend can be either
qualified or nonqualified upon the election of the Segment. If qualified, 20% of
the dividend is received in cash while 80% is distributed in patronage capital
certificates, which can be redeemed in cash at a future date at the discretion
of the NRTC. Nonqualified dividends are distributed entirely as patronage
capital certificates, which will generally be redeemable only upon the
dissolution of the NRTC. The Segment has elected to receive the nonqualified
dividend. As such, the asset and equally offsetting deferred income liability
have not been recorded as there is no financial statement impact.

(5) RELATED PARTY TRANSACTIONS

C&CC performs management and service and maintenance functions for the
Segment and allocates such labor and benefit Segment. A related payable to C&CC
of $13,050 and $6,165 exists at December 31, 1996, and 1995, respectively.

(6) SUBSEQUENT EVENT

The Segment contracted to sell certain of its DBS assets to Golden Sky
Systems, Inc. The acquisition closed on December 17, 1997.

F-187
293
DIRECT BROADCAST SATELLITE
(A Segment of Nemont Communications Inc.)

FINANCIAL STATEMENTS
DECEMBER 31, 1997

F-188
294
INDEPENDENT AUDITORS' REPORT

The Board of Directors

We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of Nemont Communications Inc. (NCI), as of
December 31, 1997, and the related statements of operations, segment equity, and
cash flows for the year then ended. The financial statements are the
responsibility of the Segment's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
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, the financial statements referred to above present
fairly, in all material respects, the financial position of Direct Broadcast
Satellite at December 31, 1997, and the results of its operations and its cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.

CHMS, P.C.
Certified Public Accountants
Sidney, Montana

July 31, 1998

F-189
295
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
BALANCE SHEET
DECEMBER 31, 1997

1997
----

ASSETS
CURRENT ASSETS
Cash........................................................................................ $ 925
Accounts receivable - Note B................................................................ 72,645
Inventory - Note A.......................................................................... 18,248
----------
TOTAL CURRENT ASSETS........................................................................ 91,818
INTANGIBLE EQUIPMENT - NET OF ACCUMULATED
AMORTIZATION - NOTE D............................................................................ 239,780
OTHER ASSETS
Notes receivable - Note E................................................................... 24,193
NRTC patronage capital - Note C............................................................. 47,249
----------
TOTAL OTHER ASSETS.......................................................................... 71,442
----------
TOTAL ASSETS................................................................................ $ 403,040
=========
LIABILITIES & SEGMENT EQUITY
CURRENT LIABILITIES
Accounts payable............................................................................ $ 253,035
Unearned revenue............................................................................ 95,171
Notes payable - Note F...................................................................... 23,225
----------
TOTAL CURRENT LIABILITIES................................................................... 371,431
SEGMENT EQUITY................................................................................... 31,609
----------
TOTAL LIABILITIES AND SEGMENT EQUITY........................................................ $ 403,040
=========

See accompanying notes to financial statements.

F-190
296
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997

1997
----

REVENUES
Programming revenues........................................................................ $1,636,584
Equipment sales............................................................................. 146,111
Other revenues.............................................................................. 3,921
----------
TOTAL REVENUES.............................................................................. 1,786,616
COST OF REVENUES
Programming costs........................................................................... 1,214,952
Equipment costs............................................................................. 170,007
Rebate expense.............................................................................. 12,546
Commission expense.......................................................................... 525,636
----------
TOTAL COST OF REVENUES...................................................................... 1,923,141
----------
GROSS PROFIT............................................................................... (136,525)
EXPENSES
Bad debt expense............................................................................ 7,866
Amortization................................................................................ 38,365
Marketing................................................................................... 34,365
Office expense - general.................................................................... 52,192
Salaries.................................................................................... 114,950
----------
TOTAL EXPENSES.............................................................................. 247,738
----------
LOSS FROM OPERATIONS........................................................................ (384,263)
OTHER INCOME
Interest income............................................................................. 4,673
Dividend income............................................................................. 21,446
----------
26,119
----------
NET LOSS.................................................................................... $(358,144)
==========

See accompanying notes to financial statements.

F-191
297
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF SEGMENT EQUITY
YEAR ENDED DECEMBER 31, 1997

1997
----

BALANCE AT JANUARY 1, 1997....................................................................... $ 280,411
Company contribution to Segment............................................................. 109,342
Net Loss.................................................................................... (358,144)
-----------
BALANCE AT DECEMBER 31, 1997..................................................................... $ 31,609
===========

See accompanying notes to financial statements.

F-192
298
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997

1997
----

CASH FLOWS FROM OPERATION ACTIVITIES
Net loss.................................................................................... $ (358,144)
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization............................................................................ 38,365
Patronage capital allocation............................................................ (15,012)
Changes in operating assets and liabilities:
(increase) decrease in accounts receivable.............................................. (47,408)
(increase) decrease in inventories...................................................... 2,336
Increase (decrease) in accounts payable................................................. 58,513
Increase (decrease) in unearned revenue................................................. 95,171
------
NET CASH USED BY OPERATING ACTIVITIES....................................................... (226,179)
CASH FLOWS FROM INVESTING ACTIVITIES
Collections on notes receivable............................................................. 38,402
CASH FLOWS FROM FINANCING ACTIVITIES
Cash investments by Nemont Communications, Inc.............................................. 109,342
Payments on notes payable................................................................... (4,205)
------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................... 105,137
-------
NET DECREASE IN CASH........................................................................ (82,640)
CASH AT BEGINNING OF YEAR........................................................................ 83,565
CASH AT END OF YEAR......................................................................... $ 925
===========

See accompanying notes to financial statements.

F-193
299
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Direct Broadcast Satellite (the Segment) is a segment of Nemont
Communications, Inc. (the Company). The Company is a wholly-owned subsidiary of
Nemont Telephone Cooperative (the Parent). The Segment was formed in 1994 for
the purpose of acquiring, owning and operating direct broadcast satellite (DBS)
television systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative. (NRTC). The NRTC has contracted
with Hughes Communication Galaxy, Inc. (Hughes), to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive eights to
distribution of DirecTV service within the contract area. In 1994, Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1997, the Company had the operating rights for portions of four counties in
northeastern Montana.

The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds the operations of the Segment. Were the Segment an independent
entity, these funds would have to be obtained from other sources.

Presentation

The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenue represents subscriber advances billings and
is deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. The Company
periodically offers rebates and coupons to customers, principally in connection
with prepayment plans, rebates are recorded when they are utilized.

Inventory

Inventory is stated at the lower of average cost or market and consists
entirely of satellite receivers, dishes and accessories.

Use of Estimates

Fair value of financial instruments

Financial instruments consisting of receivables and accounts payable
are carried at cost, which approximates fair value, as a result of the
short-term nature of the instruments.

F-194
300
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

Intangible

The cost of acquiring the rights to provide DirecTV satellite services
are capitalized as intangible assets and are being amortized on a straight-line
basis over ten years, which is the expected useful life of the revenue stream of
those services. Intangible assets also include a one-time membership fee paid to
the NRTC, which is also being amortized on a straight-line basis over ten years.

Long-lived Asset

Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount of fair value less costs to
sell.

Income Taxes

NOTE B - ACCOUNTS RECEIVABLE

Accounts receivable consist of amounts due from subscribers for monthly
programming fees.

NOTE C - NRTC PATRONAGE CAPITAL

The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset for the noncash portion of the patronage
dividend.

NOTE D - INTANGIBLE ASSETS

NRTC - DBS Franchise Fee....................................................... $ 383,648
less accumulated amortization............................................... (143,868)
-----------
$ 239,780
===========

F-195
301
DIRECT BROADCAST SATELLITE.
(A SEGMENT OF NEMONT COMMUNICATIONS INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE E - NOTES RECEIVABLE

Notes receivable consist of amounts due from customers financing the
purchase of DBS dishes. Interest is being charged at a rate of 12% per year, due
in monthly installments over a term of 36 months.

NOTE F - NOTES PAYABLE

Non-interest bearing notes with associated companies are as follows:

Northern Electric Cooperative $ 6,000
Yellowstone Valley Electric Cooperative 7,200
Sheridan Electric Cooperative 10,025
----------
$ 23,225
==========

NOTE G - SUBSEQUENT EVENTS

During October 31, 1997, the Parent contracted to sell substantially
all of the Segment's assets and liabilities to Golden Sky Systems, Inc. The
acquisition closed in January 1998.

F-196
302
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

F-197
303
INDEPENDENT AUDITORS' REPORT

To the Board of Directors
SCS Communications & Security, Inc.
Stayton, Oregon

We have audited the accompanying balance sheets of Direct Broadcast
Satellite (the Segment), a segment of SCS Communications & Security, Inc., as of
December 31, 1997 and 1996, and the related statements of operations, segment
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Segment's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion the financial statements referred to above present
fairly, in all material respects, the financial position of Direct Broadcast
Satellite as of December 31, 1997 and 1996, and the results of. its operations
and cash flows for the years then ended, in conformity with generally accepted
accounting principles.

Aldrich, Kilbride & Tatone LLP

July 26, 1998
Salem, Oregon

F-198
304
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

ASSETS 1997 1998
---- ----

Current assets:
Cash ................................................................. $ 84,539 28,556
Accounts receivable (Note 2) ......................................... 39,432 41,828
Inventory ............................................................ 3,914 27,662
Prepaid expenses ..................................................... 4,471 5,329
-------- -------
Total current assets .............................................. 132,356 103,375
-------- -------
Equipment ............................................................ 7,472 9,410
Less accumulated depreciation ........................................ 4,633 3,523
-------- -------
2,829 5,887
Intangible assets, net of accumulated amortization ................... 202,209 221,734
NRTC patronage investment (Note 3) ................................... 11,802 7,445
-------- -------
$345,206 338,441
======== =======

LIABILITIES AND SEGMENT EQUITY
Current liabilities:
Accounts payable ..................................................... $ 85,120 52,566
Unearned revenue ..................................................... 31,883 51,477
-------- -------
Total current liabilities ......................................... 117,003 104,043
Segment equity ....................................................... 232,203 234,398
-------- -------
$349,206 338,441
======== =======

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

F-199
305
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
---- ----

Revenues:
Basic services revenues ........... $ 411,265 237,646
Pay-per-view revenues ............. 70,981 48,102
Equipment sales ................... 28,624 65,486
Magazine sales .................... 536 414
--------- --------
Total revenues ................. 511,406 351,648
========= ========
Cost of revenues:
Programming costs ................. 243,583 154,084
Equipment costs ................... 119,310 120,243
--------- --------
Total cost of revenues ......... 362,893 274,327
--------- --------
Gross profit ................... 148,513 77,321
--------- --------
Expenses:
Customer operations expense ....... 43,779 19,136
Corporate operations expense ...... 100,681 71,040
Depreciation and amortization
expense ......................... 21,268 21,204
--------- --------
Total expenses ................. 165,728 111,380
--------- --------
Operating loss ................. (17,215) (34,059)
Other income ...................... 15,020 13,491
--------- --------
Net loss ....................... $ ( 2,195) (20,568)
========= ========

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

F-200
306
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

STATEMENTS OF SEGMENT EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996

Balance at December 31, 1995 ................... $ 254,966
Company contribution to Segment.............. --
1996 net loss................................ (20,568)
Balance at December 31, 1996 ................... 234,398
Company contribution to Segment ............. --
1997 net loss................................ (2,195)
---------
Balance at December 31, 1997 ................... $ 232,203
=========

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

F-201
307
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996

1997 1996
---- ----
Cash flows from operating activities:

Net loss ..................................................... $ (2,195) (20,568)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ........................... 21,268 21,204
Patronage income ........................................ (4,357) (5,425)
Loss on disposal of assets .............................. 1,698 --
Changes in assets and liabilities:
Accounts receivable ..................................... 2,396 (37,038)
Inventory ............................................... 23,748 20,751
Prepaid expenses ........................................ 858 (3,061)
Accounts payable ........................................ 32,554 22,990
Unearned revenue ........................................ (19,594) 31,265
-------- -------
Net cash provided by operating activities .................... 56,376 30,118
Cash flows from investing activities -- purchases of equipment .. (393) (1,764)
-------- -------
Net increase in cash ......................................... 55,983 28,354
Cash, beginning ................................................. 28,556 202
-------- -------
Cash, ending .................................................... $ 88,539 28,556
======== ======

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

F-202
308
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations

Direct Broadcast Satellite (the Segment) is a segment of SCS
Communications and Security, Inc (the Company). The Company is a wholly-owned
subsidiary of Stayton Cooperative Telephone Company (the Parent). The Segment
was formed for the purpose of acquiring, owning and operating direct broadcast
satellite (DBS) systems. The Company is an affiliated associate member of the
National Rural Telecommunications Cooperative (NRTC). The NRTC has contracted
with Hughes Communications Galaxy, Inc. (Hughes) to provide exclusive marketing
rights for distribution of DirecTV satellite television programming in the
United States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994 Hughes
launched the satellites that provide programming for DirecTV. At December 31,
1997 and 1996 the Company had the operating rights for portions of two Oregon
counties within and around the cities of Stayton and Salem, Oregon.

The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company. Accordingly,
the Company funds. the operations of the Segment. Were the Segment an
independent entity, these funds would have to be obtained from other sources.

Presentation

The Segment is not a separate subsidiary of the Company nor has it been
operated as a separate entity. The financial statements presented herein have
been derived from the records of the Company and have been prepared to present
the Segment's financial position, results of operations and cash flows on a
stand-alone basis. Accordingly, the financial statements include certain costs
and expenses, which have been allocated to the Segment by the Company. Such
allocated expenses may or may not be indicative of what such expenses have been
had the Segment been operated is a separate entity.

Revenue Recognition

Programming revenue is recognized in the month the service is provided
to the subscriber. Unearned revenue represents subscriber advance billings and
is deferred until the service is provided. Equipment sales are recognized as
revenue when the equipment is delivered to the customer. The Segment
periodically offers rebates and coupons to customers, principally in connection
with prepayment plans, rebates are recorded when they are utilized.

Estimates

The Segment uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results could differ from these estimates.

F-203
309
DIRECT BROADCAST SATELLITE
(A SEGMENT OF SCS COMMUNICATIONS & SECURITY, INC.)

NOTES TO FINANCIAL STATEMENTS, CONTINUED
DECEMBER 31, 1997 AND 1996

Inventory

Inventory is stated at the lower of cost or market and consists
entirely of satellite receivers, dishes and accessories.

Equipment

Equipment is recorded at cost and depreciated over the estimated useful
lives using the straight-line method of depreciation. Estimated useful lives are
five years.

Intangible Assets

The cost of acquiring the rights to provide Direct satellite services
are capitalized as intangible assets and are being amortized on a straight-line
basis over fifteen years, which is the expected useful life of the revenue
stream of those services. Intangible assets also include a one-time membership
fee paid to the NRTC, which is also being amortized on a straight-line basis
over fifteen years.

Income Taxes

(2) ACCOUNTS RECEIVABLE

Accounts receivable consists of amounts due from subscribers for
monthly programming fees.

(3) NRTC PATRONAGE CAPITAL

The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is received in
cash and 80% is distributed in the form of NRTC patronage capital certificates,
which will be redeemed in cash at a future date at the discretion of the NRTC.
The Segment has recorded an asset for the noncash portion of the patronage
dividend. Non-cash patronage is recognized as revenue when the patronage
allocation is received.

(4) SUBSEQUENT EVENTS

In February 1998, the Parent contracted to sell substantially all of
the Segment's assets and liabilities to Golden Sky Systems, Inc. The transaction
closed in April, 1998.

F-204
310
PRIMEWATCH, INC.

FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997

TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

F-205
311
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholder of
PrimeWatch, Inc.:

We have audited the accompanying balance sheet of PrimeWatch, Inc. (a
North Carolina corporation) as of December 31, 1997, and the related statements
of operations, stockholder's equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PrimeWatch, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Raleigh, North Carolina,
March 30, 1998.

F-206
312
PRIMEWATCH, INC.

BALANCE SHEET - DECEMBER 31, 1997

Assets
1997
----
Current assets:

Cash ................................................................ $ 60,813
Accounts receivable ................................................. 217,208
Materials and supplies .............................................. 62,495
Prepaid expenses .................................................... 25,388
Notes receivable .................................................... 25,553
-----------
391,457
-----------
Property and equipment ....................................................... 177,325
Less - Accumulated depreciation ..................................... (83,575)
-----------
93,750
-----------
Investments in associated organizations ...................................... 166,350
-----------
Other assets ................................................................. 645,406
-----------
$ 1,296,963
===========

LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt ................................... $ 185,412
Capital lease obligations ........................................... 0
Accounts payable and accrued expenses ............................... 279,223
Deferred revenue .................................................... 139,893
-----------
604,528
Long-term debt ............................................................... 1,252,333
-----------
Total liabilities ................................................... 1,856,861
-----------
Commitments and contingencies (Notes 1 and 8)
Stockholder's equity (deficit):
Common stock, $100 par value, authorized 100,000 shares, 8,900
shares issued and outstanding at December 31, 1997 ................ 890,000
Retained deficit ............................................................. (1,449,898)
-----------
Total stockholder's equity (deficit) ................................ (559,898)
-----------
$ 1,296,963
===========

The accompanying notes to financial statements are an integral part of this
balance sheet.

F-207
313
PRIMEWATCH, INC.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997

1997
----

Sales ....................... $ 2,301,144
Cost of goods sold .......... 1,640,672
-----------
Gross profit ........ 660,472
Operating expenses .......... 586,163
Depreciation and amortization 142,896
-----------
Loss from operations (68,587)
Interest expense ............ 102,847
Interest and other income ... 6,481
-----------
Net loss .................... $ (164,953)
===========

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

F-208
314
PRIMEWATCH, INC.

STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1997

Total
Stockholder's
Common Stock Retained Equity
Shares Amount Deficit (Deficit)
------ ------ ------- ---------

Balance at December 31, 1996. 7,150 715,000 (1,284,945) (569,945)
Sale of stock .......... 1,750 175,000 0 175,000
Net loss ............... 0 0 (164,953) (164,953)
----- ----------- ----------- -----------
Balance at December 31, 1997 8,900 $ 890,000 $(1,449,898) $ (559,898)
===== =========== =========== ===========

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

F-209
315
PRIMEWATCH, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

1997
----
Cash flows from operating activities:

Net loss ......................................................... $(164,953)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities-
Depreciation and amortization ................................. 142,896
Interest expense financed by long-term debt ................... 0
Loss on sale of property ...................................... 14,254
Noncash capital credits ....................................... (13,037)
Amortization of rebate program ................................ 78,016
Other, net .................................................... 0
Changes in operating assets and liabilities:
Accounts receivable ..................................... (89,716)
Materials and supplies .................................. 28,367
Prepaid expenses ........................................ (151)
Accounts payable and accrued expenses ................... (34,751)
Deferred revenue ........................................ (59,891)
---------
Net cash provided by (used in) operating
activities ..................................... (98,966)
---------

Cash flows from investing activities:
Purchase of property and equipment ............................... (19,027)
Proceeds from sale of property ................................... 24,068
Decrease in notes receivable ..................................... 15,268
---------
Net cash provided by (used in) investing activities...... 20,309
---------
Cash flow from financing activities:
Proceeds from long-term debt ..................................... 100,000
Repayment of capital lease obligations: .......................... (3,417)
Repayment of long-term debt ...................................... (174,357)
Proceeds from sale of stock ...................................... 175,000
---------
Net cash provided by (used in) financing activities...... 97,226
---------
Net increase in cash and cash equivalents................................. 18,569
Cash and cash equivalents, beginning of year ............................. 42,244
---------
Cash and cash equivalents, end of year ................................... $ 60,813
=========
Supplemental disclosures of cash flow information:
Interest paid .............................................. $ 115,829
=========

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

F-210
316
PRIMEWATCH, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997 AND 1996

1. NATURE OF THE BUSINESS:

PrimeWatch, Inc. (the Company) was incorporated in the state of North Carolina
on November 1, 1992, and is a wholly owned subsidiary of Halifax Electric
Membership Corporation (Halifax). The Company's principal business activities
are the sale, lease and service of satellite and security systems and the sale
of C-Band and DBS system programming.

The Company sells and leases security and satellite systems and related
monitoring and programming, respectively, from its facilities located in
Enfield, North Carolina. The Company's customer base is primarily within
Halifax, Warren, Nash and Edgecomb Counties.

Halifax and the Company have entered into negotiations to sell the outstanding
common stock of the Company to an unrelated third party. No definitive agreement
has been reached. The Company has suffered recurring losses and at December 31,
1997, had a retained deficit of $1,449,898. The Company has obtained
representations from Halifax to fund any operating deficit for fiscal 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Revenue Recognition

Subscribers to monthly DBS and C-Band System programming are billed in advance.
Revenues are recognized in the month the service is provided to the subscriber.
Advance billings represent deferred revenue in the accompanying balance sheets.

Cash and Cash Equivalents

The Company considers all temporary cash investments purchased with an original
maturity of three months or less to be cash equivalents.

Materials and Supplies

Materials and supplies are valued at the lower of average cost or market.

Notes Receivable

Notes receivable result from sales of satellite and security systems financed by
the Company. These notes bear interest ranging from 12% to 12.9% and payments of
principal and interest are required to be made monthly over periods of two to
five years. Notes receivable at December 31, 1997, of $25,553 were net of an
allowance for uncollectible accounts of $11,265.

F-211
317
PRIMEWATCH, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997 AND 1996

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed by using the
straight-line method over the following estimated useful lives:

Estimated
Useful Life
-----------

Machinery and equipment 3 - 10 years
Security equipment 3 - 5 years
Office equipment 5 - 10 years
Mobile phone equipment 5 years
Leased equipment 5 years

Depreciation expense for the year ended December 31, 1997, was $42,466, of which
$3,191 related to amortization of capital lease obligations.

The Company leases some equipment to customers under terms which are accounted
for as operating leases. Rental revenues from these leases are recognized
ratably over the life of the lease and the related equipment is depreciated over
its estimated useful life. Until December 1995, all leases were cancelable at
any time. All new leases are noncancellable for 12 months. After the initial
term, the leases continue on a month-to-month basis until terminated by either
party.

At December 31, 1997, equipment rented to customers had a carrying value (net of
accumulated depreciation of $39,001) totaling $51,393.

Other Assets

Other assets are reflected on the accompanying balance sheets net of accumulated
amortization in the amount of $439,375 at December 31, 1997.

Amortization is computed using the straight-line method. Deferred assets and
their respective periods of amortization are detailed as follows:

Amortization
1997 Period
---- ------

DBS franchise $561,909 10 years
Deferred interest expense 38,838 10 years
Goodwill 28,751 20 years
CACT customer acquisition 15,908 5 years
Organization costs 0 5 years
--------
$645,406
========

F-212
318
Use of Estimates

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

3. INCOME TAXES:

Due to a cumulative net operating loss incurred by the Company for income, tax
purposes in the amount of approximately $1,395,000 at December 31, 1997, no
provision for income taxes is included in the accompanying statements of income.
No deferred taxes have been recognized in these financial statements, due to the
uncertainty regarding the realization of the net deferred tax assets.

4. INVESTMENTS IN ASSOCIATED ORGANIZATIONS:

Following is a comparative summary of investments in associated organizations,
as of December 31, 1997:

1997
----

NRUFC patronage capital certificates $121,800
National Rural Telecommunications
Cooperative patronage capital certificates 44,550
--------
$166,350
========

The patronage capital certificates represent net margins of the respective
associated organizations which have been allocated to the Company. There is no
market for these investments.

5. LONG-TERM DEBT:

Long-term debt consisted of the following at December 31, 1997:

1997
----

National Rural Utilities Cooperative Finance
Corporation (NRUCFC) DBS equipment loan,
interest at variable rates (6.35% at December
31, 1997), due September 1999 with interest
due quarterly until maturity. $ 500,000
NRUCFC DBS franchise rights and related
interest loans, interest at variable rates
(6.2% at December 31, 1997), due August 2004
and December 2004. Principal and interest
paid quarterly. 937,746
-----------
1,437,746
Less Current maturities 185,412
-----------
$1,252,334
==========

F-213
319
Annual maturities of debt are approximately as follows:

1998 $ 185,412
1999 697,159
2000 209,698
2001 222,997
2002 117,829
Thereafter 4,651
----------
$1,437,746
==========

6. PENSION PLAN:

All employees of the Company participate in the National Rural Electric
Cooperative Association (NRECA) Retirement and Security Program, a defined
benefit pension plan qualified under Section 401 and tax exempt under Section
501(a) of the Internal Revenue Code. From the Company's inception into the plan
through September 30,1996, a moratorium prohibited contributions. The moratorium
resulted from the plan reaching its full funding limitation. In this
multiemployer plan, the accumulated benefits and plan assets are not determined
or allocated separately by individual employers.

The employees of the Company also participate in the NRECA SelectRe 401K Plan.
In this defined contribution plan, the Company makes contributions to the plan
equal in the amounts accrued for pension expense.

Pension expense for the year ended December 31, 1997, totaled $16,992.

7. RELATED-PARTY TRANSACTIONS:

The Company has an operations and maintenance agreement with Halifax to provide
personnel, equipment and facilities for operations. The Company reimburses
Halifax for all direct costs incurred on behalf of the Company. For the year
ended December 31, 1997, the Company reimbursed Halifax $34,289.

The balance owed to Halifax at December 31, 1997 and 1996, as a result of the
above agreement was $31,176, and is included in accounts payable and accrued
expenses on the accompanying balance sheets.

In addition, the Company was owed $2,534 from Halifax at December 31, 1997. This
amount is included in accounts receivable on the accompanying balance sheets.

8. COMMITMENTS AND CONTINGENCIES:

The Company leases certain equipment and facilities under operating leases
Future minimum rental payments required under operating leases are as follows:

1998 $26,670
1999 12,920
2000 2,420
-------
$42,010
-------

Rental expense for operating leases was $33,915 for the year ended December 31,
1997.

F-214
320
DIRECT BROADCAST SATELLITE,
A DIVISION OF BALDWIN COUNTY
ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
DECEMBER 31, 1997

F-215
321
INDEPENDENT AUDITORS' REPORT

The Board of Directors
Golden Sky Systems, Inc.
Kansas City, Missouri

We have audited the accompanying balance sheet of Direct Broadcast
Satellite, a division of Baldwin County Electric Membership Corporation as of
December 31, 1997 and the related statements of operations, division equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Direct Broadcast
Satellite, a division of Baldwin County Electric Membership Corporation at
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

Jackson Thornton & Co. P.C.

Montgomery, Alabama
July 24, 1998

F-216
322
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
BALANCE SHEET AT DECEMBER 31, 1997

ASSETS

1997
----
Current assets

Cash ............................................................. $ 12,998
Accounts receivable .............................................. 35,640
Inventory ........................................................ 26,886
---------
Total current assets .................................... 75,524
Property and equipment
DBS franchise .................................................... 459,833
Total accumulated amortization ................................... (157,112)
Leased equipment ................................................. 372,861
Total accumulated depreciation ................................... (102,664)
---------
Total property and equipment ............................ 572,918
Total Assets ............................................ $ 648,442
=========
LIABILITIES AND DIVISION EQUITY
Current liabilities
Accounts payable ................................................. $ 15,185
Due to Baldwin County Electric
Membership Corporation ......................................... 417,662
---------
Total current liabilities ............................... 432,847
Division equity
Retained earnings ................................................ 215,595
---------
Total division equity ................................... 215,595
Total liabilities and division equity .................................... $ 648,442
=========

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

F-217
323
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
STATEMENT OF OPERATIONS AND DIVISION EQUITY
FOR THE YEAR ENDED DECEMBER 31,1997

1997
----
REVENUES

DSS programming revenues ....................... $1,302,828
Leased equipment revenues ...................... 135,460
DSS equipment sales ............................ 116,309
Other DSS sales ................................ 64,943
----------
Total revenue .............................. 1,619,540
COST OF REVENUES
Programming costs .............................. 643,850
Equipment costs ................................ 290,274
Other DSS cost of revenues ..................... 32,316
Rebates ........................................ 307,570
----------
Total cost of revenue ...................... 1,274,010
----------
Gross margins .................................. 345,530
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Salaries, wages and commissions ................ 8,186
Amortization and depreciation expense .......... 130,394
Maintenance .................................... 22,547
Other selling, general and administrative ...... 120,605
----------
Total selling, general &
administrative expenses .................. 281,732
----------
Net operating margins ...................... 63,798
OTHER INCOME
Interest income ................................ 5,927
----------
NET MARGINS ............................................ 69,725
DIVISION EQUITY AT JANUARY 1, 1997 ..................... 145,870
----------
DIVISION EQUITY AT DECEMBER 31, 1997 ................... $ 215,595
==========

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

F-218
324
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

Increase (Decrease) in Cash and Cash Equivalents

1997
----
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:

Net margins ................................................. $ 69,725
Adjustments to reconcile net margins to net cash provided
by operating activities:
Depreciation ....................................... 84,410
Amortization ....................................... 45,984
Decrease (increase) in operating assets and
increase (decrease) in operating liabilities:
Accounts receivable ........................ 83,770
Inventory .................................. 29,999
Accounts payable ........................... 15,185
---------
Net cash from operating activities ... 329,073
---------

CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Purchase of equipment ....................................... (39,774)
Proceeds from sale of equipment ............................. 118,171
---------
Net cash from investing activities ... 78,397
---------

CASH FLOWS USED FOR FINANCING ACTIVITIES:
Due to Baldwin County Electric Membership Corporation ....... (412,239)
---------
Net cash used for financing activities (412,239)
---------

NET DECREASE N CASH AND CASH EQUIVALENTS ............................ (4,769)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...................... 17,767
---------

CASH AND CASH EQUIVALENTS AT END OF YEAR ............................ $ 12,998
=========

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

F-219
325
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and nature of operations - Direct Broadcast Satellite (the
Division) is a division of Baldwin County Electric Membership Corporation (the
Corporation). The Division was formed in September, 1992 for the purpose of
acquiring, owning and operating a direct broadcast satellite (DBS) television
systems franchise.

The Corporation is an affiliated associate member of the National Rural
Telecommunications Cooperative (NRTC). All programming is purchased through
NRTC. NRTC has contracted with Hughes Communications Galaxy, Inc. (Hughes), to
provide exclusive marketing rights for distribution of DirecTV satellite
television programming in the United States. The marketing rights give the owner
exclusive rights to distribution of DirecTV service within the contract area.
The Corporation owns the DBS franchise for portions of Baldwin County, Alabama.

The financial statements presented represent the financial position and
operations of the Division, which operates as part of the Corporation.
Accordingly, the Corporation funds the operations of the Division. Were the
Division an independent entity, these funds would have to be obtained from other
sources.

Presentation - The Division is not a separate subsidiary of the
Corporation nor has it been operated as a separate entity. The financial
statements presented herein have been derived from the records of the
Corporation and have been prepared to present the Division's financial position,
results of operations and cash flows on a stand-alone basis. Accordingly, the
financial statements include certain costs and expenses which have been
allocated to the Division by the Corporation. Such allocated expenses may or may
not be indicative of what such expenses would have been had the Division been
operated as a separate entity.

Revenue recognition - Programming revenue is recognized in the month
the service is provided to the subscriber. The Division extends credit to its
customers who are located primarily in Baldwin County.

Inventories - Inventories are priced at average historical cost. Cost
is determined by the cumulative average of all costs on a first-in, first-out
(FIFO) basis.

Equipment - Equipment has been recorded at cost and is depreciated over
the estimated useful lives using the straight-line method. Estimated useful
lives range from three to seven years.

Amortization - Intangible assets are amortized on a straight-line basis
over ten years.

F-220
326
DIRECT BROADCAST SATELLITE, A DIVISION OF
BALDWIN COUNTY ELECTRIC MEMBERSHIP CORPORATION
SUMMERDALE, ALABAMA

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.

Income Taxes - The Division's operating results are consolidated with
the Corporation's operations for tax filing purposes. The Corporation is exempt
from income taxes under Internal Revenue Code Section 501(c)(12).

NOTE 2 - CASH:

The Division maintains its cash accounts in banks located in Alabama.
Accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $ 100,000 per bank. At December 31, 1997, the Division
did not have a balance in excess of the $ 100,000 FDIC limit.

NOTE 3 - ACCOUNTS RECEIVABLE:

Accounts receivable consist of amounts due from subscribers for monthly
programming fees.

NOTE 4 - RELATED PARTY TRANSACTIONS:

In the ordinary course of business, the Division makes and receives
advances to and from the Corporation. Because the Division's assets, including
cash, are owned by the Corporation, no effort is made to segregate those assets.
The net result of these shared assets between the Division and the Corporation
is reflected in the balance sheet as due to the Corporation.

NOTE 5 - SUBSEQUENT EVENTS:

On June 29, 1998 the Corporation sold substantially all of the
Division's assets and liabilities to Golden Sky Systems, Inc.

F-221
327
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
PINE GROVE, CALIFORNIA

FINANCIAL STATEMENTS
AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1997

F-222
328
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
BALANCE SHEET
JUNE 30, 1998
(Unaudited)

ASSETS

1998
----

CURRENT ASSETS
Accounts receivable, less allowance for
doubtful accounts of $35,000 .................................. $ 376,960
Inventory ........................................................ 163,552
Prepaid expenses ................................................. 2,130
-----------
Total current assets .................................... 542,642
-----------
NONCURRENT ASSETS
Property and equipment (net of
accumulated depreciation of $224,256) ......................... 308,760
Intangible assets (net of accumulated
amortization of $596,297) ..................................... 894,446
NRTC patronage capital certificates .............................. 119,323
-----------
Net noncurrent assets ................................... 1,322,529
-----------
$ 1,865,171
===========
LIABILITIES AND SEGMENT DEFICIT

CURRENT LIABILITIES
Account payable - trade .......................................... $ 477,924
Payable to affiliates ............................................ 227,079
Unearned revenue ................................................. 284,279
Customer deposits ................................................ 3,305
-----------
Total current liabilities ............................... 992,587
-----------
NOTE PAYABLE TO AFFILIATE ................................................. 1,490,743
-----------
SEGMENT DEFICIT ........................................................... (618,159)
-----------
$ 1,865,171
===========

See accompanying notes.

F-223
329
] DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)

1998 1997
---- ----

REVENUES
Programming ..................... $ 2,465,489 $ 1,575,701
Equipment and installation sales 122,085 73,646
Lease and other ................. 38,034 46,962
----------- -----------
Total revenues ............... 2,625,608 1,696,309
----------- -----------
COST OF REVENUES
Programming costs ............... 1,654,752 1,111,922
Equipment and installation costs 123,019 105,660
Other costs ..................... 1,702 5,586
----------- -----------
Total cost of revenues ....... 1,779,473 1,223,168
----------- -----------
Gross profit ................. 846,135 473,141
----------- -----------
EXPENSES
Salaries, wages, and commissions 158,288 121,899
Selling, general and
administrative ................ 152,797 127,893
Depreciation and amortization ... 114,676 119,637
Marketing ....................... 19,043 45,790
Bad debt expense ................ -- 19,895
----------- -----------
Total expenses ............... 444,804 435,114
----------- -----------
OPERATING INCOME ......................... 401,331 38,027
----------- -----------
OTHER INCOME AND
(EXPENSES)
Patronage dividends ............. 40,134 43,052
Interest expense ................ (52,517) (52,350)
----------- -----------
Total other income and (expenses) (12,383) (9,298)
----------- -----------
NET INCOME ............................... $ 388,948 $ 28,729
=========== ===========

See accompanying notes.

F-224
330
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)

1998 1997
---- ----

BALANCE BEGINNING .......................... $(535,541) $(269,359)
Segment contribution to the Company (471,566) (263,448)
Net income ........................ 388,948 28,729
--------- ---------
BALANCE ENDING ............................. $(618,159) $(504,078)
========= =========

See accompanying notes.

F-225
331
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)

1998 1997
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................................... $ 388,948 $ 28,729
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization ....................................... 114,676 119,637
Patronage dividend - noncash ........................................ (28,093) (30,137)
Increase (Decrease) in cash due to changes in assets and liabilities:
Accounts receivable ..................................... (34,841) 30,906
Inventory ............................................... 10,410 (60,154)
Prepaid expenses ........................................ 8,758 5,549
Accounts payable - trade ................................ 261,011 25,745
Unearned revenue ........................................ (46,364) 39,361
Customer deposits ....................................... 1,600 640
--------- ---------
Net cash from operating activities ................ 676,105 160,276
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in payable to affiliates ..................................... (203,271) 72,259
Purchase of property and equipment .................................. (1,268) (3,183)
Sale of property and equipment ...................................... -- 34,096
--------- ---------
Net cash from investing activities ................ (204,539) 103,172
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash contribution to Volcano Vision, Inc. ........................... (471,566) (263,448)
--------- ---------
Net cash from financing activities ................ (471,566) (263,448)
--------- ---------
NET CHANGE IN CASH ........................................................... -- --
CASH, beginning of year ...................................................... -- --
--------- ---------
CASH, end of year ............................................................ $ -- $ --
========= =========

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ -- $ --
========= =========

See accompanying notes.

F-226
332
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the
accompanying financial statements reflect all adjustments (consisting
of normal recurring adjustments) that are necessary for a fair
presentation of the changes in financial position, results of
operations, and cash flows for the interim periods reported.

The results of operations for the six months ended June 30, 1998 and
1997, are not necessarily indicative of the results to be expected for
the full year.

NOTE 2 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Description of Operations - Direct Broadcast Satellite (the Segment) is
a segment of Volcano Vision, Inc. (the Company). The Company is a
wholly-owned subsidiary of Volcano Communications Company (the Parent).
The Segment was formed in August 1994 for the purpose of operating
direct broadcast satellite (DBS) television systems. The Company is an
affiliated associate member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications
Galaxy, Inc. (Hughes), to provide exclusive marketing rights for
distribution of Direct satellite television programming in the United
States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At
December 31, 1997, the Company had the operating rights for five
counties in California and four counties in Nevada.

The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company.

Presentation - The Segment is not a separate subsidiary of the Company,
nor has it been of operated as a separate entity. The financial
statements presented herein have been derived from the records of the
Company and have been prepared to present the Segment's financial
position, results of operations, and cash flows on a stand-alone basis.
Accordingly, the financial statements include certain cost and expenses
that have been allocated to the Segment by the Company. Such allocated
expenses may or may not be indicative of what such expenses would have
been had the Segment been operated as a separate entity.

F-227
333
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

Note 2 - Description of Operations and Summary of Significant Accounting
Policies (continued)

Revenue Recognition - Programming revenue is recognized in the month
the service is provided to the subscriber. Unearned revenues represent
subscriber advance billing and are deferred until the service is
provided. Equipment and installation sales and related costs are
recognized when the equipment is delivered to the customer.

Inventory - Inventory is stated at the lower of average cost or market
and consists of satellite receivers, dishes, and accessories.

Accounts Receivable - Accounts receivable consist primarily of amounts
due from subscribers for monthly programming and equipment lease
billings.

Customer Billing and Digital Satellite TV (DSTV) Services - The
National Rural Telecommunications Cooperative (NRTC), under contractual
arrangements with the Company, performs the billing and national
marketing functions for the DSTV services provided to customers. The
sales revenue and the customer receivables for the DSTV services, as
reflected in the financial statements, are recorded from the monthly
billing reports provided by NRTC.

Intangible Assets - The cost of acquiring the rights to provide DirecTV
satellite services are capitalized as intangible assets and are being
amortized on a straight-line basis over ten years, which is the
expected useful life of the satellites providing DBS services.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, as well as the reported amounts of
revenues and expenses during the period. Actual results could differ
from those estimates.

Fair Value of Financial Instruments - As a result of their short-term
nature, financial instruments consisting of receivables and accounts
payable are carried at cost, which approximates fair value.

F-228
334
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

Note 2 - Description of Operations and Summary of Significant Accounting
Policies
(continued)

Long-lived Assets - Long-lived assets and certain identifiable
intangibles held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets is
measured by a comparison of the carrying amount of an asset to future
net cash flows expected to be generated by that asset. If such assets
are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.

Property and Equipment - Property and equipment is recorded at cost and
is depreciated over the estimated useful lives using the straight-line
method. Estimated useful lives range from 5 to 32 years.

Income taxes - The Segment's operating results are included in the
Company's operations and consolidated with the Parent's return for tax
filing purposes. The Segment it is not directly subject to income
taxes, as it is operated as a segment of the Company. The Company did
not allocate tax expense to the Segment and, accordingly, no provision
for income taxes has been made.

Note 3 - Subsequent Events

On July 10, 1998, the Company entered into an agreement to its
franchise rights and related DBS assets and liabilities to Golden Sky
Systems, The acquisition is expected to close no later than February
27, 1999.

F-229
335
DIRECT BROADCAST SATELLITE
(A Segment of Volcano Vision, Inc.)
PINE GROVE, CALIFORNIA
INDEPENDENT AUDITOR'S REPORT
and
FINANCIAL STATEMENTS
DECEMBER 31, 1997

F-230
336
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Volcano Vision, Inc.

We have audited the accompanying balance sheet of Direct Broadcast Satellite
(the Segment), a segment of Volcano Vision, Inc., as of December 31, 1997, and
the related statements of income, segment deficit, and cash flows for the year
then ended. These financial statements are the responsibility of the Segment's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Direct Broadcast Satellite as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

Moss Adams LLP

Stockton, California
July 24, 1998

F-231
337
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
BALANCE SHEET
DECEMBER 31, 1997

ASSETS
CURRENT ASSETS
Accounts receivable, less allowance for doubtful accounts of $35,000 .... $ 342,119
Inventory ............................................................... 173,962
Prepaid expenses ........................................................ 10,888
-----------
Total current assets ........................................... 526,969
-----------
NONCURRENT ASSETS
Property and equipment (net of accumulated depreciation of $184,117) .... 347,631
Intangible assets (net of accumulated amortization of $521,760) ......... 968,983
NRTC patronage capital certificates ..................................... 91,230
-----------
Net noncurrent assets .......................................... 1,407,844
-----------
$ 1,934,813
===========

LIABILITIES AND SEGMENT DEFICIT
CURRENT LIABILITIES
Account payable - trade ................................................. $ 216,913
Payable to affiliates ................................................... 430,350
Unearned revenue ........................................................ 330,643
Customer deposits ....................................................... 1,705
-----------
Total current liabilities ...................................... 979,611
-----------
NOTE PAYABLE TO AFFILIATE ........................................................ 1,490,743
-----------
SEGMENT DEFICIT .................................................................. (535,541)
-----------
$ 1,934,813
===========

See accompanying notes.

F-232
338
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997

REVENUES
Programming .............................. $ 3,650,208
Equipment and installation sales ......... 274,240
Lease and other .......................... 112,915
-----------
Total revenues .................. 4,037,363
-----------
COST OF REVENUES
Programming costs ........................ 2,544,709
Equipment and installation costs ......... 355,139
Other costs .............................. 17,211
-----------
Total cost of revenues ................... 2,917,059
-----------
Gross profit .................... 1,120,304
-----------
EXPENSES
Salaries, wages, and commissions ......... 304,585
Selling, general, and administrative ..... 334,032
Depreciation and amortization ............ 229,015
Marketing ................................ 74,723
Bad debt expense ......................... 62,472
-----------
Total expenses .................. 1,004,827
-----------
OPERATING INCOME .................................. 115,477
-----------
OTHER INCOME AND (EXPENSES)
Patronage dividends ...................... 43,052
Interest expense ......................... (104,594)
-----------
Total other income and (expenses) (61,542)
-----------
NET INCOME ........................................ $ 53,935
===========

See accompanying notes.

F-233
339
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF SEGMENT DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997

Segment
Deficit
-----------

BALANCE AT DECEMBER 31, 1996 ............... $(268,556)
Segment contribution to the Company (320,920)
Net income ........................ 53,935
---------
BALANCE AT DECEMBER 31, 1997 ............... $(535,541)
=========

See accompanying notes.

F-234
340
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ................................................................... $ 53,935

Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization ....................................... 229,015
Provision for doubtful accounts ..................................... 35,000
Patronage dividend - noncash ........................................ (30,137)

Increase (Decrease) in cash due to changes in assets and liabilities:
Accounts receivable ................................................. 10,189
Inventory ........................................................... 38,572
Prepaid expenses .................................................... (3,803)
Accounts payable - trade ............................................ (99,506)
Unearned revenue .................................................... (196,887)
Customer deposits ................................................... 1,625
---------
Net cash from operating activities .............................. 38,003
---------

CASH FLOWS FROM INVESTING ACTIVITIES
Change in payable to affiliates ..................................... 221,646
Purchase of property and equipment .................................. (14,139)
Sale of property and equipment ...................................... 75,410
---------
Net cash from investing activities ............................. 282,917
---------

CASH FLOWS FROM FINANCING ACTIVITIES
Cash contribution to Volcano Vision, Inc. ........................... (320,920)
---------
Net cash from financing activities ............................. (320,920)
---------
NET CHANGE IN CASH ........................................................... --
CASH, beginning of year ...................................................... --
---------
CASH, end of year ............................................................ $ --
=========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .............................................. $ --
=========

See accompanying notes.

F-235
341
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Description of Operations - Direct Broadcast Satellite (the Segment) is
a segment of Volcano Vision, Inc. (the Company). The Company is a
wholly-owned subsidiary of Volcano Communications Company (the Parent).
The Segment was formed in August 1994 for the purpose of operating
direct broadcast satellite (DBS) television systems. The Company is an
affiliated associate member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications
Galaxy, Inc. (Hughes), to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United
States. The marketing rights give the owner exclusive rights to
distribution of DirecTV service within the contract area. In 1994,
Hughes launched the satellites that provide programming for DirecTV. At
December 31, 1997, the Company had the operating rights for five
counties in California and four counties in Nevada.

The financial statements presented represent the financial position and
operations of the Segment, which operates as part of the Company.

Presentation - The Segment is not a separate subsidiary of the Company,
nor has it been operated as a separate entity. The financial statements
presented herein have been derived from the records of the Company and
have been prepared to present the Segment's financial position, results
of operations, and cash flows on a stand-alone basis. Accordingly, the
financial statements include certain costs and expenses that have been
allocated to the Segment by the Company. Such allocated expenses may or
may not be indicative of what such expenses would have been had the
Segment been operated as a separate entity.

Inventory - Inventory is stated at the lower of average cost or market
and consists of satellite receivers, dishes, and accessories.

F-236
342
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS

NOTE 1 -DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Accounts Receivable - Accounts receivable consist primarily of amounts
due from subscribers for monthly programming and equipment lease
billings.

Customer Billing and Digital Satellite TV (DSTV) Services - The
National Rural Telecommunications Cooperative (NRTC), under contractual
arrangements with the Company, performs the billing and national
marketing functions for the DSTV service provided to customers. The
sales revenue and the customer receivables for the DSTV services, as
reflected in the financial statements, are recorded from the monthly
billing reports provided by NRTC.

Fair Value of Financial Instruments - As a result of their short-term
nature, financial instruments consisting of receivables and accounts
payable are carried at cost, which approximates fair value.

Property and Equipment - Property and equipment is recorded at cost and
is depreciated over the estimated useful lives using the straight-line
method. Estimated useful lives range from 5 to 32 years.

F-237
343
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS

NOTE 1 -DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)

Income taxes - The Segment's operating results are included in the
Company's operations and consolidated with the Parent's return for tax
filing purposes. The Segment is not directly subject to income taxes,
as it is operated as a segment of the Company. The Company did not
allocate tax expense to the Segment and, accordingly, no provision for
income taxes has been made.

NOTE 2 -LEASING ARRANGEMENT FOR SUBSCRIBER EQUIPMENT

In addition to selling satellite television equipment, the Segment also
leases the equipment to customers at fixed monthly rental charges.
These leases are month-to-month without a minimum lease term in which
the customer may return the equipment at any time.

These leases qualify as operating leases and, accordingly, the leased
units are either purchased direct or transferred from the Segment's
inventory of existing units at average cost and included in property
and equipment at cost. Leased units are depreciated on a straight-line
basis over a five-year period. Rental income is recognized in the month
earned.

The carrying amount of leased equipment included in property and
equipment at December 31, 1997, is as follows:

1997
---------

Cost .......................................... $ 295,364
Accumulated depreciation ...................... (137,805)
---------
$ 157,559
=========

Lease income under the above arrangements is recognized when billed to
the customer, and totaled $76,202 in 1997.

F-238
344
DIRECT BROADCAST SATELLITE
(A SEGMENT OF VOLCANO VISION, INC.)
NOTES TO FINANCIAL STATEMENTS

NOTE 3 -NRTC PATRONAGE DIVIDENDS

The NRTC declares and the Segment receives a yearly patronage dividend
based on the NRTC's profitability. Of the total dividend, 20% is
received in cash, and 80% is distributed in the form of NRTC patronage
capital certificates, which will be redeemed in cash at a future date
at the discretion of the NRTC. The Segment has recorded an asset and
dividend income for the noncash portion of the patronage dividend.

NOTE 4 -RELATED-PARTY TRANSACTIONS

The Segment is party to various intercompany transactions with the
Parent and one of its subsidiaries, The Volcano Telephone Company, for
payroll-related charges and administrative expenses. Accordingly, the
financial statements include the following intercompany liabilities at
December 31, 1997:

1997
----------

Accounts payable $ 117,294
Accrued interest 313,056
Long-term debt 1,490,743
----------
$1,921,093
==========

Long-term debt includes $1,490,743 due to the Parent for the purchase
of DBS franchise rights in 1994. This debt carries a fixed interest
rate of 7%.

NOTE 5 -SUBSEQUENT EVENTS

On July 10, 1998, the Company entered into an agreement to sell its
franchise rights and related DBS assets and liabilities to Golden Sky
Systems, Inc. The acquisition is expected to close no later than
February 27, 1999.

F-239
345
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY TEXAS

FINANCIAL STATEMENTS

AS OF JUNE 30, 1998 AND 1997

F-240
346
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEETS
JUNE 30
(UNAUDITED)

ASSETS

1998 1997
---- ----

Current Assets:
Cash and cash equivalents ........................... $ 235,311 $ 181,141
Certificates of deposit ............................. -- 102,497
Accounts receivable ................................. 107,110 140,159
Accounts receivable - affiliates .................... 71,775 71,775
Inventory ........................................... 21,115 30,085
Prepaid Income taxes ................................ -- 22,144
---------- ----------
Total Current Assets ................................ 435,311 547,801
---------- ----------
Property, Plant and Equipment:
Plant In service .................................... 16,250 15,515
Less: Accumulated depreciation ...................... 7,943 4,730
---------- ----------
Net Property, Plant and Equipment ................... 8,307 10,785
---------- ----------
DBS Franchise ................................................ 537,321 629,433
NRTC and RTFC equity certificates ............................ 115,007 133,058
---------- ----------
Total Assets ........................................ $1,095,946 $1,321,077
========== ==========

(See Selected Information)

F-241
347
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEETS
JUNE 30
(UNAUDITED)

LIABILITIES AND SEGMENT EQUITY

1998 1997
---- ----

Current Liabilities:
Current maturities of long-term debt $ 169,280 $ 145,175
Accounts payable ................... 81,372 123,285
Accounts payable - affiliate ....... 49,290 95,250
Deferred revenue ................... 76,114 127,140
Accrued interest payable ........... 3,985 4,767
Prepaid income taxes ............... 16,802 --
---------- ----------
Total Current Liabilities .......... 396,843 495,617
---------- ----------
Long-Term Debt:
Note payable - RTFC ................ 570,798 740,078
Segment Equity .......................... 128,305 85,382
---------- ----------
Total Liabilities and Segment Equity $1,095,946 $1,321,077
========== ==========

(See Selected Information.)

F-242
348
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENTS OF INCOME AND SEGMENT EQUITY
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)

1998 1997
---- ----

Operating Revenues:
Programming revenue .............. $ 674,793 $ 450,912
Equipment sales revenue .......... 40,422 30,322
Installation revenue ............. 5,730 4,117
Commission revenue ............... 436 417
DSS repairs revenue .............. 384 870
Miscellaneous revenue ............ 6,522 4,601
Less: Uncollectible revenue ...... (11,572) (12,744)
--------- ---------
Total Operating Revenues ..... 716,715 478,495
--------- ---------
Operating Expenses:
Programming cost ................. 438,833 331,988
Cost of sales .................... 66,552 46,036
Amortization and depreciation .... 47,681 47,242
Salaries ......................... 36,834 43,597
Commissions ...................... 8,990 3,979
Telephone ........................ 5,675 14,180
Advertising ...................... 5,134 7,098
Accounting ....................... 4,952 4,581
Other general and administrative . 3,801 6,349
DSS Installation costs ........... 2,651 --
Training ......................... -- 1,529
--------- ---------
Total Operating Expenses ..... 621,103 506,579
--------- ---------
Operating Income (Loss) ............... 95,612 (28,084)
Interest and Dividend Income .......... 3,297 7,336
--------- ---------
Income (Loss) Before Interest and Taxes 98,909 (20,748)
Income Tax (Expense) Benefit .......... (24,511) 17,500
Interest Expense ...................... (26,817) (30,723)
--------- ---------
Net Income (Loss) ..................... 47,581 (33,971)
Segment Equity, Beginning ............. 80,724 119,353
--------- ---------
Segment Equity, Ending ................ $ 128,305 $ 85,382
========= =========

(See Selected Information.)

F-243
349
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENTS OF INCOME AND SEGMENT EQUITY
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)

1998 1997
---- ----

Cash Flows from Operating Activities:
Net income (loss) ...................................... $ 47,581 $ (33,971)
Adjustments to reconcile net income (loss) to
net cash provided by Operating activities:
Depreciation and amortization ...................... 47,681 47,242
Change in assets and liabilities:
Decrease in accounts receivable .................... 10,625 693
Decrease in inventory held for sale ................ 5,880 7,422
Decrease (increase) in prepaids .................... 7,709 (17,500)
(Decrease) increase in accounts payable and accruals (42,427) 110,323
--------- ---------
Total Adjustments ............................. 29,468 148,180
--------- ---------
Net Cash Provided by Operating Activities ................... 77,049 114,209
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures ................................... -- (4,390)
Purchase of certificate of deposit ..................... -- (1,616)
--------- ---------
Net Cash Used in Investing Activities ....................... -- (6,006)
--------- ---------
Cash Flows from Financial Activities:
Payments of long-tern debt ............................. (73,859) (69,654)
Receipt of patronage refund ............................ 24,142 --
Advances from affiliate ................................ 36,814 43,362
--------- ---------
Net Cash Used in Financing Activities ....................... (12,903) (26,292)
--------- ---------
Net Increase in Cash and Cash Equivalents ................... 64,146 81,911
Beginning Cash and Cash Equivalents ......................... 171,165 99,230
--------- ---------
Ending Cash and Cash Equivalents ............................ $ 235,311 $ 181,141
========= =========

(See Selected Information.)

F-244
350
DBS SEGMENT OF CUMBY CELLULAR, INC.
SELECTED INFORMATION
JUNE 30, 1998

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Nature of Operations

DBS Segment of Cumby Cellular, Inc. (the Segment) is a Segment of Cumby
Cellular, Inc. (CCI). CCI is a wholly owned subsidiary of Cumby Telephone
Cooperative, Inc. (the Company). The Segment was formed for the purpose of
operating direct broadcast satellite (DBS) television systems purchased by the
Company. The Company is an affiliated associate member of the National Rural
Telecommunications Cooperation (NRTC). The NRTC has contracted with Hughes
Communications Galaxy, Inc. (Hughes) to provide exclusive marketing rights for
distribution of DirecTV satellite television programming in the United States.
The marketing rights give the owner exclusive rights to distribution of DirecTV
service within the contract area. Hughes controls the satellites that provide
programming for DirecTV. At June 30, 1998, the Company had the operating rights
for two counties In northeast Texas.

The Segment is not a separate subsidiary of the Company nor has it been operated
as a separate entity. The financial statements presented herein have been
derived from the records of CCI and have been prepared to present the Segment's
financial position, results of operations, and cash flows on a stand-alone
basis. Accordingly, the financial statements Include certain costs and expenses
which have been allocated to the Segment by the Company. Such allocated expenses
may or may not be indicative of what such expenses would have been had the
Segment been operated as a separate entity.

Revenue Recognition

Revenues are earned for monthly direct broadcast satellite services which are
billed to subscribers in advance. Subscribers may elect to prepay their service
charges for one or more months. Revenue is recognized in the month the service
is provided to the subscriber. Subscriber advance billings represent unearned
revenues and are deferred until the service is provided. Equipment sales are
recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and consists of
satellite receivers, dishes, and accessories.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management of the Segment to make a number of
estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.

Intangible Assets

F-245
351
DBS SEGMENT OF CUMBY CELLULAR, INC.
SELECTED INFORMATION
JUNE 30, 1998

Income Taxes

The Segment's operating results are consolidated with CCI's for tax filing
purposes. An income tax (expense) benefit has been provided In the accompanying
statement of operations for taxes (owed) recoverable (to) from CCI. There are no
significant differences between book and tax basis which would result in
deferred tax assets or liabilities.

Note 2 - Subsequent Events:

On June 10, 1998, the Company signed a letter of intent to sell substantially
all of the Segment's assets to a third party.

F-246
352
DBS SEGMENT OF CUMBY CELLULAR, INC.
CUMBY, TEXAS

FINANCIAL STATEMENTS
AND ADDITIONAL INFORMATION

AS OF DECEMBER 31, 1997
WITH INDEPENDENT AUDITOR'S REPORT

F-247
353
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
of DBS Segment of Cumby Cellular, Inc.

We have audited the accompanying balance sheet of DBS Segment of Cumby Cellular,
Inc. (the Segment) as of December 31, 1997 and the related statement of income,
segment equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Segment's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of DBS Segment of Cumby Cellular,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

As discussed in Note 9 to the financial statements, on June 10, 1998, the
Segment signed a letter of intent to transfer its DirecTV Distribution Business
and to sell substantially all of its assets and operations to a third party.

Curtis Blakely & Co., P.C.

February 3, 1998
(except for Notes 8 and 9
as to which the date is July 23, 1998)

F-248

354
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEET
DECEMBER 31, 1997

ASSETS

Current Assets:
Cash and cash equivalents ........................ $ 171,165
Accounts receivable - customers .................. 98,168
Notes receivable ................................. 19,567
Accounts receivable - affiliates ................. 71,775
Inventory ........................................ 26,995
Prepaid income taxes ............................. 7,709
----------
Total Current Assets .................. 395,379
----------
Property, Plant and Equipment:
Plant in service ................................. 16,250
Less: Accumulated depreciation ................... 6,318
----------
Net Property, Plant and Equipment ........... 9,932
----------
DBS Franchise ........................................... 583,377
----------
NRTC and RTFC equity certificates ....................... 139,149
----------
Total Assets .......................... $1,127,837
==========

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

F-249

355
DBS SEGMENT OF CUMBY CELLULAR, INC.
BALANCE SHEET
DECEMBER 31, 1997

LIABILITIES AND SEGMENT EQUITY

Current Liabilities:
Current maturities of long-term debt .................... $ 165,779
Accounts payable ........................................ 134,176
Accounts payable - affiliate ............................ 12,476
Deferred revenue ........................................ 81,995
Accrued Interest payable ................................ 4,529
----------
Total Current Liabilities ........................ 398,955
----------
Long-Term Debt:
Note payable - RTFC ..................................... 648,157
----------
Segment Equity .......................................... 80,725
----------
Total Liabilities and Segment Equity ............. $1,127,837
==========

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

F-250

356
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENT OF INCOME AND SEGMENT EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997

Operating Revenues:
Programming revenue .......................... $ 984,956
Equipment sales revenue ...................... 83,679
Installation revenue ......................... 9,021
Commission revenue ........................... 11,128
DSS repairs revenue .......................... 3,493
Miscellaneous revenue ........................ 8,566
Less: Uncollectible revenue .................. (26,700)
-----------
Total Operating Revenues 1,074,143
-----------
Operating Expenses:
Programming cost ............................. 681,395
Cost of sales ................................ 146,508
Salaries ..................................... 100,616
Amortization and depreciation ................ 94,886
Telephone .................................... 25,646
Advertising .................................. 12,702
Other general and administrative ............. 12,408
Commissions .................................. 10,157
Accounting ................................... 9,234
DSS Installation costs ....................... 3,989
Training ..................................... 2,008
Taxes - other than income taxes .............. 151
-----------
Total Operating Expenses 1,099,700
-----------
Operating Loss ...................................... (25,557)
Interest and Dividend Income ........................ 17,815
-----------
Loss Before Interest and Taxes ............... (7,742)
Income Tax Benefit .................................. 29,613
Interest Expense .................................... (60,500)
-----------
Net Loss ..................................... (38,629)
Segment Equity, Beginning ........................... 119,354
-----------
Segment Equity, Ending .............................. $ 80,725
===========

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

F-251

357
DBS SEGMENT OF CUMBY CELLULAR, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997

Cash Flows from Operating Activities:
Net loss ............................................. $ (38,629)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization ................. 94,886
Noncash patronage dividends ................... (6,092)
Change in assets and liabilities:
Decrease in accounts receivable ...................... 23,127
Decrease in inventory held for sale .................. 10,513
Increase in accounts payable and accruals ............ 72,765
---------
Total Adjustments ........................................... 195,199
---------
Net Cash Provided by Operating Activities ................... 156,570
---------
Cash Flows from Investing Activities:
Capital expenditures ................................. (5,133)
Proceeds from sale of certificates of deposit ........ 100,881
---------
Net Cash Provided by Investing Activities ................... 95,748
---------
Cash Flows from Financing Activities:
Payments of long-term debt ........................... (140,971)
Advances to affiliate ................................ (39,412)
---------
Net Cash Used In Financing Activities ....................... (180,383)
---------
Net Increase in Cash and Cash Equivalents ................... 71,935
Cash and Cash Equivalents at Beginning of Year .............. 99,230
---------
Cash and Cash Equivalents at End of Year .................... $ 171,165
=========

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

F-252

358
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997

NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Nature of Operations

DBS Segment Cellular, Inc. (the Segment) is a Segment of Cumby Cellular, Inc.
(CCI). CCI is a wholly owned subsidiary of Cumby Telephone Cooperative, Inc.
(the Company). The Segment was formed for the purpose of operating direct
broadcast satellite (DBS) television systems purchased by the Company. The
Company is an affiliated member of the National Rural Telecommunications
Cooperative (NRTC). The NRTC has contracted with Hughes Communications Galaxy,
Inc. (Hughes) to provide exclusive marketing rights for distribution of DirecTV
satellite television programming in the United States. The marketing rights give
the owner exclusive rights to distribution of DirecTV service within the
contract area. Hughes controls the satellites that provide programming for
DirecTV. At December 31, 1997, the Company had the operating rights for two
counties in northeast Texas.

The Segment is not a separate subsidiary of the Company nor has it been operated
as a separate entity. The financial statements presented herein have been
derived from the records of CCI and have been prepared to present the Segment's
financial position, results of operations, and cash flows on a stand-alone
basis. Accordingly, the financial statements include certain costs and expenses
which have been allocated to the Segment by the Company. Such allocated expenses
may or may not be indicative of what such expenses would have been had the
Segment been operated as a separate entity.

Revenue Recognition

Revenues are earned for monthly direct broadcast satellite services which are
billed to subscribers in advance. Subscribers may elect to prepay their service
charges for one or more months. Revenue is recognized in the month the service
is provided to the subscriber. Subscriber advance billings represent unearned
revenues and are deferred until the service is provided. Equipment sales are
recognized as revenue when the equipment is delivered to the customer.

Inventory

Inventory is stated at the lower of average cost or market and consists of
satellite receivers, dishes, and accessories.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management of the Segment to make a number of
estimates and assumptions which affect the reported amounts of assets,
liabilities, revenues and expenses. Actual results could differ from these
estimates.

Intangible Assets

Income Taxes

F-253
359
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31,1997

The Segment's operating results are consolidated with CCI's for tax filing
purposes. An income tax benefit has been provided in the accompanying statement
of operations for taxes recoverable from CCI. There are no significant
differences between book and tax basis which would result in deferred tax assets
or liabilities.

F-254
360
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 2 -ACCOUNTS RECEIVABLE:

Accounts receivable consists of amounts due from subscribers for monthly
programming fees and for sales of satellite television equipment which have been
delivered but not paid for. Accounts receivable as of December 31, 1997 are as
follows:

Accounts receivable:
Programming $ 88,196
Equipment sales 9,972
--------
$ 98,168
========

NOTE 3 -NOTES RECEIVABLE:

The Segment provides customers the option of purchasing DBS equipment on credit.
These payment plans have terms of four years and carry interest at 15 percent.
Upon default by a customer, the Segment repossesses the equipment, transfers the
resale value of the equipment to inventory, and records an allowance for the
balance of the unpaid note receivable.

NOTE 4 -RTFC AND NRTC EQUITY CERTIFICATES:

The NRTC declares and the Segment receives a yearly patronage dividend based on
the NRTC's profitability. Of the total dividend, 20 percent is received in cash
and 80 percent is distributed in the form of NRTC patronage capital
certificates, which will be redeemed in cash at a future date at the discretion
of the NRTC. The Segment purchased an RTFC equity certificate as part of the
RTFC loan requirements. This certificate is refunded by RTFC so that it
maintains a balance equal to 10 percent of the loan balance. RTFC pays patronage
dividends to the Segment.

NOTE 5 -DBS FRANCHISE:

The DBS franchise is being amortized over its 10 year life and is stated net of
accumulated amortization of $337,745.

NOTE 6 - LONG-TERM DEBT.

The Segment is indebted to the Rural Telephone Finance Corporation as follows:

Note payable with Interest at RTFC variable
rate (6.9% at December 31, 1997) due in
quarterly installments through August 2002. $ 813,936
Current portion 165,779
---------
Long-Term Debt $ 648,157
=========

NOTE 7 - ADDITIONAL CASH FLOW INFORMATION:

Cash paid during 1997 for:
Interest $ 61,284
Income tax --

F-255
361
DBS SEGMENT OF CUMBY CELLULAR, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997

NOTE 8 - RELATED PARTY TRANSACTIONS:

The Segment is party to various intercompany transactions with the Company. The
Company purchased the DBS franchise rights under which the Segment provides DBS
programming for $921,122 prior to the commencement of DBS operations in
mid-1993. The franchise rights and debt were transferred by the Company to the
Segment In 1993.

The Company also allocates certain salary, benefits and overhead costs
associated with operating the Segment to the Segment's expense accounts. These
allocated costs totaled $100,810 for 1997. The Segment provided an income tax
benefit to the Company of $29,613 in 1997, All other expenses are paid directly
from the cash accounts of the Segment.

Intercompany assets and liabilities included in the Segment's December 31, 1997
balance sheet are as follows:

Accounts receivable $ 71,775
Accounts payable 12,476

NOTE 9 - SUBSEQUENT EVENTS:

On June 10, 1998, the Company signed a letter of intent to sell substantially
all of the Segment's assets to a third party.

F-256
362
DEALER PROSPECTUS DELIVERY OBLIGATION

UNTIL , 1998, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL OR BOTH TOGETHER CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NEW NOTES OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL OR BOTH TOGETHER, NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.

[LOGO GRAPHIC]

GOLDEN SKY SYSTEMS, INC.

OFFER TO EXCHANGE ITS
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B,
FOR ANY AND ALL OF ITS OUTSTANDING
12 3/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A

PROSPECTUS

, 1998

363
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 145 of the General Corporation Law of the State of Delaware
("DGCL") empowers a Delaware corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. A corporation may indemnify such person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation to procure a
judgment in its favor under the same conditions, except that no indemnification
is permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses (including attorneys' fees)
which he actually and reasonably incurred in connection therewith. The
indemnification provided is not deemed to be exclusive of any other rights to
which an officer or director may be entitled under any corporation's by-law,
agreement, vote or otherwise.

In accordance with Section 145 of the DGCL, the registrant has
adopted a by-law that provides that, to the fullest extent permitted by DGCL,
the registrant shall indemnify any person serving as a director or officer of
the registrant and every such director or officer serving at the request of the
registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise for expenses incurred in
the defense of, or in connection with, any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative. Under Section 145 of the DGCL and the registrant's by-laws, such
indemnification shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

The registrant has purchased and maintains insurance to protect
persons entitled to indemnification pursuant to its by-laws and the DGCL against
expenses, judgments, fines and amounts paid in settlement, to the fullest extent
permitted by the DGCL.

Item 21. Exhibits and Financial Statement Schedules

Exhibit
Number Description Page

3.1 Second Amended and Restated Certificate of Incorporation of
the registrant.

3.2 By-Laws of the registrant, adopted as of October 1, 1997.

4.1 Indenture, dated as of July 31, 1998, by and among the
registrant, as issuer, Argos Support Services Company, as
guarantor, PrimeWatch, Inc., as guarantor, and State Street
Bank and Trust Company of Missouri, N.A., as trustee, relating
to the registrant's 12 3/8% Senior Subordinated Notes due
2006, Series A and 12 3/8% Senior Subordinated Notes due 2006,
Series B.
364
Exhibit
Number Description Page

4.2 Form of 12 3/8% Senior Subordinated Note due 2006, Series B of
the registrant (included in Exhibit 4.1).

4.3 Registration Rights Agreement, dated as of July 31, 1998, by and among
the registrant, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC, as initial purchasers.

4.4 Escrow Agreement, dated as of July 31, 1998, by and among
State Street Bank and Trust Company of Missouri, N.A., as
escrow Agent, and State Street Bank and Trust Company of
Missouri, N.A., as trustee under the Indenture, and the
registrant.

4.5 Account Control Agreement, dated as of July 31, 1998, by and
among the registrant, State Street Bank and Trust Company of
Missouri, N.A., as escrow agent, and State Street Bank and
Trust Company, as custodian and securities intermediary.

5.1 Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol as to
the legality of the securities being registered.*

10.1 Purchase Agreement, dated July 24, 1998, among the registrant, Merrill
Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc Montgomery
Securities LLC, relating to the issuance and sale of $195,000,000
aggregate principal amount of the registrant's 12 3/8% Senior
Subordinated Notes due 2006, Series A.

10.2 Amended and Restated Credit Agreement, dated as of July 7,
1997, amended and restated as of May 8, 1998, among Golden Sky
Holdings, Inc., the registrant, various banks, Paribas
(formerly known as Banque Paribas), as Syndication Agent,
Fleet National Bank, as Administrative Agent, and General
Electric Capital Corporation, as Documentation Agent.

10.3 Form of NRTC/Member Agreement for Marketing and Distribution
of DBS Services, as amended.

10.4 Stock Purchase Agreement, dated as of July 11, 1997, among the
registrant, Argos Support Services Company and the several
shareholders named therein.

10.5 Asset Purchase Agreement, dated as of July 10, 1998, by and
between the registrant and Volcano Vision, Inc.

10.6 Employment Agreement, dated February 12, 1997, between the
registrant and Rodney A. Weary.

10.7 Employment Agreement, dated February 12, 1997, between the
registrant and Jo Ellen Linn.

10.8 Employment Agreement, between the registrant and William J. Gerski.*

10.9 Employment Agreement, between the registrant and Laquita Allen.*

10.10 Employment Agreement, between the registrant and John R. Hager.*

10.11 Non-Competition Agreement, between the registrant and Rodney A.
Weary.*

10.12 Non-Competition Agreement, between the registrant and Jo Ellen Linn.*

II-2
365
Exhibit
Number Description Page

10.13 Non-Competition Agreement, between the registrant and John R. Hager.*

10.14 Form of Director Indemnification Agreement, dated February 12,
1997, between the registrant and each of the members of the
registrant's Board of Directors.*

12.1 Statements re Computation of Ratios.

21.1 Subsidiaries of the registrant.

23.1 Consent of Reboul, MacMurray, Hewitt, Maynard & Kristol
(included in their opinion filed as Exhibit 5.1).*

23.2 Consent of KPMG Peat Marwick LLP.

23.3 Consent of Eide Bailly LLP (formerly known as Eide Helmeke PLLP).

23.4 Consent of Loucks & Glassley, pllp.

23.5 Consent of Bolinger, Segars, Gilbert & Moss, L.L.P.

23.6 Consent of CHMS, P.C.

23.7 Consent of Aldrich, Kilbride & Tatone LLP.

23.8 Consent of Arthur Andersen LLP.

23.9 Consent of Jackson Thornton & Co., P.C.

23.10 Consent of Moss Adams LLP.

23.11 Consent of Curtis Blakely & Co., P.C.

24.1 Power of Attorney of the members of the Board of Directors of
the registrant (included in the signature pages).

25.1 Statement on Form T-1 of Eligibility of Trustee.*

27.1 Financial Data Schedule.

99.1 Form of Letter of Transmittal.*

99.2 Form of Notice of Guaranteed Delivery.*

99.3 Stock Purchase Agreement, dated as of February 12, 1997, among
the registrant, Rodney A. Weary and the investors named
therein.

99.4 Stock Purchase Agreement, dated as of November 24, 1997, by and among
Golden Sky Holdings, Inc., the registrant, Rodney A. Weary, and the
investors named therein.

99.5 Stockholders Agreement, dated as of November 24, 1997, by and
among Golden Sky Holdings, Inc. and the investors and other
stockholders named therein.

___________________
* To be filed by amendment.

II-3

366

Item 22. Undertakings

The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.

II-4

367

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Kansas City, state of
Missouri, on September 25, 1998.

Golden Sky Systems, Inc.

/s/ Rodney A. Weary
-------------------------------------
Rodney A. Weary,
Chairman of the Board of Directors,
Chief Executive Officer, and Director

The undersigned directors and officers of Golden Sky Systems, Inc.,
hereby appoint Rodney A. Weary and John R. Hager, or either of them
individually, as attorney-in-fact for the undersigned, with full power of
substitution for, and in the name, place and stead of the undersigned, to sign
and file with the Securities and Exchange Commission under the Securities Act of
1933, as amended, any and all amendments (including post-effective amendments)
and exhibits to this registration statement on Form S-4 and any and all
applications and other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities covered hereby, with
full power and authority to do and perform any and all acts and things
whatsoever requisite and necessary or desirable, hereby ratifying and confirming
all that said attorney-in-fact, or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date

/s/ Rodney A. Weary Chairman of the Board, September 25, 1998
- -------------------- Chief Executive Officer and Director
Rodney A. Weary (Principal Executive Officer)

/s/ John R. Hager Vice President, Finance and Controller September 25, 1998
- -------------------- (Principal Financial and Accounting
John R. Hager Officer)

Director September , 1998
- --------------------
Robert F. Benbow

Director September , 1998
- --------------------
William O. Charman

368

/s/ William P. Collaatos Director September 25, 1998
- ------------------------
William P. Collatos

/s/ William A. Johnston Director September 25, 1998
- ------------------------
William A. Johnston

/s/ Robert B. Liepold Director September 25, 1998
- ------------------------
Robert B. Liepold

/s/ Erik M. Torgerson Director September 25, 1998
- ------------------------
Erik M. Torgerson
369
EXHIBIT INDEX