GOLDEN SKY SYSTEMS INC
S-4/A, 1998-12-24
CABLE & OTHER PAY TELEVISION SERVICES
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<PAGE>   1
 
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 23, 1998.
    
 
                                                      REGISTRATION NO. 333-64367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                             ---------------------
   
                                AMENDMENT NO. 2
    
                                       TO
                                    FORM S-4
                             ---------------------
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                             ---------------------
                            GOLDEN SKY SYSTEMS, INC.
             (Exact Name of Registrant as Specified in Its Charter)
 
   
<TABLE>
<S>                                                           <C>
                          DELAWARE                                                     43-1749060
      (State or Other Jurisdiction of Incorporation or                  (I.R.S. Employer Identification Number)
                       Organization)
</TABLE>
    
 
   
                            AND AFFILIATE GUARANTORS
    
   
    
   
<TABLE>
<S>                                                <C>                                <C>
       ARGOS SUPPORT SERVICES COMPANY                           TEXAS                                75-2475630
              PRIMEWATCH, INC.                              NORTH CAROLINA                           56-1798070
 (Exact Name of Registrants as Specified in        (State or Other Jurisdiction of    (I.R.S. Employer Identification Number)
         Their Respective Charters)                 Incorporation or Organization)
</TABLE>
    
 
   
<TABLE>
<S>                                          <C>                                  <C>
                                                                                         JO ELLEN LINN, ESQ.
                                                                                    SECRETARY AND GENERAL COUNSEL
                                                                                       GOLDEN SKY SYSTEMS, INC.
   605 WEST 47TH STREET, SUITE 300                                                 605 WEST 47TH STREET, SUITE 300
        KANSAS CITY, MO 64112                                                           KANSAS CITY, MO 64112
            (816) 753-5544                               4841                               (816) 753-5544
  (Address, Including Zip Code, and          (Primary Standard Industrial        (Name, Address, Including Zip Code,
Telephone Number, Including Area Code,       Classification Code Number)         and Telephone Number, Including Area
 of Registrant's Principal Executive                                                 Code, of Agent For Service)
               Offices)
</TABLE>
    
 
                                    Copy to:
 
                            KAREN C. WIEDEMANN, ESQ.
                  REBOUL, MACMURRAY, HEWITT, MAYNARD & KRISTOL
                              45 ROCKEFELLER PLAZA
                               NEW YORK, NY 10111
                                 (212) 841-5700
 
    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
    
 
   
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
                     TITLE OF EACH                        AMOUNT TO     PROPOSED MAXIMUM    PROPOSED MAXIMUM
                CLASS OF SECURITIES TO                        BE            OFFERING            AGGREGATE          AMOUNT OF
                     BE REGISTERED                        REGISTERED    PRICE PER NOTE(1)   OFFERING PRICE(1)   REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>                 <C>                 <C>
12 3/8 % Senior Subordinated Notes due 20006, Series
  B....................................................  $195,000,000         100%            $195,000,000          $57,525
- --------------------------------------------------------------------------------------------------------------------------------
Guarantees of 12 3/8% Senior Subordinated Notes due
  2006, Series B.......................................   195,000,000                 (2)              (2)                   (2)
- --------------------------------------------------------------------------------------------------------------------------------
Total..................................................  $195,000,000         100%            $195,000,000          $57,725
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
    
 
   
(1) Estimated solely for the purpose of calculating the registration fee.
    
 
   
(2) No additional consideration will be paid for the guarantees by the
    recipients of the Notes. Pursuant to Rule 457(n) under the Securities Act of
    1933, no separate fee is payable.
    
                             ---------------------
    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.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
   
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
   
                       JANUARY 27, 1999, 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 Notes are unconditionally
guaranteed, on a senior subordinated basis, by GSS's subsidiaries Argos Support
Services Company and Primewatch, Inc. (together with any other subsidiaries of
the Company that may guarantee the Notes in the future, the "Guarantors"). Each
guarantee is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Guarantor Senior Indebtedness (as
defined in the Indenture) of such Guarantor.
    
 
   
     The terms of the New Notes are identical in all material respects
(including principal amount, interest rate, maturity and guarantees) 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 September 30,
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."
 
                                                  (Cover continued on next page)
 
      SEE "RISK FACTORS" ON PAGE 15 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 December 28, 1998.
    
<PAGE>   3
 
(Continued from cover page)
 
   
     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 January
27, 1999 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 December 28, 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.
<PAGE>   4
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Additional Information......................................    1
Forward-Looking Statements..................................    2
Sources of Material Information.............................    2
Summary of the Prospectus...................................    4
Risk Factors................................................   15
Use of Proceeds.............................................   26
The Exchange Offer..........................................   26
Capitalization..............................................   31
Pro Forma Financial Statements..............................   32
Selected Consolidated Financial Data........................   41
Management's Discussion and Analysis of Results of
  Operations and Financial Condition........................   42
Business....................................................   52
Management..................................................   66
Principal Stockholders......................................   71
Certain Relationships and Related Transactions..............   75
Description of Other Indebtedness...........................   77
Description of the New Notes................................   80
Certain Federal Income Tax Considerations...................  110
Plan of Distribution........................................  111
Legal Matters...............................................  111
Experts.....................................................  111
Index to Financial Statements...............................  F-1
</TABLE>
    
 
                             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
<PAGE>   5
 
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.
 
     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 involving 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. INFOR-
 
                                        2
<PAGE>   6
 
MATION 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 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. 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).
 
                                        3
<PAGE>   7
 
                           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 900,000, or approximately
22%, of total DIRECTV customers.
 
     Since its formation by management in June 1996, the Company has:
 
     - acquired 43 Rural DIRECTV Markets in 22 states with approximately 1.7
       million households and 124,000 subscribers at the dates of acquisition;
 
   
     - increased its subscriber base in these markets by over 71% in aggregate,
       to approximately 212,400 as of November 30, 1998, achieving a subscriber
       penetration rate of approximately 12.3% through aggressive marketing and
       a local service-driven approach to the customer;
    
 
   
     - entered into binding letters of intent to acquire two additional Rural
       DIRECTV Markets with approximately 40,000 households and 5,800
       subscribers;
    
 
   
     - commenced marketing and distributing DIRECTV Programming to approximately
       3,400 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 nine months of 1998 totaled
approximately 49,100. This represented approximately 6.5% of DIRECTV's net new
subscribers nationwide for the period, although total households in the
Company's Rural DIRECTV Markets represent approximately 1.5% 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 (as defined
herein). The Company had EBITDA of negative $5.4 million for the year ended
December 31, 1997 and negative $10.5 million for the nine months ended September
30, 1998.
 
                                        4
<PAGE>   8
 
     The Company believes that its exclusive right to provide DIRECTV
Programming in its Rural DIRECTV Markets is attractive for the following
reasons:
 
     - 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.
 
     - Competition from cable television providers in Rural DIRECTV Markets is
       often limited.
 
     - Local providers of DIRECTV Programming, such as the Company, are
       supported by DIRECTV's national marketing campaigns and extensive retail
       distribution network. Additionally, three major consumer electronics
       manufacturers currently compete to provide customers with satellite
       receivers and related equipment required to receive DIRECTV Programming
       ("DSS Equipment").
 
     - 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.
 
     The Company intends to leverage its competitive strengths by pursuing the
following strategies: (i) emphasizing direct sales and local customer service,
(ii) acquiring additional Rural DIRECTV Markets, and (iii) developing related
business opportunities.
 
     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.
 
                                  RISK FACTORS
 
   
     An investment in the Notes is subject to a number of risks, including,
without limitation, the following:
    
 
   
     - net losses and negative EBITDA,
    
 
   
     - substantial leverage,
    
 
   
     - ability to service indebtedness,
    
 
   
     - subordination of the New Notes,
    
 
   
     - asset encumbrances,
    
 
   
     - restrictions imposed by terms of indebtedness,
    
 
   
     - substantial capital requirements,
    
 
   
     - risks attendant to acquisition strategy,
    
 
   
     - dependence upon DIRECTV,
    
 
   
     - reliance upon the NRTC,
    
 
   
     - ability to acquire DBS services from NRTC and DIRECTV after expiration of
       NRTC Agreements,
    
 
   
     - ability to manage growth effectively,
    
 
   
     - absence of public market for the New Notes, and
    
 
   
     - consequences of the Exchange Offer to non-tendering holders of the Old
       Notes.
    
 
                                        5
<PAGE>   9
 
   
Holders of the Old Notes should consider carefully all of the information
contained in the Prospectus prior to tendering their Old Notes in the Exchange
Offer. In particular, holders of Old Notes should consider the factors set forth
under "Risk Factors" beginning on page 15 of this Prospectus.
    
 
                            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
 
   
     The Company is party to binding letters of intent to purchase the DBS
operating rights for two additional Rural DIRECTV Markets for an aggregate cash
purchase price of approximately $10.9 million, which territories include
approximately 40,000 households and 5,800 subscribers. The Company is also
negotiating to acquire two other Rural DIRECTV Markets, which territories
include approximately 33,000 households and 4,700 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.
    
 
                                        6
<PAGE>   10
 
                         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 January 27, 1999, 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,
 
                                        7
<PAGE>   11
 
                                 or, if no such interest has been paid or 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
 
                                        8
<PAGE>   12
 
                                 transfer such New Notes 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. 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."
 
                                        9
<PAGE>   13
 
                      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."
 
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
                                       10
<PAGE>   14
 
   
                                 future Senior Indebtedness (as defined herein).
                                 As of September 30, 1998, on a pro forma basis
                                 after giving effect to the Included
                                 Acquisitions (as defined herein), the Company
                                 would have had approximately $275.6 million of
                                 outstanding indebtedness, of which
                                 approximately $63.3 million was Senior
                                 Indebtedness, and $17.3 million was
                                 unsubordinated indebtedness that would not
                                 constitute Senior Indebtedness.
    
 
   
Guarantees....................   The New Notes are unconditionally guaranteed,
                                 on a senior subordinated basis, as to payment
                                 of principal, premium, if any, and interest,
                                 jointly and severally, by the Company's
                                 wholly-owned subsidiaries Argos Support
                                 Services Company and PrimeWatch, Inc., and may,
                                 under certain circumstances, be guaranteed in
                                 the future by other subsidiaries of the Company
                                 (together with Argos Support Services Company
                                 and PrimeWatch, Inc., the "Guarantors"). Each
                                 guarantee will, to the extent set forth in the
                                 Indenture, be subordinated in right of payment
                                 to prior payment in full of all Guarantor
                                 Senior Indebtedness (as defined in the
                                 Indenture) of such Guarantor.
    
 
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."
 
                                       11
<PAGE>   15
 
           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 nine-month periods ended September 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 nine-month
periods ended September 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 of DBS businesses and operating rights completed
since Inception excluding four acquisitions that are immaterial individually and
in the aggregate (the "Completed Acquisitions"), (ii) two acquisitions of DBS
operating rights for which the Company has entered into binding letters of
intent (the "Pending Acquisitions" and, together with the Completed
Acquisitions, the "Included Acquisitions"), and (iii) the Offering. Pro Forma
revenues and expenses for one of the Company's Pending Acquisitions are excluded
as they are immaterial. The Pro Forma financial and operating data also excludes
the effects of two Rural DIRECTV Markets the acquisition of which are under
negotiation but for which binding letters of intent have not been executed. See
"Summary of Prospectus -- Pending Acquisitions." 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 September
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 and the borrowings under the Credit
Facility 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.
    
 
   
<TABLE>
<CAPTION>
                                                         YEAR ENDED
                                                      DECEMBER 31, 1997       NINE MONTHS ENDED SEPTEMBER 30,
                                     INCEPTION TO   ---------------------   -----------------------------------
                                     DECEMBER 31,                  PRO         1997         1998        1998
                                         1996       HISTORICAL    FORMA     HISTORICAL   HISTORICAL   PRO FORMA
                                     ------------   ----------   --------   ----------   ----------   ---------
                                                                   (IN THOUSANDS)
<S>                                  <C>            <C>          <C>        <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
Revenue
  DBS services.....................    $   219       $ 16,452    $ 51,288    $ 8,462      $ 50,139    $ 62,972
  Lease and other..................         36            944       1,601        675           751         869
                                       -------       --------    --------    -------      --------    --------
          Total revenue............        255         17,396      52,889      9,137        50,890      63,841
Costs and Expenses
  Cost of DBS services.............        130          9,304      30,703      4,868        29,764      37,932
  System operations................         26          3,796      12,587      2,076         7,317       9,247
  Sales and marketing..............         73          7,316      12,006      2,898        19,560      20,023
  General and administrative.......      1,035          2,331       2,810      1,593         4,737       4,776
  Depreciation and amortization....         97          7,300     (33,931)     4,352        15,814      22,870
                                       -------       --------    --------    -------      --------    --------
          Total cost and
            expenses...............      1,361         30,047      86,820     15,787        77,192      94,848
                                       -------       --------    --------    -------      --------    --------
Operating loss.....................     (1,106)       (12,651)    (32,625)    (6,650)      (26,302)    (31,007)
Net interest expense...............        (61)        (3,133)    (32,585)    (1,368)      (11,100)    (23,697)
                                       -------       --------    --------    -------      --------    --------
Net loss before extraordinary
  charge...........................    $(1,167)      $(15,784)   $(66,516)   $(8,018)     $(37,402)   $(54,704)
                                       =======       ========    ========    =======      ========    ========
</TABLE>
    
 
                                       12
<PAGE>   16
 
   
<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30, 1998
                                                                              ----------------------
                                                          DECEMBER 31, 1997   HISTORICAL   PRO FORMA
                                                          -----------------   ----------   ---------
                                                                        (IN THOUSANDS)
<S>                                                       <C>                 <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents...............................      $ 13,632         $ 31,001    $  5,001
Restricted cash:
  Current...............................................            --           23,534      23,534
  Long-term.............................................            --           27,406      27,406
Working capital.........................................         3,827           43,042      17,140
Total assets............................................       156,236          302,517     341,634
Total debt..............................................        69,113          247,301     275,596
Stockholder's equity....................................        70,449           30,470      40,670
</TABLE>
    
 
   
<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED SEPTEMBER 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)
<S>                               <C>                 <C>                 <C>          <C>          <C>
OTHER FINANCIAL DATA:
EBITDA(1).......................       $(1,009)          $   (5,351)       $ (2,298)   $  (10,488)
Net cash provided by (used in)
  operating activities..........          (790)              (3,099)         (2,788)      (25,675)
Net cash provided by (used in)
  investing activities..........        (3,231)            (120,729)        (81,633)     (113,781)
Net cash provided by financing
  activities....................         4,500              136,981          85,784       156,825
Capital expenditures............           105                  998             405         2,408   $    2,408
Aggregate purchase price of
  acquisitions..................         5,256              129,725          86,398        69,674      134,359
OPERATING DATA:
Households at end of
  period(2)(3)..................        21,800            1,134,700         692,000     1,467,000    1,767,000
Subscribers acquired in
  acquisitions(3)...............         2,975               65,706          40,000        33,500       61,000
Subscribers added in existing
  territories(3)................           229               22,014           7,600        49,100       49,100
Subscribers at end of
  period(3)(4)..................         3,204               90,924          50,700       173,500      201,000
Subscriber acquisition costs,
  per net subscriber added(3)...       $   319           $      314        $    384    $      377   $      408
Penetration at end of period....          14.7%                 8.0%            7.3%         11.8%        11.4%
Ratio of earnings to fixed
  charges(5)....................            --                   --              --            --
</TABLE>
    
 
- ---------------
 
   
(1) EBITDA represents earnings before interest, taxes, depreciation and
    amortization. EBITDA is not a measure of performance under generally
    accepted accounting principles and should not be construed as a substitute
    for consolidated net income (loss) as a measure of performance, or as a
    substitute for cash flow as a measure of liquidity. Nevertheless, the
    Company believes that EBITDA is a commonly recognized measure of performance
    in the communications industry and is the basis for many of the Company's
    financial covenants. Further, the Company believes that EBITDA provides
    useful information regarding an entity's ability to incur and/or service
    debt. Increases or decreases in EBITDA may indicate improvements or
    decreases, respectively, in the Company's free cash flows available to incur
    and/or service debt and cover fixed charges. Notwithstanding the above,
    EBITDA is not intended to represent cash flows for the period and should not
    be considered in isolation or as a substitute for measures of performance
    determined in accordance with generally accepted accounting principles.
    Management expects that, because EBITDA is commonly used in the
    communications industry as a measure of performance, investors may use this
    data to analyze and compare other communications companies with the Company
    in terms of operating performance, leverage and liquidity. EBITDA as
    calculated by the Company is not necessarily comparable to similarly
    captioned amounts of other companies.
    
 
                                       13
<PAGE>   17
 
   
(2) Household numbers are rounded to the nearest hundred. Pro Forma households
    include households as of the later of September 30, 1998 or acquisition date
    for Completed Acquisitions and households as of the most recent date for
    which information is available for the Pending Pro Forma Acquisitions.
    
 
(3) 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.
 
   
(4) For Completed Acquisitions, subscriber data are as of the later of September
    30, 1998 or acquisition date. For the Pending Pro Forma Acquisitions,
    subscriber data is as of the date of the most recent available information.
    
 
   
(5) 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
    nine-month periods ending September 30, 1997 and 1998, the deficiency of
    earnings to fixed charges was $1.2 million, $15.8 million, $8.0 million and
    $38.3 million, respectively.
    
 
                                       14
<PAGE>   18
 
                                  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.
 
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 $(40.0) million for the year ended December 31, 1997 and the
nine months ended September 30, 1998, respectively, and EBITDA of approximately
negative $5.4 million and negative $10.5 million for the year ended December 31,
1997 and nine months ended September 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
 
   
     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 September 30, 1998, on a Pro Forma basis, the
Company's total consolidated long-term indebtedness, including the current
portion, would have approximated $275.6 million, representing approximately 87%
of the Company's total capitalization, and the Company's earnings would have
been insufficient to cover its fixed charges by approximately $55.6 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 $66.8 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. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition -- Liquidity and Capital Resources" and "Description of Other
Indebtedness -- Credit Facility."
 
ABILITY TO SERVICE INDEBTEDNESS
 
     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 "-- Reliance Upon 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
 
                                       15
<PAGE>   19
 
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 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
 
   
     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 September 30, 1998, on a Pro Forma
basis, the Company would have had $63.3 million of Senior Indebtedness
outstanding and $66.8 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.
The guarantees of the Notes by the Guarantors are subordinated to Guarantor
Senior Indebtedness of each Guarantor to the same extent that the Notes are
subordinated to Senior Indebtedness of the Company, and the ability to collect
under such guarantees may therefore be similarly limited.
    
 
     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."
 
ASSET ENCUMBRANCES
 
     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."
 
                                       16
<PAGE>   20
 
     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
"Reliance Upon the NRTC."
 
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 43 Rural
 
                                       17
<PAGE>   21
 
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.
 
     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
"-- Reliance Upon 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 "-- Reliance Upon
the NRTC" and "-- Ability to Acquire DBS Services from NRTC and DIRECTV after
Expiration of NRTC Agreements."
 
RELIANCE UPON 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
 
                                       18
<PAGE>   22
 
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
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.
 
     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
                                       19
<PAGE>   23
 
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 the 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.
 
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 "-- Reliance Upon 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.
 
                                       20
<PAGE>   24
 
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 has hired additional
personnel and implemented 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.
 
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
 
                                       21
<PAGE>   25
 
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 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 Longley-Rice propagation maps recognized by the Court
as identifying those households that receive "a signal of at least Grade B
intensity" or past subscription to cable) and to any business. The preliminary
injunction further required 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. The injunction also
imposed other obligations on PrimeTime 24 and its distributors with respect to
future sales of Fox and CBS programming nationwide. There can be no assurance as
to how long the preliminary injunction will remain in effect or as to what final
relief may ultimately be granted to the plaintiffs. On September 30, 1998, the
Florida court issued an order granting PrimeTime 24 until February 28, 1999 to
comply with the terms of the injunction. 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.
 
     In November 1998, the FCC adopted a notice of proposed rulemaking to
consider whether and how it might redefine the standard for measuring a "Grade B
intensity" signal for purposes of the SHVA. The FCC has publicly stated that it
will attempt to complete this rulemaking prior to February 28, 1999. In
addition, in
 
                                       22
<PAGE>   26
 
October 1998, EchoStar filed a lawsuit in the United States District Court of
Colorado seeking a declaratory ruling establishing a predictive model for
determining whether a household is "unserved" for purposes of the SHVA based on
a "Longley-Rice" predictive model that applies a criteria of 95% of the
locations receiving a Grade B signal 95% of the time with a 50% degree of
confidence. The lawsuit also asks the court to clarify the particular means
(e.g., antenna height and orientation) for measuring signal strength.
 
     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 to certain
subscribers 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."
 
     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.
 
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
 
                                       23
<PAGE>   27
 
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."
 
     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
 
                                       24
<PAGE>   28
 
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.
 
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 service, billing and remittance processing pursuant to the Company's
contractual relationship with the NRTC. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that such systems will be compliant by April 1999. The Company is
reliant on DIRECTV for distribution of its DBS programming services. DIRECTV has
informed the Company that it expects to establish Year 2000 compliance for its
satellite programming, subscriber databases, and customer billing systems by the
end of the first calendar quarter of 1999. In addition to the NRTC and DIRECTV,
the Company is significantly reliant on other parties (such as its suppliers of
DSS Equipment) for the successful conduct of its business. As previously
described, the Company is in the process of ascertaining the Year 2000 readiness
of these third-parties. If the Company's plan is not successful or is not
completed in a timely manner, the Year 2000 issue could significantly disrupt
the Company's ability to transact business with its customers and suppliers, and
could have a material impact on its operations. There can be no assurance that
the systems of the NRTC, DIRECTV and other companies with which the Company's
systems interact or depend will be compliant by the end of 1999, or that any
such third party failure would not have an adverse effect on the Company's
business or its operations. 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 "Management's
Discussion and Analysis of Results of Operations and Financial Condition -- Year
2000 Compliance."
 
                                       25
<PAGE>   29
 
                                USE OF PROCEEDS
 
     The Company will not receive any proceeds from the issuance of New Notes
pursuant to the Exchange Offer. The Offering resulted in net proceeds to the
Company of approximately $189.2 million (after payment of underwriting discounts
and other issuance costs aggregating approximately $5.8 million). Approximately
$45.2 million of the net proceeds of the Offering were placed in escrow to fund
the first four semi-annual interest payments (through August 1, 2000) on the
Notes. As of September 30, 1998, approximately $118.0 million of the remaining
net proceeds had been utilized ($83.3 million for the retirement of existing
indebtedness and related accrued interest, $15.0 million in acquisitions, $14.4
million for working capital purposes, and $5.3 million was placed in escrow to
cover a portion of the contingent reduction of the Company's availability under
the Credit Facility). The remaining $26.0 million in proceeds was utilized to
finance acquisitions in October, 1998. See "Management's Discussion and Analysis
of Operations and Financial Condition -- Liquidity and Capital Resources."
 
   
     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 September 30, 1998, indebtedness incurred under the Credit Facility
was comprised of $35.0 million borrowed under the term loan facility and $28.3
million borrowed under the revolving credit 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."
    
 
                               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.
 
                                       26
<PAGE>   30
 
     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.
 
     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
 
                                       27
<PAGE>   31
 
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.
 
     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.
                                       28
<PAGE>   32
 
     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 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.
 
                                       29
<PAGE>   33
 
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:
 
<TABLE>
<S>                          <C>                          <C>
By Hand/Overnight Express:   By Facsimile (for Eligible   By Mail:
                             Institutions only):          State Street Bank and
State Street Bank and                                     Trust Company of Missouri,
Trust Company of Missouri,   (617) 664-5290               N.A.
N.A.                         Attention: Corporate Trust   Two International Place,
61 Broadway, 15th Floor      Department                   4th Floor
New York, NY 10016                                        Boston, MA 02110
Attention: Corporate Trust   Confirm by telephone:        Attention: Corporate Trust
Department                                                Department
                             (617) 664-5587               Kellie Mullen
</TABLE>
 
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.
 
     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 $200,000.
 
                                       30
<PAGE>   34
 
                                 CAPITALIZATION
 
     The following table sets forth the cash and the total capitalization of the
Company as of September 30, 1998 (i) on an historical basis, and (ii) on a Pro
Forma basis to give effect to the Included Acquisitions. 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," "Pro Forma
Financial Statements," "Use of Proceeds" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
 
   
<TABLE>
<CAPTION>
                                                              AS OF SEPTEMBER 30, 1998
                                                              ------------------------
                                                              HISTORICAL    PRO FORMA
                                                              -----------   ----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
Cash and cash equivalents...................................   $ 31,001      $  5,001
                                                               ========      ========
Restricted cash(1)..........................................   $ 50,940      $ 50,940
                                                               ========      ========
Long-term debt (including current maturities):
  Credit Facility...........................................   $ 35,000      $ 63,295
  Seller Notes..............................................     16,407        16,407
  Other.....................................................        894           894
  Notes.....................................................    195,000       195,000
                                                               --------      --------
          Total long-term debt..............................    247,301       275,596
                                                               --------      --------
Stockholder's equity:
  Common Stock, $.01 par value, 1,000 shares authorized,
     issued and outstanding.................................         --            --
                                                               --------      --------
  Additional paid-in capital................................     87,400        97,600
  Accumulated deficit.......................................    (56,930)      (56,930)
                                                               --------      --------
          Total stockholder's equity........................     30,470        40,670
                                                               --------      --------
          Total capitalization..............................   $277,771      $316,266
                                                               ========      ========
</TABLE>
    
 
- ---------------
 
(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 contingent reduction of availability under the term
    loan facility.
 
                                       31
<PAGE>   35
 
                         PRO FORMA FINANCIAL STATEMENTS
 
GENERAL
 
   
     The following pro forma financial statements reflect (i) the Company's
acquisitions of DBS businesses and operating rights completed since Inception
excluding four acquisitions that are immaterial individually and in the
aggregate, (ii) the Pending Acquisitions, and (iii) the Offering. The pro forma
financial statements also exclude revenues and expenses for one of the Pending
Acquisitions which is immaterial and the pro forma effects of two potential
acquisitions which are under negotiation but for which binding letters of intent
have not been executed. See "Summary of Prospectus -- Pending Acquisitions." 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 September 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 September 30, 1998 and for the nine 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 included elsewhere in this Prospectus. See
"Summary of the Prospectus -- Pending Acquisitions."
 
     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 or the Offering been completed on the dates indicated.
 
                                       32
<PAGE>   36
 
   
                            GOLDEN SKY SYSTEMS, INC.
    
   
                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
    
   
                          YEAR ENDED DECEMBER 31, 1997
    
   
<TABLE>
<CAPTION>
                                                1997 ACQUISITIONS                     1998 ACQUISITIONS
                                       -----------------------------------   -----------------------------------
                                          ACQUIRED DBS       ACQUIRED DBS       ACQUIRED DBS       ACQUIRED DBS        PENDING
                          HISTORICAL   OPERATING RIGHTS(1)   BUSINESSES(2)   OPERATING RIGHTS(3)   BUSINESSES(4)   ACQUISITIONS(5)
                          ----------   -------------------   -------------   -------------------   -------------   ---------------
                                                                       (IN THOUSANDS)
<S>                       <C>          <C>                   <C>             <C>                   <C>             <C>
Revenue:
  DBS services..........   $ 16,452          $6,610             $ 9,070            $8,943             $9,075           $1,138
  Lease and other.......        944             264                  83               270                 31                9
  Other.................         --             541                 572                 7                249               --
                           --------          ------             -------            ------             ------           ------
Total revenue...........     17,396           7,415               9,725             9,220              9,355            1,147
Costs and Expenses:
  Cost of DBS
     services...........      9,304           4,100               5,577             5,592              5,410              720
  Other cost of
     revenue............         --             361                  89                --                134               --
  System operations.....      3,796           2,108               3,361             1,465              1,640              217
  Sales and marketing...      7,316             597               1,736               991              1,256              110
  General and
     administrative.....      2,331              27                 231               105                116               --
  Depreciation and
     amortization.......      7,300             754                 575               606                365              185
                           --------          ------             -------            ------             ------           ------
Total costs and
  expenses..............     30,047           7,947              11,569             8,759              8,921            1,232
                           --------          ------             -------            ------             ------           ------
Operating loss..........    (12,651)           (532)             (1,844)              461                434              (85)
Non-operating items:
  Interest and
     investment
     income.............         40              94                 115                82                293                6
  Interest expense......     (3,173)            (72)               (238)             (173)               (72)              --
                           --------          ------             -------            ------             ------           ------
Total non-operating
  items.................     (3,133)             22                (123)              (91)               221                6
                           --------          ------             -------            ------             ------           ------
Net loss before income
  taxes and other.......    (15,784)           (510)             (1,967)              370                655              (79)
Gain on sale of wireless
  TV rights.............         --              --                  --                --              4,655               --
Net profit on asset
  disposal..............         --           4,945                  26                --                173               --
                           --------          ------             -------            ------             ------           ------
Net loss before taxes...    (15,784)          4,435              (1,941)              370              5,483              (79)
  Income taxes..........         --             150                   9               (59)                36               --
                           --------          ------             -------            ------             ------           ------
Net loss................   $(15,784)         $4,585             $(1,932)           $  311             $5,519           $  (79)
                           ========          ======             =======            ======             ======           ======
 
<CAPTION>
 
                           PRO FORMA          PRO
                          ADJUSTMENTS        FORMA
                          -----------       --------
                                (IN THOUSANDS)
<S>                       <C>               <C>
Revenue:
  DBS services..........   $     --         $ 51,288
  Lease and other.......         --            1,601
  Other.................     (1,369)(a)           --
                           --------         --------
Total revenue...........     (1,369)          52,889
Costs and Expenses:
  Cost of DBS
     services...........         --           30,703
  Other cost of
     revenue............       (584)(a)           --
  System operations.....         --           12,587
  Sales and marketing...         --           12,006(6)
  General and
     administrative.....         --            2,810
  Depreciation and
     amortization.......     (2,485)(b)       28,714
                             21,414(c)
                           --------         --------
Total costs and
  expenses..............     18,345           86,820
                           --------         --------
Operating loss..........    (19,714)         (33,931)
Non-operating items:
  Interest and
     investment
     income.............       (590)(d)           40
  Interest expense......        555(d)       (32,625)
                            (29,452)(e)
                           --------         --------
Total non-operating
  items.................    (29,487)         (32,585)
                           --------         --------
Net loss before income
  taxes and other.......    (49,201)         (66,516)
Gain on sale of wireless
  TV rights.............     (4,655)(a)           --
Net profit on asset
  disposal..............     (5,144)(a)           --
                           --------         --------
Net loss before taxes...    (59,000)         (66,516)
  Income taxes..........       (136)(f)           --
                           --------         --------
Net loss................   $(59,136)        $(66,516)
                           ========         ========
</TABLE>
    
 
                                       33
<PAGE>   37
 
- ---------------
   
(1) Includes 1997 acquisitions of DBS operating rights from January 1, 1997
    through acquisition dates.
    
 
   
(2) Includes 1997 acquisitions of DBS businesses from January 1, 1997 through
    acquisition dates.
    
 
   
(3) Includes activity for the year ended December 31, 1997 for acquisitions of
    DBS operating rights acquired during 1998.
    
 
   
(4) Includes activity for the year ended December 31, 1997 for acquisitions of
    DBS businesses acquired during 1998.
    
 
   
(5) Includes activity for the year ended December 31, 1997 for the DBS operating
    rights to be acquired.
    
 
   
(6) Includes net equipment and installation subsidies of $1,845 (proceeds from
    the sale and installation of DBS equipment of $8,256 net of related costs of
    $10,101).
    
 
   
(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.
    
 
   
(c) To give effect to the amortization of goodwill and other intangible assets
    recorded in purchase accounting. Goodwill and other intangible assets
    consist of non-compete agreements, customer lists, and goodwill. The
    non-compete agreements are amortized over the contract period (3 years)
    while customer lists are amortized over 5 years. Goodwill is amortized over
    the remaining useful life of the satellites (expiring in 2008), generally
    10-12 years depending upon date of acquisition.
    
 
   
(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
    and the Offering assumed to be incurred in connection with the 1997, 1998
    and Pending Acquisitions as if such borrowings had occurred at the beginning
    of the period at their respective historical interest rates.
    
 
   
(f) To give effect to the elimination of historical income tax expense
(benefit).
    
 
                                       34
<PAGE>   38
 
   
                            GOLDEN SKY SYSTEMS, INC.
    
   
                 PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
    
   
                      NINE MONTHS ENDED SEPTEMBER 30, 1998
    
   
<TABLE>
<CAPTION>
                                        PRE-SEPTEMBER 30,    PRE-SEPTEMBER 30,   POST-SEPTEMBER 30,    POST-SEPTEMBER 30,
                                        1998 ACQUIRED DBS    1998 ACQUIRED DBS    1998 ACQUIRED DBS    1998 ACQUIRED DBS
                          HISTORICAL   OPERATING RIGHTS(1)     BUSINESSES(2)     OPERATING RIGHTS(3)     BUSINESSES(4)
                          ----------   -------------------   -----------------   -------------------   ------------------
                                                                  (IN THOUSANDS)
<S>                       <C>          <C>                   <C>                 <C>                   <C>
Revenue:
  DBS services..........   $ 50,139          $2,950               $ 1,190              $4,410                $3,168
  Lease and other.......        751              52                     7                  57                    --
  Other.................         --              11                    --                  --                    --
                           --------          ------               -------              ------                ------
Total revenue...........     50,890           3,013                 1,197               4,467                 3,168
Costs and Expenses:
  Cost of DBS
     services...........     29,764           1,891                   860               2,942                 1,776
  Other cost of
     revenue............         --              --                    --                   2                    --
  System operations.....      7,317             325                   408                 621                   447
  Sales and marketing...     19,560             225                    25                  72                    54
  General and
     administrative.....      4,737              26                    (8)                 --                    21
  Depreciation and
     amortization.......     15,814             158                    36                 193                    93
                           --------          ------               -------              ------                ------
Total costs and
  expenses..............     77,192           2,625                 1,321               3,830                 2,391
                           --------          ------               -------              ------                ------
Operating loss..........    (26,302)            388                  (124)                637                   777
Non-operating items:
  Interest and
     investment
     income.............        866              42                    --                  40                   159
  Interest expense......    (11,966)            (33)                  (22)                (78)                   (1)
                           --------          ------               -------              ------                ------
Total non-operating
  items.................    (11,100)              9                   (22)                (38)                  158
                           --------          ------               -------              ------                ------
Net loss before income
  taxes and other.......    (37,402)            397                  (146)                599                   935
Gain on sale of wireless
  TV rights.............         --           1,956                    --                  --                    --
Net profit on asset
  disposal..............         --              --                 8,421                  --                    --
                           --------          ------               -------              ------                ------
Net loss before taxes...    (37,402)          2,353                 8,275                 599                   935
Income taxes............         --             (45)               (3,000)                (37)                   --
                           --------          ------               -------              ------                ------
Net loss................   $(37,402)         $2,308               $ 5,275              $  562                $  935
                           ========          ======               =======              ======                ======
 
<CAPTION>
 
                              PENDING        PRO FORMA       PRO
                          ACQUISITIONS(5)   ADJUSTMENTS     FORMA
                          ---------------   -----------    --------
                                       (IN THOUSANDS)
<S>                       <C>               <C>            <C>
Revenue:
  DBS services..........      $1,115         $     --      $ 62,972
  Lease and other.......           2               --           869
  Other.................          --              (11)(a)        --
                              ------         --------      --------
Total revenue...........       1,117              (11)       63,841
Costs and Expenses:
  Cost of DBS
     services...........         699               --        37,932
  Other cost of
     revenue............          --               (2)(a)        --
  System operations.....         129               --         9,247
  Sales and marketing...          87               --        20,023(6)
  General and
     administrative.....          --               --         4,776
  Depreciation and
     amortization.......         138             (618)(b)    22,870
                                                7,056(c)
                              ------         --------      --------
Total costs and
  expenses..............       1,053            6,436        94,848
                              ------         --------      --------
Operating loss..........          64           (6,447)      (31,007)
Non-operating items:
  Interest and
     investment
     income.............           4             (245)(d)       866
  Interest expense......          --              134(d)    (24,563)
                                              (12,597)(e)
                              ------         --------      --------
Total non-operating
  items.................           4          (12,708)      (23,697)
                              ------         --------      --------
Net loss before income
  taxes and other.......          68          (19,155)      (54,704)
Gain on sale of wireless
  TV rights.............          --           (1,956)(a)        --
Net profit on asset
  disposal..............          --           (8,421)(a)        --
                              ------         --------      --------
Net loss before taxes...          68          (29,532)      (54,704)
Income taxes............          --            3,082(f)         --
                              ------         --------      --------
Net loss................      $   68         $(26,450)     $(54,704)
                              ======         ========      ========
</TABLE>
    
 
                                       35
<PAGE>   39
 
- ---------------
 
   
(1) Includes 1998 acquisitions of DBS operating rights from January 1, 1998
    through acquisition dates.
    
 
   
(2) Includes 1998 acquisitions of DBS businesses from January 1, 1998 through
    acquisition dates.
    
 
   
(3) Includes activity for the nine-months ended September 30, 1998 for
    acquisitions of DBS operating rights completed after September 30, 1998.
    
 
   
(4) Includes activity for the nine-months ended September 30, 1998 for
    acquisitions of DBS businesses completed after September 30, 1998.
    
 
   
(5) Includes activity for the nine-months ended September 30, 1998 for the DBS
    operating rights to be acquired.
    
 
   
(6) Includes net equipment and installation subsidies of $7,676 (proceeds from
    the sale and installation of DBS equipment of $8,438 net of related costs of
    $16,114).
    
 
   
(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.
    
 
   
(c) To give effect to the amortization of goodwill and other intangible assets
    recorded in purchase accounting. Goodwill and other intangible assets
    consist of non-compete agreements, customer lists, and goodwill. The
    non-compete agreements are amortized over the contract period (3 years)
    while customer lists are amortized over 5 years. Goodwill is amortized over
    the remaining useful life of the satellites (expiring in 2008), generally
    10-12 years depending upon date of acquisition.
    
 
   
(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
    and the Offering assumed to be incurred in connection with the completed and
    pending acquisitions as if such borrowings had occurred at the beginning of
    the period at their respective historical interest rates.
    
 
   
(f) To give effect to the elimination of historical income tax expense.
    
 
                                       36
<PAGE>   40
 
   
                            GOLDEN SKY SYSTEMS, INC.
    
 
   
                      PRO FORMA CONSOLIDATED BALANCE SHEET
    
   
                               SEPTEMBER 30, 1998
    
 
   
<TABLE>
<CAPTION>
                                                        POST-
                                                    SEPTEMBER 30,       POST-
                                                        1998        SEPTEMBER 30,
                                                    ACQUIRED DBS         1998
                                                      OPERATING      ACQUIRED DBS        PENDING        PRO FORMA
                                       HISTORICAL     RIGHTS(1)     BUSINESSES(2)    ACQUISITIONS(3)   ADJUSTMENTS      PRO FORMA
                                       ----------   -------------   --------------   ---------------   -----------      ---------
                                                                             (IN THOUSANDS)
<S>                                    <C>          <C>             <C>              <C>               <C>              <C>
Current assets:
  Cash and cash equivalents..........   $ 31,001       $   82          $     5            $ --          $    (87)(a)    $  5,001
                                                                                                         (26,000)(e)
  Restricted cash....................     23,534           --               --              --                --          23,534
  Subscriber receivables.............      6,526          609              227              12              (128)(a)       7,246
  Other receivables..................      1,454           --               --              --                --           1,454
  Earnest deposits...................        916           --               --              --                --             916
  Inventory..........................     10,780          153               17              40              (210)(a)      10,780
  Prepaid expenses...................        846            3               --              --                (3)(a)         846
                                        --------       ------          -------            ----          --------        --------
Total current assets.................     75,057          847              249              52           (26,428)         49,777
Restricted cash, net of current
  portion............................     27,406           --               --              --                --          27,406
Property and equipment, net..........      4,494          321               38             245              (579)(a)       4,519
Intangible assets, net...............    184,787        1,013              584             480            (2,077)(b)     249,159
                                                                                                          64,372(C)
Deferred financing costs.............     10,563           --               --              --                --          10,563
Other assets.........................        210          121              128              49              (298)(a)         210
                                        --------       ------          -------            ----          --------        --------
Total assets.........................   $302,517       $2,302          $   999            $826          $ 34,990        $341,634
                                        ========       ======          =======            ====          ========        ========
Current liabilities:
  Trade accounts payable.............   $ 11,731       $  566          $   228            $ 90          $   (884)(d)      11,731
  Current maturities of other notes
    payable and obligations under
    capital leases...................      9,903           --               --              --                --           9,903
  Payable to parent..................         12           --               --              --                --              12
  Unearned revenue...................      4,509          290              199              --               133(d)        5,131
  Interest payable...................      4,683           --               --              --                --           4,683
  Accrued payable and other
    liabilities......................      1,177          631                2              56              (689)(d)       1,177
                                        --------       ------          -------            ----          --------        --------
Total current liabilities............     32,015        1,487              429             146            (1,440)         32,637
Long-term obligations, net of current
  portion:
  Senior Notes.......................    195,000           --               --              --                --         195,000
  Credit Facility....................     35,000           --               --              --            28,295(d)       63,295
  Other notes payable and obligations
    under capital leases, net of
    current maturities...............      7,398        1,491               --              --            (1,491)(d)       7,398
  Minority interest..................      2,634           --               --              --                --           2,634
                                        --------       ------          -------            ----          --------        --------
Total long-term obligations, net of
  current portion....................    240,032        1,491               --              --            26,804         268,327
                                        --------       ------          -------            ----          --------        --------
Total liabilities....................    272,047        2,978              429             146            25,364         300,964
Total stockholder's equity...........     30,470         (676)             570             680              (574)(d)      40,670
                                                                                                          10,200(f)
                                        --------       ------          -------            ----          --------        --------
Total liabilities and stockholder's
  equity.............................   $302,517       $2,302          $   999            $826          $ 34,990        $341,634
                                        ========       ======          =======            ====          ========        ========
</TABLE>
    
 
                                       37
<PAGE>   41
 
- ---------------
   
(1) Includes acquisitions of DBS operating rights completed after September 30,
    1998.
    
 
   
(2) Includes acquisitions of DBS businesses completed after September 30, 1998.
    
 
   
(3) Includes pending pro forma acquisitions of DBS operating rights.
    
 
   
(a) To give effect to assets not purchased.
    
 
   
(b) To give effect to the elimination of historical intangible assets.
    
 
   
(c) To give effect to intangible assets resulting from acquisitions completed
    subsequent to September 30, 1998 and Pending Pro Forma Acquisitions.
    
 
   
(d) To give effect to the elimination of liabilities not assumed and historical
    equity.
    
 
   
(e) To give effect to cash utilized and new debt issued in connection with the
    Acquisitions.
    
 
   
(f) To give effect to the issuance of preferred stock of the Company's parent in
    connection with an acquisition consummated in October 1998.
    
 
                                       38
<PAGE>   42
 
     (2) The following represents the unaudited statements of operations and pro
forma adjustments for the Completed Acquisitions for the nine months ended
September 30, 1998:
 
<TABLE>
<CAPTION>
                                     ACQUISITIONS COMPLETED
                                     JANUARY 1, 1998 THROUGH                    ACQUISITIONS COMPLETED
                                       SEPTEMBER 30, 1998                      AFTER SEPTEMBER 30, 1998
                              -------------------------------------   ------------------------------------------
                               JANUARY 1,
                              1998 THROUGH                                JANUARY 1,                                 ADJUSTED
                              ACQUISITION     PRO FORMA      PRO         1998 THROUGH       PRO FORMA      PRO       INCLUDED
                                 DATES       ADJUSTMENTS    FORMA     SEPTEMBER 30, 1998   ADJUSTMENTS    FORMA    ACQUISITIONS
                              ------------   -----------   --------   ------------------   -----------   -------   ------------
                                                                       (IN THOUSANDS)
<S>                           <C>            <C>           <C>        <C>                  <C>           <C>       <C>
Revenue:
  DBS services..............    $ 4,140       $     --     $  4,140         $7,578           $    --     $ 7,578     $ 11,718
  Lease and other...........         59             --           59             57                --          57          116
  Other.....................         11            (11)(a)       --             --                --          --           --
                                -------       --------     --------         ------           -------     -------     --------
        Total revenue.......      4,210            (11)       4,199          7,635                --       7,635       11,834
Costs and Expenses:
  Cost of DBS services......      2,751             --        2,751          4,718                --       4,718        7,469
  Other cost of revenue.....         --             --           --              2                (2)(a)      --           --
  System operations.........        733             --          733          1,068                --       1,068        1,801
  Sales and marketing.......        250             --          250            126                --         126          376
  General and
    administrative..........         18             --           18             21                --          21           39
  Depreciation and
    amortization............        194           (194)(b)    1,955            286              (286)(b)   4,503        6,458
                                                 1,955(c)                                      4,503(c)
                                -------       --------     --------         ------           -------     -------     --------
        Total costs and
          expenses..........      3,946          1,761        5,707          6,221             4,215      10,436       16,143
                                -------       --------     --------         ------           -------     -------     --------
Operating loss..............        264         (1,772)      (1,508)         1,414            (4,215)     (2,801)      (4,309)
                                -------       --------     --------         ------           -------     -------     --------
Non-operating items:
  Interest and investment
    income..................         42            (42)(d)       --            199              (199)(d)      --           --
  Interest expense..........        (55)            55(d)   (10,475)           (79)               79(d)   (1,500)     (11,975)
                                               (10,475)(e)                                    (1,500)(e)
                                -------       --------     --------         ------           -------     -------     --------
        Total non-operating
          items.............        (13)       (10,462)     (10,475)           120            (1,620)     (1,500)     (11,975)
                                -------       --------     --------         ------           -------     -------     --------
Net loss before income taxes
  and other.................        251        (12,234)     (11,983)         1,534            (5,835)     (4,301)     (16,284)
  Gain on sale of wireless
    TV rights...............      1,956         (1,956)(a)       --             --                --          --           --
  Net profit on asset
    disposal................      8,421         (8,421)(a)       --             --                --          --           --
                                -------       --------     --------         ------           -------     -------     --------
Net loss before taxes.......     10,628        (22,611)     (11,983)         1,534            (5,835)     (4,301)     (16,284)
                                -------       --------     --------         ------           -------     -------     --------
Income taxes................     (3,045)         3,045(f)        --            (37)               37(f)       --           --
                                -------       --------     --------         ------           -------     -------     --------
Net loss....................    $ 7,583       $(19,566)    $(11,983)        $1,497           $(5,798)    $(4,301)    $(16,284)
                                =======       ========     ========         ======           =======     =======     ========
</TABLE>
 
- ---------------
 
(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.
 
(c)  To give effect to the amortization of goodwill and other intangible assets
     recorded in purchase accounting. Goodwill and other intangible assets
     consist of non-compete agreements, customer lists, and goodwill. The
     non-compete agreements are amortized over the contract period (3 years)
     while customer lists are amortized over 5 years. Goodwill is amortized over
     the remaining useful life of the satellites (expiring in 2008), generally
     10-12 years depending upon date of acquisition.
 
(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 Seller Notes, the
     Credit Facility and the Offering assumed to be incurred in connection with
     the Included Acquisitions as if such borrowings had occurred at the
     beginning of the period at their respective historical interest rates.
 
(f)  To give effect to the elimination of historical income tax expense
     (benefit).
 
                                       39
<PAGE>   43
 
     (3) The following represents the unaudited balance sheet and pro forma
adjustments as of September 30, 1998, for the 1998 acquisitions completed
subsequent to September 30, 1998:
 
<TABLE>
<CAPTION>
                                                                   AS OF SEPTEMBER 30, 1998
                                                          -------------------------------------------
                                                                                           ADJUSTED
                                                            INCLUDED      PRO FORMA        INCLUDED
                                                          ACQUISITIONS   ADJUSTMENTS     ACQUISITIONS
                                                          ------------   -----------     ------------
                                                                        (IN THOUSANDS)
<S>                                                       <C>            <C>             <C>
Current Assets
  Cash and cash equivalents.............................     $   87       $    (87)(a)     $(26,000)
                                                                           (26,000)(e)
  Subscriber receivables................................        836           (235)(a)          601
  Inventory.............................................        170           (170)(a)           --
  Prepaid expenses......................................          3             (3)(a)           --
                                                             ------       --------         --------
          Total current assets..........................      1,096        (26,495)         (25,399)
Property and equipment, net.............................        359           (334)(a)           25
Intangible assets, net..................................      1,597         (1,597)(b)       56,122
                                                                            56,122(c)
Other assets............................................        249           (249)(a)           --
                                                             ------       --------         --------
          Total assets..................................     $3,301       $ 27,447         $ 30,748
                                                             ======       ========         ========
Current liabilities
  Trade accounts payable................................     $  794       $   (794)(d)     $     --
  Unearned revenue......................................        489             61(d)           550
  Accrued payroll and other liabilities.................        633           (633)(d)           --
                                                             ------       --------         --------
          Total current liabilities.....................      1,916         (1,366)             550
Long-term obligations, net of current portion:
  Credit facility.......................................         --         19,998(e)        19,998
  Notes payable and obligations under capital leases,
     net of current maturities..........................      1,491         (1,491)(d)           --
                                                             ------       --------         --------
          Total long-term obligations, net of current
            portion.....................................      1,491         18,507           19,998
                                                             ------       --------         --------
          Total liabilities.............................      3,407         17,141           20,548
Stockholder's equity....................................       (106)           106(d)        10,200
                                                                            10,200(f)
                                                             ------       --------         --------
          Total liabilities and stockholder's equity....     $3,301       $ 27,447         $ 30,748
                                                             ======       ========         ========
</TABLE>
 
- ---------------
 
(a)  To give effect to assets not purchased.
 
(b)  To give effect to the elimination of historical intangible assets.
 
(c)  To give effect to intangible assets resulting from the Included
     Acquisitions.
 
(d)  To give effect to the elimination of liabilities not assumed and historical
     equity.
 
(e)  To give effect to cash utilized and new debt issued under the Credit
     Facility in connection with the Acquisitions.
 
(f)  To give effect to the issuance of preferred stock of the Company's parent
     in connection with an Included Acquisition.
 
                                       40
<PAGE>   44
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
     The selected historical consolidated financial data as of December 31, 1996
and 1997 and for the periods then ended and as of September 30, 1998 and for the
nine-month periods ended September 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 as of September 30, 1998 and for the nine-month periods ended
September 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.
 
<TABLE>
<CAPTION>
                                                                                NINE MONTHS ENDED
                                                  INCEPTION TO    YEAR ENDED      SEPTEMBER 30,
                                                  DECEMBER 31,   DECEMBER 31,   ------------------
                                                      1996           1997        1997       1998
                                                  ------------   ------------   -------   --------
                                                                   (IN THOUSANDS)
<S>                                               <C>            <C>            <C>       <C>
STATEMENT OF OPERATIONS DATA:
Revenue
  DBS services..................................    $   219        $ 16,452     $ 8,462   $ 50,139
  Lease and other...............................         36             944         675        751
                                                    -------        --------     -------   --------
Total revenue...................................        255          17,396       9,137     50,890
Costs and Expenses
  Cost of DBS services..........................        130           9,304       4,868     29,764
  System operations.............................         26           3,796       2,076      7,317
  Sales and marketing...........................         73           7,316       2,898     19,560
  General and administrative....................      1,035           2,331       1,593      4,737
  Depreciation and amortization.................         97           7,300       4,352     15,814
                                                    -------        --------     -------   --------
Total costs and expenses........................      1,361          30,047      15,787     77,192
                                                    -------        --------     -------   --------
Operating loss..................................     (1,106)        (12,651)     (6,650)   (26,302)
Net interest expense............................        (61)         (3,133)     (1,368)   (11,100)
                                                    -------        --------     -------   --------
Net loss before extraordinary charge............    $(1,167)       $(15,784)    $(8,018)  $(37,402)
                                                    =======        ========     =======   ========
</TABLE>
 
   
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                            -------------------    SEPTEMBER 30,
                                                             1996        1997          1998
                                                            -------    --------    -------------
                                                                       (IN THOUSANDS)
<S>                                                         <C>        <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................  $   479    $ 13,632      $ 31,001
Restricted cash:
  Current.................................................       --          --        23,534
  Long-term...............................................       --          --        27,406
Working capital (deficit).................................   (1,948)      3,827        43,042
Total assets..............................................    6,383     156,236       302,517
Total debt................................................    4,450      69,113       247,301
Stockholder's equity......................................   (1,166)     70,449        30,470
</TABLE>
    
 
                                       41
<PAGE>   45
 
                    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 Rural DIRECTV Market in
November 1996. Since Inception, the Company has acquired DBS businesses in 14
Rural DIRECTV Markets and DBS operating rights in an additional 29 Rural DIRECTV
Markets. These Completed Acquisitions include rights to provide DIRECTV
Programming to approximately 1.7 million households. The aggregate purchase
price for the Completed Acquisitions totaled approximately $247.3 million, or
approximately $143 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, 60 offices in its
territories and has established dealer relationships with over 350 local
retailers of DSS Equipment.
    
 
   
     The Company has binding letters of intent relating to two Pending
Acquisitions for an aggregate purchase price of approximately $10.9 million. See
"Summary of the Prospectus -- Pending Acquisitions." The Rural DIRECTV Markets
being purchased include approximately 40,000 households and 5,800 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 Company has experienced net losses as well as negative EBITDA and
operating cash flows from operations since its inception. These operating
shortfalls are primarily the result of the Company's rapid subscriber growth and
acquisitions of Rural DIRECTV Markets. The Company intends to continue its focus
on acquisitions of Rural DIRECTV Markets and rapid subscriber growth in its
existing Rural DIRECTV Markets, 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. Many of these
expenses, which are expensed as incurred and include advertising and promotional
expenses, sales commissions and DSS Equipment and installation subsidies, are
incurred at or before the time a new subscriber is activated. As a result,
revenue attributable to new subscribers lags the expense incurred in acquiring
same. The impact of this lag generally increases with the rate at which the
Company adds subscribers. The Company's rapid subscriber growth and related
subscriber acquisition costs have been significant contributors to the Company's
net losses and negative EBITDA experienced to date. The Company believes that
its subscriber acquisition costs will continue to negatively affect operating
results for at least the next year 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.
    
 
   
     EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is not a measure of performance under generally accepted
accounting principles and should not be construed as a substitute for
consolidated net income (loss) as a measure of performance, or as a substitute
for cash flow as a measure of liquidity. Nevertheless, the Company believes that
EBITDA is a commonly recognized measure of performance in the communications
industry and is the basis for many of the Company's financial covenants.
    
 
                                       42
<PAGE>   46
 
   
Further, the Company believes that EBITDA provides useful information regarding
an entity's ability to incur and/or service debt. Increases or decreases in
EBITDA may indicate improvements or decreases, respectively, in the Company's
free cash flows available to incur and/or service debt and cover fixed charges.
Notwithstanding the above, EBITDA is not intended to represent cash flows for
the period and should not be considered in isolation or as a substitute for
measures of performance determined in accordance with generally accepted
accounting principles. Management expects that, because EBITDA is commonly used
in the communications industry as a measure of performance, investors may use
this data to analyze and compare other communications companies with the Company
in terms of operating performance, leverage and liquidity. EBITDA as calculated
by the Company is not necessarily comparable to similarly captioned amounts of
other companies. During the year ended December 31, 1997, the Company used net
cash of $3.1 million in operating activities, used net cash of $120.7 million in
investing activities, and provided net cash of $137.0 million from financing
activities. During the nine months ended September 30, 1998, the Company used
net cash of $25.7 million in operating activities, used net cash of $113.8
million in investing activities, and provided net cash of $156.8 million from
financing activities.
    
 
     The Company anticipates that its operating margins in the future may be
adversely affected by continued pressure on the retail prices of DSS Equipment
and related installation services, which have continued to decline as a result
of increased competition for DBS subscribers. Correspondingly, the Company
expects that its subscriber acquisition costs, on a per new activation basis,
may continue to increase as it attempts to increase subscriber penetration in
its Rural DIRECTV Markets. Furthermore, the Company believes that competition
from other consolidators of Rural DIRECTV Markets may result in higher costs
associated with the acquisition of additional Rural DIRECTV Markets. 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 total revenue for the periods noted.
 
<TABLE>
<CAPTION>
                                                                                     NINE MONTHS
                                                                                        ENDED
                                                     INCEPTION TO    YEAR ENDED     SEPTEMBER 30,
                                                     DECEMBER 31,   DECEMBER 31,   ---------------
                                                         1996           1997       1997      1998
                                                     ------------   ------------   -----     -----
<S>                                                  <C>            <C>            <C>       <C>
Revenue
  DBS services.....................................       85.9%         94.6%       92.6%     98.5%
  Lease and other..................................       14.1           5.4         7.4       1.5
                                                        ------         -----       -----     -----
          Total revenue............................      100.0%        100.0%      100.0%    100.0%
Costs and Expenses
  Cost of DBS services.............................       51.0%         53.5%       53.3%     58.5%
  System operations................................       10.2          21.8        22.7      14.4
  Sales and marketing..............................       28.6          42.0        31.7      38.4
  General and administrative.......................      405.9          13.4        17.5       9.3
  Depreciation and amortization....................       38.0          42.0        47.6      31.1
  Net interest expense.............................       23.9          18.0        15.0      21.8
  Other............................................         --            --          --       5.1
                                                        ------         -----       -----     -----
          Total expenses...........................      557.6         190.7       187.8     178.6
                                                        ------         -----       -----     -----
Net loss...........................................     (457.6)%       (90.7)%     (87.8)%   (78.6)%
                                                        ======         =====       =====     =====
</TABLE>
 
     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 and equipment lease
revenue. DBS services revenue includes any combination of various monthly
 
                                       43
<PAGE>   47
 
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. Lease and other revenue principally is comprised of
revenue from the rental of DSS Equipment to subscribers.
 
     Cost of DBS Services. The Company's largest cost of providing service to
its subscribers is the wholesale cost of 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.
 
     System Operations. 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. Sales and marketing expense includes such costs as
advertising, promotional expenses, marketing personnel expenses, commission
expenses to Company employees and outside sales agents, net equipment and
installation costs, and other marketing overhead costs. The Company subsidizes
the cost to the consumer of DSS Equipment, as well as the cost of installation
of DSS Equipment. Equipment and installation revenues, and related expenses, are
recognized upon delivery and installation of DSS Equipment. Net transaction
costs associated with the sale and installation of DSS equipment are reported as
a component of sales and marketing expenses in the Company's statement of
operations. 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.
 
     General and Administrative. General and administrative 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, and depreciation of property 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.
 
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997.
 
     Revenue. DBS services revenue for the nine months ended September 30, 1998
totaled $50.1 million, which represented a 493% increase as compared to the same
period in the prior year. This increase was principally attributable to the
increase in the number of subscribers. The average number of subscribers during
the nine-month period ended September 30, 1998 increased to approximately
136,400, compared to approximately 23,600 during the same period of 1997.
Average monthly programming revenue per subscriber approximated $41 and $40
during those same periods.
 
     Cost of DBS Services. Cost of DBS services increased $24.9 million, or
511%, during the nine months ended September 30, 1998, to $29.8 million. This
increase is consistent with the increase in the average number of subscribers.
As a percentage of DBS services revenue, the cost of DBS services increased to
59%
                                       44
<PAGE>   48
 
for the nine months ended September 30, 1998, compared to 58% in the nine months
ended September 30, 1997. This increase resulted largely from increased
programming costs, including increased costs associated with certain distant
broadcast network and superstation programming services.
 
     System Operations. System operations costs totaled $7.3 million for the
nine months ended September 30, 1998, a $5.2 million increase (252%) over the
same period in 1997. These costs increased as a result of the increased number
of field offices and related activity resulting from the Company's continued
acquisition of additional Rural DIRECTV Markets, as well as from subscriber
growth. As a percentage of total revenue, system operation costs declined to 14%
for the nine months ended September 30, 1998, from 23% during the nine months
ended September 30, 1997. The decrease in system operation costs as a percentage
of total revenues resulted from the increase in subscribers and revenues as
previously described.
 
     Sales and Marketing. Sales and marketing expenses totaled $19.6 million
during the nine months ended September 30, 1998, an increase of $16.7 million
compared to the same period during the previous year. This increase principally
resulted from the increase in new subscriber activations (approximately 64,900
during the nine months ended September 30, 1998, as compared to approximately
10,200 during the same period of 1997). Sales and marketing costs per new
subscriber activation approximated $300 and $290 during the nine-month periods
ending September 30, 1998 and 1997, respectively. Advertising expenses totaled
$3.9 million during the nine months ended September 30, 1998, compared to
$675,000 during the same period in 1997. The increase of $3.2 million resulted
from the Company's increased size and marketing activities.
 
     General and Administrative. During the nine months ended September 30,
1998, general and administrative expenses totaled $4.7 million, compared to $1.6
million during the same period in 1997. The increase in general and
administrative expenses resulted from the addition of administrative resources
necessary to support the Company's growth. As a percentage of total revenue,
general and administrative expenses decreased to 9% during the nine months ended
September 30, 1998, from 17% during the same period in 1997. This decrease
reflects the continued leveraging of these costs, which are partially fixed in
nature, over increased subscribers and revenues.
 
   
     Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the nine months ended September 30, 1998 totaled negative $10.5 million,
compared to negative EBITDA of $2.3 million during the same period in 1997. This
increase in negative EBITDA principally resulted from the increases in sales and
marketing activities and related new subscriber activations previously
described. During the nine months ended September 30, 1998, the Company used net
cash of $25.7 million in operating activities, used net cash of $113.8 million
in investing activities, and provided net cash of $156.8 million from financing
activities. During the nine months ended September 30, 1997, the Company used
net cash of $2.8 million in operating activities, used net cash of $81.6 million
in investing activities, and provided net cash of $85.8 million from financing
activities.
    
 
     Depreciation and Amortization. Depreciation and amortization expenses
increased $11.4 million to $15.8 million during the nine months ended September
30, 1998, compared to $4.4 million during the nine months ended September 30,
1997. This increase resulted from higher goodwill and other intangible assets
balances, which have resulted from the Company's continued acquisitions of Rural
DIRECTV Markets.
 
     Interest Expense. Interest expense totaled $12.0 million during the nine
months ended September 30, 1998 and $1.4 million during the comparable period in
1997. This increase primarily resulted from higher outstanding debt balances
and, to a lesser degree, from an increase in weighted-average interest costs.
 
  Year Ended December 31, 1997 Compared to Period from Inception to December 31,
1996
 
     Revenue. DBS Services revenue for the year ended December 31, 1997
increased to $16.5 million 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 DBS
Services revenue is
 
                                       45
<PAGE>   49
 
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 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.
 
     Cost of DBS Services. Costs were $9.3 million for the year ended December
31, 1997 compared to $130,000 for the 1996 Period. The increase in the cost of
DBS services corresponds to the large increase in subscribers added by the
Company in 1997. As a percentage of DBS services revenue, the cost of DBS
services increased to 57% for the year ended December 31, 1997, compared to 59%
for the 1996 Period. This decrease was primarily due to a change in subscriber
revenue mix toward packages with higher margins.
 
     System Operations. Systems operations expenses totaled $3.8 million 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. Sales and marketing expenses totaled $7.3 million for
the year ended December 31, 1997 and $73,000 for the 1996 Period. Sales and
marketing expenses were primarily comprised of expenditures for advertising and
promotion, net DSS Equipment and installation subsidies, marketing personnel
costs, and sales commissions associated with the acquisition of new subscribers.
Advertising expenses increased $600,000 to $1.4 million for the year ended
December 31, 1997, compared to $813,000 during the 1996 Period. This increase
resulted from the increase in the size and scope of the Company's operations.
 
     General and Administrative. General and administrative expenses were $2.3
million for the year ended December 31, 1997 and $1.0 million for the 1996
Period. The Company added accounting and administrative resources during 1997 to
support its growth. The decrease in general and administrative 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.
 
   
     Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA for
the year ended December 31, 1997 totaled negative $5.4 million, compared to
negative EBITDA of $1.0 million during the 1996 Period. This increase in
negative EBITDA principally resulted from the increases in sales and marketing
activities and related new subscriber activations previously described. During
the year ended December 31, 1997, the Company used net cash of $3.1 million in
operating activities, used net cash of $120.7 million in investing activities,
and provided net cash of $137.0 million from financing activities. During the
1996 Period, the Company used net cash of $790,000 in operating activities, used
net cash of $3.2 million in investing activities, and provided net cash of $4.5
million from financing activities.
    
 
     Depreciation and Amortization. Depreciation and amortization totaled $7.3
million 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. Interest expense amounted to $3.2 million for the year
ended December 31, 1997 and $62,000 for the 1996 Period. This increase resulted
primarily from increased borrowings. Borrowings under the Credit Agreement at
December 31, 1997 totaled 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.
 
                                       46
<PAGE>   50
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's operations require substantial amounts of capital for (i) the
acquisition of additional Rural DIRECTV Markets, (ii) financing subscriber
growth (including subsidizing DSS Equipment and installation, marketing and
selling expenses), (iii) investments in, and maintenance of, field offices in
its Rural DIRECTV Markets, (iv) financing infrastructure development costs
necessary to support the growth of the Company's business, and (v) the funding
of start-up losses and other working capital requirements. The Company's capital
expenditures, inclusive of acquisitions of Rural DIRECTV Markets, totaled $61.9
million and $81.9 million during the nine-month periods ended September 30, 1998
and 1997, respectively, and $121.0 million and $2.9 million during 1997 and the
1996 Period, respectively. During those same periods, net cash flows used in
operations totaled $25.7 million and $2.8 million, respectively, and $3.2
million and $790,000, respectively.
 
     To date, the Company's acquisitions, subscriber growth and operations have
been financed 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. During the nine months
ended September 30, 1998, net cash flows from financing activities totaled
$156.8 million, which was comprised of net proceeds of $189.2 million from the
Offering, net repayments of $25.0 million of outstanding borrowings under the
Company's bank credit facilities, deferred financing costs of $4.8 million, and
$2.6 million of repayments on the Company's other indebtedness. In 1997, net
cash flows from financing activities totaled $137.0 million, comprised of $81.2
million from the issuance of preferred stock, deferred financing costs of $3.4
million and $59.2 million of net borrowings under the Company's bank credit
facilities and other indebtedness.
 
Credit Agreements
 
     During 1997, the Company entered into a credit agreement (the "Credit
Agreement") with a group of financial institutions, which provided for maximum
borrowings of $100.0 million. Loans outstanding under the Credit Agreement bore
interest at variable rates calculated on a base rate, such as the prime rate or
LIBOR, plus an applicable margin. As of December 31, 1997, the Company had
borrowed an aggregate of $60.0 million of term and revolving loans under the
Credit Agreement. During 1998, the Company borrowed an additional $28.0 million
under the Credit Agreement. As described below, during May 1998 all outstanding
borrowings under the Credit Agreement were repaid with borrowings under the
Credit Facility (as defined), and the Credit Agreement was retired. Upon
retirement of the Credit Agreement, the Company recognized a one-time,
extraordinary charge of approximately $2.6 million to write-off, as required by
generally accepted accounting principles, unamortized deferred financing costs
associated with the Credit Agreement.
 
     In May 1998, the Company entered into the Credit Facility, which provides
for a $150.0 million line of credit to fund acquisitions and working capital
requirements. Of this amount, $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 sub-limit of $40.0 million). At September 30,
1998, the Company had fully utilized its term loan availability and had no
outstanding borrowings under the revolving credit line. In addition, at
September 30, 1998, the Company had utilized $19.9 million of the letter of
credit sub-limit. 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 maturity on June 30, 2004. Borrowings under the Credit Facility
bear interest at variable rates (approximately 9% at September 30, 1998)
calculated on a base rate, such as the prime rate or LIBOR, plus an applicable
margin. As of September 30, 1998, the Company's available borrowing capacity
under the Credit Facility approximated $95.1 million. See "Description of Other
Indebtedness."
 
     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
 
                                       47
<PAGE>   51
 
or consolidate with another entity, create subsidiaries, make amendments to its
organizational documents or transact with affiliates.
 
     The Credit Facility also contains a number of financial covenants that will
require the Company to meet certain financial ratios and financial condition
tests. These financial covenants, in certain instances, become effective at
different points in time and vary over time. The covenants include limitations
on indebtedness per subscriber ranging from $1,200 to $500, a limitation on net
subscriber acquisition costs of $400 as long as the indebtedness to EBITDA ratio
is 7.0 to 1 or higher, maintenance of a minimum fixed charge coverage ratio of
1.05 to 1, maintenance of a minimum interest coverage ratios ranging from 1.5 to
1 to 3.0 to 1, and limitations on indebtedness to Pro Forma EBITDA ratios
ranging from 12.0 to 1 to 2.0 to 1. Availability under the revolving credit
facility of the Credit Facility depends upon satisfaction of the various
covenants as well as minimum subscriber base requirements.
 
     As of September 30, 1998, the Company was in compliance with all of its
covenants under the Credit Facility.
 
     The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the aggregate principal amount of senior subordinated debt issued by the Company
exceeds $150.0 million. As described below, the Offering resulted in net
proceeds to the Company of approximately $144.0 million (after payment of
underwriting discounts and other costs of approximately $5.8 million and
excluding the approximately $45.2 million of proceeds placed in the interest
escrow account). If the relevant provision of the Credit Facility is interpreted
to apply to the net proceeds of the Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to apply to the gross
proceeds of the Offering, the lenders would have such a right. In an attempt to
clarify the application of this provision, the Company has requested a waiver
from the lenders of their possible right to effect a reduction in the total
commitment amount of the Credit Facility. In the event this waiver request is
not granted by the lenders, the Credit Facility's aggregate term loan and
revolving loan commitments could be reduced by $22.5 million. Similarly, the
aggregate amount of indebtedness permitted by the Indenture could be reduced by
a like amount. Any such reductions in the Company's Credit Facility and maximum
permitted indebtedness could adversely affect its ability to finance potential
future acquisitions of Rural DIRECTV Markets and its operations. As a result,
the Company may be required to obtain additional equity or other financing.
There can be no assurance that such equity or other financing would be available
on terms acceptable to the Company, or if available, that the proceeds of such
financing would be sufficient to enable the Company to completely execute its
business plan.
 
The Offering
 
     On July 31, 1998, the Company consummated the Offering of the Notes.
Interest on the Notes is payable in cash semi-annually in arrears on February 1
and August 1 of each year, with the first interest payment due February 1, 1999.
The Notes mature on August 1, 2006. The Offering resulted in net proceeds to the
Company of approximately $189.2 million (after payment of underwriting discounts
and other issuance costs aggregating approximately $5.8 million). Approximately
$45.2 million of the net proceeds of the Offering were placed in the Interest
Reserve Account to fund the first four semi-annual interest payments (through
August 1, 2000) on the Notes. As of September 30, 1998, approximately $118.0
million of the remaining net proceeds had been utilized ($83.3 million for the
retirement of existing indebtedness and related accrued interest, $15.0 million
in acquisitions, $14.4 million for working capital purposes, and $5.3 million
was placed in escrow to cover a portion of the contingent reduction of the
Company's availability under the Credit Facility, as described above). As of
September 30, 1998, the remaining $26.0 million was held in short-term liquid
investments for use in funding future acquisitions of Rural DIRECTV Markets and
working capital requirements. In October 1998, these funds were fully utilized
and the Company began drawing on its availability under its revolving credit
facility, primarily for funding acquisitions and working capital purposes.
 
     The Notes are unsecured senior subordinated obligations of the Company and
are subordinated in right of payment to all existing and future senior
indebtedness. The Notes rank pari passu in right of payment with all
 
                                       48
<PAGE>   52
 
other existing and future senior subordinated indebtedness, if any, of the
Company and senior in right of payment to all existing and future subordinated
indebtedness, if any, of the Company.
 
     The Notes are redeemable, in whole or in part, at the option of the Company
on or after August 1, 2003, at redemption prices decreasing from 112% during the
year commencing August 1, 2003 to 108% on or after August 1, 2005, 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 the 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 $40.0 million and any subsequent public equity offerings (provided
that, in the case of any such offering or offerings 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 the
Notes outstanding must equal at least 65% of the originally issued aggregate
principal amount of the Notes.
 
     The Indenture contains restrictive covenants that, among other things,
impose limitations on the ability of the Company to 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. In the event of a change of control, as defined in
the Indenture, each holder of the Notes will have the right to require the
Company to purchase all or a portion of such holder's Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the date of purchase. See "Description of the New Notes."
 
Future Capital Requirements
 
     The Company's future capital requirements will depend upon a number of
factors, including the extent of the Company's acquisition activities, the rate
of the Company's subscriber growth, and the working capital needs necessary to
accommodate the Company's anticipated growth. The Company expects that increased
investments in its administrative and computer systems will be necessary to
support the Company's increased size and continued growth. The Company currently
subsidizes a portion of the cost of DSS Equipment and subscriber installations.
The extent of such future subsidies 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 its agreements with
the NRTC and the timing for making required payments thereto. Excluding costs
associated with the acquisition of additional Rural DIRECTV Markets, the Company
anticipates that its total capital expenditures, primarily related to expanding
facilities and information systems for customer service operations and field
offices, will not exceed $3.0 million during the year ending December 31, 1998.
During the remainder of 1998 and throughout 1999, the Company expects to
continue its acquisitions of Rural DIRECTV Markets and to expand its marketing
efforts in its existing markets in order to increase its subscriber penetration.
 
   
     Currently, the Company has binding letters of intent to acquire two
additional Rural DIRECTV Markets for consideration of approximately $10.9
million. The Pending Acquisitions represent approximately 40,000 television
households and serve approximately 5,800 subscribers. The Company is also
negotiating to acquire two other Rural DIRECTV Markets, which territories
include approximately 33,000 households and 4,700 subscribers. Completion of
these acquisitions are subject to certain contingencies, such as the
satisfactory completion of due diligence, and other customary conditions to
closing, which may or may not be satisfied. There can be no assurance that these
acquisitions will be consummated.
    
 
     The Company is highly leveraged and expects to increase its leverage as it
pursues further acquisitions of Rural DIRECTV Markets by borrowing additional
funds under the Credit Facility or otherwise, and by the issuance of other
acquisition-related notes payable. The approximately $16.4 million of Seller
Notes outstanding at September 30, 1998 mature as follows: $9.5 million in 1999,
$1.9 million in 2000, $2.0 million
 
                                       49
<PAGE>   53
 
in 2001, $2.0 million in 2002 and $1.0 million in 2003. See "Description of
Other Indebtedness." Additional financing may 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. There can be no assurance that such additional financing would be
available on terms acceptable to the Company, or at all, and if available, that
the proceeds of such financing would be sufficient to enable the Company to meet
its debt service requirements or completely execute its business plan.
 
   
     While the Company expects that its current borrowing capacity under the
Credit Facility is sufficient to finance its existing business (including the
Pending Acquisitions), there may be a number of factors, some of which may be
beyond the Company's control or ability to predict, that could require the
Company to raise additional capital. These factors include possible acquisitions
of additional Rural DIRECTV Markets, increased costs associated with potential
future acquisitions of Rural DIRECTV Markets, unexpected increases in operating
costs and expenses, subscriber growth in excess of that currently expected, or
an increase in the cost of acquiring subscribers due to increased DSS Equipment
and subscriber installation subsidies, as well as from additional competition,
among other things. There can be no assurance that additional debt, equity or
other financing will be available on terms acceptable to the Company, or at all.
    
 
YEAR 2000 COMPLIANCE
 
     The Company is in the process of assessing the impact of the Year 2000
issue on its computer systems and operations. Many existing computer systems and
applications currently use two-digit date fields to designate a year. Date
sensitive systems and applications may recognize the year 2000 as 1900 or not at
all. The inability to recognize or properly treat the Year 2000 issue may cause
computer systems and applications to fail to process critical financial and
operational information correctly. This issue affects virtually all
organizations and can be very costly and time consuming to correct.
 
     The Company has reviewed Year 2000 compliance of its internal systems and
believes that such systems are Year 2000 compliant. However, there can be no
assurance that all of the software products currently used by the Company are in
fact Year 2000 compliant. The Company has engaged the services of a consultant
to assist in its assessment of the impact of the Year 2000 issue on its
computerized systems and operations. Additionally, the Company is in the process
of conducting surveys of all of its significant 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 service, billing and remittance
processing pursuant to the Company's contractual relationship with the NRTC. The
NRTC has informed the Company that the computer systems that provide such
services are not currently Year 2000 compliant, but that such systems will be
compliant by April 1999. The Company is reliant on DIRECTV for distribution of
its DBS programming services. DIRECTV has informed the Company that it expects
to establish Year 2000 compliance for its satellite programming, subscriber
databases, and customer billing systems by the end of the first calendar quarter
of 1999. In addition to the NRTC and DIRECTV, the Company is significantly
reliant on other parties (such as its suppliers of DSS Equipment) for the
successful conduct of its business. As previously described, the Company is in
the process of ascertaining the Year 2000 readiness of these third-parties.
 
     Currently, the Company believes its costs to successfully mitigate the Year
2000 issue will not be material to its financial position or results of
operations. If the Company's plan is not successful or is not completed in a
timely manner, the Year 2000 issue could significantly disrupt the Company's
ability to transact business with its customers and suppliers, and could have a
material impact on its operations. There can be no assurance that the systems of
the NRTC, DIRECTV and other companies with which the Company's systems interact
or depend will be compliant by the end of 1999, or that any such third party
failure would not have an adverse effect on the Company's business or its
operations.
 
     To date, the Company has not implemented a Year 2000 contingency plan.
Contingency plans for mission critical systems primarily involve development and
testing of manual procedures or the use of alternate systems. Viable contingency
plans are difficult to develop for certain third party failures, especially in
high-technology industries such as the DBS industry, due to the lack of
alternate suppliers. However, the Company will continue to monitor the progress
of third party remediation efforts and contingency plans.
                                       50
<PAGE>   54
 
Substantial completion of the Company's Year 2000 contingency plan is expected
in mid 1999. There can be no assurance that such contingency plans will
successfully mitigate any adverse effects that the Year 2000 issue may have on
the Company's operations.
 
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.
 
     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS No. 133"). FAS No. 133 is effective
for fiscal years beginning after June 15, 1999. FAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. Currently, Golden Sky has no derivative instruments or hedging
arrangements. Accordingly, adoption of FAS No. 133 is not expected to have a
material effect on the financial position or results of operations of the
Company.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, defines costs related to start-up activities
and requires that such costs be expensed as incurred. As the Company previously
has expensed all such costs, the adoption of SOP 98-5 is not expected to have a
material effect on the Company's results of operations or financial position.
 
                                       51
<PAGE>   55
 
                                    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 900,000, or approximately 22%, of total DIRECTV customers.
 
     Since its formation by management in June 1996, the Company has:
 
     - acquired 43 Rural DIRECTV Markets in 22 states with approximately 1.7
       million households and 124,000 subscribers at the dates of acquisition;
 
   
     - increased its subscriber base in these markets by over 71% in the
       aggregate, to approximately 212,400 as of November 30, 1998, achieving a
       subscriber penetration rate of approximately 12.3% through aggressive
       marketing and a local service-driven approach to the customer;
    
 
   
     - entered into binding letters of intent to acquire two additional Rural
       DIRECTV Markets with approximately 40,000 households and 5,800
       subscribers.
    
 
   
     - commenced marketing and distributing DIRECTV Programming to approximately
       3,400 commercial and MDU customers in six cities near its Rural DIRECTV
       Markets, with rights to provide such services on a non-exclusive basis
       nationwide.
    
 
     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 nine months of 1998 totaled approximately 49,100.
This represented approximately 6.5% of DIRECTV's net new subscribers nationwide
for the period, although total households in the Company's Rural DIRECTV Markets
represented approximately 1.5% 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 negative $5.4 million for the
year ended December 31, 1997 and negative $10.5 million for the nine months
ended September 30, 1998.
 
     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))
                                       52
<PAGE>   56
 
       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.
 
     - 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.
 
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.
 
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
 
                                       53
<PAGE>   57
 
       inception, the Company has opened or is in the process of establishing a
       total of 60 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 100 Rural DIRECTV Markets, comprised of approximately 2.0
       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 September 30, 1998, the Company had access to approximately 23,000
       MDUs via "right of entry" agreements, with approximately 2,700 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 an advertising campaign that the Company believes is both
creative and consistent. 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.
 
                                       54
<PAGE>   58
 
  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.
 
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
 
                                       55
<PAGE>   59
 
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 November 30, 1998, there were approximately 4.3 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 51.2% as of November 30, 1998. DIRECTV
added approximately 1.2 million new subscribers (net of churn) during the twelve
months ended November 30, 1998, which was a greater increase than any other DBS
or medium power DTH provider and accounted for approximately 49.1% of all new
DBS and medium power DTH 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
 
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<PAGE>   60
 
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 November 30, 1998,
approximately 50% of DIRECTV's 4.3 million subscribers received USSB
programming.
    
 
   
     On December 14, 1998, Hughes announced that it will acquire USSB for $1.3
billion. Hughes said it will combine its DIRECTV business with USSB's assets and
satellite slots to expand its DBS programming lineup through the addition of
premium multi-channel movie services such as HBO and Showtime. Hughes also
announced that it plans to use certain of the DBS satellite frequencies to be
acquired for the delivery of Spanish-language programming services. The Company
is not yet able to assess the effect of Hughes' acquisition of USSB on its
future business, financial position or results of operations.
    
 
     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 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.
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<PAGE>   61
 
          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
 
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<PAGE>   62
 
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."
 
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."
 
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<PAGE>   63
 
  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 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 1.8 million subscribers as of November 30, 1998. On November 30,
1998, EchoStar announced that it had
    
 
                                       60
<PAGE>   64
 
   
entered into an agreement to acquire certain satellite-television assets from
The News Corporation Limited and MCI Worldcom. The satellite-television assets
to be acquired by EchoStar include a license for 28 DBS frequencies at 110
degrees W.L. (a full CONUS orbital location), two satellites to be delivered in
orbit, and a direct broadcast operations facility. Consummation of these asset
purchases by EchoStar may enable it to significantly expand its DBS and other
programming offerings, thereby potentially strengthening its competitive
strength relative to DIRECTV and the Company. 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 certain (11 licensed frequencies) DBS capacity via Tempo
Satellite's high-powered DBS satellite at 119 degrees W.L., which is capable of
providing full CONUS service. This, however, is subject to FCC approval.
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 November 30, 1998, PrimeStar had approximately 2.3 million
subscribers.
    
 
     Low power C-band operators reported approximately 2.0 million subscribers
as of October 31, 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.
 
     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.
 
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     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. In November 1998, the FCC amended its rules to
extend these protections to rental property in those areas under the exclusive
use or control of the renter. 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 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.
 
                                       62
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     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. In November 1998, the FCC adopted rules requiring DTH licensees
to provide reasonable and non-discriminatory access by qualified candidates for
elective office. These rules also require DTH licensees to set aside four
percent of the licensee's channel capacity for non-commercial programming of an
educational or informational nature.
 
     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 Longley-Rice propagation maps recognized by the Court
as identifying those households that receive "a signal of at least Grade B
intensity" or past subscription to cable) and to any business. The preliminary
injunction further required 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. The injunction also
imposed other obligations on PrimeTime 24 and its distributors with respect to
future sales of Fox and CBS programming nationwide. There can be no assurance as
to how long the preliminary injunction will remain in effect or as to what final
relief may ultimately be granted to the plaintiffs. On September 30, 1998, the
Florida court issued an order granting PrimeTime 24 until February 28, 1999 to
comply with the terms of the injunction. 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.
 
     In November 1998, the FCC adopted a notice of proposed rulemaking to
consider whether and how it might redefine the standard for measuring a "Grade B
intensity" signal for purposes of the SHVA. The FCC has publicly stated that it
will attempt to complete this rulemaking prior to February 28, 1999. In
addition, in October 1998, EchoStar filed a lawsuit in the United States
District Court of Colorado seeking a declaratory ruling establishing a
predictive model for determining whether a household is "unserved" for purposes
of the SHVA based on a "Longley-Rice" predictive model that applies a criteria
of 95% of the locations receiving a Grade B signal 95% of the time with a 50%
degree of confidence. The lawsuit also asks the court to clarify the particular
means (e.g., antenna height and orientation) for measuring signal strength.
 
     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
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<PAGE>   67
 
unaffected by the preliminary injunction, either because they live in areas
where the off-air network signal strength falls below 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 to
certain subscribers 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 service, billing and remittance processing pursuant to the Company's
contractual relationship with the NRTC. The NRTC has informed the Company that
the computer systems that provide such services are not currently Year 2000
compliant, but that such systems will be compliant by April 1999. The Company is
reliant on DIRECTV for distribution of its DBS programming services. DIRECTV has
informed the Company that it expects to establish Year 2000 compliance for its
satellite programming, subscriber databases, and customer billing systems by the
end of the first calendar quarter of 1999. In addition to the NRTC and DIRECTV,
the Company is significantly reliant on other parties (such as its suppliers of
DSS Equipment) for the successful conduct of its business. As previously
described, the Company is in the process of ascertaining the Year 2000 readiness
of these third-parties. If the Company's plan is not successful or is not
completed in a timely manner, the Year 2000 issue could significantly disrupt
the Company's ability to transact business with its customers and suppliers, and
could have a material impact on its operations. There can be no assurance that
the systems of the NRTC, DIRECTV and other companies with which the Company's
systems interact or depend will be compliant by the end of 1999, or that any
such third party failure would not have an adverse
                                       64
<PAGE>   68
 
effect on the Company's business or its operations. 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 "Management's Discussion and Analysis of Results of Operations
and Financial Condition -- Year 2000 Compliance."
 
FACILITIES
 
   
     The Company is headquartered in leased space in Kansas City, Missouri and
has 60 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.
    
 
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 November 30, 1998,
the Company had approximately 700 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.
 
                                       65
<PAGE>   69
 
                                   MANAGEMENT
 
EXECUTIVE OFFICERS AND DIRECTORS
 
   
     The following table sets forth certain information regarding the executive
officers and directors of the Company as of December 24, 1998.
    
 
   
<TABLE>
<CAPTION>
                NAME                   AGE                          POSITION
                ----                   ---                          --------
<S>                                    <C>   <C>
Rodney A. Weary......................  47    Chairman of the Board, Chief Executive Officer and
                                             Director
John R. Hager........................  37    Chief Financial Officer
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
</TABLE>
    
 
- ---------------
 
(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. Until 1995, he was President of
Cable Video Entertainment Inc., which Mr. Weary formed in 1986 by acquiring
traditional cable systems located in three states. 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
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 Chief Financial Officer of the Company
since October, 1998. Mr. Hager joined the Company in August 1998 as Vice
President, Finance and Controller. 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.
 
                                       66
<PAGE>   70
 
     Jo Ellen Linn. Ms. Linn has been Secretary and General Counsel of the
Company since Inception. From 1993 to 1996, Ms. Linn was 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. Ms. Linn was a contract negotiator in the network real
estate department of Sprint Communications from 1990 to 1992. 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, which
he founded in 1993. Prior to the founding of Spectrum, he was an independent
consultant from 1991 to 1993. Mr. Collatos 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 also 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.
 
                                       67
<PAGE>   71
 
     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:
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                                                    LONG-TERM
                                                                  COMPENSATION
                                                                     AWARDS
                                                                 ---------------
                                        ANNUAL COMPENSATION        SECURITIES
                                      ------------------------     UNDERLYING         ALL OTHER
NAME AND PRINCIPAL POSITION    YEAR     SALARY        BONUS      OPTIONS/SARS(#)   COMPENSATION($)
- ---------------------------    ----   -----------   ----------   ---------------   ---------------
<S>                            <C>    <C>           <C>          <C>               <C>
Rodney A. Weary..............  1997   $198,818.00   $50,000.00       21,884                 --
Chief Executive Officer,
Chairman of the Board of
Directors
Robert B. Weaver.............  1997   $ 96,470.00   $45,000.00       12,505            $40,000(2)
Chief Financial Officer(1)
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
</TABLE>
 
- ---------------
 
(1) Effective September 11, 1998, Mr. Weaver resigned as Chief Financial Officer
    of the Company.
 
(2) The amount shown represents a relocation allowance.
 
                                       68
<PAGE>   72
 
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:
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
<TABLE>
<CAPTION>
                                               INDIVIDUAL GRANTS
                             -----------------------------------------------------         POTENTIAL
                                            PERCENT OF                                REALIZABLE VALUE AT
                                              TOTAL                                  ASSUMED ANNUAL RATES
                              NUMBER OF      OPTIONS/                                   OF STOCK PRICE
                             SECURITIES    SARS GRANTED                                APPRECIATION FOR
                             UNDERLYING    TO EMPLOYEES   EXERCISE OF                     OPTION TERM
                             OPTION/SARS    IN FISCAL     BASE PRICE    EXPIRATION   ---------------------
NAME                         GRANTED(#)        YEAR         ($/SH)         DATE        5%($)      10%($)
- ----                         -----------   ------------   -----------   ----------   ---------   ---------
<S>                          <C>           <C>            <C>           <C>          <C>         <C>
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
</TABLE>
 
                         FISCAL YEAR-END OPTION VALUES
 
   
<TABLE>
<CAPTION>
                                                   NUMBER OF SECURITIES
                                                  UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                                     OPTIONS AT FISCAL           IN-THE-MONEY OPTIONS
                                                        YEAR-END(#)            AT FISCAL YEAR-END($)(1)
                                                ---------------------------   ---------------------------
                                                EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
                                                -----------   -------------   -----------   -------------
<S>                                             <C>           <C>             <C>           <C>
Rodney A. Weary...............................     3,039         18,845           --             --
Robert B. Weaver..............................     1,737         10,768           --             --
William J. Gerski.............................     1,692         10,490           --             --
Jo Ellen Linn.................................       347          2,154           --             --
</TABLE>
    
 
- ---------------
 
   
(1) Based on a value of $1.00 per share, which is the fair value of the Common
    Stock as determined by the board of directors of Holdings for purposes of
    option grants.
    
 
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.
 
                                       69
<PAGE>   73
 
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 August 1998, the Company entered into an employment agreement with Mr.
Hager. Pursuant to the employment agreement, Mr. Hager agreed to serve the
Company in his current capacity through August 2001. The employment agreement
may be extended in accordance with its terms. Mr. Hager is paid compensation
under the employment agreement in an amount not less than $120,000 per year and
is eligible to participate in the Stock Option Plan. The Company and Mr. Hager
also entered into a non-competition agreement and a confidentiality and
proprietary rights agreement in August 1998. The terms of the non-competition
agreement preclude Mr. Hager from competing with the Company during the term of
his employment and for one year thereafter in any market in the United States in
which the Company operates or intends to operate. The confidentiality and
proprietary rights agreement requires Mr. Hager to maintain the confidentiality
of the Company's proprietary information during the period of his employment and
thereafter.
 
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.
 
                                       70
<PAGE>   74
 
                             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 December 22,
1998, regarding the ownership of Holdings' Common Stock, Series A Convertible
Participating Preferred Stock, $.01 par value ("Series A Preferred Stock"),
Series B Convertible Participating Preferred Stock, $.01 par value ("Series B
Preferred Stock"), and Series C Senior Convertible Preferred Stock, $.01 par
value ("Series C 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.
    
 
   
<TABLE>
<CAPTION>
                                                               SHARES BENEFICIALLY OWNED
                                  -----------------------------------------------------------------------------------
                                       SERIES A             SERIES B            SERIES C
                                   PREFERRED STOCK      PREFERRED STOCK      PREFERRED STOCK        COMMON STOCK         FULLY-
                                  ------------------   ------------------   -----------------   ---------------------   DILUTED
                                               % OF                 % OF                % OF                   % OF      VOTING
NAME(1)                             SHARES     CLASS     SHARES     CLASS    SHARES     CLASS   SHARES(2)    CLASS(3)   POWER(%)
- -------                           ----------   -----   ----------   -----   ---------   -----   ----------   --------   --------
<S>                               <C>          <C>     <C>          <C>     <C>         <C>     <C>          <C>        <C>
PRINCIPAL STOCKHOLDERS:
  Alta Subordinated Debt
    Partners III, L.P.(4).......   55,532.00   13.3     11,125.24    4.9           --     --      2,116.00     96.1        9.3
  Alta Communications VI,
    L.P.(4).....................   92,365.00   22.1     18,504.38    8.1           --     --      3,522.00     97.9       15.5
  Alta-Comm S By S, LLC(4)......    2,103.00    *          421.84    *             --     --         81.00     45.0       *
  Spectrum Equity Investors
    L.P.(5).....................   50,000.00   12.0            --     --           --     --         12.00     12.0        6.8
  Spectrum Equity Investors II
    L.P.(5).....................  100,000.00   23.9            --     --           --     --         25.00     25.0       13.5
  BancBoston Ventures Inc.(6)...   75,000.00   17.9     12,521.44    5.5           --     --         19.00     19.0       11.8
  Norwest Equity Partners VI,
    LP(7).......................          --     --     50,083.75   21.9           --     --            --       --        6.8
  Norwest Venture Partners VI,
    LP(7).......................          --     --     25,041.87   11.0           --     --            --       --        3.4
  HarbourVest Partners V-Direct
    Fund L.P.(8)................          --     --     75,125.62   32.9           --     --            --       --       10.2
  Lion Investments Limited(9)...          --     --      5,010.76    2.2           --     --            --       --       *
  Westpool Investment Trust
    plc(9)......................          --     --     15,031.27    6.6           --     --            --       --        2.0
  General Electric Capital
    Corporation(10).............          --     --     15,000.00    6.6           --     --            --       --        2.0
  Harold Poulsen(11)............    1,000.00    *              --     --    19,154.02   37.0     19,154.02     99.5        2.6
  Jack S. Ramirez and Carol H.
    Ramirez(12).................          --     --            --     --     8,134.89   12.6      8,134.89     98.8        1.1
  Joyce Travis, Trustee of the
    Travis Living Trust Dated
    the 5th day of March,
    1998(13)....................          --     --            --     --     4,788.50    9.3      4,788.50     98.0       *
  James and Constance R.
    Hertz(14)...................          --     --            --     --     4,880.94    6.3      4,880.94     98.0       *
  Maxon R. and Kristina
    Davis(15)...................          --     --            --     --     3,037.52    5.9      3,037.52     96.8       *
  Louise A. Davis(16)...........          --     --            --     --     2,968.26    5.7      2,968.26     96.7       *
  Jay and Maria Downen(17)......          --     --            --     --     2,770.37    5.4      2,770.37     96.5       *
  Otis J. Downen as Trustee of
    the Otis J. Downen, June
    1992 Trust and Frances
    Eileen Downen, Trustee of
    the Frances Eileen Downen
    June 1992 Trust as Tenants
    in Common(18)...............          --     --            --     --     2,767.89    5.3      2,767.89     96.5       *
  Chris J. Downen(19)...........          --     --            --     --     2,767.89    5.3      2,767.89     96.5       *
</TABLE>
    
 
                                       71
<PAGE>   75
 
   
<TABLE>
<CAPTION>
                                                               SHARES BENEFICIALLY OWNED
                                  -----------------------------------------------------------------------------------
                                       SERIES A             SERIES B            SERIES C
                                   PREFERRED STOCK      PREFERRED STOCK      PREFERRED STOCK        COMMON STOCK         FULLY-
                                  ------------------   ------------------   -----------------   ---------------------   DILUTED
                                               % OF                 % OF                % OF                   % OF      VOTING
NAME(1)                             SHARES     CLASS     SHARES     CLASS    SHARES     CLASS   SHARES(2)    CLASS(3)   POWER(%)
- -------                           ----------   -----   ----------   -----   ---------   -----   ----------   --------   --------
<S>                               <C>          <C>     <C>          <C>     <C>         <C>     <C>          <C>        <C>
EXECUTIVE OFFICERS AND
  DIRECTORS:
  Rodney A. Weary(20)(21).......   16,030.00    3.8            --     --           --     --     11,549.00     99.2        3.7
  John R. Hager(21)(22).........          --     --            --     --           --     --      1,666.00     94.3       *
  William J. Gerski(21)(23).....          --     --            --     --           --     --      7,916.00     98.8        1.1
  Laquita J. Allen(21)(24)......          --     --            --     --           --     --        911.00     90.1       *
  Jo Ellen Linn(21)(25).........      430.00    *              --     --           --     --      1,319.00     93.0       *
  Robert F. Benbow(26)..........  150,000.00   35.9     30,051.46   13.2           --     --      5,719.00     98.9       25.2
  William O. Charman(27)........   75,000.00   17.9     12,521.44    5.5           --     --         19.00     19.0       11.8
  William P. Collatos(28).......  150,000.00   35.9            --     --           --     --         37.00     37.0       20.3
  William A. Johnston(29).......          --     --     75,125.62   32.9           --                   --       --       10.2
  Robert B. Liepold(21)(30).....    1,000.00    *              --     --           --     --      1,738.00     94.6       *
  Erik M. Torgerson(31).........          --     --     50,083.75   21.9           --     --            --       --        6.8
  All Executive Officers and
    Directors as a group (11
    persons)....................  392,460.00   93.5    167,782.27   73.4           --     --     30,874.00    100.0       80.0
</TABLE>
    
 
- ---------------
 
  *  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, as well as shares of Common Stock
     issuable upon conversion of beneficially-owned shares of Series C Preferred
     Stock.
 
   
 (3) The percent of class beneficially owned by each listed holder of Common
     Stock appears unusually large, because there is a small number of shares of
     Common Stock outstanding (i.e., 100) relative to the number of shares of
     Common Stock owned and subject to options, warrants or conversion
     privileges held by such person.
    
 
   
 (4) The address is c/o Alta Communications, Inc., One Embarcadero Center, Suite
     4050, San Francisco, California 94111, Attn: Robert Benbow. Alta
     Subordinated Debt Partners III, L.P. ("Alta Sub Debt III") is managed by
     Burr, Egan, Deleage & Co. Alta Communications VI, L.P. ("Alta VI") and Alta
     Comm S by S, LLC ("S by S") are managed by Alta Communications, Inc. The
     general partner of Alta Sub Debt III and the general partner of Alta VI
     exercise sole voting and investment powers with respect to the securities
     held by their respective fund. The general partners of Alta Subordinated
     Debt Management III, L.P., which is the general partner of Alta Sub Debt
     III, include Messrs. Craig Burr, William P. Egan, Brian McNeill, Robert
     Benbow, Timothy Dibble, Jean Deleage and Jonathan Flint and Ms. Eileen
     McCarthy. Such general partners may be deemed to share voting and
     investment powers for the shares held by Alta Sub Debt III. The general
     partners of Alta Communications VI Management Partners, L.P., which is the
     general partner of Alta VI, include Messrs. William P. Egan, Brian McNeill,
     Robert Benbow, Timothy Dibble and David Retik and Ms. Eileen McCarthy. Such
     general partners may be deemed to share voting and investment powers for
     the shares held by Alta VI. These general partners disclaim beneficial
     ownership of all such securities held by the funds except to the extent of
     their proportionate pecuniary interests therein. Certain principals of
     Burr, Egan, Deleage & Co. and Alta Communications, Inc. (including certain
     of the individuals identified above) are members of S by S, which invests
     alongside Alta VI. As members of S by S, they may be deemed to share voting
     and investment powers for the shares held by S by S. These principals
     disclaim beneficial ownership of all such shares except to the extent of
     their proportionate pecuniary interest therein.
    
 
   
     Common stock ownership includes warrants to purchase 2,103, 3,499 and 80
     shares of Common Stock owned by Alta Sub Debt III, Alta VI and S by S,
     respectively.
    
 
   
 (5) The address is 125 High Street, Suite 2600, Boston, Massachusetts 02110,
     Attn: William P. Collatos. The sole general partner of Spectrum Equity
     Investors, L.P. is Spectrum Equity Advisors, LLC, a limited liability
     company whose members are Messrs. Brion B. Applegate and William P.
     Collatos. The sole general partner of Spectrum Equity Investors II, L.P. is
     Spectrum Equity Advisors II, LLC, a limited liability company whose members
     are Messrs. Brion B. Applegate, William P. Collatos and
    
 
                                       72
<PAGE>   76
 
   
     Kevin J. Morroni. Messrs. Applegate and Collatos may be deemed to share
     beneficial ownership of the shares owned by Spectrum Equity Investors,
     L.P., and Messrs. Applegate, Collatos and Morroni may be deemed to share
     beneficial ownership of the shares owned by Spectrum Equity Investors II,
     L.P. Such individuals disclaim such beneficial ownership except to the
     extent of their respective pecuniary interests in such shares.
    
 
   
 (6) The address is 175 Federal Street, 10th Floor, Boston, Massachusetts 02110,
     Attn: William O. Charman. The shares of Series A Preferred Stock and Series
     B Preferred Stock beneficially owned by BancBoston Ventures Inc. are
     controlled by its President, Frederick M. Fritz, and by its Managing
     Director, Sanford Anstey, and by William O. Charman, who is a director of
     the Company.
    
 
   
 (7) 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. The shares of Series B Preferred Stock beneficially
     owned by Norwest Equity Partners VI, LP are controlled by its general
     partner, Itasca LBO Partners VI, LLP, which is controlled by John E.
     Lindahl, Managing Partner, and by John P. Whaley, Managing Administrative
     Partner. The shares of Series B Preferred Stock beneficially owned by
     Norwest Venture Partners VI, LP are controlled by its general partner,
     Itasca VC partners, LLP, which is controlled by its Managing Partner,
     George J. Still, Jr., and by John P. Whaley, Managing Administrative
     Partner.
    
 
   
 (8) The address is c/o HarbourVest Partners, LLC, One Financial Center, 44th
     Floor, Boston, Massachusetts 02111, Attn: William A. Johnston. The sole
     general partner of HarbourVest Partners V -- Direct Fund L.P. ("HarbourVest
     V") is a limited liability company whose managing member is HarbourVest
     Partners, LLC. The managing directors of HarbourVest Partners, LLC are
     Messrs. George Anson, John M. Begg, Philip M. Bilden, Theodore A. Clark,
     Kevin S. Delbridge, William A. Johnston, Edward W. Kane, Frederick C.
     Maynard, Ofer Nernirovsky, Robert M. Wadsworth and D. Brooks Zug, and Ms.
     Martha D. Vorlicek. Such individuals may be deemed to share beneficial
     ownership of the shares held by HarbourVest V, and disclaim such beneficial
     ownership except to the extent of their respective pecuniary interest in
     such shares.
    
 
   
 (9) The address is c/o London Merchant Securities, Carlton House, 33 Robert
     Adam Street, London WIM 5AH, England, Attn: Iain MacPhail. Each of Lion
     Investments Limited and Westpool Investment Trust plc is a wholly-owned
     subsidiary of London Merchant Supplies plc, a publicly traded company in
     the U.K.
    
 
   
(10) The address is 120 Long Ridge Road, 3rd Floor, Stamford, Connecticut 06927,
     Attn: Peter Foley. General Electric Capital Corporation is a wholly-owned
     subsidiary of General Electric Corporation.
    
 
   
(11) The address is P.O. Box 1376, Great Falls, Montana 59403.
    
 
   
(12) The address is 2061 Norwich Ct., Glenview, Illinois 60025.
    
 
   
(13) The address is Escalon Avenue Apt. 2117, Sunnyvale, California 94086.
    
 
   
(14) The address is 7444 Molt Road, Billings, Montana 59106.
    
 
   
(15) The address is 163 Woodland Estates Rd., Great Falls, Montana 59404.
    
 
   
(16) The address is 242 East 87th Street, Apt. 1K, New York, New York 10128.
    
 
   
(17) The address is 511 Fortress Circle, Leesburg, Virginia 21075.
    
 
   
(18) The address is 2105 Noble Avenue, Springfield, Illinois 62704.
    
 
   
(19) The address is 1617 Outer Park, Springfield, Illinois 62704.
    
 
   
(20) 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 11,549 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.
    
 
   
(21) The address is c/o Golden Sky Systems, Inc., 605 West 47th Street, Suite
     300, Kansas City, Missouri 64112.
    
 
   
(22) Through the Stock Option Plan, Mr. Hager beneficially owns 1,666 shares of
     Common Stock as to which options have vested or will have vested within 60
     days, out of a pool of 10,000 available to him.
    
 
                                       73
<PAGE>   77
 
   
(23) Through the Stock Option Plan, Mr. Gerski beneficially owns 7,916 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.
    
 
   
(24) Through the Stock Option Plan, Ms. Allen beneficially owns 911 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.
    
 
   
(25) Ms. Linn beneficially owns 430 shares of Series A Preferred Stock. In
     addition, through the Stock Option Plan, Ms. Linn beneficially owns 1,319
     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.
    
 
   
(26) The address is c/o Alta Communications, Inc., One Embarcadero Center, Suite
     4050, San Francisco, California 94111. Shares held by Alta Subordinated
     Debt Partners III, L.P., Alta Communications VI, L.P. and Alta-Comm S By S,
     LLC. Mr. Benbow is a general partner of the respective general partners of
     Alta Subordinated Debt Partners III, L.P. and Alta Communications VI, L.P.
     As a general partner, he may be deemed to share voting and investment
     powers with respect to the shares held by the funds. Mr. Benbow disclaims
     beneficial ownership of the shares held by such funds except to the extent
     of his proportionate pecuniary interest therein. Mr. Benbow also disclaims
     beneficial ownership of all shares held by Alta Comm S by S, LLC, of which
     he is not a member.
    
 
   
(27) The address is c/o BancBoston Ventures, Inc., 175 Federal Street, 10th
     Floor, Boston, Massachusetts 02110. Shares held by BancBoston Ventures
     Inc., which may be deemed to be beneficially owned by Mr. Charman.
    
 
   
(28) The address is c/o Spectrum Equity Investors, 125 High Street, Suite 2600,
     Boston, Massachusetts 02110. 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.
    
 
   
(29) The address is c/o HarbourVest Partners, LLC, One Financial Center, 44th
     Floor, Boston, Massachusetts 02111. Shares held by HarbourVest Partners
     V-Direct Fund L.P., which may be deemed to be beneficially owned by Mr.
     Johnston.
    
 
   
(30) Mr. Liepold beneficially owns 1,000 shares of Series A Preferred Stock. In
     addition, through the Stock Option Plan, Mr. Liepold beneficially owns
     1,738 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.
    
 
   
(31) The address is c/o Norwest Equity Partners, 2800 Piper Jaffray Tower, 222
     South Ninth Street, Minneapolis, Minnesota 55402-3388. Shares held by
     Norwest Equity Partners VI, LP, which may be deemed to be beneficially
     owned by Mr. Torgerson.
    
 
                                       74
<PAGE>   78
 
                 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
 
                                       75
<PAGE>   79
 
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 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 November 30, 1998, the Company had paid an
aggregate $77,000 to Mr. Liepold in 1998 in connection with such services. In
addition, the Company paid Mr. Liepold a commission of $70,000 in October 1998
in connection with a recent acquisition.
    
 
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.
 
                                       76
<PAGE>   80
 
                       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
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<PAGE>   81
 
be 3.75% per annum, less the then applicable Leverage 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.
 
     The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the aggregate principal amount of senior subordinated debt issued by the Company
exceeds $150.0 million. As described below, the Offering resulted in net
proceeds to the Company of approximately $144.0 million (after payment of
underwriting discounts and other costs of approximately $5.8 million and
excluding the approximately $45.2 million of proceeds placed in the interest
escrow account). If the relevant provision of the Credit Facility is interpreted
to apply to the net proceeds of the Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to apply to the gross
proceeds of the Offering, the lenders would have such a right. In an attempt to
clarify the application of this provision, the Company has requested a waiver
from the lenders of their possible right to effect a reduction in the total
commitment amount of the Credit Facility. In the event this waiver request is
not granted by the lenders, the Credit Facility's aggregate term loan and
revolving loan commitments could be reduced by $22.5 million. Similarly, the
aggregate amount of indebtedness permitted by the Indenture could be reduced by
a like amount. Any such reductions in the Company's Credit Facility and maximum
permitted indebtedness could adversely affect its ability to finance potential
future acquisitions of Rural DIRECTV
 
                                       78
<PAGE>   82
 
Markets and its operations. As a result, the Company may be required to obtain
additional equity or other financing. There can be no assurance that such equity
or other financing would be available on terms acceptable to the Company, or if
available, that the proceeds of such financing would be sufficient to enable the
Company to completely execute its business plan.
 
     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, 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."
 
                                       79
<PAGE>   83
 
                          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:
 
<TABLE>
<CAPTION>
YEAR                                                          PERCENTAGE
- ----                                                          ----------
<S>                                                           <C>
2003........................................................     112%
2004........................................................     110%
2005 and thereafter.........................................     108%
</TABLE>
 
     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
 
                                       80
<PAGE>   84
 
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 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
                                       81
<PAGE>   85
 
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 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
                                       82
<PAGE>   86
 
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 (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
                                       83
<PAGE>   87
 
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."
 
     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 September 30, 1998, on a Pro Forma basis, the Company would have had
outstanding $63.3 million of Senior Indebtedness and $66.8 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" and "Risk Factors -- Asset Encumbrances."
    
 
   
     Each guarantee of the Notes by the Guarantors is, to the extent set forth
in the Indenture, subordinated in right of payment to the prior payment in full
of all Guarantor Senior Indebtedness (as defined in the Indenture) of such
Guarantor.
    
 
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
 
                                       84
<PAGE>   88
 
     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 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
                                       85
<PAGE>   89
 
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 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
 
                                       86
<PAGE>   90
 
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 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
 
                                       87
<PAGE>   91
 
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.
 
     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.
 
                                       88
<PAGE>   92
 
     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 assumption, guarantee or other liability of such Restricted
Subsidiary has been released by the holders of the other Indebtedness so
guaranteed.
 
   
     The Notes are unconditionally guaranteed, on a senior subordinated basis,
by GSS's subsidiaries Argos Support Services Company and PrimeWatch, Inc. Each
guarantee is, to the extent set forth in the Indenture, subordinated in right of
payment to prior payment in full of all Guarantor Senior Indebtedness (as
defined in the Indenture) of such Guarantor.
    
 
     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
                                       89
<PAGE>   93
 
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.
 
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
 
                                       90
<PAGE>   94
 
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
     for a period of 30 days or more after written notice to the Company by the
     Trustee or to the
                                       91
<PAGE>   95
 
     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.
 
                                       92
<PAGE>   96
 
     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 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.
 
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<PAGE>   97
 
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
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.
 
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<PAGE>   98
 
     "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 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
                                       95
<PAGE>   99
 
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, 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
 
                                       96
<PAGE>   100
 
(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.
 
     "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
 
                                       97
<PAGE>   101
 
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.
 
     "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
 
                                       98
<PAGE>   102
 
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.
 
     "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
 
                                       99
<PAGE>   103
 
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 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
 
                                       100
<PAGE>   104
 
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).
 
     "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
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<PAGE>   105
 
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.
 
     "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;
 
                                       102
<PAGE>   106
 
          (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 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
                                       103
<PAGE>   107
 
     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 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
 
                                       104
<PAGE>   108
 
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.
 
                                       105
<PAGE>   109
 
     "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
                                       106
<PAGE>   110
 
Indebtedness, unless the instrument under 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
 
                                       107
<PAGE>   111
 
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 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.
 
                                       108
<PAGE>   112
 
     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.
 
     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.
 
                                       109
<PAGE>   113
 
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.
 
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 will be no federal income tax consequences to a
holder exchanging Old Notes for New Notes pursuant to the Exchange Offer.
 
                                       110
<PAGE>   114
 
                              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 resale, 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 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.
 
                                 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 JECTV for the years ended December 31,
1996, 1995, and 1994, (vi) financial statements of Direct Vision for the years
ended December 31, 1996, 1995, and 1994, (vii) financial statements of Direct
Broadcast Satellite (a segment of CTS Communication Corporation) for the periods
ended December 31, 1996, 1995, and 1994, (viii) financial statements of Argos
Support Services Company for the years ended December 31, 1996 and 1995, (ix)
financial statements of Satellite Entertainment, Inc. for the years ended
December 31, 1996, 1995 and 1994 and (x) financial statements of GVEC Rural TV,
Inc. 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.
    
 
                                       111
<PAGE>   115
 
   
     The financial statements of Triangle Communication System, Inc. for each of
the years in the three-year period ended December 31, 1997 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 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 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.
    
   
    
 
                                       112
<PAGE>   116
 
                         INDEX TO FINANCIAL STATEMENTS
 
   
<TABLE>
<CAPTION>
                                                               PAGE
                                                               -----
<S>                                                            <C>
GOLDEN SKY SYSTEMS, INC.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
  Condensed Consolidated Balance Sheets as of September 30,
     1998 (unaudited) and December 31, 1997.................     F-2
  Condensed Consolidated Statements of Operations for the
     nine-month periods ended September 30, 1998 and 1997
     (unaudited)............................................     F-3
  Condensed Consolidated Statements of Cash Flows for the
     nine-month periods ended September 30, 1998 and 1997
     (unaudited)............................................     F-4
  Notes to Condensed Consolidated Financial Statements
     (unaudited)............................................     F-5
FISCAL YEAR 1997 AND FOR THE PERIOD FROM INCEPTION (JUNE 25,
  1996) THROUGH DECEMBER 31, 1996
  Independent Auditors' Report..............................    F-11
  Consolidated Balance Sheets as of December 31, 1997 and
     1996...................................................    F-12
  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-13
  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-14
  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-15
  Notes to Consolidated Financial Statements................    F-16
FINANCIAL STATEMENTS OF INCLUDED ACQUISITIONS
  Triangle Communications System, Inc. .....................    F-27
  Western Montana DBS, Inc. dba Rocky Mountain DBS
     (unaudited)............................................    F-37
  Western Montana DBS, Inc. dba Rocky Mountain DBS..........    F-53
  South Plains DBS Limited Partnership......................    F-62
  Images DBS Kansas, L.C. ..................................    F-72
  Images DBS Oklahoma, L.C. ................................    F-81
  Total Communications, Inc. ...............................    F-90
  JECTV (a segment of Jackson Electric Cooperative).........   F-100
  Direct Vision (a segment of Mankato Citizens Telephone
     Company)...............................................   F-110
  Direct Broadcast Satellite (a segment of CTS Communication
     Corporation)...........................................   F-118
  Argos Support Services Company............................   F-126
  Satellite Entertainment, Inc. (a wholly-owned subsidiary
     of Ace Telephone Association)..........................   F-135
  GVEC Rural TV, Inc. ......................................   F-144
  Direct Broadcast Satellite (a segment of Nemont
     Communications Inc.)...................................   F-154
  PrimeWatch, Inc. .........................................   F-163
</TABLE>
    
 
                                       F-1
<PAGE>   117
 
                            GOLDEN SKY SYSTEMS, INC.
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
                                     ASSETS
 
   
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1998            1997
                                                              -------------   ------------
                                                               (UNAUDITED)
<S>                                                           <C>             <C>
Current assets:
  Cash and cash equivalents.................................    $ 31,001        $ 13,632
  Restricted cash, current portion..........................      23,534              --
  Subscriber receivables....................................       6,526           3,843
  Other receivables.........................................       1,454             335
  Earnest deposits..........................................         916              --
  Inventory.................................................      10,780           2,174
  Prepaid expenses..........................................         846             127
                                                                --------        --------
          Total current assets..............................      75,057          20,111
Restricted cash, net of current portion.....................      27,406              --
Property and equipment (net of accumulated depreciation of
  $2,537 and $510, respectively)............................       4,494           2,936
Intangible assets, net......................................     184,787         129,896
Deferred financing costs....................................      10,563           3,106
Other assets................................................         210             187
                                                                --------        --------
          Total assets......................................    $302,517        $156,236
                                                                ========        ========
                           LIABILITIES AND STOCKHOLDER'S EQUITY
 
Current liabilities:
  Trade accounts payable....................................    $ 11,731        $  8,471
  Current maturities of other notes payable and obligations
     under capital leases...................................       9,903           2,538
  Payable to parent.........................................          12             586
  Unearned revenue..........................................       4,509           2,630
  Interest payable..........................................       4,683             786
  Accrued payroll and other liabilities.....................       1,177           1,273
                                                                --------        --------
          Total current liabilities.........................      32,015          16,284
Long-term obligations, net of current portion:
  Senior Notes..............................................     195,000              --
  Credit Facility...........................................      35,000              --
  Credit Agreement..........................................          --          60,000
  Other notes payable and obligations under capital leases,
     net of current maturities..............................       7,398           6,575
  Minority interest.........................................       2,634           2,928
                                                                --------        --------
          Total long-term obligations, net of current
            maturities......................................     240,032          69,503
                                                                --------        --------
          Total liabilities.................................     272,047          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.......................................     (56,930)        (16,951)
                                                                --------        --------
          Total stockholder's equity........................      30,470          70,449
                                                                --------        --------
          Total liabilities and stockholder's equity........    $302,517        $156,236
                                                                ========        ========
</TABLE>
    
 
     See accompanying notes to condensed consolidated financial statements.
 
                                       F-2
<PAGE>   118
 
                            GOLDEN SKY SYSTEMS, INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
              NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                1998      1997
                                                              --------   -------
<S>                                                           <C>        <C>
Revenue:
  DBS services..............................................  $ 50,139   $ 8,462
  Lease and other...........................................       751       675
                                                              --------   -------
          Total revenue.....................................    50,890     9,137
Costs and Expenses:
  Cost of DBS services......................................    29,764     4,868
  System operations.........................................     7,317     2,076
  Sales and marketing.......................................    19,560     2,898
  General and administrative................................     4,737     1,593
  Depreciation and amortization.............................    15,814     4,352
                                                              --------   -------
          Total costs and expenses..........................    77,192    15,787
                                                              --------   -------
Operating loss..............................................   (26,302)   (6,650)
Non-operating items:
  Interest and investment income............................       866        21
  Interest expense..........................................   (11,966)   (1,389)
                                                              --------   -------
          Total non-operating items.........................   (11,100)   (1,368)
                                                              --------   -------
Net loss before income taxes................................   (37,402)   (8,018)
Income taxes................................................        --        --
                                                              --------   -------
Net loss before extraordinary charge........................   (37,402)   (8,018)
Extraordinary charge on early retirement of debt............    (2,577)       --
                                                              --------   -------
Net loss....................................................  $(39,979)  $(8,018)
                                                              ========   =======
</TABLE>
 
     See accompanying notes to condensed consolidated financial statements.
 
                                       F-3
<PAGE>   119
 
                            GOLDEN SKY SYSTEMS, INC.
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
              NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                1998       1997
                                                              --------   --------
<S>                                                           <C>        <C>
Operating activities:
  Net loss..................................................  $(39,979)  $ (8,018)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................    15,814      4,352
     Amortization of deferred financing costs...............       563        102
     Extraordinary charge on early retirement of debt.......     2,577         --
     Change in operating assets and liabilities, net of
      acquisitions:
       Subscriber receivables, net of unearned revenue......      (737)      (143)
       Other receivables....................................    (1,119)      (356)
       Inventory............................................    (8,538)      (370)
       Prepaid expenses and other assets....................      (707)      (532)
       Trade accounts payable...............................     3,260      1,446
       Payable to parent....................................      (574)        --
       Interest payable.....................................     3,897        312
       Accrued payroll and other liabilities................      (132)       419
                                                              --------   --------
Net cash used in operating activities.......................   (25,675)    (2,788)
Investing activities:
  Acquisitions of Rural DIRECTV Markets.....................   (59,517)   (81,548)
  Offering proceeds and investment earnings placed in
     escrow.................................................   (50,940)        --
  Release (payment) of earnest deposits.....................      (916)       320
  Purchases of property and equipment.......................    (2,408)      (405)
                                                              --------   --------
Net cash used in investing activities.......................  (113,781)   (81,633)
Financing activities:
  Proceeds from issuance of notes payable...................        --      2,115
  Principal payments on notes payable.......................    (2,359)    (2,815)
  Proceeds from issuance of preferred stock.................        --     35,362
  Borrowings under the Credit Facility......................    30,000         --
  Borrowings under the Credit Agreement.....................    28,000     54,000
  Principal payments on the Credit Facility.................   (83,000)        --
  Increase in deferred financing costs......................    (4,747)    (2,875)
  Net proceeds from issuance of Senior Notes................   189,150         --
  Principal payments on obligations under capital leases....      (219)        (3)
                                                              --------   --------
Net cash provided by financing activities...................   156,825     85,784
                                                              --------   --------
Net increase in cash and cash equivalents...................    17,369      1,363
Cash and cash equivalents, beginning of period..............    13,632        479
                                                              --------   --------
Cash and cash equivalents, end of period....................  $ 31,001   $  1,842
                                                              ========   ========
Supplemental Disclosure of Cash Flow Information:
  Cash paid for interest....................................  $  7,506   $    975
  Retirement of Credit Agreement from borrowings under the
     Credit Facility........................................    88,000         --
  Issuance of other notes payable in acquisitions...........    10,157      4,850
  Conversion of note and subscriptions to preferred stock...        --      6,249
  Property and equipment acquired under capitalized lease
     obligations............................................       609        312
</TABLE>
 
     See accompanying notes to condensed consolidated financial statements.
 
                                       F-4
<PAGE>   120
 
                            GOLDEN SKY SYSTEMS, INC.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
1. ORGANIZATION AND BUSINESS ACTIVITIES
 
  Principal Business
 
     Golden Sky Systems, Inc. ("Golden Sky" or the "Company") is a Delaware
corporation formed in June 1996 for the purpose of acquiring, owning and
operating rural direct broadcast satellite ("DBS") television markets throughout
the United States. Golden Sky is an affiliated associate member of the National
Rural Telecommunications Cooperative (the "NRTC"). The NRTC has contracted with
Hughes Communications Galaxy, Inc. ("Hughes") to provide exclusive marketing
rights for distribution of DIRECTV DBS programming services in certain U.S.
rural markets ("Rural DIRECTV Markets"). The aforementioned marketing rights
provide the owner thereof exclusive rights to distribute DIRECTV programming
services within the applicable contract area. As of September 30, 1998, the
Company had acquired the operating rights to 39 Rural DIRECTV Markets in 22
states (representing an aggregate of 1.5 million television households). As of
that same date, the Company had entered into contracts or binding letters of
intent to acquire the operating rights to an additional five Rural DIRECTV
Markets, representing an aggregate of approximately 266,000 television
households. As of September 30, 1998, Golden Sky provided DIRECTV programming
services to approximately 176,300 subscribers.
 
     Golden Sky is a wholly-owned subsidiary of Golden Sky Holdings, Inc.
("GSH"). GSH is a Delaware corporation formed in September 1997 for the purpose
of holding all common and preferred stock of the Company. Upon formation of GSH,
all Golden Sky shareholders were issued equivalent shares of GSH's stock with
identical features to Golden Sky's common and preferred stock. GSH has no
significant operations, assets or liabilities other than its investment in
Golden Sky.
 
2. SIGNIFICANT ACCOUNTING POLICIES
 
  Basis of Presentation
 
     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim
financial information. Accordingly, these statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. All significant intercompany accounts and
transactions have been eliminated in consolidation. Operating results for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Golden Sky's audited consolidated financial statements for
the year ended 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 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 for each reporting
period. Actual results could differ from those estimates.
 
                                       F-5
<PAGE>   121
                            GOLDEN SKY SYSTEMS, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Advertising Costs
 
     Advertising costs, which are expressed as incurred, aggregated $1.4 million
and $813,000 and $3.9 million and $675,000 during the three-month and nine-month
periods ended September 30, 1998 and 1997, respectively.
 
  Effects of Recently Issued Accounting Pronouncements
 
     Golden Sky adopted Statement of Financial Accounting Standards ("FAS") No.
130, "Reporting Comprehensive Income" ("FAS No. 130") during the first quarter
of 1998. FAS No. 130 established new rules for the reporting and display of
comprehensive income and its components, however it has no impact on net income
or stockholder's equity. Golden Sky has no components of comprehensive income
other than net loss and thus, adoption of FAS No. 130 had no effect on the
Company's financial statements.
 
     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS No. 133"). FAS No. 133 is effective for fiscal
years beginning after June 15, 1999. FAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
Currently, Golden Sky has no derivative instruments or hedging arrangements.
Accordingly, adoption of FAS No. 133 is not expected to have a material effect
on the financial position or results of operations of the Company.
 
     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5, which is effective for fiscal years
beginning after December 15, 1998, defines costs related to start-up activities
and requires that such costs be expensed as incurred. As the Company previously
has expensed all such costs, the adoption of SOP 98-5 is not expected to have a
material effect on the Company's results of operations or financial position.
 
3. ACQUISITIONS AND PENDING TRANSACTIONS
 
   
     During the nine months ended September 30, 1998, the Company acquired the
principal operating assets (including exclusive operating rights to provide
DIRECTV programming) of independent DIRECTV providers operating in the following
Rural DIRECTV Markets:
    
 
   
     - Montana and Wyoming -- acquired from Direct Broadcast Satellite, segment
       of Nemont Communications Inc., on January 14, 1998.
    
 
   
     - Montana -- acquired from Triangle Communications System, Inc. on January
       20, 1998.
    
 
   
     - North Carolina -- acquired from PrimeWatch, Inc. on May 8, 1998.
    
 
   
     Also during the nine months ended September 30, 1998, the Company acquired
from independent DIRECTV providers exclusive operating rights to provide DIRECTV
programming in the following Rural DIRECTV Markets:
    
 
   
     - Iowa -- acquired from Wyoming Mutual Telephone on January 21, 1998.
    
 
   
     - Oregon -- acquired from North Willamette Telephone on March 10, 1998.
    
 
   
     - North Dakota -- acquired from Northwest Communications on March 10, 1998.
    
 
   
     - Colorado -- acquired from Beulahland Communications, Inc. on March 19,
       1998.
    
 
   
     - Oregon -- acquired from Direct Broadcast Satellite, a segment of SCS
       Communications & Security, Inc., on April 20, 1998.
    
 
   
     - Georgia -- acquired from Mega TV on May 11, 1998.
    
 
                                       F-6
<PAGE>   122
                            GOLDEN SKY SYSTEMS, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
     - Alabama -- acquired from Direct Broadcast Satellite, a division of
       Baldwin County Electric Membership Corporation, on June 29, 1998.
    
 
   
     - Wisconsin -- acquired from Frontier Corporation on July 8, 1998.
    
 
   
     - Texas -- acquired from North Texas Communications on August 6, 1998.
    
 
   
     - Missouri -- acquired from SEMO Communications Corporation on August 26,
       1998.
    
 
   
     - Texas -- acquired from DBS Segment of Cumby Cellular, Inc. on August 31,
       1998.
    
 
   
     - Iowa -- acquired from Minburn Telephone on September 18, 1998.
    
 
   
     The Company continuously pursues opportunities to acquire additional Rural
DIRECTV Markets. The 15 acquisitions described above (the "1998 Acquisitions")
represent approximately 332,000 television households and served approximately
33,600 subscribers at the respective acquisition dates. The acquisitions of the
1998 Acquisitions were accounted for using the purchase method. The aggregate
purchase price (including direct acquisition costs) for the 1998 Acquisitions
totaled $69.7 million (of which $59.5 was paid in cash and $10.2 million was
paid in the form of notes payable) and was allocated as follows (dollars in
thousands):
    
 
<TABLE>
<S>                                                            <C>
Goodwill....................................................   $63,928
Customer lists..............................................     3,858
Non-compete agreements......................................     1,637
Working capital, net........................................       251
                                                               -------
                                                               $69,674
                                                               =======
</TABLE>
 
   
     Subsequent to September 30, 1998, the Company acquired the operating assets
of one Rural DIRECTV Market and the operating rights for three additional Rural
DIRECTV Markets. These acquisitions serve approximately 21,800 subscribers in
six states. The aggregate purchase price of these acquisitions, which represent
approximately 261,000 television households, totaled $53.8 million. Currently,
the Company has agreements to acquire the operating rights for two additional
Rural DIRECTV Markets for consideration of approximately $10.9 million (the
"Pending Acquisitions"). The Pending Acquisitions, which are expected to close
in January 1999, represent approximately 40,000 television households and serve
approximately 5,800 subscribers. Completion of the Pending Acquisitions is
subject to certain contingencies, such as the satisfactory completion of due
diligence, and other customary conditions to closing, which may or may not be
satisfied. There can be no assurance that the Pending Acquisitions will be
consummated.
    
 
   
     The following table reflects unaudited pro forma results of operations of
the Company as if the 1998 Acquisitions had been acquired as of January 1, 1998
(dollars in thousands):
    
 
   
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,
                                                                  1998
                                                              -------------
<S>                                                           <C>
Revenue.....................................................    $ 55,089
Net loss....................................................    $(51,962)
</TABLE>
    
 
   
     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 January 1, 1998 or of future operations of
the Company.
    
 
                                       F-7
<PAGE>   123
                            GOLDEN SKY SYSTEMS, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
4. INTANGIBLE ASSETS
 
     Intangible assets consist of the following (dollars in thousands):
 
<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1998            1997
                                                              -------------   ------------
<S>                                                           <C>             <C>
Goodwill....................................................    $185,713        $121,969
Customer lists..............................................      13,761           9,903
Non-compete agreements......................................       6,551           4,914
                                                                --------        --------
Total intangible assets.....................................     206,025         136,786
Accumulated amortization....................................     (21,238)         (6,890)
                                                                --------        --------
  Intangible assets, net....................................    $184,787        $129,896
                                                                ========        ========
</TABLE>
 
5. SENIOR NOTES
 
     On July 31, 1998, the Company consummated an offering (the "Senior Notes
Offering") of 12 3/8% Senior Subordinated Notes due 2006 (the "Senior Notes").
Interest on the Senior Notes is payable in cash semi-annually in arrears on
February 1 and August 1 of each year, with the first interest payment due
February 1, 1999. The Senior Notes mature on August 1, 2006. The Senior Notes
Offering resulted in net proceeds to the Company of approximately $189.2 million
(after payment of underwriting discounts and other issuance costs aggregating
approximately $5.8 million). Approximately $45.2 million of the net proceeds of
the Senior Notes Offering were placed in escrow to fund the first four
semi-annual interest payments (through August 1, 2000) on the Senior Notes. As
of September 30, 1998, approximately $118.0 million of the remaining net
proceeds had been utilized ($83.3 million for the retirement of existing
indebtedness and related accrued interest, $15.0 million in acquisitions, $14.4
million for working capital purposes, and as further described below -- see Note
6, $5.3 million was placed in escrow to cover a portion of the contingent
reduction of the Company's availability under the Credit Facility (as defined)).
 
     The Senior Notes were issued in a private placement pursuant to Rule 144A
of the Securities Act of 1933, as amended (the "Securities Act"). The Company is
in the process of registering the exchange of the privately issued notes for
publicly registered notes with substantially identical terms (including
principal amount, interest rate, maturity, security and ranking). The Senior
Notes are unsecured senior subordinated obligations of the Company and are
subordinated in right of payment to all existing and future senior indebtedness.
The Senior Notes rank pari passu in right of payment with all other existing and
future senior subordinated indebtedness, if any, of the Company and senior in
right of payment to all existing and future subordinated indebtedness, if any,
of the Company.
 
     The Senior Notes are redeemable, in whole or in part, at the option of the
Company on or after August 1, 2003, at redemption prices decreasing from 112%
during the year commencing August 1, 2003 to 108% on or after August 1, 2005,
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 GSH yielding gross
proceeds of at least $40.0 million and any subsequent public equity offerings
(provided that, in the case of any such offering or offerings by GSH, 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 Notes.
 
     The indenture related to the Senior Notes (the "Senior Notes Indenture")
contains restrictive covenants that, among other things, impose limitations on
the ability of the Company to incur additional indebtedness,
 
                                       F-8
<PAGE>   124
                            GOLDEN SKY SYSTEMS, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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 Senior 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. In the event of a change of control, as defined in the Senior Notes
Indenture, each holder of Senior Notes will have the right to require the
Company to purchase all or a portion of such holder's Senior Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase.
 
6. CREDIT FACILITY
 
     During May 1998, the Company entered into a seven-year, $150.0 million
amended credit facility (the "Credit Facility") with a syndicate of lenders. The
Credit Facility provides for a term loan commitment of $35.0 million and a
revolving loan commitment of $115.0 million. Borrowings under the Credit
Facility bear interest at variable rates (approximately 9% at September 30,
1998) calculated on a base rate, such as the prime rate or LIBOR, plus an
applicable margin. As of September 30, 1998, no borrowings were outstanding
under the Credit Facility's revolving loan commitment. As of that same date,
outstanding borrowings under the Credit Facility's term loan commitment totaled
$35.0 million.
 
     The Credit Facility provides the lenders with the right to reduce the
aggregate term loan and revolving loan commitments by 50% of the amount by which
the "aggregate principal amount" of senior subordinated debt issued by the
Company exceeds $150.0 million. As previously described, the Senior Notes
Offering resulted in net proceeds to the Company of approximately $144.0 million
(after consideration of the proceeds placed in the interest escrow account). If
the relevant provision of the Credit Agreement is interpreted to apply to the
net proceeds of the Senior Notes Offering, the lenders would have no right to
reduce their commitments; if the provision is interpreted to apply to the gross
proceeds of the Senior Notes Offering, the lenders would have such a right. In
an attempt to clarify the application of this provision, the Company has
requested a waiver from the lenders of their possible technical right to effect
a reduction in the total commitment amount of the Credit Facility. In the event
this waiver request is not granted by the lenders, the Credit Facility's
aggregate term loan and revolving loan commitments could be reduced by $22.5
million. Similarly, the aggregate amount of indebtedness permitted by the Senior
Notes Indenture would be reduced by a like amount. Any such reductions in the
Company's Credit Facility and maximum permitted indebtedness could adversely
affect its ability to finance potential future acquisitions of Rural DIRECTV
Markets and its operations. As a result, the Company may be required to obtain
additional equity or other financing. There can be no assurance that such equity
or other financing would be available on terms acceptable to the Company, or if
available, that the proceeds of such financing would be sufficient to enable the
Company to completely execute its business plan.
 
7. RECLASSIFICATIONS TO THE STATEMENTS OF OPERATIONS
 
   
     Golden Sky subsidizes the cost to the consumer of DBS set-top boxes,
antennae and related equipment ("DBS Equipment") required to receive DIRECTV
programming services. Additionally, Golden Sky subsidizes the cost to the
consumer of installation of DBS Equipment. During the nine months ended
September 30, 1998 and 1997, aggregate proceeds from the sale and installation
of DBS Equipment totaled $7.8 million and $1.5 million, respectively; related
cost of sales totaled $15.2 million and $1.8 million during those same periods.
Net transaction costs associated with the sale and installation of DBS equipment
are expensed as incurred and reported as a component of sales and marketing
expenses in the accompanying statements of operations. Previously, Golden Sky
reflected revenues from equipment and installation sales and related costs (to
the extent of sales) as separate components in its statements of operations.
Certain other prior quarter and year amounts have been reclassified to conform
with the current period presentation. The
    
                                       F-9
<PAGE>   125
                            GOLDEN SKY SYSTEMS, INC.
 
      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
following reflects the Company's statements of operations for the quarterly
periods ended March 31, 1998 and June 30, 1998, and for the six months ended
June 30, 1998, as revised to reflect the reclassifications described above
(dollars in thousands).
 
<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED
                                                    ------------------------------   SIX MONTHS ENDED
                                                    MARCH 31, 1998   JUNE 30, 1998    JUNE 30, 1998
                                                    --------------   -------------   ----------------
<S>                                                 <C>              <C>             <C>
Revenue:
  DBS services....................................     $13,884         $ 16,582          $ 30,466
  Lease and other.................................         245              267               512
                                                       -------         --------          --------
Total revenue.....................................      14,129           16,849            30,978
Costs and Expenses:
  Cost of DBS services............................       8,250            9,676            17,926
  System operations...............................       1,787            2,390             4,177
  Sales and marketing.............................       4,670            6,617            11,287
  General and administrative......................       1,108            1,567             2,675
  Depreciation and amortization...................       4,348            5,405             9,753
                                                       -------         --------          --------
Total costs and expenses..........................      20,163           25,655            45,818
Operating loss....................................      (6,034)          (8,806)          (14,840)
Non-operating items:
  Interest and investment income..................          28                1                29
  Interest expense................................      (2,281)          (2,956)           (5,237)
                                                       -------         --------          --------
Total non-operating items.........................      (2,253)          (2,955)           (5,208)
                                                       -------         --------          --------
Net loss before income taxes......................      (8,287)         (11,761)          (20,048)
Income taxes......................................          --               --                --
                                                       -------         --------          --------
Net loss before extraordinary charge..............      (8,287)         (11,761)          (20,048)
Extraordinary charge on early retirement of
  debt............................................          --           (2,577)           (2,577)
                                                       -------         --------          --------
Net loss..........................................     $(8,287)        $(14,338)         $(22,625)
                                                       =======         ========          ========
</TABLE>
 
8. COMMITMENTS AND CONTINGENCIES
 
     In November 1998 and 1999, certain meteoroid events will occur as the
earth's orbit passes through the particulate trail of Comet 55P (Tempel-Tuttle).
These meteoroid events pose a potential threat to all in-orbit geosynchronous
satellites, including DBS satellites. The Company is unable to determine the
impact, if any, these meteoroid events could have on the DBS satellites used by
Hughes for distribution of DIRECTV programming services. In the event the Hughes
DBS satellites were adversely affected by these meteoroid or other events, the
Company's business and results of operations could be adversely impacted.
 
                                      F-10
<PAGE>   126
 
                          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
Kansas City, Missouri
 
                                      F-11
<PAGE>   127
 
                            GOLDEN SKY SYSTEMS, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                1997      1996
                                                              --------   -------
<S>                                                           <C>        <C>
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
                                                              ========   =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-12
<PAGE>   128
 
                            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)
 
<TABLE>
<CAPTION>
                                                                1997      1996
                                                              --------   -------
<S>                                                           <C>        <C>
Revenue:
  DBS services..............................................  $ 16,452   $   219
  Lease and other...........................................       944        36
                                                              --------   -------
          Total revenue.....................................    17,396       255
                                                              --------   -------
Costs and Expenses:
  Cost of DBS services......................................     9,304       130
  System operations.........................................     3,796        26
  Sales and marketing.......................................     7,316        73
  General and administrative................................     2,331     1,035
  Depreciation and amortization.............................     7,300        97
                                                              --------   -------
          Total costs and expenses..........................    30,047     1,361
                                                              --------   -------
  Operating loss............................................   (12,651)   (1,106)
                                                              --------   -------
Nonoperating items:
  Interest and investment income............................        40         1
  Interest expense..........................................    (3,173)      (62)
                                                              --------   -------
          Total non-operating items.........................    (3,133)      (61)
                                                              --------   -------
          Net loss before income taxes......................   (15,784)   (1,167)
Income taxes (note 10)......................................        --        --
                                                              --------   -------
          Net loss..........................................  $(15,784)  $(1,167)
                                                              ========   =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-13
<PAGE>   129
 
                            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)
 
<TABLE>
<CAPTION>
                                                                   ADDITIONAL
                                                         COMMON     PAID-IN     ACCUMULATED
                                                          STOCK     CAPITAL       DEFICIT      TOTAL
                                                         -------   ----------   -----------   --------
<S>                                                      <C>       <C>          <C>           <C>
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
                                                         =======    =======      ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                      F-14
<PAGE>   130
 
                            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)
 
   
<TABLE>
<CAPTION>
                                                                1997       1996
                                                              ---------   -------
<S>                                                           <C>         <C>
Operating activities:
  Net loss..................................................  $ (15,784)  $(1,167)
  Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation and amortization..........................      7,300        97
     Amortization of deferred financing costs...............        215        --
     Change in operating assets and liabilities, net of
      acquisitions:
       Subscriber receivables, net of unearned revenue......     (2,501)      (13)
       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 liabilities................        805        39
                                                              ---------   -------
          Net cash used in operating activities.............     (3,099)     (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 Series A CPPS...................     34,289        --
  Cash contributions from Parent............................     46,800        --
  Proceeds from issuance of common stock....................         --         1
  Principal payments on obligations under capital leases....        (85)       --
                                                              ---------   -------
          Net cash provided by financing activities.........    136,981     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   $    --
</TABLE>
    
 
          See accompanying notes to consolidated financial statements.
 
                                      F-15
<PAGE>   131
 
                            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, GSS issued 1,000 shares of its common stock to the Parent and all the
shareholders of the then outstanding preferred stock of GSS were issued
equivalent shares of the Parent's stock with identical features to GSS's
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
 
     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.
 
  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 ("DBS Equipment").
GSS subsidizes the cost to the consumer of such equipment, which is required to
receive DIRECTV programming services. Additionally, GSS subsidizes the cost to
the consumer of installation of DBS Equipment. Equipment and installation
revenues, and related expenses, are recognized upon delivery and installation of
DBS Equipment. Net transaction costs associated with the sale and installation
of DBS Equipment are reported as a component of sales and marketing expenses in
the accompanying statements of operations. During the periods ended December 31,
1997 and 1996, aggregate proceeds from the sale and installation of DBS
Equipment totaled $3.8 million and $57,000, respectively; related cost of sales
totaled $4.6 million and $68,000, respectively.
    
 
  Earnest Deposits
 
     Earnest deposits include amounts deposited in good faith for the purchase
of new DBS territories (note 3).
                                      F-16
<PAGE>   132
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  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.
 
  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.
 
                                      F-17
<PAGE>   133
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  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):
 
<TABLE>
<CAPTION>
                                                               1997      1996
                                                              ------     ----
<S>                                                           <C>        <C>
Accounts receivable:
  Programming...............................................  $3,934     $153
  Equipment receivables.....................................      47       --
  Allowances for doubtful accounts..........................    (138)      (4)
                                                              ------     ----
                                                              $3,843     $149
                                                              ======     ====
</TABLE>
 
(3) ACQUISITIONS
 
   
     Since Inception, the Company has acquired the principal operating assets
(including exclusive operating rights to provide DIRECTV programming) of
independent DIRECTV providers operating in the following Rural DIRECTV Markets:
    
 
   
     - Kansas and Oklahoma -- acquired from Images DBS Kansas, L.C. and Total
       Communications, Inc. on February 12, 1997.
    
 
   
     - Texas -- acquired from Direct Satellite TV, LTD. on February 28, 1997.
    
 
   
     - Texas -- acquired from Deep East Texas Telecommunications, Inc. on April
       11, 1997.
    
 
   
     - Texas -- acquired from GVEC Rural TV, Inc. on July 8, 1997.
    
 
   
     - Minnesota and Michigan -- acquired from Satellite Entertainment, Inc., a
       wholly-owned subsidiary of Ace Telephone Association, on July 14, 1997.
    
 
                                      F-18
<PAGE>   134
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
     - Minnesota -- acquired from Direct Vision, a segment of Mankato Citizens
       Telephone Company on July 15, 1997.
    
 
   
     - Florida, Texas and Utah -- acquired from Argos Support Services Company
       on August 8, 1997.
    
 
   
     - Texas -- acquired from JECTV, a segment of Jackson Electric Cooperative,
       on August 26, 1997.
    
 
   
     - Wisconsin -- acquired a controlling equity interest in DCE Satellite
       Entertainment (a partnership) on October 13, 1997.
    
 
   
     - Montana -- acquired from Western Montana Entertainment Television, Inc.
       on December 22, 1997.
    
 
   
     - Texas -- acquired controlling equity interest in South Plains DBS (a
       partnership) on December 23, 1997.
    
 
   
     Also since Inception, the Company has acquired from independent DIRECTV
providers exclusive operating rights to provide DIRECTV programming in the
following Rural DIRECTV Markets:
    
 
   
     - Tennessee -- acquired from Aurora Cable TV on November 15, 1996.
    
 
   
     - Tennessee -- acquired from TV Tennessee, Inc. on November 22, 1996.
    
 
   
     - Missouri -- acquired from Thunderbolt Systems, Inc. on March 11, 1997.
    
 
   
     - Colorado -- acquired from Western Montana DBS, Inc. dba Rocky Mountain
       DBS on May 1, 1997.
    
 
   
     - Nevada -- acquired from TEG DBS Services, Inc. on June 12, 1997.
    
 
   
     - Minnesota -- acquired from Lakes Area TV on September 2, 1997.
    
 
   
     - Michigan -- acquired from Direct Broadcast Satellite, a segment of CTS
       Communication Corporation, on November 7, 1997.
    
 
   
     - Iowa -- acquired from DBS, L.C. on November 17, 1997.
    
 
   
     - Iowa -- acquired from Panora Telecommunications, Inc. on November 20,
       1997.
    
 
   
     - North Dakota -- acquired from Souris River Television, Inc. on November
       21, 1997.
    
 
   
     - California and Oregon -- acquired from Cal-Ore Digital TV, Inc. on
       December 9, 1997.
    
 
   
     - Montana -- acquired from NRTC System No. 0093, a segment of Cable and
       Communications Corporation, on December 17, 1997.
    
 
   
     - Oklahoma -- acquired from Lakeland DBS, Inc. on December 24, 1997.
    
 
   
     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. The Company
has recorded minority interest obligations relating to its two partnership
interests totaling $2.9 million at December 31, 1997 attributable to the equity
interest of the minority partners.
    
 
   
     The aggregate purchase price, including direct acquisition costs, of the
above transactions totaled $129.7 million and $5.3 million during the periods
ended December 31, 1997 and 1996, respectively. These
    
 
                                      F-19
<PAGE>   135
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
amounts (of which $123.9 was paid in cash and $11.1 million was paid in the form
of notes payable) were allocated as follows (dollars in thousands):
    
 
   
<TABLE>
<CAPTION>
                                                                1997        1996
                                                              --------     ------
<S>                                                           <C>          <C>
Goodwill....................................................  $116,394     $4,664
Customer lists..............................................     9,450        453
Noncompete agreements.......................................     4,879         35
Investment in leases........................................     1,400        112
Property and equipment......................................       553         23
Minority interest...........................................    (2,931)        --
Working capital, net........................................       (20)       (31)
                                                              --------     ------
                                                              $129,725     $5,256
                                                              ========     ======
</TABLE>
    
 
     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):
 
<TABLE>
<CAPTION>
                                                                1997       1996
                                                              --------   --------
<S>                                                           <C>        <C>
Revenue.....................................................  $ 39,937   $ 16,557
Net loss....................................................  $(26,654)  $(13,291)
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
                                                               1997    1996
                                                              ------   -----
<S>                                                           <C>      <C>
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
                                                              ======   =====
</TABLE>
 
   
     From January 1, 1998 through April 24, 1998, the Company acquired operating
assets and rights in seven additional territories in Montana, Iowa, North
Dakota, Oregon and Colorado. The total cost of these DBS territories
approximates $30.9 million. These acquisitions were accounted for as purchases
and resulted in goodwill and other intangibles of approximately $31.1 million.
    
 
                                      F-20
<PAGE>   136
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(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):
 
<TABLE>
<CAPTION>
                                                                            ESTIMATED
                                                         1997      1996    USEFUL LIFE
                                                       --------   ------   -----------
<S>                                                    <C>        <C>      <C>
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
                                                       ========   ======
</TABLE>
 
(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):
 
<TABLE>
<S>                                                           <C>
Capital lease assets, at cost...............................  $554
Less accumulated depreciation...............................   (57)
                                                              ----
Net capital lease asset.....................................  $497
                                                              ====
</TABLE>
 
     At December 31, 1997, future minimum lease payments due under capital
leases are as follows (dollars in thousands):
 
<TABLE>
<S>                                                           <C>
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
                                                              =====
</TABLE>
 
                                      F-21
<PAGE>   137
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(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):
 
<TABLE>
<CAPTION>
                                                               1997       1996
                                                              -------    -------
<S>                                                           <C>        <C>
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
                                                              =======    =======
</TABLE>
 
     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.
 
     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.
 
   
     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
    
 
                                      F-22
<PAGE>   138
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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):
 
<TABLE>
<S>                                                           <C>
1998........................................................  $ 2,361
1999........................................................    3,348
2000........................................................      917
2001........................................................    4,581
2002........................................................   14,637
Thereafter..................................................   42,800
                                                              -------
          Total debt........................................  $68,644
                                                              =======
</TABLE>
 
(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, 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, ADDITIONAL PAID-IN CAPITAL AND SERIES A PREFERRED STOCK
    
 
     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).
 
   
     In February 1997, GSS issued 24,990 shares of Series A CPPS in fulfillment
of the investor's subscription to purchase Series A CPPS that was outstanding at
December 31, 1996 (aggregate consideration of $2,499,000). Additionally, during
February 1997, GSS issued a total of 38,107 shares of Series A CPPS
    
 
                                      F-23
<PAGE>   139
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
upon the conversion of convertible promissory notes (plus accrued interest of
approximately $60,700) issued in November 1996 ($2.0 million) and January 1997
($1.75 million). In February and March 1997, GSS issued an additional 342,893
shares of Series A CPPS for cash totaling $34.3 million. Upon the formation of
the Parent in September 1997, all shareholders of GSS Series A CPPS were issued
equivalent shares of the Parent's stock with identical features to the GSS
Series A CPPS. Concurrent therewith, GSS issued 1,000 shares of its common stock
(par value $0.01) to the Parent for cash of $10 and all outstanding shares of
GSS Series A CPPS were canceled. In November 1997, the Parent issued $10.0
million of convertible promissory notes that had an interest rate of 14.5% and a
maturity date of December 15, 1997. Later in November 1997, these notes, along
with accrued interest of $73,000 and additional cash proceeds from investors of
$35.6 million, were converted into 228,442 shares of the Parent's Series B
Convertible Participating Preferred Stock (the Series B CPPS). The Parent
remitted the proceeds from its issuance of convertible promissory notes and
Series B CPPS to GSS for the purpose of acquiring additional Rural DIRECTV
Markets. In October 1997, the Parent issued an additional 12,000 shares of its
Series A CPPS (aggregate consideration of $1.2 million) and contributed the
proceeds thereof to GSS. The Parent's aggregate capital contributions resulting
from the issuances of Series A CPPS and Series B CPPS (totaling $87.4 million)
are reflected as additional paid in capital in the accompanying consolidated
balance sheet.
    
 
(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):
 
<TABLE>
<CAPTION>
                                                                  PERIOD
                                                                  ENDING
                                                               DECEMBER 31,
                                                                   1997
                                                               -------------
<S>                                                            <C>
Computed expected expense (benefit).........................      $(4,868)
  Amortization of goodwill..................................          292
  Other.....................................................           12
  Valuation allowance.......................................        4,564
                                                                  -------
          Actual income taxes...............................      $    --
                                                                  =======
</TABLE>
 
     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):
 
<TABLE>
<S>                                                           <C>
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...........................  $    --
                                                              =======
</TABLE>
 
     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
                                      F-24
<PAGE>   140
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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):
 
<TABLE>
<S>                                                           <C>
1998........................................................  $  984
1999........................................................     911
2000........................................................     733
2001........................................................     386
2002........................................................     263
                                                              ------
          Total.............................................  $3,277
                                                              ======
</TABLE>
 
     As described in note 1, at December 31, 1997, the Company has outstanding
offers to acquire revenue rights for $582,000.
 
(12) EMPLOYEE STOCK OPTIONS
 
   
     Under the Golden Sky Systems, Inc. Stock Option and Restricted Stock
Purchase Plan (the Plan), certain employees, officers and directors of the
Company have been granted options to buy shares of Company stock at the
estimated market value of the stock on the date of grant, $1. The options are
exercisable during a period of up to ten years after grant. The stock options
granted under the Plan vest in three years. Effective September 9, 1997, the
Parent assumed the Plan. Plan participants received options with terms identical
to those under GSS's Plan and all previously outstanding options were canceled.
    
 
     Financial Accounting Standards Board issued Statement No. 123, "Accounting
for Stock-Based Compensation" (SFAS 123) which defines the "fair value method"
of accounting for employee stock options. It also allows accounting for such
options under the "intrinsic value method" in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations. If a company elects to use the intrinsic value
method, pro forma disclosures of earnings and earnings per share are required as
if the fair value method of accounting was applied.
 
     The Company has elected to account for stock options under the intrinsic
value method. The fair value method requires use of the Black-Scholes option
valuation model to value employee stock options. The Black-Scholes option
valuation model was not developed for use in valuing employee stock options.
Instead, this model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Under the intrinsic
value method, compensation expense is only recognized if the exercise price of
the employee stock option is less than the market price of the underlying stock
on the date of grant.
 
                                      F-25
<PAGE>   141
                            GOLDEN SKY SYSTEMS, INC.
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
   
     In accordance with SFAS 123, the fair value for the Parent's employee stock
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1997:
    
 
<TABLE>
<CAPTION>
                                                              1997
                                                              ----
<S>                                                           <C>
Risk-free interest rate.....................................   6.0%
Dividend yield..............................................   0.0
Volatility factor...........................................   0.0
Weighted average expected life (in years)...................  10.0
</TABLE>
 
     The options granted during the period ended December 31, 1997 had no net
value using the preceding assumptions, therefore, there is no pro forma effect
on net income.
 
     A summary of stock option activity and related information for the year
ended December 31, 1997 follows:
 
<TABLE>
<CAPTION>
                                                                        WEIGHTED
                                                                        AVERAGE
                                                                        EXERCISE
                                                              OPTIONS    PRICE
                                                              -------   --------
<S>                                                           <C>       <C>
Outstanding at beginning of year............................      --     $  --
Granted.....................................................  62,525      1.00
Exercised...................................................      --        --
Expired.....................................................      --        --
                                                              ------     -----
Outstanding at end of year..................................  62,525     $1.00
                                                              ------     -----
Exercisable at end of year..................................   8,684     $1.00
                                                              ======     =====
</TABLE>
 
                                      F-26
<PAGE>   142
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995
 
                                      F-27
<PAGE>   143
 
                          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.
 
     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 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-28
<PAGE>   144
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                                 BALANCE SHEETS
                       DECEMBER 31, 1997, 1996, AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1997         1996         1995
                                                              ----------   ----------   ----------
<S>                                                           <C>          <C>          <C>
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
                                                              ==========   ==========   ==========
</TABLE>
 
           The accompanying notes to the financial statements are an
                  integral part of these financial statements.
 
                                      F-29
<PAGE>   145
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                              STATEMENTS OF INCOME
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
 
<TABLE>
<CAPTION>
                                                              1997         1996         1995
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
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)
                                                           ==========   ==========   ==========
</TABLE>
 
           The accompanying notes to the financial statements are an
                  integral part of these financial statements.
 
                                      F-30
<PAGE>   146
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                 STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
 
<TABLE>
<CAPTION>
                                                                   UNREALIZED
                                       COMMON     ADDITIONAL      GAIN (LOSS)
                                     STOCK $100    PAID-IN       ON SECURITIES      ACCUMULATED
                                     PAR VALUE     CAPITAL     AVAILABLE FOR SALE     DEFICIT       TOTAL
                                     ----------   ----------   ------------------   -----------   ----------
<S>                                  <C>          <C>          <C>                  <C>           <C>
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
                                     ==========    ========        ==========        =========    ==========
</TABLE>
 
           The accompanying notes to the financial statements are an
                  integral part of these financial statements.
 
                                      F-31
<PAGE>   147
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                            STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
 
<TABLE>
<CAPTION>
                                                              1997        1996        1995
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
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
                                                            =========   =========   =========
</TABLE>
 
The accompanying notes to the financial statements are an integral part of these
                             financial statements.
 
                                      F-32
<PAGE>   148
 
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                         NOTES TO FINANCIAL STATEMENTS
                       DECEMBER 31, 1997, 1996, AND 1995
 
NOTE 1 -- 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:
 
<TABLE>
<CAPTION>
                                                              1997   1996   1995
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
CATV plant..................................................  6.2%   6.2%   6.2%
Franchise...................................................  6.6%   6.6%   6.6%
</TABLE>
 
     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.
 
     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.
 
                                      F-33
<PAGE>   149
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 2 -- INVESTMENT IN MARKETABLE EQUITY SECURITY
 
     The cost and fair values of this marketable equity security
available-for-sale at December 31, 1997, 1996, and 1995, were as follows:
 
<TABLE>
<CAPTION>
                                       UNREALIZED      1997         1996         1995
                              COST        GAIN      FAIR VALUE   FAIR VALUE   FAIR VALUE
                             -------   ----------   ----------   ----------   ----------
<S>                          <C>       <C>          <C>          <C>          <C>
Commnet Cellular, Inc. --
  stock....................  $85,838   $1,765,750   $1,851,588   $1,433,695   $1,485,128
                             =======   ==========   ==========   ==========   ==========
</TABLE>
 
     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
 
<TABLE>
<CAPTION>
                                                         1997       1996       1995
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
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
                                                       ========   ========   ========
</TABLE>
 
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.
 
<TABLE>
<CAPTION>
                                     FRANCHISE   ACCUMULATED
                                       COST      AMORTIZATION   NET 1997   NET 1996   NET 1995
                                     ---------   ------------   --------   --------   --------
<S>                                  <C>         <C>            <C>        <C>        <C>
Direct Broadcast System (DBS)......  $427,280      $105,354     $321,926   $349,920   $377,913
                                     ========      ========     ========   ========   ========
</TABLE>
 
                                      F-34
<PAGE>   150
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE 5 -- PROPERTY AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                                1997       1996       1995
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
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
                                                              ========   ========   ========
</TABLE>
 
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:
 
<TABLE>
<CAPTION>
                                                                1997       1996       1995
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
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
                                                              ========   ========   ========
</TABLE>
 
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
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
 
                                      F-35
<PAGE>   151
                      TRIANGLE COMMUNICATION SYSTEM, INC.
                                 HAVRE, MONTANA
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
Electric Cooperative, Inc. under this agreement in 1997 were approximately
$157,000. At 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-36
<PAGE>   152
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                              FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
 
                                      F-37
<PAGE>   153
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                                 BALANCE SHEETS
                       AS OF SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1998         1997
                                                              ----------   ----------
<S>                                                           <C>          <C>
Current Assets Cash and Equivalents.........................  $    4,521   $  871,182
  Trade Receivables, net of allowance for doubtful accounts
     of $6,000
     in 1998................................................     226,549      163,191
  Inventories...............................................      17,288       21,449
  Due from Golden Sky Systems, Inc..........................          --    2,496,875
                                                              ----------   ----------
          Total Current Assets..............................     248,358    3,552,697
Furniture and Equipment
  Furniture and Equipment...................................      82,431       40,174
  Accumulated Depreciation..................................     (43,670)     (23,505)
                                                              ----------   ----------
          Net Furniture and Equipment.......................      38,761       16,669
                                                              ----------   ----------
Intangible Assets
  Franchise Costs...........................................   1,046,171    1,046,171
  Accumulated Amortization..................................    (462,069)    (345,515)
                                                              ----------   ----------
                                                                 584,102      700,656
                                                              ----------   ----------
Other Assets
  Prepaid Expenses..........................................          --          546
  NRTC Patronage Capital....................................     128,275       91,730
                                                              ----------   ----------
                                                                 128,275       92,276
                                                              ----------   ----------
                                                              $  999,496   $4,362,298
                                                              ==========   ==========
 
                        LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
  Trade Payables............................................  $  227,831   $  272,362
  Unearned Revenues.........................................     198,818      397,781
  Accrued Salaries and Other................................       2,832        8,972
                                                              ----------   ----------
          Total Current Liabilities.........................     429,481      679,115
                                                              ----------   ----------
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 (Deficit)...............................    (554,724)   2,558,444
                                                              ----------   ----------
          Total Stockholders' Equity........................     570,015    3,683,183
                                                              ----------   ----------
                                                              $  999,496   $4,362,298
                                                              ==========   ==========
</TABLE>
 
                           See Selected Information.
 
                                      F-38
<PAGE>   154
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                               INCOME STATEMENTS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 1998         1997
                                                              ----------   ----------
<S>                                                           <C>          <C>
REVENUES
  DSS Programming Revenues..................................  $3,168,112   $2,820,182
  DSS Equipment Sales.......................................     110,314       78,494
  Other DSS Sales...........................................      25,876       19,008
                                                              ----------   ----------
                                                               3,304,302    2,917,684
                                                              ----------   ----------
COST OF REVENUES
  Programming Costs.........................................   1,775,655    1,187,346
  DSS Equipment Costs.......................................      99,426       78,494
  Other DSS Cost of Revenues................................      18,812       11,861
  Rebates...................................................          --      357,379
                                                              ----------   ----------
                                                               1,893,893    1,635,080
                                                              ----------   ----------
          Gross Profit......................................   1,410,409    1,282,604
                                                              ----------   ----------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
  Salaries, Wages and Commissions...........................     289,736      206,105
  Amortization and Depreciation.............................      93,381       89,613
  Bad Debt Expense..........................................      21,146       27,140
  Marketing and Advertising.................................      72,118       75,627
  Other General and Administrative..........................     156,785      102,656
                                                              ----------   ----------
                                                                 633,166      501,141
                                                              ----------   ----------
          Operating Income..................................     777,243      781,463
                                                              ----------   ----------
OTHER INCOME (EXPENSE)
  Interest Income...........................................     159,122      163,541
  Interest Expense..........................................      (1,458)        (228)
  Gain on Sale of Colorado Franchise Territories............          --    4,654,996
                                                              ----------   ----------
                                                                 157,664    4,818,309
                                                              ----------   ----------
NET INCOME..................................................  $  934,907   $5,599,772
                                                              ==========   ==========
</TABLE>
 
                           See Selected Information.
 
                                      F-39
<PAGE>   155
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                        STATEMENTS OF RETAINED EARNINGS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>
Balance, Beginning of Period................................  $ 2,171,945    $  (484,136)
  Net Income................................................      934,907      5,599,772
  Dividends and Distributions...............................   (3,661,576)    (2,557,192)
                                                              -----------    -----------
Balance, End of Period......................................  $  (554,724)   $ 2,558,444
                                                              ===========    ===========
</TABLE>
 
                           See Selected Information.
 
                                      F-40
<PAGE>   156
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                            STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                 1998           1997
                                                              -----------    -----------
<S>                                                           <C>            <C>
Cash Flows from Operating Activities
  Net income................................................  $   934,907    $ 5,599,772
  Adjustments to Reconcile Net Income to Net Cash Provided
     by Operating Activities:
     Depreciation and Amortization..........................       93,381         89,613
     Gain on Sale of Colorado Franchise Territories.........           --     (4,654,996)
     (Increase) decrease in:
       Trade Accounts Receivable............................      (32,347)       114,638
       Inventories..........................................        5,154         (4,872)
       Prepaids.............................................        1,559            874
       Accrued Interest -- Golden Sky Systems...............      235,000       (146,875)
     Increase (decrease) in:
       Trade Accounts Payable...............................       43,159        (83,469)
       Accrued Expenses.....................................     (108,976)       (16,301)
       Unearned Revenues....................................      (52,035)      (150,562)
                                                              -----------    -----------
          Net Cash Provided by Operating Activities.........    1,119,802        747,822
                                                              -----------    -----------
Cash Flows from Investing Activities
  Purchase of Property, Plant and Equipment.................       (2,614)        (5,288)
  Proceeds from Sale of Franchise Territories...............    2,350,000      2,434,238
                                                              -----------    -----------
          Net Cash Provided by Investing Activities.........    2,347,386      2,428,950
                                                              -----------    -----------
Cash Flows from Financing Activities
  Distributions to Stockholders.............................   (3,661,576)    (2,557,192)
                                                              -----------    -----------
          Net Cash Used by Financing Activities.............   (3,661,576)    (2,557,192)
                                                              -----------    -----------
Net Increase (Decrease) in Cash.............................     (194,388)       619,580
Cash, Beginning of Period...................................      198,909        251,602
                                                              -----------    -----------
Cash, End of Period.........................................  $     4,521    $   871,182
                                                              ===========    ===========
SUPPLEMENTAL DISCLOSURES:
  Cash paid during the period for interest..................  $     1,458    $       228
                                                              ===========    ===========
</TABLE>
 
                           See Selected Information.
 
                                      F-41
<PAGE>   157
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                              SELECTED INFORMATION
                          SEPTEMBER 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 --
 
     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 --
 
     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.
 
                                      F-42
<PAGE>   158
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                      SELECTED INFORMATION -- (CONTINUED)
 
  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
September 30, 1998 or 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.
 
  Discontinued Operations --
 
     In May of 1997, the Company sold 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 accounted for some 31% of total subscriber
revenues ($402,000 from January 1, 1997, to May 1, 1997).
 
  Subsequent Event --
 
     On October 2, 1998, the Company was acquired by Golden Sky Systems, Inc.
Company shareholders will receive both cash and shares in Golden Sky Holdings,
Inc. in this transaction.
 
                                      F-43
<PAGE>   159
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                              FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
                                      F-44
<PAGE>   160
 
                          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-45
<PAGE>   161
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                                 BALANCE SHEET
                            AS OF DECEMBER 31, 1997
 
                                     ASSETS
 
<TABLE>
<S>                                                           <C>
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
                                                              ==========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-46
<PAGE>   162
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                                INCOME STATEMENT
                      FOR THE YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<S>                                                            <C>
Revenues
  DSS programming revenues..................................   $3,943,940
  DSS equipment sales.......................................      113,153
  Other DSS sales...........................................       34,894
                                                               ----------
                                                                4,091,987
Cost of revenues
  Programming costs.........................................    2,242,450
  DSS equipment costs.......................................      113,153
  Other DSS cost of revenues................................       13,970
  Rebates...................................................      308,699
                                                               ----------
                                                                2,678,272
                                                               ----------
          Gross profit......................................    1,413,715
                                                               ----------
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..................................      466,060
                                                               ----------
Other income (expenses)
  Patronage income (Note 5).................................       36,545
  Interest income...........................................      255,889
  Interest expense..........................................         (218)
  Gain on sale of Colorado franchise territories (Note 2)...    4,654,996
                                                               ----------
                                                                4,947,212
                                                               ----------
          Net income........................................   $5,413,272
                                                               ==========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-47
<PAGE>   163
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                         STATEMENT OF RETAINED EARNINGS
                            AS OF DECEMBER 31, 1997
 
<TABLE>
<S>                                                            <C>
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
                                                               ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-48
<PAGE>   164
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                            STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<S>                                                           <C>
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
                                                              ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-49
<PAGE>   165
 
                           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
 
     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
 
     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.
 
                                      F-50
<PAGE>   166
                           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.
 
  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 -- GAIN ON SALE OF COLORADO FRANCHISE TERRITORIES
 
     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.
 
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-51
<PAGE>   167
                           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-52
<PAGE>   168
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
 
                                      F-53
<PAGE>   169
 
                          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.
 
     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 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-54
<PAGE>   170
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-55
<PAGE>   171
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                               INCOME STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                              1996         1995        1994
                                                           ----------   ----------   ---------
<S>                                                        <C>          <C>          <C>
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)
                                                           ==========   ==========   =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-56
<PAGE>   172
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                       STATEMENTS OF ACCUMULATED DEFICIT
                     AS OF DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                              1996        1995        1994
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
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)
                                                            =========   =========   =========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-57
<PAGE>   173
 
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                            STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                             1996        1995         1994
                                                           ---------   ---------   -----------
<S>                                                        <C>         <C>         <C>
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
                                                           =========   =========   ===========
</TABLE>
 
   The accompanying notes are an integral part of these financial statements.
 
                                      F-58
<PAGE>   174
 
                           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 --
 
     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 --
 
     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 --
 
     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
 
                                      F-59
<PAGE>   175
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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.
 
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.
 
                                      F-60
<PAGE>   176
                           WESTERN MONTANA DBS, INC.
                             dba ROCKY MOUNTAIN DBS
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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-61
<PAGE>   177
 
                      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-62
<PAGE>   178
 
                          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
 
Lubbock, Texas
February 28, 1997
 
                                      F-63
<PAGE>   179
 
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                                 BALANCE SHEET
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
                 See accompanying notes to financial statements
 
                                      F-64
<PAGE>   180
 
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                           STATEMENT OF INCOME (LOSS)
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                               -----------------------
                                                                  1996         1995
                                                               ----------   ----------
<S>                                                            <C>          <C>
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)
                                                               ==========   ==========
</TABLE>
 
                 See accompanying notes to financial statements
 
                                      F-65
<PAGE>   181
 
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                   STATEMENT OF CHANGES IN PARTNERS' CAPITAL
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                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
                            ------------   -----------   ----------   ------------   -----------   ---------
<S>                         <C>            <C>           <C>          <C>            <C>           <C>
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)
                             =========      =========    =========     =========      ========     =========
</TABLE>
 
                 See accompanying notes to financial statements
 
                                      F-66
<PAGE>   182
 
                     SOUTH PLAINS DBS, LIMITED PARTNERSHIP
 
                            STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1996         1995
                                                              ---------   ----------
<S>                                                           <C>         <C>
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
                                                              =========   ==========
</TABLE>
 
                 See accompanying notes to financial statements
 
                                      F-67
<PAGE>   183
 
                      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:
 
<TABLE>
<S>                                                           <C>
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%
</TABLE>
 
     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.
 
  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.
 
                                      F-68
<PAGE>   184
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  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.
 
NOTE 4. FIXED ASSETS
 
     Fixed assets are stated at the original purchase cost.
 
     The major classes of fixed assets are as follows:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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
                                                              ========   ========
</TABLE>
 
     Provision for the depreciation of fixed assets is computed using
straight-line rates as follows:
 
<TABLE>
<S>                                                           <C>
Office Furniture and Fixtures...............................   7.50%
Office Equipment............................................  14.30%
Leased Equipment............................................  14.30%
</TABLE>
 
                                      F-69
<PAGE>   185
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     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.
 
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:
 
<TABLE>
<S>                                                           <C>
1997........................................................  $32,280
1998........................................................  $19,040
</TABLE>
 
     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.
 
                                      F-70
<PAGE>   186
                      SOUTH PLAINS DBS LIMITED PARTNERSHIP
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     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-71
<PAGE>   187
 
                            IMAGES DBS KANSAS, L.C.
 
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-72
<PAGE>   188
 
                          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.
 
     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 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
Kansas City, Missouri
 
                                      F-73
<PAGE>   189
 
                             IMAGES DBS KANSAS L.C.
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              -----------   ---------
<S>                                                           <C>           <C>
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
                                                              ===========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-74
<PAGE>   190
 
                             IMAGES DBS KANSAS L.C.
 
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                              ----------   ---------
<S>                                                           <C>          <C>
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)
                                                              ==========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-75
<PAGE>   191
 
                             IMAGES DBS KANSAS L.C.
 
                        STATEMENTS OF INVESTORS' CAPITAL
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                          CONTRIBUTED   ACCUMULATED      TOTAL
                                                            CAPITAL       DEFICIT       CAPITAL
                                                          -----------   -----------   -----------
<S>                                                       <C>           <C>           <C>
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)
                                                           ========     ===========   ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-76
<PAGE>   192
 
                             IMAGES DBS KANSAS L.C.
 
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                1996        1995
                                                              ---------   ---------
<S>                                                           <C>         <C>
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
                                                              =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-77
<PAGE>   193
 
                            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
 
     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.
 
                                      F-78
<PAGE>   194
                            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:
 
<TABLE>
<CAPTION>
                                                               1996      1995
                                                              -------   -------
<S>                                                           <C>       <C>
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)
                                                              =======   =======
</TABLE>
 
                                      F-79
<PAGE>   195
                            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:
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                              ----------   --------
<S>                                                           <C>          <C>
Total.......................................................  $  732,722   $494,616
Totah.......................................................     179,449         --
Other.......................................................     166,276    156,261
                                                              ----------   --------
                                                              $1,078,447   $650,877
                                                              ==========   ========
</TABLE>
 
     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-80
<PAGE>   196
 
                           IMAGES DBS OKLAHOMA, L.C.
 
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-81
<PAGE>   197
 
                          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.
 
     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 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
Kansas City, Missouri
 
                                      F-82
<PAGE>   198
 
                           IMAGES DBS OKLAHOMA, L.C.
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              -----------   ---------
<S>                                                           <C>           <C>
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
                                                              ===========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-83
<PAGE>   199
 
                           IMAGES DBS OKLAHOMA, L.C.
 
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                              ----------   ---------
<S>                                                           <C>          <C>
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)
                                                              ==========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-84
<PAGE>   200
 
                           IMAGES DBS OKLAHOMA, L.C.
 
                        STATEMENTS OF INVESTORS' CAPITAL
               FOR THE YEARS ENDED TO DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                           CONTRIBUTED   ACCUMULATED     TOTAL
                                                             CAPITAL       DEFICIT      CAPITAL
                                                           -----------   -----------   ---------
<S>                                                        <C>           <C>           <C>
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)
                                                            ========     ===========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-85
<PAGE>   201
 
                           IMAGES DBS OKLAHOMA, L.C.
 
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                1996        1995
                                                              ---------   ---------
<S>                                                           <C>         <C>
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
                                                              =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-86
<PAGE>   202
 
                           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
 
     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
 
     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.
 
                                      F-87
<PAGE>   203
                           IMAGES DBS OKLAHOMA, 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-OK is a limited-liability company. All taxes are the responsibility
of Images-OK'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
stream of those services.
 
  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.
 
     Related receivables and payables as of December 31, 1996 and 1995 are as
follows:
 
<TABLE>
<CAPTION>
                                                               1996      1995
                                                              -------   -------
<S>                                                           <C>       <C>
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)
                                                              =======   =======
</TABLE>
 
                                      F-88
<PAGE>   204
                           IMAGES DBS OKLAHOMA, L.C.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     Related party notes payable plus accrued interest as of December 31, 1996
and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
Total.......................................................  $401,515   $362,265
Totah.......................................................   166,276         --
Other.......................................................   179,104    133,348
                                                              --------   --------
                                                              $746,895   $495,613
                                                              ========   ========
</TABLE>
 
     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-89
<PAGE>   205
 
                           TOTAL COMMUNICATIONS, INC.
 
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-90
<PAGE>   206
 
                          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.
 
     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 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
Kansas City, Missouri
 
                                      F-91
<PAGE>   207
 
                           TOTAL COMMUNICATIONS, INC.
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996          1995
                                                              -----------   ----------
<S>                                                           <C>           <C>
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
                                                              ===========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-92
<PAGE>   208
 
                           TOTAL COMMUNICATIONS, INC.
 
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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)
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-93
<PAGE>   209
 
                           TOTAL COMMUNICATIONS, INC.
 
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                          ADDITIONAL
                                                COMMON     PAID-IN     ACCUMULATED
                                                 STOCK     CAPITAL       DEFICIT       TOTAL
                                                -------   ----------   -----------   ----------
<S>                                             <C>       <C>          <C>           <C>
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
                                                =======   ==========   ===========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-94
<PAGE>   210
 
                           TOTAL COMMUNICATIONS, INC.
 
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996          1995
                                                              -----------   -----------
<S>                                                           <C>           <C>
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
                                                              ===========   ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-95
<PAGE>   211
 
                           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
 
     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.
 
  Property, Plant and Equipment
 
     Property, plant and equipment are carried at cost and depreciated on a
straight-line basis over their estimated useful lives.
 
  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.
 
                                      F-96
<PAGE>   212
                           TOTAL COMMUNICATIONS, INC.
 
                  NOTES TO 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 of
the instruments. The carrying value of notes payable approximates fair value as
they bear interest at market rates.
 
  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
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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
                                                              ========   ========
</TABLE>
 
                                      F-97
<PAGE>   213
                           TOTAL COMMUNICATIONS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(3) NOTES PAYABLE
 
     Notes payable consisted of the following at December 31, 1996 and 1995:
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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)
                                                              ========   ========
</TABLE>
 
                                      F-98
<PAGE>   214
                           TOTAL COMMUNICATIONS, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     Related party notes receivable as of December 31, 1996 and 1995 are as
follows:
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                              ----------   --------
<S>                                                           <C>          <C>
Images-OK...................................................  $  401,515   $362,265
Images-KS...................................................     732,722    494,616
                                                              ----------   --------
                                                              $1,134,237   $856,881
                                                              ==========   ========
</TABLE>
 
     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-99
<PAGE>   215
 
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
 
                                      F-100
<PAGE>   216
 
                          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
Kansas City, Missouri
 
                                      F-101
<PAGE>   217
 
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-102
<PAGE>   218
 
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                              1996         1995        1994
                                                           ----------   ----------   ---------
<S>                                                        <C>          <C>          <C>
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)
                                                           ==========   ==========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-103
<PAGE>   219
 
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                          STATEMENTS OF SEGMENT EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<S>                                                               <C>
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
                                                                  ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-104
<PAGE>   220
 
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                              1996         1995        1994
                                                            ---------   ----------   ---------
<S>                                                         <C>         <C>          <C>
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
                                                            =========   ==========   =========
</TABLE>
 
              See accompanying notes to the financial statements.
 
                                      F-105
<PAGE>   221
 
                                     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.
 
  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.
 
                                      F-106
<PAGE>   222
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                  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.
 
  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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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
                                                              ========   ========
</TABLE>
 
(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.
 
     At December 31, 1996 and 1995, the net notes receivable balance consists of
the following:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   ---------
<S>                                                           <C>        <C>
Notes receivable............................................  $447,711   $ 561,788
Less allowance..............................................  (158,611)   (120,613)
                                                              --------   ---------
          Notes receivable, net.............................  $289,100   $ 441,175
                                                              ========   =========
</TABLE>
 
(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
 
                                      F-107
<PAGE>   223
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
Cost........................................................  $936,701   $549,507
Accumulated depreciation....................................  (202,871)   (30,845)
                                                              --------   --------
          Net carrying cost.................................  $733,830   $518,662
                                                              ========   ========
</TABLE>
 
     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.
 
     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:
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
Accounts payable............................................  $   34,494   $       --
Long-term debt..............................................  $1,451,796   $1,340,630
Accrued interest............................................  $  155,807   $   50,526
</TABLE>
 
     The line of credit noted above was paid off September 2, 1997 in
conjunction with the sale of the Segment noted in note 5.
 
                                      F-108
<PAGE>   224
                                     JECTV
                  (A SEGMENT OF JACKSON ELECTRIC COOPERATIVE)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(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-109
<PAGE>   225
 
                                 DIRECT VISION
               (A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-110
<PAGE>   226
 
                          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
Kansas City, Missouri
 
                                      F-111
<PAGE>   227
 
                                 DIRECT VISION
               (A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-112
<PAGE>   228
 
                                 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
 
<TABLE>
<CAPTION>
                                                              1996        1995        1994
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
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)
                                                            =========   =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-113
<PAGE>   229
 
                                 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
 
<TABLE>
<CAPTION>
                                                                SEGMENT
                                                                 EQUITY
                                                               ----------
<S>                                                            <C>
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
                                                               ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-114
<PAGE>   230
 
                                 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
 
<TABLE>
<CAPTION>
                                                             1996        1995         1994
                                                           ---------   ---------   -----------
<S>                                                        <C>         <C>         <C>
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....................................  $      --   $      --   $        --
                                                           =========   =========   ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-115
<PAGE>   231
 
                                 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.
 
  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
 
                                      F-116
<PAGE>   232
                                 DIRECT VISION
               (A SEGMENT OF MANKATO CITIZENS TELEPHONE COMPANY)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
Intercompany payables for:
  Cash operating losses.....................................  $269,702   $190,847
  Inventory purchases.......................................    59,336    138,396
  Other.....................................................    (9,429)      (757)
                                                              --------   --------
                                                              $319,609   $328,486
                                                              ========   ========
</TABLE>
 
(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:
 
<TABLE>
<CAPTION>
                                                                1996      1995
                                                              --------   -------
<S>                                                           <C>        <C>
Accounts receivable -- programming..........................  $115,113   $27,881
Accounts receivable -- financed equipment sales.............     7,747     6,083
                                                              --------   -------
                                                              $122,860   $33,964
                                                              ========   =======
</TABLE>
 
(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-117
<PAGE>   233
 
                           DIRECT BROADCAST SATELLITE
                  (A SEGMENT OF CTS COMMUNICATION CORPORATION)
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-118
<PAGE>   234
 
                          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
Kansas City, Missouri
 
                                      F-119
<PAGE>   235
 
                           DIRECT BROADCAST SATELLITE
                  (A SEGMENT OF CTS COMMUNICATION CORPORATION)
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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
                                                              ========   ========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-120
<PAGE>   236
 
                           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
 
<TABLE>
<CAPTION>
                                                              1996        1995        1994
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
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)
                                                            =========   =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-121
<PAGE>   237
 
                           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
 
<TABLE>
<CAPTION>
                                                               SEGMENT
                                                               EQUITY
                                                              ---------
<S>                                                           <C>
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
                                                              =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-122
<PAGE>   238
 
                           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
 
<TABLE>
<CAPTION>
                                                              1996        1995        1994
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
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
                                                            =========   =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-123
<PAGE>   239
 
                           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.
 
     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 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.
 
  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.
 
                                      F-124
<PAGE>   240
                           DIRECT BROADCAST SATELLITE
                  (A SEGMENT OF CTS COMMUNICATION CORPORATION)
 
                  NOTES TO 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
 
     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 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 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-125
<PAGE>   241
 
                         ARGOS SUPPORT SERVICES COMPANY
 
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                  (WITH INDEPENDENT AUDITORS' REPORTS THEREON)
 
                                      F-126
<PAGE>   242
 
                          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
Kansas City, Missouri
 
                                      F-127
<PAGE>   243
 
                         ARGOS SUPPORT SERVICES COMPANY
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996          1995
                                                              -----------   ----------
<S>                                                           <C>           <C>
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
                                                              ===========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-128
<PAGE>   244
 
                         ARGOS SUPPORT SERVICES COMPANY
 
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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)
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-129
<PAGE>   245
 
                         ARGOS SUPPORT SERVICE COMPANY
 
                  STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                           ADDITIONAL
                                                COMMON       PAID-IN        RETAINED
                                                STOCK        CAPITAL        EARNINGS       TOTAL
                                                ------   ---------------   -----------   ----------
<S>                                             <C>      <C>               <C>           <C>
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
                                                ======     ==========      ===========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-130
<PAGE>   246
 
                         ARGOS SUPPORT SERVICES COMPANY
 
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
 
<TABLE>
<CAPTION>
                                                                 1996        1995
                                                              ----------   ---------
<S>                                                           <C>          <C>
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
                                                              ==========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-131
<PAGE>   247
 
                         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
 
     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.
 
  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.
 
                                      F-132
<PAGE>   248
                         ARGOS SUPPORT SERVICE COMPANY
 
                  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. 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.
 
     Scheduled repayments of long-term debt and notes payable outstanding at
December 31, 1996 are as follows:
 
<TABLE>
<S>                                                           <C>
1997........................................................  $ 21,085
1998........................................................     3,543
1999........................................................   278,856
2000........................................................     3,484
                                                              --------
                                                              $306,968
                                                              ========
</TABLE>
 
(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.
 
                                      F-133
<PAGE>   249
                         ARGOS SUPPORT SERVICE COMPANY
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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-134
<PAGE>   250
 
                         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-135
<PAGE>   251
 
                          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.
Kansas City, Missouri
 
                                      F-136
<PAGE>   252
 
                         SATELLITE ENTERTAINMENT, INC.
            (A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
 
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-137
<PAGE>   253
 
                         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
 
<TABLE>
<CAPTION>
                                                               1996         1995        1994
                                                            ----------   ----------   --------
<S>                                                         <C>          <C>          <C>
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)
                                                            ==========   ==========   ========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-138
<PAGE>   254
 
                         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
 
<TABLE>
<CAPTION>
                                                            ADDITIONAL
                                                  COMMON     PAID-IN     RETAINED      TOTAL
                                                   STOCK     CAPITAL     EARNINGS      EQUITY
                                                  -------   ----------   ---------   ----------
<S>                                               <C>       <C>          <C>         <C>
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
                                                  =======   ==========   =========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-139
<PAGE>   255
 
                         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
 
<TABLE>
<CAPTION>
                                                             1996        1995         1994
                                                           ---------   ---------   -----------
<S>                                                        <C>         <C>         <C>
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   $        --
                                                           =========   =========   ===========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-140
<PAGE>   256
 
                         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
 
     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. Revenues for
equipment sales 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
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
 
     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.
 
  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.
 
  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.
 
                                      F-141
<PAGE>   257
                         SATELLITE ENTERTAINMENT, INC.
            (A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
 
                  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.
 
  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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
Accounts receivable:
  Programming...............................................  $121,727   $ 65,884
  Financed equipment sales..................................   133,913    195,454
  Other.....................................................     2,355      1,860
                                                              --------   --------
                                                              $257,995   $263,198
                                                              ========   ========
</TABLE>
 
(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.
 
     Total income tax benefit differs from expected income tax benefit as
follows:
 
<TABLE>
<CAPTION>
                                                            1996      1995      1994
                                                           -------   -------   ------
<S>                                                        <C>       <C>       <C>
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
                                                           =======   =======   ======
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
 1996       1995      1994
- -------   --------   -------
<S>       <C>        <C>
$88,545   $190,050   $20,806
=======   ========   =======
</TABLE>
 
                                      F-142
<PAGE>   258
                         SATELLITE ENTERTAINMENT, INC.
            (A WHOLLY-OWNED SUBSIDIARY OF ACE TELEPHONE ASSOCIATION)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
Cost........................................................  $299,744   $286,104
Accumulated depreciation....................................   (92,261)   (28,935)
                                                              --------   --------
  Net carrying cost.........................................  $207,483   $257,169
                                                              ========   ========
</TABLE>
 
(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-143
<PAGE>   259
 
                              GVEC RURAL TV, INC.
 
                              FINANCIAL STATEMENTS
                        DECEMBER 31, 1996, 1995 AND 1994
                  (WITH INDEPENDENT AUDITORS' REPORT THEREON)
 
                                      F-144
<PAGE>   260
 
                          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.
 
     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 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
Kansas City, Missouri
 
                                      F-145
<PAGE>   261
 
                              GVEC RURAL TV, INC.
 
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 1996 AND 1995
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1996         1995
                                                              ----------   ----------
<S>                                                           <C>          <C>
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
                                                              ==========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-146
<PAGE>   262
 
                              GVEC RURAL TV, INC.
 
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                               1996         1995        1994
                                                            ----------   ----------   --------
<S>                                                         <C>          <C>          <C>
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)
                                                            ==========   ==========   ========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-147
<PAGE>   263
 
                              GVEC RURAL TV, INC.
 
                        STATEMENTS OF INVESTORS' CAPITAL
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                   CLASS A   CLASS B   ADDITIONAL
                                   COMMON    COMMON     PAID-IN     RETAINED     SEGMENT       TOTAL
                                    STOCK     STOCK     CAPITAL     EARNINGS     EQUITY        EQUITY
                                   -------   -------   ----------   --------   -----------   ----------
<S>                                <C>       <C>       <C>          <C>        <C>           <C>
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
                                   ======    ======    ==========   ========   ===========   ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-148
<PAGE>   264
 
                              GVEC RURAL TV, INC.
 
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                                               1996       1995        1994
                                                             --------   ---------   ---------
<S>                                                          <C>        <C>         <C>
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   $      --   $      --
                                                             ========   =========   =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-149
<PAGE>   265
 
                              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.
 
  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
 
                                      F-150
<PAGE>   266
                              GVEC RURAL TV, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
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.
 
  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.
 
  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
 
     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.
 
(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:
 
<TABLE>
<CAPTION>
                                                                1996       1995
                                                              --------   --------
<S>                                                           <C>        <C>
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
                                                              ========   ========
</TABLE>
 
                                      F-151
<PAGE>   267
                              GVEC RURAL TV, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(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:
 
<TABLE>
<S>                                                            <C>
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...........................   $    --
                                                               =======
</TABLE>
 
     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
 
     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 of $41,515 and $18,848 was included in other liabilities at December 31,
1996 and 1995, respectively.
 
(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.
 
                                      F-152
<PAGE>   268
                              GVEC RURAL TV, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
(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:
 
<TABLE>
<S>                                                            <C>
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
                                                               ========
</TABLE>
 
     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-153
<PAGE>   269
 
                           DIRECT BROADCAST SATELLITE
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                              FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
                                      F-154
<PAGE>   270
 
                          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-155
<PAGE>   271
 
                           DIRECT BROADCAST SATELLITE
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                                 BALANCE SHEET
                               DECEMBER 31, 1997
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                1997
                                                              --------
<S>                                                           <C>
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
                                                              ========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-156
<PAGE>   272
 
                          DIRECT BROADCAST SATELLITE.
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                            STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              ----------
<S>                                                           <C>
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)
                                                              ==========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-157
<PAGE>   273
 
                          DIRECT BROADCAST SATELLITE.
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                          STATEMENT OF SEGMENT EQUITY
                          YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                1997
                                                              ---------
<S>                                                           <C>
BALANCE AT JANUARY 1, 1997..................................  $ 280,411
  Company contribution to Segment...........................    109,342
  Net Loss..................................................   (358,144)
                                                              ---------
BALANCE AT DECEMBER 31, 1997................................  $  31,609
                                                              =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-158
<PAGE>   274
 
                          DIRECT BROADCAST SATELLITE.
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                            STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                1997
                                                              ---------
<S>                                                           <C>
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
                                                              =========
</TABLE>
 
                See accompanying notes to financial statements.
 
                                      F-159
<PAGE>   275
 
                          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 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 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
 
     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.
 
                                      F-160
<PAGE>   276
                          DIRECT BROADCAST SATELLITE.
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
  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
 
     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.
 
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
 
<TABLE>
<S>                                                           <C>
NRTC -- DBS Franchise Fee...................................  $ 383,648
  less accumulated amortization.............................   (143,868)
                                                              ---------
                                                              $ 239,780
                                                              =========
</TABLE>
 
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.
 
                                      F-161
<PAGE>   277
                          DIRECT BROADCAST SATELLITE.
                   (A SEGMENT OF NEMONT COMMUNICATIONS INC.)
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE F -- NOTES PAYABLE
 
     Non-interest bearing notes with associated companies are as follows:
 
<TABLE>
<S>                                                           <C>
Northern Electric Cooperative...............................  $ 6,000
  Yellowstone Valley Electric Cooperative...................    7,200
  Sheridan Electric Cooperative.............................   10,025
                                                              -------
                                                              $23,225
                                                              =======
</TABLE>
 
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-162
<PAGE>   278
 
                                PRIMEWATCH, INC.
 
                              FINANCIAL STATEMENTS
                            AS OF DECEMBER 31, 1997
             TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
                                      F-163
<PAGE>   279
 
                    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.
 
     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 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-164
<PAGE>   280
 
                                PRIMEWATCH, INC.
 
                                 BALANCE SHEET
                               DECEMBER 31, 1997
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              -----------
<S>                                                           <C>
Current assets:
  Cash and cash equivalents.................................  $    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
                                                              ===========
</TABLE>
 
  The accompanying notes to financial statements are an integral part of this
                                 balance sheet.
 
                                      F-165
<PAGE>   281
 
                                PRIMEWATCH, INC.
 
                            STATEMENTS OF OPERATIONS
                     FOR THE YEARS ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              ----------
<S>                                                           <C>
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)
                                                              ==========
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                      F-166
<PAGE>   282
 
                                PRIMEWATCH, INC.
 
             STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
                      FOR THE YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                                         TOTAL
                                                     COMMON STOCK                    STOCKHOLDER'S
                                                   -----------------    RETAINED        EQUITY
                                                   SHARES    AMOUNT      DEFICIT       (DEFICIT)
                                                   ------   --------   -----------   -------------
<S>                                                <C>      <C>        <C>           <C>
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)
                                                   =====    ========   ===========     =========
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                      F-167
<PAGE>   283
 
                                PRIMEWATCH, INC.
 
                            STATEMENT OF CASH FLOWS
                      FOR THE YEAR ENDED DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                                                1997
                                                              ---------
<S>                                                           <C>
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
                                                              =========
</TABLE>
 
  The accompanying notes to financial statements are an integral part of these
                                  statements.
 
                                      F-168
<PAGE>   284
 
                                PRIMEWATCH, INC.
 
                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1997
 
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.
 
  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:
 
<TABLE>
<CAPTION>
                                                               ESTIMATED
                                                              USEFUL LIFE
                                                              ------------
<S>                                                           <C>
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
</TABLE>
 
                                      F-169
<PAGE>   285
                                PRIMEWATCH, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     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:
 
<TABLE>
<CAPTION>
                                                                         AMORTIZATION
                                                                1997        PERIOD
                                                              --------   ------------
<S>                                                           <C>        <C>
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
                                                              ========
</TABLE>
 
  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.
 
                                      F-170
<PAGE>   286
                                PRIMEWATCH, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
4. INVESTMENTS IN ASSOCIATED ORGANIZATIONS:
 
     Following is a comparative summary of investments in associated
organizations, as of December 31, 1997:
 
<TABLE>
<CAPTION>
                                                                1997
                                                              --------
<S>                                                           <C>
NRUFC patronage capital certificates........................  $121,800
National Rural Telecommunications Cooperative patronage
  capital certificates......................................    44,550
                                                              --------
                                                              $166,350
                                                              ========
</TABLE>
 
     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:
 
<TABLE>
<CAPTION>
                                                                 1997
                                                              ----------
<S>                                                           <C>
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
                                                              ==========
</TABLE>
 
     Annual maturities of debt are approximately as follows:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $  185,412
1999........................................................     697,159
2000........................................................     209,698
2001........................................................     222,997
2002........................................................     117,829
Thereafter..................................................       4,651
                                                              ----------
                                                              $1,437,746
                                                              ==========
</TABLE>
 
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.
 
                                      F-171
<PAGE>   287
                                PRIMEWATCH, INC.
 
                  NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
 
     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 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:
 
<TABLE>
<S>                                                           <C>
1998........................................................  $26,670
1999........................................................   12,920
2000........................................................    2,420
                                                              -------
                                                              $42,010
                                                              =======
</TABLE>
 
     Rental expense for operating leases was $33,915 for the year ended December
31, 1997.
 
                                      F-172
<PAGE>   288
 
- ------------------------------------------------------
- ------------------------------------------------------
 
                     DEALER PROSPECTUS DELIVERY OBLIGATION
 
   
     UNTIL APRIL 27, 1999 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.
 
                             ---------------------
 
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER MAY BE CONTACTED AS FOLLOWS:
 
BY HAND/OVERNIGHT EXPRESS:
 
     STATE STREET BANK AND TRUST COMPANY OF
       MISSOURI, N.A.
     61 BROADWAY, 15TH FLOOR
     NEW YORK, NY 10016
     ATTENTION: CORPORATE TRUST DEPARTMENT
 
BY MAIL:
 
     STATE STREET BANK AND TRUST COMPANY OF
       MISSOURI, N.A.
     TWO INTERNATIONAL PLACE, 4TH FLOOR
     BOSTON, MA 02110
     ATTENTION: CORPORATE TRUST DEPARTMENT
 
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
 
     (617) 664-5290
     ATTENTION: CORPORATE TRUST DEPARTMENT
     CONFIRM BY TELEPHONE: (617) 664-5587
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
   
    
 
                            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
                          ---------------------------
   
                               December 28, 1998
    
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE>   289
 
                                    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
 
     (a) Exhibits.
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1            -- Stock Purchase Agreement, dated as of July 11, 1997,
                            among the registrant, Argos Support Services Company and
                            the several shareholders named therein.+*
          2.2            -- Asset Purchase Agreement, dated as of July 10, 1998, by
                            and between the registrant and Volcano Vision, Inc.+*
          2.3            -- Agreement and Plan of Merger, dated as of September 1,
                            1998, among Golden Sky Holdings, Inc., the registrant,
                            Western Montana DBS, Inc. d/b/a Rock Mountain DBS and the
                            stockholders of Western Montana DBS, Inc. named
                            therein.+*
</TABLE>
    
 
                                      II-1
<PAGE>   290
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          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.*
          3.3            -- Articles of Incorporation of Argos Support Services
                            Company.
          3.4            -- By-Laws of Argos Support Services Company.
          3.5            -- Articles of Incorporation of Primewatch, Inc.
          3.6            -- By-Laws of Primewatch, Inc.
          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.*
          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.*
          4.6            -- Guarantee of Argos Support Services Company, dated July
                            31, 1998.
          4.7            -- Guaranty of Primewatch, Inc., dated July 31, 1998.
          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            -- Intentionally omitted.
         10.5            -- Intentionally omitted.
         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.*
</TABLE>
    
 
                                      II-2
<PAGE>   291
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.8            -- Employment Agreement, dated as of November 3, 1997,
                            between the registrant and William J. Gerski.*
         10.9            -- Employment Agreement, dated as of November 3, 1997,
                            between the registrant and Laquita Allen.*
         10.10           -- Employment Agreement, dated August 24, 1998, 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.*
         10.13           -- Non-Competition Agreement, dated August 24, 1998, 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.*
         10.15           -- Confidentiality and Proprietary Rights Agreements, dated
                            August 24, 1998, between the registrant and John R.
                            Hager.
         10.16           -- Exchange Agency Agreement, dated as of November 24, 1998,
                            between the registrant and State Street Bank and Trust
                            Company of Missouri, N.A., as Exchange Agent.*
         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 Arthur Andersen LLP.
         24.1            -- Power of Attorney of the members of the Board of
                            Directors of Golden Sky Systems, Inc. (included in the
                            signature pages).
         24.2            -- Power of Attorney of the members of the Board of
                            Directors of Argos Support Services Company (included in
                            the signature pages).
         24.3            -- Power of Attorney of the members of the Board of
                            Directors of PrimeWatch, Inc. (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.*
</TABLE>
    
 
                                      II-3
<PAGE>   292
 
- ---------------
 
   
  + Certain schedules to these Exhibits have been omitted pursuant to Item
    601(b)(2) of Regulation S-K under the Securities Act of 1933, as amended.
    The registrant agrees to provide a copy of any such omitted schedule to the
    Commission upon request.
    
 
  * Previously filed.
 
   
  ++ Certain information in this Exhibit is deleted pursuant to a request with
     the Securities and Exchange Commission for confidential treatment.
    
 
(b) Financial Statement Schedules.
 
    Schedule II     -- Valuation and Qualifying Accounts.
 
ITEM 22. UNDERTAKINGS
 
     The undersigned registrant hereby undertakes:
 
     (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
 
          (i) To include any prospectus required by Section 10(a)(3) of the
     Securities Act of 1933;
 
          (ii) To reflect in the prospectus any facts or events arising after
     the effective date of the registration statement (or the most recent
     post-effective amendment thereof) which, individually or in the aggregate,
     represent a fundamental change in the information set forth in the
     registration statement. Notwithstanding the foregoing, any increase or
     decrease in volume of securities offered (if the total dollar value of
     securities offered would not exceed that which was registered) and any
     deviation from the low or high end of the estimated maximum offering range
     may be reflected in the form of prospectus filed with the commission
     pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
     price represent no more than 20 percent change in the maximum aggregate
     offering price set forth in the "Calculation of Registration Fee" table in
     the effective registration statement.
 
          (iii) To include any material information with respect to the plan of
     distribution not previously disclosed in the registration statement or any
     material change to such information in the registration statement;
 
     (2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
 
     (3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
 
     (4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information required
by Section 10(a)(3) of the Act need not be furnished, provided, that the
registrant includes in the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph (a)(4) and other
information necessary to ensure that all other information in the prospectus is
at least as current as the date of those financial statements. Notwithstanding
the foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements and
information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter
if such financial statements and information are contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
 
     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
 
                                      II-4
<PAGE>   293
 
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.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
 
                                      II-5
<PAGE>   294
 
                                   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 December 22, 1998.
    
 
                                            GOLDEN SKY SYSTEMS, INC.
 
                                            By:     /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.
 
   
<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                        DATE
                      ---------                                      -----                        ----
<C>                                                    <S>                                 <C>
 
                 /s/ RODNEY A. WEARY                   Chairman of the Board, Chief        December 22, 1998
- -----------------------------------------------------    Executive Officer and Director
                   Rodney A. Weary                       (Principal Executive Officer)
 
                  /s/ JOHN R. HAGER                    Chief Financial Officer (Principal  December 22, 1998
- -----------------------------------------------------    Financial and Accounting
                    John R. Hager                        Officer)
 
                                                       Director
- -----------------------------------------------------
                  Robert F. Benbow
 
                                                       Director
- -----------------------------------------------------
                 William O. Charman
 
                          *                            Director                            December 22, 1998
- -----------------------------------------------------
                 William P. Collatos
 
                          *                            Director                            December 22, 1998
- -----------------------------------------------------
                 William A. Johnston
</TABLE>
    
 
                                      II-6
<PAGE>   295
 
   
<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                        DATE
                      ---------                                      -----                        ----
<C>                                                    <S>                                 <C>
 
                          *                            Director                            December 22, 1998
- -----------------------------------------------------
                  Robert B. Liepold
 
                          *                            Director                            December 22, 1998
- -----------------------------------------------------
                  Erik M. Torgerson
 
* By signing his name hereto, Rodney A. Weary is executing this document on behalf of the persons indicated
  above pursuant to powers of attorney duly executed by such persons and filed with the Securities and
  Exchange Commission.
 
                 /s/ RODNEY A. WEARY
- -----------------------------------------------------
                   Rodney A. Weary
                  Attorney-in-fact
</TABLE>
    
 
                                      II-7
<PAGE>   296
 
   
                                   SIGNATURES
    
 
   
     Pursuant to the requirements of the Securities Act, each of Argos Support
Services Company and Primewatch, Inc., has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the city of Kansas City, state of Missouri, on December 22, 1998.
    
 
   
                                            ARGOS SUPPORT SERVICES COMPANY
    
   
                                            PRIMEWATCH, INC.
    
 
   
                                            BY:     /s/ RODNEY A. WEARY
    
                                              ----------------------------------
   
                                                       Rodney A. Weary
    
   
                                                 Chief Executive Officer and
                                                            Director
    
 
   
     The undersigned directors and officers of each of Argos Support Services
Company and Primewatch, 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.
    
 
   
<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                        DATE
                      ---------                                      -----                        ----
<C>                                                    <S>                                <C>
 
                 /s/ RODNEY A. WEARY                   Chief Executive Officer and         December 22, 1998
- -----------------------------------------------------    Director of each of Argos
                   Rodney A. Weary                       Support Services Company and
                                                         Primewatch, Inc. (Principal
                                                         Executive Officer)
 
                  /s/ JOHN R. HAGER                    Chief Financial Officer of each of  December 22, 1998
- -----------------------------------------------------    Argos Support Services Company
                    John R. Hager                        and Primewatch, Inc. (Principal
                                                         Financial and Accounting
                                                         Officer)
 
                  /s/ JO ELLEN LINN                    Director of each of Argos Support   December 22, 1998
- -----------------------------------------------------    Services Company and Primewatch,
                    Jo Ellen Linn                        Inc.
</TABLE>
    
 
                                      II-8
<PAGE>   297
 
   
                          INDEPENDENT AUDITORS' REPORT
    
 
   
Board of Directors and Investors
    
   
Golden Sky Systems, Inc.:
    
 
   
     The audits referred to in our report dated April 24, 1998 included the
related financial statements schedule II, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set fourth therein.
    
 
   
     We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
    
 
   
KPMG Peat Marwick LLP
    
   
Kansas City, Missouri
    
   
December 22, 1998
    
<PAGE>   298
 
                                                                     SCHEDULE II
 
                                  SCHEDULE OF
                       VALUATION AND QUALIFYING ACCOUNTS
                             (DOLLARS IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                          BALANCE AT   CHARGED TO   CHARGED TO                 BALANCE AT
                                          BEGINNING    COSTS AND      OTHER      DEDUCTIONS-     END OF
                                          OF PERIOD     EXPENSES     ACCOUNTS    WRITE-OFFS      PERIOD
                                          ----------   ----------   ----------   -----------   ----------
<S>                                       <C>          <C>          <C>          <C>           <C>
 
Year Ended December 31, 1997
  Allowance for doubtful accounts.......      4           414          --           (280)         138
Year Ended December 31, 1996
  Allowance for doubtful accounts.......     --             7          --             (3)           4
</TABLE>
<PAGE>   299
 
                                 EXHIBIT INDEX
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1            -- Stock Purchase Agreement, dated as of July 11, 1997,
                            among the registrant, Argos Support Services Company and
                            the several shareholders named therein.+*
          2.2            -- Asset Purchase Agreement, dated as of July 10, 1998, by
                            and between the registrant and Volcano Vision, Inc.+*
          2.3            -- Agreement and Plan of Merger, dated as of September 1,
                            1998, among Golden Sky Holdings, Inc., the registrant,
                            Western Montana DBS, Inc. d/b/a Rock Mountain DBS and the
                            stockholders of Western Montana DBS, Inc. named
                            therein.+*
          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.*
          3.3            -- Articles of Incorporation of Argos Support Services
                            Company.
          3.4            -- By-Laws of Argos Support Services Company.
          3.5            -- Articles of Incorporation of Primewatch, Inc.
          3.6            -- By-Laws of Primewatch, Inc.
          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*.
          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.*
          4.6            -- Guarantee of Argos Support Services Company, dated July
                            31, 1998.
          4.7            -- Guaranty of Primewatch, Inc., dated July 31, 1998.
          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.++*\
</TABLE>
    
<PAGE>   300
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.3            -- Form of NRTC/Member Agreement for Marketing and
                            Distribution of DBS Services, as amended.
         10.4            -- Intentionally omitted.
         10.5            -- Intentionally omitted.
         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, dated as of November 3, 1997,
                            between the registrant and William J. Gerski.*
         10.9            -- Employment Agreement, dated as of November 3, 1997,
                            between the registrant and Laquita Allen.*
         10.10           -- Employment Agreement, dated August 24, 1998, 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.*
         10.13           -- Non-Competition Agreement, dated August 24, 1998, 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.*
         10.15           -- Confidentiality and Proprietary Rights Agreements, dated
                            August 24, 1998, between the registrant and John R.
                            Hager.*
         10.16           -- Exchange Agency Agreement, dated as of November 24, 1998,
                            between the registrant and State Street Bank and Trust
                            Company of Missouri, N.A., as Exchange Agent.*
         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 Arthur Andersen LLP.
         24.1            -- Power of Attorney of the members of the Board of
                            Directors of Golden Sky Systems, Inc. (included in the
                            signature pages).
         24.2            -- Power of Attorney of the members of the Board of
                            Directors of Argos Support Services Company (included in
                            the signature pages).
         24.3            -- Power of Attorney of the members of the Board of
                            Directors of PrimeWatch, Inc. (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.*
</TABLE>
    
<PAGE>   301
 
   
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         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.*
</TABLE>
    
 
- ---------------
 
   
  + Certain schedules to these Exhibits have been omitted pursuant to Item
    601(b)(2) of Regulation S-K under the Securities Act of 1933, as amended.
    The registrant agrees to provide a copy of any such omitted schedule to the
    Commission upon request.
    
 
  * Previously filed.
 
   
  ++ Certain information in this Exhibit is deleted pursuant to a request with
     the Securities and Exchange Commission for confidential treatment.
    
 
(b) Financial Statement Schedules.
 
    Schedule II     -- Valuation and Qualifying Accounts.

<PAGE>   1
                                                                     EXHIBIT 3.3

                            ARTICLES OF INCORPORATION

                                       of

                         Argos Support Services Company

                                   ARTICLE ONE

The name of the corporation is Argos Support Services Company.

                                   ARTICLE TWO

The period of its duration is perpetual.

                                  ARTICLE THREE

The purpose for which the corporation is organized is the transaction of any and
all lawful business for which corporations may be incorporated under the Texas
Business Corporation Act.

                                  ARTICLE FOUR

The aggregate number of shares which the corporation shall have authority to
issue is Five thousand (5000) shares of the par value of one dollar ($1) each.

                                  ARTICLE FIVE

The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of not less than One Thousand
Dollars ($1,000.00) consisting of money, labor done or property actually
received.

                                   ARTICLE SIX

The street address of its initial registered office is 5705 Ponderosa St.,
Colleyville, Texas 76034, and the name of its initial registered agent at such
address is Mr. Andy O'Pry.

                                  ARTICLE SEVEN

The number of directors constituting the initial board of directors is Three (3)
and the names and addresses of the person or persons who are to serve as
directors until the first annual meeting of the shareholders or until their
successors are elected and qualified are:





<PAGE>   2


<TABLE>
<CAPTION>

Name                                                          Address

<S>                                                  <C>
Mr. Haspard Murphy                                   2612 Tallow Dr., Euless, TX. 76039

Mr. Gary D. Stone                                    13713 W. Rim Dr. #714 Euless, TX 76040

Mr. Andy O'Pry                                       5705 Ponderosa, St. Colleyville, TX 76034


                                  ARTICLE EIGHT

The name address of the incorporator is:

Name                                                          Address

Mr. Gary D. Stone                                    13713 W. rim Dr. #714 Euless, TX 76040


                                                      /s/ Gary D. Stone
                                                     ------------------------, Incorporator
</TABLE>

 


<PAGE>   3



                            ASSUMED NAME CERTIFICATE
                   FOR AN INCORPORATED BUSINESS OR PROFESSION


NOTICE: "CERTIFICATES" ARE VALID ONLY FOR A PERIOD NOT TO EXCEED 10
YEARS FROM THE DATE FILED IN THE COUNTY CLERK'S OFFICE. (Chapter 36, Sect.
1, Title 4 Business and Commerce Code)

          This certificate properly executed is to be filed immediately
                             with the County Clerk

                                     *******

               NAME UNDER WHICH BUSINESS OR PROFESSIONAL SERVICES
                             IS OR WILL BE CONDUCTED

                     Argos Direct Broadcast Satellite, Inc.
                           1550 N. Norwood, Suite 100
                                 Hurst, TX 76054

1.       The name of the incorporated business or profession as stated in its
         Articles or Incorporation or comparable document is Argos Support
         Services Company, and the charter number or certificate of authority
         number, if any, is 01262994-0 .

2.       The state, country, or other jurisdiction under the laws of which it
         was incorporated is: Texas and the address of its registered or similar
         office in that jurisdiction is:

3.       The period, not to exceed ten years, during which the assumed name will
         be used is: March 94 - Feb 04.

4.       The corporation is a business corporation.

5.       If the corporation is required to maintain a registered office in
         Texas, the address of the registered office is 1550 N. Normand Hurt, TX
         76054, and the name of its registered agent at such address is Andrew
         O'Pry, Sr.

6.       The county or counties where business or professional services are
         being or are to be conducted or rendered under such assumed name are
         Targant, Colin, Diewen.


 


<PAGE>   4



7.       If this instrument is executed by the attorney-in-fact, the
         attorney-in-fact hereby states that he has been duly authorized, in
         writing, by his principal to execute and acknowledge this instrument.



                                        By: /s/ Andrew O'Pry, Sr.
                                           ------------------------------------
                                        Signature of officer,representative or
                                        attorney-in-fact of the corporation


 


<PAGE>   5



                    STATEMENT OF CHANGE OF REGISTERED OFFICE
                         OR REGISTERED AGENT OR BOTH BY
                                  A CORPORATION

1.       The name of the corporation is ARGOS Support Services Company.

         The corporation's charter number is 01262994.

2.       The address of the registered office as PRESENTLY show in the records
         of the Texas secretary of state is 5705 Ponderosa St., Colleyville, TX
         76034.

3.       The address of the NEW registered office is 1550 N. Norwood #100 Hurst,
         TX 76054.

4.       The name of the registered agent as PRESENTLY shown in the records of
         the Texas secretary of state is Andy O'Pry.

5.       The name of the NEW registered agent is Andrew O'Pry Sr.

6.       Following the changes shown above, the address of the registered office
         and the address of the office of the registered agent will continue to
         be identical, as required by law.

7.       The changes show above were authorized by an officer of the corporation
         so authorized by the board of directors.

                                            /s/ Andrew O'Pry, Sr.
                                           -------------------------------
                                                An Authorized Officer


 


<PAGE>   6



                              ARTICLES OF AMENDMENT
                                       TO
                            ARTICLES OF INCORPORATION
                                       OF
                         ARGOS SUPPORT SERVICES COMPANY

Pursuant to the provisions of Article 4.04 of the Texas Business Corporation
Act, the undersigned corporation adopts the following Articles of Amendment to
its Articles of Incorporation:

                                    ARTICLE I

The name of the company is ARGOS SUPPORT SERVICES COMPANY.

                                   ARTICLE II

The following amendment to the Articles of Incorporation was adopted by the
shareholders of the corporation on July 1, 1996.

The amendment alters Article Four of the original Articles of Incorporation to
read as follows:

                  "The aggregate number of shares which the Corporation shall
         have authority to issue is Ten Thousand (10,000) shares with a par
         value of One and no/100 ($1.00) each"

                                   ARTICLE III

The number of shares of the Corporation outstanding at the time of the adoption
was 5,000; and the number of shares entitled to vote on the amendment was 5000.

                                   ARTICLE IV

The number of shares that voted for the amendment was 5,000.

DATED:  July 1, 1996


                                         ARGOS SUPPORT SERVICES
                                         COMPANY

                                         By:   /s/ Andrew O'Pry, Sr.
                                            -----------------------------------
                                               Andrew W. O'Pry, President


 


<PAGE>   7



                    STATEMENT OF CHANGE OF REGISTERED OFFICE
               OR REGISTERED AGENT OR BOTH BY A PROFIT CORPORATION

1.       The name of the corporation is ARGOS SUPPORT SERVICES COMPANY.

         The corporation's charter number is 0126299400.

2.       The address of the CURRENT registered office as shown in the records of
         the Texas Secretary of State is 1550 N. Norwood #100 Hurst, Texas 76054

3.       The address of the NEW registered office is c/o C T CORPORATION SYSTEM,
         350 N. St. Paul Street, Dallas, Texas 75201

4.       The name of the CURRENT registered agent as shown in the records of the
         Texas Secretary of State is Andrew O'Pry, Sr. .

5.       The name of the NEW registered agent is C T CORPORATION SYSTEM

6.       Following the changes shown above, the address of the registered office
         and the address of the office of the registered agent will continue to
         be identical, as required by law.

7.       The changes shown above were authorized by an officer of the
         corporation so authorized by the Board of Directors.

                                                  /s/ Rodney A. Weary
                                                -------------------------------
                                                 An authorized Officer
                                                 Rodney A. Weary, President


(TEXAS - 2231 - 8/26/91)


 


<PAGE>   8


                          (The State of Texas [stamp])

Office of the                                             Corporations Sections
Secretary of State                                               P.O. Box 13697
                                                       Austin, Texas 78711-3697


                            ASSUMED NAME CERTIFICATE


1.       The name of the corporation, limited liability company, limited
         partnership, or registered limited liability partnership as stated in
         its articles of incorporation, articles of organization, certificate of
         limited partnership, application for certificate of authority or
         comparable document is Argos Support Services Company.

2.       The assumed name under which the business or professional service is or
         is to be conducted or rendered is Golden Sky Systems.

3.       The state, country, or other jurisdiction under the laws of which it
         was incorporated, organized or associated is Texas, and the address of
         its registered or similar office in that jurisdiction is 1550 N.
         Norwood, Suite 100, Hurst, TX 76054

4.       The period, not to exceed 10 years, during which the assumed name will
         be used is Golden Sky Systems

5.       The entity is a Business Corporation.

6.       If the entity is required to maintain a registered office in Texas, the
         address of the registered office is 1550 N. Norwood, Suite 100, Hurst,
         TX 76065. And the name of its registered agent at such address is
         Andrew O'Pry, Sr.

7.       The county or counties where business or professional services are
         being or are to be conducted or rendered under such assumed name are
         Collin, Denton and Tarrant Counties


                                                   /s/ Rodney A. Weary
                                                -------------------------------
                                                Signature of officer,
                                                President  Rodney A. Weary

 






<PAGE>   1
                                                                     EXHIBIT 3.4
                                     BYLAWS

                                       of

                         Argos Support Services Company


                                   ARTICLE I
                                    OFFICES


SECTION 1.       PRINCIPAL EXECUTIVE OFFICE

         The principal executive office of the corporation shall be in the City
of Colleyville, County of Tarrent, State of Texas.

         The corporation also may have offices at such other places as the
board of directors may from time to time designate or as the business of the
corporation may require.


                                   ARTICLE II
                             SHAREHOLDERS' MEETINGS


SECTION 1.       PLACE OF MEETING

         All meetings of the shareholders shall be held at the principal
executive office of the corporation or at such other place as may be determined
by the board of directors.

SECTION 2.       ANNUAL MEETINGS

         The annual meeting of the shareholders shall be held on the 2nd Monday
of October in each year, if not a holiday, at 2:00 o'clock p.m., at which time
the shareholders shall elect a board of directors and transact any other proper
business.  If this date falls on a holiday, then the meeting shall be held on
the following business day at the same hour.

SECTION 3.       SPECIAL MEETINGS

         Special meetings of the shareholders may be called by the president,
the board of directors, by the holders of at least ten percent of all the
shares entitled to vote at the proposed special meeting, or such other person
or persons as may be authorized in the Articles of Incorporation in accordance
with Section C of Article 2.24 of the Texas Business Corporation Act.
<PAGE>   2
SECTION 4.       NOTICES OF MEETINGS

         Notices of shareholders' meetings, annual or special, shall be given
in writing to shareholders of record entitled to vote at the meeting by or at
the direction of the president or secretary of the corporation, or the person
calling the meeting.

         Such notices shall be given either personally or by first-class mail,
addressed to the shareholder at the address of such shareholder appearing on
the stock transfer books of the corporation or given by the shareholder to the
corporation for the purpose of notice.  Notice shall be given not less than ten
nor more than sixty days before the date of the meeting.

         Such notice shall state the place, date, and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.

SECTION 5.       WAIVER OF NOTICE

         Whenever any notice is required to be given to any shareholder under
the provisions of the Texas Business Corporation Act, the Articles of
Incorporation of this corporation, or these Bylaws, a waiver of notice in
writing signed by a shareholder entitled to such notice, whether before or
after the meeting, shall be equivalent to the giving of such notice.  All such
written waivers of notice shall be filed with the corporate records or made
part of the minutes of the meeting.

SECTION 6.       SPECIAL NOTICE REQUIREMENTS

         Shareholder approval at a meeting, with respect to the following
proposals, shall be valid only if the purpose of the meeting was stated in the
notice of the meeting:

         a. Approval of a contract or other transaction between the corporation
and one or more of its directors or between the corporation and any
corporation, firm, or association in which one or more of the directors has a
material financial interest;

         b. Amendment of the Articles of Incorporation after any shares have
been issued pursuant to Article 4.02 of the Texas Business Corporation Act;

         c. Approval of a plan of merger or exchange pursuant to Article 5.03
of the Texas Business Corporation Act;

         d. Election to voluntarily wind up and dissolve the corporation
pursuant to Article 6.03 of the Texas Business Corporation Act;





                                       2
<PAGE>   3
         e. Election to revoke voluntary dissolution proceedings pursuant to
Article 6.05 of the Texas Business Corporation Act;

         f. Reduction of stated capital pursuant to Article 4.12 of the Texas
Business Corporation Act;

         g. Restatement of the Articles of Incorporation, if an amendment is
contained therein, pursuant to Articles 4.07 and 4.02 of the Texas Business
Corporation Act;

         h. Disposition of all or substantially all of the assets of the
corporation outside the usual and regular course of its business pursuant to
Article 5.10 of the Texas Business Corporation Act.

SECTION 7.       ACTION WITHOUT MEETING

         Any action that may be taken at any annual or special meeting of
shareholders may be taken without a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all of the
shareholders entitled to vote on the action.  Such consent shall have the same
force and effect as a unanimous vote of shareholders.

         Further, the articles of incorporation may provide that any action
required by the Texas Business Corporation Act to the taken at any annual or
special meeting of shareholders, or any action which may be taken at any annual
or special meeting of shareholders, may be taken without a meeting, without
prior notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to
take such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted.

         Every written consent shall bear the date of signature of each
shareholder who signs the consent.  No written consent shall be effective to
take the action that is the subject of the consent unless, within 60 days after
the date of the earliest dated consent delivered to the corporation, a consent
or consents signed by the holder or holders of shares having not less than the
minimum number of votes that would be necessary to take the action are
delivered to the corporation's registered office, its principal place of
business, or to the secretary of the corporation.  A telegram, telex,
cablegram, or similar transmission by a shareholder, or a photographic,
photostatic, facsimile, or similar reproduction of a writing signed by a
shareholder, shall be regarded as signed by the shareholder.

SECTION 8.       QUORUM

         The holders of a majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at a meeting of the
shareholders.





                                       3
<PAGE>   4
SECTION 9.       VOTING

         Only shareholders whose names appear on the stock transfer books of
the corporation as of the closing date of the stock transfer books or the
record date set by the board of directors pursuant to Article VIII, Section 3
of these Bylaws shall be entitled to vote at a meeting of shareholders.

         If the board of directors has not closed the stock transfer books or
set a record date for purposes of determining the shareholders entitled notice
of or to vote at any meeting of shareholders, then the date on which notice of
the meeting is mailed shall be the record date for such determination of
shareholders.

         Each outstanding share shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders except as otherwise provided
by the Texas Business Corporation Act, the Articles of Incorporation, or other
provisions of these Bylaws.

         Except in the case of an election of directors or as may otherwise be
required by law, the Articles of Incorporation or these Bylaws, if a quorum is
present, the vote of the holders of a majority of the shares entitled to vote
and represented at a meeting shall be the act of the shareholders.  Directors
shall be elected by a plurality of the votes cast by the holders of shares
entitled to vote in the election of directors at a meeting of shareholders at
which a quorum is present.

         At each election of directors, every shareholder entitled to vote at
such election shall have the right to cumulate his or her votes by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of his or her shares or by distributing such votes on
the same principal among any number of such candidates.  Any shareholder who
intends to cumulate his or her votes shall give written notice of such
intention to the secretary of the corporation on or before the day preceding
the election at which such shareholder intends to cumulate his or her votes.
All shareholders may cumulate their votes if any shareholder provides such
written notice.

SECTION 10.      PROXIES

         Any shareholder may vote either in person or by proxy executed in
writing by the shareholder and filed with the secretary of the corporation.  A
telegram, telex, cablegram, or similar transmission by the shareholder, or a
photographic, photostatic, facsimile or similar reproduction of a writing
executed by the shareholder, shall be treated as an execution in writing for
purposes of this section.

         Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares by filing a written proxy,
executed by such person or his duly authorized agent, with the secretary of the
corporation.





                                       4
<PAGE>   5
         A proxy shall not be valid after the expiration of eleven months from
the date thereof unless otherwise provided in the proxy.  A proxy shall be
revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.  Proxies coupled with an
interest include the appointment as proxy of:

         1. a pledgee;

         2. a person who purchased or agreed to purchase, or owns or holds an
            option to purchase, the shares;

         3. a creditor of the corporation who extended it credit under terms
            requiring the appointment;

         4. an employee of the corporation whose employment contract requires
            the appointment; or

         5. a party to a voting agreement created under Section B, Article 2.30
            of the Texas Business Corporation Act.


                                  ARTICLE III
                                   DIRECTORS

SECTION 1.       POWERS

         Subject to any limitations in the Articles of Incorporation and to the
provisions of the Texas Business Corporation Act, the powers of the corporation
shall be exercised by or under the authority of, and the business and affairs
of the corporation shall be managed under the direction of, the board of
directors of the corporation.

SECTION 2.       NUMBER

         The authorized number of directors shall be three (3) until changed by
amendment to this article of these Bylaws.

SECTION 3.       ELECTION AND TENURE OF OFFICE

         The directors shall be elected at the annual meeting of the
shareholders and hold office until the next annual meeting and until their
successors have been elected and qualified.





                                       5
<PAGE>   6
SECTION 4.       VACANCIES

         A vacancy on the board of directors shall exist in the case of death,
resignation, or removal of any director or in case the authorized number of
directors is increased or in case the shareholders fail to elect the full
authorized number of directors at any annual or special meeting of the
shareholders at which any director is elected.

         Vacancies on the board of directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
board or by election at an annual or special meeting of shareholders called for
that purpose.  However, if a directorship is to be filled by the board by
reason of an increase in the number of directors, then the board may fill this
directorship position for a term continuing only until the next election of one
or more directors by the shareholders and, provided further, that the board may
not fill more than two such directorships during the period between any two
successive annual meetings of shareholders.  A director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office.

         A vacancy created by an increase in the authorized number of directors
hall be filled by election at an annual or special meeting of shareholders
called for that purpose.  Any director may resign effective upon giving written
notice to the chairperson of the board of directors, the president, the
secretary or to the board of directors of the corporation unless the notice
specifies a later time for the effectiveness of such resignation.  If the
resignation is effective at a later time, a successor may be elected to take
office when the resignation becomes effective.  Any reduction of the authorized
number of directors does not remove any director prior to the expiration of
such director's term in office.

SECTION 5.       REMOVAL

         Any or all of the directors may be removed, with or without cause, at
a meeting of shareholders called expressly for that purpose by the vote of the
holders of a majority of the shares entitled to vote at an election of
directors.  Any such removal, however, shall be subject to the provisions of
Article 2.32 of the Texas Business Corporation Act, including the provision
that if less than the entire board is to be removed, no one of the directors
may be removed if the votes cast against his or her removal would be sufficient
to elect this person if then cumulatively voted at an election of the entire
board of directors.

SECTION 6.       PLACE OF MEETINGS

         Meetings of the board of directors shall be held at any place, within
or without the State of Texas, which has been designated in the notice of the
meeting or, if not stated in the notice or if there is no notice, at the
principal executive office of the corporation or as may be designated from time
to time by resolution of the board of directors.





                                       6
<PAGE>   7
SECTION 7.       CALL, NOTICE AND HOLDING OF MEETINGS

         Special meetings of the board of directors may be called by the
chairperson of the board or the president or the vice-president or the
secretary or any two directors.

         Regular annual meetings of the board of directors shall be held
without notice immediately after and at the same place as the annual meeting of
shareholders.  Special meetings of the board of directors shall be held upon
four days' notice by mail, or forty-eight hours' notice delivered personally or
by telephone or telegraph.  Attendance of a director at a meeting shall
constitute a waiver of notice of the meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.  Neither the
business to be transacted, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice
of such meeting.

SECTION 8.       QUORUM AND BOARD ACTION

         A quorum for all meetings of the board of directors shall be two (2)
of the authorized number of directors, unless a greater number is required by
law, the Articles of Incorporation or provisions of these Bylaws.  The act of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the board of directors, unless the act of a greater number
is required by law, the Articles of Incorporation or provisions of these
Bylaws.

SECTION 9.       WAIVER OF NOTICE

         Whenever any notice is required to be given to any director under the
provisions of the Texas Business Corporation Act, the Articles of Incorporation
of this corporation, or these Bylaws, a waiver of notice in writing signed by a
director entitled to such notice, whether before or after the meeting, shall be
equivalent to the giving of such notice.  All such written waivers of notice
shall be filed with the corporate records or made a part of the minutes of the
meeting.

SECTION 10.      ACTION WITHOUT MEETING

         Any action required or permitted to be taken at a meeting of the board
may be taken without a meeting, if all members of the board shall individually
or collectively consent in writing to such action.  Such written consent or
consents shall set forth the action so taken and shall be signed by all the
directors.  Such written consent or consents shall be filed with the minutes of
the proceedings of the board.  Such action by written consent shall have the
same force and effect as a unanimous vote of such directors.

SECTION 11.      COMPENSATION

         No salary shall be paid directors, as such, for their services but, by
resolution, the board of directors may allow a reasonable fixed sum and
expenses to be paid for attendance at regular or special meetings.  Nothing
contained herein shall prevent a director from serving the corporation in any
other capacity and receiving compensation therefor.  Members of special or
standing committees may be allowed like compensation for attendance at
meetings.





                                       7
<PAGE>   8
                                   ARTICLE IV
                                    OFFICERS


SECTION 1.       OFFICERS

         The officers of the corporation shall be a president and a secretary.
The corporation also may have such other officers with such titles and duties
as shall be determined by the board of directors.  Any number of offices may be
held by the same person.

         All officers of the corporation shall be chosen by the board.  Each
officer shall hold office until his or her death, resignation, or removal or
until a successor shall be chosen and qualified.   A vacancy in any office
because of death, resignation, or removal or other cause shall be filled by the
board.

SECTION 2.       ELECTION

         All officers of the corporation shall be chosen by the board.  Each
officer shall hold office until his or her death, resignation, or removal or
until a successor shall be chosen and qualified.  A vacancy in any office
because of death, resignation, or removal or other cause shall be filled by the
board.

SECTION 3.       REMOVAL AND RESIGNATION

         An officer may be removed at any time by the board of directors
whenever, in its judgment, the best interests of the corporation will be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.  Election or appointment of an officer shall not
of itself create contact rights.

         An officer may resign at any time upon written notice to the
corporation given to the board, the president, or the secretary of the
corporation.  Any such resignation shall take effect at the date of receipt of
such notice or at any other time specified therein.  The acceptance of a
resignation shall not be necessary to make it effective.

SECTION 4.       COMPENSATION

         The salaries of the officers shall be fixed, from time to time, by the
board of directors.





                                       8
<PAGE>   9
SECTION 5.       PRESIDENT

         The president shall be the chief executive officer of the corporation
and shall, subject to the direction and control of the board of directors, have
general supervision, direction, and control of the business and affairs of the
corporation.  He shall preside at all meetings of the shareholders and
directors and be an ex-officio member of all the standing committees, including
the executive committee, if any, and shall have the general powers and duties
of management usually vested in the office of president of a corporation and
shall have such other powers and duties as may from time to time be prescribed
by the board of directors or these Bylaws.

SECTION 6.       VICE-PRESIDENT

         In the absence or disability of the president, the vice-presidents, if
any, in order of their rank as fixed by the board of directors (or if not
ranked, the vice-president designated by the board) shall perform all the
duties of the president and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the president.  Each vice-president
shall have such other powers and perform such other duties as may from time to
time be prescribed by the board of directors or these Bylaws.

SECTION 7.       SECRETARY

         The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, a book of minutes of all meetings of
directors and shareholders, with the time and place of holding, whether regular
or special (and, if special, how authorized), the notice thereof given or the
waivers of notice, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.

         The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, or at the office of the corporation's
transfer agent, a share register, showing the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for shares, and the number and date of cancellation
of every certificate surrendered for cancellation.

         The secretary shall certify and keep, or cause to be kept, at the
principal executive office of the corporation, the original and a copy of the
Bylaws as amended or otherwise altered to date.

         The secretary shall give, or cause to be given, notice of all meetings
of shareholders and directors required to be given by law or by the provisions
of these Bylaws.

         The secretary shall make, at least ten days before each meeting of
shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each.  This list, for a period of
ten days prior to such meeting, shall be kept on file at the registered office
or principal place of business of the corporation and shall be subject to
inspection by any shareholder at any time during usual business hours.  The
list also shall be produced and kept open at the time and place of the meeting
and be subject to the inspection of any shareholder during the whole time of
the meeting.





                                       9
<PAGE>   10
         The secretary shall have charge of the seal of the corporation and
have such other powers and perform such other duties as may from time to time
be prescribed by the board or these Bylaws.

         If the board of directors does not elect a treasurer, the secretary
shall assume the duties imposed by Section 8 of this Article and by any other
provision of these Bylaws upon the Treasurer of the corporation.  In the
absence or disability of the secretary, the assistant secretaries, if any, in
order of their rank as fixed by the board of directors (or if not ranked, the
assistant secretary designated by the board of directors), shall have all the
powers of, and be subject to all the restrictions upon, the secretary.  The
assistant secretaries, if any, shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors
or these Bylaws.

SECTION 8.       TREASURER

         The treasurer shall deep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation.

         The treasurer shall deposit monies and other valuables in the name and
to the credit of the corporation with such depositories as may be designated by
the board of directors.  He or she shall disburse the funds of the corporation
in payment of the just demands against it as may be ordered by the board or
directors; shall render to the president and directors, whenever they request
it, an account of all his or her transactions as treasurer and of the financial
condition of the corporation; and shall have such other powers and perform such
other duties as may from time to time be prescribed by the board of directors
or the Bylaws.

         In the absence or disability of the treasurer, the assistant
treasurers, if any, in order of their rank as fixed by the board of directors
(or if not ranked, the assistant treasurer designated by the board of
directors), shall perform all the duties of the treasurer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon the
treasurer.  The assistant treasurers, if any, shall have such other powers and
perform such other duties as may from time to time be prescribed by the board
of directors or these Bylaws.





                                       10
<PAGE>   11
                                   ARTICLE V
                              EXECUTIVE COMMITTEES

SECTION 1.

         By resolution adopted by a majority of the full board of directors,
the board may designate from among its members an executive committee and one
or more other committees to serve at the pleasure of the board, each of which
shall be comprised of one or more directors.  Any such committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, except with respect to:

         a. Amending the Articles of Incorporation;

         b. Approving a plan of merger or consolidation;

         c. Recommending to the shareholders the sale, lease, or exchange of
all or substantially all of the property and assets of the corporation
otherwise than in the usual and regular course of its business;

         d. Recommending to the shareholders a voluntary dissolution of the
corporation or a revocation thereof;

         e. Amending, altering or repealing the Bylaws of the corporation or
adopting new Bylaws for the corporation;

         f. Filling vacancies on the board of directors or any such committee;

         g. Filling any directorship to be filled by reason of an increase in
the number of directors;

         h. Electing or removing officers or members of any such committee;

         i. Fixing the compensation of any member of such committee;

         j. Altering or repealing any resolution of the board which by its term
is not so alterable or repealable;

         k. Declaring a dividend or other distribution or authorizing the
issuance of shares of the corporation, unless a board resolution, the Articles
of Incorporation, or the Bylaws expressly delegate such authority;

         l. Approving any action that also requires shareholders' approval or
approval of the outstanding shares;

         m. Appointing other committees of the board or the members thereof;

         n. Proposing a reduction of the stated capital of the corporation in
the manner permitted by Article 4.12 of the Texas Business Corporation Act.





                                       11
<PAGE>   12
         The designation of any such committee and the delegation of authority
to the committee shall not operate to relieve the board of directors, or any
member thereof, of any responsibility imposed by law.

                                   ARTICLE VI
                         CORPORATE RECORDS AND REPORTS

SECTION 1.       INSPECTION BY SHAREHOLDERS

         The accounting books and records of account, the minutes of
proceedings of the shareholders and the board and committees of the board, and
the record of shareholders of the corporation shall be open to inspection upon
the written demand of the corporation by any shareholder at any reasonable time
for any proper purpose.  Such inspection by a shareholder may be made in person
or by agent, accounting, or attorney, and the right of inspection includes the
right to copy and make extracts.

         Shareholders also shall have the right to inspect the original or copy
of these Bylaws, as amended to date and kept at the corporation's principal
executive office, at all reasonable times for any purpose.

SECTION 2.       INSPECTION BY DIRECTORS

         Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation, domestic or foreign, of which such
person is a director.  Such inspection by a director may be made in person or
by agent, accountant, or attorney, and the right of inspection includes the
right to copy and make extracts.

SECTION 3.       RIGHT TO INSPECT WRITTEN RECORDS

         If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with
unless and until the corporation at its expense makes such record available in
written form.

SECTION 4.       ANNUAL FINANCIAL STATEMENTS

         Upon the written request of any holder of record of shares of the
corporation, the corporation shall mail to such holder its annual statement for
its last fiscal year showing in reasonable detail its assets and liabilities
and the results of its operations and the most recent interim statements, if
any, which have been filed in a public record or otherwise published.  The
corporation shall be allowed a reasonable time to prepare such annual
statements.





                                       12
<PAGE>   13
SECTION 5.       CONTRACTS, ETC.

         The board of directors, except as otherwise provided in the Bylaws,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name and on behalf of the
corporation.  Such authority may be general or confined to specific instances.
Unless so authorized by the board of directors, no officer, agent, or employee
shall have any power or authority to bind the corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or to
any amount.


                                  ARTICLE VII
               INDEMNIFICATION, INSURANCE AND OTHER ARRANGEMENTS

SECTION 1.       INDEMNIFICATION

         The corporation shall indemnify its present or former directors and
officers, employees, agents and other persons to the fullest extent permissible
by, and in accordance with the procedures contained in, Article 2.02-1 of the
Texas Business Corporation Act.

         Pursuant to Section Q of Article 2.02-1 of the Texas Business
Corporation Act, the corporation may indemnify and advance expenses to an
officer, employee or agent of the corporation, or person identified in Section
P of Article 2.02-1 of the Texas Business Corporation Act and who is not a
director of the corporation to such further extent, consistent with law, as may
be provided in the Articles of Incorporation, these Bylaws, general or specific
action of the board of directors, or contract, or as may be permitted by common
law.

SECTION 2.       INSURANCE AND OTHER ARRANGEMENTS

         Pursuant to Section R of Article 2.02-1 of the Texas Business
Corporation Act, the corporation may purchase and maintain insurance or another
arrangement on behalf of any person who is or was a director, officer,
employee, or agent of the corporation or who is or was serving at the request
of the corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
or her and incurred by him or her in such a capacity or arising out of his or
her status as such a person, whether or not the corporation would have the
power to indemnify him or her against that liability under Article 2.02-1 of
the Texas Business Corporation Act.

         In accordance with said Section R of Article 2.02-1, if the insurance
or other arrangement is with a person or entity that is not regularly engaged
in the business of providing insurance coverage, the insurance or arrangement
may provide for payment of a liability with respect to which the corporation
would not have the power to indemnify the person only if including coverage for
the additional liability has been approved by the shareholders of the
corporation.





                                       13
<PAGE>   14


                                  ARTICLE VIII
                                     SHARES

SECTION 1.       CERTIFICATES

         The corporation shall issue certificates for its shares when fully
paid.  Certificates of stock shall be issued in numerical order and state that
the corporation is organized under the laws of Texas; the name of the person to
whom issued; the number, class of shares, and the designation of the series, if
any, represented thereby; and the par value of each share represented thereby
or that the shares are without par value.  They also shall contain any
statement or summary required by an applicable provision of the Texas Business
Corporation Act or applicable securities laws.

         Every certificate for shares shall be signed in the name of the
corporation by the president or a vice-president, and either the treasurer or
the secretary or an assistant secretary.

SECTION 2.       TRANSFER OF SHARES

         Upon surrender to the secretary or transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, it shall be the duty of the
secretary of the corporation to issue a new certificate to the person entitled
thereto, to cancel the old certificate, and to record the transaction upon its
share register, subject to any applicable restrictions on transfer.

SECTION 3.       CLOSING OF TRANSFER BOOKS AND RECORD DATE

         For the purpose of determining shareholders entitled to notice of or
to vote at any meeting of shareholders or any adjournment thereof, or entitled
to receive a distribution by the corporation (other than a distribution
involving a purchase or redemption by the corporation of any of its own shares)
or a share dividend, or in order to make a determination of shareholders for
any other proper purpose, the board may provide that the stock transfer books
shall be closed for a stated period not to exceed, in any case, sixty days.  If
the stock transfer bonds are closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten days immediately preceding such meeting.

         In lieu of closing the stock transfer books, the board may fix in
advance a date as the record date for any such determination of shareholders.
Such record date shall not, in any case, be more than sixty days and, in the
case of a meeting of shareholders, not less than ten days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.





                                       14
<PAGE>   15


                                   ARTICLE IX
                              AMENDMENT OF BYLAWS

SECTION 1.       BY DIRECTORS

         The board of directors may amend or repeal the Bylaws, or adopt new
Bylaws, unless:

         1. The Articles of Incorporation or the Texas Business Corporation Act
reserves the power exclusively to the shareholders in whole or part; or

         2. The shareholders in amending, repealing, or adopting a particular
bylaw expressly provide that the board of directors may not amend that bylaw.

SECTION 2.       BY SHAREHOLDERS

         Unless the Articles of Incorporation or a bylaw adopted by the
shareholders provides otherwise as to all or some portion of the Bylaws, the
shareholders may amend, repeal, or adopt by Bylaws even though the Bylaws may
also be amended, repealed, or adopted by the board of directors.


                                 CERTIFICATION

         This is to certify that the foregoing is a true and correct copy of
the Bylaws of the corporation named in the title thereto and that such Bylaws
were duly adopted by the board of directors of said corporation on the date set
forth below.

Dated:    3 March 1993

                                                
                                                --------------------------------
                                                Secretary

(seal)





                                       15

<PAGE>   1
                                                                     EXHIBIT 3.5
                            State of North Carolina

                      Department of the Secretary of State


                           ARTICLES OF INCORPORATION

                                       OF

                                PRIMEWATCH, INC.


         Pursuant to Section 55-2-02 of the General Statutes of North Carolina,
the undersigned does hereby submit these Articles of Incorporation for the
purposes of forming a business corporation.

1.       The name of the corporation is Primewatch, Inc.

2.       The corporation shall be authorized to issue One Hundred Thousand
(100,000) shares of common stock with a par value of One Hundred Dollars
($100.00).  This one class of shares will have unlimited voting rights and
those shareholders are entitled to receive the net assets of the corporation
upon dissolution.

3.       The Corporation will not, without a unanimous vote of the
Shareholders:

         (a)     issue additional shares of any class of any securities
convertible into shares of any class;

         (b)     merge or participate in a share exchange with any other
corporation; or

         (c)     sell, lease, mortgage, or otherwise transfer all or
substantially all of the assets of the Corporation for any consideration other
than cash.
<PAGE>   2
4.       The address of the initial registered office of the corporation in the
State of North Carolina is P.O. Box 730, 214 West Whitfield Street, Enfield,
Halifax County, North Carolina 27823; and the name of its initial registered
agent at such address is Michael E. Finney.

5.       The name and address of the incorporator are H. Lawrence Armstrong,
Jr., Attorney at Law, Post Office Box 217, 114 Whitfield Street, Enfield,
Halifax County, North Carolina 27823.

6.       The number of directors constituting the initial board of directors
shall be five (5); and the names and addresses of the persons who are to serve
as directors until the first meeting of shareholders, or until their successors
are elected and qualify, are:
<TABLE>
<CAPTION>
                          NAME                                 ADDRESS
                          ----                                 -------
                 <S>                                        <C>
                 Watson N. Sherrod, Jr.                     P.O. Box 486
                                                            Enfield, NC 27823

                 Richard H. Greene                          109 S. Front Street
                                                            Warrenton, NC 27589

                 L. Wayne Edwards                           Route 2, Box 327
                                                            Whitakers, NC 27891

                 Sandra Warren Shearia                      P.O. Box 123
                                                            Vaughan, NC 27586

                 C. Wesley Copeland                         Palmyra, NC 27859
</TABLE>


7.       No person who is serving or who has served as a director of the
corporation shall be personally liable to the corporation or any of its
shareholders for monetary damages for breach of duty as a director, except for
liability with respect to (i) acts or omissions that the director at the time
of such breach knew or believed were clearly in conflict with the best
interests of the corporation, (ii) any transaction from which the director
derived an improper personal benefit,  (iii) acts or omissions occurring prior
to the effective date of this article or (iv) acts or omissions with respect to
which the North Carolina Business Corporation Act does not permit the
limitation





                                       2
<PAGE>   3
of liability.  As used herein, the term "improper personal benefit" does not
include a director's reasonable compensation or other reasonable incidental
benefit for or on account of his service as a director, officer, employee,
independent contractor, attorney, or consultant of the corporation.  No
amendment or repeal of this article, nor the adoption of any provision to these
Articles of Incorporation inconsistent with this article, shall eliminate or
reduce the protection granted herein with respect to any matter that occurred
prior to such amendment, repeal, or adoption.

8.       The provisions of the North Carolina Business Corporation Act entitled
"The North Carolina Shareholder Protection Act" and "The North Carolina Control
Share Acquisition Act" shall not be applicable to the corporation.

9.       All shareholders of the corporation are entitled to cumulate their
votes for directors.  No amendment shall be made to this article when the
number of shares voting against the proposal to amend would be sufficient to
elect a director by cumulative voting and such shares are entitled to be voted
cumulatively for the election of directors.

10.      These articles will become effective at 12 o'clock noon on November
1st, 1992.

         This the 26th day of October, 1992.


                                        /s/ LAWRENCE ARMSTRONG, JR.    
                                        ----------------------------------
                                        H. Lawrence Armstrong, Jr.
                                           Attorney at Law and
                                           Incorporator





                                       3

<PAGE>   1
                                                                     EXHIBIT 3.6


                                     BYLAWS
                                       OF
                                PRIMEWATCH, INC.

                                   ARTICLE I.
                                     OFFICES

         Section 1. Principal office. The principal office of the corporation
shall be located at such place as the Board of Directors may fix from time to
time.

         Section 2. Registered office. The registered office of the corporation
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.

         Section 3. Other offices. The corporation may have offices at such
other places, either within or without the State of North Carolina, as the Board
of Directors may designate or as the affairs of the corporation may require from
time to time.


                                   ARTICLE II.
                            MEETINGS OF SHAREHOLDERS

         Section 1. Place of meetings. All meetings of shareholders shall be
held at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the President, the Secretary, or the Board of Directors and designated
in the notice of the meeting or (ii) agreed upon by a majority of the
shareholders entitled to vote at the meeting.

         Section 2. Annual meetings. The annual meetings of shareholders shall
be held in October of each year on any day (except Saturday, Sunday, or a legal
holiday) in that month as determined by the Board of Directors.

         Section 3. Substitute annual meeting. If the annual meeting shall not
be held on the day designated by these bylaws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.

         Section 4. Special meetings. Special meetings of the shareholders may
be called at any time by the President, the Secretary, or the Board of
Directors, and shall be called pursuant to the written request of the holders of
not less than one-tenth of all votes entitled to be cast on any issue proposed
to be considered at the meeting.



<PAGE>   2



         SECTION 5. NOTICE OF MEETINGS. Written notice stating the date, time,
and place of the meeting shall be given not less than ten nor more than sixty
days before the date of any shareholders' meeting , either by personal delivery,
or by telegraph, teletype, or other form of wire or wireless communication, or
by facsimile transmission or by mail or private carrier, by or at the direction
of the Board of Directors, the President, the Secretary or other person calling
the meeting to each shareholder entitled to vote at such meeting; provided that
such notice must be given to all share holders with respect to any meeting at
which a merger or share exchange is to be considered and in such other instances
as required by law. If mailed, such notice shall be deemed to be effective when
deposited in the United States mail, correctly addressed to the shareholder at
the shareholder's address as it appears on the current record of shareholders of
the corporation, with postage thereon prepaid.

         In the case of a special meeting, the notice of meeting shall include a
description of the purpose or purposes for which the meeting is called; but, in
the case of an annual or substitute meeting, the notice of the meeting need not
include a description of the purpose or purposes for which the meeting is called
unless such a description is required by the provisions of the North Carolina
Business Corporation Act.

         When a meeting is adjourned to a different date, time, or place, notice
need not be given of the new date, time, or place if the new date, time, or
place is announced at the meeting before adjournment and if a new record date is
not fixed for the adjourned meeting; but if a new record date is fixed for the
adjourned meeting (which must be done if the new date is more than 120 days
after the date of the original meeting), notice of the adjourned meeting must be
given as provided in this section to persons who are shareholders as of the new
record date.

         SECTION 6. WAIVER OF NOTICE. Any shareholder may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting objects to holding the meeting or transacting business at
the meeting, and (b) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.

         SECTION 7. SHAREHOLDERS' LIST. Before each meeting of shareholders, the
Secretary of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two business days after notice of the meeting is given and
continuing through the meeting, and shall be available at the meeting and shall
be subject to inspection by any shareholder, his agent or attorney, at any time
during the meeting or any adjournment thereof.

 

                                        2

<PAGE>   3



         SECTION 8. VOTING GROUP. All shares of one or more classes or series
that under the articles of incorporation or the North Carolina Business
Corporation Act are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting roup. All shares
entitled by the articles of incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the articles of
incorporation or specifically required by law.

         SECTION 9. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.

         Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.

         In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by the vote of a
majority of the votes cast on the motion to adjourn; and, subject to the
provisions of Section 5 of this Article II, at any adjourned meeting any
business may be transacted that might have been transacted at the original
meeting if a quorum exists with respect to the matter proposed.

         SECTION 10. PROXIES. Shares may be voted either in person or by one or
more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of proxy
is valid for eleven months from the date of its execution, unless a different
period is expressly provided in the appointment form.

         SECTION 11. VOTING OF SHARES. Subject to the provisions of the articles
of incorporation, each outstanding share shall be entitled to one vote on each
matter voted on at a meeting of shareholders.

         Except in the election of directors as governed by the provisions of
Section 3 of Article III, if a quorum exists, action on a matter by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless a greater vote is required by
law or the articles of incorporation or these bylaws.

         Absent special circumstances, shares of the corporation are not
entitled to vote if they are owned, directly or indirectly, by another
corporation in which the corporation owns, directly or indirectly, a majority of
the shares entitled to vote for directors of the second corporation; provided
that this provision does not limit the power of the corporation to vote its own
shares held by it in a fiduciary capacity.


 

                                        3

<PAGE>   4



         SECTION 12. INFORMAL ACTION BY SHAREHOLDERS. Any action that is
required or permitted to be taken at a meeting of the shareholders may be taken
without a meeting if one or more written consents, describing the action so
taken, shall be signed by all of the shareholders who would be entitled to vote
upon such action at a meeting, and delivered to the corporation for inclusion in
the minutes or filing with the corporate records.

         If the corporation is required by law to give notice to nonvoting
shareholders of action to be taken by unanimous written consent of the voting
shareholders, then the corporation shall give the nonvoting shareholders, if
any, written notice of the proposed action at least ten days before the action
is taken.

                                  ARTICLE III.
                               BOARD OF DIRECTORS

         SECTION 1. GENERAL POWERS. All corporate powers shall be exercised by
or under the authority of, and the business and affairs of the corporation shall
be managed under the direction of, the Board of Directors.

         SECTION 2. NUMBER AND QUALIFICATIONS. The number of directors
constituting the Board of Directors shall be five (5). The shareholders or Board
of Directors may from time to time change the number of directors by amendment
of these bylaws, but the Board may not increase or decrease the number of
directors by more than thirty percent (30%) during any twelve-month period.
Directors need not be residents of the State of North Carolina or shareholders
of the corporation.

         SECTION 3. ELECTIONS. Except as provided in Section 6 of this Article
III, the directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.

         SECTION 4. TERM OF DIRECTORS. Each initial director shall hold office
until the first shareholders' meeting at which directors are elected, or until
such director's death, resignation, or removal. The term of every other director
shall expire at the next annual shareholders' meeting following the director's
election or upon such director's death, resignation, or removal. The term of a
directory elected to fill a vacancy expires at the next shareholders' meeting at
which directors are elected. A decrease in the number of directors does not
shorten an incumbent director's term. Despite the expiration of a director's
term, such director shall continue to serve until a successor shall be elected
and qualifies or until there is a decrease in the number of directors.

         SECTION 5. REMOVAL. Any director may be removed at any time with or
without cause by a vote of the shareholders if the number of votes cast to
remove such director exceeds the number of votes cast not to remove him. If a
director is elected by a voting group of shareholders, only the shareholders of
that voting group may participate in the vote to remove him. A director may not
be removed by the shareholders at a meeting unless the notice of the 

 

                                        4

<PAGE>   5


meeting states that the purpose, or one of the purposes of the meeting is
removal of the director. If any directors are so removed, new directors may be
elected at the same meeting.

         SECTION 6. VACANCIES. Any vacancy occurring in the Board of Directors,
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders or by the
Board of Directors, whichever group shall act first. If the directors remaining
in office do not constitute a quorum, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors. If the vacant office
was held by a director elected by a voting group, only the remaining director or
directors elected by that voting group or the holders of shares of that voting
group are entitled to fill the vacancy.

         SECTION 7. CHAIRMAN OF BOARD. There may be a Chairman of the Board of
Directors elected by the directors from their number at any meeting of the
Board. The Chairman shall preside at all meetings of the Board of Directors and
perform such other duties as may be directed by the Board.

         SECTION 8. COMPENSATION. The Board of Directors may provide for the
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.


                                   ARTICLE IV.
                              MEETING OF DIRECTORS

         SECTION 1. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held immediately after, and at the same place as, the annual
meeting of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of North
Carolina, for the holding of additional regular meetings.

         SECTION 2. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, if any, by the
President of by any three (3) directors. Such a meeting may be held either
within or without the State of North Carolina, as fixed by the person or persons
calling the meeting.

         SECTION 3. NOTICE OF MEETINGS. Regular meetings of the Board of
Directors may be held without notice. The person or persons calling a special
meeting of the Board of Directors shall, at least two days before the meeting,
give or cause to be given notice thereof by any usual means of communication.
Such notice need not specify the purpose for which the meeting is called. Any
duly convened regular or special meeting may be adjourned by the directors to a
later time without further notice.



 

                                        5

<PAGE>   6



         SECTION 4. WAIVER OF NOTICE. Any director may waive notice of any
meeting before or after the meeting. The waiver must be in writing, signed by
the director entitled to the notice, and delivered to the corporation for
inclusion in the minutes or filing with the corporate records. A director's
notice of such meeting unless the director at the beginning of the meeting,
promptly upon arrival, objects to holding the meeting or to transacting business
at the meeting and does not thereafter vote for or assent to action taken at the
meeting.

         SECTION 5. QUORUM. Unless the articles of incorporation or these bylaws
provide otherwise, a majority of the number of directors fixed by or pursuant to
these bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, or if no number is so fixed, the number of
directors in office immediately before the meeting begins shall constitute a
quorum.

         SECTION 6. MANNER OF ACTING. Except as otherwise provided in the
articles of incorporation or these bylaws, including Section 9 or this Article
IV, the affirmative vote of a majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.

         SECTION 7. PRESUMPTION OF ASSENT. A director who is present at a
meeting of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless
(a) he objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or to transacting business at the meeting, or (b) his dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(c) he files written notice of his dissent or abstention with the presiding
officer of the meeting before its adjournment or with the corporation
immediately after the adjournment of the meeting. Such right of dissent or
abstention is not available to a director who votes in favor of the action
taken.

         SECTION 8. ACTION WITHOUT MEETING. Action required or permitted to be
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board. The action must be evidenced by
one or more written consents signed by each director before or after such
action, describing the action taken, and included in the minutes or filed with
the corporate records.

         SECTION 9. COMMITTEES OF THE BOARD. The Board of Directors may create
an Executive Committee and other committees of the board and appoint members of
the Board of Directors to serve on them. The creation of a committee of the
board and appointment of members to it must be approved by the greater of (a) a
majority of the number of directors in office when the action is taken or (b)
the number of directors required to take action pursuant to Section 6 of this
Article IV. Each committee of the board must have two or more members and, to
the extent authorized by law and specified by the Board of Directors, shall have
and may exercise all of the authority of the Board of Directors in the
management of the corporation. Each committee member serves at the pleasure of
the Board of Directors. The provisions in these bylaws governing meetings,
action without meetings, notice and waiver of notice, and quorum and 

 

                                        6

<PAGE>   7



voting requirements of the Board of Directors apply to committees of the board
established under this section.


                                   ARTICLE V.
                                    OFFICERS

         SECTION 1. OFFICERS OF THE CORPORATION. The officers of the corporation
shall consist of a President, an Executive Vice-President, a Vice-President, a
Secretary, a Treasurer, and other officers as may from time to time be appointed
by or under the authority of the Board of Directors. Any two or more offices may
be held by the same person, but no officer may act in more than one capacity
where action of two or more officers is required.

         SECTION 2. APPOINTMENT AND TERM. The officers of the corporation shall
be appointed by the Board of Directors or by a duly appointed officer authorized
by the Board of Directors to appoint one or more officers or assistant officers.
Each officer shall hold office until his death, resignation, retirement,
removal, disqualification, or his successor shall have been appointed.

         SECTION 3. COMPENSATION OF OFFICERS. The compensation of all officers
of the corporation shall be fixed by or under the authority of the board of
Directors, and no officer shall serve the corporation in any other capacity and
receive compensation therefor unless such additional compensations hall be duly
authorized. The appointment of an officer does not itself create contract
rights.

         SECTION 4. REMOVAL. Any officer may be removed by the Board at any time
with or without cause; but such removal shall not itself affect the officer's
contract rights, if any, with the corporation.

         SECTION 5. RESIGNATION. An officer may resign at any time by
communicating his resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that is
accepted by the corporation, the Board of Directors may fill the pending vacancy
before the effective date if the Board provides that the successor does not take
office until the effective date. An officer's resignation does not affect the
corporation's contract rights, if any, with the officer.

         SECTION 6. BONDS. The Board of Directors may by resolution require any
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned on the faithful performance of the duties
of his respective office or position, and to comply with such other conditions
as may from time to time be required by the Board of Directors.



 

                                        7

<PAGE>   8



         SECTION 7. PRESIDENT. The President shall ---

                  (a)      be the principal executive officer of the Board and
                           shall preside at all meetings of the Board of
                           Directors, and, unless determined otherwise by the
                           Board of Directors, at all meetings of the members;

                  (b)      sign, with the Secretary, certificates of shares of
                           stock the issue of which shall have been authorized
                           by resolution of the Board of Directors, and may sign
                           any deeds, mortgages, deeds of trust, notes, bonds,
                           contracts or other instruments authorized by the
                           Board of Directors to be executed except in cases in
                           which the sighing and execution thereof shall be
                           expressly delegated by the Board of Directors or by
                           these bylaws to some other officer or agent of the
                           corporation, or shall be required by law to be
                           otherwise signed or executed; and

                  (c)      in general, perform all duties incident to the office
                           of President and such other duties as may be
                           prescribed by the Board of Directors from time to
                           time.

         SECTION 8. EXECUTIVE VICE-PRESIDENT. The Board of Directors may appoint
an Executive Vice-President. He shall perform such duties as the Board of
Directors may from time to time require and shall have such authority as the
Board of Directors may from time to time vest in him.

         SECTION 9. VICE-PRESIDENT. In the absence of the President or in the
event of his inability or refusal to act, the Vice-President shall perform the
duties of the President, and, when so acting, shall have all the powers of an be
subject to all the restrictions upon the President; and shall perform such other
duties as from time to time may be assigned to him by the Board of Directors.

         SECTION 10. SECRETARY. The Secretary shall ---

                  (a)      keep, or cause to be kept, the minutes of meetings of
                           the members and of the Board of Directors in one or
                           more books provided for that purpose;

                  (b)      see that all notices are duly given in accordance
                           with these bylaws or as required by law;

                  (c)      be custodian of the corporate records and of the seal
                           of the corporation and see that the seal of the
                           corporation is affixed to all certificates of shares
                           of stock prior to he issue thereof and to all
                           documents the execution of which, on behalf of the
                           corporation under its seal, is duly authorized in
                           accordance with the provisions of these bylaws or is
                           required by law;


 

                                        8

<PAGE>   9



                  (d)      keep, or cause to be kept, a register of the name and
                           post office address of each member, which address
                           shall be furnished to the corporation by such member;

                  (e)      sign, with the President, certificates of shares of
                           stock the issue of which shall have been authorized
                           by resolution of the Board of Directors;

                  (f)      have general charge of the books of the corporation;

                  (g)      keep on file at all times a complete copy of the
                           corporation's Certificate of Incorporation and
                           bylaws, together with all amendments thereto, which
                           copies shall always be open to the inspection of any
                           member, and, at the expense of the corporation,
                           furnish a copy of such documents and of all
                           amendments thereto upon request to any member; and

                  (h)      in general, perform all duties incident to the office
                           of the Secretary and such other duties as from time
                           to time may be assigned to him by the Board of
                           Directors.

         SECTION 11. TREASURER. The Treasurer shall ---

                  (a)      have charge and custody of and be responsible for all
                           funds and securities of the corporation;

                  (b)      receive and give receipts for monies due and payable
                           to the corporation from any source whatsoever, and
                           deposit or invest all such monies in the name of the
                           corporation in such banks or securities as shall be
                           selected in accordance with the provisions of these
                           bylaws; and

                  (c)      in general perform all the duties incident to the
                           office of Treasurer and such other duties as from
                           time to time may be assigned to him by the Board of
                           Directors.


                                   ARTICLE VI.
                     CONTRACTS, LOANS, CHECKS, AND DEPOSITS

         SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.


 

                                        9

<PAGE>   10



         SECTION 2. LOANS. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.

         SECTION 3. CHECKS AND DRAFTS. All Checks, drafts, or other orders for
the payment of money, issued in the name of the corporation, shall be signed by
such officer or officers, agent or agents of the corporation and in such manner
as shall from time to time be determined by the Board of Directors.

         SECTION 4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such depositories as may be selected by or under the authority of the Board
of Directors.


                                  ARTICLE VII.
                            SHARES AND THEIR TRANSFER

         SECTION 1. CERTIFICATES FOR SHARES. The Board of Directors, subject to
the provisions of the Articles of Incorporation, may authorize the issuance of
some or all of the shares of the corporation's classes or series without issuing
certificates to represent such shares. If shares are represented by
certificates, the certificates shall be in such form as required by law and as
determined by the Board of Directors. Certificates shall be signed, either
manually or in facsimile, by the President or Vice-President and by the
Secretary or Treasurer. All certificates for shares shall be consecutively
numbered or otherwise identified and entered into the stock transfer books of
the corporation. When shares are represented by certificates, the corporation
shall issue and deliver, to each shareholder to whom such shares have been
issued or transferred, certificates representing the shares owned by him. When
shares are not represented by certificates, then within a reasonable time after
the issuance or transfer of such shares, the corporation shall send the
shareholder to whom such shares have been issued or transferred as written
statement of the information required by law to be on certificates.

         SECTION 2. STOCK TRANSFER BOOKS. The corporation shall keep a book or
set of books, to be known as the stock transfer books of the corporation,
containing the name of each shareholder of record, together with such
shareholder's address and the number and class or series of shares held by him.
Transfers of shares of the corporation shall be made only on the stock transfer
books of the corporation by the holder of records thereof or by his legal
representative, who shall furnish proper evidence of authority to transfer, or
by his attorney authorized to effect such transfer by power of attorney duly
executed and file with the Secretary, and on surrender for cancellation of the
certificate for such shares (if the shares are represented by certificates).

         SECTION 3. LOST CERTIFICATE. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
corporation claimed to have been lost or destroyed, upon receipt of an affidavit
of such fact from the person claiming the certificate to have

 

                                       10

<PAGE>   11



been lost or destroyed. When authorizing such issue of a new certificate, the
Board of Directors shall require that the owner of such lost or destroyed
certificate, or his legal representative, give the corporation a bond in such
sum and with such surety or other security as the Board may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate claimed to have been lost or destroyed, except where the Board of
Directors by resolution finds that in the judgment of the directors the
circumstances justify omission of a bond.

         SECTION 4. FIXING RECORD DATE. The Board of Directors may fix a future
date as the record date for one or more voting groups in order to determine the
shareholders entitled to notice of a shareholders' meeting, to demand a special
meeting, to vote, or to take any other action. Such record date may not be more
that seventy days before the meeting or action requiring a determination of
shareholders. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
which it must do in the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.

         If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, the close of business on the day before the first notice of the
meeting is delivered to shareholders shall be the record date for such
determination of shareholders.

         The Board of Directors may fix a date as the record date for
determining shareholders entitled to a distribution or share dividend. If no
record date is fixed by the Board of Directors for such determination, it is the
date the Board of Directors authorized the distribution or share dividend.

         SECTION 5. HOLDER OF RECORD. Except as otherwise required by law, the
corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
the shares stand of record on its books as the absolute owner of the shares and
the person exclusively entitled to receive notification and distributions, to
vote, and to otherwise exercise the rights, posers, and privileges of ownership
of such shares.

         SECTION 6. SHARES HELD BY NOMINEES. The corporation shall recognize the
beneficial owner of shares registered in the name of a nominee as the owner and
shareholder of such shares for certain purposes if the nominee in whose name
such shares are registered files with the Secretary a written certificate in a
form prescribed by the corporation, signed by the nominee, indicating the
following: (i) the name, address, and taxpayer identification number of the
nominee; (ii) the name, address, and taxpayer identification number of the
beneficial owner; (iii) the number and class or series of shares registered in
the name of the nominee as to which the beneficial owner shall be recognized as
the shareholder; and (iv) the purpose for which the beneficial owner shall be
recognized as the shareholder.


 

                                       11

<PAGE>   12



         The purposes for which the corporation shall recognize the beneficial
owner as the shareholder may include the following: (i) receiving notice of,
voting at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
Article 13 of the Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the corporation; (vii) making any demand upon the
corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.

         The certificate shall be effective ten (10) business days after its
receipt by the corporation and until it is changed by the nominee, unless the
certificate to be registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that certificate.


                                  ARTICLE VIII.
                                 INDEMNIFICATION

         Any person who at any time serves or has served as a director of the
corporation, or who, while serving as a director of the corporation, serves or
has served, at the request of the corporation, as a director, officer, partner,
trustee, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, or as a trustee or administrator under an employee
benefit plan, shall have a right to be indemnified by the corporation to the
fullest permitted by law against (a) reasonable expenses, including attorneys'
fees, incurred by him in connection with any threatened, pending, or completed
civil, criminal, administrative, investigative, or arbitrative action, suit, or
proceeding (and any appeal therein), whether or not brought by or on behalf of
the corporation, seeking to hold him liable by reason of the fact that he is or
was acting in such capacity, and (b) reasonable payments made by him in
satisfaction of any judgment, money decree, fine (including an excise tax
assessed with respect to an employee benefit plan), penalty, or settlement for
which he may have become liable in any such action, suit, or proceeding.

         The Board of Directors of the corporation shall take all such action as
may be necessary and appropriate to authorize the corporation to pay the
indemnification required by this bylaw, including, without limitation, making a
determination that indemnification is permissible in the circumstances and a
good faith evaluation of the manner in which the claimant for indemnity acted
and of the reasonable amount of indemnity due him. The Board of Directors may
appoint a committee or special counsel to make such determination and
evaluation. To the extent needed, the Board shall give notice to, and obtain
approval by, the shareholders of the corporation for any decision to indemnify.


 

                                       12

<PAGE>   13


         Any person who at any time after the adoption of this bylaw serves or
has served in the aforesaid capacity for or on behalf of the corporation shall
be deemed to be doing or to have done so in reliance upon, and as consideration
for, the right of indemnification provided herein. Such right shall not be
exclusive of any other rights to which such person may be entitled apart from
the provision of this bylaw.


                                   ARTICLE IX.
                               GENERAL PROVISIONS

         SECTION 1. DISTRIBUTIONS. The Board of Directors may from time to time
authorize, and the corporation may grant, distributions and share dividends to
its shareholders pursuant to law and subject to the provisions of its articles
of incorporation.

         SECTION 2. SEAL. The corporate seal of the corporation shall consist of
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed or affixed on the
margin hereof, is hereby adopted as the corporate seal of the corporation.

         SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by the Board of Directors.

         SECTION 4. AMENDMENTS. Except as otherwise provided in the articles of
incorporation or by law, these bylaws may be amended or repealed and new bylaws
may be adopted by the Board of Directors.

         No bylaw adopted, amended, or repealed by the shareholders shall be
readopted, amended, or repealed by the Board of Directors, unless the articles
of incorporation or a bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend, or repeal that particular bylaw or the bylaws
generally.

         SECTION 5. DEFINITIONS. Unless the context otherwise requires, terms
used in these bylaws shall have the meanings assigned to them in the North
Carolina Business Corporation Act to the extent defined therein.


 

                                       13





<PAGE>   1

                                                                     EXHIBIT 4.6

                                    GUARANTEE

         For value received, the undersigned hereby unconditionally guarantees
to the Holder of this Security the cash payments in United States dollars of
principal of, premium, if any, and interest on this Security in the amounts and
at the time when due and interest on the overdue principal, premium, if any, and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
the Holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security, Article Fifteen of the Indenture
and this Guarantee. This Guarantee will become effective in accordance with
Article Fifteen of the Indenture and its terms shall be evidenced therein. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Security. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture
dated as of July 31, 1998, among Golden Sky Systems, Inc., the undersigned and
State Street Bank and Trust Company of Missouri, N.A., as Trustee, as amended or
supplemented (the "Indenture").

         The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth
in Article Fifteen of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.

         THIS GUARANTEE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
THE SUBSIDIARY GUARANTOR HEREUNDER AGREES TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE, THE SECURITIES OR THIS GUARANTEE.

         This Guarantee is subject to release upon the terms set forth in the
Indenture.

Date:  July 31, 1998

                                             ARGOS SUPPORT SERVICES COMPANY
                                             as Guarantor
 
                                             By:/s/ RODNEY A. WEARY         
                                                -----------------------------

<PAGE>   1

                                                                     EXHIBIT 4.7

                                    GUARANTEE

         For value received, the undersigned hereby unconditionally guarantees
to the Holder of this Security the cash payments in United States dollars of
principal of, premium, if any, and interest on this Security in the amounts and
at the time when due and interest on the overdue principal, premium, if any, and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
the Holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security, Article Fifteen of the Indenture
and this Guarantee. This Guarantee will become effective in accordance with
Article Fifteen of the Indenture and its terms shall be evidenced therein. The
validity and enforceability of any Guarantee shall not be affected by the fact
that it is not affixed to any particular Security. Capitalized terms used but
not defined herein shall have the meanings ascribed to them in the Indenture
dated as of July 31, 1998, among Golden Sky Systems, Inc., the undersigned and
State Street Bank and Trust Company of Missouri, N.A., as Trustee, as amended or
supplemented (the "Indenture").

         The obligations of the undersigned to the Holders of Securities and to
the Trustee pursuant to the Guarantee and the Indenture are expressly set forth
in Article Fifteen of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which this Guarantee relates.

         THIS GUARANTEE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
THE SUBSIDIARY GUARANTOR HEREUNDER AGREES TO SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO THE INDENTURE, THE SECURITIES OR THIS GUARANTEE.

         This Guarantee is subject to release upon the terms set forth in the
Indenture.

Date:  July 31, 1998

                                                 PRIMEWATCH, INC.
                                                 as Guarantor

                                                 By:/s/ RODNEY A. WEARY
                                                    ---------------------------




<PAGE>   1


                                                                     EXHIBIT 5.1


          [Letterhead of Reboul, MacMurray, Hewitt, Maynard & Kristol]

                                December 22, 1998




Golden Sky Systems, Inc.
605 West 47th Street, Suite 300
Kansas City, Missouri 64112

                            Golden Sky Systems, Inc.
                       Registration Statement on Form S-4
                          (Registration No. 333-64367)

Ladies and Gentlemen:

                  We have acted as counsel to Golden Sky Systems, Inc., a
Delaware corporation (the "Company"), Argos Support Services Company, a Texas
corporation and wholly-owned subsidiary of the Company ("Argos"), and
Primewatch, Inc., a North Carolina corporation and wholly-owned subsidiary of
the Company ("Primewatch" and collectively with Argos, the "Guarantors"), in
connection with the Company's Registration Statement on Form S-4 (the
"Registration Statement"), filed under the Securities Act of 1933, as amended
(the "Act"), relating to the proposed offer by the Company to exchange up to
$195,000,000 aggregate principal amount of its 12 3/8% Senior Subordinated Notes
due 2006, Series B (the "New Notes"), for a like principal amount of its
outstanding 12 3/8% Senior Subordinated Notes due 2006, Series A (the "Old
Notes"). The obligations of the Company under the New Notes will be guaranteed
(the "Guarantees") by the Guarantors.

                  In that connection, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
corporate records and other instruments as we have deemed necessary or
appropriate for the purposes of this opinion, including the Second Amended and
Restated Certificate of Incorporation and By-laws of the Company.

                  Based upon the foregoing, we are of opinion that:



<PAGE>   2

                                       2


                  1. The Company has been duly organized and is validly existing
         under the laws of the State of Delaware. Each of Argos and Primewatch
         is duly organized and validly existing under the laws of its
         jurisdiction of incorporation.

                  2. The New Notes have been duly and validly authorized by the
         Company and, when issued under the Indenture in substantially the form
         filed as Exhibit 4.1 to the Registration Statement in exchange for the
         Old Notes, upon the terms and subject to the conditions contained in
         the Prospectus comprising part of the Registration Statement and in the
         Letter of Transmittal substantially in the form filed as Exhibit 99.1
         to the Registration Statement, will be valid and binding obligations of
         the Company.

                  3. The Guaranties have been duly and validly authorized by the
         respective Guarantors and are the valid and binding obligations of such
         Guarantors.

                  We are members of the bar of the State of New York and do not
express any opinion as to the law of any jurisdiction other than the laws of the
State of New York, the federal laws of the United States and the Delaware
General Corporation Law. Our opinions are rendered only with respect to the
laws, and the rules, regulations and orders thereunder, which are currently in
effect.

                  We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus comprising a part of the Registration
Statement. By giving the foregoing consent, we do not admit that we come within
the category of persons whose consent is required under Section 7 of the Act.

                                Very truly yours,

                                /s/ Reboul, MacMurray, Hewitt, Maynard & Kristol





<PAGE>   1
                                                                    Exhibit 10.2

     The Company has omitted from this Exhibit 10.2 a portion of the Schedules 
hereto for which the Company has requested confidential treatment under Rule
406 under the Securities Act of 1933, as amended.  The portion of this Agreement
for which confidential treatment has been requested is marked "[CONFIDENTIAL
TREATMENT REQUESTED]," and such confidential portion has been filed separately
with the Securities and Exchange Commission.



                                  $150,000,000

                              AMENDED AND RESTATED
                                CREDIT AGREEMENT

                                      among

                           GOLDEN SKY HOLDINGS, INC.,

                            GOLDEN SKY SYSTEMS, INC.,

                                 VARIOUS BANKS,

                                 BANQUE PARIBAS,
                              as Syndication Agent,

                              FLEET NATIONAL BANK,
                            as Administrative Agent,

                                       and

                            GENERAL ELECTRIC CAPITAL
                                  CORPORATION,
                             as Documentation Agent



                    ----------------------------------------
                            Dated as of July 7, 1997
                     Amended and Restated as of May 8, 1998
                    ----------------------------------------




<PAGE>   2
[CAPTION]



                                TABLE OF CONTENTS


                                                                            Page


Section 1.  Amount and Terms of Credit........................................

         1.01  The Commitments................................................
         1.02  Minimum Amount of Each Borrowing...............................
         1.03  Notice of Borrowing............................................
         1.04  Disbursement of Funds..........................................
         1.05  Notes..........................................................
         1.06  Conversions....................................................
         1.07  Pro Rata Borrowings............................................
         1.08  Interest.......................................................
         1.09  Interest Periods...............................................
         1.10  Increased Costs, Illegality, etc...............................
         1.11  Compensation...................................................
         1.12  Replacement of Banks...........................................

Section 1A.  Letters of Credit................................................

         1A.01  Letters of Credit.............................................
         1A.02  Minimum Stated Amount.........................................
         1A.03  Letter of Credit Requests.....................................
         1A.04  Letter of Credit Participations...............................
         1A.05  Agreement to Repay Letter of Credit Drawings..................
         1A.06  Increased Costs...............................................

Section 2.  Commitment Commission; Fees; Reductions of Commitment.............

         2.01  Fees...........................................................
         2.02  Voluntary Termination of Unutilized Commitments................
         2.03  Mandatory Reduction of Commitments.............................

Section 3.  Prepayments; Payments; Taxes......................................

         3.01  Voluntary Prepayments..........................................
         3.02  Mandatory Repayments and Commitment Reductions.................
         3.03  Method and Place of Payment....................................
         3.04  Net Payments...................................................

Section 4.  Conditions Precedent to the Restatement Effective Date
         and Loans on the Restatement Effective Date..........................

         4.01  Execution of Agreement; Notes..................................
         4.02  Officer's Certificate..........................................
         4.03  Opinions of Counsel............................................

<PAGE>   3

                                                                            Page


         4.04  Corporate Documents; Proceedings...............................
         4.05  Employee Benefit Plans; Shareholders' Agreements; Management
                  Agreements; Employment Agreements; Collective Bargaining
                  Agreements; Debt Agreements; Tax Sharing Agreements;
                  Affiliate Contracts and Material Contracts..................
         4.06  Consummation of the Reorganization Transaction.................
         4.07  Existing Credit Agreement......................................
         4.08  Subsidiaries Guaranty..........................................
         4.09  Holdings Pledge Agreement......................................
         4.10  Security Document Acknowledgment; Pledge Agreements; Security
                  Agreement...................................................
         4.11  Minimum Subscribers and Households.............................
         4.12  Material Adverse Change, etc...................................
         4.13  Litigation.....................................................
         4.14  Fees, etc......................................................
         4.15  Solvency Certificate; Insurance Analyses.......................
         4.16  Approvals......................................................
         4.17  Financial Statements; Projections; Management Letter Reports...
         4.18  Consent Letter.................................................
         4.19  Acquisitions...................................................

Section 5.  Conditions Precedent to All Credit Events.........................

         5.01  No Default; Representations and Warranties.....................
         5.02  Notice of Borrowing; Letter of Credit Request..................
         5.03  Permitted Acquisitions.........................................
         5.04  Material Adverse Change, etc...................................
         5.05  Litigation.....................................................
         5.06  Borrowing Base Certificate.....................................

Section 6.  Representations, Warranties and Agreements........................

         6.01  Corporate Status...............................................
         6.02  Corporate Power and Authority..................................
         6.03  No Violation...................................................
         6.04  Governmental Approvals.........................................
         6.05  Financial Statements; Financial Condition; Undisclosed
                  Liabilities; Projections; etc...............................
         6.06  Litigation.....................................................
         6.07  True and Complete Disclosure...................................
         6.08  Use of Proceeds; Margin Regulations............................
         6.09  Tax Returns and Payments.......................................
         6.10  Compliance with ERISA..........................................
         6.11  The Security Documents.........................................
         6.12  Material Contracts.............................................
         6.13  Properties.....................................................
         6.14  Capitalization.................................................
         6.15  Subsidiaries...................................................
         6.16  Compliance with Statutes, etc..................................
         6.17  Investment Company Act.........................................
         6.18  Public Utility Holding Company Act.............................
         6.19  Environmental Matters..........................................
         6.20  Labor Relations................................................
         6.21  Patents, Licenses, Franchises and Formulas.....................
         6.22  Indebtedness...................................................
         6.23  Restrictions on or Relating to Subsidiaries....................
         6.24  The Transaction and Permitted Acquisitions.....................
         6.25  Year 2000 Reprogramming........................................

Section 7.  Affirmative Covenants.............................................

         7.01  Information Covenants..........................................
         7.02  Books, Records and Inspections.................................
         7.03  Maintenance of Property, Insurance.............................
         7.04  Corporate Franchises...........................................
         7.05  Compliance with Statutes, etc..................................
         7.06  Compliance with Environmental Laws.............................
         7.07  ERISA..........................................................
         7.08  End of Fiscal Years; Fiscal Quarters...........................
         7.09  Performance of Obligations.....................................
         7.10  Payment of Taxes...............................................
         7.11  Interest Rate Protection.......................................
         7.12  Use of Proceeds................................................
         7.13  Acceptable Subordinated Debt...................................
         7.14  Intellectual Property Rights...................................
         7.15  Permitted Acquisitions.........................................
         7.16  Registry.......................................................
         7.17  Additional Security; Further Assurances........................
         7.18  Senior Seller Notes............................................

Section 8.  Negative Covenants................................................

         8.01  Liens..........................................................
         8.02  Consolidation, Merger, Purchase or Sale of Assets, etc.........
         8.03  Dividends......................................................
         8.04  Indebtedness...................................................
         8.05  Advances, Investments and Loans................................
         8.06  Transactions with Affiliates...................................
         8.07  Capital Expenditures...........................................
         8.08  Net Adjusted Consolidated Indebtedness to Qualified Paying
                  Subscriber Ratio............................................
         8.09  Adjusted Consolidated Senior Indebtedness to Qualified Paying
                  Subscriber Ratio............................................
         8.10  Net Subscriber Acquisition Cost................................
         8.11  Fixed Charge Coverage Ratio....................................

<PAGE>   4

                                                                            Page


         8.12  Annualized Adjusted Consolidated Interest Coverage Ratio.......
         8.13  Consolidated Interest Coverage Ratio...........................
         8.14  Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
                  Adjusted Consolidated EBITDA................................
         8.15  Adjusted Consolidated Senior Indebtedness to Pro Forma
                  Annualized Adjusted Consolidated EBITDA.....................
         8.16  Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
                  Consolidated EBITDA.........................................
         8.17  Adjusted Consolidated Senior Indebtedness to Pro Forma 
                  Annualized Consolidated EBITDA..............................
         8.18  Limitation on Voluntary Payments and Modification of Existing
                  Indebtedness; Limitation on Modifications of Certificate of
                  Incorporation, By-Laws and Certain Other Agreements; etc....
         8.19  Limitation on Certain Restrictions on Subsidiaries.............
         8.20  Limitation on Issuance of Capital Stock........................
         8.21  Business.......................................................
         8.22  Limitation on Creation of Subsidiaries.........................

Section 9.  Events of Default.................................................

         9.01  Payments.......................................................
         9.02  Representations, etc...........................................
         9.03  Covenants......................................................
         9.04  Default Under Other Agreements.................................
         9.05  Bankruptcy, etc................................................
         9.06  ERISA..........................................................
         9.07  Security Documents.............................................
         9.08  Guaranties.....................................................
         9.09  Judgments......................................................
         9.10  Change in Control..............................................
         9.11  DBS Agreement; NRTC Agreements; FCC Licenses...................

Section 10.  Definitions and Accounting Terms.................................

         10.01  Defined Terms.................................................

Section 11.  The Agents.......................................................

         11.01  Appointment...................................................
         11.02  Nature of Duties..............................................
         11.03  Lack of Reliance on the Administrative Agent, the 
                   Syndication Agent and the Documentation Agent..............
         11.04  Certain Rights of the Administrative Agent and the 
                   Syndication Agent..........................................
         11.05  Reliance......................................................
         11.06  Indemnification...............................................
         11.07  The Administrative Agent and the Syndication Agent in Their
                  Individual Capacities.......................................

<PAGE>   5

                                                                            Page


         11.08  Holders.......................................................
         11.09  Resignation by the Agents.....................................

Section 12.  Miscellaneous....................................................

         12.01  Payment of Expenses, Indemnities, etc.........................
         12.02  Right of Setoff...............................................
         12.03  Notices.......................................................
         12.04  Benefit of Agreement..........................................
         12.05  No Waiver; Remedies Cumulative................................
         12.06  Payments Pro Rata.............................................
         12.07  Calculations; Computations....................................
         12.08  GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
                  WAIVER OF JURY TRIAL........................................
         12.09  Counterparts..................................................
         12.10  Effectiveness.................................................
         12.11  Headings Descriptive..........................................
         12.12  Amendment or Waiver...........................................
         12.13  Survival......................................................
         12.14  Domicile of Loans.............................................
         12.15  Post-Closing Obligations......................................
         12.16  Amendment and Restatement; Termination of Existing Credit
                  Agreement...................................................
         12.17  Additions of New Banks; Conversion of Existing Loans of
                  Continuing Banks; Termination of Commitments of
                  Non-Continuing Banks........................................
         12.18  Entire Agreement; Successors and Assigns......................

Section 13.  Holdings Guaranty................................................

         13.01  The Guaranty..................................................
         13.02  Bankruptcy....................................................
         13.03  Nature of Liability...........................................
         13.04  Guaranty Absolute.............................................
         13.05  Independent Obligation........................................
         13.06  Authorization.................................................
         13.07  Reliance......................................................
         13.08  Subordination.................................................
         13.09  Waiver........................................................
         13.10  Binding Nature of Guaranty....................................
         13.11  Judgments Binding.............................................






<PAGE>   6





SCHEDULE I     Commitments
SCHEDULE II    Existing Letters of Credit
SCHEDULE III   Projections
SCHEDULE IV    Tax Matters
SCHEDULE V     ERISA
SCHEDULE VI    Material Contracts
SCHEDULE VII   Real Property
SCHEDULE VIII  Capitalization
SCHEDULE IX    Subsidiaries
SCHEDULE X     Patents and Licenses
SCHEDULE XI    Existing Indebtedness
SCHEDULE XII   Insurance
SCHEDULE XIII  Existing Liens

EXHIBIT A      Notice of Borrowing
EXHIBIT B-1    Term Note
EXHIBIT B-2    Revolving Note
EXHIBIT C      Notice of Conversion
EXHIBIT D      Letter of Credit Request
EXHIBIT E      Section 3.04(b)(ii) Certificate
EXHIBIT F      Form of Opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol
EXHIBIT G      Officers' Certificate of Credit Parties
EXHIBIT H      Subsidiaries Guaranty
EXHIBIT I-1    Holdings Pledge Agreement
EXHIBIT I-2    Partnership Pledge Agreement
EXHIBIT J      Security Documents Acknowledgment
EXHIBIT K      Solvency Certificate
EXHIBIT L      Consent Letter
EXHIBIT M      Borrowing Base Certificate
EXHIBIT N      Bank Assignment and Assumption Agreement





<PAGE>   7


          AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 7, 1997,
amended and restated as of May 8, 1998, among GOLDEN SKY HOLDINGS, INC., a
corporation organized and existing under the laws of the State of Delaware
("Holdings"), GOLDEN SKY SYSTEMS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Borrower"), the Banks party hereto
from time to time, BANQUE PARIBAS, as Syndication Agent, FLEET NATIONAL BANK, as
Administrative Agent, and GENERAL ELECTRIC CAPITAL CORPORATION, as Documentation
Agent. Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 10 are used herein as therein defined.


                              W I T N E S S E T H:


          WHEREAS, the Borrower, each of the Banks (excluding the New Banks),
the Syndication Agent and the Administrative Agent are party to a Credit
Agreement, dated as of July 7, 1997 (as the same has been amended, modified or
supplemented prior to, but not including, the Restatement Effective Date, the
"Existing Credit Agreement");

          WHEREAS, the parties hereto wish to amend and restate the Existing
Credit Agreement as herein provided;

          WHEREAS, the Borrower wishes to obtain a credit facility to (i)
refinance Existing Loans, (ii) repay the Rocky Mountain Note, (iii) effect
Permitted Acquisitions, (iv) pay Transaction Fees and Expenses, (v) provide for
general corporate, capital expenditure and working capital purposes and (vi)
issue Letters of Credit in an amount not to exceed the limits in Section
1A.01(c);

          WHEREAS, subject to and upon the terms and conditions herein set
forth, the Banks are willing to make available to the Borrower the respective
credit facilities provided for herein;


          NOW, THEREFORE, IT IS AGREED:

          Section 1. Amount and Terms of Credit.

          1.01 The Commitments. (a) Subject to and upon the terms and conditions
set forth herein, each Bank with a Term Loan Commitment severally agrees (A) in
the case of each Continuing Bank with a Term Loan Commitment, to convert into
Term Loans (each a "Term Loan Conversion," and together, the "Term Loan
Conversions"), on the Restatement Effective Date, Existing Term Loans made by
such Continuing Bank to the Borrower pursuant to the Existing Credit Agreement
and outstanding on the Restatement Effective Date and (B) in the case of New
Banks with a Term Loan Commitment and in the case of any Continuing Bank whose
Term Loan Commitment is greater than the aggregate outstanding principal amount
of Existing Term Loans made by such Continuing Bank to the Borrower pursuant to
the Existing Credit Agreement and outstanding on the Restatement Effective Date,
prior to the Restatement Effective Date, on the Restatement Effective Date, to
make a term loan (together with each Term Loan Conversion, each, a "Term Loan"
and, collectively, the "Term Loans") to the Borrower, which Term Loans (i)
shall, at the option of the Borrower, be Base Rate Loans or Eurodollar Loans;

<PAGE>   8

provided that (x) except as otherwise specifically provided in Section 1.10(b),
all Term Loans comprising the same Borrowing shall at all times be of the same
Type and (y) no Eurodollar Loans may be incurred prior to the Syndication
Termination Date, (ii) shall not exceed for any Bank, in initial aggregate
principal amount, that amount which equals the Term Loan Commitment of such Bank
on such date (before giving effect to any reductions thereto on such date
pursuant to Section 2.03(b)) and (iii) shall not exceed for all Banks at any
time an aggregate principal amount which, when added to the aggregate amount of
all outstanding Revolving Loans at such time, and all Letter of Credit
Outstandings at such time and the aggregate outstanding amount of all other Net
Adjusted Consolidated Indebtedness at such time, equals the Borrowing Base at
such time. Once repaid, Term Loans incurred hereunder may not be reborrowed. To
the extent that any Continuing Bank's Term Loan Commitment is less than the
amount of Existing Term Loans made by such Continuing Bank to the Borrower
pursuant to the Existing Credit Agreement and outstanding on the Restatement
Effective Date immediately prior to the Restatement Effective Date, the proceeds
of other Term Loans shall be used to repay such Continuing Bank the amount of
such Continuing Bank's Existing Term Loans which exceeds such Term Loan
Commitment.

          (b) Subject to and upon the terms and conditions set forth herein,
each Bank with a Revolving Loan Commitment severally agrees (A) in the case of
each Continuing Bank with a Revolving Loan Commitment, to convert into Revolving
Loans (each a "Revolving Loan Conversion," and together, the "Revolving Loan
Conversions"), on the Restatement Effective Date, Existing Revolving Loans made
by such Continuing Bank to the Borrower pursuant to the Existing Credit
Agreement and outstanding on the Restatement Effective Date and (B) in the case
of New Banks with a Revolving Loan Commitment and in the case of any Continuing
Bank whose Revolving Loan Commitment is greater than the aggregate outstanding
principal amount of Revolving Loans made by such Continuing Bank to the Borrower
pursuant to the Existing Credit Agreement and outstanding on the Restatement
Effective Date, prior to the Restatement Effective Date, at any time and from
time to time on or after the Restatement Effective Date and prior to the
Revolving Loan Maturity Date, to make a loan or loans (together with each
Revolving Loan Conversion, each a "Revolving Loan" and, collectively, the
"Revolving Loans") to the Borrower, which Revolving Loans (i) shall, at the
option of the Borrower, be Base Rate Loans or Eurodollar Loans, provided that
(x) except as otherwise specifically provided in Section 1.10(b), all Revolving
Loans comprising the same Borrowing shall at all times be of the same Type and
(y) prior to the Syndication Termination Date, only Borrowings of Eurodollar
Loans with an Interest Period of one week may be incurred, (ii) may be repaid
and reborrowed in accordance with the provisions hereof, (iii) shall not exceed




<PAGE>   9





for any Bank at any time outstanding that aggregate principal amount which, when
added to the product of (x) such Bank's Percentage and (y) the aggregate amount
of all Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Revolving Loans), equals the Revolving Loan Commitment
of such Bank at such time and (iv) shall not exceed for all Banks at any time
that aggregate principal amount which, when added to the aggregate amount of all
Letter of Credit Outstandings at such time and all outstanding Term Loans at
such time and the aggregate outstanding amount of all other Net Adjusted
Consolidated Indebtedness at such time, equals the Borrowing Base at such time.

          1.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing hereunder shall not be less than the Minimum Borrowing Amount
and, if greater, shall be in integral multiples of $250,000 in the case of Base
Rate Loans and $500,000 in the case of Eurodollar Loans. More than one Borrowing
may occur on the same date, but at no time shall there be outstanding more than
eight (8) Borrowings of Eurodollar Loans.

          1.03 Notice of Borrowing. (a) Whenever the Borrower desires to make a
Borrowing hereunder, it shall give the Administrative Agent at its Notice
Office, prior to 10:00 A.M. (New York time) at least one (1) Business Day's
prior written notice (or telephonic notice promptly confirmed in writing) of
each Borrowing of Base Rate Loans and at least three (3) Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Eurodollar Loans. Each such notice (each a "Notice of Borrowing"),
except as otherwise expressly provided in Section 1.10, shall be irrevocable and
shall be given by the Borrower in the form of Exhibit A, appropriately completed
to specify (i) the aggregate principal amount of the Loans to be made pursuant
to such Borrowing, (ii) the date of such Borrowing (which shall be a Business
Day), (iii) whether the Loans being made pursuant to such Borrowing shall
constitute Term Loans or Revolving Loans, (iv) whether the Loans being made
pursuant to such Borrowing are to be initially maintained as Base Rate Loans or
Eurodollar Loans and, if Eurodollar Loans, the initial Interest Period to be
applicable thereto, and (v) the purposes for which the Loans being made pursuant
to such Borrowing are to be used (i.e., either Permitted Acquisitions, repayment
of Existing Indebtedness or working capital, capital expenditures or general
corporate purposes). Any notice received after 10:00 A.M. (New York time) shall
be deemed to be received on the next succeeding Business Day. The Administrative
Agent shall promptly give each Bank which is required to make Loans of the
Tranche specified in the respective Notice of Borrowing notice of such proposed
Borrowing, of such Bank's proportionate share thereof and of the other matters
specified in the Notice of Borrowing.

          (b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent or the respective Issuing Bank (in the case of Letters of
Credit) may, prior to receipt of written confirmation, act without liability
upon the basis of telephonic notice believed by the Administrative Agent or the
respective Issuing Bank (in the case of Letters of Credit) in good faith to be
from the President, the Chief Executive Officer, Chief Financial Officer,
General Counsel or Controller of the Borrower. In each such case, the
Administrative Agent's or such Issuing Bank's record of the terms of such
telephonic notice shall be conclusive absent manifest error.

          1.04 Disbursement of Funds. No later than 12:00 Noon (New York time)
on the date specified in each Notice of Borrowing, each Bank with a Commitment
of the respective Tranche will make available its pro rata portion (determined
in accordance with Section 1.07) of each such Borrowing requested to be made on
such date. All such amounts shall be made available in Dollars and in
immediately available funds at the Payment Office of the Administrative Agent,
and the Administrative Agent will make available to the Borrower at the Payment
Office the aggregate of the amounts so made available by the Banks. Unless the
Administrative Agent shall have been notified in writing by any Bank prior to
the date of Borrowing that such Bank does not intend to make available to the
Administrative Agent such Bank's portion of any Borrowing to be made on such
date, the Administrative Agent may assume that such Bank has made such amount
available to the Administrative Agent on such date of Borrowing and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact

<PAGE>   10

made available to the Administrative Agent by such Bank, the Administrative
Agent shall be entitled to recover such corresponding amount on demand from such
Bank. If such Bank does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent shall promptly
notify the Borrower, and the Borrower shall immediately pay such corresponding
amount to the Administrative Agent. The Administrative Agent shall also be
entitled to recover on demand from such Bank or the Borrower, as the case may
be, interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Administrative Agent to the
Borrower, until the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (i) if recovered from such
Bank, the cost to the Administrative Agent of acquiring overnight federal funds
and (ii) if recovered from the Borrower, the rate of interest applicable to the
respective Borrowing, as determined pursuant to Section 1.08. Nothing in this
Section 1.04 shall be deemed to relieve any Bank from its obligation to make
Loans hereunder or to prejudice any rights which the Borrower may have against
any Bank as a result of any failure by such Bank to make Loans hereunder.

          1.05 Notes. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made by each Bank shall be evidenced (i) if Term Loans,
by a promissory note duly executed and delivered by the Borrower substantially
in the form of Exhibit B-1 with blanks appropriately completed in conformity
herewith (each, a "Term Note" and, collectively, the "Term Notes") and (ii) if
Revolving Loans, by a promissory note duly executed and delivered by the
Borrower substantially in the form of Exhibit B-2, with blanks appropriately
completed in conformity herewith (each a "Revolving Note" and, collectively, the
"Revolving Notes").

          (b) The Term Note issued to each Bank shall (i) be executed by the
Borrower, (ii) be payable to the order of such Bank and be dated the Restatement
Effective Date, (iii) be in a stated principal amount equal to the Term Loan
Commitment of such Bank and be payable in the principal amount of the Term Loans
evidenced thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest
as provided in the appropriate clause of Section 1.08 in respect of the Base
Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 3.01, and mandatory
repayment as provided in Section 3.02 and (vii) be entitled to the benefits of
this Agreement and the Guaranties and be secured by the Security Documents.

          (c) The Revolving Note issued to each Bank with a Revolving Loan
Commitment shall (i) be executed by the Borrower, (ii) be payable to the order
of such Bank and be dated the Restatement Effective Date, (iii) be in a stated
principal amount equal to the Revolving Loan Commitment of such Bank and be
payable in the principal amount of the Revolving Loans evidenced thereby, (iv)
mature on the Revolving Loan Maturity Date, (v) bear interest as provided in the

<PAGE>   11

appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 3.01, and mandatory repayment as
provided in Section 3.02 and (vii) be entitled to the benefits of this Agreement
and the Guaranties and be secured by the Security Documents.

          (d) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or the making of an incorrect notation shall not affect the Borrower's
obligations in respect of such Loans.

          1.06 Conversions. The Borrower shall have the option to convert, on
any Business Day, all or a portion at least equal to the Minimum Borrowing
Amount of the outstanding principal amount of the Loans made pursuant to one or
more Borrowings (so long as of the same Tranche) of one Type of Loan into a
Borrowing or Borrowings (of the same Tranche) of the other Type of Loan;
provided that:

               (i) except as otherwise provided in Section 1.10(b), Eurodollar
          Loans may be converted into Base Rate Loans only on the last day of an
          Interest Period applicable to the Loans being converted and no such
          partial conversion of Eurodollar Loans shall reduce the outstanding
          principal amount of such Eurodollar Loans made pursuant to a single
          Borrowing to less than the Minimum Borrowing Amount applicable
          thereto;

               (ii) Base Rate Loans may only be converted into Eurodollar Loans
          if no Default or Event of Default is in existence on the date of the
          conversion;

               (iii) no conversion pursuant to this Section 1.06 shall result in
          a greater number of Borrowings than is permitted under Section 1.02;
          and

               (iv) prior to the Syndication Termination Date, Loans may be
          converted into Eurodollar Loans that have a one-week Interest Period.

Each such conversion shall be effected by the Borrower by giving the
Administrative Agent at its Notice Office prior to 12:00 Noon (New York time) at
least three (3) Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) (each a "Notice of Conversion") which notice
shall be in the form of Exhibit C, appropriately completed to specify the Loans
to be so converted, the Borrowing(s) pursuant to which such Loans were made and,
if to be converted into Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall give each Bank prompt notice
of any such proposed conversion affecting any of its Loans.

          1.07 Pro Rata Borrowings. All Borrowings of Loans under this Agreement
shall be incurred from the Banks pro rata on the basis of their respective Term
Loan Commitments or Revolving Loan Commitments, as the case may be. It is
understood that no Bank shall be responsible for any default by any other Bank
of its obligation to make Loans hereunder and that each Bank shall be obligated
to make the Loans provided to be made by it hereunder regardless of the failure
of any other Bank to make its Loans hereunder.
<PAGE>   12

          1.08 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan made to it from the date of
the Borrowing thereof until the earlier of (i) the maturity thereof (whether by
acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of
such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per
annum which shall at all times be equal to the sum of the Applicable Margin plus
the Base Rate in effect from time to time.

          (b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date of the
Borrowing thereof until the earlier of (i) the maturity (whether by acceleration
or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar
Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of the Applicable Margin plus the Quoted
Rate for such Interest Period.

          (c) Following an Event of Default under Section 9.03 with respect to
Sections 8.08 through 8.14, inclusive, or Section 8.20, or a Default under
Section 9.01 or Section 9.05, the unpaid principal amount of each Loan shall
bear interest at a rate per annum equal to the greater of (x) 2% per annum in
excess of the rate otherwise applicable to the Base Rate Loans of the respective
Tranche of Loans from time to time and (y) the rate which is 2% in excess of the
rate borne by such Loans. In addition, overdue principal and, to the extent
permitted by law, overdue interest in respect of each Loan and any other overdue
amount payable hereunder shall, in each case, bear interest at a rate per annum
equal to the greater of (x) 2% per annum in excess of the rate otherwise
applicable to the Base Rate Loans of the respective Tranche of Loans from time
to time and (y) the rate which is 2% in excess of the rate borne by such Loans.
Interest which accrues under this Section 1.08(c) shall be payable on demand;
provided, however, in no event shall the increased interest rate specified in
the two preceding sentences be cumulative.

          (d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Day, (ii) in respect of each Eurodollar Loan on (x) the date of any prepayment
or repayment thereof (on the amount prepaid or repaid), (y) the date of any
conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as
applicable (on the amount converted) and (z) on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period, (iii) in respect of each Loan, at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand and (iv) in
respect of each Existing Loan, on the Restatement Effective Date.

          (e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Quoted Rate for the Interest Period applicable to Eurodollar
Loans and shall promptly notify the Borrower and the Banks thereof. Each such
determination shall, absent manifest error, be final and conclusive and binding
on all parties hereto.

          (f) All computations of interest hereunder shall be made in accordance
with Section 12.07(b).
<PAGE>   13

          1.09 Interest Periods. At the time it gives any Notice of Borrowing or
Notice of Conversion in respect of the making of, or conversion into, a
Eurodollar Loan (in the case of the initial Interest Period applicable thereto)
or prior to 10:00 A.M. (New York time) on the third Business Day prior to the
expiration of an Interest Period applicable to such Eurodollar Loan (in the case
of any subsequent Interest Period), the Borrower shall have the right to elect,
by giving the Administrative Agent notice thereof, the interest period (each an
"Interest Period") applicable to such Eurodollar Loan, which Interest Period
shall, at the option of the Borrower, be a one, two, three, six or, if available
to each of the Banks (as determined by each such Bank in its sole discretion
based on prevailing conditions in the interbank Eurodollar market on any date of
determination thereof), nine or twelve month period provided that prior to the
Syndication Termination Date, one week Interest Periods may be selected so long
as all Interest Periods end on the same date, such date to occur prior to the
Syndication Termination Date; provided that:

               (i) all Eurodollar Loans comprising a single Borrowing shall at
          all times have the same Interest Period;

               (ii) the initial Interest Period for any Eurodollar Loan shall
          commence on the date of Borrowing of such Loan (including the date of
          any conversion thereto from a Borrowing of Base Rate Loans) and each
          Interest Period occurring thereafter in respect of such Loan shall
          commence on the day on which the next preceding Interest Period
          applicable thereto expires;

               (iii) if any Interest Period relating to a Eurodollar Loan begins
          on a day for which there is no numerically corresponding day in the
          calendar month at the end of such Interest Period, such Interest
          Period shall end on the last Business Day of such calendar month;

               (iv) if any Interest Period would otherwise expire on a day which
          is not a Business Day, such Interest Period shall expire on the next
          succeeding Business Day; provided, however, that if any Interest
          Period for a Eurodollar Loan would otherwise expire on a day which is
          not a Business Day but is a day of the month after which no further
          Business Day occurs in such month, such Interest Period shall expire
          on the next preceding Business Day;

               (v) no Interest Period for a Borrowing under a Tranche shall be
          selected which extends beyond the respective Maturity Date of such
          Tranche;

               (vi) no Interest Period may be selected at any time when any
          Default or Event of Default is then in existence;

               (vii) no Interest Period in respect of any Borrowing of Term
          Loans shall be selected which extends beyond any date upon which a
          mandatory repayment of such Term Loans will be required to be made
          under Section 3.02(A)(c) if, after giving effect to the selection of
          such Interest Period, the aggregate principal amount of such Term
          Loans maintained as Eurodollar Loans which have Interest Periods
          expiring after such date will be in excess of the aggregate principal
          amount of such Term Loans then outstanding less the aggregate amount
          of such required prepayment;

<PAGE>   14

               (viii) no Interest Period in respect of any Borrowing of
          Revolving Loans shall be selected which extends beyond any Scheduled
          Revolving Loan Commitment Reduction Date if, after giving effect to
          the selection of such Interest Period, the aggregate principal amount
          of Revolving Loans maintained as Eurodollar Loans which have Interest
          Periods expiring after such date will be in excess of the aggregate
          principal amount of Revolving Loans then outstanding less the excess,
          if any, of the amount of the Scheduled Revolving Loan Commitment
          Reduction on such date over the Total Unutilized Revolving Loan
          Commitment; and

               (ix) no Interest Period (other than an Interest Period which is a
          one (1) week period) may be selected prior to the Syndication
          Termination Date.

If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans the Borrower has failed to elect a new Interest Period to be
applicable to such Eurodollar Loans as provided above or a Default or Event of
Default then exists, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Base Rate Loans effective as of the expiration date
of such current Interest Period.

          1.10 Increased Costs, Illegality, etc. (a) In the event that any Bank
shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):

               (i) on any Interest Determination Date that, by reason of any
          changes arising after the date of this Agreement affecting the
          interbank Eurodollar market, adequate and fair means do not exist for
          ascertaining the applicable interest rate on the basis provided for in
          the definition of Quoted Rate; or

               (ii) at any time, that such Bank shall incur increased costs or
          reductions in the amounts received or receivable hereunder with
          respect to any Eurodollar Loan because of (x) any change since the
          Original Effective Date in any applicable law or governmental rule,
          regulation, order, guideline or request (whether or not having the
          force of law) or in the interpretation or administration thereof and
          including the introduction of any new law or governmental rule,
          regulation, order, guideline or request, such as, for example, but not
          limited to: (A) a change in the basis of taxation of payments to any
          Bank of the principal of or interest on the Notes or any other amounts
          payable hereunder (except for changes in the rate of tax on, or
          determined by reference to, the net income or profits of such Bank
          imposed by the jurisdiction in which its principal office or
          applicable lending office is located) or (B) a change in official
          reserve requirements (but, in all events, excluding reserves required
          under Regulation D to the extent included in the computation of the
          Quoted Rate) and/or (y) other circumstances since the Original
          Effective Date affecting such Bank or the interbank Eurodollar market
          or the position of such Bank in such market; or

               (iii) at any time, that the making or continuance of any
          Eurodollar Loan has been made (x) unlawful by any law or governmental
          rule, regulation or order, (y) impossible by compliance by any Bank in


<PAGE>   15

          good faith with any governmental request (whether or not having the
          force of law) or (z) impracticable as a result of a contingency
          occurring after the date of this Agreement which materially and
          adversely affects the interbank Eurodollar market;

then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (if by telephone, promptly
confirmed in writing) to the Borrower, and, except in the case of clause (i)
above, to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each of the other Banks).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Administrative Agent notifies the Borrower
and the Banks that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred (including by way of conversion) shall be deemed rescinded by
the Borrower, (y) in the case of clause (ii) above, the Borrower shall pay to
such Bank, upon written demand therefor, such additional amounts (in the form of
an increased rate of, or a different method of calculating, interest
or otherwise as such Bank in its sole discretion shall determine) as shall be
required to compensate such Bank for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Bank, showing in reasonable detail the basis for the
calculation thereof, submitted to the Borrower by such Bank shall, absent
manifest error, be final and conclusive and binding on all the parties hereto)
and (z) in the case of clause (iii) above, the Borrower shall take one of the
actions specified in Section 1.10(b) as promptly as possible and, in any event,
within the time period required by law.

          (b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (i) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, by giving the Administrative
Agent telephonic notice (confirmed in writing) on the same date that the
Borrower was notified by the affected Bank or the Administrative Agent pursuant
to Section 1.10(a)(ii) or (iii), cancel the respective Borrowing or conversion,
or (ii) if the affected Eurodollar Loan is then outstanding, upon at least three
(3) Business Days' written notice to the Administrative Agent, require the
affected Bank to convert such Eurodollar Loan into a Base Rate Loan; provided
that if more than one Bank is affected at any time, then all affected Banks must
be treated the same pursuant to this Section 1.10(b).

          (c) If at any time after the Original Effective Date hereof, any Bank
determines that the introduction of or any change in applicable law or
governmental rule, regulation, order, guideline or request (whether or not
having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by such Bank or any corporation
controlling such Bank based on the existence of such Bank's Commitments
hereunder or its obligations hereunder, then the Borrower shall pay to such
Bank, upon its written demand therefor, such additional amounts as shall be
required to compensate such Bank for the increased cost to such Bank or such
other corporation or the reduction in the rate of return to such Bank or such

<PAGE>   16

other corporation as a result of such increase of capital. In determining such
additional amounts, each Bank will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable; provided that such
Bank's determination of compensation owing under this Section 1.10(c) shall,
absent manifest error, be final and conclusive and binding on all the parties
hereto. Each Bank, upon determining that any additional amounts will be payable
pursuant to this Section 1.10(c), will give prompt written notice thereof to the
Borrower, which notice shall show in reasonable detail the basis for calculation
of such additional amounts, although the failure to give any such notice shall
not release or diminish any of the Borrower's obligations to pay additional
amounts pursuant to this Section 1.10(c).

          1.11 Compensation. Holdings and the Borrower jointly and severally
agree to compensate each Bank, upon its written request (which request shall set
forth in reasonable detail the basis for requesting such compensation), for all
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Eurodollar Loans)
which such Bank may sustain: (i) if for any reason (other than a default by such
Bank or the Administrative Agent) a Borrowing of, or conversion from or into,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including
any repayment made on the Restatement Effective Date or made pursuant to Section
3.02 or as a result of an acceleration of the Loans pursuant to Section 9) or
conversion of any of its Eurodollar Loans occurs on a date which is not the last
day of an Interest Period with respect thereto; (iii) if any prepayment of any
of its Eurodollar Loans is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Eurodollar Loans when required by the terms
of this Agreement or any Note held by such Bank or (y) any election made
pursuant to Section 1.10(b). A Bank's basis for requesting compensation pursuant
to this Section, and a Bank's calculations of the amount thereof, shall, absent
manifest error, be final and conclusive and binding on all the parties hereto.

          1.12 Replacement of Banks. If any Bank becomes a Defaulting Bank then
the Borrower shall have the right, if no Default or Event of Default then
exists, to replace such Bank (the "Replaced Bank") with any other Bank or with
one or more Eligible Transferee or Transferees, none of whom shall constitute a
Defaulting Bank at the time of such replacement (collectively, the "Replacement
Bank") reasonably acceptable to the Agents and the Issuing Bank or, at the
option of the Borrower, to replace the Commitments (and Loans outstanding
pursuant thereto) of the Replaced Bank with identical Commitments (and Loans
outstanding pursuant thereto) provided by the Replacement Bank; provided that:

               (i) at the time of any replacement pursuant to this Section 1.12,
          the Replacement Bank shall enter into one or more assignment
          agreements pursuant to Section 12.04(b) (and with all fees payable
          pursuant to said Section 12.04(b) to be paid by the Replacement Bank)
          pursuant to which the Replacement Bank shall acquire all of the
          Commitments and outstanding Loans of the Replaced Bank and, in the
          case of replacement of the Revolving Loan Commitment of the respective
          Bank, participations in Letters of Credit by, the Replaced Bank and in
          connection therewith, shall pay to (x) the Replaced Bank in respect
          thereof an amount equal to the sum of (A) an amount equal to the
          principal of, and all accrued interest on, all outstanding Loans and
          (B) an amount equal to such Replaced Bank's Percentage of all Unpaid
          Drawings that have been funded by (and not reimbursed to) such
          Replaced Bank, together with all then unpaid interest with respect
          thereto at such time and (C) an amount equal to all accrued, but
          theretofore unpaid, Fees owing to the Replaced Bank pursuant to
          Section 2.01 hereof, and (y) the Issuing Bank or Banks, an amount
          equal to such Replaced Bank's Percentage of any Unpaid Drawing (which
          at such time remains an Unpaid Drawing) with respect to a Letter of
          Credit issued by such Issuing Bank to the extent such amount was not
          theretofore funded by such Replaced Bank; and



<PAGE>   17




        

               (ii) all obligations of the Borrower owing to the Replaced Bank
          (other than those specifically described in clause (i) above in
          respect of which the assignment purchase price has been, or is
          concurrently being, paid) shall be paid in full by the Borrower to
          such Replaced Bank concurrently with such replacement.

Upon the execution of the respective assignment documentation, the payment of
amounts referred to in clauses (i) and (ii) above, recordation of the assignment
on the Register by the Administrative Agent pursuant to Section 7.16 and, if so
requested by the Replacement Bank, delivery to the Replacement Bank of the
appropriate Note or Notes, executed by the Borrower, (x) the Replacement Bank
shall become a Bank hereunder and (y) the Replaced Bank shall cease to
constitute a Bank hereunder with respect to the Loans and Commitments so
transferred, except with respect to indemnification provisions under this
Agreement, which shall survive as to such Replaced Bank, and the Percentages of
the Banks shall be automatically adjusted at such time to give effect to such
replacement.

          Section 1A.  Letters of Credit.

          1A.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request any Issuing Bank at any
time and from time to time on and after the Restatement Effective Date and prior
to the third Business Day immediately preceding the Revolving Loan Maturity Date
to issue, for the account of the Borrower and for the benefit of any holder (or
any trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness, an irrevocable standby letter of credit in a form
customarily used by such Issuing Bank or in such other form as has been approved
by such Issuing Bank in support of said L/C Supportable Indebtedness (each such
letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit"); provided that the Borrower may request any Issuing Bank after the
Restatement Effective Date to issue one or more Letters of Credit in support of
the NRTC L/C Obligation (collectively, the "NRTC Letter of Credit"). All Letters
of Credit shall be denominated in Dollars.

          (b) Each Issuing Bank (other than Fleet) may agree in its sole
discretion and Fleet hereby agrees that it will (subject to the terms and
conditions contained herein), at any time and from time to time after the
Restatement Effective Date and prior to the Revolving Loan Maturity Date,
following its receipt of the respective Letter of Credit Request, issue for the
account of the Borrower one or more Letters of Credit in support of such L/C
Supportable Indebtedness as is permitted to remain outstanding without giving
rise to a Default or Event of Default hereunder; provided that the respective
Issuing Bank shall be under no obligation to issue any Letter of Credit if at
the time of such issuance:


<PAGE>   18


               (i) any order, judgment or decree of any governmental authority
          or arbitrator shall purport by its terms to enjoin or restrain such
          Issuing Bank from issuing such Letter of Credit or any requirement of
          law applicable to such Issuing Bank or any request or directive
          (whether or not having the force of law) from any governmental
          authority with jurisdiction over such Issuing Bank shall prohibit, or
          request that such Issuing Bank refrain from, the issuance of letters
          of credit generally or such Letter of Credit in particular or shall
          impose upon such Issuing Bank with respect to such Letter of Credit
          any restriction or reserve or capital requirement (for which such
          Issuing Bank is not otherwise compensated) not in effect on the date
          hereof, or any unreimbursed loss, cost or expense which was not
          applicable, in effect or known to such Issuing Bank as of the date
          hereof and which such Issuing Bank in good faith deems material to it;

               (ii) such Issuing Bank shall have received a notice of the type
          described in the second sentence of Section 1A.03(b) from any Bank
          prior to the issuance of such Letter of Credit; or

               (iii) a Bank Default exists, unless such Issuing Bank has entered
          into arrangements satisfactory to it and the Borrower to eliminate
          such Issuing Bank's risk with respect to the Bank which is the subject
          of the Bank Default, including by cash collateralizing such Bank's
          Percentage of the Letter of Credit Outstandings.

Schedule II attached hereto contains a description of all letters of credit
issued by an Issuing Bank pursuant to the Existing Credit Agreement and which
are to remain outstanding on the Restatement Effective Date. Each such letter of
credit, including any extension thereof (each an "Existing Letter of Credit")
shall constitute a "Letter of Credit" for all purposes of this Agreement. Each
Existing Letter of Credit shall be deemed issued for purposes of Sections 1A.04
and 2.01(b) through (d), inclusive, on the Restatement Effective Date.

          (c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of,
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed (x) $20,000,000 (or $40,000,000 at any time after the Borrower shall have
issued Acceptable Subordinated Debt), (y) when added to the aggregate principal
amount of all Revolving Loans then outstanding, the Total Revolving Loan
Commitment then in effect (after giving effect to any reductions to the Total
Revolving Loan Commitment on such date) or (z) when added to the aggregate
principal amount of all Revolving Loans then outstanding and the aggregate
principal amount of all Term Loans then outstanding and the aggregate
outstanding amount of all other Net Adjusted Consolidated Indebtedness at such
time, the Borrowing Base at such time and (ii) each Letter of Credit shall by
its terms terminate on or before the earlier of (x) the date which occurs twelve
(12) months after the date of the issuance thereof (although any such Letter of
Credit may be renewable for successive periods of up to twelve (12) months, but
not beyond the Revolving Loan Maturity Date, on terms acceptable to the Issuing
Bank) and (y) the third Business Day immediately preceding the Revolving Loan
Maturity Date.

<PAGE>   19
          1A.02 Minimum Stated Amount. The Stated Amount of each Letter of
Credit shall be not less than $1,000,000 or such lesser amount as is acceptable
to the Issuing Bank.

          1A.03 Letter of Credit Requests. (a) Whenever the Borrower desires
that a Letter of Credit be issued for its account, the Borrower shall give the
Administrative Agent and the respective Issuing Bank at least ten (10) Business
Days' (or such shorter period as is acceptable to the respective Issuing Bank in
any given case) written notice prior to the proposed date of issuance (which
shall be a Business Day). Each notice shall be in the form of Exhibit D (each a
"Letter of Credit Request"). The Issuing Bank shall promptly transmit copies of
each Letter of Credit Request to each Bank.

          (b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the Borrower that such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
1A.01(c). Unless the Issuing Bank has received notice from any Bank before it
issues a Letter of Credit that one or more of the conditions specified in
Section 5 are not then satisfied, or that the issuance of such Letter of Credit
would violate Section 1A.01(c), then such Issuing Bank may issue the requested
Letter of Credit for the account of the Borrower in accordance with the Issuing
Bank's usual and customary practices.

          1A.04 Letter of Credit Participations. (a) Immediately upon the
issuance by the respective Issuing Bank of any Letter of Credit or on the
Restatement Effective Date with respect to Existing Letters of Credit, such
Issuing Bank shall be deemed to have sold and transferred to each Bank with a
Revolving Loan Commitment, other than such Issuing Bank (each such Bank, in its
capacity under this Section 1A.04, a "Participant"), and each such Participant
shall be deemed irrevocably and unconditionally to have purchased and received
from such Issuing Bank, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's Percentage in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder and the
obligations of the Borrower under this Agreement with respect thereto, and any
security therefor or guaranty pertaining thereto. Upon any change in the
Revolving Loan Commitments of the Banks pursuant to Section 12.04, it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this Section 1A.04 to reflect the new Percentages of the assignor and
assignee Bank or of all Banks with Revolving Loan Commitments, as the case may
be.

          (b) In determining whether to pay under any Letter of Credit, the
Issuing Bank shall not have any obligation relative to the other Banks other
than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by any Issuing Bank under or in connection with any Letter of Credit
if taken or omitted in the absence of gross negligence or willful misconduct,
shall not create for such Issuing Bank any resulting liability to the Borrower
or any Bank.

<PAGE>   20

          (c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed such amount in full
to the Issuing Bank pursuant to Section 1A.05(a), such Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Issuing
Bank the amount of such Participant's Percentage of such unreimbursed payment in
Dollars and in same day funds. If the Administrative Agent so notifies, prior to
11:00 A.M. (New York time) on any Business Day, any Participant required to fund
a payment under a Letter of Credit, such Participant shall make available to the
Administrative Agent at the Payment Office of the Administrative Agent for the
account of such Issuing Bank in Dollars such Participant's Percentage of the
amount of such payment on such Business Day in same day funds. If and to the
extent such Participant shall not have so made its Percentage of the amount of
such payment available to the Administrative Agent for the account of such
Issuing Bank, such Participant agrees to pay to the Administrative Agent for the
account of such Issuing Bank, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is paid
to the Administrative Agent for the account of such Issuing Bank at the
overnight Federal Funds Rate. The failure of any Participant to make available
to the Administrative Agent for the account of such Issuing Bank its Percentage
of any payment under any Letter of Credit shall not relieve any other
Participant of its obligation hereunder to make available to the Administrative
Agent for the account of such Issuing Bank its Percentage of any Letter of
Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Administrative Agent for the account of such Issuing Bank such other
Participant's Percentage of any such payment.

          (d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which the Administrative Agent has received for the account of
such Issuing Bank any payments from the Participants pursuant to clause (c)
above, such Issuing Bank shall pay to the Administrative Agent and the
Administrative Agent shall promptly pay each Participant which has paid its
Percentage thereof, in Dollars and in same day funds, an amount equal to such
Participant's share (based on the proportionate aggregate amount funded by such
Participant to the aggregate amount funded by all Participants) of the principal
amount of such reimbursement obligation and interest thereon accruing after the
purchase of the respective participations.

          (e) The obligations of the Participants to make payments to the
Administrative Agent for the account of each Issuing Bank with respect to
Letters of Credit issued shall be irrevocable and not subject to any
qualification or exception whatsoever and shall be made in accordance with the
terms and conditions of this Agreement under all circumstances, including,
without limitation, any of the following circumstances:

               (i) any lack of validity or enforceability of this Agreement or
          any of the Credit Documents;

               (ii) the existence of any claim, setoff, defense or other right
          which the Borrower may have at any time against a beneficiary named in
          a Letter of Credit, any transferee of any Letter of Credit (or any
          Person for whom any such transferee may be acting), the Agents, any
          Participant, or any other Person, whether in connection with this



<PAGE>   21





          Agreement, any Letter of Credit, the transactions contemplated herein
          or any unrelated transactions (including any underlying transaction
          between the Borrower and the beneficiary named in any such Letter of
          Credit);

               (iii) any draft, certificate or any other document presented
          under any Letter of Credit proving to be forged, fraudulent, invalid
          or insufficient in any respect or any statement therein being untrue
          or inaccurate in any respect;

               (iv) the surrender or impairment of any security for the
          performance or observance of any of the terms of any of the Credit
          Documents; or

               (v) the occurrence of any Default or Event of Default.

          1A.05 Agreement to Repay Letter of Credit Drawings. (a) The Borrower
hereby agrees to reimburse the respective Issuing Bank, by making payment to the
Administrative Agent in immediately available funds at the Payment Office (or by
making the payment directly to such Issuing Bank at such location as may
otherwise have been agreed upon by the Borrower and such Issuing Bank), for any
payment or disbursement made by such Issuing Bank under any Letter of Credit
(each such amount so paid until reimbursed, an "Unpaid Drawing"), immediately
after, and in any event on the date of, such payment or disbursement, with
interest on the amount so paid or disbursed by such Issuing Bank, to the extent
not reimbursed prior to 12:00 Noon (New York time) on the date of such payment
or disbursement, from and including the date paid or disbursed to but excluding
the date such Issuing Bank is reimbursed by the Borrower therefor at a rate per
annum which shall be the Base Rate in effect from time to time plus 4 1/4%, in
each case with such interest to be payable on demand.

          (b) The obligations of the Borrower under this Section 1A.05 to
reimburse the respective Issuing Bank with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Bank
(including in its capacity as Issuing Bank or as Participant), including,
without limitation, any defense based upon the failure of any drawing under a
Letter of Credit (each a "Drawing") to conform to the terms of the Letter of
Credit or any nonapplication or misapplication by the beneficiary of the
proceeds of such Drawing; provided, however, that the Borrower shall not be
obligated to reimburse any Issuing Bank for any wrongful payment made by such
Issuing Bank under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Issuing
Bank.

          1A.06 Increased Costs. If at any time after the Original Effective
Date hereof any Issuing Bank or any Participant determines that the introduction
of or any change in any applicable law, rule, regulation, order, guideline or
request or in the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by such Issuing Bank or any Participant, or any corporation 



<PAGE>   22





controlling such Person, with any request or directive by any such authority
(whether or not having the force of law), shall either (i) impose, modify or
make applicable any reserve, deposit, capital adequacy or similar requirement
against letters of credit issued by such Issuing Bank or participated in by any
Participant, or (ii) impose on such Issuing Bank or any Participant, or any
corporation controlling such Person, any other conditions relating, directly or
indirectly, to this Agreement or any Letter of Credit; and the result of any of
the foregoing is to increase the cost to such Issuing Bank or any Participant of
issuing, maintaining or participating in any Letter of Credit, or reduce the
amount of any sum received or receivable by such Issuing Bank or any Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit, then, upon demand to the Borrower by such Issuing Bank or any
Participant (a copy of which demand shall be sent by such Issuing Bank or such
Participant to the Administrative Agent), the Borrower shall pay to such Issuing
Bank or such Participant such additional amount or amounts as will compensate
such Bank for such increased cost or reduction in the amount receivable or
reduction on the rate of return on its capital. Such Issuing Bank or any
Participant, upon determining that any additional amounts will be payable
pursuant to this Section 1A.06, will give prompt written notice thereof to the
Borrower, which notice shall include a certificate submitted to the Borrower by
such Issuing Bank or such Participant (a copy of which certificate shall be sent
by such Issuing Bank or such Participant to the Administrative Agent), setting
forth in reasonable detail the basis for the calculation of such additional
amount or amounts necessary to compensate such Issuing Bank or such Participant,
although failure to give any such notice shall not release or diminish the
Borrower's obligations to pay additional amounts pursuant to this Section 1A.06.
The certificate required to be delivered pursuant to this Section 1A.06 shall,
absent manifest error, be final, conclusive and binding on the Borrower.

          Section 2. Commitment Commission; Fees; Reductions of Commitment.

          2.01 Fees. (a) The Borrower agrees to pay to the Administrative Agent
for distribution to each Bank with a Revolving Loan Commitment a commitment
commission (the "Commitment Commission") for the period from and including the
Restatement Effective Date to and excluding the Revolving Loan Maturity Date (or
such earlier date as the Total Commitment shall have been terminated) computed
at a rate for each day equal to 1/2 of 1% per annum on the daily Unutilized
Revolving Loan Commitment of such Bank. Accrued Commitment Commission shall be
due and payable quarterly in arrears on each Quarterly Payment Date and on the
Revolving Loan Maturity Date or such earlier date upon which the Total
Commitment is terminated.

          (b) The Borrower agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such Issuing
Bank hereunder (the "Facing Fee"), for the period from and including the date of
issuance of such Letter of Credit (which in the case of the Existing Letters of
Credit shall be the Restatement Effective Date) to and including the date of
termination of such Letter of Credit, equal to 1/4 of 1% per annum of the daily
Stated Amount of such Letter of Credit; provided that in no event shall the
annual Facing Fee with respect to each Letter of Credit be less than $500.




<PAGE>   23





Accrued Facing Fees shall be due and payable in arrears to the Issuing Bank in
respect of each Letter of Credit issued by it on each Quarterly Payment Date and
the date of the termination of the Total Revolving Loan Commitment on which no
Letters of Credit remain outstanding.

          (c) The Borrower agrees to pay to the Administrative Agent for
distribution to each Bank with a Revolving Loan Commitment a fee in respect of
each Letter of Credit issued hereunder (the "Letter of Credit Fee"), for the
period from and including the date of issuance of such Letter of Credit (which
in the case of the Existing Letters of Credit shall be the Restatement Effective
Date) to and including the date of termination of such Letter of Credit,
computed at a rate per annum equal to the product of (x) the Applicable
Eurodollar Rate Margin for Revolving Loans and (y) the daily Stated Amount of
such Letter of Credit. Letter of Credit Fees shall be distributed by the
Administrative Agent to the Banks on the basis of the respective Percentages as
in effect from time to time. Accrued Letter of Credit Fees shall be due and
payable quarterly in arrears on each Quarterly Payment Date and on the date of
the termination of the Total Revolving Loan Commitment on which no Letters of
Credit remain outstanding.

          (d) The Borrower hereby agrees to pay in immediately available funds
directly to the Issuing Bank upon each issuance of, drawing under, and/or
amendment of, a Letter of Credit issued by the Issuing Bank such amount as shall
at the time of such issuance, drawing or amendment be the administrative charge
which the Issuing Bank is customarily charging for issuances of, drawings under
(including wire charges) or amendments of, letters of credit issued by it or
such alternative amounts as may have been agreed upon in writing by the Borrower
and the Issuing Bank.

          (e) Notwithstanding anything to the contrary contained in this
Agreement or in the Existing Credit Agreement, all unpaid Fees under, and as
defined in, the Existing Credit Agreement (including, without limitation, all
Commitment Commission as defined in the Existing Credit Agreement) accrued to
the Restatement Effective Date (immediately prior to giving effect thereto)
shall be payable on the Restatement Effective Date.

          (f) The Borrower shall pay to the Agents, for their accounts, such
other fees and other consideration as have been agreed to in writing by the
Borrower or any of its Subsidiaries and one or both of the Agents.

          2.02 Voluntary Termination of Unutilized Commitments. Upon at least
three (3) Business Days' prior written notice (or telephonic notice promptly
confirmed in writing) to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Banks),
the Borrower shall have the right, without premium or penalty, to terminate the
Total Unutilized Revolving Loan Commitment in whole or in part; provided that
(i) each such reduction shall apply proportionately to reduce the Revolving Loan
Commitment of each Bank with such a Commitment, (ii) any partial reduction
pursuant to this Section 2.02 shall be in integral multiples of at least
$1,000,000 in the case of reductions to the Total Unutilized Revolving Loan
Commitment, and (iii) any partial reduction of the Total Unutilized Revolving 
Loan Commitment pursuant to this Section 2.02 shall apply to reduce the amount
of the then-remaining Scheduled Revolving Loan Commitment Reductions in inverse
order of maturity.

          2.03 Mandatory Reduction of Commitments. (a) The Total Commitment (and
the Term Loan Commitment and the Revolving Loan Commitment of each Bank with
such a Commitment) shall terminate on May 15, 1998 unless the Restatement
Effective Date has occurred on or before such date.

          (b) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Term Loan Commitment (and the Term Loan
Commitment of each Bank with such a Commitment) shall terminate in its entirety
on the Restatement Effective Date (after giving effect to the incurrence of Term
Loans on such date).

<PAGE>   24

          (c) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank with such a Commitment) shall terminate in its
entirety on the Revolving Loan Maturity Date.

          (d) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank with such a Commitment) shall be reduced at the
time any payment is required to be made on the principal amount of Revolving
Loans (or would be required to be made if Revolving Loans were then outstanding)
pursuant to Section 3.02(B)(a), by an amount equal to the maximum amount of
Revolving Loans that would be required to be repaid pursuant to Section
3.02(B)(a) assuming that Revolving Loans were outstanding in an aggregate
principal amount equal to the Total Revolving Loan Commitment. All reductions to
the Total Revolving Loan Commitment pursuant to this Section 2.03(d) shall be
applied to reduce the amount of then-remaining Scheduled Revolving Loan
Commitment Reductions in inverse order of maturity.

          (e) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, on each date set forth below (each, a "Scheduled Revolving
Loan Commitment Reduction Date"), the Revolving Loan Commitment shall be
permanently reduced by the amount set forth opposite such date (each such
reduction, as such reduction may have been reduced pursuant to Section 2.02
and/or 2.03(d), a "Scheduled Revolving Loan Commitment Reduction"):

      Scheduled Revolving Loan Commitment Reduction Amount Date

                     June 30, 2000                         $4,312,500
                     September 30, 2000                    $4,312,500
                     December 31, 2000                     $4,312,500
                     March 31, 2001                        $4,312,500
                     June 30, 2001                         $5,750,000
                     September 30, 2001                    $5,750,000
                     December 31, 2001                     $5,750,000
                     March 31, 2002                        $5,750,000
                     June 30, 2002                         $7,187,500
                     September 30, 2002                    $7,187,500
                     December 31, 2002                     $7,187,500
                     March 31, 2003                        $7,187,500
                     June 30, 2003                         $8,625,000
                     September 30, 2003                    $8,625,000
                     December 31, 2003                     $8,625,000
                     March 31, 2004                        $8,625,000
                     June 30, 2004                        $11,500,000

<PAGE>   25


          (f) Each reduction to the Total Revolving Loan Commitment pursuant to
this Section 2.03 shall be applied proportionately to reduce the Revolving Loan
Commitment of each Bank with such a Commitment.

          Section 3. Prepayments; Payments; Taxes.

          3.01 Voluntary Prepayments. The Borrower shall have the right to
prepay Loans, without premium or penalty, in whole or in part from time to time
on the following terms and conditions:

               (i) the Borrower shall give the Administrative Agent prior to
          10:00 A.M. (New York time) at its Notice Office at least three (3)
          Business Days' prior written notice in the case of Eurodollar Loans
          and one (1) Business Day's prior written notice in the case of Base
          Rate Loans of its intent to prepay the Loans, whether Term Loans or
          Revolving Loans shall be prepaid, the amount of such prepayment and
          the Types of Loans to be prepaid and, in the case of Eurodollar Loans,
          the specific Borrowing or Borrowings pursuant to which made, which
          notice the Administrative Agent shall promptly transmit to each of the
          Banks;

               (ii) each prepayment shall be in an aggregate principal amount of
          at least the applicable Minimum Borrowing Amount and, if greater, in
          integral multiples of $500,000; provided that no partial prepayment of
          Eurodollar Loans made pursuant to any Borrowing shall reduce the
          outstanding Loans made pursuant to such Borrowing to an amount less
          than the Minimum Borrowing Amount;

               (iii) no prepayments of Eurodollar Loans made pursuant to this
          Section 3.01 may be made on a day other than the last day of an
          Interest Period applicable thereto;

               (iv) each prepayment in respect of any Loans made pursuant to a
          Borrowing shall be applied pro rata among such Loans; and

               (v) each prepayment of Term Loans pursuant to this Section 3.01
          shall be applied to reduce the then remaining Scheduled Repayments in
          inverse order of maturity.

          3.02 Mandatory Repayments and Commitment Reductions.

          (A) Requirements:

          (a) If any Borrowing Base Certificate shall disclose the existence of
a Borrowing Base Deficiency, the Borrower shall on the date of delivery of the
Borrowing Base Certificate in accordance with Section 5.06, repay the principal
of the Revolving Loans outstanding in an aggregate amount equal to the Borrowing
Base Deficiency and, to the extent such Revolving Loans have been repaid in
full, and, to the extent such Borrowing Base Deficiency continues to exist after
such repayment, the Borrower shall pay to the Administrative Agent at its
Payment Office an amount of cash or Cash Equivalents equal to such excess, such
cash or Cash Equivalents to be held as security for all Obligations of the

<PAGE>   26

Borrower hereunder with respect to the Letter of Credit Outstandings in a cash
collateral account established and maintained (including the investments made
pursuant thereto) by the Administrative Agent pursuant to a cash collateral
agreement in form and substance satisfactory to the Administrative Agent (the
"Letter of Credit Cash Collateral Account"). In the event that a Borrowing Base
Deficiency continues to exist after such repayment and cash collateralization,
the Borrower shall not be required to make any further repayments in connection
with such Borrowing Base Deficiency. In the event that cash and Cash Equivalents
held in the Letter of Credit Cash Collateral Account exceed the amount of the
Borrowing Base Deficiency, then, so long as there shall exist no Default or
Event of Default, such excess amount shall be returned to the Borrower.

          (b) On any day on which the sum of the aggregate outstanding principal
amount of the Revolving Loans and Letter of Credit Outstandings at such time
exceeds the Total Revolving Loan Commitment as then in effect, the Borrower
shall prepay the principal of Revolving Loans in an amount equal to such excess.
If, after giving effect to the prepayment of all outstanding Revolving Loans,
the aggregate amount of the Letter of Credit Outstandings exceeds the Total
Revolving Loan Commitment as then in effect, the Borrower shall pay to the
Administrative Agent at its Payment Office on such date an amount of cash or
Cash Equivalents equal to the amount of such excess, such cash or Cash
Equivalents to be held as security for all Obligations of the Borrower hereunder
in the Letter of Credit Cash Collateral Account.

          (c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), the Borrower shall repay on each
date set forth below (provided that if any date set forth below is not a
Business Day then the repayment shall occur on the first Business Day
immediately succeeding such date set forth below) the principal amount of Term
Loans, to the extent then outstanding, set forth below opposite such date (each
such repayment as the same may be reduced as provided in Sections 3.01 and
3.02(B), a "Scheduled Repayment"):

         Scheduled Term Loan Repayment Date                    Amount

                     June 30, 2001                            $87,500
                     September 30, 2001                       $87,500
                     December 31, 2001                        $87,500
                     March 31, 2002                           $87,500
                     June 30, 2002                            $87,500
                     September 30, 2002                       $87,500
                     December 31, 2002                        $87,500
                     March 31, 2003                           $87,500
                     June 30, 2003                           $175,000
                     September 30, 2003                      $175,000
                     December 31, 2003                       $175,000
                     March 31, 2004                          $175,000
                     June 30, 2004                         $2,100,000
                     September 30, 2004                   $10,500,000
                     December 31, 2004                    $10,500,000
                     March 31, 2005                       $10,500,000

<PAGE>   27


          (d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on the date of the receipt thereof by
Holdings or any of its Subsidiaries, an amount equal to:

               (i) 100% of the cash proceeds (net of underwriting discounts and
          commissions and all other reasonable costs associated with such
          transaction) from any sale or issuance after the Restatement Effective
          Date of equity of Holdings or any Subsidiary of Holdings (other than
          proceeds from issuances of Holdings Common Stock to shareholders,
          directors and employees of Holdings and its Subsidiaries and other
          individuals as a result, in each case, of the exercise of any options
          or warrants of up to $500,000 in the aggregate in any fiscal year);
          and

               (ii) 100% of the cash proceeds (net of underwriting discounts and
          commissions, loan fees and all other reasonable costs associated with
          such transaction) from any incurrence of any Indebtedness by Holdings
          or any Subsidiary of Holdings (other than Indebtedness permitted by
          Sections 8.04(i) through (vi), inclusive, it being understood that
          Indebtedness permitted pursuant to Section 8.04(vii) shall be required
          to be applied as provided in Section 3.02(B) as said Sections are in
          effect on the Restatement Effective Date), shall be applied as
          provided in Section 3.02(B).

          (e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on or prior to each Excess Cash Flow
Payment Date, an amount equal to the Excess Cash Flow Recapture Percentage of
Excess Cash Flow of Holdings and its Subsidiaries for the relevant Excess Cash
Flow Payment Period shall be applied as provided in Section 3.02(B).

          (f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, (A) on each date after the Restatement
Effective Date on which Holdings or any Subsidiary of Holdings receives cash
proceeds from any sale of assets (including capital stock and securities other
than capital stock) the proceeds from the sale of which is recaptured (or would
be recaptured except for the parenthetical continued therein) under Section
3.02(A)(d) but excluding (i) sales of inventory in the ordinary course of
business, (ii) sales of assets so long as the aggregate amount of Net Sale
Proceeds excluded pursuant to this clause (ii) does not exceed $100,000 in the
aggregate for all such asset sales in any fiscal year of Holdings and (iii)
Permitted Acquisition Cash Collateralized Amounts (so long as the aggregate
deposits in the Permitted Acquisition Cash Collateral Account from proceeds of
sales of assets shall not exceed an amount equal to $10,000,000 per year and
shall not exceed a maximum aggregate amount equal to $30,000,000 during any
rolling five-year period), an amount equal to 100% of the Net Sale Proceeds
thereof shall be applied as provided in Section 3.02(B); (B) on any date on
which there shall exist an Event of Default, all Permitted Acquisition Cash
Collateralized Amounts shall be applied as provided in Section 3.02(B) and (C)
on the 180th day after which amounts were deposited into the Permitted
Acquisition Cash Collateral Account, to the extent any such amounts have not
been utilized to effect a Permitted Acquisition in accordance with Section 7.15,
all such amounts held in such account shall be applied as provided in Section
3.02(B).
<PAGE>   28

          (g) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02, on each date after the Restatement
Effective Date of the receipt thereof by Holdings or any Subsidiary of Holdings,
an amount equal to 100% of the cash proceeds of any Recovery Event (net of
reasonable costs incurred in connection with such Recovery Event (including the
estimated marginal increase in income taxes which will be payable as a result of
such Recovery Event by Holdings or any Subsidiary of Holdings)) shall be applied
as provided in Section 3.02(B); provided that proceeds from Recovery Events not
in excess of $250,000 in the aggregate for all Recovery Events occurring on and
after the Restatement Effective Date, and prior to the date on which there are
no outstanding Obligations, shall not be required to be so applied on such date;
provided further, that proceeds from Recovery Events in excess of $250,000 in
the aggregate for all Recovery Events occurring on or after the Restatement
Effective Date and prior to the day on which there are no outstanding
Obligations, shall not be required to be so applied on such date to the extent
that the Borrower delivers a certificate to the Administrative Agent on or prior
to such date stating that such proceeds shall be used to replace or restore any
properties or assets in respect of which such proceeds were paid within a period
specified in such certificate not to exceed 180 days after the date of receipt
of such proceeds (which certificate shall set forth estimates of the proceeds to
be so expended); and provided further, that if all or any portion of such
proceeds not so applied pursuant to Section 3.02(B) are not so used within the
period specified in the proviso, such remaining portion shall be applied on the
last day of such specified period as provided in Section 3.02(B).
Notwithstanding the forgoing, so long as on the date of such Recovery Event and
during the period commencing on such date and ending on the date on which the
repurchase of Holdings Capital Stock referred to below is effected there shall
exist no Default or Event of Default, proceeds from a Recovery Event relating to
the Weary Key-Man Life Insurance, occurring on or after the Restatement
Effective Date and prior to the date on which there are no outstanding
Obligations shall not be required to be applied as provided in Section 3.02(B)
on such date to the extent that the Borrower delivers a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used to (i) purchase all the Holdings Capital Stock previously owned by the
person in respect of whose life such insurance proceeds were paid and (ii)
appoint a replacement Chief Executive Officer of the Borrower, both within a
period not to exceed 180 days after the date of receipt of such proceeds (which
certificate shall set forth estimates of the proceeds to be so expended);
provided that if all or any portion of such proceeds not so applied pursuant to
Section 3.02(B) are not so used within such 180 day period, such remaining
portion shall be applied on the last day of such specified period as provided in
Section 3.02(B).

          (h) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on each date upon which Holdings or
any of its Subsidiaries receives cash proceeds pursuant to any agreement or
understanding relating to any Permitted Acquisition, including, without
limitation, indemnification or similar payments and post-closing adjustments,
but excluding in each case post-closing working capital adjustments and
reimbursement of out-of-pocket costs and expenses, an amount equal to 100% of
such proceeds (net of reasonable expenses incurred in connection with obtaining
such proceeds and the estimated marginal increase in income taxes payable in
respect thereof) shall be applied as provided in Section 3.02(B).
<PAGE>   29

          (i) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on the date of the receipt thereof
by Holdings or any of its Subsidiaries, an amount equal to 100% of the proceeds
of any Tax Refund (net of reasonable expenses incurred in connection with
obtaining same and the estimated marginal increase in income taxes payable as a
result thereof) shall be applied as provided in Section 3.02(B); provided that
any refunds of estimated taxes paid in the ordinary course of business in excess
of the actual amount of taxes owing shall not be required to be so applied.

          (j) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 3.02(A), on the date of the receipt thereof
by Holdings or any of its Subsidiaries of a Pension Plan Refund, an amount equal
to 100% of such Pension Plan Refund (net of reasonable expenses incurred in
connection with obtaining same and the estimated marginal increase in income
taxes payable in respect thereof) shall be applied as provided in Section
3.02(B).

          (k) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans of each respective Tranche shall be
repaid in full on the Maturity Date for such Tranche.

          (B) Application:

          (a) Each mandatory repayment of Loans pursuant to Sections
3.02(A)(d)(ii), (e) through (g), inclusive (other than in the case of proceeds
of a Recovery Event relating to the Weary Key-Man Life Insurance), and (i)
through (j), inclusive, shall be applied:

               (i) first, to prepay the principal of outstanding Revolving Loans
          (with a corresponding reduction to the Total Revolving Loan
          Commitment) and Term Loans on a pro rata basis based on the aggregate
          principal amount of all Term Loans outstanding at such time and the
          then Total Revolving Loan Commitment;

               (ii) second, to cash collateralize Letter of Credit Outstandings
          by depositing cash into the Letter of Credit Cash Collateral Account
          in an amount equal to such Letter of Credit Outstandings (with a
          corresponding reduction to the Total Revolving Loan Commitment); and

               (iii) third, to reduce the remaining (i.e., after giving effect
          to all prior reductions thereto, including, without limitation, the
          reductions theretofore effected pursuant to the preceding clauses (i)
          and (ii)) Total Revolving Loan Commitment (it being understood and
          agreed that the amount of such reductions shall be deemed to be an
          application of proceeds for purposes of this Section 3.02(B)(a)(iii)
          even though cash is not actually applied).

          (b)(I) Each mandatory repayment of Loans pursuant to Section
3.02(A)(d)(i) shall be applied:

               (i) until the first anniversary of the Restatement Effective Date
          (and so long as there shall exist no Default or Event of Default, in
          which case all such mandatory repayments shall be applied in
          accordance with Section 3.02(B)(a)), to prepay the principal of
          outstanding Revolving Loans (without a corresponding reduction to the
          Total Revolving Loan Commitment), and second, to cash collateralize
          Letter of Credit Outstandings by depositing cash into the Letter of
          Credit Cash Collateral Account in an amount equal to such Letter of
          Credit Outstandings (without a reduction to the Total Revolving Loan
          Commitment) and to the extent no Revolving Loans are then outstanding
          and there are no Letter of Credit Outstandings, the Borrower may
          retain the proceeds which otherwise would have applied to such
          Revolving Loans or Letter of Credit Outstandings; and




<PAGE>   30





               (ii) after the first anniversary of the Restatement Effective
          Date (and so long as there shall exist no Default or Event of Default,
          in which case all such mandatory repayments shall be applied in
          accordance with Section 3.02(B)(a)), 50% of the amount to be applied
          shall be applied in the same manner as if such proceeds were to be
          applied in accordance with Section 3.02(B)(a) and the remaining 50%
          shall be applied in the same manner as it would be applied in
          accordance with Section 3.02(B)(b)(i), except that to the extent
          Revolving Loans in such amount are not outstanding and there are no
          Letter of Credit Outstandings, such excess amounts shall be deposited
          in the Permitted Acquisition Cash Collateral Account.

          (II) Each mandatory repayment of Loans pursuant to Section
3.02(A)(d)(ii) arising from the receipt of proceeds of Indebtedness permitted by
Section 8.04(vii) shall be applied to prepay the principal of outstanding
Revolving Loans (without a corresponding reduction to the Total Revolving Loan
Commitment) and to the extent no Revolving Loans are then outstanding, the
Borrower may retain the proceeds which otherwise would have been applied to such
Revolving Loans; provided, however, to the extent that the aggregate principal
amount of Acceptable Subordinated Debt issued by the Borrower exceeds
$150,000,000, then 50% of such excess amount shall be applied in accordance with
Section 3.02(B)(a) with the remaining amount of such proceeds being applied in
accordance with this Section 3.02(B)(b)(II) (without giving effect to this
proviso).

          (c) Each mandatory repayment of Loans pursuant to Section 3.02(A)(g)
arising from the receipt of proceeds of a Recovery Event relating to the Weary
Key-Man Life Insurance shall be applied: (i) the first $3,000,000 shall be
applied in the same manner as if such proceeds were to be applied in accordance
with Section 3.02(B)(a) and (ii) 50% of the remaining amount shall be applied in
the same manner as it would be applied in accordance with Section 3.02(B)(a) and
(so long as there shall exist no Default or Event of Default, in which case all
such mandatory repayments shall be applied in accordance with Section
3.02(B)(a)) the remaining 50% may be retained by the Borrower.

          (d) Each mandatory repayment of Loans pursuant to Section 3.02(A)(h)
shall, so long as there shall exist no Default or Event of Default, in which
case all such mandatory repayments shall be applied in accordance with Section
3.02(B)(a), be applied to prepay the principal of outstanding Revolving Loans
(without a corresponding reduction to the Total Revolving Loan Commitment), and
second, to cash collateralize Letter of Credit Outstandings by depositing cash
into the Letter of Credit Cash Collateral Account in an amount equal to such
Letter of Credit Outstandings (without a reduction to the Total Revolving Loan
Commitment) and to the extent no Revolving Loans are then outstanding and there
are no Letter of Credit Outstandings, the Borrower may retain the proceeds which
otherwise would have applied to such Revolving Loans or Letter of Credit
Outstandings.

          (e) All mandatory repayments of Revolving Loans pursuant to this
Section 3.02(B) (and mandatory reductions to the Total Revolving Loan
Commitment) shall be applied to reduce the then-remaining Scheduled Revolving
Loan Commitment Reductions in inverse order of maturity and all mandatory
repayments of Term Loans pursuant to this Section 3.02(B) shall be applied to


<PAGE>   31





reduce the then-remaining Scheduled Repayments in inverse order of maturity.

          (f) Notwithstanding anything to the contrary contained in this Section
3.02 or elsewhere in this Agreement (including, without limitation, in Section
12.12), the Borrower shall have the option, in its sole discretion, to give the
Banks with outstanding Terms Loans the option to waive a mandatory repayment of
such Loans pursuant to Section 3.02, in each case, upon the terms and provisions
set forth in this Section 3.02. If the Borrower elects to exercise the option
referred to in the preceding sentence, the Borrower shall give to the
Administrative Agent written notice of its intention to give the Banks the right
to waive a mandatory repayment at least five (5) Business Days prior to such
repayment, which notice the Administrative Agent shall promptly forward to all
Banks with outstanding Term Loans (indicating in such notice the amount of such
repayment to be applied to each such Bank's outstanding Term Loans). The
Borrower's offer to permit such Banks to waive any such mandatory repayment may
apply to all or part of such repayment, provided that any offer to waive part of
such repayment must be made ratably to such Banks on the basis of their
outstanding Term Loans. In the event any such Bank desires to waive such Bank's
right to receive any such mandatory repayment, in whole or in part, such Bank
shall so advise the Administrative Agent no later than the close of business two
(2) Business Days after the date of such notice from the Administrative Agent,
which notice shall also include the amount such Bank desires to receive in
respect of such repayment. If any Bank does not reply to the Administrative
Agent within the two (2) Business Days, it will be deemed not to have waived any
part of such repayment. If any Bank does not specify an amount it wishes to
receive, it will be deemed to have accepted 100% of the total payment. In the
event that any such Bank waives all or part of such right to receive any such
mandatory repayment, the Administrative Agent shall apply 100% of the amount so
waived by such Bank to the Revolving Loans in accordance with Section 3.02(B).

          (g) With respect to each repayment of Loans required by this Section
3.02, the Borrower may designate the Types of Loans which are to be repaid and,
in the case of Eurodollar Loans, the specific Borrowing or Borrowings of the
respective Tranche pursuant to which made; provided that: (i) repayments of
Eurodollar Loans pursuant to this Section 3.02 may only be made on the last day
of an Interest Period applicable thereto unless all Eurodollar Loans of the
respective Tranche with Interest Periods ending on such date of required
repayment and all Base Rate Loans of the respective Tranche have been paid in
full; (ii) if any repayment of Eurodollar Loans made pursuant to a single
Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to such
Borrowing to an amount less than the applicable Minimum Borrowing Amount, such
Borrowing shall immediately be converted into Base Rate Loans; and (iii) each
repayment of any Loans made pursuant to a single Borrowing shall be applied pro
rata among such Loans. In the absence of a designation by such Borrower as
described in the preceding sentence, the Administrative Agent shall, subject to
the above, make such designation in its sole discretion.




<PAGE>   32




          3.03 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Administrative Agent for the account of the Bank or Banks entitled thereto
not later than 12:00 Noon (New York time) on the date when due and shall be made
in Dollars in immediately available funds at the Payment Office of the
Administrative Agent. Whenever any payment to be made hereunder or under any
Note shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable at the applicable
rate during such extension.

          3.04 Net Payments. (a) All payments made by Holdings or the Borrower
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 3.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Bank pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Bank is located
or any political subdivision or taxing authority thereof or therein) and all
interest, penalties or similar liabilities with respect to such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges (all such
non-excluded taxes, levies, imposts, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, Holdings and the Borrower jointly and severally agree to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due hereunder or under any Note, after withholding
or deduction for or on account of any Taxes, will not be less than the amount
provided for herein or in such Note. If any amounts are payable in respect of
Taxes pursuant to the preceding sentence, Holdings and the Borrower jointly and
severally agree to reimburse each Bank, upon the written request of such Bank,
for taxes imposed on or measured by the net income or net profits of such Bank
pursuant to the laws of the jurisdiction or any political subdivision or taxing
authority thereof or therein in which such Bank is organized or in which the
principal office or applicable lending office of such Bank is located and for
any withholding of taxes as such Bank shall determine are payable by, or
withheld from, such Bank in respect of such amounts so paid to or on behalf of
such Bank pursuant to the preceding sentence and in respect of any amounts paid
to or on behalf of such Bank pursuant to this sentence. Holdings and the
Borrower jointly and severally will furnish to the Administrative Agent within
forty-five (45) days after the date of the payment of any Taxes due pursuant to
applicable law certified copies of tax receipts evidencing such payment by
Holdings and the Borrower jointly and severally. Holdings and the Borrower
jointly and severally agree to indemnify and hold harmless each Bank, and
reimburse such Bank upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Bank.

          (b) Each Bank that is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Restatement Effective Date, or
in the case of a Bank that is an assignee or transferee of an interest under 



<PAGE>   33





this Agreement pursuant to Section 12.04 (unless the respective Bank was already
a Bank hereunder immediately prior to such assignment or transfer), on the date
of such assignment or transfer to such Bank, (i) two accurate and complete
original signed copies of Internal Revenue Service Form 4224 or 1001 (or
successor forms) certifying to such Bank's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Agreement and under any Note, or (ii) if the Bank is not a "bank" within
the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate substantially in the form of Exhibit E (any such certificate, a
"Section 3.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Note. In addition, each Bank agrees that from time to
time after the Restatement Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the Borrower and the Administrative Agent
two new accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001, or Form W-8 and a Section 3.04(b)(ii) Certificate, as the
case may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Bank to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement and any Note, or it shall immediately notify the Borrower and the
Administrative Agent of its inability to deliver any such form or certificate,
in which case such Bank shall not be required to deliver any such form or
certificate pursuant to this Section 3.04(b). Notwithstanding anything to the
contrary contained in Section 3.04(a), but subject to the immediately succeeding
sentence, (x) the Borrower shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Bank which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that
such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms
that establish a complete exemption from such deduction or withholding and (y)
the Borrower shall not be obligated pursuant to Section 3.04(a) hereof to
gross-up payments to be made to a Bank in respect of income or similar taxes
imposed by the United States if (I) such Bank has not provided the Borrower the
Internal Revenue Service Forms required to be provided the Borrower pursuant to
this Section 3.04(b) or (II) in the case of a payment, other than interest, to a
Bank described in clause (ii) above, to the extent that such forms do not
establish a complete exemption from withholding of such taxes. Notwithstanding
anything to the contrary contained in the preceding sentence or elsewhere in
this Section 3.04, the Borrower agrees to pay additional amounts and to
indemnify each Bank in the manner set forth in Section 3.04(a) (without regard
to the identity of the jurisdiction requiring the deduction or withholding) in
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes after the Restatement Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline or
order, or in the interpretation thereof, relating to the deducting or
withholding of such Taxes.



<PAGE>   34






          Section 4. Conditions Precedent to the Restatement Effective Date and
Loans on the Restatement Effective Date. The obligation of each Bank to make
Loans on the Restatement Effective Date is subject at the time of such Loan to
the satisfaction of the following conditions unless any of such conditions are
waived by the Agents:

          4.01 Execution of Agreement; Notes. On or prior to the Restatement
Effective Date (i) this Agreement shall have become effective as provided in
Section 12.10 and (ii) there shall have been delivered to the Administrative
Agent for the account of each of the Banks the appropriate Term Note or
Revolving Note executed by the Borrower, in each case in the amount, maturity
and as otherwise provided herein.

          4.02 Officer's Certificate. On the Restatement Effective Date,
the Agents shall have received a certificate dated the Restatement Effective
Date signed on behalf of each Credit Party by the President, the Chief Financial
Officer, the General Counsel or any Vice President of such Credit Party and
which certificate, in the case of the Borrower, shall state that all of the
conditions in Sections 4.06, 4.07(iii) and (iv) (with respect to 4.07(iii)),
4.11, 4.12, 4.13, 4.14, 4.16, 4.19, 5.01, 5.03 (if a Permitted Acquisition will
be consummated on the Restatement Effective Date) and 5.04 have been satisfied
on such date; provided that the certificate shall not be required to certify as
to the acceptability of any items to the Agents and/or the Banks or as to
whether the Agents and/or the Banks are satisfied with any of the matters
described in said Sections.

          4.03 Opinions of Counsel. On the Restatement Effective Date, the
Agents shall have received from Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel to the Borrower and its Subsidiaries, an opinion addressed to the
Agents, the Collateral Agent and each of the Banks and dated the Restatement
Effective Date covering the matters set forth in Exhibit F and such other
matters incident to the transactions contemplated herein as the Agents may
reasonably request.

          4.04 Corporate Documents; Proceedings. (a) On the Restatement
Effective Date, the Agents shall have received a certificate, dated the
Restatement Effective Date, signed by the President or any Vice President of
each Credit Party, and attested to by the Secretary or any Assistant Secretary
of such Credit Party, in the form of Exhibit G with appropriate insertions,
together with copies of the Certificate of Incorporation, By-Laws or other
organizational documents of such Credit Party and the resolutions of such Credit
Party referred to in such certificate, and the foregoing shall be acceptable to
the Agents and the Required Banks in their sole discretion.

          (b) On the Restatement Effective Date, all corporate and legal
proceedings and all instruments and agreements relating to the transactions
contemplated by this Agreement and the other Credit Documents shall be
satisfactory in form and substance to the Agents and the Required Banks, and the
Agents shall have received all information and copies of all documents and
papers, including records of corporate proceedings, governmental approvals, good
standing certificates and bring-down telegrams, if any, which the Agents or the
Required Banks may have requested in connection therewith, such documents and



<PAGE>   35





papers where appropriate to be certified by proper corporate or governmental
authorities.

          4.05 Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Employment Agreements; Collective Bargaining Agreements; Debt
Agreements; Tax Sharing Agreements; Affiliate Contracts and Material Contracts.
To the extent that documents previously delivered to the Banks in connection
with Section 4.05 of the Existing Credit Agreement have undergone material
changes or that such documents have not been so delivered, on or prior to the
Restatement Effective Date, there shall have been delivered to the Banks true
and correct copies, certified as true and complete by an appropriate officer of
the Borrower of the following documents:

               (i) all Plans (and for each Plan that is required to file an
          annual report on Internal Revenue Service Form 5500-series, a copy of
          the most recent such report (including, to the extent required, the
          related financial and actuarial statements and opinions and other
          supporting statements, certifications, schedules and information), and
          for each Plan that is a "single-employer plan," as defined in Section
          4001(a)(15) of ERISA, the most recently prepared actuarial valuation
          therefor) and any other "employee benefit plans," as defined in
          Section 3(3) of ERISA, and any other material agreements, plans or
          arrangements, with or for the benefit of current or former employees
          of the Borrower or any of its Subsidiaries or any ERISA Affiliate
          (provided that the foregoing shall apply in the case of any
          multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the
          extent that any document described therein is in the possession of the
          Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or
          reasonably available thereto from the sponsor or trustee of any such
          plan); and all other employee benefit plans, or any other similar
          plans or arrangements for the benefit of employees of the Borrower or
          any Subsidiary of the Borrower and any profit sharing plans and
          deferred compensation plans of the Borrower or any Subsidiary of the
          Borrower (collectively, the "Employee Benefit Plans");

               (ii) all agreements entered into by the Borrower or any
          Subsidiary of the Borrower governing the terms and relative rights of
          its capital stock and any agreements entered into by shareholders
          relating to any such entity with respect to their capital stock
          (collectively, the "Shareholders' Agreements");

               (iii) all agreements with members of, or with respect to the,
          management of the Borrower or any Subsidiary of the Borrower other
          than Employment Agreements (collectively, the "Management
          Agreements");

               (iv) any employment agreements entered into by the Borrower or
          any Subsidiary of the Borrower (collectively, the "Employment
          Agreements");

               (v) all collective bargaining agreements applying or relating to
          any employee of the Borrower or any Subsidiary of the Borrower
          (collectively, the "Collective Bargaining Agreements");

               (vi) all agreements evidencing or relating to Indebtedness of the
          Borrower or any Subsidiary of the Borrower whether or not such
          agreement is to remain outstanding after giving effect to the
          incurrence of Loans on the Restatement Effective Date (collectively,
          the "Debt Agreements");
<PAGE>   36

               (vii) all tax sharing, tax allocation and other similar
          agreements entered into by the Borrower or any Subsidiary of the
          Borrower (collectively, the "Tax Sharing Agreements");

               (viii) all contracts, agreements or understandings entered into
          between the Borrower or any of its Subsidiaries on the one hand, and
          any of its Affiliates, on the other hand (collectively, the "Affiliate
          Contracts"); and

               (ix) all material contracts and licenses of the Borrower or any
          of its Subsidiaries that are to remain in effect after giving effect
          to the consummation of the Transaction, including, without limitation,
          all NRTC Agreements, all leases pursuant to which the Borrower or any
          of its Subsidiaries are lessees and all agreements, letters of intent
          and memoranda of understanding with respect to the acquisition or sale
          by the Borrower of any assets which are unconsummated and in effect
          (collectively, the "Material Contracts");

all of which Plans, Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Employment Agreements, Collective Bargaining Agreements, Debt
Agreements, Tax Sharing Agreements, Affiliate Contracts and Material Contracts
shall be in form and substance satisfactory to the Agents and the Required Banks
and shall be in full force and effect on the Restatement Effective Date.

          4.06 Consummation of the Reorganization Transaction. On or prior to
the Restatement Effective Date, there shall have been delivered to the Agents
true and correct copies of all Reorganization Transaction Documents, and all
terms and provisions of such Reorganization Transaction Documents shall be in
form and substance satisfactory to the Agents. The Reorganization Transaction
shall have been consummated in accordance with all applicable law and the
Reorganization Transaction Documents.

          4.07 Existing Credit Agreement. On the Restatement Effective Date, (i)
each Continuing Bank shall have converted its Existing Loans as contemplated by
Section 1.01, (ii) the Borrower shall have paid all interest and fees (including
commitment fees) owing under the Existing Credit Agreement through the
Restatement Effective Date, (iii) the Borrower shall have repaid to any
Continuing Bank and any Non-Continuing Bank all amounts owing to it, including
without limitation, all Existing Loans (not being converted in the case of
Continuing Banks), interest thereon, fees and expenses, if any, set forth in
Section 1.11 and (iv) the Agents shall have received evidence in form, scope and
substance satisfactory to them that the matters set forth in this Section 4.07
have been satisfied on the Restatement Effective Date.

          4.08 Subsidiaries Guaranty. On the Restatement Effective Date, each
Subsidiary of the Borrower (excluding the South Plains DBS Limited Partnership
and DCE Satellite Entertainment, LLC, in each case so long as (i) neither such
partnership nor such limited liability company is a Wholly-Owned Subsidiary of
the Borrower and (ii) the Borrower does not own a sufficient equity interest in
such partnership or sufficient membership interests in such limited liability
company to require such partnership or limited liability company, as the case
may be, to act otherwise) shall have executed and delivered a guaranty
agreement, substantially in the form of Exhibit H (the "Subsidiaries Guaranty").

<PAGE>   37

          4.09 Holdings Pledge Agreement. On the Restatement Effective Date,
Holdings (i) shall have executed and delivered a pledge agreement substantially
in the form of Exhibit I-1 (the "Holdings Pledge Agreement") and (ii) shall have
delivered to the Collateral Agent, as Pledgee thereunder, all of the Pledged
Securities referred to in the Holdings Pledge Agreement, then owned by Holdings,
together with executed and undated irrevocable stock powers with respect to the
Pledged Securities.

          4.10 Security Document Acknowledgment; Pledge Agreements; Security
Agreement. (a) On the Restatement Effective Date, the Borrower and each
Subsidiary Guarantor shall have duly authorized, executed and delivered either
original Security Documents, if not previously executed by such party, or, if
such has been previously executed by such party, an assumption and
acknowledgment in the form of Exhibit J (the "Security Documents
Acknowledgment") with respect to the Borrower/Subsidiary Pledge Agreement, the
Security Agreement and the Collateral Assignment of Marketing and Distribution
Agreements, which assumption and acknowledgment, among other things, (i)
acknowledges and agrees that the "Obligations" (as defined in each of such
documents) include all of the Obligations under this Agreement after giving
effect to the Restatement Effective Date, (ii) acknowledges and agrees that,
after giving effect to the Restatement Effective Date, each of the Security
Documents shall remain in full force and effect in accordance with the
respective terms thereof and (iii) has confirmatory schedules attached thereto
with respect to all of the information required to be provided on the schedules
to the Security Documents, and each of the Borrower and each Subsidiary
Guarantor shall have taken all actions reasonably requested by the Collateral
Agent (including, without limitation, the obtaining of UCC-11's or equivalent
reports and the preparation, execution and delivery of UCC-1's, UCC-2's or
UCC-3's to be filed) in connection with the granting of liens pursuant to the
Security Documents.

          (b) On the Restatement Effective Date, the Collateral Agent, as
pledgee shall have in its possession all of the Pledged Securities referred to
in the Holdings Pledge Agreement, endorsed in blank in the case of promissory
notes or accompanied by executed and undated stock powers in the case of capital
stock, and each Pledge Agreement shall be in full force and effect.

          (c) On the Restatement Effective Date, (i) no filings, recordings,
registrations or other actions (other than as set forth in Section 4.10(a)(ii))
shall be necessary to maintain the perfection and priority of the security
interests granted pursuant to the Security Documents in the Collateral covered
thereby, and (ii) the Banks shall have received evidence that all other actions
necessary or, in the opinion of the Collateral Agent, desirable to perfect and
protect the security interests purported to be created by the Security Documents
have been taken.

          4.11 Minimum Subscribers and Households. The Agents shall have
received evidence satisfactory to them that, on and as of the Restatement
Effective Date, the Borrower's franchise service area includes no less than (a)
117,000 subscribers and (b) 1,220,000 households.

          4.12 Material Adverse Change, etc. Since December 31, 1997, nothing
shall have occurred (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agents or the Required Banks shall
determine (a) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agents, or on the ability of the
Borrower or any of its Subsidiaries to perform their obligations to the Agents
and the Banks under this Agreement or any other Credit Document, (b) could

<PAGE>   38

reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole or (c) indicates the inaccuracy in any material respect of the
information previously provided to the Agents or the Banks (taken as a whole) in
connection with their analysis of the transactions contemplated hereby or
indicates that the information previously provided omitted to disclose any
material information.

          4.13 Litigation. On the Restatement Effective Date, no litigation by
any entity (private or governmental) shall be pending or threatened with respect
to this Agreement, any other Document or any documentation executed in
connection herewith or with respect to the transactions contemplated hereby, or
which the Agents or Required Banks shall determine could reasonably be expected
to have a materially adverse effect on the Transaction or on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole.

          4.14 Fees, etc. On the Restatement Effective Date, the Borrower shall
have paid in full to the Agents and the Banks all costs, fees and expenses
(including, without limitation, all legal fees and expenses) payable to the
Agents and the Banks to the extent then due pursuant hereto or as otherwise
agreed between the Borrower and the Agents.

          4.15 Solvency Certificate; Insurance Analyses. On the Restatement
Effective Date, the Borrower shall cause to be delivered to the Agents and the
Banks:

               (i) a certificate from the Chief Financial Officer of the
          Borrower, in the form of Exhibit K hereto, supporting the conclusions
          that, after giving effect to the Transaction and the incurrence of all
          financings contemplated herein, that each Credit Party, and all Credit
          Parties taken as a whole, as the case may be, are not insolvent and
          will not be rendered insolvent by the Indebtedness incurred in
          connection therewith, will not be left with unreasonably small capital
          with which to engage in Credit Party businesses and will not have
          incurred debts beyond their ability to pay such debts as they mature;
          and

               (ii) evidence (including, without limitation, certificates with
          respect to each insurance policy listed on Schedule XII) of insurance,
          complying with the requirements of Section 7.03, with respect to the
          executives, business and properties of the Borrower and its
          Subsidiaries, in scope, form and substance satisfactory to the Agents
          and the Required Banks and naming each of the Collateral Agent, the
          Agents and the Banks as an additional insured and the Collateral Agent
          as loss payee and stating that such insurance shall not be canceled or
          revised without thirty (30) days' prior written notice by the insurer
          to the Collateral Agent.

          4.16 Approvals. All necessary governmental and third party approvals
in connection with the transactions contemplated by the Credit Documents and
otherwise referred to herein or therein (including, but not limited to, those
approvals required in respect of existing permits, landlord consents and
transfers of contract rights) shall have been obtained and remain in effect, and
all applicable waiting periods shall have expired without any action being taken

<PAGE>   39

by any competent authority which restrains, prevents or imposes, in the sole
judgment of the Agents or the Required Banks, adverse conditions upon the
consummation of the Transaction or the other transactions contemplated by the
Documents and otherwise referred to herein or therein. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunction relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the consummation of
the Transaction, the transactions contemplated by the Documents, the making of
the Loans or the issuance of Letters of Credit.

          4.17 Financial Statements; Projections; Management Letter Reports. (a)
On or prior to the Restatement Effective Date, the Banks shall have received:

               (i) the consolidated balance sheet of the Borrower or Holdings,
          as the case may be, as at December 31, 1996 and December 31, 1997 and
          the related consolidated statements of earnings and stockholders'
          equity and cash flows of such Person, as applicable for the fiscal
          periods ended as of said dates, which statements have been examined by
          KPMG Peat Marwick LLP, which is an independent certified public
          accountant, which delivered unqualified opinions in respect thereto;
          and

               (ii) the pro forma (after giving effect to the Transaction)
          consolidated balance sheet of Holdings as at February 28, 1998, all of
          which financial statements referred to in clause (i) and (ii) shall be
          prepared in accordance with generally accepted accounting principles
          consistent with past practices and shall be in form and substance
          satisfactory to the Agents and the Required Banks, and shall not
          disclose any material adverse differences in the business, properties,
          assets, liabilities, results of operations, condition (financial or
          otherwise) or prospects of Holdings and its Subsidiaries taken as a
          whole from that previously disclosed to the Agents and the Required
          Banks.

          (b) On the Restatement Effective Date, the Banks shall have received
detailed consolidated financial projections, certified by the Chief Financial
Officer of the Borrower, for Holdings and its Subsidiaries, which include the
projected consolidated results of Holdings, after giving effect to the
Transaction and the other transactions contemplated herein, for the period
commencing on the Restatement Effective Date and ending after the Term Loan
Maturity Date (the "Projections"), which Projections, and the supporting
assumptions and explanations thereto, and the accounting practices and
procedures to be utilized by Holdings following the Restatement Effective Date,
shall be satisfactory in form and substance to the Agents and the Required Banks
and shall be as set forth on Schedule III hereto.

          (c) On or prior to the Restatement Effective Date, the Agents shall
have received a copy of any "management letter" received by Holdings or any of
its Subsidiaries from its certified public accountants since the Original
Effective Date.

          4.18 Consent Letter. The Agents shall have received a letter from
Corporation Service Company, with offices on the date hereof at 80 State Street,
Albany, New York 12207, substantially in the form of Exhibit L hereto,
indicating its consent to its appointment by Holdings and its Subsidiaries as
their agent to receive service of process as specified in Section 12.08 of this
Agreement.

<PAGE>   40

          4.19 Acquisitions. The Agents shall have received a schedule of all
acquisitions of DirecTV franchises since the Original Effective Date and shall
be satisfied that all such acquired entities (excluding the South Plains DBS
Limited Partnership and DCE Satellite Entertainment, LLC, in each case so long
as (i) neither such partnership nor such limited liability company is a
Wholly-Owned Subsidiary and (ii) the Borrower does not own a sufficient equity
interest in such partnership or sufficient membership interests in such limited
liability company to require such partnership or limited liability company, as
the case may be, to act otherwise) shall have executed and delivered the
appropriate Subsidiaries Guaranty and Security Documents and that the Collateral
Agent for the benefit of the Secured Creditors has a valid and perfected first
priority security interest in all assets and capital stock of such entities.

          Section 5. Conditions Precedent to All Credit Events. The obligation
of each Bank to make Loans (including Loans made on the Restatement Effective
Date) and the obligation of an Issuing Bank to issue any Letter of Credit is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:

          5.01 No Default; Representations and Warranties. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit Event (except
to the extent such representations specifically relate to earlier dates in which
case such representations shall be correct in all material respects on and as of
such dates).

          5.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to the
making of each Loan, the Administrative Agent shall have received a Notice of
Borrowing meeting the requirements of Section 1.03.

          (b) Prior to the issuance of each Letter of Credit, the Issuing Bank
shall have received a Letter of Credit Request meeting the requirements of
Section 1A.03.

          5.03 Permitted Acquisitions. Prior to the making of each Revolving
Loan, the proceeds of which are to be utilized to effect, in whole or in part, a
Permitted Acquisition, (i) all conditions to such Permitted Acquisition set
forth in Section 7.15 and in the definition thereof shall have been satisfied
and the President or any other senior executive officer of the Borrower shall
have delivered an officer's certificate certifying that such conditions have
been met and (ii) the Total Unutilized Revolving Loan Commitment shall be at
least $15,000,000.

          5.04 Material Adverse Change, etc. Nothing shall have occurred since
December 31, 1997 (and the Banks shall have become aware of no facts or
conditions not previously known) which the Agents or the Required Banks shall
determine (i) could reasonably be expected to have a material adverse effect on
the rights or remedies of the Banks or the Agents, or on the ability of the

<PAGE>   41

Borrower or any Subsidiary of the Borrower to perform its obligations to the
Banks under this Agreement or any other Credit Document or (ii) which could
reasonably be expected to have a materially adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of Holdings and its Subsidiaries
taken as a whole.

          5.05 Litigation. At the time of each such Credit Event and also after
giving effect thereto, no litigation by any entity (private or governmental)
shall be pending or threatened with respect to this Agreement or any other
Credit Document executed in connection herewith or the transactions contemplated
hereby or which the Required Banks shall determine could reasonably be expected
to have a materially adverse effect on the performance, business, assets, nature
of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole. 

          5.06 Borrowing Base Certificate. On the date of each Credit Event, the
Agents shall have received a borrowing base certificate of the Borrower in the
form of Exhibit M (each a "Borrowing Base Certificate"), with respect to the
Qualified Paying Subscribers and the Subscribers to be Acquired of the Borrower
and its Subsidiaries as of the last day of the immediately preceding month
(after giving effect to the Credit Events being contemplated and the
transactions contemplated hereby and by the other Credit Documents) certified by
the Chief Financial Officer of the Borrower.

          The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Banks that all the
conditions specified in Section 4 and in this Section 5 and applicable to such
Credit Event exist as of that time; provided that such acceptance of benefits of
each Credit Event shall not constitute a representation and warranty by the
Borrower as to the acceptability of any items to the Agents and/or the Banks or
as to whether the Agents and/or the Banks are satisfied with any of the matters
described in such sections. All of the Notes, certificates, legal opinions and
other documents and papers referred to in Section 4 and in this Section 5,
unless otherwise specified, shall be delivered to the Administrative Agent at
the Notice Office for the account of each of the Banks and, except for the
Notes, in sufficient counterparts for each of the Banks and, unless otherwise
specified, shall be in form and substance satisfactory to the Banks.

          Section 6. Representations, Warranties and Agreements. In order to
induce the Banks to enter into this Agreement on the Restatement Effective Date
and to make the Loans, and issue (or participate in) the Letters of Credit as
provided herein, each of Holdings and the Borrower makes the following
representations, warranties and agreements as to itself and as to each of its
Subsidiaries (to the extent applicable), as of the Restatement Effective Date
(both before and after giving effect to the Credit Events occurring on such
date, the Transaction and the other transactions contemplated by the Documents,
and all references to the Borrower herein and elsewhere in this Agreement,
shall, unless otherwise specifically indicated, be references to the Borrower
after giving effect to the Transaction) and as of the date of each subsequent
Credit Event which representations, warranties and agreements shall survive the
execution and delivery of this Agreement and the Notes and any subsequent Credit
Event, with the occurrence of each Credit Event on or after the Restatement
Effective Date being deemed to constitute a representation and warranty that the

<PAGE>   42

matters specified in this Section 6 are true and correct on and as of the
Restatement Effective Date and on the date of each such Credit Event (except to
the extent such representations specifically relate to earlier dates in which
case such representations shall be correct in all material respects on and as of
such dates):

          6.01 Corporate Status. Each of Holdings and its Subsidiaries (i) is a
duly organized and validly existing corporation in good standing under the laws
of the jurisdiction of its organization, (ii) has the power and authority to own
its property and assets and to transact the business in which it is engaged and
presently proposes to engage and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where the ownership,
leasing or operation of property or the conduct of its business requires such
qualifications except for failures to be so qualified which, in the aggregate,
could not reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          6.02 Corporate Power and Authority. Each of Holdings and its
Subsidiaries has the corporate power to execute, deliver and perform the terms
and provisions of each of the Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of each of such Documents. Each of Holdings and its Subsidiaries has duly
executed and delivered each of the Documents to which it is party, and each of
such Documents constitutes its legal, valid and binding obligation enforceable
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, reorganization, moratorium or similar laws relating to or
limiting creditors' rights generally or by general equitable principles
(regardless of whether the issue of enforceability is considered in a proceeding
in equity or at law).

          6.03 No Violation. Neither the execution, delivery or performance by
Holdings or any of its Subsidiaries of the Credit Documents to which it is a
party, nor compliance by it with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien (except pursuant to the Security Documents) upon any of the property or
assets of Holdings or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement or loan agreement, or any
other agreement, contract or instrument to which Holdings or its Subsidiaries is
a party or by which it or any of its property or assets is bound or to which it
may be subject or (iii) will violate any provision of the Certificate of
Incorporation or By-Laws (or similar organizational documents) of Holdings or
any of its Subsidiaries. Neither the execution, delivery or performance by
Holdings or any of its Subsidiaries of the Documents (other than the Credit
Documents) to which it is a party, nor compliance by it with the terms and
provisions thereof, (i) will contravene any provision of any applicable material
law, statute, rule or regulation or any material order, writ, injunction or
decree of any court or governmental instrumentality, (ii) will conflict with or
result in any breach of any of the terms, covenants, conditions or provisions
of, or constitute a default under, or result in the creation or imposition of
(or the obligation to create or impose) any Lien (except pursuant to the
Security Documents) upon any of the property or assets of Holdings or any of its

<PAGE>   43

Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of
trust, credit agreement or loan agreement, or any other material agreement,
contract or instrument to which Holdings or its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the Certificate of Incorporation or
By-Laws (or similar organizational documents) of Holdings or any of its
Subsidiaries.

          6.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made on or prior to the Restatement Effective
Date and are in full force and effect), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with, (i) the execution, delivery and performance
of any Credit Document or (ii) the legality, validity, binding effect or
enforceability of any such Credit Document. No material order, consent,
approval, license, authorization or validation of, or material filing, recording
or registration with (except as have been obtained or made on or prior to the
Restatement Effective Date and are in full force and effect), or exemption by,
any governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Document (other than the Credit Documents) or
(ii) the legality, validity, binding effect or enforceability of any such
Document (other than the Credit Documents).

          6.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; Projections; etc. (a) The consolidated balance sheet of the
Borrower as at December 31, 1996 and Holdings as at December 31, 1997, and the
related statements of earnings and stockholders' equity and cash flows for the
fiscal period ended as of such date, in the case of the annual statements, have
been examined by KMPG Peat Marwick LLP, which is an independent certified public
accountant, which delivered unqualified opinions in respect thereto, copies of
all of which financial statements referred to in the preceding clause have
heretofore been furnished to each Bank, present fairly in all material respects
the financial position of the Borrower or Holdings, as the case may be, and
their respective Subsidiaries at the dates of said statements and the results of
operations for the period covered thereby. All such financial statements have
been prepared in accordance with generally accepted accounting principles and
practices consistently applied except to the extent provided in the notes to
said financial statements and with respect to interim financial statements,
subject to normal year end adjustments. Since December 31, 1997, there has been
no material adverse change in the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries as a whole.

          (b) On and as of the Restatement Effective Date, on a pro forma basis
after giving effect to the Transaction and all other transactions contemplated
to take place on or prior to the Restatement Effective Date and to all
Indebtedness (including the Loans) being incurred in connection with the
Transaction, and Liens created, and to be created, by each Credit Party in
connection therewith: (a) the sum of the assets (including all intangible
assets), at a fair market valuation, of each Credit Party will exceed its debts;
(b) no Credit Party has incurred or intends to, or believes that it will, incur
debts beyond its ability to pay such debts as such debts mature; and (c) each
Credit Party will have sufficient capital with which to conduct its business.
For purposes of this Section 6.05(b) "debt" means any liability on a claim, and
"claim" means (i) right to payment, whether or not such a right is reduced to

<PAGE>   44

judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.

          (c) Except as fully reflected in the financial statements and the
notes related thereto described in Section 6.05(a) there were as of the
Restatement Effective Date (and after giving effect to the Transaction and the
other transactions contemplated hereby and by the Documents) no liabilities or
obligations with respect to Holdings or any of its Subsidiaries of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether or
not due) which, either individually or in aggregate, could reasonably be
expected to have a materially adverse effect on the performance, business,
assets, nature of assets, liabilities, operations, properties, condition
(financial or otherwise) or prospects of Holdings and its Subsidiaries taken as
a whole. As of the Restatement Effective Date, neither Holdings nor any of its
Subsidiaries knows of any basis for the assertion against Holdings or any of its
Subsidiaries of any liability or obligation of any nature whatsoever that is not
fully reflected in the financial statements and the notes related thereto
described in Section 6.05(a) which, either individually or in the aggregate,
could reasonably be expected to be material to the Borrower and its Subsidiaries
taken as a whole. As of the Restatement Effective Date (and after giving effect
to the Transaction) none of Holdings or any of its Subsidiaries will have any
outstanding Indebtedness or preferred stock other than (i) the Loans, (ii) the
Existing Indebtedness and (iii) 418,000 shares of Series A Convertible
Participating Preferred Stock of Holdings and 228,500 shares of Series B
Convertible Participating Preferred Stock of Holdings.

          (d) On and as of the Restatement Effective Date, the Projections have
been prepared in good faith by the Borrower and there are no statements or
conclusions in any of the Projections which are based upon or include
information known to the Borrower to be misleading or which fail to take into
account material information regarding the matters reported therein. On the
Restatement Effective Date, the Borrower believes that the Projections were
reasonable and attainable (although actual results may differ from the
Projections and no representation is made that the Projections will in fact be
attained).

          6.06 Litigation. There are no actions, suits or proceedings pending
or, to the best knowledge of Holdings and its Subsidiaries, threatened (i) with
respect to any Document, or (ii) that are reasonably likely to materially and
adversely affect the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of Holdings and its Subsidiaries taken as a whole.

          6.07 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of Holdings or
any of its Subsidiaries in writing to any Bank (including, without limitation,
all information contained in the Documents) for purposes of or in connection
with this Agreement or any transaction contemplated herein (including, without
limitation, in connection with the issuance of Acceptable Subordinated Debt) is,
and all other such factual information (taken as a whole with all information
previously furnished) hereafter furnished by or on behalf of Holdings or any of
its Subsidiaries in writing to any Bank will be, true and accurate in all




<PAGE>   45





material respects on the date as of which such information is dated or certified
and not incomplete by omitting to state any material fact.

          6.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the Term
Loans and up to $100,000,000 of the proceeds of Revolving Loans incurred by the
Borrower on the Restatement Effective Date shall be used by the Borrower to (i)
repay Existing Loans, accrued interest thereon, breakage costs and fees relating
thereto and relating to the Existing Letters of Credit, (ii) repay the Rocky
Mountain Note, (iii) pay Transaction Fees and Expenses and (iv) provide for
working capital purposes. Proceeds of Revolving Loans incurred after the
Restatement Effective Date shall be used by the Borrower only to effect
Permitted Acquisitions and for general corporate, capital expenditure and
working capital purposes.

          (b) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System.

          6.09 Tax Returns and Payments. Each of Holdings and each of its
Subsidiaries has timely filed or caused to be timely filed (including pursuant
to any valid extensions of time for filing) with the appropriate taxing
authority, all material returns, statements, forms and reports for taxes (the
"Returns") required to be filed by or with respect to the income, properties or
operations of Holdings and/or any of its Subsidiaries. The Returns accurately
reflect in all material respects all liability for taxes of Holdings and its
Subsidiaries for the periods covered thereby. Each of Holdings and each of its
Subsidiaries has paid, or have provided adequate reserves in accordance with
generally accepted accounting principles for all material taxes (including,
without limitation, all withholding taxes) payable by them which have become due
or will become due for the current fiscal year through the date hereof. There is
no material action, suit, proceeding, investigation, audit, or claim now pending
or, to the best knowledge of Holdings or any of its Subsidiaries, threatened by
any authority regarding any taxes relating to Holdings or any of its
Subsidiaries. Except as set forth on Schedule IV, as of the Restatement
Effective Date, neither Holdings nor any of its Subsidiaries has entered into an
agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of a
material amount of taxes of Holdings or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods of
the Borrower or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations. Neither Holdings nor any of its Subsidiaries
has incurred, or will incur, any material tax liability in connection with the
Transaction or any other transactions contemplated hereby.

                  6.10 Compliance with ERISA. Schedule V sets forth each Plan;
each Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without




<PAGE>   46





limitation, ERISA and the Code; each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect that it
meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable
Event has occurred; no Plan which is a multiemployer plan (as defined in Section
4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded
Current Liability; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
all contributions required to be made with respect to a Plan have been timely
made; neither Holdings nor any of its Subsidiaries Holdings nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to Holdings, any of its
Subsidiaries or any ERISA Affiliate of incurring a liability to or on account of
a Plan pursuant to the foregoing provisions of ERISA and the Code; no
proceedings have been instituted to terminate or appoint a trustee to administer
any Plan which is subject to Title IV of ERISA; no action, suit, proceeding,
hearing, audit or investigation with respect to the administration, operation or
the investment of assets of any Plan (other than routine claims for benefits) is
pending, expected or threatened; using actuarial assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, there exist
no liabilities of Holdings, its Subsidiaries and/or its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Plan ended prior to the date of the most recent
Credit Event; each group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) which covers or has covered employees or former
employees of Holdings, its Subsidiaries, or any ERISA Affiliate has at all times
been operated in compliance with the provisions of Part 6 of subtitle B of Title
I of ERISA and Section 4980B of the Code; no lien imposed under the Code or
ERISA on the assets of Holdings, any of its Subsidiaries or any ERISA Affiliate
exists or is likely to arise on account of any Plan; and Holdings and its
Subsidiaries may cease contributions to or terminate any employee benefit plan
maintained by any of them without incurring any material liability.

          6.11 The Security Documents. (a) The provisions of the Security
Documents (other than the Pledge Agreements) are effective to create in favor of
the Collateral Agent for the benefit of the Secured Creditors a legal, valid and
enforceable security interest in all right, title and interest of the respective
Credit Parties in the Collateral described therein and the Collateral Agent, for
the benefit of the Secured Creditors, has a fully perfected Lien on, and
security interest in, all right, title and interest of the respective Credit
Parties, in all of the Collateral described therein, subject to no other Liens
other than Permitted Liens. The recordation of the Security Agreement in the
United States Patent and Trademark Office together with filings on Form UCC-1
made pursuant to the Security Agreement will be effective, under federal and
state law, to perfect the security interest granted to the Collateral Agent in
the trademarks and patents covered by the Security Agreement and the filing of
the Security Agreement with the United States Copyright Office together with
filings on Form UCC-1 made pursuant to the Security Agreement will be effective
under federal and state law to perfect the security interest granted to the
Collateral Agent in the copyrights covered by the Security Agreement. Each of
the Credit Parties party to the Security Agreement has good and merchantable
title to all Collateral described therein, free and clear of all Liens except
those described above in this clause (a).

<PAGE>   47

          (b) The security interests created in favor of the Collateral Agent,
as Pledgee for the benefit of the Secured Creditors, under the Pledge Agreements
constitute first perfected security interests in the Pledged Securities
described in the Pledge Agreements, subject to no security interests of any
other Person. No filings or recordings are required in order to perfect (or
maintain the perfection or priority of) the security interests created in the
Pledged Securities and the proceeds thereof under the Pledge Agreements.

          6.12 Material Contracts. All Material Contracts of Holdings and each
of its Subsidiaries as of the Restatement Effective Date are listed on Schedule
VI.

          6.13 Properties. Each of Holdings and each of its Subsidiaries has
good and merchantable title to all properties owned by them, including all
property reflected in the consolidated pro forma balance sheet (after giving
effect to the Transaction) referred to in Section 6.05(a) (except as sold or
otherwise disposed of since the date of such balance sheet in the ordinary
course of business or as permitted by Section 8.02), free and clear of all
Liens, other than (i) as referred to in the consolidated balance sheet or in the
notes thereto or in the pro forma balance sheet or (ii) otherwise permitted by
Section 8.01. Schedule VII contains a true and complete list of each parcel of
Real Property owned or leased by Holdings and each of its Subsidiaries on the
Restatement Effective Date, and the type of interest therein held by Holdings
and/or its Subsidiaries.

          6.14 Capitalization. On the Restatement Effective Date, after giving
effect to the Transaction, the authorized capital stock of (a) Holdings consists
of (i) 1,000,000 shares of common stock, $.01 par value per share ("Holdings
Common Stock"), 100 of which shares are issued and outstanding, (ii) 1,293,800
shares of designated preferred stock, $.01 par value per share, of which (a)
418,000 shares have been designated as Series A Convertible Participating
Preferred stock ("Holdings Series A Convertible Preferred Stock"), all of which
are issued and outstanding, (b) 418,000 shares have been designated as Series A
Redeemable Preferred Stock ("Holdings Series A Redeemable Preferred Stock"),
none of which are issued, (c) 228,500 shares have been designated as Series B
Convertible Participating Preferred Stock ("Holdings Series B Convertible
Preferred Stock"), of which 228,442 shares are issued and outstanding, (d)
228,500 shares have been designated as Series B Redeemable Preferred Stock
("Holdings Series B Redeemable Preferred Stock"), none of which are issued, and
(iii) 300,000 shares of undesignated preferred stock, $.01 par value per share
("Holdings Undesignated Preferred Stock") and (b) the Borrower consists of 1,000
shares of common stock, $.01 par value per share ("Borrower Common Stock"), all
of which shares are issued and outstanding. Such Holdings Common Stock, Borrower
Common Stock, Holdings Series A Convertible Preferred Stock and Holdings Series
B Convertible Preferred Stock is owned in the amounts, and by the Persons, set
forth on Schedule VIII. Except as set forth in Schedule VIII, all of such
outstanding shares have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. Except as set forth in this
Section and on Part A of Schedule VIII, on the Restatement Effective Date,
neither Holdings, the Borrower nor any Subsidiary of the Borrower has
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to,
its capital stock.

<PAGE>   48

          6.15 Subsidiaries. Schedule IX hereto lists each Subsidiary of
Holdings, and the direct and indirect ownership interest of Holdings therein, in
each case existing on the Restatement Effective Date.

          6.16 Compliance with Statutes, etc. Each of Holdings and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except with
respect to each of the foregoing such noncompliance as could not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          6.17 Investment Company Act. None of Holdings and any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

          6.18 Public Utility Holding Company Act. None of Holdings and any of
its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended.

          6.19 Environmental Matters. (a) Holdings and each of its Subsidiaries
have complied with, and on the date of such Credit Event are in compliance with,
in all respects, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws except such noncompliances which,
in the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole. There are no past, pending or,
to the best knowledge of Holdings or any of its Subsidiaries, threatened
material Environmental Claims against Holdings or any of its Subsidiaries or any
Real Property currently owned or operated by Holdings or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences
concerning the business or operations of Holdings or any of its Subsidiaries or
any Real Property owned or operated at any time by Holdings or any of its
Subsidiaries or, to the knowledge of Holdings or any of its Subsidiaries, any
property adjoining any such Real Property that could reasonably be expected (i)
to form the basis of an Environmental Claim against Holdings or any of its
Subsidiaries or any Real Property owned or operated by Holdings or any of its
Subsidiaries or (ii) to cause such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such Real
Property under any Environmental Law except such Environmental Claims and
restrictions which individually or in the aggregate could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole.

<PAGE>   49

          (b) Neither Holdings nor any of its Subsidiaries has, at any time,
generated, used, treated, stored, transported or released Hazardous Materials
on, to or from any Real Property at any time owned, leased or at any time
operated by Holdings or any of its Subsidiaries.

          (c) There are no underground storage tanks located on any Real
Property owned or operated by Holdings or any of its Subsidiaries the existence
of which could reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          6.20 Labor Relations. None of Holdings and any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
material adverse effect on Holdings and its Subsidiaries taken as a whole. There
is (i) no significant unfair labor practice complaint pending against Holdings
or any of its Subsidiaries or, to the best knowledge of Holdings, threatened
against any of them, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against Holdings or any
of its Subsidiaries or, to the best knowledge of Holdings, threatened against
any of them and (ii) no significant strike, labor dispute, slowdown or stoppage
pending against Holdings or any of its Subsidiaries or, to the best knowledge of
Holdings, threatened against Holdings or any of its Subsidiaries.

          6.21 Patents, Licenses, Franchises and Formulas. (a) Except as set
forth in Schedule X, Holdings, together with its Subsidiaries, has a license to
use or otherwise has the right to use, free and clear of pending or threatened
Liens, all the material patents, patent applications, trademarks, service marks,
trade names, trade secrets, copyrights, proprietary information, computer
programs, data bases, licenses, franchises and formulas, or rights with respect
to the foregoing (collectively, "Intellectual Property"), and has obtained all
licenses and other rights of whatever nature, necessary for the present conduct
of its business, without any known conflict with the rights of others which, or
the failure to obtain which, as the case may be, could reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole.

          (b) Neither Holdings nor any of its Subsidiaries has knowledge of any
claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by Holdings or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any Intellectual
Property right of any other Person and, that to the best knowledge of Holdings
and its Subsidiaries, no claim is threatened except, in each case, for such
claims that could not individually or in the aggregate reasonably be expected to
have a material adverse affect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole.

          6.22 Indebtedness. Schedule XI sets forth a true and complete list of
all Indebtedness and preferred stock (other than the Loans and Convertible
Preferred Stock) of Holdings and each of its Subsidiaries as of the Restatement
Effective Date after giving effect to the Transaction and the other transactions

<PAGE>   50

contemplated hereby (the "Existing Indebtedness"), in each case showing the
aggregate amount thereof and the name of the respective obligor and any other
entity which directly or indirectly guaranteed such debt. None of the Existing
Indebtedness was incurred in connection with, or in contemplation of, the
Transaction or the other transactions contemplated hereby.

          6.23 Restrictions on or Relating to Subsidiaries. There does not exist
any encumbrance or restriction on the ability of (i) any Subsidiary of Holdings
to pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by Holdings or any
Subsidiary of Holdings, or to pay any Indebtedness owed to Holdings or a
Subsidiary of Holdings, (ii) any Subsidiary of Holdings to make loans or
advances to Holdings or any of its Subsidiaries or (iii) any Subsidiary of
Holdings to transfer any of its properties or assets to Holdings or any
Subsidiary of Holdings, except for such encumbrances or restrictions existing
under or by reason of (x) applicable law, (y) this Agreement and the other
Credit Documents or (z) provisions restricting assignment of any contract by
which Holdings or a Subsidiary of Holdings is bound.

          6.24 The Transaction and Permitted Acquisitions. All aspects of the
Transaction have been effected in accordance with the Documents and applicable
law except for such non-compliances as could not reasonably be expected to have
a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole. At the time of
the consummation thereof, each Permitted Acquisition and the issuance of the
Acceptable Subordinated Debt shall have been effected in accordance with the
documents relating to such Permitted Acquisition or issuance of Acceptable
Subordinated Debt, as the case may be, and all applicable law except for such
non-compliances as could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole. At the time of consummation
thereof, all consents and approvals of, and filings and registrations with, and
all other actions in respect of, all governmental agencies, authorities or
instrumentalities required in order to consummate the Transaction and any
Permitted Acquisition and the issuance of the Acceptable Subordinated Debt shall
have been obtained, given, filed or taken and are in full force and effect (or
effective judicial relief with respect thereto has been obtained) except for
such consents, approvals, filings, and registrations, or other actions the
failure to obtain, give, file or take as could not reasonably be expected to
have a material adverse effect on the performance, business, assets, nature of
assets, liabilities, operations, properties, condition (financial or otherwise)
or prospects of Holdings and its Subsidiaries taken as a whole. All applicable
waiting periods with respect thereto have or, prior to the time when required,
will have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents or imposes material adverse
conditions upon the consummation of the Transaction or any Permitted Acquisition
or the issuance of the Acceptable Subordinated Debt. Additionally, at the time
of consummation thereof, there does not exist any judgment, order or injunction
prohibiting or imposing material adverse conditions upon the consummation of the
Transaction or any Permitted Acquisition.

<PAGE>   51

          6.25 Year 2000 Reprogramming. Any reprogramming required to permit the
proper functioning, in and following the year 2000, of the Borrower's or any of
its Subsidiaries', or, to the knowledge of the Borrower, NRTC's or DirecTV's (i)
computer systems and (ii) equipment containing embedded microchips (including
systems and equipment supplied by others or with which the Borrower's, NRTC's or
DirecTV's systems interface) and the testing of all such systems and equipment,
as so reprogrammed, shall be completed by April 1, 1999. The costs to the
Borrower of such reprogramming and testing and of the reasonably foreseeable
consequences of year 2000 (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) could not reasonably be
expected to have a material adverse effect on the performance, business, assets,
nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole.
Except for such of the reprogramming referred to in the preceding sentence as
may be necessary, the computer and management information systems of the
Borrower and its Subsidiaries are, and to the knowledge of the Borrower, the
computer and management information systems of NRTC and DirecTV are, and with
ordinary course upgrading and maintenance will continue to be for the term of
this Agreement, sufficient to permit the Borrower and its Subsidiaries to
conduct its business without such conduct resulting in a material adverse effect
on the performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of the Borrower and
its Subsidiaries taken as a whole.

          Section 7. Affirmative Covenants. Each of Holdings and the Borrower
covenants and agrees that on and after the Restatement Effective Date and until
the Total Commitment and all Letters of Credit have terminated and the Loans and
Notes and Unpaid Drawings, together with interest, Fees and all other
obligations incurred hereunder and thereunder, are paid in full:

          7.01 Information Covenants. Holdings will furnish to each Bank:

               (a) Monthly Reports. Within fortyfive (45) days after the end of
          each fiscal month other than the last such month of any fiscal quarter
          of Holdings, the consolidated and consolidating balance sheets of
          Holdings and its Subsidiaries as at the end of such month and for the
          elapsed portion of the fiscal year ended with the last day of such
          month and the related consolidated and consolidating statements of
          income for such month and for the elapsed portion of the fiscal year
          ended with the last day of such month and a statement of cash flows
          for the elapsed portion of the fiscal year ended with the last day of
          such month, in each case setting forth comparative figures for the
          corresponding month and elapsed portion of such fiscal year for the
          prior fiscal year and comparable budgeted figures for such period as
          well as subscriber information (including, without limitation, with
          respect to new subscribers and disconnected subscribers) and the
          amount of MDU Investments (and a break-down thereof) for such period
          and, upon request of either Agent, a management discussion and
          analysis of such results, all of which shall be certified by the Chief
          Financial Officer or Controller of Holdings, subject to normal
          year-end audit adjustments.

               (b) Quarterly Financial Statements. Within forty-five (45) days
          after the close of each quarterly accounting period in each fiscal
          year of Holdings, the consolidated and consolidating balance sheets of
          Holdings and its Subsidiaries as at the end of such quarterly period
          and the related consolidated and consolidating statements of income,
          stockholders' equity and cash flows, in each case for such quarterly
          period and for the elapsed portion of the fiscal year ended with the
          last day of such quarterly period, in each case setting forth

<PAGE>   52

          comparative figures for the related periods in the prior fiscal year
          and comparable budgeted figures for such period as well as subscriber
          information (including, without limitation, with respect to new
          subscribers and disconnected subscribers) and the amount of MDU
          Investments (and a break-down thereof) for such period and the period
          commencing on the Restatement Effective Date and a management
          discussion and analysis of such results, all of which shall be
          certified by the Chief Financial Officer or Controller of Holdings,
          subject to normal year-end audit adjustments.

               (c) Annual Financial Statements. Within 120 days after the close
          of each fiscal year of Holdings, the consolidated and consolidating
          balance sheets of Holdings and its Subsidiaries as at the end of such
          fiscal year and the related consolidated and consolidating statements
          of income, stockholders' equity and cash flows for such fiscal year
          and setting forth comparative figures for the preceding fiscal year
          and comparable budgeted figures for such period as well as subscriber
          information (including, without limitation, with respect to new
          subscribers and disconnected subscribers) and the amount of MDU
          Investments (and a break-down thereof) for such period and the period
          commencing on the Restatement Effective Date and a management
          discussion and analysis of such results, certified, (x) in the case of
          the consolidating statements, by the chief financial officer or
          controller of Holdings and (y) in the case of the consolidated
          financial statements of Holdings and its Subsidiaries, by KMPG Peat
          Marwick, LLP or any of the "big six" or other independent certified
          public accountants of recognized national standing reasonably
          acceptable to the Agents, together with a signed opinion of such
          accounting firm (which opinion shall not be qualified as to the scope
          of the audit or the status of Holdings or any Subsidiary of Holdings
          as a going concern in any respect) stating that in the course of its
          regular audit of the financial statements of Holdings which audit was
          conducted in accordance with generally accepted auditing standards,
          such accounting firm obtained no knowledge of any Default or Event of
          Default which has occurred and is continuing or, if in the opinion of
          such accounting firm such a Default or Event of Default has occurred
          and is continuing, a statement as to the nature thereof.

               (d) Management Letters. Promptly after the receipt thereof by
          Holdings or any Subsidiary of Holdings, a copy of any "management
          letter" received by Holdings or any Subsidiary of Holdings from its
          certified public accountants.

               (e) Budgets. As soon as available but in no event later than
          thirty (30) days after the first day of each fiscal year of Holdings,
          a budget for Holdings and its Subsidiaries in form customarily
          prepared by Holdings (including budgeted statements of earnings and
          sources and uses of cash and balance sheets and budgeted acquisitions
          of franchises) prepared by Holdings for each calendar month of such

<PAGE>   53

          fiscal year in reasonable detail with appropriate presentation and
          discussion of the principal assumptions upon which such budgets are
          based, accompanied by the statement of the Chief Financial Officer or
          Controller of Holdings to the effect that, to the best of his
          knowledge, the budget is a reasonable estimate for the period covered
          thereby.

               (f) Officer's Certificates. At the time of the delivery of the
          financial statements provided for in Sections 7.01(a), (b) and (c), a
          certificate of the Chief Financial Officer or Controller of Holdings
          and the Borrower to the effect that no Default or Event of Default has
          occurred and is continuing or, if any Default or Event of Default has
          occurred and is continuing, specifying the nature and extent thereof,
          which certificate, (x) in the case of certificates delivered pursuant
          to Section 7.01(b) or (c), shall set forth the calculations required
          to establish whether Holdings and the Borrower were in compliance with
          the provisions of Sections 2.03, 3.02, 7.15, 8.02, 8.04, 8.05, 8.07,
          8.08 through 8.17, inclusive, at the end of such fiscal quarter or
          year, as the case may be, and (y) in the case of certificates
          delivered pursuant to Section 7.01(c), the amount of Excess Cash Flow
          for the relevant Excess Cash Flow Payment Period.

               (g) Notice of Default or Litigation. Promptly, and in any event
          within three (3) Business Days after an officer of Holdings or any of
          its Subsidiaries obtains knowledge thereof, notice of (i) the
          occurrence of any event which constitutes a Default or Event of
          Default, (ii) any litigation or governmental investigation or
          proceeding pending (x) against any of Holdings or its Subsidiaries
          which could reasonably be expected to materially and adversely affect
          the performance, business, assets, nature of assets, liabilities,
          operations, properties, condition (financial or otherwise) or
          prospects of Holdings and its Subsidiaries taken as a whole or (y)
          with respect to any Document and (iii) any other event which could
          reasonably be expected to materially and adversely affect the
          performance, business, assets, nature of assets, liabilities,
          operations, properties, condition (financial or otherwise) or
          prospects of Holdings and its Subsidiaries taken as a whole.

               (h) Other Reports and Filings. Promptly upon transmission
          thereof, copies of any financial information, proxy materials and
          other information and reports, if any, which Holdings or any of its
          Subsidiaries (x) has filed with the Securities and Exchange Commission
          or any successor thereto (the "SEC") or (y) has delivered to holders
          of, or any agent or trustee with respect to, Indebtedness of Holdings
          or any of its Subsidiaries in its capacity as such a holder, agent, or
          trustee or (z) has delivered to any shareholder in its capacity as a
          shareholder.

               (i) Environmental Matters. Promptly upon, and in any event within
          three (3) Business Days after an officer of Holdings or of any of its
          Subsidiaries obtains knowledge thereof, notice of any of the following
          environmental matters (i) any pending or threatened material
          Environmental Claim against Holdings or any of its Subsidiaries or any
          Real Property owned or operated at any time by Holdings or any of its
          Subsidiaries; (ii) any condition or occurrence on or arising from any
          Real Property owned or operated at any time by Holdings or any of its
          Subsidiaries that (a) could reasonably be anticipated to result in a
          material noncompliance by Holdings or any of its Subsidiaries with any
          material applicable Environmental Law, or (b) could reasonably be
          anticipated to form the basis of a material Environmental Claim
          against Holdings or any of its Subsidiaries or any Real Property owned
          or operated by Holdings or any of its Subsidiaries; (iii) any
          condition or occurrence on any material Real Property owned or
          operated by Holdings or any of its Subsidiaries that could reasonably
          be anticipated to cause such Real Property to be subject to any
          material restrictions on the ownership, occupancy, use or
          transferability of such Real Property under any Environmental Law; and
          (iv) the taking of any removal or remedial action in response to a
          material Release or material threatened Release or the actual or
          alleged presence of any Hazardous Material on or from any Real

<PAGE>   54

          Property owned or operated at any time by Holdings or any of its
          Subsidiaries in each case as required by any Environmental Law or any
          governmental or other administrative agency. All such notices shall
          describe in reasonable detail the nature of the claim, investigation,
          condition, occurrence or removal or remedial action and Holdings' or
          such Subsidiary's response thereto. In addition, Holdings will provide
          the Banks with copies of all material communications with any
          government or governmental agency relating to material Environmental
          Claims, all material communications with any person relating to
          material Environmental Claims, and such detailed reports of any
          Environmental Claim as may reasonably be requested by the Required
          Banks.

               (j) Annual Meetings with Banks. Within 150 days after the close
          of each fiscal year of the Borrower, the Borrower shall, at the
          request of either Agent or Required Banks, hold a meeting (at a
          mutually agreeable location and time) with all Banks who choose to
          attend such meeting at which meeting shall be reviewed the financial
          results of the previous fiscal year and the financial condition of
          Holdings and its Subsidiaries and the budgets presented for the
          current fiscal year of Holdings and its Subsidiaries.

               (k) Other Information. From time to time, such other information
          or documents (financial or otherwise) with respect to Holdings or any
          of its Subsidiaries, as the Agents, or the Required Banks may
          reasonably request.

          7.02 Books, Records and Inspections. Holdings will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries, in conformity with United States generally
accepted accounting principles and all requirements of law, shall be made of all
dealings and transactions in relation to its business and activities. Holdings
will, and will cause each of its Subsidiaries to, permit officers and designated
representatives of the Agents or any Bank to visit and inspect, under guidance
of officers of Holdings or of such Subsidiary, any of the properties of the
Borrower or such Subsidiary, and to examine the books of account of Holdings or
such Subsidiary and discuss the affairs, finances and accounts of Holdings or of
such Subsidiary with, and be advised as to the same by, its and their officers,
all at such reasonable times and intervals and to such reasonable extent as the
Agents or such Bank may request.

          7.03 Maintenance of Property, Insurance. (a) Schedule XII sets forth a
true and complete listing of all insurance maintained by Holdings and each of
its Subsidiaries as of the Restatement Effective Date. Holdings will, and will
cause each of its Subsidiaries to, (i) keep all material property useful and
necessary in its business in good working order and condition (ordinary wear and
tear excepted), (ii) maintain with financially sound and reputable insurance
companies key-man life insurance, liability insurance and insurance on all its
property in at least such amounts and against at least such risks as are
described on Schedule XII and (iii) furnish to the Administrative Agent, upon
written request, full information as to the insurance carried. The provisions of
this Section 7.03 shall be deemed to be supplemental to, but not duplicative of,
the provisions of any of the Security Documents that require the maintenance of
insurance.

<PAGE>   55

          (b) Holdings will at all times keep, and will cause each of its
Subsidiaries to keep, its property insured in favor of the Collateral Agent, and
all policies (including mortgage policies) or certificates (or certified copies
thereof) with respect to such insurance (and any other insurance maintained by
Holdings or its Subsidiaries (other than employee benefit insurance)) (i) shall
be endorsed to the Collateral Agent's satisfaction for the benefit of the
Collateral Agent (including, without limitation, by naming the Collateral Agent
as loss payee and naming the Collateral Agent, the Agents and each Bank as an
additional insured) with respect to Collateral, (ii) shall state that such
insurance policies shall not be canceled or revised in a manner adverse to the
Banks without thirty (30) days' prior written notice thereof by the respective
insurer to the Collateral Agent, (iii) shall provide that the respective
insurers irrevocably waive any and all rights of subrogation with respect to the
Collateral Agent, (iv) shall contain the standard noncontributory mortgagee
clause endorsement in favor of the Collateral Agent with respect to hazard
insurance coverage, (v) shall provide that any losses shall be payable
notwithstanding (A) any act or neglect of Holdings or any of its Subsidiaries,
(B) the occupation or use of the properties for purposes more hazardous than
those permitted by the terms of the respective policy if such coverage is
obtainable at commercially reasonable rates and is of the kind from time to time
customarily insured against by Persons owning or using similar property and in
such amounts as are customary, (C) any foreclosure or other proceeding relating
to the insured properties or (D) any change in the title to or ownership or
possession of the insured properties and (vi) shall be deposited with the
Collateral Agent. If Holdings or any of its Subsidiaries shall fail to insure
its property in accordance with this Section 7.03, or if Holdings or any of its
Subsidiaries shall fail to endorse and deposit all policies or certificates with
respect thereto, the Collateral Agent shall have the right (but shall be under
no obligation) to procure such insurance and the Borrower jointly and severally
agrees, to reimburse the Collateral Agent for all costs and expenses of
procuring such insurance.

          7.04 Corporate Franchises. Holdings will do, and will cause each of
its Subsidiaries to do or cause to be done, all things necessary to preserve and
keep in full force and effect its existence and its material rights, franchises
and authority to do business; provided, however, that nothing in this Section
7.04 shall prevent the withdrawal by Holdings or any Subsidiary of Holdings of
its qualification as a foreign corporation in any jurisdiction where such
withdrawal could not reasonably be expected to have a material adverse effect on
the performance, business, assets, nature of assets, liabilities, properties,
operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          7.05 Compliance with Statutes, etc. Holdings will, and will cause each
of its Subsidiaries to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property except such noncompliances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          7.06 Compliance with Environmental Laws. (a) Holdings will comply, and
will cause each of its Subsidiaries to comply, in all material respects with all
material Environmental Laws applicable to ownership or use of the Real Property,
will promptly pay or cause the Borrower to pay all costs and expenses incurred
in such compliance, and will keep or cause to be kept all such Real Properties




<PAGE>   56





free and clear of any Liens imposed pursuant to such Environmental Laws. None of
Holdings and any Subsidiary of Holdings will generate, use, treat, store,
release or dispose of, or permit the generation, use, treatment, storage,
Release or disposal of Hazardous Materials on any Real Property, or transport or
permit the transportation of Hazardous Materials to or from any Real Property,
other than in compliance in all material respects with applicable law.

          (b) At the request of the Agents or the Required Banks at any time and
from time to time during the existence of this Agreement: (i) if an Event of
Default exists under this Agreement, (ii) upon the reasonable belief by the
Agents that Holdings or any of its Subsidiaries has breached any representation
or covenant herein with respect to any environmental matters and such breach is
continuing, or (iii) in the event notice is provided under Section 7.01(i)
herein, Holdings will cause the Borrower to, and the Borrower will, provide, at
its sole cost and expense (or will cause the relevant Subsidiary to provide at
its sole cost and expense), an environmental site assessment report reasonable
in scope concerning any Real Property of Holdings or its Subsidiaries, prepared
by an environmental consulting firm approved by the Agents and the Required
Banks, indicating the presence or Release of Hazardous Materials on or from any
of the Real Property and the potential cost of any removal or remedial action in
connection with any Hazardous Materials on such Real Property. If the Borrower
fails to provide the same after thirty (30) days' notice, the Agents may order
the same, and the Borrower shall grant and hereby grants to the Agents and the
Banks and their agents access to such Real Property and specifically grants the
Agents and the Banks an irrevocable non-exclusive license, subject to the rights
of tenants, to undertake such an assessment all at the Borrower' expense, which
assessments, if obtained, will be provided to the Borrower.

          7.07 ERISA. As soon as possible and, in any event, within ten (10)
days after Holdings, any Subsidiary of Holdings or any ERISA Affiliate knows or
has reason to know of the occurrence of any of the following, Holdings will
cause the Borrower to, and the Borrower will, deliver to each of the Banks a
certificate of the chief financial officer of the Borrower setting forth the
full details as to such occurrence and the action, if any, that Holdings, such
Subsidiary of Holdings or such ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by Holdings, such Subsidiary of Holdings, the ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred (except to the extent that Holdings, any Subsidiary of
Holdings or any ERISA Affiliate has previously delivered to the Banks a
certificate and notices (if any) concerning such event pursuant to the next
clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13)
of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance
reporting requirement of PBGC Regulation Section 4043.61 (without regard to
subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64,
 .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to
occur with respect to such Plan within the following thirty (30) days; that an
accumulated funding deficiency, within the meaning of Section 412 of the Code or
Section 302 of ERISA, has been incurred or an application may be or has been
made for a waiver or modification of the minimum funding standard (including any
required installment payments) or an extension of any amortization period under




<PAGE>   57





Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan;
that any contribution required to be made with respect to a Plan has not been
timely made; that a Plan has been or may be terminated, reorganized, partitioned
or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded
Current Liability; that proceedings may be or have been instituted to terminate
or appoint a trustee to administer a Plan which is subject to Title IV of ERISA;
that a proceeding has been instituted pursuant to Section 515 of ERISA to
collect a delinquent contribution to a Plan; that Holdings, any Subsidiary of
Holdings or any ERISA Affiliate will or may incur any liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or
with respect to a group health plan (as defined in Section 607(1) of ERISA or
Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that
Holdings or any Subsidiary of Holdings may incur any material liability pursuant
to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan. Holdings will cause the Borrower
to, and the Borrower will, deliver to each of the Banks (i) a complete copy of
the annual report (on Internal Revenue Service Form 5500-series) of each Plan
(including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service and (ii) copies of any records, documents or other information that must
be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of
ERISA. In addition to any certificates or notices delivered to the Banks
pursuant to the first sentence hereof, copies of annual reports and any records,
documents or other information required to be furnished to the PBGC, and any
material notices received by Holdings, any Subsidiary of Holdings or any ERISA
Affiliate with respect to any Plan shall be delivered to the Banks no later than
ten (10) days after the date such report has been filed with the Internal
Revenue Service or such records, documents and/or information has been furnished
to the PBGC or such notice has been received by Holdings, the Subsidiary or the
ERISA Affiliate, as applicable.

          7.08 End of Fiscal Years; Fiscal Quarters. Holdings will cause its,
and each of its Subsidiaries', fiscal years to end on December 31 and each of
its, and each of its Subsidiaries', first three fiscal quarters to end on March
30, June 30 and September 30.

          7.09 Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non- performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole.

          7.10 Payment of Taxes. Holdings will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties would
otherwise attach




<PAGE>   58





thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of Holdings or any of its Subsidiaries not otherwise
permitted under Section 8.01; provided that neither Holdings nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves with respect thereto in accordance with generally
accepted accounting principles.

          7.11 Interest Rate Protection. Holdings will cause the Borrower to,
and the Borrower will, no later than 120 days following the Restatement
Effective Date, enter into arrangements acceptable to the Agents establishing a
fixed or maximum interest rate acceptable to the Agents for an aggregate
notional amount of at least an amount equal to 50% of Net Adjusted Consolidated
Indebtedness at any time, and from time to time, for a period of at least three
(3) years after the Restatement Effective Date; provided, however, that the
outstanding principal amount of Acceptable Subordinated Debt less the amount of
Cash Interest Reserves shall be counted as acceptable arrangements for
establishing a fixed interest rate acceptable to the Agents.

          7.12 Use of Proceeds. All proceeds of the Loans shall be used as
provided in Section 6.08.

          7.13 Acceptable Subordinated Debt. In connection with the issuance of
Acceptable Subordinated Debt, the Agents shall receive, as early as practicable
(but in any event not later than thirty (30) days prior to the printing of the
preliminary offering circular for such Acceptable Subordinated Debt), the
initial terms and conditions of such Acceptable Subordinated Debt and shall
receive on a regular basis after receipt of such initial terms and conditions,
all revisions thereto. The Agents and their counsel shall receive, prior to the
issuance of Acceptable Subordinated Debt, all drafts of the Acceptable
Subordinated Debt Documents which shall be in form and substance satisfactory to
the Agents. The Agents and Banks shall receive (i) certified final copies of all
of the Acceptable Subordinated Debt Documents, (ii) reliance letters with
respect to all legal opinions delivered by counsel to the Borrower in connection
with the issuance of the Acceptable Subordinated Debt and (iii) such other
opinions from counsel to the Borrower as shall be reasonably requested in
connection with such issuance. The Borrower shall cause the offering materials
for the Acceptable Subordinated Debt not to contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein not misleading.

          7.14 Intellectual Property Rights. The Borrower will, and Holdings
will cause each of its other Subsidiaries to, maintain in full force and effect
all Intellectual Property rights necessary or appropriate to the business of
Holdings or any Subsidiary of Holdings and take no action (including, without
limitation, the licensing of Intellectual Property), or fail to take an action,
as the case may be, in connection with such Intellectual Property rights which
could reasonably be expected to result in a material adverse effect on the
performance, business, assets, nature of assets, liabilities, properties,




<PAGE>   59





operations, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole. The Borrower will, and Holdings will cause each
of its other Subsidiaries to, diligently prosecute all pending applications
filed in connection with seeking or seeking to perfect the Intellectual Property
rights and take all other reasonable actions necessary for the protection and
maintenance of the Intellectual Property rights necessary or appropriate to the
business of Holdings or any Subsidiary of Holdings at all times from and after
the Restatement Effective Date other than any such actions the failure of which,
in the aggregate, could not reasonably be expected to have a material adverse
effect on the performance, business, assets, nature of assets, liabilities,
operations, properties, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole.

          7.15 Permitted Acquisitions. (a) Subject to the remaining provisions
of this Section 7.15 applicable thereto and the requirements contained in the
definition of Permitted Acquisition, the Borrower and its Subsidiaries may from
time to time on or after the Restatement Effective Date effect Permitted
Acquisitions, so long as with respect to each Permitted Acquisition:

               (i) the Borrower demonstrates that no Default or Event of Default
          is in existence at the time of the consummation of such Permitted
          Acquisition or would exist after giving effect thereto and all
          representations and warranties contained herein and in the other
          Credit Documents shall be true and correct in all material respects
          with the same effect as though such representations and warranties
          were made on and as of the date of such Permitted Acquisition (both
          before and after giving effect thereto);

               (ii) the Borrower shall have given the Agents and the Banks at
          least fifteen (15) days prior written notice of any such Permitted
          Acquisition (each such notice, a "Permitted Acquisition Notice"),
          which notice shall (s) contain the estimated date such Permitted
          Acquisition is scheduled to be consummated, (t) attach a true and
          correct copy of the draft purchase agreement, letter of intent,
          description of material terms or similar agreement executed by the
          Borrower and the seller in connection with such Permitted Acquisition,
          (u) contain the estimated aggregate purchase price of such Permitted
          Acquisition and the amount of related costs and expenses and the
          intended method of financing thereof, (v) contain the estimated amount
          of Loans required to effect such Permitted Acquisition and any amounts
          to be withdrawn from the Permitted Acquisition Cash Collateral
          Account, with respect thereto, (w) contain a description of the
          Permitted Seller Notes, Holdings Common Stock or Seller Preferred
          Stock to be issued by Holdings in connection with such Permitted
          Acquisition, and (x) disclose the number of Subscribers to be Acquired
          and the number of households in the acquired franchise area and the
          purchase price per Subscriber to be Acquired and per household in the
          acquired franchise area; provided, however, that if the estimated
          aggregate purchase price of such Permitted Acquisition is less than
          $3,000,000, such notice need not contain the documents described in
          clause (t) above unless the Agents request such information; provided
          further, however, in the event that after delivery of the
          documentation described in clause (t) above any material economic
          terms of the Permitted Acquisition shall be amended in any material
          way, then promptly after such amendment the Borrower shall provide the
          Agents and the Banks written notice of such changes;

               (iii) the Borrower shall have given the Banks such other
          information related to the Person or business, division or product
          line being acquired and the Permitted Acquisition as the Agents shall
          reasonably request;

               (iv) (I) as soon as available but not later than the date of the
          consummation of such Permitted Acquisition, a copy of the executed
          purchase agreement and all related agreements, schedules and exhibits
          with respect to such Permitted Acquisition and (II) at the time of

<PAGE>   60

          delivery of the purchase agreement, a certification from the Borrower
          as to the purchase price for the acquisition and the estimated amount
          of all related costs, fees and expenses and that, except as described,
          there are no other amounts which will be payable in connection with
          the respective Permitted Acquisition;

               (v) the Agents shall be satisfied in their reasonable discretion
          that the proposed Permitted Acquisition will not reasonably likely
          result in materially increased liabilities (contingent or otherwise)
          of Holdings or any of its Subsidiaries other than Permitted Seller
          Notes (including, without limitation, tax, ERISA or environmental
          liabilities); provided that, so long as the Permitted Acquisition
          Notice has been given as required above and so long as the Borrower
          has furnished each Agent with all information with respect to
          liabilities of the type described in this clause, if any Agent has not
          notified the Borrower on or prior to the tenth day prior to the
          consummation of the Permitted Acquisition that such Agent has not yet
          been satisfied that the proposed Permitted Acquisition would not be
          reasonably likely to result in materially increased liabilities of the
          Borrower or any of its Subsidiaries, such Agent shall be deemed for
          purposes of this clause (v) to be so satisfied;

               (vi) recalculations are made by the Borrower of compliance with
          the covenants contained in Sections 8.08 through 8.17, inclusive, for
          the fiscal quarter most recently ended prior to the date of the
          Permitted Acquisition (the "Calculation Period") annualized and on a
          Pro Forma Basis, and such recalculations shall show that all such
          covenants would have been complied with throughout the Calculation
          Period on a Pro Forma Basis;

               (vii) the Borrower in good faith believes that on a Pro Forma
          Basis, the financial covenants contained in Sections 8.08 through
          8.17, inclusive, will continue to be met following the date of the
          consummation of the respective Permitted Acquisition and for the
          remaining term of the Loans; provided, however, the Agents may, in
          their reasonable discretion, request the Borrower to provide
          calculations made by the Borrower with respect to compliance with such
          covenants;

               (viii) the consent of Hughes and the NRTC to such Permitted
          Acquisition shall have been obtained; and

               (ix) prior to the consummation of the respective Permitted
          Acquisition, the Borrower shall furnish the Agents and the Banks an
          officer's certificate executed by the Chief Financial Officer of the
          Borrower, certifying as to compliance with the requirements of
          preceding clauses (i) through (viii), inclusive, and containing the
          calculations, if any, required by preceding clauses (v) through (vii),
          inclusive. The consummation of each Permitted Acquisition shall be
          deemed to be a representation and warranty by the Borrower that all
          conditions thereto have been satisfied and that same is permitted in
          accordance with the terms of this Agreement, which representation and
          warranty shall be deemed to be a representation and warranty for all
          purposes hereunder, including, without limitation, Sections 5 and 9;
          provided that the consummation of each Permitted Acquisition shall not
          be deemed to be a representation and warranty by the Borrower as to
          the acceptability of any items to the Agents and/or the Banks or as to
          whether the Agents and/or the Banks are satisfied with any of the
          matters described in such sections.

<PAGE>   61

          (b) At the time of each Permitted Acquisition involving the creation
or acquisition of a Subsidiary, not less than 100% of the capital stock of such
Subsidiary shall be directly owned by the Borrower or a Subsidiary Guarantor and
such 100% owned by the Borrower or such Subsidiary Guarantor shall be pledged
for the benefit of the Secured Creditors pursuant to the applicable Pledge
Agreement or pursuant to a similar agreement satisfactory to the Agents.

          (c) The Borrower shall cause each Subsidiary which is formed to
effect, or is acquired pursuant to, a Permitted Acquisition to execute and
deliver, prior to or on the date of the respective Permitted Acquisition, the
Subsidiaries Guaranty (or by an amendment thereto pursuant to which it shall be
a party thereto) or a substantially similar guaranty, in either case with the
documentation to be in form and substance satisfactory to the Agents.

          (d) The Borrower shall on the date of a Permitted Acquisition, in the
case of Permitted Acquisitions involving the acquisition of assets by the
Borrower, or, in the case of an acquisition by the respective Subsidiary, shall
cause the respective Subsidiary to, grant to the Collateral Agent, for the
benefit of the Secured Creditors, first priority perfected security interests in
all property of the Borrower or such Subsidiaries acquired in connection with
the Permitted Acquisition and to take, or cause such Subsidiary to take, all
actions requested by the Agents or the Required Banks (including, without
limitation, the obtaining of UCC-11's and the filing of UCC-1's) in connection
with the granting of such security interests. All security interests required to
be granted pursuant to this Section 7.15(d) shall be granted pursuant to such
security documentation (which shall be substantially similar to the analogous
Security Documents already executed and satisfactory in form and substance to
the Agents) and shall (except as otherwise consented to by the Agents and the
Required Banks) constitute valid and enforceable perfected security interests
prior to the rights of all third Persons and subject to no other Liens except
such Liens as are permitted by Section 8.01. The security documents and other
instruments related thereto shall be duly recorded or filed in such manner and
in such places as are required by law to establish, perfect, preserve and
protect the Liens, in favor of the Collateral Agent for the benefit of the
Secured Creditors, required to be granted pursuant to the respective Additional
Security Documents and all taxes, fees and other charges payable in connection
therewith shall be paid in full by the Borrower. At the time of the execution
and delivery of Additional Security Documents, the Borrower shall cause to be
delivered to the Collateral Agent such opinions of counsel, environmental
appraisals and other related documents as may be reasonably requested by the
Collateral Agent or the Required Banks to assure themselves that this Section
has been complied with. All actions required to be taken by this Section 7.15(d)
with respect to the Additional Collateral shall be completed no later than the
date on which the Permitted Acquisition is effected unless otherwise consented
to by the Agents.

          7.16 Registry. The Borrower hereby designates the Administrative Agent
to serve as its agent, solely for purposes of this Section 7.16, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank. Failure
to make any such recordation, or any error in such recordation shall not affect
the Borrower's obligations in respect of such Loans. With respect to any Bank,
the transfer of the Commitments of such Bank and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Register maintained by the
Administrative Agent with respect to ownership of such Commitments and Loans and

<PAGE>   62

prior to such recordation all amounts owing to the transferor with respect to
such Commitments and Loans shall remain owing to the transferor. The
registration of an assignment or transfer of all or part of any Commitments and
Loans shall be recorded by the Administrative Agent on the Register only upon
the acceptance by the Administrative Agent of a properly executed and delivered
assignment and assumption agreement pursuant to Section 12.04(b). Coincident
with the delivery of such an assignment and assumption agreement to the
Administrative Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Bank shall surrender the Note evidencing such Loan, and thereupon one
or more new Notes in the same aggregate principal amount shall be issued to the
assigning or transferor Bank and/or the new Bank. The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
this Section 7.16.

          7.17 Additional Security; Further Assurances. (a) Each Credit Party
shall grant to the Collateral Agent, for the benefit of the Secured Creditors,
at the request of the Agents or the Required Banks, at any time, a security
interest in any Real Property or vehicles owned by any such Credit Party and any
other assets of such Credit Party and not already subject to a Security Document
and shall take all actions requested by the Agents or the Required Banks
(including, without limitation, the obtaining of mortgage policies, title
surveys and real estate appraisals satisfying the requirements of all applicable
laws) in connection with the granting of such security interest.

          (b) The security interests required to be granted pursuant to clause
(a) above shall be granted pursuant to mortgages, deeds of trust and security
agreements, in each case satisfactory in form and substance to the Agents and
the Required Banks, which mortgages and security agreements shall create valid
and enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except such Liens as are permitted by
Section 8.01. The mortgages and other instruments related thereto and security
agreements shall be duly recorded or filed in such manner and in such places and
at such times as are required by law to establish, perfect, preserve and protect
the Liens, in favor of the Collateral Agent for the benefit of the Secured
Creditors, required to be granted pursuant to such documents and all taxes, fees
and other charges payable in connection therewith shall be paid in full by the
Borrower. At the time of the execution and delivery of the additional documents,
the Borrower shall cause to be delivered to the Collateral Agent such opinions
of counsel, mortgage policies, title surveys, real estate appraisals,
certificates of title and other related documents as may be reasonably requested
by the Agents or the Required Banks to assure themselves that this Section 7.17
has been complied with.

          (c) Each Credit Party agrees that each action required by Section
7.17(a), or (b) shall be completed within sixty (60) days of the date such
action is requested to be taken.

          7.18 Senior Seller Notes. The Borrower hereby covenants that, upon
maturity of the Senior Seller Notes described in the definition thereof, the
Collateral Agent shall automatically be granted, for the benefit of the Secured
Creditors, and without the requirement of any action on its part, (i) a first

<PAGE>   63

priority perfected security interest in all of the collateral securing such
Senior Secured Notes and (ii) a pledge of the Borrower's capital stock, if any,
in the franchises securing such Senior Seller Notes.

          Section 8. Negative Covenants. Each of Holdings and the Borrower
hereby covenants that on and after the Restatement Effective Date and until the
Total Commitment and all Letters of Credit have terminated and the Loans and
Notes and all Unpaid Drawings, together with interest, Fees and all other
Obligations incurred hereunder and thereunder, are paid in full:

          8.01 Liens. Holdings will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to Holdings or any of its Subsidiaries), or
assign any right to receive income or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute; provided that the provisions of this Section 8.01
shall not prevent Holdings or any of its Subsidiaries from creating, incurring,
assuming or permitting the existence of the following (liens described below are
herein referred to as "Permitted Liens"):

               (i) inchoate Liens with respect to Holdings or any of its
          Subsidiaries for taxes not yet due or Liens for taxes being contested
          in good faith and by appropriate proceedings for which adequate
          reserves have been established in accordance with generally accepted
          accounting principles;

               (ii) unperfected Liens in respect of property or assets of the
          Borrower or any of its Subsidiaries imposed by law, which were
          incurred in the ordinary course of business and do not secure
          Indebtedness for borrowed money, such as carriers', warehousemen's,
          materialmen's, mechanics' and landlords' liens and other similar Liens
          arising in the ordinary course of business, and (x) which do not in
          the aggregate materially detract from the value of the Borrower's or
          any of its Subsidiaries' property or assets or materially impair the
          use thereof in the operation of the business of the Borrower or its
          Subsidiaries or (y) which are being contested in good faith by
          appropriate proceedings, which proceedings have the effect of
          preventing the forfeiture or sale of the property or assets subject to
          any such Lien;

               (iii) Liens of the Borrower or its Subsidiaries in existence on
          the Restatement Effective Date which are listed, and the property
          subject thereto described, on Schedule XIII, but only to the
          respective date, if any, set forth in such Schedule XIII for the
          removal and termination of any such Liens;

               (iv) Liens created pursuant to the Security Documents;

               (v) easements, rights-of-way, restrictions, encroachments and
          other similar charges or encumbrances on the property of the Borrower

<PAGE>   64

          or any of its Subsidiaries arising in the ordinary course of business
          and not materially interfering with the conduct of the business of the
          Borrower or any of its Subsidiaries;

               (vi) Liens on property of the Borrower and its Subsidiaries
          subject to, and securing only, Capitalized Lease Obligations to the
          extent such Capitalized Lease Obligations are permitted by Section
          8.04(iii); provided that such Liens only serve to secure the payment
          of Indebtedness arising under such Capitalized Lease Obligation and
          the Lien encumbering the asset giving rise to the Capitalized Lease
          Obligation does not encumber any other asset of the Borrower or any of
          its Subsidiaries;

               (vii) Liens (other than any Lien imposed by ERISA) on property of
          the Borrower or any of its Subsidiaries incurred or deposits made in
          the ordinary course of business in connection with (x) workers'
          compensation, unemployment insurance and other types of social
          security or (y) to secure the performance of tenders, statutory
          obligations, surety and appeal bonds, bids, leases, government
          contracts, trade contracts, performance and return-of-money bonds and
          other similar obligations (exclusive of obligations for the payment of
          borrowed money); provided that the aggregate amount of cash and the
          fair market value of the property encumbered by Liens described in
          this clause (vii)(y) shall not exceed $500,000;

               (viii) Liens placed upon equipment or machinery used in the
          ordinary course of the business of the Borrower or any of its
          Subsidiaries within sixty (60) days following the time of purchase
          thereof by the Borrower or any of its Subsidiaries and improvements
          and accretions thereto to secure Indebtedness incurred to pay all or a
          portion of the purchase price thereof or any Indebtedness incurred to
          refinance such Indebtedness, provided that (x) the aggregate principal
          amount of all Indebtedness secured by Liens permitted by this clause
          (viii) does not exceed at any one time outstanding, when aggregated
          with the amount of Indebtedness permitted pursuant to Section
          8.04(iii), $2,000,000 and (y) in all events, the Lien encumbering the
          equipment or machinery so acquired and improvements and accretions
          thereto does not encumber any other asset of the Borrower or any of
          its Subsidiaries;

               (ix) Liens arising from precautionary UCC-1 financing statement
          filings regarding operating leases entered into by the Borrower or any
          of its Subsidiaries in the ordinary course of business;

               (x) inchoate Liens (where there has been no execution or levy and
          no pledge or delivery of collateral) arising from and out of judgments
          or decrees in existence at such time not constituting an Event of
          Default; and

               (xi) Liens for the benefit of the holders of the Acceptable
          Subordinated Debt on the Cash Interest Reserves so long as the amount
          of such Cash Interest Reserves and the terms and conditions of the
          escrow arrangements and security interests with respect thereto are
          satisfactory to the Agents.
<PAGE>   65

          8.02 Consolidation, Merger, Purchase or Sale of Assets, etc. Holdings
will not, and will not permit any of its Subsidiaries to, wind up, liquidate or
dissolve its affairs or enter into any transaction of merger or consolidation,
or convey, sell, lease or otherwise dispose of (or agree to do any of the
foregoing at any future time) all or any part of its property or assets, or
enter into any partnerships, joint ventures or sale-leaseback transactions, or
purchase or otherwise acquire in one or a series of related transactions (or
agree to do any of the foregoing at any future time) any part of the property or
assets (other than purchases or other acquisitions by Holdings or any of its
Subsidiaries of inventory, materials and equipment in the ordinary course of
business) of any Person, except that:

               (i) Capital Expenditures by the Borrower and its Subsidiaries
          shall be permitted to the extent not in violation of Section 8.07;

               (ii) each of the Borrower and its Subsidiaries may lease (as
          lessee) real or personal property in the ordinary course of business
          (so long as such lease does not create Capitalized Lease Obligations);

               (iii) investments may be made to the extent permitted by Section
          8.05;

               (iv) the Transaction shall be permitted as contemplated by the
          Documents;

               (v) the Borrower may effect Permitted Acquisitions in accordance
          with the requirements of Section 7.15 and may enter into agreements to
          effect Permitted Acquisitions so long as at no time shall the Borrower
          have outstanding an aggregate amount of nonrefundable deposits with
          respect thereto in excess of the remainder of $2,000,000 over the
          aggregate amount of nonrefundable deposits previously forfeited;

               (vi) the Borrower may sell assets so long as the aggregate amount
          of Net Sales Proceeds received from such sales does not exceed
          $500,000 in the aggregate for all such asset sales in any fiscal year;
          and

               (vii) the Borrower and its Subsidiaries may sell, lease or rent
          subscriber broadcast equipment to subscribers in the ordinary course
          of business and consistent with past practice.

To the extent the Required Banks waive the provisions of this Section 8.02 with
respect to the sale of any Collateral (to the extent the Required Banks are
permitted to waive such provisions in accordance with Section 12.12), or any
Collateral is sold as permitted by this Section 8.02, such Collateral shall be
sold free and clear of the Liens created by the Security Documents, and the
Administrative Agent and Collateral Agent shall be authorized to take any
actions deemed appropriate in order to effect the foregoing.

          8.03 Dividends. Holdings will not, nor will Holdings permit any of its
Subsidiaries to, declare or pay any Dividends with respect to Holdings or any of
its Subsidiaries except that (i) any Subsidiary of Holdings may pay Dividends to
Holdings or any Wholly-Owned Subsidiary of Holdings, (ii) Holdings may pay
Dividends to its stockholders in an aggregate amount not to exceed $500,000 for
the purpose of repurchasing stock held by such stockholders, (iii) proceeds from
the Weary Key-Man Insurance may be applied to purchase all of Holdings Capital
Stock owned by Mr. Weary at the time of his death so long as such proceeds are

<PAGE>   66

permitted to be used for such repurchase in accordance with Section 3.02(A)(g)
and are not required to be applied in accordance with Section 3.02(B), (iv)
Holdings may pay Dividends (x) to its employees in the form of options
convertible into Holdings Common Stock, (y) in the form of Seller Preferred
Stock payable in connection with a Permitted Acquisition and (z) so long as
there exists no Default or Event of Default, in the form of cash payable to any
Person holding a minority interest (in the form of stock, partnership interest,
membership interest or otherwise) in any Subsidiary of Holdings on or prior to
the Restatement Effective Date for the purpose of purchasing such minority
interest, and (v) holders of warrants shall be permitted to effect the cashless
exercise thereof.

          8.04 Indebtedness. Holdings will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:

               (i) Indebtedness incurred pursuant to this Agreement and the
          other Credit Documents;

               (ii) Indebtedness of the Borrower under any Interest Rate
          Protection or Other Hedging Agreement or under any similar type of
          agreement to the extent such is entered into to satisfy the
          requirements of Section 7.11;

               (iii) Indebtedness evidenced by Capitalized Lease Obligations to
          the extent permitted pursuant to Section 8.07; provided that the
          aggregate amount of Indebtedness evidenced by Capitalized Lease
          Obligations under all Capital Leases outstanding under this clause
          (iii) at any one time, when aggregated with the amount of Indebtedness
          permitted pursuant to Section 8.04(v), shall not exceed $2,000,000;

               (iv) Existing Indebtedness of the Borrower listed on Schedule XI
          but without giving effect to any refinancings, renewals or increases
          in the principal amount thereof;

               (v) Indebtedness in amounts, and subject to Liens, permitted
          under Section 8.01(viii);

               (vi) Indebtedness of the Borrower evidenced by Permitted Seller
          Notes;

               (vii) Acceptable Subordinated Debt, provided that both before and
          immediately after giving effect to the issuance thereof (with all
          covenants being tested at the time of the issuance but using EBITDA
          financial information relating to the fiscal quarter or four fiscal
          quarters most recently ended prior to the date of issuance), there
          shall exist no Default or Event of Default; and

               (viii) Guarantees of the Acceptable Subordinated Debt by Holdings
          and the Subsidiary Guarantors on a subordinated basis, provided that
          the terms of such subordination and all other terms and conditions of
          such guaranty shall be in form and substance satisfactory to the
          Agents, including, without limitation, that such guaranty with respect
          to Holdings or a particular Subsidiary of the Borrower shall be
          released at any time that Holdings' guaranty under this Agreement or
          the Subsidiaries Guaranty is released with respect to any such
          Subsidiary, as the case may be.
<PAGE>   67

          8.05 Advances, Investments and Loans. Holdings will not, and will not
permit any of its Subsidiaries to, directly or indirectly lend money or credit
or make advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any other Person, or purchase or own a futures contract or otherwise become
liable for the purchase or sale of currency or other commodities at a future
date in the nature of a futures contract, or hold any cash or Cash Equivalents,
except that the following shall be permitted:

               (i) Cash Interest Reserves;

               (ii) the Borrower and its Subsidiaries may acquire and hold
          receivables owing to any of them, if created or acquired in the
          ordinary course of business and payable or dischargeable in accordance
          with customary terms;

               (iii) the Borrower and its Subsidiaries may acquire and hold cash
          and Cash Equivalents, provided that during any time that Revolving
          Loans are outstanding, the aggregate amount of cash and Cash
          Equivalents permitted to be held by the Borrower and its Subsidiaries
          shall not exceed $5,000,000 for any period of five (5) consecutive
          Business Days, provided further, that amounts on deposit in the Letter
          of Credit Cash Collateral Account and the Permitted Acquisitions Cash
          Collateral Account shall not be included in calculating such limit;

               (iv) the Borrower may enter into interest rate protection
          agreements to the extent such is entered into to satisfy the
          requirements of Section 7.11;

               (v) the Borrower and its Subsidiaries may make Capital
          Expenditures to the extent permitted by Section 8.07;

               (vi) the Borrower may effect Permitted Acquisitions to the extent
          permitted by Section 7.15 and may enter into agreements to effect
          Permitted Acquisitions so long as at no time shall the Borrower have
          outstanding an aggregate amount of non-refundable deposits in excess
          of the remainder of $2,000,000 over the aggregate amount of
          non-refundable deposits previously forfeited;

               (vii) the Borrower and its Subsidiaries may endorse negotiable
          instruments for collection in the ordinary course of business;

               (viii) other than Permitted Acquisitions, the Borrower may enter
          into joint venture transactions relating directly to the DirecTV
          business; provided that the total value of all capital or asset
          contributions made by the Borrower in connection therewith shall not
          exceed an aggregate amount equal to $1,000,000; and

               (ix) the Borrower and its Subsidiaries may make loans and
          advances in the ordinary course of business consistent with past
          practices to their respective employees for moving, travel and
          emergency expenses and other similar expenses, so long as the

<PAGE>   68

          aggregate principal amount thereof at any one time outstanding
          (determined without regard to any write-downs or write-offs of such
          loans and advances) shall not exceed $500,000.

          8.06 Transactions with Affiliates. Holdings will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of Holdings or any Affiliate of any Subsidiary of Holdings, other
than transactions by the Borrower or any of its Subsidiaries with any such
Affiliates in the ordinary course of business unless such transaction or series
of related transactions is in writing and on terms that are no less favorable to
the Borrower or such Subsidiary, as the case may be, than those that would be
available in a comparable transaction in arm's-length dealings with an unrelated
third party; except that (i) the Borrower and its Subsidiaries may effect the
Transaction, (ii) loans and advances made in accordance with Section 8.05(ix)
shall be permitted and (iii) the Borrower and Holdings may pay customary fees to
non-officer directors of the Borrower. In no event may any management or similar
fees be paid or payable by Holdings or any of its Subsidiaries to any Person.

          8.07 Capital Expenditures. (a) Holdings will not, and will not permit
any of its Subsidiaries to, make any expenditure for fixed or capital assets
(including, without limitation, expenditures for maintenance and repairs which
should be capitalized in accordance with generally accepted accounting
principles and including Capitalized Lease Obligations but excluding capitalized
Subscriber Acquisition Costs (collectively, "Capital Expenditures"), except that
the Borrower and its Subsidiaries may make Capital Expenditures (other than in
connection with Permitted Acquisitions) so long as the aggregate amount thereof
does not exceed during any fiscal year of the Borrower (i) $2,000,000 or (ii)
$3,000,000 in the event that the Borrower has issued Acceptable Subordinated
Debt.

          (b) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Permitted Acquisitions in accordance with
Section 7.15 in an amount not to exceed the amounts permitted thereby.

          (c) In addition to the Capital Expenditures permitted above, the
Borrower and its Subsidiaries may make Capital Expenditures in connection with
the MDU Business so long as the expenditures therefor do not exceed the amounts
permitted pursuant to Section 8.21.

          8.08 Net Adjusted Consolidated Indebtedness to Qualified Paying
Subscriber Ratio. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of (x) Net Adjusted Consolidated
Indebtedness at the end of any fiscal quarter to (y) the number of Qualified
Paying Subscribers on the last day of such fiscal quarter to exceed the amount
set forth opposite such date set forth below:



<PAGE>   69







                      Fiscal Quarter
                           Ended                               Amount
                      --------------                           ------

                     June 30, 1998                             $1,200
                     September 30, 1998                        $1,200
                     December 31, 1998                         $1,200
                     March 31, 1999                            $1,100
                     June 30, 1999                             $1,000
                     September 30, 1999                        $1,000
                     December 31, 1999                         $1,000
                     March 31, 2000                              $900
                     June 30, 2000                               $900
                     September 30, 2000                          $900
                     December 31, 2000                           $900
                     March 31, 2001                              $800
                     June 30, 2001                               $800
                     September 30, 2001                          $800
                     December 31, 2001                           $800
                     March 31, 2002 and                          $700
                     thereafter

          8.09 Adjusted Consolidated Senior Indebtedness to Qualified Paying
Subscriber Ratio. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of (x) Adjusted Consolidated Senior
Indebtedness at the end of any fiscal quarter to (y) the number of Qualified
Paying Subscribers on the last day of such fiscal quarter to exceed the amount
set forth opposite such date set forth below:


                      Fiscal Quarter
                           Ended                               Amount
                      --------------                           ------

                     June 30, 1998                             $1,000
                     September 30, 1998                        $1,000
                     December 31, 1998                         $1,000
                     March 31, 1999                              $900
                     June 30, 1999                               $800
                     September 30, 1999                          $800
                     December 31, 1999                           $800
                     March 31, 2000                              $700
                     June 30, 2000                               $700
                     September 30, 2000                          $700
                     December 31, 2000                           $700
                     March 31, 2001                              $600
                     June 30, 2001                               $600
                     September 30, 2001                          $600
                     December 31, 2001                           $600
                     March 31, 2002 and                          $500
                     thereafter
                    
<PAGE>   70


          8.10 Net Subscriber Acquisition Cost. Holdings will cause the Borrower
not to permit, and the Borrower will not permit, the Net Subscriber Acquisition
Cost for any fiscal quarter ending after March 31, 1998 to exceed an amount
equal to (a) $300 or (b) $400 in the event that the Borrower has issued
Acceptable Subordinated Debt. Notwithstanding the foregoing, the Borrower shall
not be required to comply with this Section 8.10 for any fiscal quarter ended on
and after June 30, 2000 so long as the ratio of (i) Net Adjusted Consolidated
Indebtedness as at the end of such fiscal quarter to (ii) Annualized
Consolidated EBITDA for such quarter and for the immediately preceding quarter
is less than 7.0:1.0.

          8.11 Fixed Charge Coverage Ratio. Holdings will cause the Borrower not
to permit, and the Borrower will not permit, the Fixed Charge Coverage Ratio for
any period of four consecutive fiscal quarters ending on or after June 30, 2000,
in each case, taken as one accounting period, to be equal to or less than 1.05
to 1.0.

          8.12 Annualized Adjusted Consolidated Interest Coverage Ratio.
Holdings will cause the Borrower not to permit, and the Borrower will not
permit, the ratio of Annualized Adjusted Consolidated EBITDA to Annualized
Adjusted Consolidated Interest Expense for any fiscal quarter ending on a date
set forth below to be less than the ratio set forth opposite such date:


                  Fiscal Quarter
                     Ended                                      Ratio

                  September 30, 1998                            1.00x
                  December 31, 1998                             1.25x
                  March 31, 1999                                1.50x
                  June 30, 1999                                 1.50x
                  September 30, 1999                            1.50x
                  December 31, 1999                             1.75x
                  March 31, 2000                                2.00x

          8.13 Consolidated Interest Coverage Ratio. Holdings will cause the
Borrower not to permit, and the Borrower will not permit, the ratio of
Consolidated EBITDA to Consolidated Interest Expense for any period of four
consecutive fiscal quarters, in each case taken as one accounting period, ending
on a date set forth below to be less than the ratio set forth opposite such
date:






<PAGE>   71



                  Fiscal Quarter
                      Ended                                     Ratio

                  June 30, 2000                                 1.50x
                  September 30, 2000                            1.50x
                  December 31, 2000                             1.50x
                  March 31, 2001                                1.50x
                  June 30, 2001                                 1.50x
                  September 30, 2001                            1.50x
                  December 31, 2001                             1.50x
                  March 31, 2002                                1.75x
                  June 30, 2002                                 1.75x
                  September 30, 2002                            2.00x
                  December 31, 2002                             2.00x
                  March 31, 2003                                2.25x
                  June 30, 2003                                 2.25x
                  September 30, 2003                            2.50x
                  December 31, 2003                             2.50x
                  March 31, 2004 and thereafter                 3.00x

          8.14 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Adjusted Consolidated EBITDA. Holdings will cause the Borrower not to permit,
and the Borrower will not permit, the ratio of Net Adjusted Consolidated
Indebtedness as at the end of any fiscal quarter ended on a date set forth below
to Pro Forma Annualized Adjusted Consolidated EBITDA for such fiscal quarter to
be greater than (i) in the event that the Borrower has not issued Acceptable
Subordinated Debt, the ratio set forth opposite such date below:

                  Fiscal Quarter
                     Ended                                      Ratio 

                  September 30, 1998                            10.00x
                  December 31, 1998                             8.50x
                  March 31, 1999                                7.50x
                  June 30, 1999                                 7.00x
                  September 30, 1999                            6.50x
                  December 31, 1999                             6.00x
                  March 31, 2000                                5.50x
<PAGE>   72



or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:


                  Fiscal Quarter
                       Ended                                    Ratio

                  September 30, 1998                            12.00x
                  December 31, 1998                             11.00x
                  March 31, 1999                                10.00x
                  June 30, 1999                                 9.00x
                  September 30, 1999                            8.00x
                  December 31, 1999                             8.00x
                  March 31, 2000                                7.00x

                  8.15 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Adjusted Consolidated EBITDA. Holdings will cause the Borrower not to
permit, and the Borrower will not permit, the ratio of Adjusted Consolidated
Senior Indebtedness as at the end of any fiscal quarter ended on a date set
forth below to Pro Forma Annualized Adjusted Consolidated EBITDA for such fiscal
quarter to be greater than (i) in the event that the Borrower has not issued
Acceptable Subordinated Debt, the ratio set forth opposite such date below:

                  Fiscal Quarter
                      Ended                                     Ratio

                  September 30, 1998                            10.00x
                  December 31, 1998                             8.50x
                  March 31, 1999                                7.50x
                  June 30, 1999                                 7.00x
                  September 30, 1999                            6.50x
                  December 31, 1999                             6.00x
                  March 31, 2000                                5.50x

or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:

                  Fiscal Quarter
                      Ended                                     Ratio

                  September 30, 1998                            6.50x
                  December 31, 1998                             6.50x
                  March 31, 1999                                5.50x
                  June 30, 1999                                 5.25x
                  September 30, 1999                            4.75x
                  December 31, 1999                             4.75x
                  March 31, 2000                                4.75x


          8.16 Net Adjusted Consolidated Indebtedness to Pro Forma Annualized
Consolidated EBITDA. Holdings will cause the Borrower not to permit, and the
Borrower will not permit, the ratio of Net Adjusted Consolidated Indebtedness as
at the end of any fiscal quarter ended on a date set forth below to Pro Forma
Annualized Consolidated EBITDA for such fiscal quarter to be greater than (i) in
the event that the Borrower has not issued Acceptable Subordinated Debt, the
ratio set forth opposite such date below:




<PAGE>   73


                  Fiscal Quarter
                      Ended                                     Ratio

                  June 30, 2000                                 6.50x
                  September 30, 2000                            6.50x
                  December 31, 2000                             6.50x
                  March 31, 2001                                5.00x
                  June 30, 2001                                 5.00x
                  September 30, 2001                            5.00x
                  December 31, 2001                             5.00x
                  March 31, 2002                                3.00x
                  June 30, 2002                                 3.00x
                  September 30, 2002                            3.00x
                  December 31, 2002                             3.00x
                  March 31, 2003 and thereafter                 2.00x

or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:

                  Fiscal Quarter
                      Ended                                     Ratio

                  June 30, 2000                                 8.00x
                  September 30, 2000                            8.00x
                  December 31, 2000                             8.00x
                  March 31, 2001                                7.00x
                  June 30, 2001                                 7.00x
                  September 30, 2001                            7.00x
                  December 31, 2001                             7.00x
                  March 31, 2002                                5.50x
                  June 30, 2002                                 5.50x
                  September 30, 2002                            5.50x
                  December 31, 2002                             5.50x
                  March 31, 2003                                4.50x
                  June 30, 2003                                 4.50x
                  September 30, 2003                            4.50x
                  December 31, 2003                             4.50x
                  March 31, 2004 and thereafter                 4.00x


<PAGE>   74



                  8.17 Adjusted Consolidated Senior Indebtedness to Pro Forma
Annualized Consolidated EBITDA. Holdings will cause the Borrower not to permit,
and the Borrower will not permit, the ratio of Adjusted Consolidated Senior
Indebtedness as at the end of any fiscal quarter ended on a date set forth below
to Pro Forma Annualized Consolidated EBITDA for such fiscal quarter to be
greater than (i) in the event that the Borrower has not issued Acceptable
Subordinated Debt, the ratio set forth opposite such date below:

                  Fiscal Quarter
                      Ended                                     Ratio

                  June 30, 2000                                 6.50x
                  September 30, 2000                            6.50x
                  December 31, 2000                             6.50x
                  March 31, 2001                                5.00x
                  June 30, 2001                                 5.00x
                  September 30, 2001                            5.00x
                  December 31, 2001                             5.00x
                  March 31, 2002                                3.00x
                  June 30, 2002                                 3.00x
                  September 30, 2002                            3.00x
                  December 31, 2002                             3.00x
                  March 31, 2003 and thereafter                 2.00x

or (ii) in the event that the Borrower has issued Acceptable Subordinated Debt,
the ratio set forth opposite such date below:

                  Fiscal Quarter
                      Ended                                     Ratio

                  June 30, 2000                                 5.00x
                  September 30, 2000                            5.00x
                  December 31, 2000                             5.00x
                  March 31, 2001                                4.00x
                  June 30, 2001                                 4.00x
                  September 30, 2001                            4.00x
                  December 31, 2001                             4.00x
                  March 31, 2002                                3.00x
                  June 30, 2002                                 3.00x
                  September 30, 2002                            3.00x
                  December 31, 2002                             3.00x
                  March 31, 2003 and thereafter                 2.00x

          8.18 Limitation on Voluntary Payments and Modification of Existing
Indebtedness; Limitation on Modifications of Certificate of Incorporation,
By-Laws and Certain Other Agreements; etc. Holdings will not, and will not
permit any of its Subsidiaries to:



<PAGE>   75





          (i) make (or give any notice in respect of) any voluntary or optional
     payment or prepayment on or redemption (including pursuant to any change of
     control provision) or acquisition for value of (including, without
     limitation, by way of depositing with the trustee with respect thereto
     money or securities before due for the purpose of paying when due), any
     Existing Indebtedness, any Indebtedness incurred pursuant to Section
     8.04(vii) or Permitted Seller Notes (other than the Rocky Mountain Note);

          (ii) amend or modify, or permit the amendment or modification of, any
     provision of the Existing Indebtedness, the Permitted Seller Notes,
     Indebtedness incurred pursuant to Section 8.04(vii) or the Documents or of
     any agreement relating to any of the foregoing except for such amendments
     or modifications of the Existing Indebtedness or of the Documents entered
     into in connection with Permitted Acquisitions which, in the aggregate or
     individually, could not reasonably be likely to be adverse to any Bank in
     its capacity as such;

          (iii) materially amend, modify or change its Certificate of
     Incorporation (including, without limitation, by the filing or modification
     of any certificate of designation) or By-Laws, in a manner adverse to the
     Banks;

          (iv) amend, modify or change, terminate, or enter into any new
     Shareholders' Agreement or any other agreement with respect to its equity
     interests, except for such amendments, modifications or changes which, in
     the aggregate or individually could not reasonably be likely to be adverse
     to any Bank in its capacity as such;

          (v) amend, modify or change, terminate or enter into any new Tax
     Sharing Agreement;

          (vi) amend, modify or change the NRTC Agreements in any manner that is
     deemed to be material by the Agents in their sole discretion; or

          (vii) amend, modify or change, or enter into any new Management
     Agreement, Employee Benefit Plan, Employment Agreement or Material Contract
     (other than the NRTC Agreements and other than Material Contracts which
     constitute one of the agreements or documents referred to in preceding
     clauses (i) through (vi) of this Section 8.18) except if the aggregate cost
     to Holdings and its Subsidiaries as a result of such amendments,
     modifications, changes to such plans, agreements and contracts and new
     plans, agreements and contracts are not reasonably likely to have a
     material adverse effect on the performance, business, property, assets,
     nature of assets, liabilities, condition (financial or otherwise) or
     prospects of Holdings and its Subsidiaries taken as a whole.

          8.19 Limitation on Certain Restrictions on Subsidiaries. Holdings will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or suffer to exist or become effective any encumbrance
or restriction on the ability of any Subsidiary of Holdings to (i) pay dividends




<PAGE>   76


or make any other distributions on its capital stock or any other interest or
participation in its profits owned by Holdings or any Subsidiary of Holdings, or
pay any Indebtedness owed to Holdings or a Subsidiary of Holdings, (ii) make
loans or advances to Holdings or any Subsidiaries of Holdings or (iii) transfer
any of its properties or assets to Holdings or the Borrower, except for such
encumbrances or restrictions existing under or by reason of (x) applicable law,
(y) this Agreement and the other Credit Documents and (z) customary provisions
restricting subletting or assignments of any lease governing a leasehold
interest of the Borrower or a Subsidiary of the Borrower.

          8.20 Limitation on Issuance of Capital Stock. (a) Holdings will not
permit any of its Subsidiaries to issue any capital stock or other equity
interests (including, without limitation, partnership interests) (including by
way of sales of treasury stock) or any options or warrants to purchase, or
securities convertible into, capital stock, except (i) for transfers and
replacements of then outstanding shares, (ii) for stock splits, stock dividends
and similar issuances which do not decrease the percentage ownership of any
person in any class of the capital stock of the Borrower or such Subsidiary, and
(iii) upon the formation of any new Subsidiaries as permitted by Section 8.22.
Any stock issued as permitted by this Section 8.20, if owned by Holdings or any
of its Subsidiaries, shall be immediately pledged as Collateral and delivered
pursuant to the applicable Pledge Agreement.

          (b) Holdings will not issue any capital stock or any options or
warrants to purchase, or securities convertible into, capital stock, except for
issuances of Holdings Capital Stock, options or warrants exercisable into
Holdings Common Stock where, after giving effect to such issuance, the proceeds
therefrom, if any, are applied in accordance with Section 3.02(A)(d) (or, in the
case of Seller Preferred Stock, issued as consideration to the sellers in a
Permitted Acquisition) and no Default or Event of Default will exist under
Section 9.10 (or, in the case of issuance of options, warrants, or convertible
securities, no Default or Event of Default would exist under Section 9.10 if
such options, warrants or convertible securities were to be exercised or
converted), provided that the terms and conditions of any preferred stock issued
in accordance with the foregoing shall be satisfactory to the Agents.

          8.21 Business. Holdings, will not engage in any business and will hold
no assets other than common stock of the Borrower and Holdings, will not permit
any of its Subsidiaries, to engage (directly or indirectly) in any business
other than a Permitted Business and the MDU Business so long as, with respect to
engaging in the MDU Business, (i) the aggregate amount spent by the Borrower and
its Subsidiaries in connection with the MDU Business (whether capital
expenditures, operating expenses, Subscriber Acquisition Costs, call center
costs or any other amounts of any type and collectively referred to as "MDU
Investments") shall not exceed during the period commencing on the Restatement
Effective Date and ending on the date on which there shall be no remaining
Obligations or Commitments under this Agreement, (x) $5,000,000 or (y) if the
Acceptable Subordinated Debt has been issued, $10,000,000, without, in either
case, giving effect to any write-offs or write-downs with respect thereto and
(ii) at the time thereof and after giving effect thereto, there is no Default or
Event of Default.




<PAGE>   77





          8.22 Limitation on Creation of Subsidiaries. Holdings will not, and
will not permit any of its Subsidiaries to, establish, create or acquire any new
Subsidiary, except that the Borrower may acquire or form a Subsidiary in
connection with Permitted Acquisitions to the extent otherwise permitted by this
Agreement, so long as (w) such new Subsidiary is a Wholly-Owned Subsidiary, (x)
such new Subsidiary executes and delivers a Subsidiaries Guaranty, (y) such new
Subsidiary executes and delivers counterparts to the applicable Pledge Agreement
and (z) such new Subsidiary executes and is made party to the applicable
Security Documents.

          Section 9. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):

          9.01 Payments. Holdings or the Borrower shall (i) default in the
payment when due of any principal of any Loan or any Note or Unpaid Drawing or
(ii) default, and such default shall continue unremedied for five (5) or more
days, in the payment when due of any interest on any Loan or Note or Unpaid
Drawing, or any Fees or any other amounts owing by it hereunder, thereunder or
under any interest rate protection agreements entered into by Holdings or the
Borrower pursuant to Section 7.11 hereof; or

          9.02 Representations, etc. Any representation, warranty or statement
made by any Credit Party herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or

          9.03 Covenants. Any Credit Party shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.01(g)(i), 7.08, 7.11, 7.13, 7.15, 7.17, 7.18 or 8 or (ii) default in
the due performance or observance by it of any other term, covenant or agreement
contained in any Credit Document and such default shall continue unremedied for
a period of fifteen (15) days after written notice to the Borrower by the
Administrative Agent or any Bank; or

          9.04 Default Under Other Agreements. Holdings or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Indebtedness referred to in Section 9.01) beyond the period of grace (not to
exceed ten (10) days), if any, provided in the instrument or agreement under
which such Indebtedness was created, (ii) default in the observance or
performance of any agreement or condition relating to any Indebtedness (other
than the Indebtedness referred to in Section 9.01) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), such
Indebtedness to become due prior to its stated maturity and such default shall
not have been cured or waived, or (iii) any Indebtedness (other than the
Indebtedness referred to in Section 9.01) of Holdings or any of its Subsidiaries
shall be declared to be due and payable, or required to be prepaid other than by




<PAGE>   78





a regularly scheduled required prepayment, prior to the stated maturity thereof;
provided that it shall not constitute an Event of Default pursuant to this
Section 9.04 unless the aggregate amount of all Indebtedness referred to in the
preceding clauses (i) through (iii), inclusive, above exceeds $1,000,000 at any
one time; or

          9.05 Bankruptcy, etc. Holdings or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against
Holdings or any of its Subsidiaries and the petition is not controverted within
ten (10) days, or is not dismissed or discharged, within sixty (60) days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
Holdings or any of its Subsidiaries, or Holdings or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to Holdings
or any of its Subsidiaries, or there is commenced against Holdings or any of its
Subsidiaries any such proceeding which remains undismissed or undischarged for a
period of sixty (60) days, or Holdings or any of its Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Holdings or any of its Subsidiaries suffers
any appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of sixty (60)
days; or Holdings or any of its Subsidiaries makes a general assignment for the
benefit of creditors; or any corporate action is taken by Holdings or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or

          9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof under Section 412 of the
Code or Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
 .67 or .68 of PBGC Regulation 4043 shall be reasonably expected to occur with
respect to such Plan within the following thirty (30) days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, Holdings or any Subsidiary of Holdings or any ERISA Affiliate
has incurred or is likely to incur any liability to or on account of a Plan
under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or
4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) under Section 4980B of the Code, or Holdings or any Subsidiary of




<PAGE>   79





Holdings has incurred or is likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or Plans; (b) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (c) such lien,
security interest or liability, individually, and/or in the aggregate, in the
opinion of the Required Banks, has had, or could reasonably be expected to have,
a material adverse effect upon the business, operations, condition (financial or
otherwise) or prospects of Holdings or any Subsidiary of Holdings; or

          9.07 Security Documents. At any time after the execution and delivery
thereof, any of the Security Documents shall cease to be in full force and
effect or shall cease to give the Collateral Agent for the benefit of the
Secured Creditors the Liens, rights, powers and privileges purported to be
created thereby (including, without limitation, a perfected security interest
in, and Lien on, all of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 6.11), and subject to no other Liens (except as permitted by Section
6.11), or any Credit Party shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any of the Security Documents and such default shall continue beyond any
grace period specifically applicable thereto pursuant to the terms of such
Security Document; or

          9.08 Guaranties. At any time after the execution and delivery thereof,
any Guaranty or any provision thereof shall cease to be in full force or effect
as to any Guarantor, or any Guarantor or any Person acting by or on behalf of
any Guarantor shall deny or disaffirm such Guarantor's obligations under the
respective Guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the respective Guaranty and such default shall continue
beyond any grace period specifically applicable thereto; or

          9.09 Judgments. One or more judgments or decrees shall be entered
against Holdings or any of its Subsidiaries involving in the aggregate for
Holdings and its Subsidiaries a liability (not paid or fully covered by a
reputable insurance company) of $1,000,000 or more and all such judgments or
decrees shall not be satisfied, vacated, discharged or stayed or bonded pending
appeal for any period of thirty (30) consecutive days; or

          9.10 Change in Control. There shall be a Change in Control; or

          9.11 DBS Agreement; NRTC Agreements; FCC Licenses. The DBS Agreement
or one or more of the NRTC Agreements shall have been terminated, expired or be
the subject of any dispute that, in each case, could reasonably be expected to
have a material adverse effect on Holdings or any of its Subsidiaries' right or
ability to engage in the Permitted Business or could otherwise be reasonably
expected to have a material adverse effect on the performance, business, assets,




<PAGE>   80





nature of assets, liabilities, operations, properties, condition (financial or
otherwise) or prospects of Holdings and its Subsidiaries taken as a whole or any
FCC Licenses (whether issued to Hughes, DirecTV, the NRTC or the Borrower or any
of its Subsidiaries) shall have terminated or expired or shall have been revoked
or canceled, which termination, expiry, revocation or cancellation could
reasonably be expected to have a material adverse effect on Holdings' or any of
its Subsidiaries' right or ability to engage in the Permitted Business or could
otherwise be reasonably expected to have a material adverse effect on the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries taken as a whole; then, and in any such event, and at any time
thereafter, if any Event of Default shall then be continuing, the Administrative
Agent, upon the written request of the Required Banks, shall by written notice
to the Borrower, take any or all of the following actions, without prejudice to
the rights of the Agents, any Bank or the holder of any Note to enforce its
claims against any Credit Party (provided that, if an Event of Default specified
in Section 9.05 shall occur with respect to the Borrower, the result which would
occur upon the giving of written notice by the Administrative Agent to the
Borrower as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment
terminated, whereupon all Commitments of each Bank shall forthwith terminate
immediately and any Fees shall forthwith become due and payable without any
other notice of any kind; (ii) declare the principal of and any accrued interest
in respect of all Loans and the Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; (iii) exercise any rights or remedies
under any of the Guaranties; (iv) terminate any Letter of Credit which may be
terminated in accordance with its terms; (v) direct the Borrower to pay (and the
Borrower agrees that upon receipt of such notice, or upon the occurrence of an
Event of Default specified in Section 9.05, it will pay) to the Collateral Agent
at the Payment Office such additional amount of cash, to be held as security by
the Collateral Agent for the benefit of the Banks in a cash collateral account
established and maintained by the Collateral Agent pursuant to a cash collateral
agreement in form and substance satisfactory to the Collateral Agent, as is
equal to the aggregate Stated Amount of all Letters of Credit then outstanding;
and (vi) enforce, as Collateral Agent, all of the Liens and security interests
created pursuant to the Security Documents.

          Section 10. Definitions and Accounting Terms.

          10.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

          "Acceptable Subordinated Debt" shall mean subordinated debt issued by
the Borrower on one date with respect to which the Borrower has received gross
proceeds in an amount not less than $125,000,000 and net proceeds (after
deduction for transaction costs and an interest reserve satisfactory to the
Agents and the Required Banks to cover at least two (2) years' interest on such




<PAGE>   81





Acceptable Subordinated Debt) of at least $100,000,000 on or prior to December
31, 1998, on terms and conditions (including, without limitation, interest
rates, redemption provisions, maturity date, subordination provisions, covenants
and events of default) acceptable to, and in form and substance satisfactory to,
the Agents.

          "Acceptable Subordinated Debt Documents" shall mean the indenture or
similar document pursuant to which the Acceptable Subordinated Debt is issued
and all related documents, including, without limitation, the preliminary
offering memorandum, the final offering memorandum, the purchase agreement or
underwriting agreement with respect thereto, the registration rights agreement,
the escrow agreement for the Cash Interest Reserve and all related documents,
all of which shall be in form and substance satisfactory to the Agents.

          "Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or purported to be granted)
(and continue to be in effect at the time of determination) pursuant to Section
7.15 or 7.17.

          "Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 7.15 or 7.17 with respect to Additional Collateral.

          "Adjusted Consolidated EBITDA" shall mean for any period the amount of
Consolidated EBITDA for such period plus Subscriber Acquisition Costs during
such period.

          "Adjusted Consolidated Indebtedness" shall mean, as of any date, the
remainder of Consolidated Indebtedness minus the sum of (i) the amount, if any,
by which (x) the aggregate amount of NRTC Letter of Credit Outstandings related
to NRTC Letters of Credit exceeds (y) the aggregate amount owed as at such date
by the Borrower and its Subsidiaries to the NRTC under the NRTC Agreements and
(ii) the aggregate amount of Indebtedness of Holdings or any of its Subsidiaries
supported by any Letter of Credit.

          "Adjusted Consolidated Interest Expense" for any period shall mean the
remainder of Consolidated Interest Expense for such period minus the amount of
interest paid on the Acceptable Subordinated Debt from Cash Interest Reserves
during such period.

          "Adjusted Consolidated Senior Indebtedness" shall mean, as of any
date, the remainder of (i) Adjusted Consolidated Indebtedness minus (ii) the
remainder of (x) the aggregate outstanding principal amount of the Acceptable
Subordinated Debt over (y) the amount of Cash Interest Reserves.

          "Administrative Agent" shall mean Fleet in its capacity as
Administrative Agent for the Banks hereunder, and shall include any successor to
the Administrative Agent appointed pursuant to Section 11.09.

          "Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including, but not limited, to all directors




<PAGE>   82





and officers of such Person), controlled by, or under direct or indirect common
control with, such Person; provided, however, that for purposes of Section 8.06,
an Affiliate of Holdings shall include any Person that directly or indirectly
(including through limited partner or general partner interests) owns more than
5% of any class of the capital stock of Holdings and for all purposes of this
Agreement, neither the Agents, the Collateral Agent, any Bank or any of their
respective Affiliates, shall be considered an Affiliate of Holdings or any of
its Subsidiaries. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.

          "Affiliate Contracts" shall have the meaning provided in Section
4.05(viii).

          "Agents" shall mean each of the Administrative Agent and the
Syndication Agent.

          "Agreement" shall mean this Amended and Restated Credit Agreement, as
modified, supplemented, amended, amended and restated, extended or renewed from
time to time.

          "Annualized Adjusted Consolidated EBITDA" for any fiscal quarter shall
mean (i) Consolidated EBITDA for such fiscal quarter plus Non-Capitalized
Subscriber Acquisition Costs for such fiscal quarter times four; less (ii)
Consolidated EBITDA for such fiscal quarter plus the Non-Capitalized Subscriber
Acquisition Costs for such fiscal quarter, in each case, related to the MDU
Business times four.

          "Annualized Adjusted Consolidated Interest Expense" shall mean for any
fiscal quarter the product of (i) Adjusted Consolidated Interest Expense for
such fiscal quarter and (ii) four.

          "Annualized Consolidated EBITDA" shall mean for any fiscal quarter the
product of (i) Consolidated EBITDA for such fiscal quarter and (ii) four.

          "Applicable Base Rate Margin" shall mean a percentage per annum equal
to (i) in the case of Revolving Loans, 2.25% and (ii) in the case of Term Loans,
2.50%, in each case less the then applicable Leverage Reduction Discount, if
any.

          "Applicable Eurodollar Rate Margin" shall mean a percentage per annum
equal to (i) in the case of Revolving Loans, 3.50% and (ii) in the case of Term
Loans, 3.75%, in each case less the then applicable Leverage Reduction Discount,
if any.

          "Applicable Margin" shall mean the Applicable Base Rate Margin or the
Applicable Eurodollar Rate Margin, as the case may be.

          "BancBoston" shall mean BancBoston Capital, acting through BancBoston
Ventures, Inc.



<PAGE>   83






          "Bank" shall mean each financial institution listed on Schedule I, as
well as any institution which becomes a "Bank" hereunder pursuant to Section
12.04.

          "Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any Borrowing or to fund
its portion of any unreimbursed payment under Section 1A.04(c) or (ii) a Bank
having notified in writing to the Borrower and/or the Administrative Agent that
it does not intend to comply with its obligations under Section 1.01, including
in either case as a result of any takeover of such Bank by any regulatory
authority or agency.

          "Bankruptcy Code" shall have the meaning provided in Section 9.05.

          "Banque Paribas" shall mean Banque Paribas, a French banking
organization acting through its New York branch.

          "Base Rate" shall mean the higher of (i) 1/2 of 1% in excess of the
Federal Funds Rate and (ii) the Prime Lending Rate.

          "Base Rate Loan" shall mean any Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.

          "Borrower" shall have the meaning provided in the first paragraph of
this Agreement.

          "Borrower Common Stock" shall have the meaning provided in Section
6.14.

          "Borrower/Subsidiary Pledge Agreement" shall mean the
Borrower/Subsidiary Pledge Agreement, dated as of July 7, 1997, between the
Borrower and the Collateral Agent, as amended, modified or supplemented from
time to time, including, without limitation, as supplemented by the Security
Documents Acknowledgment.

          "Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Banks having Commitments with respect to such Tranche on a
pro rata basis on a given date (or resulting from a conversion or conversions on
such date) having in the case of Eurodollar Loans the same Interest Period;
provided that Base Rate Loans incurred pursuant to Section 1.10(b) shall be
considered part of the related Borrowing of Eurodollar Loans.

          "Borrowing Base" shall mean, as at any date on which the amount
thereof is being determined, an amount equal to the remainder of (I) the product
of (x) the sum of (i) Qualified Paying Subscribers and (ii) to the extent the
Borrowing Base is being determined in connection with a Loan being made to
finance a Permitted Acquisition, Subscribers to be Acquired in connection with
such acquisition and (y) $1,200 until and including December 31, 1998, and
$1,100 thereafter minus (II) $15,000,000 in the case of Borrowings of Loans
incurred to finance Permitted Acquisitions, each as determined from the
Borrowing Base Certificate most recently delivered pursuant to Section 5.06.



<PAGE>   84




          "Borrowing Base Certificate" shall have the meaning provided in
Section 5.06.

          "Borrowing Base Deficiency" shall mean, at any time, the amount, if
any, by which (A) the sum of (x) the aggregate principal amount of outstanding
Revolving Loans and Term Loans at such time, (y) the aggregate amount of Letter
of Credit Outstandings at such time, and (z) the aggregate outstanding amount of
all other Net Adjusted Consolidated Indebtedness at such time exceeds (B) the
Borrowing Base at such time.

          "Burr Egan" shall mean Burr, Egan, Deleage & Co., acting through Alta
Subordinated Debt Partners III, L.P., Alta Communications VI, L.P. and Alta Comm
S By S, LLC.

          "Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in New York City or the State of Massachusetts a legal holiday or a day on which
banking institutions are authorized or required by law or other government
action to close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) above and which is also
a day for trading by and between banks in the New York interbank Eurodollar
market.

          "Calculation Period" shall have the meaning provided in Section
7.15(a)(vi).

          "Capital Expenditures" shall have the meaning provided in Section
8.07.

          "Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with generally accepted accounting principles, is accounted for as a
capital lease on the balance sheet of that Person.

          "Capitalized Lease Obligations" of any Person shall mean all rental
obligations under Capital Leases, in each case taken at the amount thereof
accounted for as Indebtedness in accordance with generally accepted accounting
principles.

          "Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank organized under the laws of the United States,
any State thereof or the District of Columbia having, or which is the principal
banking subsidiary of a bank holding company organized under the laws of the
United States, any State thereof, or the District of Columbia having, capital,
surplus and undivided profits aggregating in excess of $200,000,000 and having a




<PAGE>   85





long-term unsecured debt rating of at least "A-" or the equivalent thereof from
Standard & Poor's Ratings Services ("S&P") or "A3" or the equivalent thereof
from Moody's Investors Service, Inc. ("Moody's"), with maturities of not more
than six months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
and in each case maturing not more than six months after the date of acquisition
by such Person, and (v) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (i)
through (iv), inclusive, above.

          "Cash Interest Reserve" shall mean cash proceeds from Acceptable
Subordinated Debt deposited by the Borrower into an escrow account with an
escrow agent, and pursuant to terms and conditions, acceptable to the Agents, to
be used solely to make interest payments on the Acceptable Subordinated Debt for
the number of interest payments required by the Acceptable Subordinated Debt
Documents.

          "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 et seq.

          "Change in Control" means the occurrence of one or more of the
following: (i) the Investor Group and their Affiliates shall cease to have the
power to elect a majority of the Board of Directors of Holdings, (ii) the
Investor Group and their Affiliates shall cease to have record and beneficial
ownership of at least 66 2/3% of (a) the voting stock of Holdings and (b) 66
2/3% of all capital stock of Holdings (in each case assuming conversion and
exercise of all options, warrants and similar securities held by Persons other
than the Investor Group and their Affiliates) or (iii) Holdings ceases to own
100% of the Borrower Common Stock.

          "Claims" shall have the meaning provided in the definition of
"Environmental Claims."

          "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provision of the Code, amendatory thereof,
supplemental thereto or substituted therefor.

          "Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Additional
Collateral and all cash and Cash Equivalents delivered as collateral pursuant to
this Agreement or any other Credit Document.



<PAGE>   86






          "Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Security Documents.

          "Collateral Assignment of Marketing and Distribution Agreements" shall
mean the Collateral Assignment of Marketing and Distribution Agreements, dated
as of July 7, 1997, between the Borrower and the Collateral Agent as
acknowledged and agreed to by the NRTC and Hughes as amended, modified or
supplemented from time to time, including, without limitation, as supplemented
by the Security Documents Acknowledgment.

          "Collective Bargaining Agreements" shall have the meaning provided in
Section 4.05(v).

          "Commitment" shall mean, with respect to each Bank, such Bank's Term
Loan Commitment and Revolving Loan Commitment, if any.

          "Commitment Commission" shall have the meaning provided in Section
2.01(a).

          "Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income before interest income, Consolidated Interest Expense and provision for
taxes and without giving effect to any extraordinary gains or gains or losses
from sales of assets.

          "Consolidated EBITDA" for any period shall mean Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated Net Income for such
period.

          "Consolidated Indebtedness" shall mean, at any time, all Indebtedness
of Holdings and its Subsidiaries determined on a consolidated basis excluding
all Indebtedness of the type described in clause (vii) of the definition
thereof, except to the extent amounts are owing with respect thereto upon the
termination of the respective agreement constituting such Indebtedness, plus any
original issue discount attributable to such Indebtedness that would be payable
at such time if such Indebtedness were to be or become due and payable.

          "Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of Holdings and its Subsidiaries for such period
(calculated without regard to any limitations on the payment thereof) payable
during such period in respect of all Indebtedness of Holdings and its
Subsidiaries, on a consolidated basis, for such period (including, without
duplication, that portion of Capitalized Lease Obligations of Holdings and its
Subsidiaries representing the interest factor for such period).

          "Consolidated Net Income" shall mean, for any period, the net income
of Holdings and its Subsidiaries for such period determined on a consolidated
basis (after provision for taxes); provided, however, the net income of any
Person, which is not a Subsidiary of Holdings but whose income is included in
the consolidated financial results of Holdings in accordance with GAAP, shall
have its net income included in the consolidated Net Income of Holdings and its
Subsidiaries only to the extent of the net income which Holdings would report in
accordance with GAAP.



<PAGE>   87





          "Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
that the term Contingent Obligation should not include endorsements of
instruments for deposit or collection in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.

          "Continuing Bank" shall mean each Existing Bank with a Commitment
under this Agreement (immediately upon giving effect to this Agreement on the
Restatement Effective Date).

          "Contributed Equity" shall mean, at any time, the aggregate amount of
capital contributions to, and purchases of Holdings Capital Stock from, Holdings
which as of the date hereof is an amount equal to $87,488,000.

          "Convertible Preferred Stock" shall mean Holdings Series A Convertible
Preferred Stock and Holdings Series B Convertible Preferred Stock.

          "Credit Documents" shall mean, collectively, this Agreement and, once
executed and delivered pursuant to the terms of this Agreement (or previously
executed in connection with the Existing Credit Agreement), each Note, each
Notice of Borrowing, each Notice of Conversion, each Letter of Credit, each
Letter of Credit Request, the Subsidiaries Guaranty, each Security Document and
any letter agreements or other documents executed or delivered in connection
with any of the above, as the same may be modified, amended, extended, restated
or supplemented from time to time, except as released prior to or in accordance
with the execution of this Agreement.

          "Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.




<PAGE>   88





          "Credit Party" shall mean Holdings, the Borrower and each of its
Subsidiaries party to a Subsidiaries Guaranty.

          "DBS Agreement" shall mean the DBS Agreement between NRTC and Hughes.

          "Debt Agreements" shall have the meaning provided in Section 4.05(vi).

          "Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.

          "Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is then in effect.

          "DirecTV" shall mean the direct broadcast satellite and programming
service available from DirecTV, a California corporation.

          "DirecTV Market" shall mean any exclusive marketing rights from the
NRTC to the Borrower or any of its Subsidiaries to distribute satellite
television services provided by DirecTV.

          "Dividend" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
(including, without limitation, its preferred stockholders) or authorized or
made any other distribution, payment or delivery of property (other than common
stock of such Person) or cash to its stockholders in their capacity as
stockholders, or redeemed, retired, purchased or otherwise acquired, directly or
indirectly, for a consideration any shares of any class of its capital stock
outstanding on or after the Restatement Effective Date (or any options or
warrants issued by such Person with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, or shall have permitted any of its
Subsidiaries to purchase or otherwise acquire for a consideration any shares of
any class of the capital stock of such Person outstanding on or after the
Restatement Effective Date (or any options or warrants issued by such Person
with respect to its capital stock). Without limiting the foregoing, "Dividends"
with respect to any Person shall also include all cash payments made or required
to be made by such Person with respect to any stock appreciation rights, equity
incentive plans or any similar plans or setting aside of any funds for the
foregoing purposes.

          "Documentation Agent" shall mean GECC in its capacity as Documentation
Agent for the Banks hereunder.

          "Documents" shall mean the Credit Documents, the Acceptable
Subordinated Debt Documents, if any, and the material documents entered into in
connection with any Permitted Acquisition.

          "Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.



<PAGE>   89







          "Drawing" shall have the meaning provided in Section 1A.05(b).

          "Eligible Transferee" shall mean and include a commercial bank,
financial institution, other "accredited investor" (as defined in Regulation D
of the Securities Act) other than individuals, or a "qualified institutional
buyer" as defined in Rule 144A of the Securities Act.

          "Employee Benefit Plans" shall have the meaning provided in Section
4.05(i).

          "Employment Agreements" shall have the meaning provided in Section
4.05)(iv).

          "Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any violation of, or liability under, any Environmental Law or any
permit issued, or any approval given, under any such Environmental Law
(hereafter, "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from alleged injury
or threat of injury to health, safety or the environment.

          "Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy and rule of common law
now or hereafter in effect (including, without limitation, the EPA guidance on
asbestos abatement and removal) and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. ss. 7401 et seq.; the Clean Air Act, 42 U.S.C.
ss. 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3803 et seq.; the
Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; the Occupational Safety
and Health Act, 29 U.S.C. ss. 651 et seq.; and any applicable state and local or
foreign counterparts or equivalents.

          "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.

          "ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or a Subsidiary of the Borrower would




<PAGE>   90





be deemed to be a "single employer" (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary
of the Borrower being or having been a general partner of such person.

          "Eurodollar Loan" shall mean each Loan designated as such by a
Borrower at the time of the incurrence thereof or conversion thereto.

          "Event of Default" shall have the meaning provided in Section 9.

          "Excess Cash Flow" shall mean, for any period, the remainder of (i)
the sum of (a) Consolidated EBITDA for such period, (b) the amount of all
extraordinary cash gains realized by Holdings and its Subsidiaries during such
period, and (c) the amount of all interest income realized by Holdings and its
Subsidiaries during such period, minus (ii) the sum of (a) the amount of all
cash payments for any taxes made by Holdings and its Subsidiaries during such
period, (b) the amount of cash Capital Expenditures (to the extent not financed
by Indebtedness but not in excess of the amounts permitted pursuant to Section
8.07) made by Holdings and its Subsidiaries on a consolidated basis during such
period, (c) the amount of all extraordinary cash losses realized by Holdings and
its Subsidiaries during such period, (d) the amount of all interest and fee
payments (including any letter of credit fees and facing fees) relating to the
Indebtedness of Holdings and its Subsidiaries paid during such period, (e) the
amount of permanent principal payments of Indebtedness for borrowed money of
Holdings and its Subsidiaries (other than repayments of Loans); provided that
repayments of Loans shall be deducted in determining Excess Cash Flow if such
repayments were applied to Scheduled Repayments or repayments of Revolving Loans
arising as a result of prepayment with internally generated funds (but in the
case of a voluntary prepayment of Revolving Loans, only to the extent
accompanied by a voluntary reduction to the Total Revolving Loan Commitment)
during such period, and (f) the amount of cash expended in respect of Permitted
Acquisitions and the MDU Business during such period (to the extent not financed
with Indebtedness).

          "Excess Cash Flow Payment Date" shall mean the date occurring 120 days
after the last day of each fiscal year of Holdings (beginning with its fiscal
year ended in 2000).

          "Excess Cash Flow Payment Period" shall mean with respect to the
repayment required on each Excess Cash Flow Payment Date, the immediately
preceding fiscal year of Holdings.

          "Excess Cash Flow Recapture Percentage" shall mean a percentage equal
to 75% or 50% in the event that at the time of a mandatory repayment in
accordance with Section 3.02(A)(e) there exists no Default or Event of Default
and the ratio of Consolidated Indebtedness as of the last day of the applicable
Excess Cash Flow Payment Period to Consolidated EBITDA for the four fiscal
quarters ending on the last day of the applicable Excess Cash Flow Payment
Period is equal to or less than 4.0x.

          "Existing Bank" shall mean a Bank with a Commitment pursuant to the
Existing Credit Agreement.


<PAGE>   91






          "Existing Credit Agreement" shall have the meaning provided in the
first WHEREAS clause hereof.

          "Existing Indebtedness" shall have the meaning provided in Section
6.22.

          "Existing Letter of Credit" shall have the meaning provided in Section
1A.01(b).

          "Existing Loans" shall mean the Existing Term Loans and Existing
Revolving Loans.

          "Existing Revolving Loans" shall mean the Revolving Loans incurred by
the Borrower pursuant to the Existing Credit Agreement.

          "Existing Term Loans" shall mean the Term Loans incurred by the
Borrower pursuant to the Existing Credit Agreement.

          "Facing Fee" shall have the meaning provided in Section 2.01(b).

          "FCC Licenses" shall mean licenses necessary for DirecTV transmission
and distribution, if any.

          "Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.

          "Fees" shall mean all amounts payable pursuant to or referred to in
Section 2.01.

          "Fixed Charge Coverage Ratio" for any period shall mean the ratio of
(x) Consolidated EBITDA less the amount of all cash Capital Expenditures of the
Borrower or any of its Subsidiaries for such period (exclusive of Permitted
Acquisitions and MDU Investments) to (y) Fixed Charges for such period.

          "Fixed Charges" for any period shall mean the sum of (i) Consolidated
Interest Expense for such period, plus (ii) the aggregate principal amount of
all scheduled repayments of Indebtedness (including the principal portion of
rentals under Capitalized Lease Obligations and including principal payments




<PAGE>   92





with respect to the Senior Seller Notes), plus (iii) taxes paid by Holdings and
its Subsidiaries for such period (including taxes paid during such period by the
Person or business, division or product line acquired by the Borrower or any of
its Subsidiaries pursuant to a Permitted Acquisition during such period but
excluding any taxes paid by such acquired Person or business, division or
product line prior to the date of its acquisition by the Borrower or any of its
Subsidiaries), and minus (iv) interest paid on Acceptable Subordinated Debt with
the Cash Interest Reserves.

          "Fleet" shall mean Fleet National Bank, a national banking
association.

          "GECC" shall mean General Electric Capital Corporation, a company
organized under the laws of the State of New York.

          "Guaranties" shall mean and include the guaranty issued by Holdings
pursuant to Section 13 and each of the Subsidiary Guaranties executed by the
Subsidiaries of the Borrower.

          "Guarantor" shall mean Holdings and each Subsidiary of the Borrower.

          "HarbourVest" shall mean Hancock Venture Partners V-Direct Fund L.P.

          "Hazardous Materials" means (a) petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain,
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
(b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," "toxic substances,"
"toxic pollutants," "contaminants," or "pollutants," or words of similar meaning
and regulatory effect, under any applicable Environmental Law; and (c) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated under applicable Environmental Laws.

          "Holdings" shall have the meaning provided in the first paragraph of
this Agreement.

          "Holdings Capital Stock" shall mean Holdings Common Stock, Convertible
Preferred Stock, Redeemable Preferred Stock and Holdings Undesignated Preferred
Stock.

          "Holdings Common Stock" shall have the meaning provided in Section
6.14.

          "Holdings Pledge Agreement" shall have the meaning provided in Section
4.09.

          "Holdings Series A Convertible Preferred Stock" shall have the meaning
provided in Section 6.14.




<PAGE>   93





          "Holdings Series A Redeemable Preferred Stock" shall have the meaning
provided in Section 6.14.

          "Holdings Series B Convertible Preferred Stock" shall have the meaning
provided in Section 6.14.

          "Holdings Series B Redeemable Preferred Stock" shall have the meaning
provided in Section 6.14.

          "Holdings Undesignated Preferred Stock" shall have the meaning
provided in Section 6.14.

          "Hughes" shall mean Hughes Communications Galaxy, Inc.

          "Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services other than trade payables and accrued expenses arising in the ordinary
course of business, (ii) the maximum amount available to be drawn under all
letters of credit issued for the account of such Person and all unpaid drawings
in respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Lien on any property owned by such Person, whether or not such
Indebtedness has been assumed by such Person, (iv) all Capitalized Lease
Obligations of such Person, (v) all obligations of such Person to pay a
specified purchase price for goods or services, whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
Obligations of such Person, and (vii) all obligations under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of agreement
entered into with a Person not a Bank.

          "Indemnified Matters" shall have the meaning provided in Section
12.01.

          "Indemnitees" shall have the meaning provided in Section 12.01.

          "Intellectual Property" shall have the meaning provided in Section
6.21.

          "Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.

          "Interest Period" shall have the meaning provided in Section 1.09.

          "Interest Rate Protection or Other Hedging Agreements" shall have the
meaning provided in the Security Documents.

          "Investor Group" shall mean Burr Egan, Spectrum, BancBoston, Norwest
and HarbourVest.



<PAGE>   94






          "Issuing Bank" shall mean Fleet and any Bank which at the request of
the Borrower agrees, in such Bank's sole discretion, to become an Issuing Bank
for the purpose of issuing Letters of Credit pursuant to Section 1A.

          "L/C Supportable Indebtedness" shall mean (i) obligations of the
Borrower or any of its Subsidiaries incurred in the ordinary course of business
with respect to workers compensation, surety bonds and other similar statutory
obligations, (ii) the NRTC L/C Obligation, (iii) Permitted Seller Notes and (iv)
such other obligations of the Borrower or any of its Subsidiaries as are
reasonably acceptable to the Issuing Bank and otherwise permitted to exist
pursuant to the terms of this Agreement.

          "Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.

          "Letter of Credit" shall have the meaning provided in Section
1A.01(a).

          "Letter of Credit Cash Collateral Account" shall have the meaning
provided in Section 3.02(A)(a).

          "Letter of Credit Fee" shall have the meaning provided in Section
2.01(c).

          "Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.

          "Letter of Credit Request" shall have the meaning provided in Section
1A.03(a).

          "Leverage Reduction Discount" shall mean as follows: 

          (i) on the Restatement Effective Date and during any period in which
     clause (ii) or (iii) below, as the case may be, does not apply, the
     Leverage Reduction Discount shall be 0%;

          (ii) in the case of Revolving Loans, from and after the Start Date to
     and including the End Date 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 ending immediately prior to such Start Date
     for which a certificate has been delivered to the Banks pursuant to the
     next succeeding sentence hereinafter the ratio of Net Adjusted Consolidated
     Indebtedness as of the most recent fiscal quarter ending immediately prior
     to such Start Date to Annualized Consolidated EBITDA for such fiscal
     quarter shall be as set forth below: 

                                                Net Adjusted
                                      Consolidated Indebtedness to
             Percentage              Annualized Consolidated EBITDA

                .25%               less than 7:1 but greater than or equal to
                                   6:1
                .75%               less than 6:1 but greater than or equal to
                                   5:1
               1.00%               less than 5:1 but greater than or equal to
                                   4:1
               1.50%               less than 4:1;

          (iii) in the case of Term Loans, from and after the Start Date to and
     including the End Date and subject to (iv) below, .75%, to the extent but
     only to the extent that as of the last day of each of the two most recent
     fiscal quarters ending immediately prior to such Start Date for which a
     certificate has been delivered to the Banks pursuant to the next succeeding
     sentence hereinafter the ratio of Net Adjusted Consolidated Indebtedness at
     the end of each of such fiscal quarters to Annualized Consolidated EBITDA
     for each of such two fiscal quarters (including the quarter with respect to
     which the certificate referred to below is being delivered) shall be less
     than or equal to 6:1; and

          (iv) notwithstanding (ii) and (iii) above, if at any time (a) a
     Default or Event of Default shall exist, or (b) the Consolidated EBITDA for
     the most recent fiscal quarter shall be less than or equal to zero, the
     Leverage Reduction Discount shall be 0%.

The Leverage Reduction Discount shall be determined by the delivery of a
certificate of the Borrower, certified by the Chief Financial Officer of the
Borrower, together with the financial statements required to be delivered
pursuant to Section 7.01(b) or (c), as the case may be, which certificate shall
set forth the Leverage Reduction Discount arising from the calculation of the
ratio of Net Adjusted Consolidated Indebtedness to Annualized Consolidated
EBITDA of the Borrower for the fiscal quarter or quarters, as the case may be,
ending with the fiscal quarter or fiscal year with respect to which such
certificate is being delivered and the basis for such calculations. The Leverage
Reduction Discount so determined shall apply, except as set forth above, to the
period beginning on the date such financial statements are delivered and ending
on the earlier of (the "End Date") (i) the next date of actual delivery of the
financial statements required to be delivered pursuant to Section 7.01(b) or (c)
or (ii) the date on which such financial statements are required to be delivered
(the day of delivery of such financial statements on which such period commences
being herein referred to as the "Start Date").

          "Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever




<PAGE>   95





(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).

          "Loan" shall mean each Term Loan and each Revolving Loan.

          "Management Agreements" shall have the meaning provided in Section
4.05(iii).

          "Managing Agent" shall mean each of Banque Paribas and Fleet in their
capacity as Managing Agents for the Banks hereunder.

          "Margin Stock" shall have the meaning provided in Regulation U.

          "Material Contracts" shall have the meaning provided in Section
4.05(ix).

          "Maturity Date" with respect to a Tranche shall mean either the Term
Loan Maturity Date or the Revolving Loan Maturity Date, as the case may be.

          "MDU Business" shall mean the business of the Borrower relating to the
installation of DirecTV services in multiple unit dwellings containing from four
(4) units to 200 units to the extent same is conducted outside of areas in which
the Borrower has exclusive NRTC franchises.

          "MDU Investments" shall have the meaning provided in Section 8.21.

          "Minimum Borrowing Amount" shall mean (i) for Term Loans, $5,000,000,
and (ii) for Revolving Loans, (a) $1,000,000 in the case of Eurodollar Loans and
(b) $500,000 in the case of Base Rate Loans.

          "Moody's" shall have the meaning provided in the definition of "Cash
Equivalents."

          "Net Adjusted Consolidated Indebtedness" shall mean the remainder of
Adjusted Consolidated Indebtedness minus Cash Interest Reserves.

          "Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale, net of reasonable transaction costs (including, without
limitation, attorneys' fees), the amount of such gross cash proceeds required to
be used to permanently repay any Indebtedness which is secured by the respective
assets which were sold, and the estimated marginal increase in income taxes
which will be payable by the Borrower's consolidated group as a result of such
sale.




<PAGE>   96





          "Net Subscriber Acquisition Cost" shall mean for any period the
product of (x) Subscriber Acquisition Costs for such period divided by (y) Net
Subscribers for such period.

          "Net Subscribers" shall mean for any period the number of new DirecTV
subscribers of the Borrower or any of its Subsidiaries added (excluding DirecTV
subscribers acquired through Permitted Acquisitions and excluding subscribers to
the MDU Business) during such period less DirecTV subscribers of the Borrower or
any of its Subsidiaries disconnected during such period.

          "New Banks" shall mean each of the Persons listed on Schedule I hereto
that is not a Continuing Bank.

          "Non-Capitalized Subscriber Acquisition Costs" shall mean for any
period (I) Subscriber Acquisition Costs minus (II) the remainder of (X) the
amount of the Borrower's and its Subsidiaries' cost of equipment and products,
over (Y) the Borrower's and its Subsidiaries' equipment revenue, in each case
for such period.

          "Non-Continuing Bank" shall mean each Existing Bank that is not a
Continuing Bank.

          "Norwest" shall mean Norwest Equity Partners V.

          "Note" shall mean each Term Note and each Revolving Note.

          "Notice of Borrowing" shall have the meaning provided in Section
1.03(a).

          "Notice of Conversion" shall have the meaning provided in Section
1.06.

          "Notice Office" shall mean the office of the Administrative Agent
located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, Attention:
Christopher A. Swindell or such other office as the Administrative Agent may
hereafter designate in writing as such to the other parties hereto.

          "NRTC" shall mean the National Rural Telecommunications Cooperative.

          "NRTC Agreements" shall mean the agreements set forth on Schedule VI.

          "NRTC L/C Obligation" shall mean the Borrower's obligation, from time
to time, to post one or more letters of credit for the benefit of the NRTC in an
amount equal to three times the Borrower's subscriber billings for the one month
during the six full months immediately preceding the date of the issuance of the
NRTC Letter of Credit in which such subscriber billings were greatest.

          "NRTC Letter of Credit" shall have the meaning provided in Section
1A.01.




<PAGE>   97





          "Obligations" shall mean all amounts owing to the Agents, the
Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.

          "Original Effective Date" shall mean the Effective Date under, and as
defined in, the Existing Credit Agreement.

          "Participant" shall have the meaning provided in Section 1A.04(a).

          "Partnership Pledge Agreement" shall have the meaning provided in
Section 4.09.

          "Payment Office" shall mean the office of the Administrative Agent
located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, Attention:
Deborah Burke or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.

          "PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.

          "Pension Plan Refund" shall mean any cash payments received by the
Borrower or any of its Subsidiaries upon the termination of any Plan as a rebate
or refunding relating to any such Plan unless such payments are used to fund a
replacement plan in accordance with Section 4980 of the Code.

          "Percentage" of any Bank at any time shall mean a fraction (expressed
as a percentage) the numerator of which is the Revolving Loan Commitment of such
Bank at such time and the denominator of which is the Total Revolving Loan
Commitment at such time; provided that if the Percentage of any Bank is to be
determined after the Total Revolving Loan Commitment has been terminated, then
the Percentages of the Banks shall be determined immediately prior (and without
giving effect) to such termination.

          "Permitted Acquisition" shall mean the acquisition by the Borrower or
any of its Subsidiaries of DirecTV Markets (excluding franchises relating to the
MDU Business), although any such acquisition shall only be a Permitted
Acquisition so long as (A) the consideration therefor consists solely of the
proceeds of the Loans, proceeds of Acceptable Subordinated Debt, issuances of
Holdings Common Stock, Seller Preferred Stock, Permitted Seller Notes or amounts
in the Permitted Acquisition Cash Collateral Account and (B) the Agents shall be
satisfied that the aggregate purchase price for any single acquisition does not
exceed the greater of (x) $2,000 per Subscriber to be Acquired or (y) $150 per
household in the acquired franchise area. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, an acquisition shall
be a Permitted Acquisition only if all requirements of Section 7.15 with respect
to Permitted Acquisitions are met with respect thereto.





<PAGE>   98





          "Permitted Acquisition Cash Collateral Account" shall mean a cash
collateral account to be maintained with the Collateral Agent pursuant to a cash
collateral agreement in form and substance satisfactory to the Collateral Agent
into which, so long as at the time of any sale of assets by the Borrower or any
of its Subsidiaries or sale of equity there shall not exist a Default or Event
of Default, shall be deposited (i) cash proceeds from any such sale of assets
which shall be earmarked by the Borrower for a Permitted Acquisition to be made
in accordance with Section 7.15 and (ii) proceeds of equity issuances permitted
to be deposited in accordance with Section 3.02(B)(b)(ii).

          "Permitted Acquisition Cash Collateralized Amounts" shall mean all
amounts held by the Collateral Agent in the Permitted Acquisition Cash
Collateral Account.

          "Permitted Acquisition Notice" shall have the meaning provided in
Section 7.15(a)(ii).

          "Permitted Business" shall mean the business of operating DirecTV
Franchises excluding the MDU Business.

          "Permitted Liens" shall have the meaning provided in Section 8.01.

          "Permitted Seller Notes" shall mean (i) Seller Notes supported by a
Letter of Credit and (ii) all other Seller Notes so long as the outstanding
aggregate principal amount of all such other Seller Notes issued after the
Restatement Effective Date does not exceed $5,000,000 at any time.

          "Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.

          "Plan" shall mean any pension plan, as defined in Section 3(2) of
ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower, a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, a Subsidiary of the Borrower or
an ERISA Affiliate maintained, contributed to or had an obligation to contribute
to such plan.

          "Pledge Agreement Collateral" shall mean all "Collateral" as defined
in the Pledge Agreements.

          "Pledge Agreements" shall mean the Holdings Pledge Agreement, the
Partnership Pledge Agreement and the Borrower/Subsidiary Pledge Agreement.

          "Pledged Securities" shall have the meaning assigned that term in the
applicable Pledge Agreement.





<PAGE>   99





          "Prime Lending Rate" shall mean the rate which Fleet announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer by Banque Paribas or Fleet, who may make commercial loans or
other loans at rates of interest at, above or below the Prime Lending Rate.

          "Pro Forma Annualized Adjusted Consolidated EBITDA" for any fiscal
quarter shall mean (i) Consolidated EBITDA for such fiscal quarter calculated on
a Pro Forma Basis plus the non-capitalized Subscriber Acquisition Costs for such
fiscal quarter times four; less (ii) Consolidated EBITDA for such fiscal quarter
calculated on a Pro Forma Basis plus the non-capitalized Subscriber Acquisition
Costs for such fiscal quarter, in each case, related to the MDU Business times
four.

          "Pro Forma Annualized Consolidated EBITDA" shall mean for any fiscal
quarter the product of (i) the Consolidated EBITDA for such fiscal quarter
calculated on a Pro Forma Basis and (ii) four.

          "Pro Forma Basis" shall mean, (a) with respect to any Permitted
Acquisition, the calculation of the consolidated results of Holdings and its
Subsidiaries otherwise determined in accordance with this Agreement as if the
respective Permitted Acquisition (and all other Permitted Acquisitions
consummated during the respective Calculation Period or thereafter and prior to
the date of determination pursuant to Section 7.15 or other applicable provision
of this Agreement) had been effected on the first day of the respective
calculation period and (b) with respect to the determination of Consolidated
EBITDA calculated on a Pro Forma Basis, the calculation of the consolidated
results of Holdings and its Subsidiaries otherwise determined in accordance with
this Agreement as if all Permitted Acquisitions consummated during the period
for which Consolidated EBITDA calculated on a Pro Forma Basis is being
determined had been effected on the first day of the respective period; provided
that all calculations shall take into account the following assumptions:

          (i) (x) with respect to the determinations made for Permitted
     Acquisitions in accordance with clause (a) above, if any Indebtedness is
     incurred pursuant to the respective Permitted Acquisition (or was incurred
     in any other Permitted Acquisition which occurred during the relevant
     Calculation Period or thereafter and prior to the date of determination)
     then all such Indebtedness shall be deemed to have been outstanding from
     the first day of the respective Calculation Period (and the interest
     expense associated with such Indebtedness, shall be determined at the
     actual rates applicable thereto or which would have been applicable had
     such debt been outstanding for the whole such period and shall be included
     in determining Consolidated Interest Expense on such Pro Forma Basis) and
     all Indebtedness that was outstanding during the Calculation Period or
     thereafter and prior to the date of the Permitted Acquisition but not
     outstanding on the date of the Permitted Acquisition shall be deemed to
     have been repaid in full on the first day of the Calculation Period and (y)
     with respect to any determinations made of Consolidated EBITDA calculated
     on a Pro Forma Basis in accordance with clause (b) above, the maximum
     amount of Indebtedness outstanding during the two-week period



<PAGE>   100





     immediately preceding the date of determination shall be deemed to be
     outstanding from the first day of the relevant period (and the Interest
     Expense associated with such Indebtedness shall be determined at the actual
     rates applicable thereto or which would have been applicable had such debt
     been outstanding for the whole such period and shall be included in
     determining Adjusted Consolidated Interest Expense for such period on such
     Pro Forma Basis); and

          (ii) all calculations of Consolidated EBITDA (and the other components
     of the definition of Consolidated EBITDA included therein) shall include
     only the Consolidated EBITDA of Holdings and its Subsidiaries (and the
     other components of the definition of Consolidated EBITDA included therein)
     during the relevant Calculation Period or period, as the case may be, and
     shall not include any Consolidated EBITDA (or other components) of the
     Person or business, division or product line being acquired pursuant to the
     Permitted Acquisition or acquired during the period of determination
     (except for the Consolidated EBITDA of such Person or business, division or
     product line generated after the date of such acquisition) unless either
     (x) such Consolidated EBITDA of the Person or business, division or product
     line being acquired has been audited for the entire Calculation Period (or
     the period prior to acquisition) by any of the "big six" or (y) in the case
     of calculations based on unaudited financial statements, the Agents shall
     be reasonably satisfied with the amounts of Consolidated EBITDA (and the
     other components) of such Person or business, division or product line
     being acquired pursuant to the respective Permitted Acquisition (or
     acquired during the period of determination).

          "Projections" shall have the meaning provided in Section 4.17(b).

          "Qualified Paying Subscribers" shall mean all subscribers (other than
subscribers to the MDU Business) of the Borrower or any of its Subsidiaries to
DirecTV that are located in the Borrower's and its Subsidiaries' DirecTV Market
areas and who have paid all amounts due to the Borrower or any of its
Subsidiaries within sixty (60) days of the initial due date thereof.

          "Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December of each calendar year.

          "Quoted Rate" shall mean (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 Eurodollar Loan of the Administrative Agent for which an
interest rate is then being determined with maturities comparable to the
Interest Period applicable to such Eurodollar Loan as determined by the
Administrative Agent's Treasury Funding Management on the date which is two (2)
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




<PAGE>   101





Federal Reserve System in respect of Eurocurrency funding or liabilities as
defined in Regulation D (or any successor category of liabilities under
Regulation D).

          "RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. ss. 6901 et seq.

          "Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.

          "Recovery Event" shall mean the receipt by Holdings or any Subsidiary
of Holdings of any cash insurance proceeds from key-man life insurance or
liability insurance or insurance payable by reason of theft, physical
destruction or damage or any other similar event with respect to any properties
or assets of Holdings or any Subsidiary of Holdings (including, without
limitation, business interruption insurance).

          "Redeemable Preferred Stock" shall mean Holdings Series A Redeemable
Preferred Stock and Holdings Series B Redeemable Preferred Stock.

          "Register" shall have its meaning provided in Section 7.16.

          "Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.

          "Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.

          "Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.

          "Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.

          "Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.

          "Related Fund" shall mean, with respect to any Bank that is a fund
that invests in Loans, any other fund that invests in Loans and is managed by
the same investment advisor as such Bank or by an Affiliate of such investment
advisor.





<PAGE>   102





          "Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
pouring and the like, into or upon any land or water or air, or otherwise
entering into the environment.

          "Reorganization Transaction" shall mean the reorganization transaction
of the Borrower pursuant to which all of the holders of capital stock of the
Borrower exchanged (whether by exchange agreement, merger or otherwise) their
interests in the Borrower for equivalent interests in Holdings, all of whose
assets consist of 100% of the capital stock of the Borrower.

          "Reorganization Transaction Documents" shall mean (i) the Agreement
and Plan of Merger, dated September 9, 1997, between the Borrower, Holdings and
GSS Mergersub Inc., (ii) various consents of the shareholders and directors of
the Borrower, (iii) the unanimous written consent of the directors of Holdings,
(iv) the written consent of the sole director of GSS Mergersub Inc. and (v) all
other documents entered into or delivered in connection with said agreements or
the Reorganization Transaction.

          "Replaced Bank" shall have the meaning provided in Section 1.12.

          "Replacement Bank" shall have the meaning provided in Section 1.12.

          "Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
 .22, .23, .25, .27, or .28 of PBGC Regulation Section 4043.

          "Required Banks" shall mean Banks the sum of whose outstanding Term
Loans and Revolving Loan Commitments (or after the termination thereof, the sum
of outstanding Revolving Loans and Letter of Credit Outstandings), represent an
amount equal to or greater than 66.6% of the sum of all outstanding Term Loans
and the Total Revolving Loan Commitment (or after the termination thereof, the
sum of the then total outstanding Revolving Loans and Letter of Credit
Outstandings).

          "Required Revolving Banks" shall mean Banks, the sum of whose
outstanding Revolving Loan Commitments represent an amount greater than 66.6% of
the Total Revolving Loan Commitment or after termination of such Commitments,
Banks, the sum of whose outstanding Revolving Loans and Letter of Credit
Outstandings represent an amount greater than 66.6% of the total outstanding
Revolving Loans and Letter of Credit Outstandings.

          "Required Term Banks" shall mean Banks the sum of whose outstanding
Term Loans represent an amount greater than 66.6% of all outstanding Term Loans
made by all Banks.

          "Restatement Effective Date" shall have the meaning provided in
Section 12.10.



<PAGE>   103






          "Returns" shall have the meaning provided in Section 6.09.

          "Revolving Facility" shall mean the facility evidenced by the Total
Revolving Loan Commitment.

          "Revolving Loan Commitment" shall mean, for each Bank, the amount set
forth opposite such Bank's name on Schedule I hereto directly below the column
entitled "Revolving Loan Commitment," as same may be (x) reduced or terminated
from time to time pursuant to Sections 2.02, 2.03, 3.02 and/or 9 or (y) adjusted
from time to time as a result of assignments to or from such Bank pursuant to
Section 1.12 or 12.04.

          "Revolving Loan Conversion" shall have the meaning provided in Section
1.01(b).

          "Revolving Loan Maturity Date" shall mean June 30, 2004

          "Revolving Loans" shall have the meaning provided in Section 1.01(b).

          "Revolving Note" shall have the meaning provided in Section
1.05(a)(ii).

          "Rocky Mountain Note" shall mean the Promissory Note dated May 1,
1997, issued by the Borrower to Western Montana DBS, Inc. d/b/a Rocky Mountain
DBS in the amount of $2,350,000.

          "S&P" shall have the meaning provided in the definition of "Cash
Equivalents."

          "Scheduled Repayment" shall have the meaning provided in Section
3.02(A)(c).

          "Scheduled Revolving Loan Commitment Reduction" shall have the meaning
provided in Section 2.03(e).

          "Scheduled Revolving Loan Commitment Reduction Date" shall have the
meaning provided in Section 2.03(e).

          "SEC" shall have the meaning provided in Section 7.01(h).

          "Section 3.04(b)(ii) Certificate" shall have the meaning provided in
Section 3.04(b)(ii).

          "Secured Creditors" shall mean (x) the Banks, the Agents, the
Collateral Agent and (y) any Bank which on the date hereof is, or subsequently
becomes, party to any Interest Rate Protection or Other Hedging Agreement.

          "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.



<PAGE>   104






          "Security Agreement" shall mean the Security Agreement, dated as of
July 7, 1997, between the Borrower and the Collateral Agent, as amended,
modified or supplemented from time to time, including as supplemented by the
Security Documents Acknowledgment.

          "Security Agreement Collateral" shall mean all "Collateral" as defined
in the Security Agreement.

          "Security Documents" shall mean the Pledge Agreements, the Security
Agreement, the Collateral Assignment of Marketing and Distribution Agreements,
each Additional Security Document, the Security Documents Acknowledgment and the
agreements relating to the Letter of Credit Cash Collateral Account and the
Permitted Acquisition Cash Collateral Account.

          "Security Document Acknowledgment and Consent" shall have the meaning
provided in Section 4.10.

          "Seller Notes" shall mean notes issued by Holdings to sellers of
DirecTV Markets in a Permitted Acquisition and issued in accordance with Section
7.15, which notes (other than those notes supported by a Letter of Credit) shall
be fully subordinated to the Obligations and obligations under Interest Rate
Protection or Other Hedging Agreements, and all such notes shall otherwise be in
form and substance satisfactory to the Agents.

          "Seller Preferred Stock" shall mean preferred stock issued by Holdings
which preferred stock, so long as this Agreement (as the same may be amended,
modified, extended, renewed, replaced, restated, supplemented, restructured or
refinanced from time to time) remains outstanding, shall not permit mandatory
redemptions, shall not contain sinking fund or similar requirements, shall pay
no cash dividends and shall have no covenants that differ in any material
respect from the covenants contained in the Convertible Preferred Stock, and is
otherwise acceptable in all respects to the Agents.

          "Senior Seller Notes" shall mean (i) the Rocky Mountain Note, (ii) the
TEG Note and (iii) the Western Montana Note.

          "Shareholder" shall mean any holder of issued and outstanding Borrower
Capital Stock.

          "Shareholders' Agreements" shall have the meaning provided in Section
4.05(ii).

          "Spectrum" shall mean Spectrum Equity Investors, acting through
Spectrum Equity Investors L.P. and Spectrum Equity Investors II L.P.

          "Start Date" shall have the meaning provided in the definition of
"Leverage Reduction Discount."



<PAGE>   105






          "Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder at such time (in each case
determined without regard to whether any conditions to drawing could then be
met).

          "Subscriber Acquisition Costs" shall mean for any period the remainder
of (I) the sum of (a) the amount of all payroll expenses of Holdings and its
Subsidiaries for such period in respect of employees or agents engaged primarily
in sales and marketing, (b) the amount of all sales commissions paid by the
Borrower and its Subsidiaries during such period to employees or agents for
services and/or equipment sold, (c) the amount of all expenses paid by the
Borrower and its Subsidiaries during such period for marketing and promotional
activities conducted by the Borrower and its Subsidiaries to promote services
and products, and (d) the excess, if any, of (i) the sum of (x) the amount equal
to the Borrower's and its Subsidiaries' cost of equipment and products and (y)
the amount equal to the Borrower's and its Subsidiaries' expenses incurred in
generating installation revenue, minus (ii) the Borrower's and its Subsidiaries'
equipment and installation revenue for such period minus (II) Subscriber
Acquisition Costs relating to the MDU Business.

          "Subscribers to be Acquired" shall mean, in connection with any
Permitted Acquisition, the number of subscribers to DirecTV service to be
acquired as such number shall be certified to the Banks in the Permitted
Acquisition Notice.

          "Subsidiaries Guaranty" shall have the meaning provided in Section
4.08.

          "Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person, (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time and (iii) any
partnership or limited liability company in which such Person is the general
partner or manager.

          "Subsidiary Guarantor" shall mean each Subsidiary (other than South
Plains DBS Limited Partnership and DCE Satellite Entertainment, LLC, in each
case so long as (i) neither such partnership nor such limited liability company
is a Wholly-Owned Subsidiary of the Borrower and (ii) the Borrower or one of its
Subsidiaries does not own a sufficient equity interest in such partnership or
sufficient membership interests in such limited liability company to require
such partnership or limited liability company, as the case may be, to act
otherwise) of the Borrower.

          "Syndication Agent" shall mean Banque Paribas in its capacity as
Syndication Agent for the Banks hereunder, and shall include any successor to
the Syndication Agent appointed pursuant to Section 11.09.




<PAGE>   106





          "Syndication Termination Date" shall mean the earlier of (x) 120 days
after the Restatement Effective Date or (y) the date on which the Agents and the
Documentation Agent, in their sole discretion, determines (and notifies the
Borrower and the other Banks) that the primary syndication (and the resultant
addition of institutions as Banks pursuant to Section 12.04) has been completed.

          "Tax Refund" shall mean any cash payment received by Holdings or any
of its Subsidiaries as a rebate or refund relating to any federal, state or
local income taxes paid by Holdings or any of its Subsidiaries or with respect
to the assets or properties of Holdings or any of its Subsidiaries.

          "Tax Sharing Agreements" shall have the meaning provided in Section
4.05(vii).

          "Taxes" shall have the meaning provided in Section 3.04(a).

          "TEG Note" shall mean the Promissory Note dated June 12, 1997, issued
by the Borrower to 59 TEG DBS Services, Inc. in the amount of $2,500,000.

          "Term Facility" shall mean the facility evidenced by Total Term Loan
Commitment.

          "Term Loan" shall have the meaning provided in Section 1.01(a).

          "Term Loan Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Schedule I directly below the
column entitled "Term Loan Commitment," as the same may be terminated pursuant
to Section 2.03.

          "Term Loan Conversion" shall have the meaning provided in Section
1.01(a).

          "Term Loan Maturity Date" shall mean March 31, 2005.

          "Term Note" shall have the meaning provided in Section 1.05(a)(i).

          "Total Commitment" shall mean, at any time, the sum of the Commitments
of each of the Banks.

          "Total Revolving Loan Commitment" shall mean, at any time, the sum of
the Revolving Loan Commitments of each of the Banks.

          "Total Term Loan Commitment" shall mean, at any time, the sum of the
Term Loan Commitments of each of the Banks.

          "Total Unutilized Revolving Loan Commitment" shall mean, at any time,
an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less the sum of (y) the aggregate principal amount of Revolving
Loans then outstanding and (z) the then aggregate amount of Letter of Credit
Outstandings.



<PAGE>   107







          "Tranche" shall mean the respective facility and commitments utilized
in making Loans hereunder, with there being two separate Tranches, i.e., whether
Term Loans or Revolving Loans.

          "Transaction" shall mean collectively, (i) the incurrence and
continuation of Loans hereunder on the Restatement Effective Date and (ii) the
payment of the Transaction Fees and Expenses in connection therewith.

          "Transaction Fees and Expenses" shall mean all fees and expenses
incurred in connection with and arising out of the transactions contemplated by
the Credit Documents; provided, however, that the aggregate amount of such fees
and expenses shall not exceed $2,000,000 in the aggregate.

          "Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan or a
Eurodollar Loan.

          "UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.

          "Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year, determined in accordance
with actuarial assumptions at such time consistent with Statement of Financial
Accounting Standards No. 87, exceeds the fair market value of the assets
allocable thereto.

          "United States" and "U.S." shall each mean the United States of
America.

          "Unpaid Drawing" shall have the meaning provided for in Section
1A.05(a).

          "Unutilized Revolving Loan Commitment" for any Bank, at any time,
shall mean the Revolving Loan Commitment of such Bank at such time less the sum
of (i) the aggregate principal amount of Revolving Loans made by such Bank and
then outstanding and (ii) such Bank's Percentage of the Letter of Credit
Outstandings.

          "Weary Key-Man Insurance" shall mean the key-man life insurance
maintained with respect to Mr. Rodney Weary.

          "Western Montana Note" shall mean the Promissory Note dated December
22, 1997, issued by the Borrower to Western Montana Entertainment Television,
Inc. in the amount of $3,750,000.

          "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person




<PAGE>   108





and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.

          Section 11. The Agents.

          11.01 Appointment. The Banks hereby designate Fleet as Administrative
Agent (for purposes of this Section 11, the term "Administrative Agent" shall
include Fleet in its capacity as Collateral Agent pursuant to the Security
Documents), Banque Paribas as Syndication Agent, and GECC, as Documentation
Agent, in each case to act as specified herein and in the other Credit
Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note
by the acceptance of such Note shall be deemed irrevocably to authorize, the
Administrative Agent and the Syndication Agent to take such action on its behalf
under the provisions of this Agreement, the other Credit Documents and any other
instruments and agreements referred to herein or therein and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of the Administrative Agent and the Syndication Agent
by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. Each of the Administrative Agent and the Syndication Agent
may perform any of its duties hereunder by or through its officers, directors,
agents or employees.

          11.02 Nature of Duties. The Administrative Agent shall have no duties
or responsibilities except those expressly set forth in this Agreement and the
Security Documents. The Syndication Agent and the Documentation Agent shall not
have any duties or responsibilities under this Agreement or any Security
Document or any other document or matter related thereto. None of the
Administrative Agent, the Syndication Agent, the Documentation Agent and any of
their respective officers, directors, agents or employees shall be liable for
any action taken or omitted by it or them hereunder or under any other Credit
Document or in connection herewith or therewith, unless caused by its or their
gross negligence or willful misconduct. The duties of the Administrative Agent
and the Syndication Agent shall be mechanical and administrative in nature; the
Administrative Agent, the Syndication Agent and the Documentation Agent shall
not have by reason of this Agreement or any other Credit Document a fiduciary
relationship in respect of any Bank or the holder of any Note; and nothing in
this Agreement or any other Credit Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Administrative Agent, the
Syndication Agent or the Documentation Agent any obligations in respect of this
Agreement or any other Credit Document except as expressly set forth herein.

          11.03 Lack of Reliance on the Administrative Agent, the Syndication
Agent and the Documentation Agent. Independently and without reliance upon the
Administrative Agent, the Syndication Agent and the Documentation Agent, each
Bank and the holder of each Note, to the extent it deems appropriate, has made
and shall continue to make (i) its own independent investigation of the
financial condition and affairs of Holdings and its Subsidiaries in connection




<PAGE>   109





with the making and the continuance of the Loans and the participation in
Letters of Credit and the taking or not taking of any action in connection
herewith and (ii) its own appraisal of the creditworthiness of Holdings and its
Subsidiaries and, except as expressly provided in this Agreement, the
Administrative Agent, the Syndication Agent and the Documentation Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Bank or the holder of any Note with any credit or other information
with respect thereto, whether coming into its possession before the making of
the Loans, the participation in the Letters of Credit or at any time or times
thereafter. Neither the Administrative Agent, the Syndication Agent nor the
Documentation Agent shall be responsible to any Bank or the holder of any Note
for any recitals, statements, information, representations or warranties herein
or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, priority or sufficiency of this Agreement or any
other Credit Document or the financial condition of Holdings or its Subsidiaries
or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Credit Document, or the financial condition of Holdings or its
Subsidiaries or the existence or possible existence of any Default or Event of
Default.

          11.04 Certain Rights of the Administrative Agent and the Syndication
Agent. If the Administrative Agent or the Syndication Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, the Administrative Agent or the Syndication Agent, as the case may be,
shall be entitled to refrain from such act or taking such action unless and
until the Administrative Agent shall have received instructions from the
Required Banks; and the Administrative Agent or the Syndication Agent, as the
case may be, shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Bank or the holder of any Note shall have any
right of action whatsoever against the Administrative Agent, the Syndication
Agent or the Documentation Agent as a result of the Administrative Agent acting
or refraining from acting hereunder or under any other Credit Document in
accordance with the instructions of the Required Banks.

          11.05 Reliance. The Administrative Agent and the Syndication Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, statement, certificate, telex, teletype or
facsimile message, cablegram, radiogram, order or other document or telephone
message signed, sent or made by any Person that the Administrative Agent or the
Syndication Agent believed to be the proper Person, and, with respect to all
legal matters pertaining to this Agreement and any other Credit Document and its
duties hereunder and thereunder, upon advice of counsel selected by the
Administrative Agent and the Syndication Agent (which may be counsel for the
Credit Parties).

          11.06 Indemnification. (a) To the extent the Administrative Agent, the
Syndication Agent or the Documentation Agent is not reimbursed and indemnified
by the Borrower, the Banks will reimburse and indemnify the Administrative
Agent, the Syndication Agent or the Documentation Agent, as the case may be, in
proportion to its respective "percentages" as used in determining the Required




<PAGE>   110





Banks, for and against any and all liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses or disbursements
of whatsoever kind or nature which may be imposed on, asserted against or
incurred by the Administrative Agent, the Syndication Agent or the Documentation
Agent, as the case may be, in performing their respective duties hereunder or
under any other Credit Document, in any way relating to or arising out of this
Agreement or any other Credit Document; provided that no Bank shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's, the Syndication Agent's or the Documentation Agent's
gross negligence or willful misconduct.

          (b) The Administrative Agent, the Syndication Agent and the
Documentation Agent shall be fully justified in failing or refusing to take any
action hereunder and under any other Credit Document (except actions expressly
required to be taken by it hereunder or under the Credit Documents) unless it
shall first be indemnified to its satisfaction by the Banks pro rata against any
and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.

          11.07 The Administrative Agent and the Syndication Agent in Their
Individual Capacities. With respect to its obligation to make Loans under this
Agreement, each of the Administrative Agent, the Syndication Agent and the
Documentation Agent shall have the rights and powers specified herein for a
"Bank" and may exercise the same rights and powers as though it were not
performing the duties specified herein; and the term "Banks," "Required Banks,"
"holders of Notes" or any similar terms shall, unless the context clearly
otherwise indicates, include the Administrative Agent, the Syndication Agent and
the Documentation Agent in their individual capacities. Each of the
Administrative Agent, the Syndication Agent and the Documentation Agent may
accept deposits from, lend money to, and generally engage in any kind of
banking, trust or other business with any Credit Party or any Affiliate of any
Credit Party as if they were not performing the duties specified herein, and may
accept fees and other consideration from the Borrower or any other Credit Party
for services in connection with this Agreement and may purchase and hold equity
interests in the Borrower or any other Credit Party without having to account
for the same to the Banks and otherwise without having to account for the same
to the Banks.

          11.08 Holders. The Administrative Agent may deem and treat the payee
of any Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.

          11.09 Resignation by the Agents. (a) The Administrative Agent may
resign from the performance of all its functions and duties hereunder and/or
under the other Credit Documents at any time by giving fifteen (15) Business
Days' prior written notice to the Borrower and the Banks. Such resignation shall




<PAGE>   111





take effect upon the appointment of a successor Administrative Agent pursuant to
clauses (b) and (c) below or as otherwise provided below.

          (b) Upon any such notice of resignation, the Required Banks shall
appoint a successor Administrative Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to the Borrower (it being
understood and agreed that any Bank is deemed to be acceptable to the Borrower).

          (c) If a successor Administrative Agent shall not have been so
appointed within such fifteen (15) Business Day period, the Administrative
Agent, with the consent of the Borrower, shall then appoint a successor
Administrative Agent who shall serve as Administrative Agent hereunder or
thereunder until such time, if any, as the Banks appoint a successor
Administrative Agent as provided above.

          (d) If no successor Administrative Agent has been appointed pursuant
to clause (b) or (c) above by the 30th Business Day after the date such notice
of resignation was given by the Administrative Agent, the Administrative Agent's
resignation shall become effective and the Banks shall thereafter perform all
the duties of the Administrative Agent hereunder and/or under any other Credit
Document until such time, if any, as the Banks appoint a successor
Administrative Agent as provided above.

          (e) The Syndication Agent, as such, may resign at any time by giving
five (5) Business Days' prior written notice to the Banks. Such resignation
shall take effect at the end of such five (5) Business Day period.



<PAGE>   112






          Section 12. Miscellaneous.

          12.01 Payment of Expenses, Indemnities, etc. The Borrower, agrees to:
(i) whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agents (including, without
limitation, the reasonable fees and disbursements of White & Case and local
counsel) in connection with the preparation, execution and delivery of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein and any amendment, waiver or consent relating
hereto or thereto, of the Agents in connection with its syndication efforts with
respect to this Agreement (including, without limitation, the reasonable fees
and disbursements of White & Case) and of the Agents and each of the Banks in
connection with the enforcement of this Agreement and the other Credit Documents
and the documents and instruments referred to herein and therein (including,
without limitation, the reasonable fees and disbursements of counsel for the
Agents and for each of the Banks); (ii) pay and hold each of the Banks harmless
from and against any and all present and future stamp, excise and other similar
taxes with respect to the foregoing matters and save each of the Banks harmless
from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Bank) to pay
such taxes; and (iii) defend, protect, indemnify and hold harmless the Agents
and each Bank, and each of their respective officers, directors, employees,
representatives, attorneys and agents (collectively called the "Indemnitees")
from and against any and all liabilities, obligations (including removal or
remedial actions), losses, damages (including foreseeable and unforeseeable
consequential damages and punitive damages), penalties, claims, actions,
judgments, suits, costs, expenses and disbursements (including reasonable
attorneys' and consultants fees and disbursements) of any kind or nature
whatsoever that may at any time be incurred by, imposed on or assessed against
the Indemnitees directly or indirectly based on, or arising or resulting from,
or in any way related to, or by reason of (a) any investigation, litigation or
other proceeding (whether or not any Agent, the Collateral Agent or any Bank is
a party thereto and whether or not any such investigation, litigation or other
proceeding is between or among any Agent, the Collateral Agent, any Bank, the
Borrower or any third person or otherwise) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any transactions contemplated herein (including, without limitation, the
Transaction) or in any other Credit Document or the exercise of any of their
rights or remedies provided herein or in the other Credit Documents; or, (b) the
actual or alleged generation, presence or Release of Hazardous Materials on or
from, or the transportation of Hazardous Materials to or from, any Real Property
owned or at any time operated by Holdings or any of its Subsidiaries or; (c) any
Environmental Claim relating to Holdings or any of its Subsidiaries or any Real
Property owned or at any time operated by Holdings or any of its Subsidiaries
or; (d) the exercise of the rights of any Agent and of any Bank under any of the
provisions of this Agreement or any other Credit Document or any Letter of
Credit or any Loans hereunder; or (e) the consummation of any transaction
contemplated herein (including, without limitation, the Transaction) or in any
other Credit Document (the "Indemnified Matters") regardless of when such




<PAGE>   113





Indemnified Matter arises, but excluding any such Indemnified Matter based the
gross negligence or willful misconduct of any Indemnitee.

          12.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of each Credit Party against and on account of
the Obligations and liabilities of such Credit Party to such Bank under this
Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations purchased by such Bank pursuant to
Section 12.06(b), and all other claims of any nature or description arising out
of or connected with this Agreement or any other Credit Document, irrespective
of whether or not such Bank shall have made any demand hereunder and although
said Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.

          12.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to Holdings or the
Borrower, at its address specified opposite its signature below; if to any Bank,
at its address specified opposite its name below; and if to the Administrative
Agent, at its Notice Office; or, as to any Credit Party or the Administrative
Agent, at such other address as shall be designated by such party in a written
notice to the other parties hereto and, as to each Bank, at such other address
as shall be designated by such Bank in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telegraphed, telexed, facsimilied, or cabled or sent by overnight courier, be
effective three (3) Business Days after deposited in the mails, certified,
return receipt requested, when delivered to the telegraph company, cable company
or one day following delivery to an overnight courier, as the case may be, or
sent by telex or facsimile device, except that notices and communications to the
Administrative Agent shall not be effective until received by the Administrative
Agent.

          12.04 Benefit of Agreement. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, neither Holdings nor any of
its Subsidiaries may assign or transfer any of its rights, obligations or
interest hereunder or under any other Credit Document without the prior written
consent of the Banks; and provided further, that although any Bank may transfer,
assign or grant participations in its rights hereunder, such Bank shall remain a
"Bank" for all purposes hereunder (and may not transfer or assign all or any
portion of its Commitments or Loans hereunder except as provided in Section
12.04(b)) and the transferee, assignee or participant, as the case may be, shall
not constitute a "Bank" hereunder; and provided further, that no Bank shall




<PAGE>   114





transfer or grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (i) extend
the final scheduled maturity of any Loan, Note or Letter of Credit (unless such
Letter of Credit is not extended beyond the Revolving Loan Maturity Date) in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the Commitments in which such participant
is participating over the amount thereof then in effect (it being understood
that a waiver of any Default or Event of Default or of a mandatory reduction in
the Total Commitment shall not constitute a change in the terms of any
Commitment, and that an increase in any Commitment shall be permitted without
the consent of any participant if the participant's participation is not
increased as a result thereof), (ii) consent to the assignment or transfer by
Holdings or any of its Subsidiaries of any of its rights and obligations under
this Agreement or (iii) release all or substantially all of the Collateral under
all of the Security Documents (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating. In the case of any such participation, the participant shall not
have any rights under this Agreement or any of the other Credit Documents (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto) and all amounts payable by the Borrower hereunder
shall be determined as if such Bank had not sold such participation.

          (b) Notwithstanding the foregoing, any Bank (or any Bank together with
one or more other Banks) may (x) (A) pledge its Loans and/or Notes hereunder to
a Federal Reserve Bank in support of borrowings made by such Bank from such
Federal Reserve Bank or (B) assign all or a portion of its Loans or Commitments
and related outstanding Obligations hereunder to its parent company, principal
office and/or any Affiliate or Related Fund of such Bank or one or more other
Banks or (y) assign all or a portion equal to at least $5,000,000, of such Loans
or Commitments and related outstanding Obligations hereunder to one or more
Eligible Transferees each of which assignees shall become a party to this
Agreement as a Bank by execution of an assignment and assumption agreement
substantially in the form of Exhibit N (appropriately completed); provided that:
(i) at such time Schedule I shall be deemed modified to reflect the Commitments
of such new Bank and of the existing Banks; (ii) new Notes will be issued to
such new Bank and to the assigning Bank upon the request of such new Bank or
assigning Bank, such new Notes to be in conformity with the requirements of
Section 1.05 to the extent needed to reflect the revised Commitments; (iii) the
consent of the Agents shall be required in connection with any assignment; and
(iv) the Agents shall receive and share equally at the time of each such
assignment, from the assigning Bank, the payment of a non-refundable assignment
fee of $3,000. To the extent of any assignment pursuant to this Section
12.04(b), the assigning Bank shall be relieved of its obligations hereunder with
respect to its assigned Commitments. No transfer or assignment under this
Section 12.04(b) will be effective until recorded by the Administrative Agent on
the Register pursuant to Section 7.16. At the time of each assignment pursuant




<PAGE>   115





to this Section 12.04(b) to a Person which is not already a Bank hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Bank shall provide to the Borrower, and the Administrative Agent the
appropriate Internal Revenue Service Forms (and, if applicable, a Section
3.04(b)(ii) Certificate) required by Section 3.04(b).

          12.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of either Agent or any Bank or any holder of any Note in exercising any right,
power or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower or any other Credit Party and the Agents or any
Bank or the holder of any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which the Agents or any Bank or the holder of any Note would otherwise have. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any other or further notice or demand in similar or other circumstances
or constitute a waiver of the rights of the Agents or any Bank or the holder of
any Note to any other or further action in any circumstances without notice or
demand.

          12.06 Payments Pro Rata. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of Holdings or the
Borrower in respect of any Obligations hereunder, it shall distribute such
payment to the Banks pro rata based upon their respective shares, if any, of the
Obligations with respect to which such payment was received.

          (b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all the Banks in such amount; provided that if all
or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.

          12.07 Calculations; Computations. (a) The financial statements to be
furnished to the Banks pursuant hereto shall be made and prepared in accordance
with generally accepted accounting principles in the United States consistently




<PAGE>   116





applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Banks);
provided that, except as otherwise specifically provided herein, all
computations of Excess Cash Flow and all computations determining compliance
with Sections 8.07 through 8.17, inclusive, including the definitions used
therein, shall utilize accounting principles and policies in conformity with
those used to prepare the historical financial statements for the fiscal year
ended December 31, 1997 delivered to the Banks pursuant to Section 6.05.

          (b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.

          12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS. EACH OF HOLDINGS AND THE BORROWER HEREBY
IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CORPORATION SERVICE COMPANY WITH
OFFICES ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12207 AS ITS
DESIGNEE, APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS
BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR
PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO
BE AVAILABLE TO ACT AS SUCH, EACH OF HOLDINGS AND THE BORROWER AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE PURPOSES
OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT UNDER THIS AGREEMENT.
EACH OF HOLDINGS AND THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO HOLDINGS OR THE BORROWER AT, AS THE CASE MAY BE, ITS ADDRESS SET
FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30)
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF ANY NOTE TO




<PAGE>   117





SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.

          (b) EACH OF HOLDINGS AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF
THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD
OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

          (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

          12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.

          12.10 Effectiveness. (a) This Agreement shall become effective on the
date (the "Restatement Effective Date") on which all of the parties hereto shall
have signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at its Notice Office or, in the
case of the Banks, shall have given to the Administrative Agent telephonic
notice (confirmed in writing), written or facsimile transmission notice
(actually received) in accordance with Section 12.03 at such office that the
same has been signed and mailed to it.

          (b) On the Restatement Effective Date, each New Bank and each
Continuing Bank shall have delivered to the Administrative Agent for the account
of the Borrower an amount equal to (i) in the case of each New Bank, the Loans
to be made by such New Bank on the Restatement Effective Date and (ii) in the
case of each Continuing Bank, the amount by which the principal amount of Loans
to be made and/or converted by such Continuing Bank on the Restatement Effective
Date exceeds the amount of the Existing Loans of such Continuing Bank
outstanding on the Restatement Effective Date. Notwithstanding anything to the
contrary contained in this Section 12.10(b), in satisfying the foregoing
condition, unless the Administrative Agent shall have been notified by any Bank
prior to the occurrence of the Restatement Effective Date that such Bank does
not intend to make available to the Administrative Agent such Bank's Loans




<PAGE>   118





required to be made by it on such date, then the Administrative Agent may, in
reliance on such assumption, make available to the Borrower the corresponding
amounts in accordance with the provisions of Section 1.04, and the making
available by the Administrative Agent of such amounts shall satisfy the
condition contained in this Section 12.10(b).

          12.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

          12.12 Amendment or Waiver. (a) Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks; provided that no such change, waiver, discharge or termination
shall, without the consent of each Bank (with Obligations of the respective
types being directly affected thereby): (i) extend the final scheduled maturity
of any Loan or Note beyond the applicable Maturity Date or extend the stated
maturity of any Letter of Credit beyond the Revolving Loan Maturity Date, or
reduce the rate or extend the time of payment of interest or Fees thereon
(except in connection with a waiver of applicability of any post-default
increase in interest rates), or reduce the principal amount thereof, or increase
the Commitments of any Bank over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment or a mandatory prepayment shall not constitute
an increase of the Commitment of any Bank, and that an increase in the available
portion of any Commitment of any Bank shall not constitute an increase in the
Commitment of such Bank); or (ii) release all or a substantial portion of the
Collateral (except for the release of Collateral (other than the release of all
or substantially all of the Collateral) in connection with asset dispositions
approved by the Required Banks); or (iii) amend, modify or waive any provision
of this Section 12.12; or (iv) reduce the percentage specified in, or otherwise
modify, the definition of Required Banks (it being understood that, with the
consent of the Required Banks, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Banks on
substantially the same basis as the extensions of Term Loans, Term Loan
Commitments and Revolving Loan Commitments are included on the Restatement
Effective Date); or (v) modify the date of any Scheduled Repayment or of any
Scheduled Revolving Loan Commitment Reduction Date or the amount of any
Scheduled Repayment or Scheduled Revolving Loan Commitment Reduction; or (vi)
consent to the assignment or transfer by Holdings or the Borrower of any of its
rights and obligations under this Agreement; provided further, that no such
change, waiver, discharge or termination shall: (u) increase the Commitments of
any Bank over the amount thereof then in effect (it being understood that a
waiver of any conditions precedent, covenants, Defaults or Events of Default or
of a mandatory reduction in the Total Commitment or of a mandatory prepayment
shall not constitute an increase of the Commitment of any Bank, and that an
increase in the available portion of any Commitment of any Bank shall not
constitute an increase in the Commitment of such Bank) without the consent of
such Bank; or (v) without the consent of any Issuing Bank effected thereby,
amend, modify or waive any provision of Section 1A or alter its rights or




<PAGE>   119





obligations with respect to Letters of Credit; or (w) without the consent of
each Agent affected thereby, amend, modify or waive any provision of Section 11
as same applies to such Agent or any other provision relating to the rights or
obligations of such Agent; or (x) without the consent of the Collateral Agent,
amend, modify or waive any provision of Section 11 or any other provision
relating to the rights or obligations of the Collateral Agent; or (y) without
the consent of the Required Term Banks amend, modify or waive (A) Sections
3.01(v) or 3.02(B) to the extent that, in any such case, such amendment,
modification or waiver would alter the application of prepayments or repayments
as between the Term Facility and the Revolving Facility in a manner adverse to
the Term Loans or (B) Section 3.02(A)(c) or the definition of Required Term
Banks; or (z) without the consent of the Required Revolving Banks amend, modify
or waive (A) Section 3.02(B) to the extent that such amendment, modification or
waiver would alter the application of prepayments or repayments as between the
Term Facility and the Revolving Facility in a manner adverse to the Revolving
Loans or Revolving Loan Commitments or (B) Section 2.03(e) or the definition of
Required Revolving Banks.

          (b) Notwithstanding anything to the contrary contained above in this
Section 12.12, the Collateral Agent may (i) enter into amendments to the
Subsidiaries Guaranty and the Security Documents for the purpose of adding
additional Subsidiaries of the Borrower (or other Credit Parties) as parties
thereto and (ii) enter into security documents to satisfy the requirements of
Sections 7.15 and 7.17, in each case without the consent of the Required Banks.

          12.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 1A.06, 3.04, 11.06 and 12.01 shall survive
the execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans.

          12.14 Domicile of Loans. Each Bank may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of such Bank.

          12.15 Post-Closing Obligations. (a) Notwithstanding anything to the
contrary contained in this Agreement or the other Credit Documents, the parties
hereto acknowledge and agree that (i) the UCC financing statements delivered by
the relevant Credit Party on the Restatement Effective Date shall be filed in
the appropriate governmental office and (ii) the UCC-11's or equivalent reports
required to be delivered to the Collateral Agent pursuant to Section 4.10 shall
be so delivered, in each case as early as practicable but in any event not later
than ten (10) Business Days after the Restatement Effective Date, and no
Borrowings (other than the Borrowings made on the Restatement Effective Date)
may be made under this Agreement until the conditions contained in this Section
12.15(a) have been determined by the Agents in their sole discretion to have
been satisfied. The representations and warranties made in each of the Credit
Documents with respect to the due filing or recording of such financing
statements and the perfection and priority of the security interests under the
Security Documents, and any defaults arising therefrom, shall be waived for such
ten (10) Business Day period.




<PAGE>   120





          (b) The Borrower hereby acknowledges that in connection with certain
assignments hereof, the Agents or any of the Banks may be required to obtain a
rating of the Obligations and Commitments hereunder of the Borrower hereby
consents to such Agents or Banks providing to the respective rating agency such
information regarding the Obligations and creditworthiness of the Borrower as is
customary practice of such rating agency.

          (c) Notwithstanding anything herein to the contrary, the Borrower
shall have as ten (10) Business Days after the Restatement Effective Date within
which to (i) obtain and deliver to the Agents the NRTC's and DirecTV's
acknowledgment of and agreement to the Security Documents Acknowledgment with
respect to the Collateral Assignment of Marketing and Distribution Agreements,
(ii) deliver to the Agents a true and correct copy of resolutions which have
been duly adopted by the Board of Directors of each of Holdings and the Borrower
ratifying the execution and delivery of each of the Documents and (iii) to the
extent not delivered on or prior to the Restatement Effective Date, deliver, and
cause each of Holdings and Argos to deliver, to the Agents good standing
certificates, including a statement as to the payment of all fees and taxes by
such Person, from the Secretary of State for the State of such Person's
incorporation and listing all charter documents on file with the Secretary of
State, and from each of the jurisdictions in which such Person is qualified to
do business. No Borrowings (other than the Borrowings made on the Restatement
Effective Date) may be made under this Agreement until all the conditions
contained in this Section 12.15(c) have been determined by the Agents in their
sole discretion to have been satisfied.

          12.16 Amendment and Restatement; Termination of Existing Credit
Agreement. On the Restatement Effective Date, without further action by any
party, the Existing Credit Agreement shall be amended and restated to read in
full as set forth herein. Holdings, the Borrower and each of the Banks agrees
that the "Commitments" as defined in the Existing Credit Agreement shall be
terminated in their entirety on and as of the Restatement Effective Date.

          12.17 Additions of New Banks; Conversion of Existing Loans of
Continuing Banks; Termination of Commitments of Non-Continuing Banks. (a) On and
as of the occurrence of the Restatement Effective Date in accordance with
Section 12.10, each New Bank shall become a "Bank" under, and for all purposes
of, this Agreement and the other Credit Documents.

          (b) The parties hereto acknowledge that each Existing Bank has been
offered the opportunity to participate in this Agreement, after the occurrence
of the Restatement Effective Date, as a Continuing Bank hereunder, but that no
Existing Bank is obligated to be a Continuing Bank.

          (c) Notwithstanding anything to the contrary contained in the Existing
Credit Agreement, this Agreement or any other Credit Document, Holdings, the
Borrower and each of the Banks hereby agree that on the Restatement Effective




<PAGE>   121





Date, (i) each Bank with a Commitment as set forth on Schedule I (after giving
effect to the Restatement Effective Date) shall make or maintain (including by
way of conversion) that principal amount of Term Loans and/or Revolving Loans to
the Borrower as is required by Section 1.01, provided that if the Existing Loans
of any Continuing Bank outstanding on the Restatement Effective Date
(immediately before giving effect thereto) exceed the aggregate principal amount
of Loans required to be made available by such Bank on such date (after giving
effect to the Restatement Effective Date), then Existing Loans of such
Continuing Bank in an amount equal to such excess shall be repaid on the
Restatement Effective Date to such Bank and (ii) in the case of each
Non-Continuing Bank, all of such Non-Continuing Bank's Existing Loans
outstanding on the Restatement Effective Date shall be repaid in full on such
date, together with interest thereon and all accrued Fees (and any other
amounts) owing to such Non-Continuing Bank, and the Commitment (under, and as
defined in, the Existing Credit Agreement) of such Non-Continuing Bank, if any,
shall be terminated, effective upon the occurrence of the Restatement Effective
Date. Notwithstanding anything to the contrary contained in the Existing Credit
Agreement, this Agreement or any other Credit Document, the parties hereto
hereby consent to the repayments and reductions required above, and agree that
in the event that any Existing Bank shall fail to execute a counterpart of this
Agreement prior to the occurrence of the Restatement Effective Date, such
Existing Bank shall be deemed to be a Non-Continuing Bank and, concurrently with
the occurrence of the Restatement Effective Date, the Commitment (under, and as
defined, in the Existing Credit Agreement) of such Existing Bank, if any, shall
be terminated, all Existing Loans of such Existing Bank outstanding on the
Restatement Effective Date shall be repaid in full, together with interest
thereon and all accrued Fees (and any other amounts) owing to such Existing
Bank, and concurrently with the occurrence of the Restatement Effective Date,
such Existing Bank shall no longer constitute a "Bank" under this Agreement and
the other Credit Documents, provided that all indemnities of the Credit Parties
under the Existing Credit Agreement and the other Credit Documents (as in effect
prior to the Restatement Effective Date) for the benefit of such Existing Bank
shall survive in accordance with the terms thereof.

          12.18 Entire Agreement; Successors and Assigns. This Agreement and the
other Credit Documents constitute the entire agreement among Holdings, the
Borrower, the Agents and the Banks, supersedes any prior agreements among them
(other than the commitment letter, dated May 5, 1998, addressed to the Borrower
from Paribas, Fleet and GECC and the related fee letters), and shall bind and
benefit Holdings, the Borrower, the Agent and the Banks and their respective
successors and permitted assigns.

          Section 13. Holdings Guaranty.

          13.01 The Guaranty. In order to induce the Banks to enter into this
Agreement and to extend credit hereunder and in recognition of the direct
benefits to be received by Holdings from the proceeds of the Loans, Holdings
hereby agrees with the Secured Creditors as follows: Holdings hereby
unconditionally and irrevocably guarantees as primary obligor and not merely as
surety the full and prompt payment when due, whether upon maturity, by
acceleration or otherwise, of any and all indebtedness of the Borrower to



<PAGE>   122





the Banks under this Agreement and the other Credit Documents and under each
Interest Rate Protection or Other Hedging Agreement. If any or all of the
indebtedness of the Borrower to the Banks becomes due and payable hereunder or
under such other Credit Documents or Interest Rate Protection or Other Hedging
Agreements, Holdings unconditionally promises to pay such indebtedness to the
Secured Creditors, or order, on demand, together with any and all expenses which
may be incurred by the Agent or the Banks in collecting any of the indebtedness.
The word "indebtedness" is used in this Section 13 in its most comprehensive
sense and means any and all advances, debts, obligations and liabilities of the
Borrower arising in connection with this Agreement or any other Credit Documents
or under any Interest Rate Protection or Other Hedging Agreement, in each
case, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or incurred,
whether the Borrower may be liable individually or jointly with others, whether
or not recovery upon such indebtedness may be or hereafter become barred by any
statute of limitations, and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.

          13.02 Bankruptcy. Additionally, Holdings unconditionally and
irrevocably guarantees the payment of any and all indebtedness of the Borrower
to the Banks under this Agreement and the other Credit Documents and under each
Interest Rate Protection or Other Hedging Agreement, whether or not due or
payable by the Borrower upon the occurrence of any of the events specified in
Section 9.05, and unconditionally and irrevocably promises to pay such
indebtedness to the Banks, or order, on demand, in lawful money of the United
States.

          13.03 Nature of Liability. The liability of Holdings hereunder is
exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by Holdings, any other guarantor
or by any other party, and the liability of Holdings hereunder shall not be
affected or impaired by (a) any direction as to application of payment by the
Borrower or by any other party, or (b) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower, or (c) any payment on or in reduction of any such
other guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Agents or the Banks on the indebtedness which the Agents or such Banks repay the
Borrower pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Holdings waives any right to
the deferral or modification of its obligations hereunder by reason of any such
proceeding.

          13.04 Guaranty Absolute. No invalidity, irregularity or
unenforceability of all or any part of the indebtedness guaranteed hereby or of
any security therefor shall affect, impair or be a defense to this guaranty, and
this guaranty shall be primary, absolute and unconditional notwithstanding the
occurrence of any event or the existence of any other circumstances which might
constitute a legal or equitable discharge of a surety or guarantor except
payment in full of the indebtedness guaranteed herein.



<PAGE>   123







          13.05 Independent Obligation. The obligations of Holdings hereunder
are independent of the obligations of any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against Holdings
whether or not action is brought against any other guarantor or the Borrower and
whether or not any other guarantor or the Borrower be joined in any such action
or actions. Holdings waives, to the fullest extent permitted by law, the benefit
of any statue of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the Borrower or other circumstance which
operates to toll any statute of limitations as to the Borrower shall operate to
toll the statute of limitations as to Holdings.

          13.06 Authorization. Holdings authorizes the Agents, the Collateral
Agent and the Banks without notice or demand, and without affecting or impairing
its liability hereunder, from time to time to:

          (a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of the
indebtedness (including any increase or decrease in the rate of interest
thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to the
indebtedness as so changed, extended, renewed or altered;

          (b) take and hold security for the payment of the indebtedness and
     sell, exchange, release, surrender, realize upon or otherwise deal with in
     any manner and in any order any property by whomsoever at any time pledged
     or mortgaged to secure, or howsoever securing, the indebtedness or any
     liabilities (including any of those hereunder) incurred directly or
     indirectly in respect thereof or hereof, and/or any offset thereagainst;

          (c) exercise or refrain from exercising any rights against the
     Borrower or others or otherwise act or refrain from acting;

          (d) release or substitute any one or more endorsers, guarantors, the
     Borrower or other obligors;

          (e) settle or compromise any of the indebtedness, any security
     therefor or any liability (including any of those hereunder) incurred
     directly or indirectly in respect thereof or hereof, and may subordinate
     the payment of all or any part thereof to the payment of any liability
     (whether due or not) of the Borrower to its creditors other than the Banks;

          (f) apply any sums by whomsoever paid or howsoever realized to any
     liability or liabilities of the Borrower to the Banks regardless of what
     liability or liabilities of Holdings or the Borrower remain unpaid;



<PAGE>   124






          (g) consent to or waive any breach of, or any act, omission or default
     under, this Agreement or any of the instruments or agreements referred to
     herein, or otherwise amend, modify or supplement this Agreement or any of
     such other instruments or agreements; and/or

          (h) take any other action which would, under otherwise applicable
     principles of common law, give rise to a legal or equitable discharge of
     Holdings from its liabilities under this Section 13.

          13.07 Reliance. It is not necessary for the Agent or the Banks to
inquire into the capacity or powers of the Borrower or the Subsidiaries of the
Borrower or the officers, directors, partners or agents acting or purporting to
act on its behalf, and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.

          13.08 Subordination. Any indebtedness of the Borrower now or hereafter
held by Holdings is hereby subordinated to the indebtedness of the Borrower to
the Agents and the Banks; and such indebtedness of the Borrower to Holdings, if
the Agents (at the direction of the Required Banks), after an Event of Default
has occurred, so request, shall be collected, enforced and received by Holdings
as trustee for the Banks and be paid over to the Banks on account of the
indebtedness of the Borrower to the Banks, but without affecting or impairing in
any manner the liability of Holdings under the other provisions of this
guaranty. Prior to the transfer by Holdings of any note or negotiable instrument
evidencing any indebtedness of the Borrower to Holdings, Holdings shall mark
such note or negotiable instrument with a legend that the same is subject to
this subordination. Without limiting the generality of the foregoing, Holdings
hereby agrees with the Agents and the Banks that it will not exercise any right
of subrogation which it may at any time otherwise have as a result of this
guaranty (whether contractual, under Section 509 of the Bankruptcy Code, or
otherwise) until all guaranteed Obligations have been paid in full in cash.

          13.09 Waiver. (a) Holdings waives any right to require the Agents or
the Banks to (i) proceed against the Borrower, any other guarantor or any other
party, (ii) proceed against or exhaust any security held from the Borrower, any
other guarantor or any other party or (iii) pursue any other remedy in the
Agents' or the Banks' power whatsoever. Holdings waives any defense based on or
arising out of any defense of the Borrower, any other guarantor or any other
party other than payment in full of the indebtedness, including, without
limitation, any defense based on or arising out of the disability of the
Borrower, any other guarantor or any other party, or the unenforceability of the
indebtedness or any part thereof from any cause, or the cessation from any cause
of the liability of the Borrower other than payment in full of the indebtedness.
The Agents and the Banks may, in accordance with the Credit Documents, at their
election, foreclose on any security held by the Agents, the Collateral Agent or
the Banks by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the Agents
and the Banks may have against the Borrower or any other party, or any security,




<PAGE>   125





without affecting or impairing in any way the liability of Holdings hereunder
except to the extent the indebtedness has been paid. Holdings waives any defense
arising out of any such election by the Agents and the Banks, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Holdings against the Borrower or any
other party or any security.

          (b) Holdings waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Holdings assumes all responsibility for being and keeping itself
informed of the Borrower's financial condition and assets, and of all other
circumstances bearing upon the risk of non-payment of the indebtedness and the
nature, scope and extent of the risks which Holdings assumes and incurs
hereunder, and agrees that the Agents and the Banks shall have no duty to advise
Holdings of information known to them regarding such circumstances or risks.

          13.10 Binding Nature of Guaranty. This guaranty shall be binding upon
Holdings and its successors and assigns and shall inure to the benefit of the
Banks and their successors and assigns.



          13.11 Judgments Binding. If claim is ever made upon any Bank or any
subsequent holder of a Note for repayment or recovery of any amount or amounts
received in payment or on account of any of the indebtedness and any of the
aforesaid payees repays all or part of said amount by reason of (a) any
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property, or (b) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Borrower) then and in such event Holdings agrees that any such
judgment, decree, order, settlement or compromise shall be binding upon
Holdings, notwithstanding any revocation hereof or the cancellation of any Note,
or other instrument evidencing any liability of the Borrower, and Holdings shall
be and remain liable to the aforesaid payees hereunder for the amount so repaid
or recovered to the same extent as if such amount had never originally been
received by any such payee.

                          *             *              *







<PAGE>   126



          IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.

Address:

605 W. 47th Street                             GOLDEN SKY HOLDINGS, INC.
Suite 300                                      
Kansas City, MO  64112                         
Attention:  Robert B. Weaver                   By:/s/Robert B. Weaver  
Telephone:  (816) 753-5544                        Name:  Robert B. Weaver  
Facsimile:   (816) 753-5595                       Title: Chief Financial Officer





<PAGE>   127






605 W. 47th Street                             GOLDEN SKY SYSTEMS, INC.
Suite 300                                      
Kansas City, MO  64112                         
Attention:  Robert B. Weaver                   By:/s/Robert B. Weaver
Telephone:  (816) 753-5544                        Name: Robert B. Weaver
Facsimile:   (816) 753-5595                       Title: Chief Financial Officer
                                               
                                               



                                               
787 Seventh Avenue                             BANQUE PARIBAS,
New York, New York  10019                      Individually and as Syndication
Attention:  William B. Schink                   Agent and Managing Agent
Telephone:  (212) 841-2389      
Facsimile:   (212) 841-2369   
                                               By:/s/William B. Schink
                                                  Name: William B. Schink
                                                  Title: Director


                                               By:/s/Errol R. Antzis
                                                  Name: Errol R. Antzis
                                                  Title: Managing Director,
                                                         Group Head


<PAGE>   128


Mail Stop MAOFDO3D                             FLEET NATIONAL BANK,
1 Federal Street                                Individually and as 
Boston, MA  02110                               Administrative Agent and 
Attention:  Christopher A. Swindell             Managing Agent  
Telephone:  (617) 346-5579
Facsimile:  (617) 346-4345                     By:/s/Paula Lang
                                                  Name: Paula Lang
                                                  Title: Senior Vice President



Structured Finance Group                       GENERAL ELECTRIC CAPITAL
120 Long Ridge Road                             CORPORATION,
3rd Floor                                        Individually and as 
Stamford, CT 06927                               Documentation Agent
Attention:  Manager of
Portfolio Operations                           By:/s/Molly Fergusson        
Telephone:  (203) 357-4309                        Name: Molly Fergusson     
Facsimile:    (203) 357-6868                      Title: Manager, Operations
                                               

<PAGE>   129
                                                                      SCHEDULE I

                                   COMMITMENTS



<TABLE>
<CAPTION>
                                            TERM LOAN        REVOLVING LOAN
BANK                                       COMMITMENT         COMMITMENT

<S>                                      <C>                 <C>
Banque Paribas                           $11,666,666.67      $38,333,333.33

Fleet National Bank                      $11,666,666.67      $38,333,333.33

General Electric Capital
Corporation                              $11,666,666,67      $38,333,333.33
                                         --------------      --------------

                                         $35,000,000.00     $115,000,000.00
</TABLE>
<PAGE>   130
                                                                     SCHEDULE II

                           EXISTING LETTERS OF CREDIT


1.       Western Montana Entertainment Television Inc.
         #ms10890799
          $3,750,000
         Date 12/22/97
         Exp.  Date 12/17/98


2.       The National Rural Telecommunications Cooperative
          #ms1078657
         $3,166,718
         Date 10/16/97
         Exp.  Date 9/15/98
<PAGE>   131
                                                                    SCHEDULE III

                                   PROJECTIONS


[CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>   132
                                                                     SCHEDULE IV

                                   TAX MATTERS




         None
<PAGE>   133
                                                                      SCHEDULE V

                                      ERISA






I.  401(k) Plan

         On file with White & Case LLP
<PAGE>   134
                                                                     SCHEDULE VI

                               MATERIAL CONTRACTS

NRTC MEMBER AGREEMENTS:

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
         dated July 12, 1993, as amended, and assigned to the Borrower pursuant
         to an Application for Assignment effective as of November 20, 1996.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
         dated July 12, 1993, as amended, assigned to Aurora Cable TV, Inc.,
         pursuant to an Application for Assignment effective as of June 30,
         1996, and assigned to the Borrower pursuant to an Application for
         Assignment effective as of November 15, 1996.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
         as amended, assigned to Images DBS Kansas, LLC pursuant to an
         Application for Assignment dated as of May 23, 1994, and assigned to
         the Borrower pursuant to an Application for Assignment effective as of
         February 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
         as amended, assigned to Images DBS Oklahoma, LLC pursuant to an
         Application for Assignment dated as of May 23, 1994, and assigned to
         the Borrower pursuant to an Application for Assignment effective as of
         February 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Direct Satellite TV, Limited dated June 3, 1993, as
         amended, and assigned to the Borrower pursuant to an Application for
         Assignment effective as of February 19, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Thunderbolt Systems, Inc. dated August 10, 1992, as
         amended, and assigned to the Borrower pursuant to an Application for
         Partial Assignment effective as of March 11, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Deep East Texas Telecommunications, Inc. dated April
         30, 1993, as amended and assigned to the Borrower pursuant to an
         Application for Assignment effective as of April 11, 1997.
<PAGE>   135
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 2

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Hickory Tech Corporation dated July 23, 1993, as
         amended and assigned to the Borrower pursuant to an Application for
         Assignment effective as of July 15, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
         dated May 4, 1993, as amended, and assigned to the Borrower pursuant to
         a Partial Application for Assignment effective as of May 1, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Coast Satellite TV dated December 16, 1992, as
         amended, assigned to TEG-DBS Services, Inc. pursuant to an Application 
         for Assignment dated as of November 23, 1994 and assigned to the
         Borrower pursuant to an Application for Assignment effective as of 
         June 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and GVEC Rural; TV, Inc. dated August 16, 1992 , as
         amended and assigned to the Borrower pursuant to an Application for
         Assignment effective as of July 8, 1997. 

         NRTC/Member Agreements for Marketing and Distribution of DBS Services
         between NRTC and Argos Support Services Company, formerly Argos Direct
         Broadcast Satellite Services dated July 16, 1994 and October 20, 1994,
         as amended and assigned to the Borrower pursuant to an Application for
         Assignment effective as of August 8, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Satellite Entertainment, Inc. dated January 29, 1993,
         as amended and assigned to the Borrower pursuant to an Application for
         Assignment effective as of July 14, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Jackson Electric Cooperation, Inc. dated August 19,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of August 26, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Gardonville Systems, Inc. d/b/a Lakes Area TV dated
         September 30, 1992, as amended, assigned to the Borrower pursuant to an
         Application for Assignment effective as of September 2, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and DBS, LC dated July 13, 1993, as amended, assigned to
         the Borrower pursuant to an Application for Assignment effective as of
         November 17, 1997.
<PAGE>   136
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 3


         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Dunn County Electric Cooperative, Inc. dated September
         30, 1992, as amended, assigned to the DCE Satellite Entertainment, LLC
         pursuant to an Application for Assignment effective as of October 14,
         1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and CTS Communications Corporation dated December 4, 1992,
         as amended, assigned to the Borrower pursuant to an Application for
         Assignment effective as of November 7, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Panora Telecommunications, Inc. dated September 24,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of November 20, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Souris River Telecommunications Cooperative dated July
         1, 1992, as amended, assigned to the Borrower pursuant to an
         Application for Assignment effective as of November 21, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Cal-Ore Digital TV, Inc. dated July 29, 1993, as
         amended, assigned to the Borrower pursuant to an Application for
         Assignment effective as of December 9, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Cable & Communications Corporation and Mid-Rivers
         Telephone Cooperative, Inc. dated June 3, 1992, as amended, assigned to
         the Borrower pursuant to an Application for Assignment effective as of
         December 24, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Missoula Electric Cooperative, Inc. dated November 17,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of December 22, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Lakeland DBS, Inc. dated October 30, 1992, as amended,
         assigned to the Borrower pursuant to an Application for Assignment
         effective as of December 29, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Nemont Communications, Inc. dated July 6, 1992, as
         amended, assigned to the Borrower pursuant to an Application for 
         Assignment effective as of January 14, 1998.
<PAGE>   137
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 4


         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Triangle Communication System, Inc. dated June 8,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of January 20, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Wyoming Mutual Telephone Company dated December 2,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of January 21, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Northwest Communications Cooperative dated June 29,
         1992, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of March 6, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and North Willamette Telecom, Inc. dated November 3, 1992,
         as amended, assigned to the Borrower pursuant to an Application for
         Assignment effective as of March 10, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Beulahland Communications, Inc. d/b/a Sangre De Cristo
         DBS dated June 8, 1992, as amended, assigned to the Borrower pursuant
         to an Application for Assignment effective as of March 19, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and SCS Communications & Security, Inc. dated January 1,
         1993, as amended, assigned to the Borrower pursuant to an Application
         for Assignment effective as of April 21, 1998.

ACQUISITION AGREEMENTS

         Asset Purchase Agreement between the Borrower, and TV Tennessee, Inc.
         dated as of August 20, 1996, as amended.

         Asset Purchase Agreement between the Borrower and Aurora Cable TV, Inc.
         dated as of August 20, 1996, as amended.

         Asset Purchase Agreement between the Borrower and Images DBS Kansas,
         LLC, Images DBS Oklahoma, LLC and Total Communications dated as of
         December 3, 1996, as amended.
<PAGE>   138
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 5


         Asset Purchase Agreement between the Borrower and Direct Satellite TV,
         Limited dated as of January 22, 1997, as amended.

         Asset Purchase Agreement between the Borrower and Deep East Texas
         Telecommunications, Inc. dated as of February 11, 1997, as amended.

         Stock Purchase Agreement between the Borrower and Gary Stone,
         individually, for purchase of 175 shares of stock in Argos Support
         Services Company.

         Asset Purchase Agreement between the Borrower and Thunderbolt Systems,
         Inc. dated as of February 28, 1997.

         Asset Purchase Agreement between the Borrower and Hickory Tech
         Corporation dated as of April 29, 1997, as amended.

         Asset Purchase Agreement between the Borrower and Western Montana DBS,
         Inc. d/b/a Rocky Mountain DBS dated as of May 1, 1997.

         Asset Purchase Agreement between the Borrower and TEG-DBS Services,
         Inc. dated as of May 16, 1997.

         Asset Purchase Agreement among the Borrower, Satellite Entertainment,
         Inc. and Ace Telephone Association dated as of May 30, 1997.

         Asset Purchase Agreement between the Borrower and GVEC Rural TV Inc.
         dated as of June 3, 1997.

         Stock Purchase Agreement among the Borrower, Argos Support Services
         Company and the Several Shareholders listed on Schedule I thereto dated
         as of July 11, 1997 [supercedes the Letter of Interest between the
         Borrower and Argos Support Services Company dated April 3, 1997].

         Asset Purchase Agreement between the Borrower and Jackson Electric
         Cooperative, Inc. dated as of July 15, 1997 [supercedes Letter
         Agreement between the Borrower and Jackson Electric Cooperative, Inc.
         dated May 8, 1997].

         Asset Purchase Agreement among the Borrower, Gardonville Cooperative
         Telephone Association and Gardonville Systems, Inc. d/b/a Lakes Area TV
         dated as of August 15, 1997.
<PAGE>   139
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 6

         Asset Purchase Agreement between the Borrower and DBS, LC dated as of
         October 1, 1997.

         Operating Agreement among the Borrower, DCE Satellite Entertainment,
         LLC and Dunn County Electric dated as of October 14, 1997.

         Asset Purchase Agreement between the Borrower and CTS Communications
         Corporation dated as of October 31, 1997.

         Asset Purchase Agreement between the Borrower and Panora
         Telecommunications, Inc. dated as of October 31, 1997.

         Asset Purchase Agreement between the Borrower and Souris River
         Telecommunications Cooperative dated as of November 21, 1997.

         Asset Purchase Agreement between the Borrower and Cal-Ore Digital TV,
         Inc. dated as of December 9, 1997.

         Agreement to Purchase General Partnership Interest between the Borrower
         and South Plains Advanced Communications & Electronics, Inc. dated as
         of December 11, 1997.

         Asset Purchase Agreement among the Borrower, Cable & Communications
         Corporation and Mid-Rivers Telephone Cooperative, Inc. dated as of
         December 17, 1997.

         Asset Purchase Agreement among the Borrower, Missoula Electric
         Cooperative, Inc. and Western Montana Entertainment Television, Inc.
         dated as of December 22, 1997.

         Agreement to Purchase General Partnership Interest and Limited
         Partnership Interest between the Borrower and Poka Lambro
         Telecommunications, Inc. dated as of December 23, 1997.

         Asset Purchase Agreement between the Borrower and Lakeland D.B.S., Inc
         dated as of December 24, 1997.

         Asset Purchase Agreement between the Borrower and Nemont
         Communications, Inc. dated as of January 13, 1998.

         Asset Purchase Agreement between the Borrower and Computel, Inc. d/b/a
         Radio Shack dated as of January 13, 1998.
<PAGE>   140
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 7

         Asset Purchase Agreement between the Borrower and Triangle
         Communications, Inc. dated as of January 19, 1998.

         Asset Purchase Agreement between the Borrower and Wyoming Mutual
         Telephone Company dated as of January 21, 1998.

         Asset Purchase Agreement between the Borrower and Northwest
         Communications Cooperative dated as of February 27, 1998.

         Asset Purchase Agreement between the Borrower and North Willamette
         Telecom, Inc. dated as of March 10, 1998.

         Asset Purchase Agreement between the Borrower and Beulahland
         Communications, Inc. d/b/a Sangra De Cristo DBS dated as of February
         17, 1998.

         Letter Agreement between the Borrower and Frontier Communications - St
         Croix, Inc. dated March 16, 1998.

         Letter of Interest between the Borrower and Splitrock Telecom
         Cooperative, Inc. dated March 30, 1998 out for signature.

         Letter of Interest between the Borrower and Union Telephone Company
         dated March 30, 1998 out for signature.

         Letter of Interest between the Borrower and Baltic Telecom Cooperative
         dated March 30, 1998 out for signature.

         Letter of Interest between the Borrower and Breda Telephone Corporation
         dated May 1, 1998 out for signature.

         Asset Purchase Agreement between the Borrower and SCS Communications &
         Security, Inc. dated as of April 16, 1998.

         Asset Purchase Agreement between the Borrower and MegaTV, Inc. dated as
         of April 16, 1997, as amended.

         Letter of Interest between the Borrower and Semo Communications
         Corporation, d/b/a Semo Satellite Systems dated April 16, 1998 out for
         signature.

         Letter Agreement between the Borrower and North Texas Communications
         Company dated April 27, 1998.
<PAGE>   141
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 8


EARNEST MONEY ESCROW AGREEMENTS:

         Earnest Money Escrow Agreement among the Borrower, Images DBS Kansas,
         L.C., Images DBS Oklahoma, L.C. and Total Communications, Inc. dated
         December 12, 1996.

         Earnest Money Escrow Agreement among the Borrower, Direct Satellite TV,
         Limited and Commerce Bank, N.A. dated December 20, 1996.

         Earnest Money Escrow Agreement among the Borrower, Hickory Tech
         Corporation, and Commerce Bank, N.A. dated as of April 29, 1997.

         Earnest Money Escrow Agreement among the Borrower, TEG-DBS Services,
         Inc. and Commerce Bank, N.A. dated as of May 16, 1997.

         Earnest Money Escrow Agreement among the Borrower, GVEC Rural TV, Inc.
         and Commerce Bank dated as of June 3, 1997.

         Earnest Money Escrow Agreement among the Borrower, Satellite
         Entertainment, Inc. and Commerce Bank, N.A. dated as of March 21, 1997.

         Earnest Money Escrow Agreement among the Borrower, Jackson Electric
         Cooperative, Inc. and Norwest Bank Texas, South Central dated as of
         July 15 1997.

         Earnest Money Escrow Agreement among the Borrower, Gardonville Systems,
         Inc. d/b/a Lakes Area TV and Commerce Bank, N.A. dated as of August 20,
         1997.

         Earnest Money Escrow Agreement among the Borrower, DBS, LC and Commerce
         Bank, N.A. dated as of October 1, 1997.

         Earnest Money Escrow Agreement among the Borrower, Cable &
         Communications Corporation, Mid-Rivers Telephone Cooperative, Inc. and
         Commerce Bank dated as of December 17, 1997.

         Earnest Money Escrow Agreement among the Borrower, Beulahland
         Communications, Inc. d/b/a Sangre De Cristo DBS and Commerce Bank, N.A.
         dated as of February 17, 1998.

         Earnest Money Escrow Agreement among the Borrower, MegaTV, Inc. and
         Commerce Bank dated as of April 21, 1998.
<PAGE>   142
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                          PAGE 9

INDEMNITY ESCROW AGREEMENTS:

         Indemnity Escrow Agreement among the Borrower, TV Tennessee, Inc., and
         First State Bank, Union City, Tennessee dated January 15, 1997.

         Indemnity Escrow Agreement among the Borrower, Aurora Cable TV Company
         and Bank of Camden, Camden, TN dated January 15, 1997.

         Indemnity Escrow Agreement among the Borrower, Images DBS Kansas, L.C.,
         Images DBS Oklahoma, L.C., Total Communications, Inc. and Commerce
         Bank, N.A. dated February 10, 1997.

         Indemnity Escrow Agreement among the Borrower, Direct Satellite TV,
         Limited and Commerce Bank, N.A. dated February 19, 1997.

         Indemnity Escrow Agreement between the Company Western Montana DBS,
         Inc. d/b/a Rocky Mountain DBS dated May 1, 1997.

         Indemnity Escrow Agreement among the Borrower, Thunderbolt Systems,
         Inc. d/b/a Direct Broadcast Satellite of Missouri and Commerce Bank,
         N.A. dated March 11, 1997.

         Indemnity Escrow Agreement among the Borrower, Deep East Texas
         Telecommunications, Inc. and Commerce Bank, N.A. dated April 11, 1997.

         Indemnity Escrow Agreement among the Borrower, Hickory Tech
         Corporation, and Commerce Bank, N.A. dated as of April 29, 1997.

         Indemnity Escrow Agreement among the Borrower, Western Montana DBS,
         Inc., d/b/a Rocky Mountain DBS, and Commerce Bank, N.A. dated as of 
         May 1, 1997.

         Indemnity Escrow Agreement among the Borrower, TEG DBS Services, Inc.
         and Commerce Bank, N.A. dated as of June 12, 1997.

         Indemnity Escrow Agreement among the Borrower, GVEC Rural TV, Inc. and
         Commerce Bank dated as of July 8, 1997.

         Indemnity Escrow Agreement among the Borrower, Satellite Entertainment,
         Inc. and Commerce Bank, N.A. dated as of July 14, 1997.

         Indemnity Escrow Agreement among the Borrower, Jackson Electric
         Cooperative, Inc. and Norwest Bank Texas, South Central dated as of
         August 26, 1997.
<PAGE>   143
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 10


         Indemnity Escrow Agreement among the Borrower, Gardonville Systems,
         Inc. d/b/a Lakes Area TV and Commerce Bank, N.A. dated as of September
         2, 1997.

         Indemnity Escrow Agreement among the Borrower, DBS, LC and Commerce
         Bank, N.A. dated as of November 17, 1997.

         Indemnity Escrow Agreement among the Borrower, CTS Communications
         Corporation and Commerce Bank, N.A. dated as of November 7, 1997.

         Indemnity Escrow Agreement among the Borrower, Panora
         Telecommunications, Inc. and Commerce Bank, N.A. dated as of November
         20, 1997.

         Indemnity Escrow Agreement among the Borrower, Souris River
         Telecommunications Cooperative and Commerce Bank dated as of November
         21, 1997.

         Indemnity Escrow Agreement among the Borrower, Cal-Ore Digital TV, Inc.
         and Commerce Bank, N.A. dated as of December 9, 1997.

         Indemnity Escrow Agreement among the Borrower, Cable & Communications
         Corporation, Mid-Rivers Telephone Cooperative, Inc. and Commerce Bank
         dated as of December 24, 1997.

         Indemnity Escrow Agreement among the Borrower, Western Montana
         Entertainment Television, Inc. and Commerce Bank, N.A. dated as of
         December 22, 1997.

         Indemnity Escrow Agreement among the Borrower, Lakeland DBS, Inc. and
         Commerce Bank, N.A. dated as of December 29, 1997.

         Indemnity Escrow Agreement among the Borrower, Nemont Communications,
         Inc. and Commerce Bank, N.A. dated as of January 14, 1998.

         Indemnity Escrow Agreement among the Borrower, Triangle Communication
         System, Inc. and Rural Utilities Cooperative Finance Corporation dated
         as of January 20, 1998.

         Indemnity Escrow Agreement among the Borrower, Wyoming Mutual Telephone
         Company and Commerce Bank, N.A dated as of January 21, 1998.

         Indemnity Escrow Agreement among the Borrower, Northwest Communications
         Cooperative and Commerce Bank, N.A. dated as of March 6, 1998.
<PAGE>   144
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 11

         Indemnity Escrow Agreement among the Borrower, North Willamette
         Telecom, Inc. and Commerce Bank, N.A. dated as of March 10, 1998.

         Indemnity Escrow Agreement among the Borrower, Beulahland
         Communications, Inc. d/b/a Sangre De Cristo DBS and Commerce Bank, N.A.
         dated as of March 19, 1998.

         Escrow Agreement among the Borrower, SCS Communications & Security,
         Inc. and Commerce Bank dated as of April 21, 1998.

ESCROW AGREEMENT

         Escrow Agreement among the Borrower, Gilbert A. Collver and Loomis,
         Ewert, Parlsey, Davis & Gotting, P.C. dated as of November 7, 1997.

NON COMPETITION AGREEMENTS:

         Non-Competition Agreement between the Borrower and Aurora Cable TV,
         Inc, and individually, with Michael White and Donna White, each dated
         November 15, 1996.

         Non-Competition Agreement between the Borrower and TV Tennessee, Inc.,
         and individually, with David Critchlow, each dated November 20, 1996.

         Non-Competition Agreement between the Borrower and Images DBS Kansas,
         L.C., Images DBS Oklahoma L.C., Total Communications, Inc., Totah
         Telephone Company, Incorporated, and individually with Ray League each
         dated February 10, 1997.

         Non-Competition Agreement between the Borrower and Direct Satellite TV,
         Limited and individually, with James T. Dickens, each dated February
         19, 1997.

         Non-Competition Agreement between the Borrower and Thunderbolt Systems,
         Inc., d/b/a Direct Broadcast Satellite of Missouri, and individually,
         with Garold Scobee and Billy L. Reeves, each dated March 11, 1997.

         Non-Competition Agreement between the Company and Deep East Texas
         Telecommunications, Inc., and individually with Paul Spurgeon and Eric
         Magee, each dated April 11, 1997.

         Non-Competition Agreement between the Borrower and Western Montana DBS,
         Inc., d/b/a Rocky Mountain DBS, and individually with Marti Bowland,
         each dated as of May 1, 1997.
<PAGE>   145
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 12


         Non-Competition Agreement between the Company and TEG-DBS Services,
         Inc., and individually with Jadwinder Singh and Kulwinder Singh each
         dated June 12, 1997.

         Non-Competition Agreement between the Borrower and GVEC Rural TV, Inc.,
         and individually with Marcus W. Pridgeon, each dated as of July 8,
         1997.

         Non-Competition Agreement between the Borrower and Andrew W. O'Pry
         dated as of July , 1997 in connection with the Purchase of Argos
         Support Services Company.

         Non-Competition Agreement between the Company and Satellite
         Entertainment, Inc. and between the Company and Ace Telephone
         Association each dated July 14, 1997.

         Non-Competition Agreement between the Borrower and Hickory Tech
         Corporation dated July 15, 1997.

         Non-Competition Agreement between the Borrower and Jackson Electric
         Cooperative, Inc., and individually with Mary Williamson, David Brent
         Nance, Mark Cayce, Cindy Bures, Roy Dale Griffin and Everett Williams
         each dated as of August 26, 1997.

         Non-Competition Agreement between the Borrower and Gardonville Systems,
         Inc. d/b/a Lakes Area TV, between the Borrower and Gardonville
         Cooperative Telephone Association, and individually with Harold
         Brethorst each dated September 2, 1997.

         Non-Competition Agreement between the Borrower and DBS, LC dated as of
         November 17, 1997.

         Non-Competition Agreement between DCE Satellite Entertainment, LLC and
         Dunn County Electric Cooperative, Inc., and individually James R.
         Hathaway each dated as of October 14, 1997 and with Mark Hayden dated
         as of October 15, 1997.

         Non-Competition Agreements between the Borrower and Laquita Allen,
         William J. Gerski, Eric Tucker and Dennis O'Hara dated as of November
         3, 1997.

         Non-Competition Agreement between the Borrower and CTS Communications
         Corporation, and individually with Gilbert A. Collver each dated as of
         November 7, 1997.

         Non-Competition Agreement between the Borrower and Panora
         Telecommunications, Inc., and individually with Dale J. Grotjohn each
         dated as of November 20, 1997.

         Non-Competition Agreement between the Borrower and Souris River
         Telecommunications Cooperative dated as of November 21, 1997.
<PAGE>   146
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 13


         Non-Competition Agreement between the Borrower and Cal-Ore Digital TV,
         Inc., and individually with Robert H. Edgar, Edward B. Ormsbee, Marc J.
         Estep, Marion A. Edgar, Susan M. Graham, Robert W. Edgar, Brian H.
         Edgar, Brian H. Edgar and Scott N. Edgar each dated as of December 5,
         1997.

         Non-Competition Agreement between the Borrower and Cable &
         Communications Corporation and Mid-Rivers Telephone Cooperative, Inc.
         each dated as of December 24, 1997.

         Non-Competition Agreement between the Borrower and Western Montana
         Entertainment Television, Inc. and Missoula Electric Cooperative, and
         individually with Cindy Conley, Robert P. Walker, Terry W. Hoke, Daniel
         B. Bailey, Raymond Cebulski each dated as of December 22, 1997.

         Non-Competition Agreement between the Borrower and Poka Lambro
         Telecommunications Inc. dated December 23, 1997

         Non-Competition Agreement between the Borrower and Lakeland DBS, Inc.,
         and individually with Orlean Smith each dated December 29, 1997.

         Non-Competition Agreement between the Borrower and Nemont
         Communications, Inc. dated as of January 14, 1998.

         Non-Competition Agreement between the Borrower and Triangle
         Communication System, Inc. dated as of January 20, 1998.

         Non-Competition Agreement between the Borrower and Wyoming Mutual
         Telephone Company, and individually with Darwin E. Betzer each dated as
         of January 21, 1998.

         Non-Competition Agreement between the Borrower and Northwest
         Communications Cooperative dated as of March 6, 1998.

         Non-Competition Agreement between the Borrower and North Willamette
         Telecom, Inc. dated as of March 10, 1998.

         Non-Competition Agreement between the Borrower and Beulahland
         Communications, Inc. d/b/a Sangre De Cristo DBS and J.E.D. Entreprises,
         Inc. d/b/a Pine Drive Telephone Company, each dated as of March 19,
         1998.
<PAGE>   147
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 14


         Non-Competition Agreement between the Borrower and SCS Communications &
         Security, Inc., and individually with Don Lawrence and Curt Thornton
         each dated as of April 21, 1998.

BROKER AGREEMENTS:

         Agreement between the Company and Daniels and Associates dated March
         14, 1997 for brokerage services on NRTC member affiliate territories.

         Verbal agreement with Nations Media Partners for brokerage services for
         various deals on a case-by-case basis.

EQUIPMENT LEASES:

         Equipment Lease Agreement between Financial Associates, Inc. DBA
         Alliance Financial Group dated December 30, 1996.


EMPLOYMENT AGREEMENTS:

         Employment Agreements dated February 12, 1997, between the Borrower and
         Rodney A. Weary, Robert B. Weaver, Ron D. Foster and Jo Ellen Linn.

         The Borrower executed an Employment Agreement with Andrew W. O'Pry
         dated as of July 11, 1997 in connection with the purchase of Argos
         Support Services Company.

         Employment Agreements dated November 3, 1997, between the Borrower and
         Laquita Allen, Eric Tucker, William J. Gerski and Dennis O'Hara.

MANAGEMENT AGREEMENTS:

         GSS has a verbal consulting agreement with Mr. Robert Liepold, a Vice
         President and Director of the Company, to provide expertise at a flat
         monthly rate

         GSS has a verbal consulting agreement with Mr. Richard Muller, a former
         DirecTV Vice President involved in DirecTV's national MDU/SMATV
         marketing program, utilizing his services on a month-to-month basis for
         a fee of $15,000 per month.

         GSS has a verbal arrangement with Q Network to provide E-Mail and
         Intemet connectivity database training for employees at an estimated
         cost of $15,000.
<PAGE>   148
                                                                     SCHEDULE VI
                                                              MATERIAL CONTRACTS
                                                                         PAGE 15

         Consulting Agreement between the Borrower and Gilbert A. Collver dated
         as of November 7, 1997.

         Management Agreement between the Borrower and South Plains DBS Limited
         Partnership dated as of December 24, 1997.

CONVERTIBLE STOCK PURCHASE DOCUMENTS:

         All documents related to the consummation of the Transaction between
         the Company and its Series A Convertible Participating Preferred Stock
         investors on February 12, 1997.

MISCELLANEOUS CONTRACTS:

         All documents related to the consummation of the Transaction between
         the Borrower and its Series B Convertible Participating Preferred Stock
         investors on November 24, 1997.

         Collectively, all Equipment Rental Agreements and Equipment Financing
         Agreements between Customers and the Company, both new and assumed in
         connection with individual acquisitions.

         Collectively, the Borrower has executed approximately 350 Dealer
         Application and Agreements.

         Distributorship Agreement between Borrower and Hughes Network Systems
         for DIRECPC Equipment and Services dated April 30, 1998.

         DIRECTV MOU System Operator Agreement between DIRECTV, Inc. and
         Borrower dated July 28, 1997, as amended by the DIRECTV MOU Master
         System Operator Agreement dated December 30, 1997.

         DERECTV SMATV Affiliate Agreement between DIRECTV, Inc. and Borrower
         dated July 29, 1997.

         Agreement for Purchase of Direct Broadcast Satellite Services Area
         between Argos Direct Broadcast Satellite Services and DBS TelaVenture,
         Inc. dated as of July 16, 1994.

         Agreement for Purchase of Direct Broadcast Satellite Services Area
         between Argos Direct Broadcast Satellite Services and Meridian, Inc.
         dated as of October 20, 1994.

SEE ALSO SCHEDULE XII (INSURANCE POLICIES); VII (REAL PROPERTY); VIII
(CAPITALIZATION) TO THE CREDIT AGREEMENT.
<PAGE>   149
                                                                    SCHEDULE VII

                                 REAL PROPERTY (1)




<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE

<S>                                    <C>                                      <C>                 <C>
CORPORATE OFFICE                       605 W. 47th St. Investment Co.           10/31/1999          $5,642.75
605 W. 47th Street                     c/o Block & Co., Inc.
                                       Kansas City, MO                        
                                       Dept. 0578, P.O. Box 419263
                                       K.C. MO 64193-0578

                                       (Sublease)                               Month-to-month      $2,466.25
                                       Ellerbe Becket                                
                                       605 West 47th St.

COLORADO OFFICE

Avon, CO                               Southwestern Eagle, L.L.C.               5/30/2002           $3,145.00               
Eagle/Vail Business                    1675 Larimer Street, Ste. 720
  (Center) Park                        Denver, CO 80202
40814 U.S Highway 6
Avon, CO 81620


KANSAS OFFICES

Chanute, KS                            Chanute Realty, LLC                      5/30/2002           $1,261.00
Wal-Mart Plaza                         Sandoe Building
2506 S. Santa Fe                       2220 N. Meridian St.
Chanute, KS 66720                      Indianapolis, IN 46208-5728

Coffeyville, KS                        Dale Apartments                          3/01/1997           $   300.00
206 W. 8th Street                      Joyce Miller, Mgr.                       Month-to-month
Coffeyville, KS 67337                  206 W. 8th Street, Str. 707                    
                                       Coffeyville, KS 67337

Coffeyville, KS                        Byron Bales                              4/30/1999           $1,666.66
903-907 W. 11th Street                 901 West 11th Street
Coffeyville, KS 67337                  Coffeyville, KS 67337
</TABLE>



(1.) All real property is leased.
<PAGE>   150
<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE
<S>                                    <C>                                      <C>                 <C>
Independence, KS                       United Cities Gas Company                5/31/1999           $   650.00
112 W. Myrtle Street                   122 W. Myrtle Street
Independence, KS 67301                 P.O. Box 347
                                       Independence, KS 67301

Pittsburgh, KS                         Donald W. Hight                          5/31/1998           $   480.00
522 N. Broadway                        771 S. 180th St.
Pittsburgh, KS 66782                   Pittsburgh, KS 66762

MISSOURI OFFICES

Moberly, MO                            Furnell                                  8/31/1998           $3,800.00
1011 C North Morley                    201 West 3rd Street
Moberly, MO 65270                      Sedalia, MO 65301

Hannibal, MO                           Steven E. Anderson                       10/31/2000          $1,000.00
102 Steamboat Bend                     Glimcher Development Corp.
  Shopping Ctr.                        20 South Third Street
Hannibal, MO                           Columbus, OH 43215

Hannibal, MO                           Glimcher Development LP.                 10/31/2000          $1,000.00
102 Steamboat Bend                     Steamboat Bend
  Shopping Ctr. #12                    Lock Box 1342
Hannibal, MO                           Columbus, OH 43215

Corporate Apartment Rent               The Locarno                              Month-to-month      $  995.00
Apt. 702                               235 Ward Parkway                                 
                                       Kansas City, MO 64112

Richmond, MO                           Swafford's Ford Sales, Inc.              3/31/1999           $   800.00
105 East Main                          223 S. Thorton St.
Suite 1                                Richmond, MO 64085-1755
Richmond, MO 64085

NEVADA OFFICES

Las Vegas, NV                          Galit Rozen                              6/31/2000           $2,574,00
Rancho Santa Fe Center                 4417 Zev Court
5081 N. Rainbow, Ste. 106              Las Vegas, NV 89121
Las Vegas, NV 89103

OKLAHOMA OFFICES

</TABLE>
<PAGE>   151
<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE
<S>                                    <C>                                      <C>                 <C>
Bartlesville, OK                       Eastland, Inc.                           9/31/2000           $1,835.00
554 S.E. Washington                    c/o Steve Wells
546 S.E. Washington                    12346 East Skelly Drive
Bartlesville, OK                       Tulsa, OK 74128

McAlester, OK                          Carole Cramer & G. Murphy                12/31/2000          $2,142.00
142 E Carl Albert Parkway              Alstate Properties
Tandy Town Shopping Ctr                18033 Burbank Blvd.
McAlester, OK                          Encino, CA 91316

Claremore, OK                          Jeannie Orender                          Month to Month      $   500.00
514 North Lynn Riggs                   512 North Lynn Riggs                          
U.S. Hwy 66                            Claremore, OK 74017
Claremore, OK 74017

TENNESSEE OFFICES

Camden, TN                             Mark and Lori Ward                       12/31/1998          $1,400.00
148 Highway 641 N                      125 Lockhart St.
Camden, TN 38320                       Camden, TN 38320

Martin, TN                             Bobby Bequette                           Month-to-month      $   550.00
643 N. Lindell St.                     643 N. Lindell Street                         
Ste. A                                 Martin, TN 38237
Martin, TN 38237

Martin, TN-Warehouse                   Gene Gifford                             Month-to-month      $   150.00
Jackson St.                            162 Brooks Drive                              
Martin, TN 38237                       Martin, TN 38237

Paris, TN                              Jimmy Caldwell                           Month-to-month      $   550.00
110 Fentress                           220 Westwood Street                           
Paris, TN 38242                        Paris, TN 38242

TEXAS OFFICES

Center, TX                             Real Estate Services                     4/30/1998           $   600.00
202 Tenaha Street                      2711 North Haskell Ave.
Center, TX                             Dallas, TX 75204

Dallas, TX                             Wetwood Management Ltd.                  3/8/1998            $   730.00
11453 Newkirt Street                   11518 Reeder Rd. Suite 105
Dallas, TX 75229                       Dallas, TX 75229

Sequin                                 Sagebitel Family Partnership             6/30/2000           $1,750.00
256 West Court                         217 S. River
Sequin, TX 78155                       Sequin, TX 78155
</TABLE>
<PAGE>   152
<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE
<S>                                    <C>                                      <C>                 <C>
Victoria, TX                           James Wayne Properties                   8/31/2000           $2,500.00
6703 N. Navarro                        2608 N. Laurent
Victoria, TX 77904                     Victoria, TX 77901

Flower Mound, TX                       Harmony/FM 24499 Partners                4/30/2002           $2,916.67
Towne View Plaza                       1235 Douglas Avenue                      (subject to
1900 Long Prairie Road                 Suite 805, LB-69                         change)
Suite 148                              Dallas, TX 75225
Flower Mound, TX 75028

Lubbock, TX                            North Kingsgate                          7/31/2002           $2,346.67
4210 82nd Street                       P.O. Box 65207
Lubbock, TX 79423                      Lubbock, TX 79464

Livingstone, TX                        Jennings Cove Development                Month-to-month      $600.00
2114 Hwy 190 West                      P.O. Box 987                                    
Livingstone, TX 77351                  Livingstone, TX 77351

Office Warehouse                       Commerce Business Park                   3/31/2003           $2,732.00
Commerce Business Park                 585 Commerce Street
                                       Southlake, TX 76092

MINNESOTA OFFICES

Mankato, MN                            Madison East Properties LLC              7/31/1998           $ 1,402.96
1400 Madison Ave.                      c/o Fisher & Lidstrom
Suite 624                              Commercial
Mankato, MN 56001                      209 E. Second, Suite 400
                                       Mankato, MN 65001

New Ulm, MN                            Nierengarten & Hippert, Ltd              10/14/2000          $ 800.00
1 South Minnesota Street               11 North Minnesota St
New Ulm, MN 56073                      P.O. Box 214
                                       New Ulm, MN 56073

Winona, MN                             L&M Enterprises                          9/30/1998           $ 500.00
1157 Gilmore Ave.                      P.O. Box 30055
Winona, MN 55987                       Winona, MN 559897

Alexandria, MN                         Bob Ruhr                                 12/1/1998           $ 800.00
1224 N. Nokomis N.E.                   Vacation Properties Network
Suite 111                              Costum One Real Estate
Alexandria, MN 56308                   1224 N. Nokomis, N.E.
                                       Alexandria, MN 56308
</TABLE>
<PAGE>   153
<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE
<S>                                    <C>                                      <C>                 <C>
Houston, MN                            Satellite Entertainment, Inc.            6/30/1998           $ 600.00
113 S. Grant Street                    P.O. Box 360
Houston, MN 55943                      Houston, MN 55943

MICHIGAN OFFICES

Battle Creek, MI                       Hinco, LLC                               11/30/2002          $2,437.50
Capital Centre                         535 South Burdick Street
2545 Capital Ave.                      Suite 1
Suite 120                              P.O. Box 50751
Battle Creek, MI 49015                 Kalamazoo, MI 49005-0751

Cadillac, MI                           Lakeland Square Associates               8/31/2002           $1,375.00
2124 N. Mitchell Drive                 6960 Orchard Lake Rd.
Cadillac, MI 49601                     Suite 300
                                       West Bloomfield, MI 48322

Traverse City, MI                      Heatherlee Yorty-Gosnick                 8/31/2000           $3,500.00
3289 W. South Airport Rd.              3295 Lee Point Rd.
Traverse City, MI 49684                Suttons Bay, MI 49682

FLORIDA OFFICES

Port Charlotte, FL                     Donald Brandt                            9/9/2000            $2,568.00
2486 A Tamiami Trail                   P.O. Box 14366
Port Charlotte, FL 33952               Bradenton, FL 34280

Cape Coral, FL                         Caper's Plasa, Inc.                      2/28/2001           $3,200.00
2126 Del Prado Blvd.                   1840 SE 40th Street
Units 1,2,3&4                          Cape Coral, FL 33904
Cape Coral, FL 33904

IOWA OFFICE

Marshalltown, IA                       Ray Osthus - Trial RA Trust              11/30/2001          $1,687.50
Marshalltown Retail                    Mercantila Bank Bldg
Center                                 123 West Main Street
3109  Center Street Unit 2             Marshalltown, IA 50158
Marshalltown, IA 50158

UTAH OFFICE

Park City, UT                          Utah-Pacific Partners, L.P.              3/31/2001           $2,746.33
1612 W. Ute Blvd.                      c/o Bruce Leidenberger
Suite 106                              5333 Mission Center Rd.
Park City, UT 84098                    Suite 360
                                       San Diego, CA 92108
</TABLE>
<PAGE>   154
<TABLE>
<CAPTION>
PROPERTY                               LESSOR                                   EXPIRES             MONTHLY BASE
<S>                                    <C>                                      <C>                 <C>
OREGON OFFICE

Klamath Falls, OR                      B. Skillington & M. Stewart              12/31/2000          $2,330.00
2650 Washburn Way                      Tower Enterprises
Suite 140                              1763 Washburn Way
Klamath Falls, OR 97603                Klamath Falls, OR 97603

NORTH DAKOTA OFFICE

Fargo, ND                              Wagner & Ohe and                         1/1/2001            $1,466.67
3033 13th Ave. S.W.                    Associates
Fargo, ND 58103                        1001 Center Ave., Suite D
                                       Moorehead, MN 56560

WISCONSIN OFFICE

Menomonie, WI                          Broadway Plaza, Inc.                     9/31/2002           $1,200.00
1400 N. Broadway Street                1400 N. Broadway Street
Menomonie, WI 54751                    Menomonie, WI 54751

MONTANA OFFICES

Billings, MT                           Earnest Bahm & Anita Bahm                1/31/2000           $1,900.00
2219 Grand Avenue                      1400 Poly Drive
Billings, MT 59102                     P.O. Box 23508
                                       Billings, MT 59104-3508

Havre, MT                              Ruby M. Worstell                         12/31/2000          $1,538.00
437 First Street                       P.O. Box 2002
Havre, MT 59501                        Havre, MT 59501

Missoula, MT                           Gateway Limited Partnership              2/28/2001           $3,200.00
Northgate Plaza                        101 International Way
1900 Sherwood St.                      P.O. Box 8182
Suite 115                              Missoula, MT 59807
Missoula, MT 59802
</TABLE>
<PAGE>   155
                                                                   SCHEDULE VIII




                                 CAPITALIZATION



         1.       In connection with the Convertible Stock Purchase transaction
                  consummated on February 12, 1997, Alta Subordinated Debt
                  Partners III, L.P., or its assigns, has a Common Stock
                  Purchase Warrant to purchase 2,103 shares of Common Stock in
                  Company on or before February 12, 2007; Alta-Comm S By S, LLC,
                  or its assigns, has a Common Stock Purchase Warrant to
                  purchase 80 shares of Common Stock in Company on or before
                  February 12, 2007; and Alta Communications VI, L.P., or its
                  assigns, has a Common Stock Purchase Warrant to purchase 3,499
                  shares of Common Stock in Company on or before February 12,
                  2007.

         2.       On October 8, 1997, Holdings entered into Non-Qualified Stock
                  Option Agreements with certain employees of the Borrower
                  pursuant to the Golden Sky Systems, Inc. Stock Option and
                  Restricted Stock Purchase Plan, granting options to acquire an
                  aggregate 62,525 shares of Holdings Common Stock for $1 per
                  share.
<PAGE>   156
                                                                   SCHEDULE VIII
                                                                          PAGE 2

                                 Capitalization
                    Common Stock and Series A Preferred Stock

                                List of Investors

<TABLE>
<CAPTION>
                                                                              INITIAL CLOSING
                                      -------------------------------------------------------------------------------------------
ADDITIONAL CLOSING                      

                                      NUMBER OF        NUMBER       AGGREGATE        NUMBER OF                          AGGREGATE
                                      SERIES A           OF         PURCHASE         SERIES A             NUMBER OF     PURCHASE
                                      PREFERRED        COMMON       PRICE FOR        PREFERRED             COMMON       PRICE FOR
                                       SHARES          SHARES        SHARES           SHARES               SHARES        SHARES
NAME                                 (Column 1)      (Column 2)    (Column 3)       (Column 4)           (Column 5)    (Column 6)
- ----                                 ----------      ----------    ----------       ----------           ----------      ----------
<S>                                   <C>             <C>          <C>              <C>                  <C>           <C>
Alta Subordinated Debt Partners        31,246            13        $3,124,613          24,286                --        $2,248,600
III, L.P.                              51,971            23         5,197,123          40,349                --         4,039,400
Alta Communications VI, L.P.            1,183             1           118,301             920                --            92,000
Alta-Comm S By S, LLC
c/o Alta Combinations, Inc. 
One Embarcadero Center
Suite 4050
San Francisco CA 94111
Attn: Robert Benbow

Spectrum Equity Investors, L.P.        50,000            12         5,000,012              --                --                --
Spectrum Equity Investors II,              --            --                           100,000                25        10,000,025
L.P. 
125 High Street, Suite 2600
Boston, MA 02110
Attn: William Collatos

BancBoston Ventures Inc.               33,600            19         3,360,019          41,400                --         4,140,000
175 Federal Street
Boston, MA 02110
Attn: William O. Charman

The Millenial Fund                        500            --            50,000              --                --                --
c/o G. Jackson Tankersley
The Centennial Funds
1428 15th Street
Denver, CO 80202

</TABLE>
<PAGE>   157
                                                                   SCHEDULE VIII
                                                                          PAGE 3



<TABLE>
<CAPTION>
                                             NUMBER OF        NUMBER     AGGREGATE     NUMBER OF              AGGREGATE
                                              SERIES A          OF        PURCHASE     SERIES A    NUMBER OF   PURCHASE
                                             PREFERRED        COMMON     PRICE FOR     PREFERRED    COMMON     PRICE FOR
                                              SHARES          SHARES      SHARES        SHARES      SHARES      SHARES        
<S>                                            <C>             <C>        <C>             <C>        <C>         <C>
Builder Investment Partnership                 500              --         50,000          --         --          --      
Five Piedmont Center, Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder

Rodney A. Weary Revocable                      16,030            1        250,001          --         --          --
Trust Dated 10/25/95
300 West  90th Street
Prairie Village, KS 66207

F.G. Weary III Revocable Trust                  2,500           --        250,001          --         --          --
1508 S. Golf Club Drive
Richmond, MO 64085

Sarah Weary Revocable Trust                     2,500           --        250,001          --         --          --
1508 S. Golf Club Drive
Richmond, MO 64085

Robert B. Liepold                               1,000           --        100,000          --         --          --
6140 Mission Drive
Shawnee Mission, KS 66208

Ron D. Foster                                     900           --         90,000          --         --          --
4613 N.E. Whispering Winds Dr.
Lees Summit, MO 64064

Jo Ellen Linn                                     430           --         43,000          --         --          --
4613 N.E. Whispering Winds Dr.
Lees Summit, MO 64064

Robert Weaver                                    1,000          --        100,000           --          --         --
6221 Belle Rive Dr.
Brentwood, TN 37027

Donald and Barbara Tucker                          150          --         15,000           --          --         --
109 Lord Ashley Drive
Greenville, NC 27858

Robert H. Weaver                                   350          --         35,000           --          --         --
1509 Douglas Drive
Jackson, MS 39211


</TABLE>
<PAGE>   158
                                                                   SCHEDULE VIII
                                                                          PAGE 4



<TABLE>
<CAPTION>
                                         NUMBER OF      NUMBER      AGGREGATE       NUMBER OF                   AGGREGATE
                                         SERIES A         OF        PURCHASE        SERIES A       NUMBER OF     PURCHASE
                                        PREFERRED       COMMON     PRICE FOR        PREFERRED       COMMON      PRICE FOR
                                          SHARES        SHARES       SHARES           SHARES         SHARES       SHARES


<S>                                     <C>              <C>    <C>                <C>                 <C>    <C>
Jeff  K. or Rebecca D. Ramsey,              100           --         10,000              --             --            --
Jt. Ten. w/ rights of Survivorship
P.O. Box 2293
Corrales, NM 87048

A Delaware Trust  Arthur B.                  20           --          2,000              --             --            --
Ramsey, Trustee
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123

Ramsey Trust Dated 12/14/95                  20           --          2,000              --             --            --
1621 Sagebrush Trail S.E.
Albuquerque, NM 87123

Paul Spurgeon                             5,000           --          5,001              --             --            --
3000 SW 19th Street
Topeka, KS 66604

             TOTAL                      199,000           75    $19,900,075          207,000            25    $20,700,025
                                        =======           ==    ===========          =======            ==    ===========


</TABLE>
<PAGE>   159
                                                                   SCHEDULE VIII
                                                                          PAGE 5

                            Golden Sky Holdings, Inc.


<TABLE>
<CAPTION>
NAMES                                            SERIES A PREFERRED SHARES

<S>                                              <C>  
Andy O'Pry                                                3,375
Jane O'Pry                                                  250
Robert Wasert                                               500
Andy O'Pry, Jr.                                             250
Paul O'Pry                                                  250
Timothy Dewhirst                                            200
Rick Nerby                                                  200
Michael Buross                                               50
Cory Duffy                                                   50
Ron Hageman                                                  50
Eric Norgate                                                100
Shawn Richardson                                             50
Clinton L. Noren                                             75
Sandra D. Noren                                              75
Harold Poulsen                                            1,000
Carmen Poulsen                                              200
J. Mark Poulsen                                             200
Randy Robertson                                             100
Mark Robertson                                              100
Shirley Fjield                                              200
Jack S. Ramirez                                             200
David Garland O'Pry Irrevocable Trust                       200
Andrew O'Pry, Sr.                                           300
J.W. Braman                                               1,000
D.H. Braman, Jr.                                          2,000
Kate S. O'Connor Trust for Thomas Edward Braham           1,000
Jacob Osborne                                                25

</TABLE>
<PAGE>   160
                                                                   SCHEDULE VIII
                                                                          PAGE 6

                                    Series B
                                 Preferred Stock

                                List of Investors


<TABLE>
<CAPTION>
                                         PRINCIPAL          NUMBER OF
                                         AMOUNT OF          SERIES B        NUMBER OF                          TOTAL NUMBER
                                          SERIES B         CONVERTIBLE       SERIES B                          OF SERIES B
                                        CONVERTIBLE         PREFERRED      CONVERTIBLE                         CONVERTIBLE
                                            NOTE             SHARES         PREFERRED         AGGREGATE         PREFERRED
                                        PLUS ACCRUED      ISSUABLE UPON       SHARES           PURCHASE           SHARES
                                          INTEREST         CONVERSION       PURCHASED           PRICE            ISSUABLE
                                         (COLUMN 1)        (COLUMN 2)       (COLUMN 3)        (COLUMN 4)        (COLUMN 5)
                                         ----------        ----------       ----------        ----------        ----------
                                                      
NAME

SERIES B OUTSIDE INVESTORS:

<S>                                    <C>                <C>              <C>                <C>              <C>      
Norwest Equity Partners V              $ 3,473,276           17,367         57,758.62         $11,551,724        75,125.62
c/o Norwest Venture Capital
Management, Inc.
2800 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Attn: Erik Torgerson

Hancock Venture Partners               $ 3,473,276           17,367         57,758.62         $11,551,724        75,125.62
V-Direct Fund L.P.
c/o HarbourVest Partners, LLC
One Financial Center
44th Floor
Boston, MA 02111
Attn: Bill Johnson
</TABLE>
<PAGE>   161
                                                                   SCHEDULE VIII
                                                                          PAGE 7
<TABLE>
<CAPTION>
                                         PRINCIPAL          NUMBER OF 
                                         AMOUNT OF          SERIES B        NUMBER OF                          TOTAL NUMBER
                                          SERIES B         CONVERTIBLE       SERIES B                          OF SERIES B
                                        CONVERTIBLE         PREFERRED      CONVERTIBLE                         CONVERTIBLE
                                            NOTE             SHARES         PREFERRED         AGGREGATE         PREFERRED
                                        PLUS ACCRUED      ISSUABLE UPON       SHARES           PURCHASE           SHARES
                                          INTEREST         CONVERSION       PURCHASED           PRICE            ISSUABLE
                                         (COLUMN 1)        (COLUMN 2)       (COLUMN 3)        (COLUMN 4)        (COLUMN 5)
                                         ----------        ----------       ----------        ----------        ----------
                                                      




<S>                                   <C>                     <C>          <C>                <C>              <C>      
Alta Subordinated Debt                $ 514,343.15            2,572          8,553.24         $ 1,710,648        11,125.24
Partners III, L.P.
Alta Communications VI, L.P.          $ 855,493.69            4,278        14,226,375         $ 2,845,275       18,504,375
Alta-Comm S By S, LLC                 $  19,473.16               98           323,835         $    64,767          421,835
c/o Alta Combinations, Inc.
One Embarcadero Center
Suite 4050
San Francisco CA 94111
Attn: Robert Benbow

Lion Investments Limited              $ 289,330.55            1,447          3,563.76         $   712,752         5,010.76
Westpool Investment Trust plc         $ 867,993.66            4,340         10,691.27         $ 2,138,254        15,031.27
c/o London Merchant
Securities
Carlton House
33 Robert Adam Street
London WIM 5AH
England
Attn: Iain MacPhail

Weber Family Trust                    $      434.12                3            72,845            $ 14,569           75,845
dated 1/6/89
c/o Eugene M. Weber
50 California Street
Suite 3200
San Francisco, CA 94111
Attn: Eugene M. Weber
</TABLE>
<PAGE>   162
                                                                   SCHEDULE VIII
                                                                          PAGE 8

<TABLE>
<CAPTION>
                                         PRINCIPAL          NUMBER OF 
                                         AMOUNT OF          SERIES B        NUMBER OF                          TOTAL NUMBER
                                          SERIES B         CONVERTIBLE       SERIES B                          OF SERIES B
                                        CONVERTIBLE         PREFERRED      CONVERTIBLE                         CONVERTIBLE
                                            NOTE             SHARES         PREFERRED         AGGREGATE         PREFERRED
                                        PLUS ACCRUED      ISSUABLE UPON       SHARES           PURCHASE           SHARES
                                          INTEREST         CONVERSION       PURCHASED           PRICE            ISSUABLE
                                         (COLUMN 1)        (COLUMN 2)       (COLUMN 3)        (COLUMN 4)        (COLUMN 5)
                                         ----------        ----------       ----------        ----------        ----------




<S>                                    <C>                <C>              <C>                <C>              <C>
BancBoston Ventures Inc.               $578,879.67            2,895         9,626,435          $1,925,287       12,521,435
175 Federal Street
10th Floor
Boston, MA 02110
Attn: William Charman

General Electric Capital Corporation            --               --            15,000          $3,000,000           15,000
120 Long Ridge Road
3rd Floor
Stamford, CT 06927
Attn: Peter Foley

The Millennial Fund                             --               --               250             $50,000              250
c/o G. Jackson Tankersley, Jr.
The Centennial Funds
1428 15th Street
Denver, CO 80202

Builder Investment                              --               --               250             $50,000              250
Partnership
Five Piedmont Center
Suite 700
Atlanta, GA 30305
Attn: Allen A. Builder
</TABLE>


<PAGE>   163
                                                                     SCHEDULE IX

                                  SUBSIDIARIES


Golden Sky Holdings, Inc. owns 100% of Golden Sky Systems, Inc. (Borrower)

Golden Sky Systems, Inc. (Borrower) owns 100% of Argos Support Services Company

Golden Sky Systems, Inc. (Borrower) owns 100% of DCE Satellite Entertainment, 
LLC

Golden Sky Systems, Inc. (Borrower) owns 70.25% of South Plains DBS Limited
Partnership
<PAGE>   164
                                                                      SCHEDULE X

                                               PATENTS AND LICENSES





         None.





<PAGE>   165
                                                                     SCHEDULE XI

                              EXISTING INDEBTEDNESS




         1. Promissory Note and Security Agreement issued May 1, 1997 to Western
Montana DBS, Inc., d/b/a Rocky Mountain DBS in the amount of $2,350,000 which
matures May 1, 1999, paid in full on the Restatement Effective Date.


         2. Promissory Note and Security Agreement issued June 12, 1997 to TEG
DBS Services, Inc. in the amount of $2,500,000 which matures June 12, 1999 with
quarterly interest payments.


         3. Promissory Note issued December 22, 1997 to Western Montana
Entertainment Television, Inc. in the amount of $3,750,000 which matures June 1,
2002.


         4. Other Permitted Indebtedness

            See attached chart.
<PAGE>   166
                                 Permitted Liens

<TABLE>
<CAPTION>
         Name of Debtor           State   Office         Secured Party/           Type of          Number         File Date
                                                            Plaintiff             Filing
- ---------------------------------------- --------- --------------------------------------------------------------------------
<S>                               <C>     <C>      <C>                            <C>             <C>             <C>
Golden Sky Systems, Inc.           NV       SOS    TEG DBS Services Inc.           UCC-1               9710408-U    16-Jun-97

Golden Sky Systems, Inc.           MN       SOS    T&W Funding                     UCC-1                 2017690     6-Mar-98
                                                   Company I, LLC

Golden Sky Systems, Inc.           MO       SOS    Financial Associates            UCC-1                 2768049    17-Mar-97

Golden Sky Systems, Inc.           MO       SOS    Commercial Capital              UCC-1                 2784168    28-Apr-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    Commercial Capital              UCC-1                 2797559     5-Jun-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2810205    14-Jul-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2812910    23-Jul-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2825625    26-Aug-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2832790    19-Sep-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2844339    24-Oct-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2852885    18-Nov-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2852886    18-Nov-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W                             UCC-1                 2852887    18-Nov-97
                                                   Financial Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2858638     5-Dec-97

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878313     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878314     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878315     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2879720    13-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2882272    24-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887887     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887890     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887899     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887915     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2904521    17-Apr-98

Golden Sky Systems, Inc.           MI       SOS    T&W Funding Company             UCC-1                 D363501    17-Apr-98
</TABLE>
<PAGE>   167
                                                                    SCHEDULE XII

                                    INSURANCE


I.  Insurance Policy Numbers

         1.       37UUNEX5439
         2.       37WBBB1970
         3.       37MSEX4740 (computer policy)
         4.       37HUEX7760 (umbrella policy)

         Insurance Policies are on file with White & Case


II.  Directors and Officers Liability Coverage

         See attached document.


III. Certificate of Insurance

         See attached document.


<PAGE>   168
         WESTROPE & ASSOCIATES            COVERNOTE OF INSURANCE
         920 Baltimore Avenue
         Kansas City, Mo 64105               No. NSP2421912
       Telephone: (816) 842-8222
          Fax: (816) 842-3081

                                   Named Insured:
                                   GOLDEN SKY HOLDINGS
                                   605 W. 47TH STREET, STE 300
                                   KANSAS CITY MO 64112
    (913) 451-3900
    MONTE GIDDINGS

    CLINE-WOOD AGENCY, INC.        Insurance described below has been effected
    10901 LOWELL, #130             with the following company or companies:
    OVERLAND PARK KS 66210         Name of insurer(s)
                                        Great American Ins. Co.      100%

Effective: 04-20-98 to 04-20-99
Limits: $5,000,000 LIMIT OF LIABILITY                                  Premium
                                                                  $  70,000.00
Coverage: DIRECTORS & OFFICERS LIABILITY


Deductible: $0 EA DIRECTOR/$0 ALL DIRECTORS/
            $100,000 COMPANY REIMBURSEMENT          TOTAL CHARGED $  70,000.00

Endorsements and special conditions              See attached Form DEF-0033
Minimum Earned Premium Regardless of Term:       25%
Premium is Minimum & Deposit.
30 Day Notice of Cancellation - 10 Day for Non-Payment.
CARRIER ADMITTED - NO TAX APPLIES


                  *SEE ATTACHED TERMS AND CONDITIONS*


                           If the Assured shall make any claim knowing the same
                  to be false or fraudulent, as regards amount or otherwise,
                  this certificate shall become void, and all claims thereunder
                  shall be forfeited.

                              COVER NOTE PROVISIONS

         1.       Cancellation of this Cover Notice shall be in accordance with
                  the provisions of the applicable policy.

         2.       This Cover Note shall be terminated by the issuance of the
                  policy by the Company and the premium shall be credited
                  thereon.

         3.       This insurance is further subject to the terms, conditions,
                  and limitations of the policy(ies) in current use by the above
                  mentioned Company(ies).

Signed at Kansas City, MO, on April 21, 1998
                                                           WESTROPE & ASSOCIATES

                                                           By___________________


                        SUPPLEMENTAL TERMS AND CONDITIONS
<PAGE>   169
         WESTROPE & ASSOCIATES            COVERNOTE OF INSURANCE
         920 Baltimore Avenue
         Kansas City, Mo 64105               No. NSP2421912
       Telephone: (816) 842-8222
          Fax: (816) 842-3081

Reference Number:  NSP2421912                            Date; April 20, 1998
Name Insured:  GOLDEN SKY HOLDINGS

         GREAT AMERICAN INSURANCE COMPANY - POLICY FORM D100A
         CONDITIONS/ENDORSEMENTS/EXCLUSIONS:

                  Non-Profit Outside Directorship Liability Coverage
                  Non-Cancelable Policy except for Non-Payment of Premium with
                   60 days Notice of Non-Renewal
                  Spousal Extension
                  Nuclear Energy Exclusion
                  Prior and Pending Litigation Exclusion at Inception
                  Subsidiary Wrongful Acts Exclusion
                  Advancement of Defense Costs - all sides
                  100% Entity Coverage for Securities Claims (waiver of SEC
                       retention provided in endorsement)
                  Notice of Offering
                  Worldwide Coverage Endorsement
                  Addition to Section VIII Endorsement
                           Provides Pay on Behalf wording (all insuring clauses)
                           Allows for Notice of Circumstances during the
                           Discovery Period 
                           Provides for Director and Officer "status" liability 
                            coverage 
                           Deletes "solely" from the definition of Wrongful Act 
                           Amend the definition of Claim to include "written 
                            coverage 
                           Presumptive Indemnification amendment 
                           Allows for Notice of Circumstances for up to 90 days 
                           after the expiration date
                  Bilateral Discovery - 12 months at 75% of annual premium
                  Subsidiary Coverage 
                  Non-Entity Employment Practices Liability coverage 
                  Modification to Section IV Endorsement
                           Deletes Hostile Takeover Exclusion
                           Amends BI/PD Exclusions to "for" wording
                           Amend "profit or advantage" and "dishonesty"
                           exclusions from "in fact" wording to "final
                           adjudication" wording
                           Amends Insured vs Insured to provide for cross
                            claims/third party claims with: "Affiliate" word
                            deleted
                           Amendment to definition of Loss - Punitive Damages
                            where insurable
                           Addition to Section VII General Conditions to add
                           term general Partnerships 
                           Outside Directorship coverage for Golden Eagle Gale 
                            and Unicom
<PAGE>   170
         WESTROPE & ASSOCIATES            COVERNOTE OF INSURANCE
         920 Baltimore Avenue
         Kansas City, Mo 64105               No. NSP2421912
       Telephone: (816) 842-8222
          Fax: (816) 842-3081

                  ***SUBJECT TO RECEIPT, REVIEW AND APPROVAL OF***
         1.       Original signed and dated Great American Insurance Companies
                  Proposal Form for Directors' and Officers' Liability
                  insurance.
         2.       Provide further details regarding the response(s) to
                  Question(s) No. 10 of the American International Companies
                  application.
         3.       The Outside Directorship coverage provided by Endorsement No.
                  D406 is subject to receipt, review and acceptance of the most
                  recent audited financial statements for Golden Eagle Gale.
         4.       Please provide details on partnerships in which the company
                  participates including disclosure of general and limited
                  partnerships as well as the latest audited financial
                  statements, if available.


NOTE:
This indication expires 30 days from the date referenced above. If between the
date of this indication and the effective Date of the policy there is a
significant adverse change in the condition of the Proposed Insured or an event
which could substantially change the underwriting evaluation of the Proposed
Insured, then at the company's option, this indication may be withdrawn.

In the event of any conflict or ambiguity between the proposed policy and any
statements made concerning this coverage, the proposed policy shall control.
<PAGE>   171
CERTIFICATE OF INSURANCE                                         Date (mm/dd/yy)
                                                                       05/05/98

<TABLE>
<S>                                 <C>                      <C>
                                    (301) 220-3200           THIS CERTIFICATE IS ISSUED AS A MATTER OF
Telcom Insurance Company                                     INFORMATION ONLY AND CONFERS NO RIGHTS UPON
6301 Ivy Lane - Suite 506                                    THE CERTIFICATE HOLDER.  THIS CERTIFICATE DOE
Greenbelt, MD 20770                                          NOT AMEND, EXTEND OR ALTER THIS COVERAGE
                                                             AFFORDED BY THE POLICIES BELOW.

                                                                  COMPANIES AFFORDING COVERAGE
                                                             Company
                                                             A        THE TRAVELERS INDEMNITY CO. OF IL

                                                             Company
                                                             B
South PlainsDBS L.P.                                                
DBA Digital Satellite Television                             Company
C/O Poka-Lambro Telco, Inc.                                  C
P.O. Box 1340, Hwy 87
Tahoka, TX 79373                                             Company
                                                             D
                                                                    
</TABLE>

COVERAGES

         THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LIMITED BELOW HAVE
         BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY INDICATED.
         NOTWITHSTANDING ANY REQUIREMENT, TERM OF CONDITION OF ANY CONTRACT OR
         OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR
         MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS
         SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES.
         LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.

<TABLE>
<CAPTION>
CO                                                              POLICY           POLICY
LTR       TYPE OF INSURANCE       POLICY NUMBER                EFFECTIVE       EXPIRATION
                                                                 DATE             DATE                LIMITS
<S>       <C>                     <C>                       <C>              <C>                      <C>
          GENERAL LIABILITY       UJ-660-190X6759-TIL-97    09/01/97         08/01/98                      $ 2,000,000
                                                                                                           $ 1,000,000
                                                                                                           $ 1,000,000
                                                                                                           $ 1,000,000
                                                                                                           $    50,000
                                                                                                           $     5,000
                                  UJ-660-190X6759-TIL-97    08/01/97         08/01/98                      $ 1,000,000
</TABLE>
<PAGE>   172
          OTHER
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS



<TABLE>
<CAPTION>
CERTIFICATE HOLDERS   CANCELLATION
<S>                   <C>
Fleet National Bank   SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED
Attn: Mark Bernier    BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING COMPANY
1 Federal Street      WILL ENDEAVOR TO MAIL 60 DAYS WRITTEN NOTICE TO THE
Boston, MA 02110      CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO MAIL
                      SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY
                      KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.
</TABLE>

                      Authorized Representative







<PAGE>   173
                                                                   SCHEDULE XIII

                                 EXISTING LIENS



         1.       Promissory Note and Security Agreement issued June 12, 1997 to
                  TEG DBS Services, Inc. in the amount of $2,500,000 which
                  matures June 12, 1999 with quaterly interest payments.


         2.       Promissory Note issued December 22, 1997 to Western Montana
                  Entertainment Television, Inc. in the amount of $3,750,000
                  which matures June 1, 2002.


         3.       Other Permitted Indebtedness

                  See attached chart.
<PAGE>   174
                                 Permitted Liens

<TABLE>
<CAPTION>
         NAME OF DEBTOR           State   Office         Secured Party/           Type of          Number         File Date
                                                            Plaintiff             Filing

<S>                               <C>     <C>      <C>                            <C>             <C>              <C>
Golden Sky Systems, Inc.           NV       SOS    TEG DBS Services Inc.           UCC-1               9710408-U    16-Jun-97

Golden Sky Systems, Inc.           MN       SOS    T&W Funding                     UCC-1                 2017690     6-Mar-98
                                                   Company I, LLC

Golden Sky Systems, Inc.           MO       SOS    Financial Associates            UCC-1                 2768049    17-Mar-97

Golden Sky Systems, Inc.           MO       SOS    Commercial Capital              UCC-1                 2784168    28-Apr-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    Commercial Capital              UCC-1                 2797559     5-Jun-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2810205    14-Jul-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2812910    23-Jul-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2825625    26-Aug-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2832790    19-Sep-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2844339    24-Oct-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2852885    18-Nov-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2852886    18-Nov-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Financial                   UCC-1                 2852887    18-Nov-97
                                                   Corporation

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2858638     5-Dec-97

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878313     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878314     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2878315     9-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2879720    13-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2882272    24-Feb-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887887     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887890     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887899     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2887915     9-Mar-98

Golden Sky Systems, Inc.           MO       SOS    T&W Funding Company             UCC-1                 2904521    17-Apr-98

Golden Sky Systems, Inc.           MI       SOS    T&W Funding Company             UCC-1                 D363501    17-Apr-98
</TABLE>
<PAGE>   175
                                                                       EXHIBIT A

                               NOTICE OF BORROWING


                                                                          [Date]

Fleet National Bank, as Administrative
Agent for the Banks party to the
Credit Agreement referred to below

Mail Stop MA0FD03D
I Federal Street
Boston, MA 02110
Attention:  Christopher A. Swindell

Ladies and Gentlemen:

         The undersigned, Golden Sky Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May __, 1998 (as amended from time to time, the "Credit
Agreement," the terms defined therein being used herein as therein defined),
among Golden Sky Holdings, Inc., the Borrower, certain financial institutions
from time to time party thereto (the "Banks"), Banque Paribas, as Syndication
Agent, you, as Administrative Agent for such Banks, and General Electric Capital
Corporation, as Documentation Agent, and hereby gives you notice, irrevocably,
pursuant to Section 1.03 of the Credit Agreement, that the undersigned hereby
requests a Borrowing under the Credit Agreement, and in that connection sets
forth below the information relating to such Borrowing (the "Proposed
Borrowing") as required by Section 1.03 of the Credit Agreement:

                  (i) The Business Day of the Proposed Borrowing is           ,
                      19__.(1)

                  (ii) The aggregate principal amount of the Proposed Borrowing
         is $________ .


                  (iii) The Proposed Borrowing is to consist of [Term Loans]
         [Revolving Loans].



- --------

        (1)       Shall be a Business Day at least one Business Day in the case
                  of Base Rate Loans and three Business Days in the case of
                  Eurodollar Loans, in each case, after the date hereof.
<PAGE>   176
                                                                       EXHIBIT A
                                                                          PAGE 2

                  (iv) The Loans to be made pursuant to the Proposed Borrowing
         shall be initially maintained as [Base Rate Loans] [Eurodollar 
         Loans].(2)

                  [(v) The initial Interest Period for the Proposed Borrowing
         shall be month(s).](3)

         The Undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Borrowing:

         (A) the representations and warranties contained in the Credit
     Agreement and the other Credit Documents are and will be true and correct
     in all material respects, before and after giving effect to the Proposed
     Borrowing and to the application of the proceeds thereof (except for any
     representation and warranty that speaks only as of a specific date, which
     shall be true and correct in all material respects as of such date), as
     though made on such date; [and]

         (B) no Default or Event of Default has occurred and is continuing, or
     would result from such Proposed Borrowing or from the application of the
     proceeds thereof[.] [; and]

        [(C), all of the conditions to the Proposed Borrowing contained in 
     Section 5.03 and 7.15 have been satisfied.(4)

                                                      Very truly yours,

                                                      GOLDEN SKY SYSTEMS, INC.



                                                      By________________________
                                                        Name:
                                                        Title:
- --------


        (2)       Eurodollar Loans may not be incurred prior to the Syndication
                  Termination Date.

        (3)       To be included for a Proposed Borrowing of Eurodollar Loans.

        (4)       To be included for a Proposed Borrowing of Loans, the proceeds
                  of which are to be utilized to effect, in whole or in part, a
                  Permitted Acquisition.
<PAGE>   177
                                                                     EXHIBIT B-1


                                    TERM NOTE

$_____________

                                                              New York, New York
                                                                      May 8,1998


         FOR VALUE RECEIVED, Golden Sky Systems, Inc., a Delaware corporation
(the "Borrower"), hereby promises to pay to the order of ___________ (the
"Bank"), in lawful money of the United States of America in immediately
available funds, at the office of Fleet National Bank (the "Administrative
Agent") located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110 on the
Term Loan Maturity Date (as defined in the Agreement referred to below) the
principal sum of       ($      ) or, if less, the then unpaid principal amount
of all Term Loans (as defined in the Agreement) made by the Bank pursuant to the
Agreement.

                  The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement
referred to below.

                  This Note is one of the Term Notes referred to in the 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 Borrower, the financial
institutions from time to time party thereto (including the Bank), Banque
Paribas, as Syndication Agent, Fleet National Bank, as Administrative Agent, and
General Electric Capital Corporation, as Documentation Agent (as from time to
time in effect, the "Agreement") and is entitled to the benefits thereof. This
Note is also entitled to the benefits of the Guaranties (as defined in the
Agreement) and is secured by and entitled to the benefits of the Security
Documents (as defined in the Agreement). As provided in the Agreement, this Note
is subject to voluntary prepayment and mandatory repayment prior to the Term
Loan Maturity Date, in whole or in part.

                  In case an Event of Default (as defined in the Agreement)
shall occur and be continuing, the principal of and accrued interest on this
Note may be declared to be due and payable in the manner and with the effect
provided in the Agreement.

                  The Borrower hereby waives presentment, demand, protest or
notice of any kind in connection with this Note.
<PAGE>   178
                                                                     EXHIBIT B-1
                                                                          PAGE 2

                  THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

                                                     GOLDEN SKY SYSTEMS, INC.

                                                     By________________________
                                                         Name:
                                                         Title:
<PAGE>   179
                                                                     EXHIBIT B-2


                                 REVOLVING NOTE


$__________________                                          New York, New York
                                                                      May 8,1998


                  FOR VALUE RECEIVED, Golden Sky Systems, Inc., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of       (the
"Bank"), in lawful money of the United States of America in immediately
available funds, at the office of Fleet National Bank (the "Administrative
Agent") located at Mail Stop MA0FD03D, 1 Federal Street, Boston, MA 02110, the
Revolving Loan Maturity Date (as defined in the Agreement referred to below) the
principal sum of       ($     ) or, if less, the then unpaid principal amount of
all Revolving Loans (as defined in the Agreement) made by the Bank pursuant to
the Agreement.

                  The Borrower promises also to pay interest on the unpaid
principal amount hereof in like money at said office from the date hereof until
paid at the rates and at the times provided in Section 1.08 of the Agreement
referred to below.

                  This Note is one of the Revolving Notes referred to in the
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 Borrower, the
financial institutions from time to time party thereto (including the Bank),
Banque Paribas, as Syndication Agent, Fleet National Bank, as Administrative
Agent, and General Electric Capital Corporation, as Documentation Agent (as from
time to time in effect, the "Agreement") and is entitled to the benefits
thereof. This Note is also entitled to the benefits of the Guaranties (as
defined in the Agreement) and is secured by and entitled to the benefits of the
Security Documents (as defined in the Agreement). As provided in the Agreement,
this Note is subject to voluntary prepayment and mandatory repayment prior to
the Revolving Loan Maturity Date, in whole or in part.

         In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal of and accrued interest on this Note may be
declared to be due and payable in the manner and with the effect provided in the
Agreement.

         The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
<PAGE>   180
                                                                     EXHIBIT B-2
                                                                          PAGE 2


                  THE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.

                                                     GOLDEN SKY SYSTEMS, INC.

                                                     By_________________________
                                                         Name:
                                                         Title:
<PAGE>   181
                                                                       EXHIBIT C




                              NOTICE OF CONVERSION

[Date]

Fleet National Bank, as Administrative
  Agent for the Banks party to the
  Credit Agreement referred
  to below

Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell

Ladies and Gentlemen:

         The undersigned, Golden Sky Systems, Inc. (the "Borrower"), refers to
the Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May  , 1998 (as amended from time to time, the "Credit
Agreement," the terms defined therein being used herein as therein defined),
among Golden Sky Holdings, Inc., the Borrower, certain financial institutions
from time to time party thereto (the "Banks"), Banque Paribas, as Syndication
Agent, you, as Administrative Agent for such Banks, and General Electric Capital
Corporation, as Documentation Agent, and hereby gives you notice, irrevocably,
pursuant to Section 1.06 of the Credit Agreement, that the undersigned hereby
requests a conversion of a Loan or Loans under the Credit Agreement, and in that
connection sets forth below the information relating to such Conversion (the
"Proposed Conversion") as required by Section 1.06 of the Credit Agreement:

         (i)      The Business Day of the Proposed Conversion is        199_.(1)

         (ii)     The aggregate principal amount of the Proposed Conversion is 

                   $                    .

         (iii) The Loan[s] to be converted [is/are] [Term Loan[s]] and
[Revolving Loan[s]].





- ------------
   (1)   Shall be a Business Day at least three Business Days after the earlier
         of (i) the date hereof and (ii) the date on which telephonic notice was
         given (which telephonic notice was promptly confirmed in writing).
<PAGE>   182
                                                                       EXHIBIT C
                                                                          PAGE 2


         (iv) The Borrowing[s] pursuant to which the Loan[s] in clause (iii)
were made [is/are] currently outstanding as [Base Rate/Eurodollar](2) Loans and
[is/are] hereby requested to be converted into [Eurodollar/Base Rate] Loans and
[was/were] made on        , 19 .

         [(v) The Loan[s] to be converted into Eurodollar Loans shall initially
have an Interest Period of .________________](3)

         [The undersigned hereby certifies that on the date hereof, and on the
date of the Proposed Conversion, no Default or Event of Default has occurred and
is continuing, or would result from such Proposed Conversion or from the
application of the proceeds thereof.](2)

Very truly yours,

GOLDEN SKY SYSTEMS, INC.


By_____________________
    Name:
    Title:


- ------------
        (2)       Base Rate Loans may not be converted into Eurodollar Loans
                  prior to the Syndication Termination Date.

        (3)       To be included in the event the Loan is to be converted into a
                  Eurodollar Loan.
<PAGE>   183
                                                                       EXHIBIT D

                            LETTER OF CREDIT REQUEST

No. (1)  Dated (2)

Fleet National Bank, is Administrative Agent and as Issuing
    Bank, under the Amended and Restated Credit Agreement
    (as amended, modified or supplemented frozen time to
    time, the "Credit Agreement"), dated as of July 7, 1997,
    amended and restated as of May ___, 1998, among Golden
    Sky Holdings, Inc., Golden Sky Systems, Inc., the
    financial institutions from time to time party thereto,
    Banque Paribas, as Syndication Agent, Fleet National
    Bank, as Administrative Agent, and General Electric
    Capital Corporation, as Documentation Agent

Mail Stop MA0FD03D
1 Federal Street
Boston, MA 02110
Attention: Christopher A. Swindell

[Issuing Bank if different from Fleet]

Ladies and Gentlemen:

         We hereby request that the Issuing Bank referred to above issue a
standby Letter of Credit for the account of the undersigned on (3) (the "Date of
Issuance") in the aggregate stated amount of (4) .



______________________
(1)      Letter of Credit Request Number.
(2)      Date of Letter of Credit Request.
<PAGE>   184
                                                                       EXHIBIT D
                                                                          PAGE 2

                  For purposes of this Letter of Credit Request, unless
otherwise defined herein, all capitalized terms used herein which are defined in
the Credit Agreement shall have the respective meanings provided therein.

                  The beneficiary of the requested Letter of Credit will be (5),
and such Letter of Credit will be in support of (6) and will have a stated
expiration date of (7) .

                  We hereby certify that:

                  (A) The representations and warranties contained in the Credit
Agreement and the other Credit Documents will be true and correct in all
material respects, before and after giving effect to the issuance of the Letter
of Credit requested hereby (except for any representation and warranty that
speaks only as of a specific date, which shall be true and correct in all
material respects as of such date), on the Date of Issuance.

                  (B) No Default or Event of Default has occurred and is
continuing nor, after giving effect to the issuance of the Letter of Credit
requested hereby, would such a Default or Event of Default occur.

                  Copies of all documentation with respect to the supported
transaction are attached hereto.

GOLDEN SKY SYSTEMS, INC.


By_______________________
    Name:
    Title:


________________________
(... continued)

(3)      Date of Issuance at least ten Business Days from the date indicated in
         (2) above (or such shorter period as is acceptable to the Issuing Bank
         in any given case).
(4)      Aggregate initial stated amount of Letter of Credit.
(5)      Insert name and address of beneficiary.
(6)      Insert description of L/C Supportable Indebtedness and describe
         obligation to which it relates.
(7)      Insert last date upon which drafts may be presented which may not be
         later than the earlier of 12 months after the Date of Issuance and the
         third Business Day preceding the Revolving Loan Maturity Date.
<PAGE>   185
                                                                       EXHIBIT E



                         Section 3.04(b)(ii) Certificate

                  Reference is hereby made to the Amended and Restated Credit
Agreement, dated as of July 7, 1997, amended and restated as of May ___, 1998
among Golden Sky Holdings, Inc., Golden Sky System, Inc., the financial
institutions from time to time party thereto, Banque Paribas, as Syndication
Agent, Fleet National Bank, as Administrative Agent, and General Electric
Capital Corporation, as Documentation Agent, as amended through the date hereof
(the "Credit Agreement"). Pursuant to the provisions of Section 3.04(b)(ii) of
the Credit Agreement, the undersigned hereby certifies that it is not a "bank"
as such term is used in Section 881(c)(3)(A)of the Internal Revenue Code of
1986, as amended.

                                                          [NAME OF BANK]

                                                          By____________________
                                                              Name:
                                                              Title:



Date:
<PAGE>   186
                                                                       EXHIBIT F


          [Letterhead of Reboul, MacMurray, Hewitt, Maynard & Kristol]








                                                    May 8, 1998







To the Agents, the Collateral Agent, 
GECC and each of the Banks party to 
the Credit Agreement referred to below

Ladies and Gentlemen:

                  We have acted as counsel to Golden Sky Holdings, Inc., a
Delaware corporation ("Holdings"), Golden Sky Systems, Inc., a Delaware
corporation (the "Borrower"), and Argos Support Services Company, a Texas
corporation ("Argos," and together with Holdings and the Borrower, the "Loan
Parties") in connection with the preparation, execution and delivery of the
Amended and Restated Credit Agreement, dated as of July 7, 1997 amended and
restated as of May 8, 1998 (the "Credit Agreement"), among Holdings, the
Borrower, the financial institutions party thereto from time to time (the
"Banks"), Banque Paribas, as Syndication Agent("Banque Paribas"), Fleet National
Bank, as Administrative Agent ("Fleet" and, together with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent
("GECC"), and the transactions contemplated thereby. This opinion is delivered
to you pursuant to Section 4.03(i) of the Credit Agreement. Unless otherwise
defined herein, terms used herein shall have the respective meanings set forth
in the Credit Agreement.


                  For purposes of this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction of, the following
documents (the documents referred to in paragraphs (a) through (j) below being
hereinafter referred to as the "Credit Documents"):

                  (1) the Credit Agreement, including schedules and exhibits
thereto;
<PAGE>   187
                                                                       EXHIBIT F
                                                                          Page 2

                  (2) the Notes;

                  (3) the Subsidiaries Guaranty;

                  (4) the Holdings Pledge Agreement, including annexes thereto;

                  (5) the Borrower/Subsidiary Pledge Agreement, including
                      annexes thereto;

                  (6) the Security Agreement, including annexes thereto;

                  (7) the Security Documents Acknowledgment, including schedules
                      thereto;

                  (8) the Collateral Assignment of Marketing and Distribution
                      Agreements;

                  (9) the Form UCC-1 financing statements in the form attached
                      hereto as Exhibit I (the "Financing Statements") to be
                      filed in respect of the Security Agreement in the Uniform
                      Commercial Code filing offices listed on Exhibit II hereto
                      (the "Filing Offices") located in the States (the "Foreign
                      Jurisdictions") set forth on said Exhibit, naming the
                      Borrower, as debtor, and the Collateral Agent, as secured
                      party;

                 (10) The Reorganization Transaction Documents.

                  We have also examined the originals, or copies certified or
otherwise identified to our satisfaction, of such other documents, corporate
records, certificates or comparable documents of public officials and of
officers and representatives of the Loan Parties and have made such inquiries of
such officers and representatives of the Loan Parties as we have deemed relevant
and necessary as a basis for the opinions expressed below.

                  In such examination, we have assumed the genuineness of all
signatures (other than those of the Loan Parties), the due authorization,
execution and delivery of each Credit Document by all parties to such document
other than the Loan Parties, the authenticity of all documents submitted to us
as original documents, the conformity to original documents of all documents
submitted to us as copies thereof and the legal capacity of individuals
executing documents in their individual capacity. As to all questions of fact
material to this opinion that have not been independently established, we have
relied upon certificates or comparable documents of officers and
representatives of the Loan Parties and upon the factual representations and
warranties of the Loan Parties contained in the Credit Documents.

                  References to:
<PAGE>   188
                                                                       EXHIBIT F
                                                                          Page 3

                  (i)      the term "Applicable Laws" means (A) those laws,
                           rules and regulations of the United States of America
                           and of the State of New York which are customarily
                           applicable to transactions of the type contemplated
                           by the Credit Documents and (B) the General
                           Corporation Law of the State of Delaware;

                  (ii)     the term "Governmental Authority" means (A) any
                           executive, legislative, judicial, administrative or
                           regulatory body of the United States of America or
                           the State of New York and (B) the Secretary of State
                           of the State of Delaware and the Recorder of Deeds of
                           the county in which the registered office of the
                           Borrower is located in the State of Delaware; and

                  (iii)    the term "Governmental Approval" means any consent,
                           approval, license, authorization or validation of, or
                           filing, recording or registration with, any
                           Governmental Authority pursuant to Applicable Laws.

                  Furthermore, whenever used herein and with respect to any
matter, the words "to our knowledge" or words of similar purport refer to the
actual knowledge of the lawyers of this firm who have responsibility for our
representation of the Loan Parties in connection with the Credit Documents.

                  Based on the foregoing examination, and subject to the
assumptions, exceptions, limitations and qualifications herein stated, we are of
the following opinion:

                  1. Each of Holdings and the Borrower is a duly organized and
validly existing corporation in good standing under the laws of the State of
Delaware. Based solely on our review of certificates from the Secretary of State
of the State of Texas, Argos is a validly existing corporation in good standing
under the laws of the state of Texas. Each of the Loan Parties has the corporate
power and authority to own its property and assets and to transact the business
in which it is engaged. Based solely on our review of certificates from the
Secretary of State or other comparable governmental authority of the States
listed on Exhibit III hereto, each of the Loan Parties is duly qualified and is
authorized to do business in the States set forth opposite the name of such Loan
Party on said Exhibit III.

                  2. Each of the Loan Parties has the corporate power and
authority to execute, deliver and perform the terms and provisions of each of
the Credit Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents to which it is a party. Each of the Loan Parties has duly
executed and delivered each of the Credit Documents to which it is a party and
each of such Credit Documents constitutes the legal, valid and binding
obligation of such Loan Party enforceable against such Loan Party in accordance
with its terms.
<PAGE>   189
                                                                       EXHIBIT F
                                                                          Page 4

                  3. Neither the execution and delivery of the Credit Documents
to which it is party by each of the Loan Parties, nor compliance with any of the
provisions thereof, will (i) violate any provision of Applicable Law (including,
without limitation, Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System), or any order or decree of any Governmental Authority to
which such Party is subject (and of which we have knowledge), (ii) conflict
with, or result in the breach of, or constitute a default under, any indenture,
mortgage, deed of trust, agreement or other instrument to which such Loan Party
is a signatory (and of which we have knowledge), (iii) to our knowledge, result
in the creation or imposition of any Lien upon any of the property of such Loan
Party (except in favor of the Collateral Agent) pursuant to agreements to which
such Loan Party is a signatory or (iv) violate any provision of the Certificate
(or Articles) of Incorporation or By-laws of such Loan Party.

                  4. Except as set forth in Exhibit IV hereto, to our knowledge
there is no pending or threatened action, suit or proceeding before any court,
governmental or regulatory authority, agency, commission or board of arbitration
against any of the Loan Parties which, if adversely determined, is reasonably
likely to result in a material adverse effect on the business, operations or
financial condition of such Loan Party or which purports to affect the legality,
validity or enforceability of any Credit Document or the performance thereof.

                  5. No action of, or filing with, any Governmental Authority is
required to authorize, or is otherwise required in connection with, the
execution, delivery and performance of the Credit Documents by any of the Loan
Parties (except that although not required to be made with a Governmental
Authority, we call your attention to the fact that financing statements and
other filings may be required under applicable provisions of the Uniform
Commercial Code as in effect in those jurisdictions whose laws govern perfection
of security interests in any of the Collateral).

                  6. None of the Loan Parties is an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.

                  7. None of the Loan Parties is a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935, as amended.

                  8. The authorized capital stock of Holdings consists of (i)
1,000,000 shares of common stock, $.01 par value per share, 100 of which shares
are issued and outstanding, (ii) 1,293,800 shares of designated preferred stock,
$.01 par value per share, of which (a) 418,000 shares have been designated as
Series A Convertible Participating Preferred Stock, all of which shares are
issued and outstanding and (b) 418,000 shares have been designated as Series A
Redeemable Preferred Stock, none of which is issued, (c) 228,500 shares of
Series B Convertible Participating Preferred Stock, 228,442 of which shares are
issued and outstanding, (d) 228,500 shares of Series
<PAGE>   190
                                                                       EXHIBIT F
                                                                          Page 5


B Redeemable Preferred Stock, none of which are issued, and (iii) 300,000 shares
of undesignated preferred stock, $.01 par value per share. All such outstanding
shares are owned of record in the amounts, and by the Persons, set forth on
Schedule VIII to the Credit Agreement. All of such outstanding shares have been
duly and validly issued and are fully paid and nonassessable. Except as set
forth on Schedule VIII to the Credit Agreement, to our knowledge, on the
Restatement Effective Date, Holdings has no outstanding securities convertible
into or exchangeable for its capital stock or outstanding any rights to
subscribe for or to purchase, or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock, or
any stock appreciation or similar right with respect thereto.

                  9. The authorized capital stock of the Borrower consists of
(i) 1,000 shares of common stock, $.01 par value per share, all of which shares
are issued and outstanding and are owned of record and beneficially by Holdings.
All of such outstanding shares have been duly and validly issued and are fully
paid and nonassessable. To our knowledge, on the Restatement Effective Date, the
Borrower has no outstanding securities convertible into or exchangeable for its
capital stock or outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock, or any stock appreciation or similar
right with respect thereto.

                  10. The authorized capital stock of Argos consists of 10,000
shares of common stock, $1.00 par value per share, 1,175 of which shares are
issued and outstanding. All such outstanding shares are owned of record and
beneficially by the Borrower. All of such outstanding shares have been duly and
validly issued and are fully paid and nonassessable. To our knowledge, on the
Restatement Effective Date, Argos has no outstanding securities convertible into
or exchangeable for its capital stock or outstanding any rights to subscribe for
or to purchase, or any options for the purchase of, or any agreements providing
for the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, its capital stock, or any stock
appreciation or similar right with respect thereto.

                  11. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the Holdings Pledge
Agreement will create in favor of the Collateral Agent for the benefit of the
Banks a valid security interest in the interests of Holdings in the shares of
capital stock of the Borrower listed on Annex A to the Holdings Pledge Agreement
(the "Holdings Pledged Shares") when the Collateral Agent acquires possession of
the stock certificate or certificates representing the Holdings Pledged Shares,
each accompanied by a stock power indorsed in blank. Further assuming delivery
in New York to, and continued possession in New York by, the Collateral Agent of
the stock certificates representing the Holdings Pledged Shares (accompanied by
such stock powers so indorsed), such security interest in the Holdings Pledged
Shares will constitute a perfected security interest in all right, title and
interest of Holdings in the
<PAGE>   191
                                                                       EXHIBIT F
                                                                          Page 6

Holdings Pledged Shares under the New York UCC, to the extent that the New York
UCC is applicable thereto.

                  12. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the security interest
granted by the Borrower pursuant to the Borrower/Subsidiary Pledge Agreement
remains, subject to such qualifications with respect thereto as are stated
herein and in our opinion (the "Original Opinion") delivered with respect to the
Existing Credit Agreement on July 7, 1997, in full force and effect on the date
hereof, assuming delivery in New York on the Effective Date, as such term is
defined in the Existing Credit Agreement to, and continuous possession in New
York by, the Collateral Agent of the stock certificates representing the
Borrower Pledged Shares, each accompanied by a stock power indorsed in blank,
such security interest in the Borrower Pledged Shares will constitute a
perfected security interest in all right, title and interest of the Borrower in
the Borrower Pledged Shares under the New York UCC, to the extent that the New
York UCC is applicable thereto.

                  13. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the security interest
granted by the Borrower pursuant to the Security Agreement remains, subject to
such qualifications with respect thereto as are stated herein and in our
Original Opinion, in full force and effect on the date hereof.

                  14. After giving effect to the making of the Loans on the
Restatement Effective Date under the Credit Agreement, the Security Agreement
creates in favor of the Collateral Agent, for the benefit of the Banks, a valid
security interest together with the Security Interest (as such term is defined
in the Original Opinion, the "Restatement Security Interest") in the interests
of Argos in the Collateral covered thereby to the extent that a security
interest can be created therein under Article 9 of the Uniform Commercial Code
as in effect in the State of New York (such Collateral being hereinafter called,
together with the Personal Property Collateral (as such term is defined in the
Original Opinion) the "Restatement Personal Property Collateral"), as security
for the payment of the obligations purported to be secured thereby.

                  15. Assuming that the Financing Statements were duly and
properly filed in the Filing Offices (as each such term is defined in the
Original Opinion) and assuming that the Financing Statements are duly and
properly filed in the Filing Offices (as such term is defined herein), and
further assuming, in connection therewith, that all required filing fees, taxes
and other fees, if any, were or have been tendered to all such filing offices)
the Restatement Security Interest in the interests of the Borrower and Argos in
the Restatement Personal Property Collateral covered by the Security Agreement
will be perfected to the extent that a security interest therein may be
perfected by the filing in the Foreign Jurisdictions of a Form UCC-1 financing
statement under Article 9 of the Uniform Commercial Code as in effect in the
Foreign Jurisdictions in which such filing offices are located (each, a "Foreign
Jurisdiction UCC"). Assuming that the representation made by each of the
Borrower and Argos in Section 2.4 of the Security Agreement with respect to the
location of its chief executive office is true and correct, the perfection of
the Restatement Security Interest in the
<PAGE>   192
                                                                       EXHIBIT F
                                                                          Page 7

Receivables, Contracts, Contract Rights and General Intangibles (as each such
term is defined in the Security Agreement) of the Borrower and Argos is, under
each Foreign Jurisdiction UCC, governed by the laws of the jurisdiction in which
the chief executive office of the Borrower or Argos, as the case may be, is
located to the extent that said Receivables, Contracts, Contract Rights and
General Intangibles consist of "accounts" and "general intangibles" as defined
in the Foreign Jurisdiction UCC of such Foreign Jurisdiction.

The foregoing opinions are subject to the following exceptions, qualifications
and limitations:

         A. Our opinions set forth in paragraphs 2, 11, 12 and 14 above are
subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally,
including fraudulent transfer or conveyance laws; (ii) the effect of public
policy considerations or court decisions which may limit rights to obtain
indemnification; and (iii) with regard to the enforceability of any of the
parties' obligations, general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and the
qualification that certain remedial provisions of the Credit Documents are or
may be unenforceable in whole or in part under Applicable Laws, but the
inclusion of such provisions does not make the remedies afforded by such Credit
Documents inadequate for the practical realization of the rights and benefits
purported to be provided thereby except for the economic consequences resulting
from any delay imposed by, or procedures required by, Applicable Laws.

         B. Except as expressly provided in paragraphs 12 and 15 hereof, we
express no opinion herein as to the perfection of any security interest, or
validity of any lien, in any of the Personal Property Collateral and we express
no opinion herein as to priority of any of the Security Interests in any of the
Collateral.

         C. We express no opinion as to the creation, validity or the
enforceability of the Restatement Security Interests (i) in any part of the
Restatement Personal Property Collateral in which a security interest would not
be covered by the New York UCC by virtue of Section 9-102 or 9-104 thereof and
(ii) except as provided in Sections 9-104(g) and 9-306 of the New York UCC with
respect to insurance proceeds payable by reason of loss or damage to Collateral,
in any interest in or claim in or under policies of insurance, or in Collateral
that consists or will consist of deposit accounts. We call to your attention
that under certain circumstances described in Section 9-306 of the New York UCC,
comparable provisions of each Foreign Jurisdiction UCC and applicable Federal
bankruptcy law, the rights of a secured party to enforce a perfected security
interest in proceeds of collateral may be limited.

                  D. We express no opinion with respect to (i) any Loan Party's
right, title or interest in or to any Collateral, (ii) the creation, validity,
perfection, priority or enforceability of any security interest sought to be
created in any Patents, Trademarks or Copyrights (as such terms are defined in
the Security Agreement) to the extent a security interest therein is excluded
from the coverage of Article 9 of the New York UCC or any Foreign Jurisdiction
UCC, (iii) the perfection of any security
<PAGE>   193
                                                                       EXHIBIT F
                                                                          Page 8


interest in any Collateral consisting of fixtures, (iv) the adequacy or accuracy
of the descriptions of the Restatement Personal Property Collateral contained in
the Security Agreement, the Pledge Agreements or the Financing Statements, or
(v) the perfection of any security interest in any Collateral located in
jurisdictions other than the Foreign Jurisdictions.

         E. In the case of the issuance or other distribution in respect of the
Holdings Pledged Shares or Borrower Pledged Shares of "investment property" (as
such term is defined in Article 9 of the New York UCC), the security interest of
the Collateral Agent therein will be perfected only if possession thereof,
accompanied by stock powers indorsed in blank, is obtained and continued in
accordance with the provisions of the applicable Pledge Agreement or perfection
otherwise occurs in a manner provided for in Section 9-115(4) of the New York
UCC.

         F. Perfection of the security interests generally will be terminated
under the circumstances described in Sections 9-103, 9-402 and 9-403 of the New
York UCC, and the corresponding provisions of each Foreign Jurisdiction UCC,
unless appropriate action is taken as provided therein. We call your attention
to the fact that, without limitation (i) all financing statements filed must be
continued at prescribed intervals by the timely filing of continuation
statements and (ii) a new or amended financing statement may be required to be
filed to retain any perfected security interest in the event any debtor changes
its name, identity, corporate structure or location of its chief executive
office or chief place of business.

         G. We express no opinion with regard to any matter which may be
governed by the law of any jurisdiction other than (i) the laws of the State of
New York, (ii) the Federal law of the United States of America, (iii) the
General Corporation Law of the State of Delaware and (iv) subject to the
limitations stated herein, each Foreign Jurisdiction UCC. Although we are not
admitted to practice in any of the Foreign Jurisdictions and have not obtained
opinions of counsel admitted in such jurisdiction with respect to the perfection
or the continued perfection of the security interests created by the Security
Agreement in the Collateral covered thereby, we have examined the applicable
provisions of each Foreign Jurisdiction UCC which we understand to be in effect
in such Foreign Jurisdiction on May 6, 1998 (as those provisions are available
through WESTLAW), and our opinions in paragraph 15, to the extent such opinions
involve conclusions as to perfection of such security interests under the laws
of the Foreign Jurisdictions, are based solely on such review. We also note that
Argos is a Texas corporation and we have, in rendering this opinion, with your
consent, assumed for the purposes hereof that the laws of the State of Texas are
identical in all respects to the laws of the State of New York.

         H. We express no opinion (i) to the extent that the security interests
of the Collateral Agent for the benefit of the Banks may be affected by Section
552 of the United States Bankruptcy Code (under which a bankruptcy court has
discretion as to the extent to which post-petition proceeds may be subject to a
lien arising from a security agreement entered into by the debtor before the
<PAGE>   194
                                                                       EXHIBIT F
                                                                          Page 9

commencement of the case) and (ii) as to the applicability of Section 548 of the
United States Bankruptcy Code or of any provisions of any state fraudulent
conveyance or comparable foreign statute to the transactions contemplated by the
Credit Documents.

         I. We express no opinion as to (i) the enforceability of any provisions
contained in the Credit Documents that purport to establish (or may be construed
to establish) evidentiary standards, (ii) the enforceability of any provisions
contained in the Credit Documents that constitute waivers which are prohibited
under the New York UCC or any Foreign Jurisdiction UCC prior to default or (iii)
the enforceability of forum selection clauses in the Federal courts.
<PAGE>   195
                                                                       EXHIBIT F
                                                                         Page 10


                  This opinion letter is solely for your benefit and for the
benefit of each Bank from time to time party to the Credit Agreement and for the
benefit of their participants and assigns. This opinion may not be relied upon
for any other purpose, or relied upon by any other person, firm or corporation
for any purpose, without our prior written consent.

                         Very truly yours,
                         /s/ Reboul, MacMurray, Hewitt, Maynard & Kristol
<PAGE>   196
                                                                       EXHIBIT F
                                                                         PAGE 11


                                    EXHIBIT I
                              FINANCING STATEMENTS



On file with White & Case LLP.
<PAGE>   197
                                                                       EXHIBIT F
                                                                         PAGE 12


                                   EXHIBIT II
                                 FILING OFFICES

State                                                         County
- -----                                                         ------

GOLDEN SKY SYSTEMS, INC.
- ------------------------

COLORADO                                                      Eagle
Secretary of State

IOWA                                                          Marshall
Secretary of State

KANSAS                                                        Montgomery
Secretary of State                                            Neosho
                                                              Crawford
                                                              Cherokee
                                                              Labette

MICHIGAN                                                      Calhoun
Secretary of State                                            Grand Traverse
                                                              Wexford

MINNESOTA                                                     Blue Earth
Secretary of State                                            Brown
                                                              Douglas
                                                              Houston
                                                              Winona

MISSOURI                                                      Clay
Secretary of State                                            Jackson
                                                              Ray


MONTANA                                                       Hill
Secretary of State                                            Missoula
                                                              Valley
                                                              Yellowstone

NEVADA                                                        Clark
Secretary of State
<PAGE>   198
                                                                       EXHIBIT F
                                                                         PAGE 13


NORTH DAKOTA                                                  Cass
Secretary of State

OKLAHOMA                                                      Pittsburg
Secretary of State                                            Rogers
                                                              Washington

OREGON                                                        Klamath
Secretary of State                                            Marion

TEXAS                                                         Collin
Secretary of State                                            Dallas
                                                              Denton
                                                              Guadalupe
                                                              Lubbock
                                                              Polk
                                                              Tarrant
                                                              Shelby
                                                              Victoria

WISCONSIN                                                     Dunn
Secretary of State


ARGOS SUPPORT SERVICES COMPANY
- ------------------------------


FLORIDA                                                       Charlotte
Secretary of State                                            Lee


TEXAS                                                         Collin
Secretary of State                                            Denton
                                                              Tarrant

UTAH                                                          Summit
Secretary of State
<PAGE>   199
                                                                       EXHIBIT F
                                                                         PAGE 14


                                   EXHIBIT III
                             FOREIGN QUALIFICATIONS


Loan Parties                                                  States
- ------------                                                  ------

Holdings                                                      Missouri

Borrower                                                      California
                                                              Colorado
                                                              Iowa
                                                              Kansas
                                                              Michigan
                                                              Minnesota
                                                              Missouri
                                                              Montana
                                                              Nevada
                                                              North Dakota
                                                              Oklahoma
                                                              Oregon
                                                              Texas
                                                              Utah
                                                              Wisconsin

Argos                                                         Florida
<PAGE>   200
                                                                       EXHIBIT G


                             [NAME OF CREDIT PARTY]

                              Officers' Certificate

              I, the undersigned, [President/Chief Financial Officer/General
Counsel/Vice President] of [Name of Credit Party], a corporation organized and
existing under the laws of the State of              (the "Company"), do hereby
certify on behalf of the Company that:

              1.   This Certificate is furnished pursuant to the Amended and
Restated Credit Agreement, dated as of July 7, 1997, amended and restated as of
May , 1998, among Golden Sky Holdings, Inc., a corporation organized and
existing under the laws of the State of Delaware, Golden Sky Systems, Inc., a
corporation organized and existing under the laws of the State of Delaware, the
financial institutions from time to time party thereto, Banque Paribas, as
Syndication Agent, Fleet National Bank, as Administrative Agent, and General
Electric Capital Corporation, as Documentation Agent (such Credit Agreement, as
in effect on the date of this Certificate, being herein called the "Credit
Agreement"). Unless otherwise defined herein, capitalized terms used in this
Certificate shall have the meanings set forth in the Credit Agreement.

              2.   The following named individuals are elected officers of the
Company, each holds the office of the Company set forth opposite his name and
has held such office as of the date of the signing of any Credit Document. The
signature written opposite the name and title of each such officer is his
correct signature.

<TABLE>
<CAPTION>
                 Name(4)             Office              Signature
                 -------             ------              ---------
<S>                                  <C>                 <C>


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

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

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

                 -----------------   ----------------    -------------------
</TABLE>

   
                   a.   Attached hereto as Exhibit A* is a certified copy of the
Certificate of Incorporation of the Company as filed in the Office of the
Secretary of State of the State of its incorporation, together with all
amendments thereto adopted through the date hereof.
    

   
              3.   Attached hereto as Exhibit B* is a true and correct copy of
the By-Laws of the Company, together with all amendments thereto, which were
duly adopted and are in full force and effect on the date hereof.
    

- ------------------------
         (4)      Include name, office and signature of each officer who will
         sign any Credit Document, including the officer who will sign the 
         certification at the end of this Certificate.

   
         *        Referenced exhibit not included as part of Exhibit G.
    
<PAGE>   201
                                                                       EXHIBIT G
                                                                          PAGE 2



   
              4.  Attached hereto as Exhibit C* is a true and correct copy of
resolutions which were duly adopted on          , 19 [by unanimous consent of
the Board of Directors of the Company] [by a meeting of the Board of Directors
of the Company at which a quorum was present and acting throughout], and said
resolutions have not been rescinded, amended or modified. Except as attached
hereto as Exhibit C, no resolutions have been adopted by the Board of Directors
of the Company which deal with the execution, delivery or performance of any of
the Documents to which the Company is party.
    

              5.  To the extent that such documents previously delivered to the
Banks in connection with Sect on 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit D are true and correct copies of all Employee Benefit
Plans of the Company and its Subsidiaries.

              6.  To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit E are true and correct copies of all Shareholders'
Agreements of the Company and its Subsidiaries.

              7.  To the extent that such documents previously delivered to the
Banks in connection with Sect on 4.05 of the Existing Credit Agreement have
undergone Material changes or that such documents have not been so delivered,
attached hereto as Exhibit F are true and correct copies of all Management
Agreements of the Company and its Subsidiaries.

              8.  To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit G are true and correct copies of all Employment
Agreements of the Company and its Subsidiaries.

              9.  To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit H are true and correct copies of all Collective
Bargaining Agreements of the Company and its Subsidiaries.

              10. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents not been so delivered,
attached hereto as Exhibit I are true and correct copies of all Debt Agreements
of the Company and its Subsidiaries.

              11. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit J are true and correct copies of all Tax Sharing
Agreements entered into by the Company or any of its Subsidiaries.

   
*   Referenced exhibit not included as part of Exhibit G.
    
<PAGE>   202
                                                                       EXHIBIT G
                                                                          PAGE 3


              12. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit K are true and correct copies of all Material
Contracts of the Company or any of its Subsidiaries.

              13. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit L are true and correct copies of all Affiliate
Contracts of the Company or any of its Subsidiaries.

              14. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such document, have not been so delivered,
attached hereto as Exhibit M are true and correct copies of the Projections.

              15. To the extent that such documents previously delivered to the
Banks in connection with Section 4.05 of the Existing Credit Agreement have
undergone material changes or that such documents have not been so delivered,
attached hereto as Exhibit N are true and correct copies of the Stock Purchase
Documents.

              16. On the date hereof, all of the conditions in Sections 4.06,
4.07 (iii) and (iv) (with respect to Section 4.07 (iii)), 4.11, 4.12, 4.13,
4.14, 4.16, 4.19, 5.01, 5.03 (if a Permitted Acquisition will be Consummated on
the Restatement Effective Date) and 5.04 have been satisfied (except to the
extent as to the acceptability of any items to the Agents and/or the Required
Banks or as to whether the Agents and/or the Required Banks are satisfied with
any of the matters described in said Sections).](5)

              6. [18.] On the date hereof, the representations and warranties
contained in the Credit Agreement and in the other Credit Documents [with
respect to the Company](6) are true and correct in all material respects with
the same effect as though such representations and warranties had been made on
the date hereof, both before and after giving effect to each Credit Event to
occur on the date hereof and the application of the proceeds thereof.

              7. [19.] On the date hereof, no Default or Event of Default has
occurred and is continuing or would result from any Credit Event as contemplated
in the Credit agreement on the date hereof or from the application of the
proceeds thereof.


- ------------------------
         (5)      Insert items 6-17 only in the certificate of the Borrower.
         (6)      To be inserted in the certificate of Credit Parties other than
         Holdings and the Borrower.
<PAGE>   203
                                                                       EXHIBIT G
                                                                          PAGE 4


              8. [20.] There is no proceeding for the dissolution or liquidation
of the Company or threatening its existence.

              IN WITNESS WHEREOF, I have hereunto set my hand this    day       
of May, 1998.

                                  [NAME OF CREDIT PARTY]



                                  By:_____________________________________
                                     Name:
                                     Title:
<PAGE>   204
                                                                       EXHIBIT G
                                                                          PAGE 5


I, the undersigned, [Secretary/Assistant Secretary] of the Company, do hereby
certify that:

              1. [Name of Person making above certifications] is the duly 
elected and qualified [President/Chief Financial Officer/General Counsel/Vice
President] of the Company and the signature above is his genuine signature.

              2. certifications made by [name of Person making above
certifications] in Items 2, 3, 4, 5, 6 [18], 7 [19] and 8 [20] above are true
and correct.

              IN WITNESS WHEREOF, I have hereunto set my hand this           day
of May, 1998.

                                  [NAME OF CREDIT PARTY]



                                  By:_____________________________________
                                     Name:
                                     Title:
<PAGE>   205
                                                                       EXHIBIT H
                                                         [CONFORMED AS EXECUTED]


                              SUBSIDIARIES GUARANTY


              SUBSIDIARIES GUARANTY, dated as of May 8, 1998, made by each of
the undersigned (each a "Guarantor" and collectively, the "Guarantors"). Except
as otherwise defined herein, terms used herein and defined in the Credit
Agreement (as hereinafter defined) shall be used herein as so defined.

                                   WITNESSETH:


              WHEREAS, Golden Sky Holdings, Inc., a Delaware corporation, Golden
Sky Systems, Inc., a Delaware corporation (the "Borrower"), various financial
institutions from time to time party thereto (the "Banks"), Banque Paribas, as
Syndication Agent ("Banque Paribas"), Fleet National Bank, as Administrative
Agent ("Fleet", and together with Banque Paribas, the "Agents"), and General
Electric Capital Corporation, as Documentation Agent, have entered into an
Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
restated as of May 8, 1998 (as modified, supplemented or amended from time to
time, the "Credit Agreement"), providing for the making of Loans to the Borrower
(the Banks and the Agents being herein called the "Bank Creditors");

              WHEREAS, the Borrower may from time to time enter into, or
guaranty, one or more (i) interest rate protection agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements), (ii) foreign exchange contracts, currency swap agreements or other
similar agreements or arrangements designed to protect against the fluctuations
in currency values and/or (iii) other types of hedging agreements from time to
time (collectively, the "Interest Rate Protection or Other Hedging Agreements"),
with the Agents in their individual capacities, any Bank or a syndicate of
financial institutions organized by the Agents or any such Bank or an affiliate
of the Agents or such Bank (even if neither of the Agents or any such Bank
ceases to be a Bank under the Credit Agreement for any reason) and any such
institution that participates in such Interest Rate Protection or Other Hedging
Agreements and their subsequent assigns (collectively, the "Other Creditors"
and, together with the Bank Creditors, are herein called the "Creditors");

              WHEREAS, each Guarantor is a direct or indirect Subsidiary of the
Borrower;

              WHEREAS, it is a condition to the making of Loans and the issuance
of, and participation in, Letters of Credit under the Credit Agreement and to
the Other Creditors entering into the Interest Rate Protection or Other Hedging
Agreements that each Guarantor shall have executed and delivered this Guaranty;
and


                                       1
<PAGE>   206
                                                                       EXHIBIT H
                                                                          PAGE 2


              NOW, THEREFORE, in consideration of the foregoing and other
benefits accruing to each Guarantor, the receipt and sufficiency of which are
hereby acknowledged, each Guarantor hereby makes the following representations
and warranties to the Creditors and hereby covenants and agrees with each
Creditor as follows:

              1. Each Guarantor irrevocably and unconditionally, and jointly and
severally, guarantees (i) the full and prompt payment when due (whether at the
stated maturity, by acceleration or otherwise) of (x) the principal of and
interest on the Notes issued by, and Loans made to, the Borrower under the
Credit Agreement and all reimbursement obligations and Unpaid Drawings with
respect to Letters of Credit issued under the Credit Agreement, and (y) all
other obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due), indebtedness and
liabilities (including, without limitation, indemnities, Fees and interest
thereon) of the Borrower owing to the Bank Creditors now existing or hereafter
incurred under, arising out of or in connection with the Credit Agreement and
the other Credit Documents and the due performance and compliance by the
Borrower with the terms, conditions and agreements contained in the Credit
Documents (all such principal, interest, obligations and liabilities under this
clause (i), except to the extent consisting of obligations or liabilities with
respect to Interest Rate Protection or Other Hedging Agreements, being herein
collectively referred to as the "Credit Document Obligations") and (ii) the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of all obligations (including obligations, which, but for the
automatic stay under Section 362(a) of the Bankruptcy Code, would become due),
indebtedness and liabilities (including, without limitation, indemnities, fees
and interest thereon) owing by the Borrower to the Other Creditors under any
Interest Rate Protection or Other Hedging Agreement, whether such Interest Rate
Protection or Other Hedging Agreement is now in existence or hereafter arising,
and the due performance and compliance by the Borrower with the terms,
conditions and agreements contained therein (all such obligations and
indebtedness being herein collectively called the "Interest Rate Protection
Obligations"; and together with the Credit Document Obligations are herein
collectively called the "Guaranteed Obligations"). Subject to Section 21 of this
Agreement, each Guarantor understands, agrees and confirms that the Creditors
may enforce this Guaranty up to the full amount of the Guaranteed Obligations
against such Guarantor without proceeding against the Borrower, against any
security for the Guaranteed Obligations, against any other Guarantor, or against
any other guarantor under any other guaranty covering the Guaranteed
Obligations. This Guaranty shall constitute a guaranty of payment and not of
collection. All payments by each Guarantor under this Guaranty shall be made on
the same basis as payments by the Borrower under Sections 3.03 and 3.04 of the
Credit Agreement.

              2. Additionally, each Guarantor, jointly and severally,
unconditionally and irrevocably, guarantees the payment of any and all
Guaranteed Obligations of the Borrower to the Creditors whether or not due or
payable by the Borrower upon the occurrence in respect of the Borrower of any of
the events specified in Section 9.05 of the Credit Agreement, and
unconditionally 


                                       2
<PAGE>   207
                                                                       EXHIBIT H
                                                                          PAGE 3


and irrevocably, jointly and severally, promises to pay such Guaranteed
Obligations to the Creditors, or order, on demand, in lawful money of the United
States.

              3. The liability of each Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrower whether executed by such Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of such Guarantor hereunder
shall not be affected or impaired by: (i) any direction as to application of
payment by the Borrower; (ii) any other continuing or other guaranty,
undertaking or maximum liability of a guarantor or of any other party as to the
indebtedness of the Borrower; (iii) any payment on or in reduction of any such
other guaranty or undertaking; (iv) any dissolution, termination or increase,
decrease or change in personnel by the Borrower; or (v) any payment made to any
Creditor on the indebtedness which any Creditor repays the Borrower pursuant to
court order in an bankruptcy, reorganization, arrangement, moratorium or other
debtor relief proceeding, and each Guarantor waives any right to the deferral or
modification of its obligations hereunder by reason of any such proceeding.

              4. The obligations of each Guarantor hereunder are independent of
the obligations of any other Guarantor, any other guarantor or the Borrower, and
a separate action or actions may be brought and prosecuted against each
Guarantor whether or not action is brought against any other Guarantor, any
other guarantor or the Borrower, and whether or not any other Guarantor, any
other guarantor or the Borrower be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to each Guarantor.

              5. Each Guarantor hereby waives notice of acceptance of this
Guaranty and notice of any liability to which it may apply, and waives
promptness, diligence, presentment, demand of payment, protest, notice of
dishonor or nonpayment of any such liabilities, suit or taking of other action
taken by the Agents or any other Creditors against, and any other notice to, any
party liable thereon (including such Guarantor or any other Guarantor or
guarantor).

              6. Any Creditor may at any time and from time to time without the
consent of, or notice to, any Guarantor, without incurring responsibility to any
"Guarantor, without impairing or releasing the obligations of any Guarantor
hereunder, upon or without any terms or conditions and in whole or in part (and
each Guarantor hereby irrevocably waives any defenses it may now or hereafter
have in any way relating to any and all of the following):

              (i) change the manner, place or terms of payment of, and/or change
or extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any 


                                       3
<PAGE>   208
                                                                       EXHIBIT H
                                                                          PAGE 4


liability incurred directly or indirectly in respect thereof, and the guaranty
herein made shall apply to the Guaranteed Obligations as so changed, extended,
renewed or altered;

              (ii) sell, exchange, release, surrender, realize upon or otherwise
deal with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing the Guaranteed Obligations
or any liabilities (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, and/or any offset thereagainst;

              (iii) exercise or refrain from exercising any rights against the
Borrower, any Guarantor or others or otherwise act or refrain from acting;

              (iv) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate the
payment of all or any part thereof to the payment of any liability (whether due
or not) of the Borrower to creditors of the Borrower;

              (v) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Creditors regardless of what
liabilities of the Borrower remain unpaid;

              (vi) consent to or waive any breach of, or any act, omission or
default under, any of the Interest Rate Protection or Other Hedging Agreements
or any of the Credit Documents or any of the instruments or agreements referred
to therein, or otherwise amend, modify or supplement any of the Interest Rate
Protection or Other Hedging Agreements or any of the Credit Documents or any of
such other instruments or agreements; and/or

              (viii) act or fail to act in any manner permitted under this
guaranty which may deprive any Guarantor of its right to subrogation against the
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.

              7. No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations or of any security therefor shall affect,
impair or be a defense to this Guaranty, and this Guaranty shall be primary,
absolute and unconditional notwithstanding the occurrence of any event or the
existence of any other circumstances which might constitute a legal or equitable
discharge of a surety or guarantor except payment in full of the Guaranteed
Obligations.

              8. This Guaranty is a continuing one and all liabilities to which
it applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder and no course of
dealing between any Guarantor and any Creditor shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other 


                                       4
<PAGE>   209
                                                                       EXHIBIT H
                                                                          PAGE 5


or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein expressly specified are cumulative and
not exclusive of any rights or remedies which any Creditor would otherwise have.
No notice to or demand on any Guarantor in any case shall entitle such Guarantor
to any other further notice (in demand in similar or other circumstances or
constitute a waiver of the rights of any Creditor to any other or further action
in any circumstances without notice or demand. It is not necessary for any
Creditor to inquire into the capacity or powers of the Borrower or any of its
Subsidiaries or the officers, directors, partners or agents acting or purporting
to act on its behalf and any indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.

              9.   Any indebtedness of the Borrower now or hereafter held by any
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Creditors; and such indebtedness of the Borrower to any Guarantor, if the
Administrative Agent, after an Event of Default has occurred, so requests, shall
be collected, enforced and received by, such Guarantor as trustee for the
Creditors and be paid over to the Creditors on account of the indebtedness of
the Borrower to the Creditors, but without affecting or impairing in any manner
the liability of such Guarantor under the other provisions of this Guaranty.
Prior to the transfer by such Guarantor of any note or negotiable instrument
evidencing any indebtedness of the Borrower to such Guarantor, such Guarantor
shall mark such note or negotiable instrument with a legend that the same is
subject to this subordination. Without limiting the generality of the foregoing,
each Guarantor hereby agrees with the Creditors that it will not exercise any
right of subrogation which it may at any time otherwise have as a result of this
Guaranty (whether contractual, under Section 509 of the Bankruptcy Code, or
otherwise) until all Guaranteed Obligations have been irrevocably paid in full
in cash.

              10.  (a) Each Guarantor waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Creditors to
(i) proceed against the Borrower, any other Guarantor, any other guarantor or
any other party, (ii) proceed against or exhaust any security held from the
Borrower, any other Guarantor, any other guarantor or any other party or (iii)
pursue any other remedy in the Creditors' power whatsoever. Each Guarantor
waives any defense based on or arising out of any defense of the Borrower, any
other Guarantor, any other guarantor or any other party other than payment in
full of the Guaranteed Obligations, including, without limitation, any defense
based on or arising out of the disability of the Borrower, any other Guarantor,
any other guarantor or any other party, or the unenforceability of the
Guaranteed Obligations or any part thereof from any cause, or the cessation from
any cause of the liability of the Borrower other than payment in full of the
Guaranteed Obligations. The Creditors may, at their election, foreclose on any
security held by the Agents, the Collateral Agent or the other Creditors by one
or more judicial or nonjudicial sales, whether or not every aspect of any such
sale is commercially reasonable (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Creditors may have
against the Borrower or any other party, or any security, without affecting or
impairing in any way the liability of any Guarantor hereunder except to the
extent the Guaranteed Obligations have been paid in full. Each Guarantor waives
any defense arising out of any such election by the 


                                       5
<PAGE>   210
                                                                       EXHIBIT H
                                                                          PAGE 6


Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Guarantor
against the Borrower or any other party or any security.

                   (b) Each Guarantor waives all presentments, demands for
performance, protests and notice, including without limitation notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Each Guarantor assumes all responsibility for being and
keeping itself informed of the Borrower's financial condition and assets, and of
all other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which such Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise any Guarantor of information known them regarding such circumstances
or risks.

              11. In order to induce the Banks to make Loans to the Borrower,
and to issue, and participate in, Letters of Credit for the account of the
Borrower pursuant to the Credit Agreement and to induce the Other Creditors to
execute, deliver and perform the Interest Rate Protection and Other Hedging
Agreements, each Guarantor hereby represents, warrants and covenants that:

              (i) Such Guarantor and each of its Subsidiaries (x) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation, (y) has the corporate power and authority
to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (z) is duly qualified and is
authorized to do business and is in good standing in each jurisdiction where the
ownership, leasing or operation of property or the conduct of its business
requires such qualification except for failures to be so qualified which, in the
aggregate, would not have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of such Guarantor or of such
Guarantor and its Subsidiaries taken as a whole.

              (ii) Such Guarantor has the corporate power to execute, deliver
and perform the terms and provisions of this Guaranty and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of this Guaranty. Such Guarantor has duly executed and delivered this
Guaranty, and this Guaranty constitutes its legal valid and binding obligation
enforceable in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limiting creditors' rights generally or by general equitable
principles (regardless of whether the issue of enforceability is considered in a
proceeding in equity or at law).

              (iii) Neither the execution, delivery or performance by such
Guarantor of this Guaranty, nor compliance by it with the terms and provisions
hereof, (x) will contravene any provision of any law, statute, rule or
regulation or any order, writ, injunction or decree of any court or governmental
instrumentality, (y) will conflict with or result in any breach of any of the
terms, 


                                       6
<PAGE>   211
                                                                       EXHIBIT H
                                                                          PAGE 7


covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien (except pursuant to the Security Documents) upon any of the property or
assets of such Guarantor pursuant to the terms of any indenture, mortgage, deed
of trust, credit agreement or loan agreement, or any other agreement, contract
or instrument to which such Guarantor is a party or by which it or any of its
property or assets is bound or to which it may be subject or (z) will violate
any provision of the Certificate of Incorporation or By-Laws (or similar
organizational documents) of such Guarantor or any of its Subsidiaries.

              (iv) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except as have been
obtained or made prior to the Initial Borrowing Date and are in full force and
effect), or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (x) the execution, delivery and performance of this Guaranty or (y) the
legality, validity, binding effect or enforceability of this Guaranty.

              (v) There are no actions, suits or proceedings pending or, to the
best knowledge of any Guarantor, threatened (x) with respect to this Guaranty,
(y) with respect to any Indebtedness of the Guarantor or any of its Subsidiaries
or (z) that are reasonably likely to materially and adversely affect the
performance, business, assets, nature of assets, liabilities, operations,
properties, condition (financial or otherwise) or prospects of such Guarantor
and its Subsidiaries taken as a whole.

              (vi) On the date hereof and after giving effect to the incurrence
by such Guarantor of the Contingent Obligations evidenced by this Guaranty, (x)
the assets of such Guarantor, at a fair valuation, will exceed its debts, (y)
the Guarantor will have sufficient capital to conduct its business and (z) such
Guarantor will not have incurred debts, and does not intend to incur debts,
beyond its ability to pay such debts as they mature. For purposes of this clause
(vi), "debt" means any liability on a claim, and "claim" means (x) right to
payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured; or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a payment, whether or not
such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured, or unsecured.

              12. Each Guarantor covenants and agrees that on and after the date
hereof and until the Total Commitment and all Letters of Credit have terminated
and all Guaranteed Obligations have been paid in full, such Guarantor shall
take, or will refrain from taking, as the case may be, all actions that are
necessary to be taken or not taken so that no violation of any provision,
covenant or agreement contained in Section 7 or 8 of the Credit Agreement, and
so that no Default or Event of Default, is caused by the actions of such
Guarantor or any of its Subsidiaries.


                                       7
<PAGE>   212
                                                                       EXHIBIT H
                                                                          PAGE 8


              13. This Guaranty shall be binding upon each Guarantor and its
successors and assigns and shall inure to the benefit of the Creditors and their
successors and assigns.

              14. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated in any manner whatsoever unless in writing duly
signed by the Administrative Agent (with, except as provided in Section 12.12 of
the Credit Agreement, the consent of the Required Banks) and each Guarantor
directly affected thereby it being understood that the release or addition of
any Guarantor hereunder shall not constitute a change or waiver affecting any
Guarantor other than the Guarantor so released or added); provided however, that
any change, waiver, modification or variance affecting the rights and benefits
of a single Class (as defined below) of Creditors (and not all Creditors in a
like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class of Creditors. For the purpose of this
Guaranty, the term "Class" shall mean each class of Creditors, i.e., whether (x)
the Bank Creditors as holders of the Credit Document Obligations or (y) the
Creditors as holders of the Interest Rate Protection Obligations. For the
purpose of this Guaranty, the term "Requisite Creditors" of any Class shall mean
each of (x) with respect to the Credit Document Obligations, the Required Banks
and (y) with respect to the Interest Rate Protection Obligations, the holders of
at least a majority of all obligations outstanding from time to time under the
Interest Rate Protection or Other Hedging Agreements.

              15. Each Guarantor acknowledges that an executed (or conformed)
copy of the Credit Agreement has been made available to its principal executive
officers and such officers are familiar with its contents.

              16. In addition to any rights now or hereafter granted under
applicable law (including, without limitation, Section 151 of the New York
Debtor and Creditor Law) and not by way of limitation of any such rights, upon
the occurrence and during the continuance of an Event of Default (such term to
mean and include any "Event of Default" under, and as defined in, the Credit
Agreement or any payment default (after giving effect to any grace period
applicable thereto) under any Interest Rate Protection or Other Hedging
Agreement and shall in any event, include without limitation any payment default
on any of the Guaranteed Obligations after giving effect to any grace period
applicable thereto), each Creditor is hereby authorized at any time or from time
to time, without presentment, demand, protest or other notice of any kind to any
Guarantor or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other indebtedness at any time held or owing by such Creditor
(including, without limitation, by branches and agencies of such Creditor
wherever located) to or for the credit or the account of such Guarantor, against
and on account of the obligations and liabilities of such Guarantor to such
Creditor under this Guaranty, irrespective of whether or not such Creditor shall
have made any demand hereunder and although said obligations, liabilities,
deposits or claims, or any of them, shall be contingent or unmatured.


                                       8
<PAGE>   213
                                                                       EXHIBIT H
                                                                          PAGE 9


              17. All notices, requests, demands or other communications
pursuant hereto shall be deemed to have been duly given or made when delivered
to the Person to which such notice, request, demand or other communication is
required or permitted to be given or made under this Guarantor, addressed to
such party at (i) in the case of any Bank Creditor, as provided in the Credit
Agreement, (ii) in the case of any Guarantor, at its address set forth on its
signature page below, and (iii) in the case of any Other Creditor, as provided
in the Security Agreement; or in any case at such other address as any of the
Persons listed above may hereafter notify the others in writing.

              18. If claim is ever made upon any Creditor for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (b) any settlement or compromise of any such claim effected by such payee
with any such claimant (including the Borrower), then and in such event each
Guarantor agrees that any such judgment, decree, order, settlement or compromise
shall be binding upon it, notwithstanding any revocation hereof or the
cancellation of any Note or any Interest Rate Protection or Other Hedging
Agreement or other instrument evidencing any liability of the Borrower, and such
Guarantor shall be and remain liable to the aforesaid payees hereunder for the
amount so repaid or recovered to the same extent as if such amount had never
originally been received by any such payee.

              19. Any acknowledgment or new promise, whether by payment of
principal or interest or otherwise and whether by the Borrower or other Persons
liable, in respect of the Guaranteed Obligations (including any Guarantor), with
respect to any of the Guaranteed Obligations shall, if the statute of
limitations in favor of any Guarantor against any Creditor shall have commenced
to run, toll the running of such statute of limitations, and if' the period of
such statute of limitations shall have expired, prevent the operation of such
statute of limitations.

              20. (A) THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS GUARANTY, EACH GUARANTOR HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO SUCH ACTIONS OR
PROCEEDINGS. EACH GUARANTOR HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS
CORPORATION SERVICE COMPANY WITH ITS OFFICES ON THE DATE HEREOF AT 80 STATE
STREET, ALBANY, NEW YORK, 12207, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE, ACCEPT AND 


                                       9
<PAGE>   214
                                                                       EXHIBIT H
                                                                         PAGE 10


ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF IT'S PROPERTY, SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN
ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND
AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH GUARANTOR AGREES TO
DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT ON THE TERMS AND FOR THE PURPOSES
OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATION AGENT FOR THE BANKS UNDER
THIS GUARANTY. EACH GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO EACH GUARANTOR AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE
BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF ANY OF THE CREDITORS TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANY GUARANTOR IN ANY OTHER JURISDICTION.

              (B) EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY
OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND
HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH
COURT THAT SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.

              21. (a) Each Guarantor, in addition to the subrogation rights it
shall have against the Borrower under applicable law as a result of any payment
it makes hereunder, shall also have a right of Contribution against all other
Guarantors in respect of any such payment pro rata among same based on their
respective net fair value as enterprises, provided any such right of
contribution shall be subject and subordinate to the prior payment in full of
the Guaranteed Obligations (and such Guarantor's obligations in respect
thereof). It is the desire and intent of each Guarantor and the Creditors that
this Guaranty shall be enforced against each Guarantor to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought.

              (b) If, however, and to the extent, that the obligations of any
Guarantor under this Guaranty would, in the absence of this sentence, be
adjudicated to be invalid or unenforceable for any reason (including, without
limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers), then the amount of the Guaranteed
Obligations of such Guarantor (but not the Guaranteed Obligations of any other
Guarantor unless such other Guarantor or Guarantors are individually subject to
the circumstances covered by this Section 21) shall be 


                                       10
<PAGE>   215
                                                                       EXHIBIT H
                                                                         PAGE 11


deemed to be reduced ab initio to that maximum amount which would be permissible
under applicable law without causing such Guarantor's obligations hereunder to
be so invalidated.

              22. The Creditors agree that this Guaranty may be enforced only by
the action of the Administrative Agent or the Collateral Agent, in each case
acting upon the instructions of the Required Banks land that no Creditor shall
have any right individually to seek to enforce or to enforce this Guaranty or to
realize upon the security to be granted by the Security Documents, it being
understood and agreed that such rights and remedies may be exercised by the
Administrative Agent or the Collateral Agent for the benefit of the Creditors
upon the terms of this Guaranty and the Security Documents.

              23. This Guaranty may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Administrative
Agent.

              24. In the event that all of the capital stock of one or more
Guarantors is sold in connection with a sale permitted by Section 8.02 of the
Credit Agreement and the proceeds of such sale or sales are applied in
accordance with the provisions of Section 3.02 of the Credit Agreement, to the
extent applicable, each Guarantor (x) all of the capital stock of which is so
sold or (y) which is a Subsidiary of a Guarantor all of the capital stock of
which is so sold, shall be released from this Guaranty and this Guaranty shall,
as to each Guaranty or Guarantors, terminate, and have no further force or
effect.

              25. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS GUARANTY, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.

              26. All payments made by any Guarantor hereunder will be made
without setoff, counterclaim or other defense.

              27. It is understood and agreed that any Subsidiary of the
Borrower that is required to execute, a counterpart of this Guaranty after the
date hereof pursuant to the Credit Agreement shall automatically become a
Guarantor hereunder by executing counterpart hereof and delivering the same to
the Administrative Agent.


                                  *   *   *



                                       11
<PAGE>   216
                                                                       EXHIBIT H
                                                                         PAGE 12


              IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.

                                       ARGOS SUPPORT SERVICES COMPANY


                                       By:  /s/ Rodney A. Weary
                                            ------------------------------
                                            Name:   Rodney A. Weary
                                            Title:  President


FLEET NATIONAL BANK,
  as Administrative Agent


By:  /s/ Christopher A. Swindell
     ---------------------------------------
     Name:   Christopher A. Swindell
     Title:  Vice President


By:  /s/ Vincent J. Rivers
     ---------------------------------------
     Name:   Vincent J. Rivers
     Title:  Assistant Vice President
<PAGE>   217
                                                                       EXHIBIT I

                                                         [CONFORMED AS EXECUTED]


                            HOLDINGS PLEDGE AGREEMENT


              HOLDINGS PLEDGE AGREEMENT, dated as of May 8, 1998 (as amended,
modified or supplemented from time to time, the "Agreement"), made by Golden Sky
Holdings, Inc. (the "Pledgor"), in favor of FLEET NATIONAL BANK, as
Administrative Agent (the "Pledgee"), for the benefit of (x) the Banks (as
defined below) and the Agents (as defined below) under, and any other lender
from time to time party to, the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, hereinafter being referred to
as the "Bank Creditors") and (y) if the Agents in their individual capacities,
any Bank or a syndicate of financial institutions organized by the Agents or any
such Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower (as defined below) or any of its Subsidiaries, the Agents, any such
Bank or an affiliate of the Agents or such Bank (even if either of the Agents or
any such Bank ceases to be a Bank under the Credit Agreement for any reason) and
any such institution that participates in such Interest Rate Protection or Other
Hedging Agreements and their subsequent assigns (collectively, the "Other
Creditors" and, together with the Bank Creditors, are herein called the "Secure
Creditors"). Except as otherwise defined herein, terms used herein and defined
in the Credit Agreement shall be used herein as therein defined.

                                   WITNESSETH:

              WHEREAS, the Pledgor, Golden Sky Systems, Inc. (the "Borrower"),
the financial institutions from time to time party thereto (the "Banks"), Banque
Paribas, as Syndication Agent ("Banque Paribas"), Fleet National Bank, as
Administrative Agent (Fleet National Bank, to ether with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent,
have entered into an Amended and Restated Credit Agreement, dated as of July 7.
1997, amended and restated May 8, 1998, providing for the making of Loans and
the issuance of, and participation in, Letters of Credit as contemplated therein
(as used herein , the term "Credit Agreement" means the Amended and Restated
Credit Agreement described above in this paragraph, as the same may be amended,
modified, extended, renewed, replaced, restated, supplemented, restructured or
refinanced from time to time, and including any agreement extending the maturity
of, refinancing or restructuring (including, but not limited to, the inclusion
of additional borrowers thereunder that are Subsidiaries of the Borrower and
whose obligations are guaranteed by the Borrower thereunder or any increase in
the amount borrowed) all or any portion of, the Indebtedness under such
agreement or any 


                                        1
<PAGE>   218
                                                                     EXHIBIT I-1
                                                                          PAGE 2


successor agreements; provided, that with respect to any agreement providing for
the refinancing of Indebtedness under the Credit Agreement, such agreement shall
only be treated as, or as part of, the Credit Agreement hereunder if (i) either
(A) all obligations under the Credit Agreement being refinanced shall be paid in
full at the time of such refinancing, and all commitments and letters of credit
issued pursuant to the refinanced Credit Agreement shall have terminated in
accordance with their terms or (B) the Required Banks shall have consented in
writing to the refinancing Indebtedness being treated, along with their
Indebtedness, as Indebtedness pursuant to the Credit Agreement, (ii) the
refinancing Indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding,)
and (iii) a notice to the effect that the refinancing Indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the Borrower
to the Collateral Agent);

              WHEREAS, the Borrower desires to incur Loans and to have Letters
of Credit issued for its account pursuant to the Credit Agreement;

              WHEREAS, the Borrower may at any time and from time to time enter
into one or more Interest Rate Protection or Other Hedging Agreements with one
or more Other Creditors;

              WHEREAS, Holdings has executed the Credit Agreement to perform
certain obligations in connection with the incurrence of Loans by the Borrower
thereunder and to guarantee all of the obligations of the Borrower thereunder;

              WHEREAS, it is a condition to each of the above-described
extensions of credit to the Borrower that the Pledgor shall have executed and
delivered this Agreement to the Pledgee; and

              WHEREAS, the Borrower and the Pledgor will obtain benefits from
the incurrence of the Term Loan and Revolving Loans by, and the issuance of
Letters of Credit to, the Borrower under the Credit Agreement and the entering
into of the Interest Rate Protection or Other Hedging Agreements and,
accordingly, desires to execute this Agreement in order to satisfy the
conditions described in the preceding paragraph and to secure its obligations
under the Credit Agreement;

              NOW, THEREFORE, in consideration of the benefits accruing to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:

              1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor
for the benefit of the Secured Creditors to secure:

              (i) the full and prompt payment when due (whether at the stated
         maturity, by acceleration or otherwise) of all obligations and
         indebtedness (including, without limitation, 


                                       2
<PAGE>   219
                                                                     EXHIBIT I-1
                                                                          PAGE 3


         indemnitees, fees and interest thereon) of the Pledgor and the Borrower
         owing to the Bank Creditors, now existing or hereafter incurred under,
         arising out of or in connection with any Credit Document and the due
         performance and compliance by the Pledgor an I the Borrower with the
         terms of each such Credit Document (all such obligations and
         liabilities under this clause (i), except to the extent consisting of
         obligations or indebtedness with respect to Interest Rate Protection or
         Other Hedging Agreement, being herein collectively called the "Credit
         Document Obligations");

              (ii) the full and prompt payment when due (whether at the stated
         maturity, by acceleration or otherwise) of all obligations and
         indebtedness (including, without limitation, indemnitees, fees and
         interest thereon) of the Pledgor and the Borrower owing to the Other
         Creditors, now existing or hereafter incurred under, arising out of or
         in connection with any Interest Rate Protection or Other Hedging
         Agreement (all such obligations and indebtedness under this clause (ii)
         being herein collectively called the "Interest Rate Protection
         Obligations");

              (iii) any and all sums advanced by the Pledgee in accordance with
         the terms of this Agreement in order to preserve the Collateral (as
         defined in Section 3.4 herein) or preserve its security interest in the
         Collateral;

              (iv) in the event of any proceeding for the collection or
         enforcement of any indebtedness obligations, or liabilities referred to
         in clauses (i), (ii) and (iii) above, after an Event of Default (such
         term, as used in this Agreement, shall mean any Event of Default under,
         and as defined in, the Credit Agreement, or any payment default under
         any Interest Rate Protection or Other Hedging Agreement after the
         expiration of any applicable grace period and shall in any event
         include, without limitation, any payment and default on any of the
         Obligations (as hereinafter defined) after the expiration of any
         applicable grace period) shall have occurred and be continuing, the
         reasonable expenses of retaking, holding, preparing for sale or lease,
         selling or otherwise disposing or realizing on the Collateral, or of
         any exercise by the Pledgee of its rights hereunder, together with
         reasonable attorneys' fees and court costs; and

              (v) all amounts paid by any Indemnitee as to which such Indemnitee
         has the right to reimbursement under Section 11 of this Agreement;

all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section I being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.


                                       3
<PAGE>   220
                                                                     EXHIBIT I-1
                                                                          PAGE 4


              2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein,
the term "Stock" shall mean all of the issued and outstanding shares of capital
stock at any time owned by the Pledgor of any corporation and (ii) the term
"Notes" shall mean all promissory notes at any time issued to the Pledgor by any
of its Subsidiaries, Affiliates or any other Person. As used herein, the term
"Securities" shall mean all of the Stock and Notes. The Pledgor represents and
warrants, as to the Stock of corporations and promissory notes owned by the
Pledgor, that on the date hereof (a) the Stock consists of the number and type
of shares of the stock of the corp orations as described in Annex A hereto; (b)
such Stock constitutes that percentage of the issued and outstanding capital
stock of the issuing corporation as is set forth in Annex A hereto; (c) the
Notes consist of the promissory notes described in Annex B hereto; and (d) the
Pledgor is the holder of record and sole beneficial owner of the Stock and the
Notes and there exist no options or preemption rights in respect of any of the
Stock.

              3. PLEDGE OF SECURITIES, ETC.

              a. Pledge. To secure the Obligations and for the purposes set
forth in Section 1, the Pledgor hereby: (i) grants to the Pledgee a security
interest in all of the Collateral owned by the Pledgor; (ii) pledges and
deposits as security with the Pledgee the Securities owned by the Pledgor on the
date, hereof, and delivers to the Pledgee certificates or instruments therefor,
duly endorsed in blank in the case of Notes and accompanied by undated stock
powers duly executed in blank by the Pledgor in the case of Stock, or such other
instruments of transfer as are reasonably acceptable to the Pledgee; and (iii)
assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee all of the Pledgor's right, title and interest in and to such Securities
(and in and to all certificates or instruments evidencing such Securities), in
each case to be held by the Pledgee upon the terms and conditions set forth in
this Agreement.

              b. Subsequently Acquired Securities. If the Pledgor shall acquire
(by purchase, stock dividend or Otherwise) any additional Securities at any time
or from time to time after the date hereof, the Pledgor will forthwith pledge
and deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by updated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are reasonably acceptable to the
Pledgee, to secure the Obligations and for the purposes set forth in Section 1,
and will promptly thereafter deliver to the Pledgee a certificate executed by
any of the Chairman of the Board, the Chief Financial Officer, the President, a
Vice Chairman, any Vice President or the Treasurer of the Pledgor describing
such Securities and certifying that the same have been duly pledged with the
Pledgee hereunder.

              c. Uncertificated Partnership Interests. Notwithstanding anything
to the contrary contained in Section 3.2, to the extent any of the Securities
(whether now owned or hereafter acquire) are uncertificated, the Pledgor shall
promptly notify the Pledgee thereof, and shall promptly 


                                       4
<PAGE>   221
                                                                     EXHIBIT I-1
                                                                          PAGE 5


take all actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under the provisions of Articles 8 and
9 of the New York UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable, including, filing of appropriately
completed and executed Uniform Commercial Code financing statements with
appropriate governmental authorities, to effect the foregoing and to permit the
Pledgee to exercise any of its rights and remedies hereunder, and agrees to
provide an opinion of counsel reasonably satisfactory to the Pledgee with
respect to any such pledge of uncertificated Securities promptly upon request of
the Pledgee.

              d. Definition of Pledged Stock; Pledged Notes, Pledged Securities
and Collateral . All Stock at any time pledged or required to be pledged
hereunder is hereinafter called the "Pledged Stock "' all Notes at any time
pledged or required to be pledged hereunder are hereinafter called the "Pledged
Notes," all of the Pledged Stock and Pledged Notes together are hereinafter
called the "Pledged Securities," which together with all proceeds thereof,
including any securities and moneys received and at the time held by the Pledgee
hereunder, is hereinafter called the "Collateral."

              4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities.

              5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i)
an Event of Default shall have occurred and be continuing and (ii) written
notice thereof shall have been given by the Pledgee to the Pledgor (provided,
that if an Event of Default specified in Section 9.05 of the Credit Agreement
shall occur, no such notice shall be required), the Pledgor shall be entitled to
exercise any and all voting and other consensual right pertaining to the Pledged
Securities owned by it and to give consents, waivers or ratifications in respect
thereof, provided, that no note shall be cast or any consent, waivers or
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement (collectively, the "Secured
Debt Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of the Pledgor
to vote and to give consents, waivers and ratifications shall cease in case an
Event of Default shall occur and be continuing, and Section 7 hereof shall
become applicable.

              6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing (or would occur as a result thereof), all
cash dividends payable in respect of the Pledged Stock and all payments in
respect of the Pledged Notes shall be paid to the Pledgor free and clear of the
securities interests created under this Agreement or any other Credit Document;
provided, that all cash dividends payable in respect of the Pledged Stock which
are reasonably determined by the Pledgee, in its sole discretion, to represent
in whole or in part an extraordinary, liquidating or other distribution in
return of capital shall be paid, to the extent so 


                                       5
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                                                                     EXHIBIT I-1
                                                                          PAGE 6


determined to represent an extraordinary, liquidating or other distribution in
return of capital, to the Pledgee and retained by it as part of the Collateral.
The Pledgee shall also be entitled to receive directly, and to retain as part of
the Collateral:

              (i) all other or additional stock or other securities or property
         (other than cash) paid or distributed by way of dividend or otherwise
         in respect of the Pledged Stock;

              (ii) all other or additional stock or other securities or property
         (including cash) paid or distributed in respect of the Pledged Stock by
         way of stock-split, spin-off, split-up, reclassification, combination
         of shares or similar rearrangement; and,

              (iii) all other or additional stock or other securities or
         property (including cash) which may be paid in respect of the
         Collateral by reason of any consolidation, merger, exchange or stock,
         conveyance of assets, liquidation or similar corporate reorganization.

Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. All dividends, distributions or other payments
which are received by the Pledgor contrary to the provisions of this Section 6
and Section 7 shall be received in trust for the benefit of the Pledgee, shall
be segregated from other property or funds of the Pledgor and shall be Forthwith
paid over to the Pledgee as Collateral in the same form as so received (with any
necessary endorsement).

              7. REMEDIES IN CASE OF EVENT OF DEFAULT. (a) In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
the Pledgor hereby agrees to be commercially reasonable:

              (i) to receive all amounts payable in respect of the Collateral
         payable to the Pledgor under Section 6;

              (ii) to transfer all or any part of the Pledged Securities into
         the Pledgee's name or the name of its nominee or nominees;

              (iii) to accelerate any Pledged Note which may be accelerated in
         accordance with its terms, and take any other action to collect upon
         any Pledged Note (including, without limitation, to make any demand for
         payment of amounts then due and payable thereon);

              (iv) subject as set forth in section 5, to vote all or any part of
         the Pledged Securities (whether or not transferred into the name of the
         Pledgee) and give all consents, 


                                       6
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                                                                     EXHIBIT I-1
                                                                          PAGE 7


         waivers and ratifications in respect of the Collateral and otherwise
         act with respect thereto as though it were the outright owner thereof
         (the Pledgor hereby irrevocably constituting and appointing the Pledgee
         the proxy and attorney-in-fact of the Pledgor, with full power of
         substitution to do so); and

              (v) at any time or from time to time to sell, assign and deliver,
         or grant options to purchase, all or any part of the Collateral, or any
         interest therein, at any public or private sale, without demand of
         performance, advertisement or notice of intention to sell or of the
         time or place of sale or adjournment thereof or to redeem or otherwise
         (all of which are hereby waived by the Pledgor to the extent permitted
         by applicable law), for cash or credit or for other property, for
         immediate or future delivery without any assumption of credit risk, and
         for such price or prices and on such terms as the Pledgee may, in
         compliance with any mandatory requirements of applicable law, determine
         to be commercially reasonable; provided, that at least 10 days' notice
         of the time and place of any such sale shall be given to the Pledgor.
         The Pledgor hereby waives and releases to the fullest extent permitted
         by law any right or equity of redemption with respect to the
         Collateral, whether before or after sale hereunder, and all rights, if
         any, of marshalling the Collateral and any other security for the
         Obligations or otherwise. At any such sale, unless prohibited by
         applicable law, the Pledgee on behalf of the Secured Creditors may bid
         for and purchase all or any part of the Collateral so sold free from
         any such right or equity of redemption. Neither the Pledgee nor any
         Secured Creditor shall be liable for failure to collect or realize upon
         any or all of the Collateral or for any delay in so doing nor shall any
         of them be tender any obligation to take any action whatsoever with
         regard thereto.

              (b) In case the Pledgee shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Pledgee,
then and in such case the Pledgor, the Pledgee and each holder of any of the
Obligations shall be restored to their former positions and rights hereunder
with respect to the Collateral subject to the security interests created under
this Agreement, and all rights, remedies and powers of the Pledgee shall
continue as if no such proceeding had been instituted.

              8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing al law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of


                                       7
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                                                                     EXHIBIT I-1
                                                                          PAGE 8


the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof.

              9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder shall be applied as follows:

              (i) first, to the payment of all Obligations owing to the Pledgee
         (or any Indemnitee, in the case of clause (v) of Section I of this
         Agreement) of the type described in clauses (iii), (iv) and (v) of
         Section I of this Agreement;

              (ii) second, to the extent moneys remain after the application
         pursuant to the preceding clause (i), an amount equal to the
         outstanding Primary Obligations shall be paid to the Secured Creditors
         as provided in Section 9(e), with each Secured Creditor receiving an
         amount equal to its outstanding Primary Obligations or, if the proceeds
         are insufficient to pay in full all such Primary Obligations, its Pro
         Rata Share of the amount remaining to be distributed;

              (iii) third, to the extent proceeds remain after the application
         pursuant to the preceding clauses (i) and (ii), an amount equal to the
         outstanding Secondary Obligations shall be paid to the Secured
         Creditors as provided in Section 9(e), with each Secured Creditor
         receiving an amount equal to its outstanding Secondary Obligations or,
         if the proceeds are insufficient to pay in full all such Secondary
         Obligations, its Pro Rata Share of the amount remaining to be
         distributed; and

              (iv) fourth, to the extent proceeds remain after the application
         pursuant to the preceding clauses (i), (ii) and (iii), to the Pledgor
         or as required by applicable law.

              (2) For purposes of this Agreement (x) "Pro Rata Share" shall
mean, when calculating a Secured Creditor's portion of any distribution or
amount, that amount (expressed as a percentage) equal to a fraction the
numerator of which is the then unpaid amount of such Secured Creditor's Primary
Obligations or Secondary Obligations, as the case may be, and the denominator of
which is the then outstanding amount of all Primary Obligations or Secondary
Obligations, as the case may be, (y) "Primary Obligations" shall mean (i) in the
case of the Credit Document Obligations, all principal of, and interest on, all
Loans, all Unpaid Drawings theretofore made (together will all interest accrued
thereon), the aggregate Stated Amounts of all Letters of Credit issued under the
Credit Agreement, and all Fees and (ii) in the case of the Interest Rate
Protection Obligations, all amounts due under the Interest Rate Protection or
Other Hedging Agreements (other than indemnities, fees (including, without
limitation, Attorneys' fees) and similar obligations and liabilities) and (z)
"Secondary Obligations" shall mean all Obligations other than Primary
Obligations.


                                       8
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                                                                     EXHIBIT I-1
                                                                          PAGE 9


              (3) When payments to Secured Creditors are based upon their
respective Pro Rata Shares, the amounts received by such Secured Creditors
hereunder shall be applied (i) first, to their Primary Obligations and (ii)
second, to their Secondary Obligations. If any payment to any Secured Creditor
of its Pro Rata Share of any distribution would result in overpayment to such
Secured Creditor, such excess amount shall instead be distributed in respect of
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
the other Secured Creditors, with each Secured Creditor whose Primary
Obligations or Secondary Obligations, as the case may be, have not been paid in
full to receive an amount equal to such excess amount multiplied by a fraction
the numerator of which is the unpaid Primary Obligations or Secondary
Obligations, as the case may be, of such Secured Creditor and the denominator of
which is the unpaid Primary Obligations or Secondary Obligations, as the case
may be, of all Secured Creditors entitled to such distribution.

              (4) Each of the Secured Creditors agrees and acknowledges that if
the Bank Creditors are to receive a distribution on account of undrawn amounts
with respect to Letters of Credit issued under the Credit Agreement (which shall
only occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and ratable benefit of the Bank Creditors, as cash security for the repayment
Obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
Creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 9(a) hereof.

              (5) Except as set forth in Section 9(d) hereof, all payments
required to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, to the trustee, paying agent or
other similar representative (each a "Representative") for the Other Creditors
or, in the absence of such a Representative, directly to the Other Creditors.

              (6) For purposes of applying payments received in accordance with
this Section 9, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Representative for
the Other Creditors or, in the absence of such a Representative, upon the Other
Creditors for a determination (which the Administrative Agent, each
Representative for any Secured Creditors and the Secured Creditors agree (or
shall agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume 


                                       9
<PAGE>   226
                                                                     EXHIBIT I-1
                                                                         PAGE 10


that no Secondary Obligations are outstanding. Unless it has actual knowledge
(including by way of written notice from an Other Creditor) to the contrary, the
Collateral Agent, in acting hereunder, shall be entitled to assume that no
Interest Rate Protection or Other Hedging Agreements are in existence.

              (7) It is understood and agreed that the Pledgor shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder I and the aggregate amount of the
sums referred to in clauses (i), (ii) and (iii) of Section 9(a).

              10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by
the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise, the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledged or such officer or be answerable in any way for the
misapplication or nonapplication thereof.

              11. INDEMNITY.

              a. Indemnity. (a) The Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 11.1 referred to individually as "Indemnitee," and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all costs, expenses or disbursements (including attorneys'
fees and expenses) (for the purposes of this Section 11.1 the foregoing are
collectively called "expenses") of whatsoever kind and nature imposed on,
asserted against -or incurred by any of the Indemnitees in any way relating to
or arising out of this Agreement, any other Secured Debt Agreement or any other
document executed in connection herewith and therewith or in any other way
connected with the administration of the transactions contemplated hereby and
thereby or the enforcement of any of the terms of, or the preservation of any
rights under any thereof, the violation of the laws of any country, state or
other governmental body or unit, any tort or contract claim; provided, that no
Indemnitee shall be indemnified pursuant to this Section 11.1 (a) for losses,
damages or liabilities to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. In no event shall any Indemnitee be liable for
any matter or thing in connection with this Agreement other than to account
moneys actually received by it in connection with the terms hereof. The Pledgor
agrees that upon written notice by any Indemnitee of the assertion of such a
liability, obligation, damage injury, penalty, claims, demand, action, judgment
or suit, the Pledgor shall assume full responsibility for the defense thereof.
Each Indemnitee agrees to use its best efforts to promptly notify the Pledgor of
any such assertion of which such Indemnitee has knowledge.

              (2) Without limiting the application of Section 11.1(a), the
Pledgor jointly and severally agrees to pay or reimburse the Pledgee for any and
all fees, costs and expenses of whatever 


                                       10
<PAGE>   227
                                                                     EXHIBIT I-1
                                                                         PAGE 11


kind or nature reasonably incurred in connection with the creation, preservation
or protection of the Pledgee's Liens on, and security interest in, the
Collateral, including, without limitation, all fees and taxes in connection with
the recording or filing of instruments and documents in public offices, payment
or discharge of any taxes or Liens upon or in respect of the Collateral (other
than Liens permitted under this Agreement or the Credit Agreement so long as no
Event of Default has occurred and is continuing) and all other reasonable fees,
costs and expenses in connection with protecting, maintaining or preserving the
Collateral and the Pledgee's interest therein, whether through judicial
proceedings or otherwise, or in defending or prosecuting any actions, suits or
proceedings arising out of or relating to the Collateral.

              (3) If and to the extent that the obligations of the Pledgor under
this Section 11 are unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

              b. Indemnity Obligations Secured by Collateral, Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Pledgor contained in this Section 11 shall continue
in full force and effect notwithstanding the full payment of all the Notes
issued under the Credit Agreement, the termination of all Letters of Credit and
all Interest Rate Protection or Other Hedging Agreements and the payment of all
other Obligations and notwithstanding the discharge thereof.

              12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) The Pledgor agrees
that it will join with the Pledgee in executing and, at the Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and wherever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.

              (2) The Pledgor hereby appoints the Pledgee as its
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may deem
necessary or advisable to accomplish the purposes of this Agreement.


                                       11
<PAGE>   228
                                                                     EXHIBIT I-1
                                                                         PAGE 12


              13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligation of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.

              14. TRANSFER BY PLEDGOR. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber any of the Collateral or any interest therein (except as may be
permitted in accordance with the terms of the Credit Agreement).

              15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. The
Pledgor represents, warrants and covenants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by the Credit Agreement and this Agreement;
(ii) it has the requisite corporate power, authority and legal right to pledge
all the Securities pledged by it pursuant to this Agreement; (iii) this
Agreement has been duly authorized, executed and delivered by the Pledgor and
constitutes a legally valid and binding obligation of the Pledgor enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at law);
(iv) no consent of any other party (including, without limitation, any
stockholder, limited or general partner or creditor of the Pledgor or any of its
Subsidiaries) and no consent, license, permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental authority is required to be obtained by the Pledgor in
connection with the execution, delivery or performance of this Agreement, except
as obtained on or before the date hereof or as permitted to be obtained after
the date hereof by Section 3.1 of this Agreement; (v) the execution, delivery
and performance of this Agreement does not violate any provision of any
applicable law or regulation or of any order, judgment, writ, award or decree of
any court, arbitrator or governmental authority, domestic or foreign, applicable
to the Pledgor or of the certificate of incorporation or by-laws of the Pledgor
or of any securities issued by the Pledgor or any of its Subsidiaries, or of any
mortgage, indenture, lease, deed of trust, agreement, instrument or undertaking
to which the Pledgor or any of its Subsidiaries is a party or which purports to
be binding upon the Pledgor or any of its Subsidiaries or upon any of their
respective assets and will not result in the creation or imposition of any lien
or encumbrance on any of the assets of the Pledgor or any of its Subsidiaries
except as contemplated by this Agreement; (vi) all the shares of Stock have been
duly and validly issued, are fully paid and nonassessable; (vii) to the best
knowledge of Pledgor, each of its Pledged Notes, when executed by the obligor
thereof, will be the legal, valid and binding 


                                       12
<PAGE>   229
                                                                     EXHIBIT I-1
                                                                         PAGE 13


obligation of such obligor, enforceable in accordance with its terms, except to
the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by equitable principles (regardless of whether
enforcement is sought in equity or at law); and (viii) the pledge and assignment
of the Securities by it pursuant to this Agreement, together with the delivery
of the Securities by it pursuant to this Agreement, creates a valid and
perfected first priority security interest in such Securities and the proceeds
thereof (except to the extent further action may be required to maintain a
perfected security interest in proceeds after the actual receipt thereof by the
Pledgee), subject to no prior lien or encumbrance or to any agreement (other
than as may be created by any other Credit Document) purporting to grant to any
third party a lien or encumbrance on the property or assets of the Pledgor which
would include such Securities. The Pledgor covenants and agrees that it will
defend the Pledgee's right, title and security interest in and to the Securities
pledged by it pursuant to this Agreement and the proceeds thereof against the
claims and demands of all persons whomsoever, and the Pledgor covenants and
agrees that it will have like title to and right to pledge any other property at
any time hereafter pledged to the Pledgee as Collateral hereunder and will
likewise defend the right thereto and security interest therein of the Pledgee
and the Secured Creditors.

              16. THE PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. (a) The obligations
of the Pledgor hereunder shall remain in full force and effect without regard
to, and shall not be impaired by:

              (2) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of the Pledgor, except to the
extent that the enforceability thereof may be limited by such event; (b) any
exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under in respect of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement, except as specifically set
forth in a waiver granted pursuant to Section 20; or (c) any amendment to or
modification of any Credit Document, or any Interest Rate Protection or Other
Hedging Agreement or any security for any of the Obligations; whether or not the
Pledgor shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed pursuant to
Section 20.

              17. REGISTRATION, ETC. (a) If an Event of Default shall have
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any federal or state securities law or laws to
be effected with respect to all or any part of it, Pledged Stock, the Pledgor as
soon as practicable and at its expense shall cause such registration to be
effected (and be kept effective), and shall cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and
shall permit or facilitate the sale and distribution of such Pledged Stock,
including, without limitation, registration under the Securities Act of 1933 as
then in effect (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with any other government requirements; provided that the
Pledgee 


                                       13
<PAGE>   230
                                                                     EXHIBIT I-1
                                                                         PAGE 14


shall furnish to the Pledgor such information regarding the Pledgee as the
Pledgor may request in writing and as shall be required in connection with any
such registration, qualification or compliance. The Pledgor will cause the
Pledgee to be kept reasonably advised in writing as to the progress of each
such registration, qualification or compliance and as to the completion thereof,
will furnish to the Pledge - such number of prospectuses, offering circulars or
other documents incident thereto as the Pledgee from time to time may reasonably
request, and will indemnify the Pledgee and all others Participating in the
distribution of the Pledged Stock against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) to state
therein (or in any related registration statement, notification or the like) a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing to the
Pledgor by the Pledgee expressly for use therein.

              (2) If at any time when the Pledgee shall determine to exercise
its right to sell all or any part of the Pledged Securities pursuant to Section
7, such Pledged Securities or the part thereof to be sold shall not, for any
reason whatsoever, be effectively registered under the Securities Act of 1933,
as then in effect, the Pledgee may, in its sole and absolute discretion, sell
such Pledged Securities or part thereof by private sale in such manner and under
such circumstances as the Pledgee may deem necessary or advisable in order that
such sale may legally be effected without such registration. Without limiting
the generality of the foregoing, in any such event the Pledgee, in its sole and
absolute discretion: (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may reflect such sale to a purchaser who will represent and agree that
such purchaser is purchasing for its own account, for investment, and not with a
view to the distribution or sale of such Pledged Securities or part thereof In
the event of any such sale, the Pledgee shall incur no responsibility or
liability for selling all or any I art of the Pledged Securities at a price
which the Pledgee, in its sole and absolute discretion, may in good faith deem
commercially reasonable under the circumstances, notwithstanding the possibility
that a substantially higher price might be realized if the sale were deferred
until after Registration of such Pledged Securities for public sale.

              18. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive any such termination) and the Pledgee, at the request and expense of the
Pledgor, will promptly execute and deliver to the Pledgor such statements,
documents or other instruments as may be reasonably requested by the Pledgor
acknowledging the satisfaction and termination of this Agreement and the
security interests created hereby, and will duly assign, transfer and deliver to
the Pledgor (without recourse and without any representation or warranty) such
of the Collateral of the Pledgor as may be in the possession of the Pledgee and
as has 


                                       14
<PAGE>   231
                                                                     EXHIBIT I-1
                                                                         PAGE 15


not theretofore been sold or otherwise applied or released pursuant to this
Agreement. As used in this Agreement, "Termination Date" shall mean the date
upon which the Total Commitment and all Interest Rate Protection aid Other
Hedging Agreements have been terminated, no Note is outstanding (and all Loans
have been paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations then
owing have been paid in full and there shall exist no unsatisfied claim for
reimbursement by any Indemnitee pursuant to Section 11.2.

              (2)  In the event that any part of the Collateral is sold in
connection with a sale permitted by the Credit Agreement or is otherwise
released at the direction of the Required Banks (or all the Banks if required by
Section 12.12 of the Credit Agreement), and the proceeds of such sale or sales
or from such release are applied in accordance with the terms of the Credit
Agreement, such Collateral will be sold free and clear of the Liens created by
this Agreement and the Pledgee, at the request and expense of the Pledgor, will
duly assign, transfer and deliver to the Pledgor (without recourse and without
any representation or warranty) such of the Collateral of the Pledgor as is then
being (or has been) so sold or released and as may be in possession of the
Pledgee and has not theretofore been released pursuant to this Agreement.

              (3)  At any time that the Pledgor desires that Collateral be
released as provided in the foregoing Section 18(a) or (b), it shall deliver to
the Pledgee a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective Collateral
is permitted pursuant to Section 18(a) or (b). If requested by the Pledgee
(although the Pledgee shall have no obligation to make any such request), the
Pledgor shall furnish appropriate legal opinions (from counsel, which may be in-
house counsel, reasonably acceptable to the Pledgee) to the effect set forth in
the immediately preceding sentence. The Pledgee shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral by
it as permitted by this Section 18.

              19.  NOTICES, ETC. All notices and other communications hereunder
shall be in writing (including telegraphic, telex, facsimile transmission or
cable communication) and shall be delivered, mailed telegraphed, telexed,
facsimile transmitted or cabled, addressed:

              (1)  if to the Pledgor, at its address set forth opposite its
                   signature below;

              (2)  if to the Pledgee, at:

                   Fleet National Bank
                   Mail Stop MA0FD03D
                   1 Federal Street
                   Boston, MA 02110
                   Attention: Christopher A. Swindell


                                       15
<PAGE>   232
                                                                     EXHIBIT I-1
                                                                         PAGE 16


                   Telephone No.: (617) 346-5579
                   Facsimile No.: (617) 346-4345

              (3) if to any Bank Creditor (other than the Pledgee), either (x)
to the Administrative Agent, at the address of the Administrative Agent
specified in the Credit Agreement or (y) at such address as such Bank Creditor
shall have specified in the Credit Agreement;

              (4) if to any Other Creditor or to the Representative for the
Other Creditors, at such address as such Representative may have provided to the
Borrower and the Pledgee from time to time, or, in the absence of a
Representative, directly to the Other Creditors at such address as the Other
Creditors shall have specified in writing to the Borrower and the Pledgee;

or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and communications shall, when mailed, telegraphed, telexed , facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.

              20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be amended, changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Pledgor and the Pledgee (with
the written consent of the Required Banks (or all the Banks if required by
Section 12.12 of the ("Credit Agreement)); provided, that any amendment, change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class. For the purpose of this Agreement,
the term "Class" shall mean each class of Secured Creditors, i.e., whether (i)
the Bank Creditors as holders of the Credit Document Obligations or (ii) :he
Other Creditors as holders of the Interest Rate Protection Obligations. For the
purpose of this Agreement, the term "Requisite Creditors" of any Class shall
mean each of (i) with respect to the Credit Document Obligations, the Required
Banks and (ii) with respect to the Interest Rate Protection Obligations, the
holders of at least a majority of all obligations outstanding from time to time
under the Interest Rate Protection or Other Hedging Agreements.

              21. MISCELLANEOUS. (a) This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of and by
enforceable by the Pledgee and each Secured Creditor and their respective
successors and assigns.


                                       16
<PAGE>   233
                                                                     EXHIBIT I-1
                                                                         PAGE 17


              (1) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

              (2) The headings in this Agreement are for purposes of reference
only and shall not limit or define the meaning hereof.

              (3) This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument.

              22. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                                  *   *   *


                                       17
<PAGE>   234
                                                                     EXHIBIT I-1
                                                                         PAGE 18


              IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.


Address:                                    GOLDEN SKY HOLDINGS, INC.
                                            as Pledgor
605 West 47th Street
Suite 300                                   By: /s/ Robert B. Weaver
Kansas City, MO 64112                           -------------------------------
Attention: Robert B, Weaver                     Name:   Robert B. Weaver
Tel: (212) 593-7901                             Title:  Chief Financial Officer
Fax: (212) 754-6348        


Mail Stop MA0FD03D                          FLEET NATIONAL BANK
1 Federal Street                              as Pledgee
Boston, MA 02110
Attention: Christopher A. Swindell          By: /s/ Christopher A. Swindell
Telephone: (617) 346-5579                       -------------------------------
Facsimile: (617) 346-4345                       Name:  Christopher A. Swindell
                                                Title:    Vice President
<PAGE>   235
                                                                     EXHIBIT I-1
                                                                         PAGE 19


                                  LIST OF STOCK


<TABLE>
<CAPTION>
Pledgor                    Issuer                     Number/Type     Percentage
- -------                    ------                     -----------     ----------

<S>                        <C>                        <C>             <C> 
Golden Sky Holding Inc.    Golden Sky Systems, Inc.   1000 Shares     100%
                                                      Common Stock
</TABLE>
<PAGE>   236
                                                                     EXHIBIT I-1
                                                                         PAGE 20

                                                               ANNEX B
                                                                  to
                                                           Pledge Agreement


                                  LIST OF NOTES

<TABLE>
<CAPTION>
Maker                           Payee                           Amount
- -----                           -----                           ------
<S>                             <C>                             <C>    

NONE

</TABLE>
<PAGE>   237
                                                                     EXHIBIT I-2


                          PARTNERSHIP PLEDGE AGREEMENT

              PARTNERSHIP PLEDGE AGREEMENT, dated as of May __, 1998 (as
amended, modified or supplemented from time to time, the "Agreement"), made by
the undersigned (the "Pledgor"), in favor of FLEET NATIONAL BANK, as
Administrative Agent (the "Pledgee"), for the benefit of (x) the Banks (as
defined below) and the Agents (as defined below) under, and any other lender
from time to time party to the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, are hereinafter called the
"Bank Creditors") and (y) if the Agents in their individual capacities, any Bank
or a syndicate of financial institutions organized by the Agents or any such
Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower (as defined below), the Agents, any such Bank or an affiliate of the
Agents or such Bank (even if either of the Agents or any such Bank ceases to be
a Bank under the Credit Agreement for any reason) and any such institution that
participates in such Interest Rate Protection or Other Hedging Agreements and
their subsequent assigns (collectively, the "Other Creditors" and, together with
the Bank Creditors, are herein called the "Secured Creditors"). Except as
otherwise defined herein, terms used herein and defined in the Credit Agreement
shall be used herein as therein defined.

                                   WITNESSETH:


              WHEREAS, Golden Sky Holdings, Inc., Golden Sky Systems, Inc. (the
"Borrower"), various financial institutions from time to time party thereto (the
"Banks"), Banque Paribas, as Syndication Agent, Fleet National Bank, as
Administrative Agent (Fleet National Bank together with Banque Paribas, the
"Agents"), and General Electric Capital Corporation, as Documentation Agent,
have entered into an Amended and Restated Credit Agreement, dated as of July 7,
1997, amended and restated as of May _, 1998, providing for the making of Loans
to the Borrower and the issuance of, and participation in, Letters of Credit for
the account of the Borrower, all as contemplated therein (as used herein, the
term "Credit Agreement" means the Amended and Restated Credit Agreement
described above in this paragraph, as the same may be amended, modified,
extended, renewed, replaced, restated, supplemented, restructured or refinanced
from time to time, and including any agreement extending the maturity of,
refinancing or restructuring (including, but not limited to, the inclusion of
additional borrowers thereunder that are Subsidiaries of the Borrower and whose
obligations are guaranteed by the Borrower thereunder or any increase in the
amount borrowed)) all or any portion of, the Indebtedness under such agreement
or any successor agreements; provided, that with respect to any agreement
providing for the refinancing of Indebtedness under the Credit Agreement, such
agreement shall only be treated as, or as part of, the Credit Agreement
hereunder if (i) either (A) all obligations under the Credit Agreement being
refinanced shall be paid in full at the time of such refinancing, and all
commitments and Letters of Credit issued pursuant to the refinanced 
<PAGE>   238
                                                                     EXHIBIT I-2
                                                                          PAGE 2


Credit Agreement shall have terminated in accordance with their terms or (B) the
Required Banks shall have consented in writing to the refinancing Indebtedness
being treated, along with their Indebtedness, as Indebtedness pursuant to the
Credit Agreement, (ii) the refinancing Indebtedness shall be permitted to be
incurred under the Credit Agreement being refinanced (if such Credit Agreement
is to remain outstanding) and (iii) a notice to the effect that the refinancing
Indebtedness shall be treated as issued under the Credit Agreement 'shall be
delivered by the Borrower to the Collateral Agent);

              WHEREAS, pursuant to the Subsidiaries Guaranty, each Subsidiary of
the Borrower has jointly and severally guaranteed to the Secured Creditors the
payment when due of all obligations and liabilities of the Borrower under or
with respect to the Credit Documents and each Interest Rate Protection or Other
Hedging Agreement with one or more Other Creditors;

              WHEREAS, the Pledgor is the owner of the partnership interests in
a certain limited partnership (the "Partnership") as set forth in Annex A
hereto, such Partnership being governed by an agreement of limited partnership
(the "Limited Partnership Agreement");

              WHEREAS, the Pledgor desires to incur Loans and to have Letters of
Credit issued for its account pursuant to the Credit Agreement;

              WHEREAS, the Pledgor may at any time and from time to time enter
into one or more Interest Rate Protection or Other Hedging Agreements with one
or more Other Creditors;

              WHEREAS, it is a condition to each of the above-described
extensions of credit to the Pledgor that the Pledgor shall have executed and
delivered this Agreement o the Pledgee; and

              WHEREAS, the Pledgor desires to execute this Agreement to satisfy
the conditions described in the preceding paragraph;

              NOW, THEREFORE, in consideration of the benefits accruing to the
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:

              1. SECURITY FOR OBLIGATIONS. This Agreement is made by the Pledgor
for the benefit of the Secured Creditors to secure:

              i) the full and prompt payment when due (whether at the stated
maturity, by acceleration or otherwise) of all obligations, indebtedness and
liabilities including, without limitation, indemnities, fees and interest
thereon and including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) of the Pledgor owing to
the Bank Creditors, now existing or hereafter incurred under, arising out of or
in connection with any Credit 
<PAGE>   239
                                                                     EXHIBIT I-2
                                                                          PAGE 3


Document and the due performance and compliance by the Pledgor with the terms of
each such Credit Document (all such obligations and liabilities under this
clause (i), except to the extent consisting of obligations or indebtedness with
respect to Interest Rate Protection or Other Hedging Agreements, being herein
collectively called the "Credit Document Obligations");

              ii) the full and prompt payment when due (whether at the stated
maturity, by ,acceleration or otherwise) of all obligations, indebtedness and
liabilities (including, without limitation, indemnities, fees and interest
thereon and including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) of the Pledgor owing to
the Other Creditors, now existing or hereafter incurred under, arising out of or
in connection with any Interest Rate Protection or Other Hedging Agreement
including, in the case of each Subsidiary Guarantor, all obligations under the
Subsidiaries Guaranty in respect of Interest Rate Protection or Other Hedging
Agreements (all such obligations and indebtedness under this clause (ii) being
herein collectively called the "Interest Rate Protection Obligations");

              iii) any and all sums advanced by the Pledgee in order to preserve
the Collateral (as hereinafter defined) or preserve its security interest in the
Collateral;

              iv) in the event of any proceeding for the collection or
enforcement of any indebtedness, obligations, or liabilities referred to in
clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used
in this Agreement, shall mean any Event of Default under, and as defined in, the
Credit Agreement, or any payment default under any Interest Rate Protection or
Other Hedging Agreement and shall in any event include, without limitation, any
payment default on any of the Obligations (as hereinafter defined)) shall have
occurred and be continuing, the reasonable expenses of retaking, holding,
preparing for sale or lease, selling or otherwise disposing or realizing on the
Collateral, or of any exercise by the Pledgee of its rights hereunder, together
with reasonable attorneys' fees and court costs; and

              v) all amounts paid by any Indemnities as to which such Indemnitee
has the right to reimbursement under Section 11 of this Agreement;

all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section I being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.

              2. DEFINITION OF PARTNERSHIP INTERESTS, ETC. As used herein, (i)
the term "Partnership Interest' shall mean the entire partnership interest at
any time owned by the Pledgor in any Partnership and (ii) the term "Pledged
Partnership Interest" shall mean each Partnership Interest pledged or required
to be pledged hereunder. The Pledgor represents and warrants that the
Partnership Interests held by the Pledgor constitute that percentage of the
entire partnership interest of the Partnership as set forth on Annex A hereto.
<PAGE>   240
                                                                     EXHIBIT I-2
                                                                          PAGE 4


              3. GRANT OF SECURITY INTEREST, ETC.

              a. Pledge. (a) To secure the Obligations and for the purposes set
forth in Section 1, the Pledgor hereby pledges and grants to the Pledgee a first
priority continuing security interest in, and as part of such grant and pledge,
hereby transfers and assigns to the Pledgee all of the following whether now
existing or hereafter acquired (the "Collateral"): the Pledgor's Partnership
Interest and all of the Pledgor's right, title and interest in such Partnership
including, without limitation:

              i) all the capital thereof and its interest in all profits,
losses, Partnership Assets (as defined below) and other distributions to which
the Pledgor shall at any time be entitled in respect of the Partnership
Interest;

              ii) all other payments due or to become due to the Pledgor in
respect of the Partnership Interest whether under the Limited Partnership
Agreement or any elated contract or otherwise, whether as contractual
obligations, damages, insurance proceeds otherwise;

              iii) all of its claims, rights, powers, privileges, authority,
options, security interest, liens and remedies, if any, under the Limited
Partnership Agreement or any related contract or at law or otherwise in respect
of the Partnership Interest;

              iv) all present and future claims, if any, of the Pledgor against
the Partnership for moneys loaned or advanced, for services rendered or
otherwise;

              v) all of the Pledgor's rights under the Limited Partnership
Agreement relating to such partnership or at law to exercise and enforce every
right, power, remedy, authority, option and privilege of the Pledgor relating to
its Partnership Interest, including any power to terminate, cancel or modify the
Limited Partnership Agreement, to execute any instruments and to take any and
all other action on behalf of and in the name of the Pledgor in respect of the
Partnership Interest and the Partnership, to make determinations, to exercise
any election (including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval, together
with full power and authority to demand, receive, enforce, collect or receipt
for any of the foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take any
action in connection with any of the foregoing;

              vi) all other property hereafter delivered in substitution for or
in addition to any of the foregoing, all certificates and instruments
representing or evidencing such other property and all cash, securities,
interest, dividends, rights and other properly at any time and from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all thereof; and

              vii) to the extent not otherwise included, all proceeds of any or
all of the foregoing.
<PAGE>   241
                                                                     EXHIBIT I-2
                                                                          PAGE 5


              (b) As used herein, the term "Partnership Assets" shall mean all
assets, whether tangible or intangible and whether real, personal or mixed
(including, without limitation, all partnership capital and interests in other
partnerships), at any time owned or represented by the Partnership Interest.

              b. Subsequently Acquired Partnership Interests. If the Pledgor
shall acquire (by purchase, distribution or otherwise) any additional
Partnership Interest at any time or from time to time after the date hereof, the
Pledgor shall forthwith pledge such Partnership Interest as security with the
Pledgee hereunder and, to the extent such Partnership Interest is certificated,
deliver to the Pledgee certificates therefor, accompanied by such instruments of
transfer as are acceptable to the Pledgee, and shall promptly thereafter deliver
to the Pledgee a certificate executed by any of the Chairman of the Board, the
Chief Financial Officer, the President, any Vice President or the Treasurer of
the Pledgor describing such Partnership Interest and certifying that the same
has been duly pledged with the Pledgee hereunder.

              c. Certificated Partnership Interests. Notwithstanding anything to
the contrary contained in Section 3.2, to the extent the Partnership Interest of
the Pledgor (whether now owned or hereafter acquired) is certificated, the
Pledgor shall also deposit as security with the Pledgee the Partnership Interest
owned by the Pledgor on the date hereof, and deliver to the Pledgee certificates
or instruments therefor with corresponding instruments of transfer, executed in
blank, as are reasonably acceptable to the Pledgee.

              d. Uncertificated Partnership Interests. Notwithstanding anything
to the contrary contained in Section 3.2, to the extent the Partnership Interest
of the Pledgor (whether now owned or hereafter acquired) is uncertificated, the
Pledgor shall promptly notify the Pledgee thereof, and shall promptly take all
actions required to perfect the security interest of the Pledgee under
applicable law (including, in any event, under the provisions of Articles 8 and
9 of the New York UCC). The Pledgor further agrees to take such actions as the
Pledgee deems necessary or desirable, including filing of appropriately
completed and executed Uniform commercial Code financing statements with
appropriate governmental authorities, to effect the foregoing and to permit the
Pledgee to exercise any of its rights and remedies hereunder, and agrees to
provide an opinion of counsel reasonably satisfactory to the Pledgee with
respect to any such pledge of uncertificated Partnership Interests promptly upon
request of the Pledgee.

              4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Collateral, which may be held (in the discretion of
the Pledgee) in the name of the Pledgor, endorsed or assigned in blank or in
favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent
appointed by the Pledgee.

              5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until an
Event of Default shall have occurred and be continuing, the Pledgor shall be
entitled to exercise any 
<PAGE>   242
                                                                     EXHIBIT I-2
                                                                          PAGE 6


and all voting, consent, administration, management and other rights and
remedies under the Limited Partnership Agreement or otherwise with respect to
the Pledged Partnership Interest of the Pledgor; provided, that no action shall
be taken or omitted to be taken which would violate or be inconsistent with any
of the terms of this Agreement, any other Credit Document or any Interest Rate
Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt
Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of the Pledgor
or to vote and to take other actions with respect to its Pledged Partnership
Interest shall cease in case an Event of Default shall occur and be continuing
and Section 7 hereof shall become applicable.

              6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing (or will occur as a result thereof)
distributions in respect of any Pledged Partnership Interest shall be paid to
the Pledgor. The Pledgee shall be entitled to receive directly, and to retain as
part of the Collateral to be held and applied in the manner set forth in this
Agreement:

              i) all other property (other than cash) paid or distributed by way
of dividend or distribution, as the case may be, in respect of the Pledgor's
Pledged Partnership Interest; and

              ii) all other property which may be paid in respect of the
Collateral by reason of any consolidation, merger, conveyance of assets,
liquidation or similar partnership reorganization.

              7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights:

              i) to receive all amounts payable in respect of the Collateral
payable to the Pledgor under Section 6;

              ii) to transfer all or any part of each Pledged Partnership
Interest into the Pledgee's name or the name of its nominee or nominees;

              iii) to vote all or any part of each Pledged Partnership Interest
(whether or not transferred into the name of the Pledgee) and give all consents,
waivers and ratifications in respect of the Collateral and otherwise act with
respect thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee the proxy and
attorney-in-fact of the Pledgor, with full power of substitution to do so); and

              iv) at any time or from time to time to sell, assign and deliver,
or grant options to purchase, all or any part of the Collateral, or any interest
therein, at any public or private sale, 
<PAGE>   243
                                                                     EXHIBIT I-2
                                                                          PAGE 7


without demand of performance, advertisement or notice of intention to sell
(except as set forth in the proviso below) or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby waived by
the Pledgor), for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine; provided,
that at least 10 days' notice of the time and place of any such sale shall be
given to the Pledgor. The Pledgor hereby waives and releases to the fullest
extent permitted by law any right or equity of redemption with respect to the
Collateral, whether before or after sale hereunder, and all rights, if any, of
marshaling the Collateral and any other security for the Obligations or
otherwise. At any Such sale, unless prohibited by applicable law, the Pledgee on
behalf of the Secured Creditors may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption. To the
extent permitted by applicable law, neither the Pledgee nor any Secured Creditor
shall be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall any of them be under any
obligation to take any action whatsoever with regard thereto.

              8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof. The Secured Creditors agree that this
Agreement may be enforced only by the action of the Agents or the Pledgee, in
each case acting upon the instructions of the Required Banks (or, after the date
on which all credit Document Obligations have been paid in full, the holders of
at least the majority of the Outstanding Other Obligations) and that no other
Secured Creditor shall have any right individually to seek to enforce or to
enforce this Agreement or to realize upon the security to be granted hereby, it
being understood and agreed that such rights and remedies may be exercised by
the Agent or the Pledgee or the holders of at least a majority of the
outstanding Other Obligations, as the case may be, for the benefit of the
Secured Creditors upon the terms of this Agreement.

              9. APPLICATION OF PROCEEDS. (a) All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral pursuant to the
terms of this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied in the manner provided in the Security Agreement
(with references to the Assignor and Assignee being deemed modified to read
Pledgor and Pledgee); and

              (b) It is understood and agreed that the Pledgor shall remain
jointly and severally liable to the extent of any deficiency between the amount
of the proceeds of the Collateral hereunder and the aggregate amount of the
Obligations.
<PAGE>   244
                                                                     EXHIBIT I-2
                                                                          PAGE 8


              10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by
the Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof

              11. INDEMNITY.

              a. Indemnity. (a) The Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 11.1 referred to individually as "Indemnitee," and
collectively as "Indemnities") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all costs, expenses or disbursements (including reasonable
attorneys' fees and expenses) (for the purposes of this Section 11.1 the
foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnities in any way
relating to or arising out of this Agreement, any other Secured Debt Agreement
or any other document executed in connection herewith and therewith or in any
other way connected with the administration of the transactions contemplated
hereby and thereby or the enforcement of any of the terms of, or the
preservation of any rights under any thereof, the violation of the laws of any
country, state or other governmental body or unit, any tort or contract claim;
provided, that no Indemnitee shall be indemnified pursuant to this Section
11.1(a) for expenses to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. In no event shall any Indemnitee be liable for
any matter or thing in connection with this Agreement other than to account for
moneys actually received by it in accordance with the terms hereof. The Pledgor
agrees that upon written notice by any Indemnitee of the assertion of such a
liability, obligation, damage, injury, penalty, claims, demand, action, judgment
or suit, the Pledgor shall, upon the request of the Pledgee, assume full
responsibility for the defense thereof.

              (b) Without limiting the application of Section 11.1(a), the
Pledgor jointly and severally agrees to pay or reimburse the Pledgee for any and
all fees, costs and expenses of whatever kind or nature incurred in connection
with the creation, preservation or protection of the Pledgee's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral and all other fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Pledgee's interest therein, whether through judicial proceedings or otherwise,
or in defending or prosecuting any actions, suits or proceedings arising out of
or relating to the Collateral.
<PAGE>   245
                                                                     EXHIBIT I-2
                                                                          PAGE 9


              (c) If and to the extent that the obligations of the Pledgor under
this Section 11 is unenforceable for any reason, the Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

              b. Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of the Pledgor contained in this Section 11 shall continue
in full force and effect notwithstanding the full payment of all the Notes
issued under the Credit Agreement, the termination of all Letters of Credit and
all Interest Rate Protection or Other Hedging Agreements and the payment of all
other Obligations and notwithstanding the discharge thereof.

              12. PLEDGEE NOT BOUND. (a) Nothing herein shall be construed to
make the Pledgee or any other Secured Creditor liable as a general partner or
limited partner of any Partnership and the Pledgee or any other Secured Creditor
by virtue of this Agreement or otherwise (except as referred to in the following
sentence) shall not have any of the duties, obligations or liabilities of a
general partner or limited partner of any Partnership. The parties hereto
expressly agree that, unless the Pledgee shall become the absolute owner of any
Pledged Partnership Interest pursuant hereto, this Agreement shall not be
construed as creating a partnership or joint venture among the Pledgee, any
other Secured Creditor and or the Pledgor.

              (b) Except as provided in the last sentence of paragraph (a) of
this Section, the Pledgee, by accepting this Agreement, did not intend to become
a general partner or limited partner of any Partnership or otherwise be deemed
to be a co-venturer with respect to the Pledgor or any Partnership either before
or after an Event of Default shall have occurred. The Pledgee shall have only
those powers set forth herein and shall assume none of the duties, obligations
or liabilities of a general partner or limited partner of any Partnership or of
the Pledgor.

              (c) The Pledgee shall not be obligated to perform or discharge any
obligation of the Pledgor as a result of the collateral assignment hereby
effected.

              (d) The acceptance by the Pledgee of this Agreement, with all the
rights, powers, privileges and authority so created, shall not at any time or in
any event obligate the Pledgee to appear in or defend any action or proceeding
relating to the Collateral to which it is not a party, or to take any action
hereunder or thereunder, or to expend any money or incur any expenses or perform
or discharge any obligation, duty or liability under the Collateral.

              13. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) The Pledgor agrees
that it will join with the Pledgee in executing and, at the Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and whenever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
<PAGE>   246
                                                                     EXHIBIT I-2
                                                                         PAGE 10


the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of the Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.

              (b) The Pledgor hereby appoints the Pledgee as its
attorney-in-fact, with full authority in the place and stead of the Pledgor and
in the name of the Pledgor or otherwise, from time to time after the occurrence
and during the continuance of an Event of Default, in the Pledgee's discretion
to take any action and to execute any instrument which the Pledgee may
reasonably deem necessary or advisable to accomplish the purposes of this
Agreement.

              14. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.

              15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. The
Pledgor represents, warrants and covenants that:

              i) it will defend the Pledgee's right, title and interest in and
to its Pledged Partnership Interest and in and to the Collateral pledged by it
pursuant hereto or in which it has granted a security interest pursuant hereto
against the claims and demands of all other persons whomsoever, and the Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right thereto and the security interest
therein of the Pledgee and the Secured Creditors.

              ii) It is the legal and beneficial owner of and has good title to
its Pledged Partnership Interest and has good title to all of the other
Collateral pledged by it pursuant hereto or in which it has granted a security
interest pursuant hereto, free and clear of ill claims, pledges. liens,
encumbrances and security interests of every nature whatsoever, except such as
are created pursuant to this Agreement and Permitted Liens, and has the
unqualified right to pledge and grant a security interest in the same as herein
provided without the consent of any other Person, firm or entity which has not
been obtained.

              iii) It has full power, authority and legal right to pledge the
Partnership Interest pledged by it pursuant to this Agreement. Such Pledged
Partnership Interest has been
<PAGE>   247
                                                                     EXHIBIT I-2
                                                                         PAGE 11


validly acquired and is fully paid for and is duly and validly pledged
hereunder.

              iv) The Limited Partnership Agreement delivered to the Pledgee is
an original signed counterpart (or a copy thereof) of the complete and entire
such listed partnership agreement in effect on the date hereof.

              v) The Limited Partnership Agreement constitutes a legal, valid
and binding obligation of the Pledgor, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement or creditors' rights generally and
general equitable principles (whether enforcement is sought by proceedings in
equity or at law). The Pledgor is not in default in the payment of any portion
of any mandatory capital contribution, if any, required to be made under its
Limited Partnership Agreement, and the Pledgor is not in violation of any other
material provisions of its Limited Partnership Agreement, or otherwise in
default or violation thereunder. At no time in the past has the Pledgor been in
default for the payment of any portion of a mandatory capital contribution or in
violation of any other material provisions of its Limited Partnership Agreement
or otherwise in default or violation thereunder other than those which have been
cured or waived prior to the date of this Agreement. The Pledged Partnership
Interest is not subject to any defense, offset or counterclaim, nor have any of
the foregoing been asserted or alleged against the Pledgor by any Person with
respect thereto. As of the date hereof, there are no certificates, instruments,
documents or other writings (other than the Limited Partnership Agreement and
certificates delivered to the Collateral Agent) which evidence any Partnership
Interest of the Pledgor.

              vi) It will not sell, assign, or otherwise dispose of, grant any
option with respect to, or mortgage, pledge, grant a security interest in or
otherwise encumber any of the Collateral or any interest therein, or suffer any
of the same to exist; and any sale, assignment, option, mortgage, pledge,
security interest or other encumbrance or disposition of any nature whatsoever
made in violation of this covenant shall be a nullity and of no force and
effect, and upon demand of the Pledgee, shall forthwith be canceled or satisfied
by an appropriate instrument in writing, except as permitted by the Credit
Agreement.

              vii) The pledge and assignment of its Pledged Partnership Interest
pursuant to this Agreement, together with the relevant filings or recordings
(which filings and recordings have been made), create a valid, perfected and
continuing first priority security interest in such Partnership Interest and the
proceeds thereof, subject to no prior lien or encumbrance or to any agreement
purporting to grant to any third party a lien or encumbrance on the property or
assets of the Pledgor which would include the Collateral (other than Permitted
Liens).

              viii) There are no currently effective financing statements under
the UCC covering any property which is now or hereafter may be included in the
Collateral and the Pledgor will not prior to the Termination Date, without the
prior written consent of the Pledgee, execute and, until the Termination Date,
there will not ever be on file in any public office, any enforceable financing
<PAGE>   248
                                                                     EXHIBIT I-2
                                                                         PAGE 12


statement or statements covering any or all of the Collateral, except financing
statements filed or to be filed in favor of the Pledgee as secured party.

                  ix) The Pledgor shall give the Pledgee prompt notice of any
written claim relating to the Collateral. The Pledgor shall deliver to the
Pledgee a copy of each other demand, notice or document received by it which may
adversely affect the Pledgee's interest in the Collateral promptly upon, but in
any event within 10 days after, the Pledgor's receipt thereof

              x) The Pledgor shall not withdraw as a general partner of its
Partnership, or file or pursue or take any action which may, directly or
indirectly, cause a dissolution or liquidation of or with respect to its
Partnership or seek a partition of any property of its Partnership, except as
permitted by the Credit Agreement.

              xi) A notice in the form set forth in Annex C attached hereto and
by this reference made a part hereof (such notice, the "Partnership Notice"),
appropriately completed, notifying its Partnership of the existence of this
Agreement and a certified copy of this Agreement have been delivered by the
Pledgor to its Partnership, and the Pledgor has received and delivered to the
Collateral Agent an acknowledgment in the form set forth in Annex 13 attached
hereto (such acknowledgement, the "Partnership Acknowledgement"), duly executed
by its Partnership.

              xii) The chief executive office and principal place of business of
the Pledgor and the sole location where the records of the Pledgor with respect
to the Collateral are kept at the address set forth for the Pledgor on Annex B
hereto. The Pledgor shall not move its chief executive office, principal place
of business, or such location of records unless (x) it shall have given to the
Pledgee not less than 30 days' prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Pledgee may reasonably request and (y) with respect
to such new location, it shall have taken all action, reasonably satisfactory to
the Pledgee, to maintain the security interest of the Pledgee in the Collateral
intended to be granted hereby at all times fully perfected and in full force and
effect.

              xiii) As of the date hereof, it neither has or operates nor has
had or operated in any jurisdiction within the five year period preceding the
date of this Agreement under any name except its legal name as set forth on the
signature pages hereto. The Pledgor shall not change its legal name or assume or
operate in any jurisdiction under any trade, fictitious or other name unless (x)
it shall have given to the Pledgee not less than 30 days' prior written notice
of its intention so to do, clearly describing such new name and the
jurisdictions in which such new name shall be used and providing such other
information in connection therewith as the Pledgee may reasonably request and
(y) with respect to such new name, it shall have taken all action, reasonably
satisfactory to the Pledgee, to maintain the security interest of the Pledgee in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect.
<PAGE>   249
                                                                     EXHIBIT I-2
                                                                         PAGE 13


              16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of the
Pledgor under this Agreement shall be absolute and unconditional and shall
remain in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated or otherwise affected by, any circumstance or
occurrence whatsoever, including, without limitation: (i) any renewal,
extension, amendment or modification of or addition or supplement to or deletion
from any Secured Debt Agreement or any other instrument or agreement referred to
therein, or any assignment or transfer of any thereof, (ii) any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreement or instrument or this Agreement; (iii) any furnishing of any
additional security to the Pledgee or its assignee or any acceptance thereof or
any release of any security by the Pledgee or its assignee; (iv) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof, or (v) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to the Pledgor or any Subsidiary of the Pledgor, or any
action taken with respect to this Agreement by any trustee or receiver, or by
any court, in any such proceeding, whether or not the Pledgor shall have notice
or knowledge of any of the foregoing.

              17. TRANSFER BY PLEDGORS. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge or otherwise
encumber any of the Collateral or any interest therein (except as may be
permitted in accordance with the terms of the Credit Agreement).

              18. REGISTRATION, ETC. (a) If an Event of Default shall have
occurred and be continuing and the Pledgor shall have received from the Pledgee
a written request or requests that the Pledgor cause any registration,
qualification or compliance under any Federal or state securities law or laws to
be effected with respect to all or any part of its Pledged Partnership Interest,
the Pledgor as soon as practicable and at its expense will use its best efforts
to cause such registration to be effected (and be kept effective) and will use
its best efforts to cause such qualification and compliance to be effected (and
be kept effective) as may be so requested and as would permit or facilitate the
sale and distribution of its Pledged Partnership Interest, including, without
limitation, registration under the Securities Act of 1933 as then in effect (or
any similar statute then in effect), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other government requirements; provided, that the Pledgee shall furnish to the
Pledgor such information regarding the Pledgee as the Pledgor may request in
writing and as shall be required in connection with any such registration,
qualification or compliance. The Pledgor will cause the Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
will indemnify the Pledgee and all others participating in the distribution of
its Pledged Partnership Interest against all claims, losses, damages and
liabilities caused by any untrue statement (or alleged untrue statement) of a
material fact contained therein (or in any related registration statement,
notification or the like) or by any omission (or alleged omission) 
<PAGE>   250
                                                                     EXHIBIT I-2
                                                                         PAGE 14


to state therein (or in any related registration statement, notification or the
like) a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same may have been
caused by an untrue statement or omission based upon information furnished in
writing to the Pledgor by the Pledgee expressly for use therein.

              (b) If at any time when the Pledgee shall determine to exercise
its right to sell all or any part of its Pledged Partnership Interest pursuant
to Section 7, such Pledged Partnership Interest or the part thereof to be sold
shall not, for any reason whatsoever, be effectively registered under the
Securities Act of 1933, as then in effect, the Pledgee may, in its sole and
absolute discretion, sell such Pledged Partnership Interest or part thereof by
private sale in such manner and under such circumstances as the Pledgee may deem
necessary or advisable in order that such sale may legally be effected without
such registration; provided, that at least 10 days' notice of the time and place
of any such sale shall be given to the Pledgor. Without limiting the generality
of the Foregoing, in any such event the Pledgee, in its sole and absolute
discretion: (i) may proceed to make such private sale notwithstanding that a
registration statement for the purpose of registering such Pledged Partnership
Interest or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may restrict such sale to a purchaser who will represent and agree
that such purchaser is purchasing for its own account, for investment, and not
with a view to the distribution or sale of such Pledged Partnership Interest or
part thereof. In the event of any such sale, the Pledgee shall incur no
responsibility or liability for selling all or any part of such Pledged
Partnership Interest at a price which the Pledgee, in its sole and absolute
discretion, may in good faith deem reasonable under the circumstances,
notwithstanding the possibility that a substantially higher price might be
realized if the sale were deferred until after registration as aforesaid.

              19. TERMINATION, RELEASE. (a) After the Termination Date (as
defined below), this Agreement shall terminate (provided that all indemnities
set forth herein including, without limitation, in Section 11 hereof shall
survive such termination) and the Pledgee, at the request and expense of the
Pledgor, will promptly execute and deliver to the Pledgor a proper instrument or
instruments (including UCC termination statements on form UCC-3 or analogous
form) acknowledging the satisfaction and termination of this Agreement, and will
duly assign, transfer and deliver to the Pledgor (without recourse and without
any representation or warranty) such of the Collateral of the Pledgor as may be
in the possession of the Pledgee and as has not theretofore been sold or
otherwise applied or released pursuant to this Agreement. As used in this
Agreement, "Termination Date" shall mean the date upon which the Total
Commitment and all Interest Rate Protection Agreements and Other Hedging
Agreements have been terminated, no Note is outstanding (and all Loans have been
paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations have
been paid in full.

              (b) In the event that any part of the Collateral is sold in
connection with a sale permitted by Section 8.02 of the Credit Agreement or is
otherwise released at tie direction of the Required Banks (or all the Banks if
required by Section 12.12 of the Credit Agreement), and the 
<PAGE>   251
                                                                     EXHIBIT I-2
                                                                         PAGE 15


proceeds of such sale or sales or from such release are applied in accordance
with the terms of the Credit Agreement to the extent required to be so applied,
the Pledgee, at the request and expense of the Pledgor, will duly assign,
transfer and deliver to the Pledgor (without recourse and without any
representation or warranty) such of the Collateral as is then being (or has
been) so sold or released and as may be in the possession of the Pledgee and has
not theretofore been released pursuant to this Agreement.

              (c)  At any time that the Pledgor desires that Collateral be
released as provided in the foregoing Section 19(a) or (b), it shall deliver to
the Pledgee a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective Collateral
is permitted pursuant to Section 19(a) or (b). If requested by the Pledgee
(although the Pledgee shall have no obligation to make any such request), the
Pledgor shall furnish appropriate legal opinions (from counsel, which may be
in-house counsel, reasonably acceptable to the Pledgee) to the effect set forth
in the immediately preceding sentence. The Pledgee shall have no liability
whatsoever to any Secured Creditor as the result of any release of Collateral by
it as permitted by this Section 19.

              20.  NOTICES, ETC. All notices and other communications hereunder
shall be in writing and shall be delivered or mailed by first class mail,
postage prepaid, addressed:

              (a)  if to the Pledgor, at its address set forth opposite its
signature below;

              (b)  if to the Pledgee, at:

                   Fleet National Bank
                   Mail Stop MA0FD03D
                   1 Federal Street
                   Boston, MA 02110
                   Attention:  Christopher A. Swindell
                   Telephone No.: (617) 346-5579
                   Facsimile No.: (617) 346-4346

              (c)  if to any Bank (other than the Pledgee), at such address as
such Bank shall have specified in the Credit Agreement; and

              (d)  if to any Other Creditor directly to the Other Creditors al
such address as the Other Creditors shall have specified in writing to the
Pledgor and the Pledgee;

or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder.

              21.  WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be changed, waived, modified or varied in any manner whatsoever
unless in writing 
<PAGE>   252
                                                                     EXHIBIT I-2
                                                                         PAGE 16


duly signed by the Pledgor and the Pledgee (with the written consent of the
Required Banks (or all the Banks if required by Section 12.12 of the Credit
Agreement)); provided, that any change, waiver, modification or variance
affecting the rights and benefits of a single Class (as defined below) of
Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors (as defined below)
of such Class. For the purpose of this Agreement, the term "Class" shall mean
each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders
of the Credit Document Obligations or (ii) the Other Creditors as holders of the
Interest Rate Protection Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (i) with respect to
the Credit Document Obligations, the Required Banks and (ii) with respect to the
Interest Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection or
Other Hedging Agreements.

              22. MISCELLANEOUS. This Agreement shall be binding upon the
successors and assigns of the Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and its successors and assigns. THIS AGREEMENT SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
The headings in this Agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one instrument.

              23. LIMITED OBLIGATIONS. It is the desire and intent of the
Pledgor, the Pledgee and the Secured Creditors that this Agreement shall be
enforced against the Pledgor to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
If and to the extent that the obligations of the Pledgor under this Agreement
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers, which laws would determine the solvency of
the Pledgor by reference to the full amount of the Obligations at the time of
the execution and delivery of this Agreement), then the amount of the
Obligations of the Pledgor shall be deemed to be reduced and the Pledgor shall
pay the maximum amount of the Obligations which would be permissible under the
applicable law.

                                  *   *   *
<PAGE>   253
                                                                     EXHIBIT I-2
                                                                         PAGE 17


              IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as of
the date first above written.

Address:                                    GOLDEN SKY SYSTEMS, INC.,
605 W. 47th Street                            as Pledgor
Suite 300
Kansas City, MO 64112
Attention: Robert B. Weaver                 By: /s/ Rodney A. Weary
Tel: (816) 753-5544                             -------------------------------
Fax: (816) 753-5044                             Name:
                                                Title:

Mail Stop MA0FD03D                          FLEET NATIONAL BANK,
1 Federal Street                              as Pledgee
Boston, MA 02110
Attention:  Christopher A. Swindell
Tel: (617) 346-5579                         By: /s/Christopher A. Swindell
Fax: (617) 346-4346                             -------------------------------
                                                Name:
                                                Title:
<PAGE>   254
                                                                     EXHIBIT I-2
                                                                         PAGE 18


                                                          ANNEX A
                                                             to
                                               PARTNERSHIP PLEDGE AGREEMENT


                              PARTNERSHIP INTERESTS

A.       Pledgor

                                                                 Type of
                                    Percentage                 Partnership
         Partnership                  Owned                      Interest  
         -----------                ----------                 -----------
<PAGE>   255
                                                                     EXHIBIT I-2
                                                                         PAGE 19


                                                          ANNEX B
                                                             to
                                               PARTNERSHIP PLEDGE AGREEMENT


                                OFFICE LOCATIONS

A.       Pledgor


              Office Locations              County
              ----------------              ------
<PAGE>   256
                                                                     EXHIBIT I-2
                                                                         PAGE 20


                                                                ANNEX C
                                                                  to
                                                              PARTNERSHIP
                                                           PLEDGE AGREEMENT


                           FORM OF PARTNERSHIP NOTICE

                             [Letterhead of Pledgor]


                                                                          [Date]


TO:      [Name of Pledged Entity]

              Notice is hereby given that, pursuant to the Partnership Pledge
Agreement (a true and correct copy of which is attached hereto), dated as of
____________ ___, _____ (as amended, modified, restated or supplemented from
time to time in accordance with the terms thereof, the "Partnership Pledge
Agreement"), between [NAME OF PLEDGOR] (the "Pledgor") and Fleet National Bank
(the "Pledgee") on behalf of the Secured Creditors described therein, the
Pledgor has pledged and assigned to the Pledgee for the benefit of the Secured
Creditors, and granted to the Pledgee for the benefit of the Secured Creditors a
continuing security interest in, all right, title and interest of the Pledgor,
whether now existing or hereafter arising or acquired, as a general partner in
[NAME OF PARTNERSHIP] (the "Partnership"), and in, to and under the [TITLE OF
APPLICABLE PARTNERSHIP AGREEMENT] (the "Limited Partnership Agreement"),
including, without limitation:

         i) all the capital of the Partnership and the Pledgor's interest in all
profits, losses, Partnership Assets (as defined in the Partnership Pledge
Agreement) and other distributions to which the Pledgor shall at any time be
entitled in respect of such partnership interest;

         ii) all other payments due or to become due to the Pledgor in respect
of such partnership interest, whether under the Limited Partnership Agreement or
any related contract or otherwise, whether as contractual obligations, damages,
insurance proceeds or otherwise;

         iii) all of its claims, rights, powers, privileges, authority, options,
security interest, liens and remedies, if any, under the Limited Partnership
Agreement or any related contract or at law or otherwise in respect of such
partnership interest;

         iv) all present and future claims, if any, of the Pledgor against the
Partnership for moneys loaned or advanced, for services rendered or otherwise;
<PAGE>   257
                                                                     EXHIBIT I-2
                                                                         PAGE 21


         v)   all of the Pledgor's rights under the Limited Partnership
Agreement relating to such partnership or at law to exercise and enforce every
right, power, remedy, authority, option and privilege of the Pledgor relating to
its Partnership Interest, including any power to terminate, cancel or modify the
Limited Partnership Agreement, to execute any instruments and to take any and
all other action on behalf of and in the name of the Pledgor in respect of the
Partnership Interest and the Partnership, to make determinations, to exercise
any election (including, but not limited to, election of remedies) or option or
to give or receive any notice, consent, amendment, waiver or approval, together
with full power and authority to demand, receive, enforce, collect or receipt
for any of the foregoing or for any Partnership Asset, to enforce or execute any
checks, or other instruments or orders, to file any claims and to take any
action in connection with any of the foregoing;

         vi)  all other property hereafter delivered in substitution for or in
addition to any of the foregoing, all certificates and instruments representing
or evidencing such other property and all cash, securities, interest, dividends,
rights and other property at any time and from time to time received, receivable
or otherwise distributed in respect of or in exchange for any or all thereof;
and

         vii) to the extent not otherwise included, all proceeds of any or all
of the foregoing.

              Pursuant to the Partnership Pledge Agreement, the Partnership is
hereby authorized and directed to register the Pledgor's pledge to the Pledgee
on behalf of the Secured Creditors of the interest of the Pledgor on the
Partnership's books.

                                  *   *   *
<PAGE>   258
                                                                     EXHIBIT I-2
                                                                         PAGE 22


              The Pledgor hereby requests the Partnership to indicate the
Partnership's acceptance of this Notice and consent to and confirmation of its
terms and provisions by signing a copy hereof where indicated on the attached
page and returning the same to the Pledgee on behalf of the Secured Creditors.


                                            [NAME OF PLEDGOR]



                                            By:_____________________
                                               Name:
                                               Title:
<PAGE>   259
                                                                     EXHIBIT I-2
                                                                         PAGE 23

                                                                ANNEX D
                                                                   to
                                                              PARTNERSHIP
                                                           PLEDGE AGREEMENT

                             FORM OF ACKNOWLEDGMENT

              [NAME OF PLEDGED ENTITY] (the "Partnership") hereby acknowledges
receipt of a copy of the assignment by [NAME OF PLEDGOR] (the "Pledgor") of its
interest under the [TITLE OF APPLICABLE PARTNERSHIP AGREEMENT] pursuant to the
terms of the Partnership Pledge Agreement, dated as of ____________ __, _____,
between the Pledgor and Fleet National Bank (the "Pledgee") on behalf of the
Secured Creditors described therein. The undersigned hereby further confirms the
registration of the Pledgor's pledge of its interest to the Pledgee on behalf of
the Secured Creditors on the Partnership's books.

Dated: __________ __, _____


                                            [NAME OF PARTNERSHIP]



                                            By:_____________________
                                               Name:
                                               Title:
<PAGE>   260
                                                                       EXHIBIT J
                                                                          Page 1

                                                         [CONFORMED AS EXECUTED]


                        SECURITY DOCUMENTS ACKNOWLEDGMENT


                                                                     May 8, 1998

To the Agents and each of the Banks
party to the Credit Agreement
referred to below:

Ladies and Gentlemen:

     Reference is made to (i) the Amended and Restated Credit Agreement, dated
as of July 7, 1997, amended and restated as of May 8, 1998, among Golden Sky
Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
financial institutions party thereto, Banque Paribas, as Syndication Agent,
Fleet National Bank, as Administrative Agent, and General Electric Capital
Corporation, as Documentation Agent (as so amended and restated and as further
amended, modified or supplemented from time to time, the "Credit Agreement"),
pursuant to which, among other things, the Total Commitment was increased from
$100,000,000 to $150,000,000, (ii) the Borrower/Subsidiary Pledge Agreement,
dated as of July 7, 1997 (as amended, modified and supplemented from time to
time, including, without limitation, as modified hereby, the
"Borrower/Subsidiary Pledge Agreement"), made by the Pledgors under, and as
defined in, the Borrower/Subsidiary Pledge Agreement, in favor of Fleet National
Bank, as Collateral Agent and Pledgee for the benefit of the Secured Creditors
(as defined in the Borrower/Subsidiary Pledge Agreement), (iii) the Security
Agreement, dated as of July 7, 1997 (as amended, modified and supplemented from
time to time, including, without limitation, as modified hereby, the "Security
Agreement"), made by the Assignors under, and as defined in, the Security
Agreement, in favor of Fleet National Bank, as Collateral Agent and Assignee for
the benefit of the Secured Creditors (as defined in the Security Agreement) and
(iv) the Collateral Assignment of Marketing and Distribution Agreements, dated
as of July 7, 1997 (as amended, modified and supplemented from time to time,
including, without limitation, as modified hereby, the "Collateral Assignment of
Marketing and Distribution Agreements") made by the Borrower, as Assignor under,
and as defined in, the Collateral Assignment of Marketing and Distribution
Agreements, in favor of Fleet National Bank, as Collateral Agent and Assignee
for the benefit of the Secured Creditors (as defined in the Collateral
Assignment of Marketing and Distribution Agreements), as acknowledged and agreed
to by the NRTC and DirecTV, Inc. (DirecTV, Inc. together with the Borrower,
Fleet National Bank and the NRTC, the "Collateral Assignment Parties"). Unless
otherwise indicated herein, capitalized terms used but not defined herein shall
have the respective meanings set forth in the Credit Agreement.

I.   BORROWER/SUBSIDIARY PLEDGE AGREEMENT ACKNOWLEDGMENT
<PAGE>   261
                                                                       EXHIBIT J
                                                                          Page 2


          1. By executing this Security Documents Acknowledgment, Argos is
hereby made a party to the Borrower/Subsidiary Pledge Agreement (conformed as
executed and attached hereto as Exhibit A) and is a Pledgor (as defined in the
Borrower/Subsidiary Pledge Agreement) thereunder.

          2. Each of the undersigned which is a party to the Borrower/Subsidiary
Pledge Agreement hereby acknowledges the Credit Agreement and the transactions
contemplated thereby.

          3. Each such Pledgor hereby acknowledges and agrees, and represents
and warrants, that on and after the occurrence of, and after giving effect to,
the Restatement Effective Date, (i) it constitutes a "Pledgor" which is a party
to the Borrower/Subsidiary Pledge Agreement, (ii) the Borrower/Subsidiary Pledge
Agreement shall remain in full force and effect with respect to such Pledgor,
and (iii) the Credit Agreement and the Obligations under the Credit Agreement
shall constitute the "Credit Agreement" and the "Obligations," respectively, in
each case, under, and as defined in, the Borrower/Subsidiary Pledge Agreement
and shall continue to be entitled to the benefits of the Borrower/Subsidiary
Pledge Agreement. Each of the undersigned Pledgors which are party to the
Borrower/Subsidiary Pledge Agreement hereby makes in all material respects each
of the representations and warranties contained in the Borrower/Subsidiary
Pledge Agreement on the date hereof, both before and after giving effect to this
Acknowledgment, unless stated to relate to a specific earlier date in which case
such representations and warranties shall be true and correct in all material
respects as of such earlier date.

          4. By executing and delivering this Acknowledgment, each of the
undersigned Pledgors party to the Borrower/Subsidiary Pledge Agreement hereby
further agrees to (a) update and attach Annexes A and B (replacing the existing
annexes if any of such annexes have been changed) to the Borrower/Subsidiary
Pledge Agreement (as described in Section 2 to the Borrower/Subsidiary Pledge
Agreement), (b) execute and deliver to the Pledgee such financing statements and
other documents, in the form acceptable to the Pledgee, and (c) take such other
actions, as the Pledgee may request or as are necessary or desirable in the
opinion of the Pledgee to establish and maintain a valid, enforceable, first
priority perfected security interest in the Collateral (as defined in the
Borrower/Subsidiary Pledge Agreement).

II.  SECURITY AGREEMENT ACKNOWLEDGMENT

          1. By executing this Security Documents Acknowledgment, Argos is
hereby made a party to the Security Agreement (conformed as executed and
attached hereto as Exhibit B) and is an Assignor (as defined in the Security
Agreement) thereunder.

          2. Each of the undersigned which is a party to the Security Agreement
hereby acknowledges the Credit Agreement and the transactions contemplated
thereby.

          3. Each Assignor hereby acknowledges and agrees, and represents and
warrants, that on and after the occurrence of, and after giving effect to, the
Restatement Effective Date, (i) it
<PAGE>   262
                                                                       EXHIBIT J
                                                                          Page 3


constitutes an "Assignor" which is a party to the Security Agreement, (ii) the
Security Agreement shall remain in full force and effect with respect to such
Assignor, and (iii) the Credit Agreement and the obligations under the Credit
Agreement shall constitute the "Credit Agreement" and the "Obligations,"
respectively, in each case, under, and as defined in, the Security Agreement and
shall continue to be entitled to the benefits of the Security Agreement. Each of
the undersigned Assignors hereby makes in all material respects each of the
representations and warranties contained in the Security Agreement on the date
hereof, both before and after giving effect to this Acknowledgment, unless
stated to relate to a specific earlier date in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date.

          4. By executing and delivering this Acknowledgment, each of the
undersigned Assignors hereby further agrees to (a) update and attach Annexes A,
B, C, D, E, F and G (as described in Sections 2.4, 2.5, 2.6, 4.1 and 5.1 of the
Security Agreement) (replacing the existing annexes if any of such annexes have
been changed) to the Security Agreement and (b) execute and deliver to the
Assignee such financing statements and other documents, in the form acceptable
to the Assignee, and take such other actions, as the Assignee may request or as
are necessary or desirable in the opinion of the Assignee to establish and
maintain a valid, enforceable, first priority perfected security interest in the
Collateral (as defined in the Security Agreement).

III. COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS

          1. By executing the Collateral Assignment Acknowledgment (attached
hereto as Annex I), each of the Collateral Assignment Parties hereby
acknowledges the Credit Agreement and the transactions contemplated thereby.

          2. By executing the Collateral Assignment Acknowledgment (attached
hereto as Annex I), each of the Collateral Assignment Parties hereby
acknowledges and agrees, and represents and warrants, that on and after the
occurrence of, and after giving effect to, the Restatement Effective Date, (i)
it remains party to the Collateral Assignment of Marketing and Distribution
Agreements (as executed and attached hereto as Exhibit C) and (ii) the
Collateral Assignment of Marketing and Distribution Agreements shall remain in
full force and effect with respect to each of the Collateral Assignment Parties.

IV.  MISCELLANEOUS PROVISIONS

          1. This Acknowledgment may be signed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.

          2. This Acknowledgment is limited as specified and shall not
constitute an acceptance, consent or waiver of any other provision of the
Borrower/Subsidiary Pledge Agreement,
<PAGE>   263
                                                                       EXHIBIT J
                                                                          Page 4


the Security Agreement, the Collateral Assignment of Marketing and Distribution
Agreements or any other Credit Document.

          3. THIS ACKNOWLEDGMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.


                                      * * *
<PAGE>   264
                                                                       EXHIBIT J
                                                                          Page 5


          IN WITNESS WHEREOF, each of the undersigned has caused this Collateral
Assignment Acknowledgment to be duly executed and delivered as of the date first
above written.

                            GOLDEN SKY SYSTEMS, INC.



                            By:    /s/ Robert B. Weaver
                                   -------------------------------
                            Name:  Robert B. Weaver
                            Title: Chief Financial Officer


                            ARGOS SUPPORT SERVICES, INC.



                            By:     /s/ Rodney A. Weary
                                    ------------------------------
                            Name:   Rodney A. Weary
                            Title:  President


ACKNOWLEDGED AND AGREED:

FLEET NATIONAL BANK,
  as Collateral Agent


By:  /s/ Christopher A. Swindell
     ------------------------------
     Name:  Christopher A. Swindell
     Title:  Vice President
<PAGE>   265
                                                                       EXHIBIT J
                                                                          Page 6



                                               EXHIBIT A to the
                                               Security Documents Acknowledgment

                                                         [CONFORMED AS EXECUTED]


                      BORROWER/SUBSIDIARY PLEDGE AGREEMENT


          PLEDGE AGREEMENT, dated as of July 7, 1997 (as amended, modified or
supplemented from time to time, the "Agreement"), made by each of the
undersigned (each, a "Pledgor" and collectively the "Pledgors"), in favor of
FLEET NATIONAL BANK, as Collateral Agent (the "Pledgee"), for the benefit of (x)
the Banks (as defined below) and the Agents (as defined below) under, and any
other lender from time to time party to the Credit Agreement hereinafter
referred to (such Banks, the Agents and the other lenders, if any, are
hereinafter called the "Bank Creditors") and (y) if the Agents in their
individual capacity, any Bank or a syndicate of financial institutions organized
by the Agents or any such Bank or an affiliate of the Agents or such Bank enter
into one or more (i) interest rate protection agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements),
(ii) foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values and/or (iii) other types of hedging agreements from time to time
(collectively, the "Interest Rate Protection or Other Hedging Agreements"),
with, or guaranteed by, the Borrower (as defined below) or any of its
Subsidiaries, the Agents, any such Bank or an affiliate of the Agents or such
Bank (even if either of the Agents or any such Bank ceases to be a Bank under
the Credit Agreement for any reason) and any such institution that participates
in such Interest Rate Protection or Other Hedging Agreements and their
subsequent assigns (collectively, the "Other Creditors" and, together with the
Bank Creditors, are herein called the "Secured Creditors"). Except as otherwise
defined herein, terms used herein and defined in the Credit Agreement shall be
used herein as therein defined.


                              W I T N E S S E T H :


          WHEREAS, Golden Sky Systems, Inc. (the "Borrower"), the financial
institutions from time to time party thereto (the "Banks") and Banque Paribas,
as Syndication Agent and as Managing Agent ("Banque Paribas"), and Fleet
National Bank, as Administrative Agent and as Managing Agent ("Fleet", and
together with Banque Paribas, the "Agents"), have entered into a Credit
Agreement, dated as of July 7, 1997, providing for the making of Loans and the
issuance of, and participation in, Letters of Credit as contemplated therein (as
used herein, the term "Credit Agreement" means the Credit Agreement described
above in this paragraph, as the same may be amended, modified, extended,
renewed, replaced, restated, supplemented, restructured or refinanced from time
to time, and including any agreement extending the maturity of, refinancing or
restructuring
<PAGE>   266
                                                                       EXHIBIT J
                                                                          Page 7


(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the Indebtedness under such agreement or any successor agreements;
provided, that with respect to any agreement providing for the refinancing of
Indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full at
the time of such refinancing, and all commitments and letters of credit issued
pursuant to the refinanced Credit Agreement shall have terminated in accordance
with their terms or (B) the Required Banks shall have consented in writing to
the refinancing Indebtedness being treated along with their Indebtedness, as
Indebtedness pursuant to the Credit Agreement, (ii) the refinancing Indebtedness
shall be permitted to be incurred under the Credit Agreement being refinanced
(if such Credit Agreement is to remain outstanding) and (iii) a notice to the
effect that the refinancing Indebtedness shall be treated as issued under the
Credit Agreement shall be delivered by the Borrower to the Collateral Agent);

          WHEREAS, to the extent that the Borrower creates or acquires any
Subsidiary in accordance with the terms of the Credit Agreement, such Subsidiary
will enter into the Subsidiaries Guaranty pursuant to which such Subsidiary
shall from time to time jointly and severally guarantee to the Secured Creditors
the payment when due of all obligations and liabilities of the Borrower under or
with respect to the Credit Documents and each Interest Rate Protection Agreement
or Other Hedging Agreement with one or more Other Creditors;

          WHEREAS, the Borrower desires to incur Loans and to have Letters of
Credit issued for its account pursuant to the Credit Agreement;

          WHEREAS, the Borrower may at any time and from time to time enter into
one or more Interest Rate Protection or Other Hedging Agreements with one or
more Other Creditors;

          WHEREAS, it is a condition to each of the above-described extensions
of credit to the Borrower that each Pledgor shall have executed and delivered
this Agreement to the Pledgee; and

          WHEREAS, each Pledgor desires to execute this Agreement to satisfy the
conditions described in the preceding paragraph;

          NOW, THEREFORE, in consideration of the benefits accruing to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, each
Pledgor hereby makes the following representations and warranties to the Pledgee
for the benefit of the Secured Creditors and hereby covenants and agrees with
the Pledgee for the benefit of the Secured Creditors as follows:


          1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor
for the benefit of the Secured Creditors to secure:
<PAGE>   267
                                                                       EXHIBIT J
                                                                          PAGE 8


               i) the full and prompt payment when due (whether at the stated
          maturity by acceleration or otherwise) of all obligations and
          indebtedness (including, without limitation, indemnitees, fees and
          interest thereon) of such Pledgor owing to the Bank Creditors, now
          existing or hereafter incurred under, arising out of or in connection
          with any Credit Document and the due performance and compliance by
          such Pledgor with the terms of each such Credit Document (all such
          obligations and liabilities under this clause (i), except to the
          extent consisting of obligations or indebtedness with respect to
          Interest Rate Protection or Other Hedging Agreements, being herein
          collectively called the "Credit Document Obligations").

               ii) the full and prompt payment when due (whether at the stated
          maturity, by acceleration or otherwise) of all obligations and
          indebtedness (including, without limitation, indemnitees, fees and
          interest thereon) of such Pledgor owing to the Other Creditors, now
          existing or hereafter incurred under, arising out of or in connection
          with any Interest Rate Protection or Other Hedge Agreement (all such
          obligations and indebtedness under this clause (ii) being herein
          collectively called the "Interest Rate Protection Obligations");

               iii) any and all sums advanced by the Pledgee in accordance with
          the terms of this Agreement in order to preserve the Collateral (as
          defined in Section 3.4 herein) or preserve its security interest in
          the Collateral;

               iv) in the event of any proceeding for the collection or
          enforcement of any indebtedness, obligations, or liabilities referred
          to in clauses (i), (ii) and (iii) above, after an Event of Default
          (such term, as used in this Agreement, shall mean any Event of Default
          under, and as defend in, the Credit Agreement, or any payment default
          under any Interest Rate Protection or Other Hedging Agreement after
          the expiration of any applicable grace period and shall in any event
          include, without limitation, any payment default on any of the
          Obligations (as hereinafter defined) after the expiration of any
          applicable grace period) shall have occurred and be continuing, the
          reasonable expenses of retaking, holding, preparing for sale or lease,
          selling or otherwise disposing or realizing on the Collateral, or of
          any exercise by the Pledgee of its rights hereunder, together with
          reasonable attorneys' fees and court costs; and

               v) all amounts paid by any Indemnitee as to which such Indemnitee
          has the right to reimbursement under Section 11 of this Agreement;

all such obligations, liabilities, sums and expenses set forth in clauses (i)
through (v) of this Section 1 being herein collectively called the
"Obligations"; provided, that it is acknowledged and agreed that the
"Obligations" shall include extensions of credit of the types described above,
whether outstanding on the date of this Agreement or extended from time to time
after the date of this Agreement.

          2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein, (i)
the term "Stock" shall mean all of the issued and outstanding shares of capital
stock at any time owned by the Pledgor of any corporation and (ii) the term
"Notes" shall mean all promissory notes
<PAGE>   268
                                                                       EXHIBIT J
                                                                          PAGE 9


at any time issued to the Pledgor by any of its Subsidiaries, Affiliates or any
other Person. As used herein, the term "Securities" shall mean all of the Stock
and Notes. The Pledgor represents and warrants, as to the Stock of corporations
and promissory notes owned by the Pledgor, that on the date hereof (a) the Stock
consists of the number and type of shares of the stock of the corporations as
described in Annex A hereto; (b) such Stock constitutes that percentage of the
issued and outstanding capital stock of the issuing corporation as is set forth
in Annex A hereto; (c) the Note; consist of the promissory notes described in
Annex B hereto; and (d) the Pledgor is the holder of record and sole beneficial
owner of the Stock and the Notes and there exist no options or preemption rights
in respect of any of the Stock.

          3. PLEDGE OF SECURITIES, ETC.

          a. Pledge. To secure the Obligations and for the purposes set forth in
Section 1, each Pledgor hereby: (i) grants to the Pledgee a security interest in
all of the Collateral owned by the Pledgor; (ii) pledges and deposits as
security with the Pledgee the Securities owned by such Pledgor on the date
hereof, and delivers to the Pledgee certificates or instruments therefor, duly
endorsed in blank in the case of Notes and accompanied by undated stock powers
duly executed in blank by such Pledgor in the case of Stock, or such other
instruments of transfer as are reasonably acceptable to the Pledgee; and (iii)
assigns, transfers, hypothecates, mortgages, charges and sets over to the
Pledgee all of such Pledgor's right, title and interest in and to such
Securities (and in and to all certificates or instruments evidencing such
Securities), in each case to be held by the Pledgee, upon the terms and
conditions set forth in this Agreement.

          b. Subsequently Acquired Securities. If any Pledgor shall acquire (by
purchase, stock dividend or otherwise) any additional Securities at any time or
from time to time after the date hereof, the Pledgor will forthwith pledge and
deposit such Securities (or certificates or instruments representing such
Securities) as security with the Pledgee and deliver to the Pledgee certificates
therefor or instruments thereof, duly endorsed in blank in the case of Notes and
accompanied by undated stock powers duly executed in blank in the case of Stock,
or such other instruments of transfer as are reasonably acceptable to the
Pledgee, to secure the Obligations and for the purposes set forth in Section 1,
and will promptly thereafter deliver to the Pledgee a certificate executed by
any of the Chairman of the Board, the Chief Financial Officer, the President, a
Vice Chairman, any Vice President or the Treasurer of such Pledgor describing
such Securities and certifying that the same have been duly pledged with the
Pledgee hereunder.

          c. Uncertificated Securities. Notwithstanding anything to the contrary
contained in Sections 3.1 and 3.2 (other than the last sentence of Section 3.2),
if any Securities (whether now owned or hereafter acquired) are uncertificated
securities, the respective Pledgor shall promptly notify the Pledgee thereof,
and shall promptly take all actions required to perfect the security interest of
the Pledgee under applicable law (including, in any event, under Sections 8-313
and 8-321 of the New York UCC, if applicable). Each Pledgor further agrees to
take such actions as the Pledgee reasonably deems necessary or desirable to
effect the foregoing and to permit the Pledgee to exercise any of its rights and
remedies hereunder, and agrees to provide an opinion of counsel satisfactory to
the Pledgee
<PAGE>   269
                                                                       EXHIBIT J
                                                                         PAGE 10


with respect to any such pledge of uncertificated Securities promptly upon
request of the Pledgee.

          d. Definition of Pledged Stock, Pledged Notes, Pledged Securities and
Collateral. All Stock at any time pledged or required to be pledged hereunder is
hereinafter called the "Pledged Stock," all Notes at any time pledged or
required to be pledged hereunder are hereinafter called the "Pledged Notes," all
of the Pledged Stock and Pledged Notes together are hereinafter called the
"Pledged Securities," which together with all proceeds thereof, including any
securities and moneys received and at the time held by the Pledgee hereunder, is
hereinafter called the "Collateral."

          4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall
have the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the Pledged Securities.

          5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an
Event of Default shall have occurred and be continuing and (ii) written notice
thereof shall have been given by the Pledgee to the relevant Pledgor (provided,
that if an Event of Default specified in Section 9.05 of the Credit Agreement
shall occur, no such notice shall be required), each Pledgor shall be entitled
to exercise any and all voting and other consensual rights pertaining to the
Pledged Securities owned by it and to give consents, waivers or ratifications in
respect thereof; provided, that no vote shall be cast or any consent, waiver or
ratification given or any action taken which would violate or be inconsistent
with any of the terms of this Agreement, any other Credit Document or any
Interest Rate Protection or Other Hedging Agreement (collectively, the "Secured
Debt Agreements"), or which would have the effect of impairing the position or
interests of the Pledgee or any Secured Creditor. All such rights of such
Pledgor to vote and to give consents, waivers and ratifications shall cease in
case an Event of Default shall occur and be continuing and Section 7 hereof
shall become applicable.

          6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall
have occurred and be continuing (or would occur as a result thereof), all cash
dividends payable in respect of the Pledged Stock and all payments in respect of
the Pledged Notes shall be paid to the respective Pledgor free and clear of the
security interests created under this Agreement or any other Credit Document;
provided, that all cash dividends payable in respect of the Pledged Stock which
are reasonably determined by the Pledgee, in its sole discretion, to represent
in whole or in part an extraordinary, liquidating or other distribution in
return of capital shall be paid, to the extent so determined to represent an
extraordinary, liquidating or other distribution in return of capital, to the
Pledgee and retained by it as part of the Collateral. The Pledgee shall also be
entitled to receive directly, and to retain as part of the Collateral:

               i) all other or additional stock or other securities or property
          (other than cash) paid or distributed by way of dividend or otherwise
          in respect of the Pledged Stock;

               ii) all other or additional stock or other securities or property
          (including cash) paid or distributed in respect of the Pledged Stock
          by way of stock-split, spinoff, split-
<PAGE>   270
                                                                       EXHIBIT J
                                                                         PAGE 11


          up, reclassification, combination of shares or similar rearrangement;
          and

               iii) all other or additional stock or other securities or
          property (including cash) which may be paid in respect of the
          Collateral by reason of any consolidation, merger, exchange of stock,
          conveyance of assets, liquidation or similar corporate reorganization.


Nothing contained in this Section 6 shall limit or restrict in any way the
Pledgee's right to receive proceeds of the Collateral in any form in accordance
with Section 3 of this Agreement. All dividends, distributions or other payments
which are received by any Pledgor contrary to the provisions of this Section 6
and Section 7 shall be received in trust for the benefit of the Pledgee, shall
be segregated from other property of funds of such Pledgor and shall be
forthwith paid over to the Pledgee as Collateral in the same form as so received
(with any necessary endorsement).

          7. REMEDIES IN CASE OF EVENT OF DEFAULT. (a) In case an Event of
Default shall have occurred and be continuing, the Pledgee shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement or by any other Secured Debt Agreement or by law) for the protection
and enforcement of its rights in respect of the Collateral, and the Pledgee
shall be entitled, without limitation, to exercise the following rights, which
each Pledgor hereby agrees to be commercially reasonable:

               i) to receive all amounts payable in respect of the Collateral
          payable to such Pledgor under Section 6;

               ii) to transfer all or any part of the Pledged Securities into
          the Pledgee's name or the name of its nominee or nominees;

               iii) to accelerate any Pledged Note which may be accelerated in
          accordance with its terms, and take any other action to collect upon
          any Pledged Note (including, without limitation, to make any demand
          for payment of amounts then due and payable thereon);

               iv) to vote all or any part of the Pledged Securities (whether or
          not transferred into the name of the Pledgee) and give all consents,
          waivers and ratifications in respect of the Collateral and otherwise
          act with respect thereto as though it were the outright owner thereof
          (each Pledgor hereby irrevocably constituting and appointing the
          Pledgee the proxy and attorney-in-fact of such Pledgor, with full
          power of substitution to do so); and

               v) at any time or from time to time to sell, assign and deliver,
          or grant options to purchase, all or any part of the Collateral, or
          any interest therein, at any public or private sale, without demand of
          performance, advertisement or notice of intention to sell or of the
          time or place of sale or adjournment thereof or to redeem or otherwise
          (all of which are hereby waived by each Pledgor to the extent
          permitted by applicable law), for cash, on credit or for other
          property, for immediate or future delivery without any assumption of
          credit risk, and for such price or prices and on such terms as the
          Pledgee may, in compliance with any
<PAGE>   271
                                                                       EXHIBIT J
                                                                         PAGE 12


          mandatory requirements of applicable law, determine to be commercially
          reasonable; provided, that at least 10 days' notice of the time and
          place of any such sale shall be given to such Pledgor. Each Pledgor
          hereby waives and releases to the fullest extent permitted by law any
          right or equity of redemption with respect to the Collateral, whether
          before or after sale hereunder, and all rights, if any, of marshalling
          the Collateral and any other security for the Obligations or
          otherwise. At any such sale, unless prohibited by applicable law, the
          Pledgee on behalf of the Secured Creditors may bid for and purchase
          all or any part of the Collateral so sold free from any such right or
          equity of redemption. Neither the Pledgee nor any Secured Creditor
          shall be liable for failure to collect or realize upon any or all of
          the Collateral or for any delay in so doing nor shall any of them be
          under any obligation to take any action whatsoever with regard
          thereto.

          (b) In case the Pledgee shall have instituted any proceeding to
enforce any right, power or remedy under this Agreement by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Pledgee,
then and in such case the relevant Pledgor, the Pledgee and each holder of any
of the Obligations shall be restored to their former positions and rights
hereunder with respect to the Collateral subject to the security interests
created under this Agreement, and all rights, remedies and powers of the Pledgee
shall continue as if no such proceeding, had been instituted.

          8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the
Pledgee provided for in this Agreement or any other Secured Debt Agreement or
now or hereafter existing at law or in equity or by statute shall be cumulative
and concurrent and shall be in addition to every other such right, power or
remedy. The exercise or beginning of the exercise by the Pledgee or any Secured
Creditor of any one or more of the rights, powers or remedies provided for in
this Agreement or any other Secured Debt Agreement or now or hereafter existing
at law or in equity, or by statute or otherwise shall not preclude the
simultaneous or later exercise by the Pledgee or any Secured Creditor of all
such other rights, powers or remedies, and no failure or delay on the part of
the Pledgee or any Secured Creditor to exercise any such right, power or remedy
shall operate as a waiver thereof.

          9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee
upon any sale or other disposition of the Collateral pursuant to the terms of
this Agreement, together with all other moneys received by the Pledgee
hereunder, shall be applied as follows:

               i) first, to the payment of all Obligations owing to the Pledgee
          (or any Indemnitee, in the case of clause (v) of Section 1 of this
          Agreement) of the type described in clauses (iii), (iv) and (v) of
          Section 1 of this Agreement;

               ii) second, to the extent moneys remain after the application
          pursuant to the preceding clause (i), an amount equal to the
          outstanding Primary Obligations shall be paid to the Secured Creditors
          as provided in Section 9(e), with each Secured Creditor receiving an
          amount equal to its outstanding Primary Obligations or, if the
          proceeds are insufficient to pay
<PAGE>   272
                                                                       EXHIBIT J
                                                                         PAGE 13


          in full all such Primary Obligations, its Pro Rata Share of the amount
          remaining to be distributed;

               iii) third, to the extent proceeds remain after the application
          pursuant to the preceding clauses (i) and (ii), an amount equal to the
          outstanding Secondary Obligations shall be paid to the Secured
          Creditors as provided in Section 9(e), with each Secured Creditor
          receiving an amount equal to its outstanding Secondary Obligations or,
          if the proceeds are insufficient to pay in full all such Secondary
          Obligations, its Pro Rata Share of the amount remaining to be
          distributed; and

               iv) fourth, to the extent proceeds remain after the application
          pursuant to the preceding clauses (i), (ii) and (iii), to the relevant
          Pledgor or as required by applicable law.

          (2) For purposes of this Agreement (x) "Pro Rata Share" shall mean,
when calculating a Secured Creditor's portion of any distribution or amount,
that amount (expressed as a percentage) equal to a fraction the numerator of
which is the then unpaid amount of such Secured Creditor's Primary Obligations
or Secondary Obligations, as the case may be, and the denominator of which is
the then outstanding amount of all Primary Obligations or Secondary Obligations,
as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the
Credit Document Obligations, all principal of, and interest on, all Loans, all
Unpaid Drawings theretofore made (together with all interest accrued thereon),
the aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees and (ii) in the case of the Interest Rate Protection
Obligations, all amounts due under the Interest Rate Protection or Other Hedging
Agreements (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.

          (3) When payments to Secured Creditors are based upon their respective
Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall
be applied (i) first, to their Primary Obligations and (ii) second, to their
Secondary Obligations. If any payment to any Secured Creditor of its Pro Rata
Share of any distribution, would result in overpayment to such Secured Creditor,
such excess amount shall instead be distributed in respect of the unpaid Primary
Obligations or Secondary Obligations, as this case may be, of the other Secured
Creditors, with each Secured Creditor whose Primary Obligations or Secondary
Obligations, as the case may be, have not been paid in full to receive an amount
equal to such excess amount multiplied by a fraction the numerator of which is
the unpaid Primary Obligations or Secondary Obligations, as the case may be, of
such Secured Creditor and the denominator of which is the unpaid Primary
Obligations or Secondary Obligations, as the case may be, of all Secured
Creditors entitled to such distribution.

          (4) Each of the Secured Creditors agrees and acknowledges that if the
Bank Creditors are to receive a distribution on account of undrawn amounts with
respect to Letters of Credit issued under the Credit Agreement (which shall only
occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and
<PAGE>   273
                                                                       EXHIBIT J
                                                                         PAGE 14


ratable benefit of the Bank Creditors, as cash security for the repayment of
Obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
Creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned by the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 9(a) hereof.

          (5) Except as set forth in Section 9(d) hereof, all payments required
to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, to the trustee, paying agent or
other similar representative (each a "Representative") for the Other Creditors
or, in the absence of such a Representative, directly to the Other Creditors.

          (6) For purposes of applying payments received in accordance with this
Section 9, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) the Representative for
the Other Creditors or, in the absence of such a Representative, upon the Other
Creditors for a determination (which the Administrative Agent, each
Representative for any Secured Creditors and the Secured Creditors agree (or
shall agree) to provide upon request of the Collateral Agent) of the outstanding
Primary Obligations and Secondary Obligations owed to the Bank Creditors or the
Other Creditors, as the case may be. Unless it has actual knowledge (including
by way of written notice from a Bank Creditor or an Other Creditor) to the
contrary, the Administrative Agent and each Representative, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from an Other Creditor) to the contrary, the Collateral Agent, in acting
hereunder, shall be entitled to assume that no Interest Rate Protection or Other
Hedging Agreements are in existence.

          (7) It is understood and agreed that the Pledgors shall remain jointly
and severally liable to the extent of any deficiency between the amount of the
Proceeds of the Collateral hereunder and the aggregate amount of the sums
referred to in clauses (i), (ii) and (iii) of Section 9(a).

          10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the
Pledgee hereunder (whether by virtue of the power of sale herein granted,
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.

          11. INDEMNITY.

          a. Indemnity. (a) Each Pledgor jointly and severally agrees to
indemnify, reimburse and hold the Pledgee, each Secured Creditor and their
respective successors, permitted assigns,
<PAGE>   274
                                                                       EXHIBIT J
                                                                         PAGE 15


employees, agents and servants (hereinafter in this Section 11.1 referred to
individually as "Indemnitee," and collectively as "Indemnities") harmless from
any and all liabilities, obligations, damages, injuries, penalties, claims,
demands, actions, suits, judgments and any and all costs, expenses or
disbursements (including attorneys' fees and expenses) (for the purposes of this
Section 11.1 the foregoing are collectively called "expenses") of whatsoever
kind and nature imposed on, asserted against or incurred by any of the
Indemnities in any way relating to or arising out of this Agreement, any other
Secured Debt Agreement or any other document executed in connection herewith and
therewith or in any other way connected with the administration of the
transactions contemplated hereby and thereby or the enforcement of any of the
terms of, or the preservation of any rights under any thereof, the violation of
the laws of any country, state or other governmental body or unit, any tort or
contract claim; provided, that no Indemnitee shall be indemnified pursuant to
this Section 11.1(a) for losses, damages or liabilities to the extent caused by
the gross negligence or willful misconduct of such Indemnitee. In no event shall
any Indemnitee be liable for any matter or thing, in connection with this
Agreement other than to account for moneys actually received by it in connection
with the terms hereof. Each Pledgor agrees that upon written notice by any
Indemnitee of the assertion of such a liability, obligation, damage, injury,
penalty, claims, demand, action, judgment or suit, such Pledgor shall assume
full responsibility for the defense thereof. Each Indemnitee agrees to use its
best efforts to promptly notify the relevant Pledgor of any such assertion of
which such Indemnitee has knowledge.

          (2) Without limiting the application of Section ll.l(a), each Pledgor
jointly and severally agrees to pay or reimburse the Pledgee for any and all
fees, costs and expenses of whatever kind or nature reasonably incurred in
connection with the creation, preservation or protection of the Pledgee's Liens
on, and security interest in, the Collateral, including, without limitation, all
fees and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral (other than Liens permitted under this Agreement or
the Credit Agreement so long as no Event of Default has occurred and is
continuing) and all other reasonable fees, costs and expenses in connection with
protecting, maintaining or preserving the Collateral and the Pledgee's interest
therein, whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.

          (3) If and to the extent that the obligations of any Pledgor under
this Section 11 are unenforceable for any reason, such Pledgor hereby agrees to
make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

          b. Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Pledgor contained in this Section 11 shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Letters of
Credit and all Interest Rate Protection or Other Hedging Agreements and the
payment of all other Obligations and notwithstanding the
<PAGE>   275
                                                                       EXHIBIT J
                                                                         PAGE 16


discharge thereof.

          12. FURTHER ASSURANCES; POWER-OF-ATTORNEY. (a) Each Pledgor agrees
that it will join with the Pledgee in executing and, at such Pledgor's own
expense, file and refile under the UCC such financing statements, continuation
statements and other documents in such offices as the Pledgee may deem necessary
or appropriate and wherever required or permitted by law in order to perfect and
preserve the Pledgee's security interest in the Collateral and hereby authorizes
the Pledgee to file financing statements and amendments thereto relative to all
or any part of the Collateral without the signature of such Pledgor where
permitted by law, and agrees to do such further acts and things and to execute
and deliver to the Pledgee such additional conveyances, assignments, agreements
and instruments as the Pledgee may reasonably require or deem advisable to carry
into effect the purposes of this Agreement or to further assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.

          (b) Each Pledgor hereby appoints the Pledgee as its attorney-in-fact,
with full authority in the place and stead of such Pledgor and in the name of
such Pledgor or otherwise, from time to time after the occurrence and during the
continuance of an Event of Default, in the Pledgee's discretion to take any
action and to execute any instrument which the Pledgee may deem necessary or
advisable to accomplish the purposes of this Agreement.

          13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with
this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Pledgee as holder of the Collateral and
interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Pledgee shall act hereunder on the terms and conditions set forth herein and in
Section 11 of the Credit Agreement.

          14. TRANSFER BY PLEDGORS. No Pledgor will sell or otherwise dispose
of, grant any option with respect to, or mortgage, pledge or otherwise encumber
any of the Collateral or any interest therein (except as may be permitted in
accordance with the terms of the Credit Agreement).

          15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor
represents, warrants and covenants that: (i) it is the legal, record and
beneficial owner of, and has good and marketable title to, all Securities
pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation,
security interest, charge, option or other encumbrance whatsoever, except the
liens and security interests created by the Credit Agreement and this Agreement;
(ii) it has the requisite corporate power, authority and legal right to pledge
all the Securities pledged by it pursuant to this Agreement; (iii) this
Agreement has been duly authorized, executed and delivered by such Pledgor and
constitutes a legal, valid and binding obligation of such Pledgor enforceable in
accordance with its terms, except to the extent that the enforceability hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws
<PAGE>   276
                                                                       EXHIBIT J
                                                                         PAGE 17


affecting creditors' rights generally and by equitable principles (regardless of
whether enforcement is sought in equity or at law); (iv) no consent of any other
party (including, without limitation, any stockholder, limited or general
partner or creditor of such Pledgor or any of its Subsidiaries) and no consent,
license, permit, approval or authorization of, exemption by, notice or report
to, or registration, filing or declaration with, any governmental authority is
required to be obtained by such Pledgor in connection with the execution,
delivery or performance of this Agreement, except as obtained on or before the
date hereof or as permitted to be obtained after the date hereof by Section 3.1
of this Agreement; (v) the execution, delivery and performance of this Agreement
does not violate any provision of any applicable law or regulation or of any
order, judgment, writ, award or decree of any court, arbitrator or governmental
authority, domestic or foreign, applicable to such Pledgor or of the certificate
of incorporation or by-laws of such Pledgor or of any securities issued by such
Pledgor or any of its Subsidiaries, or of any mortgage, indenture, lease, deed
of trust, agreement, instrument or undertaking to which such Pledgor or any of
its Subsidiaries is a party or which purports to be binding upon such Pledgor or
any of its Subsidiaries or upon any of their respective assets and will not
result in the creation or imposition of any lien or encumbrance on any of the
assets of such Pledgor or any of its Subsidiaries except as contemplated by this
Agreement; (vi) all the shares of Stock have been duly and validly issued, are
fully paid and nonassessable; (vii) to the best knowledge of Pledgor, each of
its Pledged Notes, when executed by the obligor thereof, will be the legal,
valid and binding obligation of such obligor, enforceable in accordance with its
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and by equitable principles (regardless of
whether enforcement is sought in equity or at law); and (viii) the pledge and
assignment of the Securities by it pursuant to this Agreement, together with the
delivery of the Securities by it pursuant to this Agreement, creates a valid and
perfected first priority security interest in such Securities and the proceeds
thereof (except to the extent further action may be required to maintain a
perfected security interest in proceeds after the actual receipt thereof by the
Pledgee), subject to no prior lien or encumbrance or to any agreement (other
than as may be created by any other Credit Document) purporting to grant to any
third party a lien or encumbrance on the property or assets of such Pledgor
which would include such Securities. Each Pledgor covenants and agrees that it
will defend the Pledgee's right, title and security interest in and to the
Securities pledged by it pursuant to this Agreement and the proceeds thereof
against the claims and demands of all persons whomsoever, and such Pledgor
covenants and agrees that it will have like title to and right to pledge any
other property at any time hereafter pledged to the Pledgee as Collateral
hereunder and will likewise defend the right thereto and security interest
therein of the Pledgee and the Secured Creditors.

          16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each
Pledgor hereunder shall remain in full force and effect without regard to, and
shall not be impaired by:

          (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Pledgor, except to
the extent that the enforceability thereof may be limited by such event: (b) any
exercise or non-exercise, or any waiver of, any right,
<PAGE>   277
                                                                       EXHIBIT J
                                                                         PAGE 18


remedy, power or privilege under in respect of this Agreement, any other Credit
Document or any Interest Rate Protection or Other Hedging Agreement, except as
specifically set forth in a waiver granted pursuant to Section 20; or (c) any
amendment to or modification of any Credit Document, or any Interest Rate
Protection or Other Hedging Agreement or any security for any of the
Obligations; whether or not any Pledgor shall have notice or knowledge of any of
the foregoing, except as specifically set forth in an amendment or modification
executed pursuant to Section 20.

          17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred
and be continuing and any Pledgor shall have received from the Pledgee a written
request or requests that such Pledgor cause any registration, qualification or
compliance under any federal or state securities law or laws to be effected with
respect to all or any part of its Pledged Stock, such Pledgor as soon as
practicable and at its expense shall cause such registration to be effected (and
be kept effective), and shall cause such qualification and compliance to be
effected (and be kept effective) as may be so requested and shall permit or
facilitate the sale and distribution of such Pledged Stock, including, without
limitation, registration under the Securities Act of 1933 as then in effect or
any similar statute then in effect), appropriate qualifications under applicable
blue sky or other state securities laws and appropriate compliance with any
other government requirements; provided, that the Pledgee shall furnish to such
Pledgor such information regarding the Pledgee as such Pledgor may request in
writing and as shall be required in connection with any such registration,
qualification or compliance. Such Pledgor will cause the Pledgee to be kept
reasonably advised in writing as to the progress of each such registration,
qualification or compliance and as to the completion thereof, will furnish to
the Pledgee such number of prospectuses, offering circulars or other documents
incident thereto as the Pledgee from time to time may reasonably request, and
will indemnify the Pledgee, and all others participating in the distribution of
the Pledged Stock against all claims, losses, damages and liabilities caused by
any untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to be
stated therein or necessary to make the statements therein not misleading,,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to such Pledgor by the
Pledgee expressly for use therein.

          (b) If at any time when the Pledgee shall determine to exercise its
right to sell all or any part of the Pledged Securities pursuant to Section 7,
such Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act of 1933, as then
in effect, the Pledgee may, in its sole and absolute discretion, sell such
Pledged Securities or part thereof by private sale in such manner and under such
circumstances as the Pledgee may deem necessary or advisable in order that such
sale may legally be effected without such registration. Without limiting the
generality of the foregoing, in any such event the Pledgee, in its sole and
absolute discretion (i) may proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Securities or part thereof shall have been filed under such Securities Act; (ii)
may approach and negotiate with a single possible purchaser to effect such sale;
and (iii) may restrict such sale to a purchaser who will represent and agree
that such purchaser is purchasing for its own account, for investment, and not
with a view to the
<PAGE>   278
                                                                       EXHIBIT J
                                                                         PAGE 19


distribution or sale of such Pledged Securities or part thereof. In the event of
any such sale, the Pledgee shall incur no responsibility or liability for
selling all or any part of the Pledged Securities at a price which the Pledgee,
in its sole and absolute discretion, may in good faith deem commercially
reasonable under the circumstances, notwithstanding the possibility that a
substantially higher price might be realized if the sale were deferred until
after registration of such Pledged Securities for public sale.

          18. TERMINATION, RELEASE. (a) After the Termination Date (as defined
below), this Agreement shall terminate (provided that all indemnities set forth
herein including, without limitation, in Section 11 hereof shall survive any
such termination) and the Pledgee, at the request and expense of the respective
Pledgor, will promptly execute and deliver to such Pledgor such statements,
documents or other instruments as may be reasonably requested by such Pledgor
acknowledging the satisfaction and termination of this Agreement and the
security interests created hereby, and will duly assign, transfer and deliver to
such Pledgor (without recourse and without any representation or warranty) such
of the Collateral of such Pledgor as may be in the possession of the Pledgee and
as has not theretofore been sold or otherwise applied or released pursuant to
this Agreement. As used in this Agreement, "Termination Date" shall mean the
date upon which the Total Commitment and all Interest Rate Protection and Other
Hedging Agreements have been terminated, no Note is outstanding (and all Loans
have been paid in full), all Letters of Credit have been terminated (or cash
collateralized to the Pledgee's satisfaction) and all other Obligations then
owing have been paid in full and there shall exist no unsatisfied claim for
reimbursement by any Indemnitee pursuant to Section 11.2.

          (2) In the event that any part of the Collateral is sold in connection
with a sale permitted by the Credit Agreement or is otherwise released at the
direction of the Required Banks (or all the Banks if required by Section 12.12
of the Credit Agreement), and the proceeds of such sale or sales or from such
release are applied in accordance with the terms of the Credit Agreement, such
Collateral will be sold free and clear of the Liens created by this Agreement
and the Pledgee, at the request and expense of the respective Pledgor, will duly
assign, transfer and deliver to such Pledgor (without recourse and without any
representation or warranty) such of the Collateral of such Pledgor as is then
being (or has been) so sold or released and as may be in possession of the
Pledgee and has not theretofore been released pursuant to this Agreement.

          (3) At any time that a Pledgor desires that Collateral be released as
provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee
a certificate signed by its chief financial officer or another authorized senior
officer stating that the release of the respective Collateral is permitted
pursuant to Section 18(a) or (b). If requested by the Pledgee (although the
Pledgee shall have no obligation to make any such request), the relevant Pledgor
shall furnish appropriate legal opinions (from counsel, which may be in-house
counsel, reasonably acceptable to the Pledgee) to the effect set forth in the
immediately preceding sentence. The Pledgee shall have no liability whatsoever
to any Secured Creditor as the result of any release of Collateral by it as
permitted by this Section 18.
<PAGE>   279
                                                                       EXHIBIT J
                                                                         PAGE 20


          19. NOTICES, ETC. All notices and other communication hereunder shall
be in writing (including telegraphic, telex, facsimile transmission or cable
communication) and shall be delivered, mailed, telegraphed, telexed, facsimile
transmitted or cabled, addressed:

          (a) if to any Pledgor, at its address set forth opposite its signature
     below;

          (b) if to the Pledgee, at:

                       Fleet National Bank
                       Mail Stop MA0FD03D
                       1 Federal Street
                       Boston, MA 02110
                       Attention:  Mark Bernier
                       Telephone No.: (617) 346-4347
                       Facsimile No.: (617) 346-4345

          (c) if to any Bank Creditor (other than the Pledgee), either (x) to
     the Administrative Agent, at the address of the Administrative Agent
     specified in the Credit Agreement or (y) at such address as such Bank
     Creditor shall have specified in the Credit Agreement;

          (d) if to any Other Creditor or to the Representative for the Other
     Creditors, at such address as such Representative may have provided to the
     Borrower and the Pledgee from time to time, or, in the absence of a
     Representative, directly to the Other Creditors at such address as the
     Other Creditors shall have specified in writing to the Borrower and the
     Pledgee;

or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and Communications shall, when mailed, telegraphed, telexed, facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.

          20. WAIVER; AMENDMENT. None of the terms and conditions of this
Agreement may be amended, changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by each Pledgor and the Pledgee with
the written consent of the Required Banks (or all the Banks if required by
Section 12.12 of the Credit Agreement)); provided, that any amendment, change,
waiver, modification or variance affecting the rights and benefits of a single
Class (as defined below) of Secured Creditors (and not all Secured Creditors in
a like or similar manner) shall require the written consent of the Requisite
Creditors (as defined below) of such Class. For the purpose of this Agreement,
the term "Class" shall mean each class of Secured Creditors, i.e.,
<PAGE>   280
                                                                       EXHIBIT J
                                                                         PAGE 21


whether (i) the Bank Creditors as holders of the Credit Document Obligations or
(ii) the Other Creditors as holders of the Interest Rate Protection Obligations.
For the purpose of this Agreement, the term "Requisite Creditors" of any Class
shall mean each of (i) with respect to the Credit Document Obligations, the
Required Banks and (ii) with respect to the Interest Rate Protection
Obligations, the holders of at least a majority of all obligations outstanding
from time to time under the Interest Rate Protection or Other Hedging
Agreements.

          21. MISCELLANEOUS. (a) This Agreement shall be binding upon the
successors and assigns of each Pledgor and shall inure to the benefit of and be
enforceable by the Pledgee and each Secured Creditor and their respective
successors and assigns.

          (b) THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH
AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.

          (c) The headings in this Agreement are for purposes of reference only
and shall not limit or define the meaning hereof.

          (d) This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which shall constitute one instrument.

          22. SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.


                                      * * *
<PAGE>   281
                                                                       EXHIBIT J
                                                                         PAGE 22


          IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this
Agreement to be executed by their duly elected officers duly authorized as if
the date first above written.

Address:
605 West 47th Street                  GOLDEN SKY SYSTEMS, INC.
Suite 300                             as a Pledgor
Kansas City, MO 64112
Attention:  Robert B. Weaver
Tel: (212) 593-7900                           By     /s/ Rodney A. Weary
Fax: (212) 754-6348                                  ---------------------------
                                              Name:  Robert B. Weaver
                                              Title: President


Mail Stop MA0FD03D                            FLEET NATIONAL BANK
1 Federal Street                              as Pledgee
Boston, MA 02110
Attention:  Mark Bernier
Telephone: (617) 346-4347                     By     /s/ Paula H. Lang
Facsimile: (617) 346-4345                            ---------------------------
                                              Name:  Paula P. Lang,
                                              Title: Senior Vice President
<PAGE>   282
                                                                       EXHIBIT J
                                                                         PAGE 23


                                                                  ANNEX A
                                                                     to
                                                              Pledge Agreement

                            BORROWER PLEDGE AGREEMENT
                                  PLEDGED STOCK


I.   Issuer: Argos Support Services Company

     Stock Certificate(s) representing 1,175 shares of Common Stock, $1 par
     value, issued to Golden Sky Systems, Inc. - 100%
<PAGE>   283
                                                                       EXHIBIT J
                                                                         PAGE 24



                                                                  ANNEX B
                                                                     to
                                                              Pledge Agreement


                                  LIST OF NOTES

Maker                Payee                              Amount
NONE.
<PAGE>   284
                                                                       EXHIBIT J
                                                                         PAGE 25


                                               EXHIBIT B to the
                                               Security Documents Acknowledgment

                                                         [CONFORMED AS EXECUTED]




                               SECURITY AGREEMENT

                                      among

                            GOLDEN SKY SYSTEMS, INC.

                              VARIOUS SUBSIDIARIES

                                       and

                              FLEET NATIONAL BANK,
                               as Collateral Agent


                            Dated as of July 7, 1997
<PAGE>   285
                                                                       EXHIBIT J
                                                                         PAGE 26


                                TABLE OF CONTENTS

                                                                            Page


Table of Contents will generate here
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                                                                       EXHIBIT J
                                                                         PAGE 27


                               SECURITY AGREEMENT


     SECURITY AGREEMENT, dated as of July 7, 1997 (as amended, modified or
supplemented from time to time, the "Agreement"), among each of the undersigned
(each an "Assignor" and collectively, the "Assignors") and FLEET NATIONAL BANK,
as Collateral Agent (the "Collateral Agent"), for the benefit of (x) the Banks
(as defined below) and the Agents (as defined below) under, and any other lender
from time to time party to the Credit Agreement hereinafter referred to (such
Banks, the Agents and the other lenders, if any, are hereinafter called the
"Bank Creditors") and (y) if the Agents in their individual capacities, any Bank
or a syndicate of financial institutions organized by the Agents or any such
Bank or an affiliate of the Agents or such Bank enter into one or more (i)
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements), (ii) foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect against the fluctuations in currency values and/or (iii)
other types of hedging agreements from time to time (collectively, the "Interest
Rate Protection or Other Hedging Agreements"), with, or guaranteed by, the
Borrower, the Agents, any such Bank or an affiliate of the Agents or such Bank
(even if the Agents or any such Bank ceases to be a Bank under the Credit
Agreement for any reason) and any such institution that participates in such
Interest Rate Protection or Other Hedging Agreements and their subsequent
assigns (collectively, the "Other Creditors" and, together with the Bank
Creditors, are herein called the "Secured Creditors"). Except as otherwise
defined herein, terms used herein and defined in the Credit Agreement shall be
used herein as therein defined.


                              W I T N E S S E T H:


     WHEREAS, GOLDEN SKY SYSTEMS, INC. (the "Borrower"), various financial
institutions from time to time party thereto (the "Banks"), Banque Paribas, as
Syndication Agent and as Managing Agent ("Banque Paribas"), and Fleet National
Bank, as Administrative Agent and as Managing Agent ("Fleet", and together with
Banque Paribas, the "Agents"), have entered into a Credit Agreement, dated as of
July 7, 1997, providing for the making of Loans and the issuance of, and
participation in, Letters of Credit as contemplated therein (as used herein, the
term "Credit Agreement" means the Credit Agreement described above in this
paragraph, as the same may be amended, modified, extended, renewed, replaced,
restated, supplemented, restructured or refinanced from time to time, and
including any agreement extending the maturity of, refinancing or restructuring
(including, but not limited to, the inclusion of additional borrowers thereunder
that are Subsidiaries of the Borrower and whose obligations are guaranteed by
the Borrower thereunder or any increase in the amount borrowed) all or any
portion of, the Indebtedness under such agreement or any successor agreements;
provided, that with respect to any agreement providing for the refinancing of
Indebtedness under the Credit Agreement, such agreement shall only be treated
as, or as part of, the Credit Agreement hereunder if (i) either (A) all
obligations under the Credit Agreement being refinanced shall be paid in full at
the time of such refinancing and all commitments and letters of credit
<PAGE>   287
                                                                       EXHIBIT J
                                                                         Page 28


issued pursuant to the refinanced Credit Agreement shall have terminated in
accordance with their terms or (B) the Required Banks shall have consented in
writing to the refinancing Indebtedness being treated, along with their
Indebtedness, as Indebtedness pursuant to the Credit Agreement, (ii) the
refinancing Indebtedness shall be permitted to be incurred under the Credit
Agreement being refinanced (if such Credit Agreement is to remain outstanding)
and (iii) a notice to the effect that the refinancing Indebtedness shall be
treated as issued under the Credit Agreement shall be delivered by the Borrower
to the Collateral Agent);

     WHEREAS, the Borrower desires to incur Loans and to have Letters of Credit
issued account pursuant to the Credit Agreement;

     WHEREAS, the Borrower may at any time and from time time enter into one or
more Interest Rate Protection or Other Hedging Agreements with one or more Other
Creditors;

     WHEREAS, it is a condition precedent to the above-described extensions of
credit that each of the Assignors shall have executed and delivered to the
Collateral Agent this Agreement; and

     WHEREAS, each Assignor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;

     NOW, THEREFORE, in consideration of the benefits accruing to each Assignor,
the receipt and sufficiency of which are hereby acknowledged, each Assignor
hereby makes the following representations and warranties to the Collateral
Agent and hereby covenants and agrees with the Collateral Agent as follows:



                                   ARTICLE I.
                               SECURITY INTERESTS

          A. Grant of Security Interests. (a) As security for the prompt and
complete payment and performance when due of all of the Obligations, each
Assignor does hereby assign and transfer unto the Collateral Agent, and does
hereby grant to the Collateral Agent for the benefit of the Secured Creditors, a
continuing security interest of first priority in, all of the right, title and
interest of such Assignor in, to and under all of the following, whether now
existing or hereafter from time to time acquired: (i) each and every Receivable,
(ii) all Contracts, together with all Contract Rights arising thereunder, (iii)
all Inventory, (iv) the Cash Collateral Account and any other cash collateral
account established for any Assignor and all moneys, securities and instruments
deposited or required to be deposited in such Cash Collateral Account and any
such other cash collateral account, (v) all Equipment, (vi) all Marks, together
with the registrations and right to all renewals thereof, and the goodwill of
the business of such Assignor symbolized by the Marks, (vii) all Patents and
Copyrights, (viii) all computer programs of such Assignor and all intellectual
property rights
<PAGE>   288
                                                                       EXHIBIT J
                                                                         Page 29


therein and all other proprietary information of such Assignor, including, but
not limited to, trade secrets, (ix) all other Goods, General Intangibles,
Chattel Paper, Documents and Instruments (other than the Pledged Securities) and
(x) all Proceeds and products of any and all of the foregoing (all of the above,
collectively, the "Collateral"), provided, however, that if any Contract
prohibits, or requires the consent for (in accordance with the terms thereof
after giving effect to any applicable laws), the granting of a security interest
therein, or in the event the granting of a security interest in any Contract
shall violate applicable law, then the security interest granted hereby shall be
limited to the extent (and only to the extent) necessary so that such Contract
may not be so violated or no such violation of law shall exist, as the case may
be.

          (b) The security interest of the Collateral Agent under this Agreement
extends to all Collateral of the kind which is the subject of this Agreement
which any Assignor may acquire at any time during the continuation of this
Agreement.

          B. Power of Attorney. Each Assignor hereby constitutes and appoints
the Collateral Agent its true and lawful attorney, irrevocably, with full power
after the occurrence of and during the continuance of an Event of Default (in
the name of such Assignor or otherwise) to act, require, demand, receive,
compound and give acquittance for any and all moneys and claims for moneys due
or to become due to such Assignor under or arising out of the Collateral, to
endorse any checks or other instruments or orders in connection therewith and to
file any claims or take any action or institute any proceedings which the
Collateral Agent may deem to be necessary or advisable to protect the interests
of the Secured Creditors, which appointment as attorney is coupled with an
interest.


                                   ARTICLE II.

                GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS

          Each Assignor represents, warrants and covenants, which
representations, warranties and covenants shall survive execution and delivery
of this Agreement, as follows:

          A. Necessary Filings. All filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by such Assignor to the Collateral Agent hereby in respect of
the Collateral have been accomplished and the security interest granted to the
Collateral Agent pursuant to this Agreement in and to the Collateral constitutes
a perfected security interest therein prior to the rights of all other Persons
therein and subject to no other Liens (other than Permitted Liens) and is
entitled to all the rights, priorities and benefits afforded by the Uniform
Commercial Code or other relevant law as enacted in any relevant jurisdiction to
perfected security interests.

          B. No Liens. Such Assignor is, and as to Collateral acquired by it
from time to time after the date hereof such Assignor will be, the owner of all
Collateral free from any Lien, security
<PAGE>   289
                                                                       EXHIBIT J
                                                                         Page 30


interest, encumbrance or other right, title or interest of any Person (other
than Permitted Liens), and such Assignor shall defend the Collateral against all
claims and demands of all Persons (other than Persons claiming by, through, or
under the Collateral Agent) at any time claiming the same or any interest
therein adverse to the Collateral Agent.

          C. Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover an interest of any kind in the
Collateral (other than Permitted Liens), and so long as the Total Commitment has
not been terminated or any Letter of Credit or Note remains outstanding or any
of the Obligations remain unpaid or any Interest Rate Protection or Other
Hedging Agreement remains in effect or any Obligations are owed with respect
thereto, such Assignor will not execute or authorize to be filed in any public
office any financing statement (or similar statement or instrument of
registration under the law of any jurisdiction) or statements relating to the
Collateral, except financing statements filed or to be filed in respect of and
covering the security interests granted hereby by such Assignor or as permitted
by the Credit Agreement.

          D. Chief Executive Office; Records. The chief executive office of such
Assignor is located at the address or addresses indicated on Annex A hereto.
Such Assignor will not move its chief executive office except to such new
location as such Assignor may establish in accordance with the last sentence of
this Section 2.4. The originals of all documents evidencing all Receivables and
Contract Rights of such Assignor and the only original books of account and
records of such Assignor relating thereto are, and will continue to be, kept at
such chief executive office or at such other locations as are set forth on Annex
B hereto or at such other locations as such Assignor may establish in accordance
with the last sentence of this Section 2.4. All Receivables and Contract Rights
of such Assignor are, and will continue to be, maintained at, and controlled and
directed (including, without limitation, for general accounting purposes) from,
the office locations described above or such new location established in
accordance with the last sentence of this Section 2.4. No Assignor shall
establish new locations for such offices until (i) it shall have given to the
Collateral Agent not less than 30 days' prior written notice of its intention to
do so, clearly describing such new location and providing such other information
in connection therewith as the Collateral Agent may request, (ii) with respect
to such new location, it shall have taken all action, satisfactory to the
Collateral Agent, to maintain the security interest of the Collateral Agent in
the Collateral intended to be granted hereby at all times fully perfected and in
full force and effect, (iii) at the request of the Collateral Agent, it shall
have furnished an opinion of counsel acceptable to the Collateral Agent to the
effect that all financing or continuation statements and amendments or
supplements thereto have been filed in the appropriate filing office or offices,
and (iv) the Collateral Agent shall have received evidence that all other
actions (including, without limitation, the payment of all filing fees and
taxes, if any, payable in connection with such filings) have been taken, in
order to perfect (and maintain the perfection and priority of) the first
priority security interest granted hereby.

          E. Location of Inventory and Equipment. All Inventory and Equipment
held on the date hereof by each Assignor is located at one of the locations
shown on Annex C hereto. Each Assignor agrees that all Inventory and Equipment
now held or subsequently acquired by it shall be
<PAGE>   290
                                                                       EXHIBIT J
                                                                         Page 31


kept at (or shall be in transport to) any one of the locations shown on Annex C
hereto or such new location as such Assignor may establish in accordance with
the last sentence of this Section 2.5. Any Assignor may establish a new location
for Inventory and Equipment only if (i) it shall have given to the Collateral
Agent not less than 30 days prior written notice of its intention so to do,
clearly describing such new location and providing such other information in
connection therewith as the Collateral Agent may request, (ii) with respect to
such new location, it shall have taken all action satisfactory to the Collateral
Agent to maintain the security interest of the Collateral Agent in the
Collateral intended to be granted hereby at all times fully perfected and in
full force and effect, (iii) at the request of the Collateral Agent, it shall
have furnished an opinion of counsel acceptable to the Collateral Agent to the
effect that all financing or continuation statements and amendments or
supplements thereto have been filed in the appropriate filing office or offices,
and (iv) the Collateral Agent shall have received evidence that all other
actions (including, without limitation, the payment of all filing fees and
taxes, if any, payable in connection with such filings) have been taken, in
order to perfect (and maintain the perfection and priority of) the first
priority security interest granted hereby.

          F. Trade Names; Change of Name. No Assignor has or (operates in any
jurisdiction under, or previously has had or has operated in any jurisdiction
within the [five] year period preceding the date of this Agreement under, any
trade names, fictitious names or other names except its legal name and such
other trade or fictitious names as are listed on Annex D hereto. No Assignor
shall change its legal name or assume or operate in any jurisdiction under any
trade, fictitious or other name except those names listed on Annex D hereto and
new names established in accordance with the last sentence of this Section 2.6.
No Assignor shall assume or operate in any jurisdiction under any new trade,
fictitious or other name until (i) it shall have given to the Collateral Agent
not less than 30 days' prior written notice of its intention so to do, clearly
describing such new name and the jurisdictions in which such new name shall be
used and providing such other information in connection therewith as the
Collateral Agent may request, (ii) with respect to such new name, it shall have
taken all action requested by the Collateral Agent, to maintain the security
interest of the Collateral Agent in the Collateral intended to be granted hereby
at all times fully perfected and in full force and effect, (iii) at the request
of the Collateral Agent, it shall have furnished an opinion of counsel
acceptable to the Collateral Agent to the effect that all financing or
continuation statements and amendments or supplements thereto have been filed in
the appropriate filing office or offices, and (iv) the Collateral Agent shall
have received evidence that all other actions (including, without limitation,
the payment of all filing fees and taxes, if any, payable in connection with
such filings) have been taken, in order to perfect (and maintain the perfection
and priority of) the first priority security interest granted hereby.

          G. Recourse. This Agreement is made with full recourse to the Assignor
and pursuant to and upon all the warranties, representations, covenants and
agreements on the part of such Assignor contained herein, in the other Credit
Documents, in the Interest Rate Protection or Other Hedging Agreements and
otherwise in writing in connection herewith or therewith.
<PAGE>   291
                                                                       EXHIBIT J
                                                                         Page 32


                                  ARTICLE III.

                          SPECIAL PROVISIONS CONCERNING
                    RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS

          A. Additional Representations and Warranties. As of the time when each
of its Receivables arises, the relevant Assignor shall be deemed to have
represented and warranted that such Receivable, and all records, papers and
documents relating thereto are genuine and in all respects what they purport to
be, and that all papers and documents relating thereto (i) will represent the
genuine, legal, valid and binding obligation of the account debtor evidencing
indebtedness unpaid and owed by the respective account debtor arising out of the
performance of labor or services or the sale or lease and delivery of the
inventory, materials, equipment or merchandise listed therein, or both, (ii)
will be the only original writings evidencing and embodying such obligation of
the account debtor named therein (other than copies created for general
accounting purposes), (iii) will evidence true and valid obligations,
enforceable in accordance with their respective terms, except to the extent that
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by equity principles (regardless of whether enforcement is sought in equity or
at law), and (iv) will be in compliance in all material respects and will
conform with all applicable federal, state and local laws and applicable laws of
any relevant foreign jurisdiction.

          B. Maintenance of Records. Each Assignor will keep and maintain at its
own cost and expense satisfactory and complete records of its Receivables and
Contracts, including, but not limited to, originals or copies of all
documentation (including each Contract) with respect thereto, records of all
payments received, all credits granted thereon, all merchandise returned and all
other dealings therewith, and such Assignor will make the same available on such
Assignor's premises to the Collateral Agent for inspection, at such Assignor's
own cost and expense, at any and all reasonable times during, so long as no
Event of Default has occurred and is continuing, normal business hours and so
long as no Event of Default has occurred or is continuing, upon prior notice to
the chief financial officer or other authorized officer of such Assignor. Upon
the occurrence and during the continuance of an Event of Default and at the
request of the Collateral Agent, such Assignor shall, at its own cost and
expense, deliver all tangible evidence of its Receivables and Contract Rights
(including, without limitation, all documents evidencing the Receivables and all
Contracts) and such books and records to the Collateral Agent or to its
representatives (copies of which evidence and books and records may be retained
by such Assignor) and, if the Collateral Agent so directs, such Assignor shall
legend, in form and manner satisfactory to the Collateral Agent, the Receivables
and the Contracts, as well as books, records and documents of such Assignor
evidencing or pertaining to such Receivables and Contracts with an appropriate
reference to the fact that such Receivables and Contracts have been assigned to
the Collateral Agent and that the Collateral Agent has a security interest
therein.

          C. Direction to Account Debtors; Contracting Parties; etc. Upon the
occurrence and during the continuance of an Event of Default, and if the
Collateral Agent so directs any Assignor,
<PAGE>   292
                                                                       EXHIBIT J
                                                                         Page 33


to the extent permitted by applicable law, such Assignor agrees (x) to cause all
payments on account of the Receivables and Contracts to be made directly to the
Cash Collateral Account, (y) that the Collateral Agent may, at its option,
directly notify the obligors with respect to any Receivables and/or under any
Contracts to make payments with respect thereto as provided in preceding clause
(x), and (z) that the Collateral Agent may enforce collection of any such
Receivables and Contracts and may adjust, settle or compromise the amount of
payment thereof, in the same manner and to the same extent as such Assignor.
Without notice to or assent by any Assignor, the Collateral Agent may apply any
or all amounts then in, or thereafter deposited in, the Cash Collateral Account
which application shall be effected in the manner provided in Section 7.4 of
this Agreement. The costs and expenses (including attorneys' fees) of
collection, whether incurred by an Assignor or the Collateral Agent, shall be
borne by the Assignors.

          D. Modification of Terms; etc. Upon the occurrence and during the
continuance of an Event of Default, no Assignor shall rescind or cancel any
indebtedness evidenced by any Receivable or under any Contract, or modify any
term thereof or make any adjustment with respect thereto, or extend or renew the
same, or compromise or settle any material dispute, claim, suit or legal
proceeding relating thereto, or sell any Receivable or Contract, or interest
therein, without the prior written consent of the Collateral Agent, except as
permitted by Section 3.5. Each Assignor will duly fulfill all obligations on its
part to be fulfilled under or in connection with the Receivables and Contracts
and will do nothing to impair the rights of the Collateral Agent in the
Receivables or Contracts, except as permitted by Section 3.5.

          E. Collection. Each Assignor shall endeavor to cause to be collected
from the account debtor named in each of its Receivables or obligor under any of
its Contracts, as and when due (including, without limitation, amounts, services
or products which are delinquent, such amounts, services or products to be
collected in accordance with generally accepted lawful collection procedures)
any and all amounts, services or products owing under or on account of such
Receivable or Contract, and apply forthwith upon receipt thereof all such
amounts, services or products as are so collected to the outstanding balance of
such Receivable or under such Contract, except that, prior to the occurrence of
an Event of Default, any Assignor may allow in the ordinary course of business
as adjustments to amounts, services or products owing under its Receivables and
Contracts (i) an extension or renewal of the time or times of payment or
exchange, or settlement for less than the total unpaid balance, which such
Assignor finds appropriate in accordance with reasonable business judgment and
(ii) a refund or credit due as a result of returned or damaged merchandise or
improperly performed services. The costs and expenses (including, without
limitation, attorneys' fees) of collection, whether incurred by an Assignor or
the Collateral Agent, shall be borne by the Assignors.

          F. Instruments. If any Assignor owns or acquires any Instrument
constituting Collateral, such Assignor will within 10 Business Days notify the
Collateral Agent thereof, and upon request by the Collateral Agent will promptly
deliver such Instrument to the Collateral Agent appropriately endorsed to the
order of the Collateral Agent as further security hereunder.

          G. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse,
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                                                                       EXHIBIT J
                                                                         Page 34


acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, reports and
other assurances or instruments and take such further steps relating to its
Receivables, Contracts, Instruments and other property or rights covered by the
security interest hereby granted, as the Collateral Agent may reasonably
require.

                                   ARTICLE IV.

                    SPECIAL PROVISIONS CONCERNING TRADEMARKS

          A. Additional Representations and Warranties. Each Assignor represents
and warrants that it is the true and lawful owner of or otherwise has the right
to use the Marks listed in Annex E hereto and that said listed Marks constitute
all the Marks that such Assignor presently owns or uses in connection with its
business. Except as set forth on Annex E, each Assignor represents and warrants
that it owns, is licensed to use or otherwise has the right to use all Marks
that it uses. Other than as set forth on Annex E, each Assignor further warrants
that it has no knowledge as of the date hereof, of any third party claim that
any aspect of such Assignor's present or contemplated business operations
infringes or will infringe any rights in any trademark, service mark or
trademark. Each Assignor represents and warrants that it is the beneficial and
record owner of all U.S. and foreign trademark registrations and applications
listed in Annex E hereto and that said registrations are valid, subsisting, and
have not been canceled and that, such Assignor is not aware of any third-party
claim that any of said registration is invalid or unenforceable, or that there
is any reason that any of said applications will not pass to registration. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of an Event of Default, any
document which may be required by the U.S. Patent and Trademark Office or
secretary of state or equivalent governmental agency of any State of the United
States or in any foreign jurisdiction in order to effect an absolute assignment
of all right, title and interest in each Mark, and record the same.

          B. Licenses and Assignments. Each Assignor hereby agrees not to divest
itself of any right under any Mark absent prior written approval of the
Collateral Agent.

          C. Infringements. Each Assignor agrees, promptly upon learning
thereof, to notify the Collateral Agent in writing of the name and address of,
and to furnish such pertinent information that may be available with respect to
(i) any party who such Assignor believes is infringing or diluting or otherwise
violating in any material respect any of such Assignor's rights in and to any
Mark, or (ii) any party claiming that such Assignor's use of any Mark violates
in any material respect any property right of that party. Each Assignor further
agrees, unless otherwise agreed by the Collateral Agent, diligently to prosecute
any Person infringing any material Mark.

          D. Preservation of Marks. Each Assignor agrees to use its Marks in
interstate commerce during the time in which this Agreement is in effect,
sufficiently to preserve such Marks as valid and subsisting trademarks or
service marks under the laws of the United States, except if the
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                                                                       EXHIBIT J
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failure to preserve such Marks could not reasonably be expected to have a
material adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Borrower or its Subsidiaries taken as a whole.

          E. Maintenance of Registration. Except as otherwise provided in
Section 4.4, each Assignor shall, at its own expense, diligently process all
documents required by the Trademark Act of 1946, as amended, 15 U.S.C.
Sections 1051 et seq. to maintain trademark registrations, including but
not limited to affidavits of continued use and applications for renewals of
registration in the United States Patent and Trademark Office for all of its
registered Marks pursuant to 15 U.S.C. Sections 1058, 1059 and 1065 and
any foreign equivalent thereof, and shall pay all fees and disbursements in
connection therewith and shall not abandon any such filing of affidavit of use
or any such application of renewal prior to the exhaustion of all administrative
and judicial remedies without prior written consent of the Collateral Agent.
Each Assignor agrees to notify the Collateral Agent three (3) months prior to
the dates on which the affidavits of continued use or the applications for
renewal registration are due with respect to any Mark that the affidavits of
continued use or the application for renewal is being processed.

          F. Future Registered Marks. If any registration for any Mark issues
hereafter to any Assignor as a result of any application now or hereafter
pending before the United States Patent and Trademark Office or any equivalent
governmental agency in any foreign jurisdiction, within 30 days of receipt of
such certificate, such Assignor shall deliver to the Collateral Agent a copy of
such certificate, and an assignment for security in such Mark, to the Collateral
Acent and at the expense of such Assignor, confirming the assignment for
security in such Mark to the Collateral Agent hereunder, the form of such
security to be substantially the same as the form hereof or in such other form
as may be satisfactory to the Collateral Agent.

          G. Remedies. If an Event of Default shall occur and be continuing, the
Collateral Agent may, by written notice, to the relevant Assignor, take any or
all of the following actions: (i) declare the entire right, title and interest
of such Assignor in and to each of the Marks, together with all trademark rights
and rights of protection to the same and the goodwill of such Assignor's
business symbolized by said Marks and the right to recover for past
infringements thereof, vested in the Collateral Agent for the benefit of the
Secured Creditors, in which event such rights, title and interest shall
immediately vest, in the Collateral Agent for the benefit of the Secured
Creditors, and the Collateral Agent shall be entitled to exercise the power of
attorney referred to in Section 4.1 to execute, cause to be acknowledged and
notarized and to record said absolute assignment with the applicable agency;
(ii) take and use or sell the Marks and the goodwill of such Assignor's business
symbolized by the Marks and the right to carry on the business and use the
assets of such Assignor in connection with which the Marks have been used; and
(iii) direct such Assignor to refrain, in which event such Assignor shall
refrain, from using the Marks in any manner whatsoever, directly or indirectly,
and, if requested by the Collateral Agent, change such Assignor's corporate name
to eliminate therefrom any use of any Mark and execute such other and further
documents that the Collateral Agent may request to further confirm this and to
transfer ownership of the Marks and registrations and any pending trademark
applications therefor in the United States Patent and
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                                                                       EXHIBIT J
                                                                         Page 36


Trademark Office or any equivalent governmental agency in any foreign
jurisdiction to the Collateral Agent.


                                   ARTICLE V.

                          SPECIAL PROVISIONS CONCERNING
                      PATENTS, COPYRIGHTS AND TRADE SECRETS

          A. Additional Representations and Warranties. Each Assignor represents
and warrants that it is the true and lawful owner of all rights in (i) all trade
secrets and proprietary information necessary to operate the business of such
Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex F hereto
and (iii) the Copyrights listed in Annex G hereto, that said Patents constitute
all the patents and applications for patents that such Assignor now owns and
that such Copyrights constitute all registrations of copyrights and applications
for copyright registrations that such Assignor now owns. Each Assignor further
represents and warrants that it has the exclusive right to use and practice
under all such Patents and Copyrights that it owns, uses or practices under.
Each Assignor further warrants that it is aware of no claim that any aspect of
such Assignor's present or contemplated business operations infringes or will
infringe any rights of any third party in any patent or copyright or such
Assignor has misappropriated any trade secret or proprietary information. Each
Assignor hereby grants to the Collateral Agent an absolute power of attorney to
sign, upon the occurrence and during the continuance of any Event of Default,
any document which may be required by the U.S. Patent and Trademark Office or
equivalent governmental agency in any foreign jurisdiction or the U.S. Copyright
Office or equivalent governmental agency in any foreign jurisdiction in order to
effect an absolute assignment of all right, title and interest in each Patent
and Copyright, and to record the same.

          B. Licenses and Assignments. Each Assignor hereby agrees not to divest
itself of any right under any Patent or Copyright absent prior written approval
of the Collateral Agent.

          C. Infringements. Each Assignor agrees, promptly upon learning
thereof, to furnish the Collateral Agent in writing with all pertinent
information available to such Assignor with respect to infringement,
contributing infringement or active inducement to infringe in any Patent or
Copyright or to any claim that the practice of any Patent or the use of any
Copyright violates any property right of a third party, or with respect to any
misappropriation of any Trade Secret Right or any claim that practice of any
Trade Secret Right violates any property right of a third party. Each Assignor
further agrees, absent direction of the Collateral Agent to the contrary,
diligently to prosecute any Person infringing any material Patent or material
Copyright or any Person misappropriating any material Trade Secret Right.

          D. Maintenance of Patents and Copyrights. At its own expense, each
Assignor shall make timely payment of all post-issuance fees required pursuant
to 35 U.S.C. Section 41 and any foreign equivalent thereof to maintain in full
force rights under each Patent, and to apply as permitted
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pursuant to applicable law for any renewal of each Copyright absent prior
written consent of the Collateral Agent.

          E. Prosecution of Patent Application. At its own expense, each
Assignor shall diligently prosecute all applications for Patents listed in Annex
F hereto and shall not abandon any such application prior to exhaustion of all
administrative and judicial remedies, absent written consent of the Collateral
Agent.

          F. Other Patents and Copyrights. Within 30 days of the acquisition or
issuance of a Patent or of a Copyright registration, or of filing of an
application for a Patent or Copyright registration, the relevant Assignor shall
deliver to the Collateral Agent a copy of said Copyright registration or Patent
or certificate or registration of, or application therefor, as the case may be,
with an assignment for security as to such Patent or Copyright, as the case may
be, to the Collateral Agent and at the expense of such Assignor confirming the
assignment for security, the form of such assignment for security to be
substantially the same as the form hereof or in such other form as may be
satisfactory to the Collateral Agent.

          G. Remedies. If an Event of Default shall occur and be continuing, the
Collateral Agent may by written notice to the relevant Assignor, take any or all
of the following actions: (i) declare the entire right, title, and interest of
such Assignor in each of the Patents and Copyrights vested in the Collateral
Agent for the benefit of the Secured Creditors, in which event such right,
title, and interest shall immediately vest in the Collateral Agent for the
benefit of the Secured Creditors, in which case the Collateral Agent shall be
entitled to exercise the power of attorney referred to in Section 5.1 to
execute, cause to be acknowledged and notarized and to record said absolute
assignment with the applicable agency; (ii) take and practice or sell the
Patents and Copyrights and (iii) direct such Assignor to refrain, in which event
such Assignor shall refrain, from practicing the Patents and using the
Copyrights directly or indirectly, and such Assignor shall execute such other
and further documents as the Collateral Agent may request further to confirm
this and to transfer ownership of the Patents and Copyrights to the Collateral
Agent for the benefit of the Secured Creditors.


                                   ARTICLE VI.

                      PROVISIONS CONCERNING ALL COLLATERAL

          A. Protection of Collateral Agent's Security. Each Assignor will do
nothing to impair the rights of the Collateral Agent in the Collateral. Each
Assignor will at all times keep its Inventory and Equipment insured in favor of
the Collateral Agent, at such Assignor's own expense to the extent and in the
manner provided in the Credit Agreement; all policies or certificates with
respect to such insurance (and any other insurance (other than employee benefit
insurance) maintained by such Assignor): (i) shall be endorsed to the Collateral
Agent's satisfaction for the benefit of the Collateral Agent (including, without
limitation, by naming the Collateral Agent as loss payee and naming each
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of the Banks, the Agent and the Collateral Agent as additional insureds); and
(ii) shall state that such insurance policies shall not be cancelled or revised
without 30 days' prior written notice thereof by the insurer to the Collateral
Agent; and certified copies of such policies shall be deposited with the
Collateral Agent upon request by the Collateral Agent. If any Assignor shall
fail to insure its Inventory and Equipment in accordance with the preceding
sentence, or if any Assignor shall fail to so endorse and deposit all policies
with respect thereto, the Collateral Agent shall have the right (but shall be
under no obligation) to procure such insurance and such Assignor agrees to
promptly reimburse the Collateral Agent for all costs and expenses of procuring
such insurance. All proceeds of any insurance shall be deposited in the Cash
Collateral Account pending application thereof pursuant to the Credit Agreement
or pursuant hereto. The Collateral Agent shall, at the time such proceeds of
such insurance are distributed to the Secured Creditors, apply such proceeds in
accordance with Section 7.4. Each Assignor assumes all liability and
responsibility in connection with the Collateral acquired by it and the
liability of such Assignor to pay the Obligations shall in no way be affected or
diminished by reason of the fact that such Collateral may be lost, destroyed,
stolen, damaged or for any reason whatsoever unavailable to such Assignor.

          B. Warehouse Receipts Non-negotiable. Each Assignor agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt is issued with
respect to any of its Inventory, such warehouse receipt or receipt in the nature
thereof shall not be "negotiable" (as such term is used in Section 7-104 of the
Uniform Commercial Code as in effect in any relevant jurisdiction or under other
relevant law).

          C. Further Actions. Each Assignor will, at its own expense, make,
execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from
time to time such lists, descriptions and designations of its Collateral,
warehouse receipts, receipts in the nature of warehouse receipts, bills of
lading, documents of title, vouchers, invoices, schedules, confirmatory
assignments, conveyances, financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Collateral Agent
deems reasonably appropriate or advisable to perfect, preserve or protect its
security interest in the Collateral.

          D. Financing Statements. Each Assignor agrees to execute and deliver
to the Collateral Agent such financing statements, in form reasonably acceptable
to the Collateral Agent, as the Collateral Agent may from time to time
reasonably request or as are necessary or desirable in the opinion of the
Collateral Agent to establish and maintain a valid, enforceable, first priority
perfected security interest in the Collateral as provided herein and the other
rights and security contemplated hereby all in accordance with the Uniform
Commercial Code as enacted in any and all relevant jurisdictions or any other
relevant law. Each Assignor will pay any applicable filing fees, recordation
taxes and related expenses relating to its Collateral. Each Assignor hereby
authorizes the Collateral Agent to file any such financing statements without
the signature of such Assignor where permitted by law.
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                                                                       EXHIBIT J
                                                                         Page 39


                                  ARTICLE VII.

                  REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT

          A. Remedies; Obtaining the Collateral Upon Default. Each Assignor
agrees that, if any Event of Default shall have occurred and be continuing, then
and in every such case, the Collateral Agent, in addition to any rights now or
hereafter existing under applicable law, shall have all rights as a secured
creditor under the Uniform Commercial Code in all relevant jurisdictions and
may:

          a. personally, or by agents or attorneys, immediately take possession
     of the Collateral or any part thereof, from such Assignor or any other
     Person who then has possession of any part thereof with or without notice
     or process of law, and for that purpose may enter upon such Assignor's
     premises where any of the Collateral is located and remove the same and use
     in connection with such removal any and all services, supplies, aids and
     other facilities of such Assignor;

          b. instruct the obligor or obligors on any agreement, instrument or
     other obligation (including, without limitation, the Receivables and the
     Contracts) constituting the Collateral to make any payment required by the
     terms of such agreement, instrument or other obligation directly to the
     Collateral Agent and may exercise any and all remedies of such Assignor in
     respect of such Collateral;

          c. withdraw all moneys, instruments and other securities in the Cash
     Collateral Account and/or in any other cash collateral account for
     application to the Obligations in accordance with Section 7.4;

          d. sell, assign or otherwise liquidate any or all of the Collateral or
     any part thereof in accordance with Section 7.2, or direct the relevant
     Assignor to sell, assign or otherwise liquidate any or all of the
     Collateral or any part thereof, and, in each case, take possession of the
     proceeds of any such sale or liquidation;

          e. take possession of the Collateral or any part thereof, by directing
     the relevant Assignor in writing to deliver the same to the Collateral
     Agent at any place or places designated by the Collateral Agent, in which
     event such Assignor shall at its own expense:

               (x) forthwith cause the same to be moved to the place or places
          so designated by the Collateral Agent and there delivered to the
          Collateral Agent;

               (y) store and keep any Collateral so delivered to the Collateral
          Agent at such place or places pending further action by the Collateral
          Agent as provided in Section 7.2; and
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                                                                         Page 40


               (z) while the Collateral shall be so stored and kept, provide
          such guards and maintenance services as shall be necessary to protect
          the same and to preserve and maintain them in good condition; and

          (vi) license or sublicense, whether on an exclusive or nonexclusive
     basis, any Marks, Patents or Copyrights included in the Collateral for such
     term and on such conditions and in such manner as the Collateral Agent
     shall in its sole judgment determine;

it being understood that each Assignor's obligation so to deliver the Collateral
is of the essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Collateral Agent shall be entitled to a
decree requiring, specific performance by such Assignor of said obligation.

          B. Remedies; Disposition of the Collateral. Any Collateral repossessed
by the Collateral Agent under or pursuant to Section 7.1 and any other
Collateral whether or not so repossessed by the Collateral Agent, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as the Collateral Agent may, in
compliance with any mandatory requirements of applicable law, determine to be
commercially reasonable. Any of the Collateral may be sold, leased or otherwise
disposed of, in the condition in which the same existed when taken by the
Collateral Agent or after any overhaul or repair at the expense of the relevant
Assignor which the Collateral Agent shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceedings permitted by such requirements shall be made upon not less than 10
days' written notice to the relevant Assignor specifying the time at which such
disposition is to be made and the intended sale price or other consideration
therefor, and shall be subject, for the 10 days after the giving of such notice,
to the right of the relevant Assignor or any nominee of such Assignor to acquire
the Collateral involved at a price or for such other consideration at least
equal to the intended sale price or other consideration so specified. Any such
disposition which shall be a public sale permitted by such requirements shall be
made upon not less than 10 days' written notice to the relevant Assignor
specifying the time and place of such sale and, in the absence of applicable
requirements of law, shall be by public auction (which may, at the Collateral
Agent's option, be subject to reserve), after publication of notice of such
auction not less than 10 days prior thereto in two newspapers in general
circulation in the City of New York. To the extent permitted by any such
requirement of law, the Collateral Agent may bid for and become the purchaser of
the Collateral or any item thereof, offered for sale in accordance with this
Section without accountability to the relevant Assignor. If, under mandatory
requirements of applicable law, the Collateral Agent shall be required to make
disposition of the Collateral within a period of time which does not permit the
giving of notice to the relevant Assignor as hereinabove specified, the
Collateral Agent need give such Assignor only such notice of disposition as
shall be reasonably practicable in view of such mandatory requirements of
applicable law. Each Assignor agrees to do or cause to be done all such other
acts and things as may be reasonably necessary to make such sale or sales of all
or any portion of the Collateral valid and binding and in compliance with any
and all applicable laws, regulations, orders,
<PAGE>   300
                                                                       EXHIBIT J
                                                                         Page 41


writs, injunctions, decrees or awards of any and all courts, arbitrators or
governmental instrumentalities, domestic or foreign, having jurisdiction over
any such sale or sales, all at such Assignor's expense.

          C. Waiver of Claims. Except as otherwise expressly provided in this
Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE
LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S
TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE
COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING
FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, and the Assignor hereby further waives, to the extent permitted
by law:

               a. all damages occasioned by such taking of possession except any
          damages which are the direct result of the Collateral Agent's gross
          negligence or willful misconduct;

               b. all other requirements as to the time, place, and terms of
          sale or other requirements with respect to the enforcement of the
          Collateral Agent's rights hereunder; and

               (iii) all rights of redemption, appraisement, valuation, stay,
          extension or moratorium now, or hereafter in force under any
          applicable law in order to prevent or delay the enforcement of this
          Agreement or the absolute sale of the Collateral or any portion
          thereof, and each Assignor, for itself and all who may claim under it,
          insofar as it or they now or hereafter lawfully may, hereby waives the
          benefit of all such laws.

Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of the relevant Assignor therein and
thereto, and shall be a perpetual bar both at law and in equity against such
Assignor and against any and all Persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, from,
through and under such Assignor.

          D. Application of Proceeds. 1. All moneys collected by the Collateral
Agent (or, to the extent any other Security Document to which the Assignor is a
party requires proceeds of Collateral under such agreement to be applied in
accordance with the provisions of this Agreement, the Pledgee or Collateral
Agent under such other agreement) upon any sale or other disposition of the
Collateral, together with all other moneys received by the Collateral Agent
hereunder, shall be applied as follows:

          a. first, to the payment of all Obligations owing the Collateral Agent
     (or any other Indemnitee, in the case of clause (v) referenced below) of
     the type provided in clauses (iii), (iv) and (v) of the definition of
     Obligations;
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                                                                       EXHIBIT J
                                                                         Page 42


          b. second, to the extent proceeds remain after the application
     pursuant to the preceding clause (i), an amount equal to the outstanding
     Primary Obligations shall be paid to the Secured Creditors as provided in
     Section 7.4(e), with each Secured Creditor receiving an amount equal to its
     outstanding Primary Obligations or, if the proceeds are insufficient to pay
     in full all such Primary Obligations, its Pro Rata Share of the amount
     remaining to be distributed;

          c. third, to the extent proceeds remain after the application pursuant
     to the preceding clauses (i) and (ii), an amount equal to the outstanding
     Secondary Obligations shall be paid to the Secured Creditors as provided in
     Section 7.4(e), with each Secured Creditor receiving an amount equal to its
     outstanding Secondary Obligations or, if the proceeds are insufficient to
     pay in full all such Secondary Obligations, its Pro Rata Share of the
     amount remaining to be distributed; and

          d. fourth, to the extent proceeds remain after the application
     pursuant to the preceding clauses (i), (ii) and (iii) and following the
     termination of this Agreement pursuant to Section 10.9 hereof, to the
     relevant Assignor or as required by applicable law.

          2. For purposes of this Agreement (x) "Pro Rata Share" shall mean,
when calculating a Secured Creditor's portion of any distribution or amount,
that amount (expressed as a percentage) equal to a fraction the numerator of
which is the then unpaid amount of such Secured Creditor's Primary Obligations
or Secondary Obligations, as the case may be, and the denominator of which is
the then outstanding amount of all Primary Obligations or Secondary Obligations,
as the case may be, (y) "Primary Obligations" shall mean (i) in the case of the
Credit Document Obligations, all principal of, and interest on, all Loans, all
Unpaid Drawings theretofore made (together with all interest accrued thereon)
the aggregate Stated Amounts of all Letters of Credit issued under the Credit
Agreement, and all Fees and (ii) in the case of the Interest Rate Protection
Obligations, all amounts due under the Interest Rate Protection or Other Hedging
Agreements (other than indemnities, fees (including, without limitation,
attorneys' fees) and similar obligations and liabilities) and (z) "Secondary
Obligations" shall mean all Obligations other than Primary Obligations.

          3. When payments to Secured Creditors are based upon their respective
Pro Rata Shares, the amounts received by such Secured Creditors hereunder shall
be applied (for purposes of making determinations under this Section 7.4 only)
(i) first, to their Primary Obligations and (ii) second, to their Secondary
Obligations. If any payment to any Secured Creditor of its Pro Rata Share of any
distribution would result in overpayment to such Secured Creditor, such excess
amount shall instead be distributed in respect of the unpaid Primary Obligations
or Secondary Obligations, as the case may be, of the other Secured Creditors,
with each Secured Creditor whose Primary Obligations or Secondary Obligations,
as the case may be, have not been paid in full to receive an amount equal to
such excess amount multiplied by a fraction the numerator of which is the unpaid
Primary Obligations or Secondary Obligations, as the case may be, of such
Secured Creditor and the denominator of which is the unpaid Primary Obligations
or Secondary Obligations, as the case may be, of all Secured Creditors entitled
to such distribution.
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                                                                       EXHIBIT J
                                                                         Page 43


          4. Each of the Secured Creditors agrees and acknowledges that if Bank
Creditors are to receive a distribution on account of undrawn amounts with
respect to Letters of Credit issued under the Credit Agreement (which shall only
occur after all outstanding Loans and Unpaid Drawings with respect to such
Letters of Credit have been paid in full), such amounts shall be paid to the
Administrative Agent under the Credit Agreement and held by it, for the equal
and ratable benefit of the Bank Creditors, as cash security for the repayment of
obligations owing to the Bank Creditors as such. If any amounts are held as cash
security pursuant to the immediately preceding sentence, then upon the
termination of all outstanding Letters of Credit, and after the application of
all such cash security to the repayment of all Obligations owing to the Bank
(creditors after giving effect to the termination of all such Letters of Credit,
if there remains any excess cash, such excess cash shall be returned to the
Administrative Agent to the Collateral Agent for distribution in accordance with
Section 7.04(a) hereof.

          5. Except as set forth in Section 7.04(d) hereof, all payments
required to be made hereunder shall be made (i) if to the Bank Creditors, to the
Administrative Agent under the Credit Agreement for the account of the Bank
Creditors, and (ii) if to the Other Creditors, directly to the Other Creditors.

          6. For purposes of applying payments received in accordance with this
Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the
Administrative Agent under the Credit Agreement and (ii) upon the Other
Creditors for a determination (which the Administrative Agent and the Other
Creditors agree (or shall agree) to provide upon request of the Collateral
Agent) of the outstanding Primary Obligations and Secondary Obligations owed to
the Bank Creditors or the Other Creditors, as the case may be, unless it has
actual knowledge (including, by way of written notice from a Bank Creditor or an
Other Creditor) to the contrary, the Administrative Agent, in furnishing
information pursuant to the preceding sentence, and the Collateral Agent, in
acting hereunder, shall be entitled to assume that no Secondary Obligations are
outstanding. Unless it has actual knowledge (including by way of written notice
from any Other Creditor) to the contrary, the Collateral Agent, in acting
hereunder, shall be entitled to assume that no Interest Rate Protection or Other
Hedging Agreements are in existence.

          7. It is understood that each Assignor shall remain liable to the
extent of any deficiency between the amount of the proceeds of the Collateral
and the aggregate amount of the sums referred to in clauses (i), (ii) and (iii)
of Section 7.4(a) with respect to the relevant Assignor.

          E. Remedies Cumulative. Each and every right, power, and remedy hereby
specifically given to the Collateral Agent shall be in addition to every other
right, power and remedy specifically given under this Agreement, the Interest
Rate Protection or Other Hedging Agreements, the other Credit Documents now or
hereafter existing at law, in equity or by statute and each and every right,
power and remedy whether specifically herein given or otherwise existing, may be
exercised from time to time or simultaneously and as often and in such order as
may be deemed expedient by the Collateral Agent. All such rights, powers and
remedies shall be cumulative and the exercise or the beginning of the exercise
of one shall not be deemed a waiver of the right to exercise
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any other or others. No delay or omission of the Collateral Agent in the
exercise of any such right, power or remedy and no renewal or extension of any
of the Obligations shall impair any such right, power or remedy or shall be
construed to be a waiver of any Default or Event of Default or an acquiescence
therein. No notice to or demand on any Assignor in any case shall entitle it to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of any of the rights of the Collateral Agent to any other or
further action in any circumstances without notice or demand. In the event that
the Collateral Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Collateral Agent may
recover reasonable expenses, including attorneys' fees, and the amounts thereof
shall be included in such judgment.

          F. Discontinuance of Proceedings. In case the Collateral Agent shall
have instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding, shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to the Collateral Agent, then and in every such case the relevant
Assignor, the Collateral Agent and each holder of any of the Obligations shall
be restored to their former positions and rights hereunder with respect to the
Collateral subject to the security interest created under this Agreement, and
all rights, remedies and powers of the Collateral Agent shall continue as if no
such proceeding had been instituted.



                                  ARTICLE VIII.

                                    INDEMNITY

          A. Indemnity. 1. Each Assignor jointly and severally agrees to
indemnify, reimburse and hold the Collateral Agent, each Secured Creditor and
their respective successors, permitted assigns, employees, agents and servants
(hereinafter in this Section 8.1 referred to individually as "Indemnitee," and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, damages, injuries, penalties, claims, demands, actions, suits,
judgments and any and all reasonable costs, expenses or disbursements (including
reasonable attorneys' fees and expenses) (for the purposes of this Section 8.1
the foregoing are collectively called "expenses") of whatsoever kind and nature
imposed on, asserted against or incurred by any of the Indemnitees in any way
relating to or arising out of this Agreement, any Interest Rate Protection or
Other Hedging Agreement, any other Credit Document or any other document
executed in connection herewith or therewith or in any other way connected with
the administration of the transactions contemplated hereby or thereby or the
enforcement of any of the terms of, or the preservation of any rights under any
thereof, or in any way relating to or arising out of the manufacture, ownership,
ordering, purchase, delivery, control, acceptance, lease, financing, possession,
operation, condition, sale, return or other disposition, or use of the
Collateral (including, without limitation, latent or other defects, whether or
not discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
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                                                                       EXHIBIT J
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of injury to or the death of any Person (including any Indemnitee), or property
damage), or contract claim; provided that no Indemnitee shall be indemnified
pursuant to this Section 8.1(a) for losses, damages or liabilities to the extent
caused by the gross negligence or willful misconduct of such Indemnitee. Each
Assignor agrees that upon written notice by any Indemnitee of the assertion of
such a liability, obligation, damage, injury, penalty, claim, demand, action,
suit or judgment, the relevant Assignor shall assume full responsibility for the
defense thereof. Each Indemnitee agrees to use its best efforts to promptly
notify the relevant Assignor of any such assertion of which such Indemnitee has
knowledge.

          2. Without limiting the application of Section 8.1(a), each Assignor
agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any
and all reasonable fees, costs and expenses of whatever kind or nature incurred
in connection with the creation, preservation or protection of the Collateral
Agent's Liens on, and security interest in, the Collateral, including, without
limitation, all fees and taxes in connection with the recording or filing of
instruments and documents in public offices, payment or discharge of any taxes
or Liens upon or in respect of the Collateral, premiums for insurance with
respect to the Collateral and all other reasonable fees, costs and expenses in
connection with protecting, maintaining or preserving the Collateral and the
Collateral Agent's interest therein, whether through judicial proceedings or
otherwise, or in defending or prosecuting any actions, suits or proceedings
arising out of or relating to the Collateral,

          3. Without limiting the application of Section 8.1(a) or (b),each
Assignor agrees, jointly and severally, to pay, indemnify and hold each
Indemnitee harmless from and against any loss, costs, damages and expenses which
such Indemnitee may suffer, expend or incur in consequence of or growing out of
any misrepresentation by any Assignor in this Agreement, any Interest Rate
Protection or Other Hedging Agreement, any other Credit Document or in any
writing contemplated by or made or delivered pursuant to or in connection with
this Agreement, any Interest Rate Protection or Other Hedging Agreement or any
other Credit Document.

          4. If and to the extent that the obligations of any Assignor under
this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations which is permissible under applicable law.

          B. Indemnity Obligations Secured by Collateral; Survival. Any amounts
paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of each Assignor contained in this Article VIII shall
continue in full force and effect notwithstanding the full payment of all the
Notes issued under the Credit Agreement, the termination of all Letters of
Credit and all Interest Rate Protection or Other Hedging Agreements and the
payment of all other Obligations and notwithstanding the discharge thereof.
<PAGE>   305
                                                                       EXHIBIT J
                                                                         Page 46



                                   ARTICLE IX.

                                   DEFINITIONS

          The following terms shall have the meanings herein specified. Such
definitions shall be equally applicable to the singular and plural forms of the
terms defined.

          "Agents" shall have the meaning provided in the recitals to this
Agreement.

          "Agreement" shall have the meaning provided in the preamble to this
Agreement.

          "Assignor" shall have the meaning provided in the preamble to this
Agreement.

          "Bank Creditors" shall have the meaning provided in the preamble to
this Agreement.

          "Banks" shall have the meaning provided in the recitals to this
Agreement.

          "Cash Collateral Account" shall mean a non-interest bearing account
maintained with, and in the sole dominion and control of, the Collateral Agent
for the benefit of the Secured Creditors.

          "Chattel Paper" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.

          "Class" shall have the meaning provided in Section 10.2.

          "Collateral" shall have the meaning provided in Section 1.1(a).

          "Collateral Agent" shall have the meaning provided in the preamble to
this Agreement.

          "Contract Rights" shall mean all rights of any Assignor (including
without limitation all rights to payment) under each Contract.

          "Contracts" shall mean all contracts between any Assignor and one or
more additional parties (including, without limitation, any Interest Rate
Protection or Other Hedging Agreements, all management contracts, all NRTC
Agreements and all contracts pursuant to which any Assignor provides DirecTV
services).

          "Copyrights" shall mean any U.S. or foreign copyright owned by any
Assignor, including any registrations of any Copyrights, in the U.S. Copyright
Office or the equivalent thereof in any foreign jurisdiction, as well as any
application for a U.S. or foreign copyright registration now or hereafter made
with the U.S. Copyright Office or the equivalent thereof in any foreign
jurisdiction by any Assignor.
<PAGE>   306
                                                                       EXHIBIT J
                                                                         Page 47


          "Credit Agreement" shall have the meaning provided in the recitals to
this Agreement.

          "Credit Document Obligations" shall have the meaning provided in the
definition of "Obligations" in this Article IX.

          "Default" shall mean any event which, with notice or lapse of time, or
both, would constitute an Event of Default.

          "Documents" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.

          "Equipment" shall mean any "equipment," as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all machinery, equipment, furnishings, movable
trade fixtures and vehicles now or hereafter owned by any Assignor and any and
all additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.

          "Event of Default" shall mean any Event of Default under, and as
defined in, the Credit Agreement or any payment default under any Interest Rate
Protection or Other Hedging Agreement and shall in any event, without
limitation, include any payment default on any of the Obligations after the
expiration of any applicable grace period.

          "General Intangibles" shall have the meaning provided in the Uniform
Commercial Code as in effect on the date hereof in the State of New York.

          "Goods" shall have the meaning provided in the Uniform Commercial Code
as in effect on the date hereof in the State of New York.

          "Indemnitee" shall have the meaning provided in Section 8.1.

          "Instrument" shall have the meaning provided in the Uniform Commercial
Code as in effect on the date hereof in the State of New York.

          "Interest Rate Protection Obligations" shall have the meaning provided
in the definition of "Obligations" in this Article IX.

          "Interest Rate Protection or Other Hedging Agreements" shall have the
meaning provided in the preamble to this Agreement.

          "Inventory" shall mean merchandise, inventory and goods, and all
additions, substitutions and replacements thereof, wherever located, together
with all goods, supplies, incidentals, packaging materials, labels, materials
and any other items used or usable in
<PAGE>   307
                                                                       EXHIBIT J
                                                                         Page 48


manufacturing, processing, packaging or shipping same; in all stages of
production -- from raw materials through work-in-process to finished goods --
and all products and proceeds of whatever sort and wherever located and any
portion thereof which may be returned, rejected, reclaimed or repossessed by the
Collateral Agent from any Assignor's customers, and shall specifically include
all "inventory" as such term is defined in the Uniform Commercial Code as in
effect on the date hereof in the State of New York, now or hereafter owned by
any Assignor.

          "Liens" shall mean any security interest, mortgage, pledge, lien,
claim, charge, encumbrance, title retention, lessor's interest in a financing
lease or analogous instrument, in, of, or on any Assignor's property.

          "Marks" shall mean all right, title and interest in and to any U.S. or
foreign trademarks, service marks and trade names now held or hereafter acquired
by any Assignor, including any registration or application for registration of
any trademarks and service marks in the United States Patent and Trademark
Office, or the equivalent thereof in any State of the United States or in any
foreign country, and any trade dress including logos and/or designs used by any
Assignor in the United States or any foreign country.

          "Obligations" shall mean (i) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, fees
and interest thereon) of the Borrower and each Assignor owing, to the Bank
Creditors, now existing or hereafter incurred under, arising out of or in
connection with any Credit Document and the due performance and compliance by
the Borrower and each Assignor with the terms of each such Credit Document (all
such obligations and indebtedness under this clause (i), except to the extent
consisting of obligations or indebtedness with respect to Interest Rate
Protection or Other Hedging Agreements, being herein collectively called the
"Credit Document Obligations"); (ii) the full and prompt payment when due
(whether at the stated maturity, by acceleration or otherwise) of all
obligations and indebtedness (including, without limitation, indemnities, fees
and interest thereon) of the Borrower and each Assignor owing to the Other
Creditors now existing, or hereafter incurred under, arising out of or in
connection with any Interest Rate Protection or Other Hedging Agreement (all
such obligations and indebtedness under this clause (ii) being herein
collectively called the "Interest Rate Protection Obligations"); (iii) any and
all sums advanced by the Collateral Agent in order to preserve the Collateral or
preserve its security interest in the Collateral; (iv) in the event of any
proceeding for the collection or enforcement of any indebtedness, obligations,
or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event
of Default shall have occurred and be continuing, the reasonable expenses of
re-taking, holding, preparing for sale or lease, selling or otherwise
disposition of or realizing on the Collateral, or of any exercise by the
Collateral Agent of its rights hereunder, together with reasonable attorneys'
fees and court costs; and (v) all amounts paid by any Indemnitee as to which
such Indemnitee has the right to reimbursement under Section 8.1 of this
Agreement.

          "Other Creditors" shall have the meaning provided in the preamble to
this Agreement.
<PAGE>   308
                                                                       EXHIBIT J
                                                                         Page 49


          "Patents" shall mean any U.S. or foreign patent to which any Assignor
now or hereafter has title and any divisions or continuations thereof, as well
as any application for a U.S. or foreign patent now or hereafter made by any
Assignor.

          "Primary Obligation" shall have the meaning provided in Section
7.4(b).

          "Pro Rata Share" shall have the meaning provided in Section 7.4(b).

          "Proceeds" shall have the meaning provided in the Uniform Commercial
Code as in effect in the State of New York on the date hereof or under other
relevant law and, in any event, shall include, but not be limited to, (i) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable to
the Collateral Agent or any Assignor from time to time with respect to any of
the Collateral, (ii) any and all payments (in any form whatsoever) made or due
and payable to any Assignor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any person acting under
color of governmental authority) and (iii) any and all other amounts from time
to time paid or payable under or in connection with any of the Collateral.

          "Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of New
York, now or hereafter owned by any Assignor and, in any event, shall include,
but shall not be limited to, all of such Assignor's rights to payment for goods
sold or leased or services performed by such Assignor, including, without
limitation, all rights to payment under any of DirecTV service contracts,
whether now in existence or arising from time to time hereafter, including,
without limitation, rights evidenced by an account, note, contract, security
agreement, chattel paper, or other evidence of indebtedness or security,
together with (a) all security pledged, assigned, hypothecated or granted to or
held by such Assignor to secure the foregoing, (b) all of any Assignor's right,
title and interest in and to any goods or services, the sale of which gave rise
thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of
the foregoing, (d) all powers of attorney for the execution of any evidence of
indebtedness or security or other writing in connection therewith, (a) all
books, records, ledger cards, and invoices relating thereto, (i) all evidences
of the filing of financing statements and other statements and the registration
of other instruments in connection therewith and amendments thereto, notices to
other creditors or secured parties, and certificates from filing or other
registration officers; (g) all credit information, reports and memoranda
relating thereto and (h) all other writings related in any way to the foregoing.

          "Requisite Creditors" shall have the meaning provided in Section 10.2.

          "Secondary Obligation" shall have the meaning provided in Section
7.4(b).

          "Secured Creditors" shall have the meaning provided in the preamble to
this Agreement.
<PAGE>   309
                                                                       EXHIBIT J
                                                                         Page 50


          "Termination Date" shall have the meaning provided in Section 10.9.

          "Trade Secret Rights" shall have the meaning provided in Section 5.1.


                                   ARTICLE X.

                                  MISCELLANEOUS

          A. Notices. Except as otherwise specified herein, all notices,
requests, demands or other communications to or upon the respective parties
hereto shall be in writing (including telegraphic, telex, facsimile transmission
or cable communication) and shall be delivered, mailed, telegraphed, telexed,
facsimile transmitted or cabled, addressed:

          1. if to any Assignor, at its address set forth opposite its signature
     below;

          2. if to the Collateral Agent:


                       Fleet National Bank
                       Mail Stop MA0FD03D
                       1 Federal Plaza
                       Boston, MA 02110
                       Attention: Mark Bernier
                       Telephone No.: (617) 346-4347
                       Facsimile No.: (617) 346-4345;

          3. if to any Bank Creditor, either (x) to the Administrative Agent, at
     the address of the Administrative Agent specified in the Credit Agreement
     or (y) at such address as such Bank Creditor shall have specified in the
     Credit Agreement;

          4. if to any Other Creditor, directly to the Other Creditors at such
     address as the Other Creditors shall have specified in writing to the
     Borrower and the Collateral Agent;

or at such other address as shall have been furnished in writing by any Person
described above to the party required to give notice hereunder. All such notices
and communications shall, when mailed, telegraphed, telexed, facsimile
transmitted or cabled or sent by overnight courier, be effective on the third
Business Day following deposit in the U.S. mails, certified, return receipt
requested, when delivered to the telegraph company, cable company or on the day
following delivery to an overnight courier, as the case may be, or sent by telex
or facsimile device, except that notices and communications to the Collateral
Agent shall not be effective until received by the Collateral Agent.

          B. Waiver; Amendment. None of the terms and conditions of this
Agreement may be
<PAGE>   310
                                                                       EXHIBIT J
                                                                         Page 51


changed, waived, modified or varied in any manner whatsoever unless in writing
duly signed by each Assignor and the Collateral Agent (with the consent of the
Required Banks or, to the extent required by Section 12.12 of the Credit
Agreement, all of the Banks); provided, that any change, waiver, modification or
variance affecting the rights and benefits of a single Class (as defined below)
of Secured Creditors (and not all Secured Creditors in a like or similar manner)
shall require the written consent of the Requisite Creditors of such Class of
Secured Creditors. For the purpose of this Agreement the term "Class" shall mean
each class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders
of the Credit Document Obligations or (y) the Other Creditors as the holders of
the Interest Rate Protection Obligations. For the purpose of this Agreement, the
term "Requisite Creditors" of any Class shall mean each of (x) with respect to
the Credit Document Obligations, the Required Banks and (y) with respect to the
Interest Rate Protection Obligations, the holders of at least a majority of all
obligations outstanding from time to time under the Interest Rate Protection or
Other Hedging Agreements.

          C. Obligations Absolute. The obligations of each Assignor hereunder
shall remain in full force and effect without regard to, and shall not be
impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of such Assignor, except to
the extent that the enforceability hereof may be limited by any such event, (b)
any exercise or non-exercise, or any waiver of, any right, remedy, power or
privilege under or in respect of this Agreement, any other Credit Document or
any Interest Rate Protection or Other Hedging Agreement, except as specifically
set forth in a waiver granted pursuant to Section 10.2; or (c) any amendment to
or modification of any Credit Document or any Interest Rate Protection or Other
Hedging Agreement or any security for any of the Obligations, whether or not any
Assignor shall have notice or knowledge of any of the foregoing, except as
specifically set forth in an amendment or modification executed pursuant to
Section 10.2.

          D. Successors and Assigns. This Agreement shall be binding upon each
Assignor and its successors and assigns and shall inure to the benefit of the
Collateral Agent and each Secured Creditor and their respective successors and
assigns; provided, that no Assignor may transfer or assign any or all of its
rights or obligations hereunder without the prior written consent of the
Collateral Agent. All agreements, statements, representations and warranties
made by each Assignor herein or in any certificate or other instrument delivered
by such Assignor or on its behalf under this Agreement shall be considered to
have been relied upon by the Secured Creditors and shall survive the execution
and delivery of this Agreement, the other Credit Documents and the Interest Rate
Protection or Other Hedging Agreements regardless of any investigation made by
the Secured Creditors or on their behalf.

          E. Headings Descriptive. The headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement.

          F. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
<PAGE>   311
                                                                       EXHIBIT J
                                                                         Page 52


unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

          G. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF.

          H. Assignor's Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that each Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Collateral Agent shall not have any obligations or
liabilities with respect to any Collateral by reason of or arising out of this
Agreement, nor shall the Collateral Agent be required or obligated in any manner
to perform or fulfill any of the obligations of each Assignor under or with
respect to any Collateral.

          I. Termination; Release. 1. After the Termination Date, this Agreement
shall terminate (provided that all indemnities set forth herein including,
without limitation, Section 8.1 hereof shall survive such termination) and the
Collateral Agent, at the request and expense of the respective Assignor, will
promptly execute and deliver to such Assignor a proper instrument or instruments
(including Uniform Commercial Code termination statements on form UCC-3)
acknowledging the satisfaction and termination of this Agreement, and will duly
assign, transfer and deliver to such Assignor (without recourse and without any
representation or warranty) such of its Collateral as may be in the possession
of the Collateral Agent and as has not theretofore been sold or otherwise
applied or released pursuant to this Agreement. As used in this Agreement,
"Termination Date" shall mean the date upon which the Total Commitment and all
Interest Rate Protection or Other Hedging Agreements have been terminated, no
Note is outstanding (and all Loans have been paid in full), all Letters of
Credit have been terminated (or cash collateralized to the Collateral Agent's
satisfaction) and all other Obligations then owing have been paid in full.

          2. In the event that any part of the Collateral is sold in connection
with a sale permitted by the Credit Agreement or is otherwise released at the
direction of the Required Banks (or all the Banks if required by Section 12.12
of the Credit Agreement) and the proceeds of such sale or sales or from such
release are applied in accordance with the terms of the Credit Agreement, such
Collateral will be sold free and clear of the Liens created by this Agreement
and the Collateral Agent, at the request and expense of the respective Assignor,
will duly assign, transfer and deliver to such Assignor (without recourse and
without any representation or warranty) such of the Collateral of such Assignor
as is then being (or has been) so sold or released and as may be in the
possession of the Collateral Agent and has not theretofore been released
pursuant to this Agreement.

          3. At any time that an Assignor desires that Collateral be released as
provided in the foregoing Section 10.9(a) or (b), it shall deliver to the
Collateral Agent a certificate signed by its chief financial officer or another
authorized senior officer stating that the release of the respective
<PAGE>   312
                                                                       EXHIBIT J
                                                                         Page 53


Collateral is permitted pursuant to Section 10.9(a) or (b). If requested by the
Collateral Agent (although the Collateral Agent shall have no obligation to make
any such request), the relevant Assignor shall furnish appropriate legal
opinions (from counsel, which may be in-house counsel, acceptable to the
Collateral Agent) to the effect set forth in the immediately preceding sentence.
The Collateral Agent shall have no liability whatsoever to any Secured Creditor
as the result of any release of Collateral by it as permitted by this Section
10.

          J. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Collateral Agent.

          K. The Collateral Agent. The Collateral Agent will hold in accordance
with this Agreement all items of the Collateral at any time received under this
Agreement. It is expressly understood and agreed by the parties hereto and each
Secured Creditor, by accepting the benefits of this Agreement, acknowledges and
agrees that the obligations of the Collateral Agent as holder of the Collateral
and interests therein and with respect to the disposition thereof, and otherwise
under this Agreement, are only those expressly set forth in this Agreement. The
Collateral Agent shall act hereunder on the terms and conditions set forth in
Section 11 of the Credit Agreement.

          L. Limited Obligations. It is the desire and intent of each Assignor,
the Collateral Agent and the Secured Creditors that this Agreement shall be
enforced against each Assignor to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
If and to the extent that the obligations of each Assignor under this Agreement
shall be adjudicated to be invalid of unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers, which laws would determine the solvency of
any Assignor by reference to the full amount of the Obligations at the time of
the execution and delivery of this Agreement), then the amount of the
Obligations of such Assignor shall be deemed to be reduced and such Assignor
shall pay the maximum amount of the Obligations which would be permissible under
the applicable law.

          M. Conflict. In the event of any conflict between any provision of
this Agreement and any provision of the Collateral Assignment of Marketing and
Distribution Agreements, dated as of July 7, 1997, between the Borrower and the
Collateral Agent, as acknowledged and agreed to by the NRTC and Hughes, the
relevant provision of this Agreement shall govern.
<PAGE>   313
                                                                       EXHIBIT J
                                                                         Page 54


          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.


                                   GOLDEN SKY SYSTEMS, INC.,
                                     as an Assignor
                                   605 West 47th Street
                                   Suite 300
                                   Kansas City, MO 64112


                                   By     /s/ Robert B. Weaver
                                          ------------------------------
                                   Name:  Robert B. Weaver
                                   Title: President


Accepted and Agreed to:

FLEET NATIONAL BANK,
  as Collateral Agent



By     /s/ Paula H. Lang
       ------------------------------
Name:  Paula H.  Lang
Title: Senior Vice President
<PAGE>   314
                                                                       EXHIBIT J
                                                                         Page 55



                                                                         ANNEX C

                              SCHEDULE OF INVENTORY
                             AND EQUIPMENT LOCATIONS






                   CORPORATE OFFICE
                   605 W. 47th Street
                   Kansas City, MO



                   COLORADO OFFICE

                   Avon, CO
                   Eagle/Vail Business
                     (Center) Park
                   40814 U.S Highway 6
                   Avon, CO 81620


                   KANSAS OFFICES

                   Chanute, KS
                   Wal-Mart Plaza
                   2506 S. Santa Fe
                   Chanute, KS 66720

                   Coffeyville, KS
                   206 W. 8th Street
                   Coffeyville, KS 67337

                   Coffeyville, KS
                   903-907 W. 11th Street
                   Coffeyville, KS 67337

                   Independence, KS
                   112 W. Myrtle Street
                   Independence, KS 67301

                   Pittsburgh, KS
                   522 N. Broadway
                   Pittsburgh, KS 66782
<PAGE>   315
                                                                       EXHIBIT J
                                                                         Page 56


                   MISSOURI OFFICES

                   Moberly, MO
                   1011 C North Morley
                   Moberly, MO 65270

                   Hannibal, MO
                   102 Steamboat Bend
                   Shopping Ctr.
                   Hannibal, MO

                   Hannibal, MO
                   102 Steamboat Bend #12
                   Shopping Ctr.     
                   Hannibal, MO

                   Corporate Apartment Rent
                   Apt. 702

                   Richmond, MO
                   105 East Main
                   Suite 1
                   Richmond, MO 64085

                   NEVADA OFFICES

                   Las Vegas, NV
                   Rancho Santa Fe Center
                   5081 N. Rainbow, Ste. 106
                   Las Vegas, NV 89103





                   OKLAHOMA OFFICES

                   Bartlesville, OK
                   554 S.E. Washington
                   546 S.E. Washington
                   Bartlesville, OK

                   McAlester, OK
                   142 E Carl Albert Parkway
                   Tandy Town Shopping Ctr
                   McAlester, OK
<PAGE>   316
                                                                       EXHIBIT J
                                                                         Page 57


                   Claremore, OK
                   514 North Lynn Riggs
                   U.S. Hwy 66
                   Claremore, OK 74017

                   TENNESSEE OFFICES

                   Camden, TN
                   148 Highway 641 N
                   Camden, TN 38320

                   Martin, TN
                   643 N. Lindell St.
                   Ste. A
                   Martin, TN 38237

                   Martin, TN-Warehouse
                   Jackson St.
                   Martin, TN 38237

                   Paris, TN
                   110 Fentress
                   Paris, TN 38242

                   TEXAS OFFICES

                   Center, TX
                   202 Tenaha Street
                   Center, TX

                   Dallas, TX
                   11453 Newkirt Street
                   Dallas, TX 75229

                   Sequin
                   256 West Court
                   Sequin, TX 78155

                   Victoria, TX
                   6703 N. Navarro
                   Victoria, TX 77904
<PAGE>   317
                                                                       EXHIBIT J
                                                                         Page 58


                   Flower Mound, TX
                   Towne View Plaza
                   1900 Long Prairie Road
                   Suite 148
                   Flower Mound, TX 75028

                   Lubbock, TX
                   4210 82nd Street
                   Lubbock, TX 79423

                   Livingstone, TX
                   2114 Hwy 190 West
                   Livingstone, TX 77351

                   Office Warehouse
                   Commerce Business Park

                   MINNESOTA OFFICES

                   Mankato, MN
                   1400 Madison Ave.
                   Suite 624
                   Mankato, MN 56001

                   New Ulm, MN
                   1 South Minnesota Street
                   New Ulm, MN 56073

                   Winona, MN
                   1157 Gilmore Ave.
                   Winona, MN 55987

                   Alexandria, MN
                   1224 N. Nokomis N.E.
                   Suite 111
                   Alexandria, MN 56308

                   Houston, MN
                   113 S. Grant Street
                   Houston, MN 55943
<PAGE>   318
                                                                       EXHIBIT J
                                                                         Page 59


                   MICHIGAN OFFICES

                   Battle Creek, MI
                   Capital Centre
                   2545 Capital Ave.
                   Suite 120
                   Battle Creek, MI 49015

                   Cadillac, MI
                   2124 N. Mitchell Drive
                   Cadillac, MI 49601

                   Traverse City, MI
                   3289 W. South Airport Rd.
                   Traverse City, MI 49684

                   FLORIDA OFFICES

                   Port Charlotte, FL
                   2486 A Tamiami Trail
                   Port Charlotte, FL 33952

                   Cape Coral, FL
                   2126 Del Prado Blvd.
                   Units 1,2,3&4
                   Cape Coral, FL 33904

                   IOWA OFFICE

                   Marshalltown, IA
                   Marshalltown Retail Center
                   3109 S. Center Street
                   Unit 2
                   Marshalltown, IA 50158

                   UTAH OFFICE

                   Park City, UT
                   1612 W. Ute Blvd.
                   Suite 106
                   Park City, UT 84098
<PAGE>   319
                                                                       EXHIBIT J
                                                                         Page 60


                   OREGON OFFICE

                   Klamath Falls, OR
                   2650 Washburn Way
                   Suite 140
                   Klamath Falls, OR 97603

                   NORTH DAKOTA OFFICE

                   Fargo, ND
                   3033 13th Ave. S.W.
                   Fargo, ND 58103

                   WISCONSIN OFFICE

                   Menomonie, WI
                   1400 N. Broadway Street
                   Menomonie, WI 54751

                   MONTANA OFFICES

                   Billings, MT
                   2219 Grand Avenue
                   Billings, MT 59102

                   Havre, MT
                   437 First Street
                   Havre, MT 59501

                   Missoula, MT
                   Northgate Plaza
                   1900 Sherwood St.
                   Suite 115
                   Missoula, MT 59802
<PAGE>   320
                                                                       EXHIBIT J
                                                                         Page 61


                                                                         ANNEX D


                           TRADE AND FICTITIOUS NAMES


          None registered or filed. The Company utilizes for recognition the
abbreviation of the name Golden Sky Systems, Inc. as GSS.
<PAGE>   321
                                                                       EXHIBIT J
                                                                         Page 62


                                                                         ANNEX E



                                  LIST OF MARKS


          None registered or filed. See attached for logo utilized in general
business use, marketing and various types of advertising.
<PAGE>   322
                                                                       EXHIBIT J
                                                                         Page 63



[GOLDEN SKY SYSTEMS, INC. LETTERHEAD]
<PAGE>   323
                                                                       EXHIBIT J
                                                                         Page 64


                                                                         ANNEX F



                        LIST OF PATENTS AND APPLICATIONS



         None.
<PAGE>   324
                                                                       EXHIBIT J
                                                                         Page 65



                                                                   ANNEX G
                                                                      to
                                                              SECURITY AGREEMENT



                       LIST OF COPYRIGHTS AND APPLICATIONS


A.   GOLDEN SKY SYSTEMS, INC.


     None.
<PAGE>   325
                                                                       EXHIBIT J
                                                                         Page 66


                                                                   ANNEX H
                                                                      to
                                                              SECURITY AGREEMENT



                       ASSIGNMENT OF SECURITY INTEREST IN
                      UNITED STATES TRADEMARKS AND PATENTS


          FOR GOOD AND VALUABLE CONSIDERATION, receipt and sufficiency of which
are hereby acknowledged, [Assignor], a [ ] corporation (the "Assignor") with
principal offices at__________________________________, hereby assigns and
grants to Fleet National Bank, as Collateral Agent, with principal offices at
[        ] (the "Assignee"), a security interest in (i) all of the Assignor's
right, title and interest in and to the United States trademarks, trademark
registrations and trademark applications (the "Marks") set forth on Schedule A
attached hereto, (ii) all of the Assignor's right, title and interest in and to
the United States patents (the "Patents") set forth on Schedule B attached, in
each case together with (iii) all Proceeds (as such term is defined in the
Security Agreement referred to below) and products of the Marks and Patents,
(iv) the goodwill of the businesses symbolized by the Marks and (v) all causes
of action arising prior to or after the date hereof for infringement of any of
the Marks and Patents or unfair competition regarding the same.

          THIS ASSIGNMENT is made to secure the full and prompt performance and
payment of all the Obligations of the Assignor, as such term is defined in the
Security Agreement between the Assignor and the Assignee, dated as of
____________, 1997 (as amended from time to time, the "Security Agreement").
Upon the occurrence of the Termination Date (as defined in the Security
Agreement), the Assignee shall, upon such satisfaction, execute, acknowledge,
and deliver to the Assignor an instrument in writing releasing the security
interest in the Marks and Patents acquired under this Assignment.

          This Assignment has been granted in conjunction with the security
interest granted to the Assignee under the Security Agreement. The rights and
remedies of the Assignee with respect to the security interest granted herein
are without prejudice to, and are in addition to those set forth in the Security
Agreement, all terms and provisions of which are incorporated herein by
reference. In the event that any provisions of this Assignment are deemed to
conflict with the Security Agreement, the provisions of the Security Agreement
shall govern.
<PAGE>   326
                                                                       EXHIBIT J
                                                                         Page 67



                                                                   ANNEX H
                                                                      to
                                                              SECURITY AGREEMENT



          IN WITNESS WHEREOF, the undersigned have executed this Assignment as
of the ____ day of _________, 1997.

                                   [ASSIGNOR],
                                    Assignor


                                   By___________________________________
                                     Name:
                                     Title:


                                   FLEET NATIONAL BANK, as
                                    Collateral Agent, Assignee


                                   By___________________________________
                                     Name:
                                     Title:
<PAGE>   327
                                                                       EXHIBIT J
                                                                         Page 68



STATE OF NEW YORK                   )
                                    )        ss.:
COUNTY OF NEW YORK                  )


          On this ___ day of __________, 1997, before me personally came
_______________________, who, being by me duly sworn, did state as follows: that
he is ________________ of [Assignor], that he is authorized to execute the
foregoing Assignment on behalf of said corporation and that he did so by
authority of the Board of Directors of said corporation.


                                     ____________________________
                                            Notary Public
<PAGE>   328
                                                                       EXHIBIT J
                                                                         Page 69



STATE OF NEW YORK                   )
                                    )        ss.:
COUNTY OF NEW YORK                  )


          On this ___ day of __________, 1997, before me personally came
_______________________, who, being by me duly sworn, did state as follows: that
he is ________________ of Banque Paribas, that he is authorized to execute the
foregoing Assignment on behalf of said corporation and that he did so by
authority of the Board of Directors of said corporation.


                                     ____________________________
                                            Notary Public
<PAGE>   329
                                                                       EXHIBIT J
                                                                         Page 70



                                                                      SCHEDULE A


      MARK                            REG. NO                         REG. DATE
<PAGE>   330
                                                                       EXHIBIT J
                                                                         Page 71


                                                                      SCHEDULE B


      PATENT                          PATENT NO.                      ISSUE DATE
<PAGE>   331
                                                                       EXHIBIT J
                                                                         Page 72



                                                                   ANNEX I
                                                                      to
                                                              SECURITY AGREEMENT


                         ASSIGNMENT OF SECURITY INTEREST
                           IN UNITED STATES COPYRIGHTS

          WHEREAS, [ASSIGNOR], a [ ] corporation (the "Assignor"),having, is
chief executive office at                    , is the owner of all right, title
and interest in and to the United States copyrights and associated United States
copyright registrations and applications for registration set forth in Schedule
A attached hereto;

          WHEREAS, FLEET NATIONAL BANK, as Collateral Agent, having its
principal offices at Mail Stop MA0FD03D, 1 Federal Street, Boston MA 02110 (the
"Assignee"), desires to acquire a security interest in, and lien on, said
copyrights and copyright registrations and applications therefor and the
goodwill of the business symbolized by said copyrights; and

          WHEREAS, the Assignor is willing to assign to the Assignee, and to
grant to the Assignee a security interest in and lien upon the copyrights and
copyright registrations and applications therefor described above;

    NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, and subject to the terms and conditions of the Security
Agreement, dated as of July , 1997, between the Assignor and the Assignee(as
amended from time to time, the "Security Agreement"), the Assignor hereby
assigns to the Assignee, and grants to the Assignee a security interest in and a
lien upon, the copyrights and copyright registrations and applications therefor
set forth in Schedule A attached hereto and the goodwill of the business
symbolized by said copyrights.

    This Assignment has been granted in conjunction with the security interest
granted to the Assignee under the Security Agreement. The rights and remedies of
the Assignee with respect to the security interest granted herein are without
prejudice to, and are in addition to those set forth in the Security Agreement,
all terms and provisions of which are incorporated herein by reference. In the
event that any provisions of this Assignment are deemed to conflict with the
Security Agreement, the provisions of the Security Agreement shall govern.
<PAGE>   332
                                                                       EXHIBIT J
                                                                         Page 73


    Executed at New York, New York, the __ day of _________, 1997.

                             [ASSIGNOR],
                              Assignor


                             By____________________
                               Name:
                               Title:


                             FLEET NATIONAL BANK, as
                              Collateral Agent, Assignee


                             By_____________________
                               Name:
                               Title:
<PAGE>   333
                                                                       EXHIBIT J
                                                                         Page 74



STATE OF NEW YORK                      )
                                       )        ss.:
COUNTY OF NEW YORK                     )


          On this ___ day of __________, 1997, before me personally came
_______________________, who, being duly sworn, did depose and say that he is
________________ of [Assignor], that he is authorized to execute the foregoing
Assignment on behalf of said corporation and that he did so by authority of the
Board of Directors of said corporation.

                                     ____________________________
                                            Notary Public
<PAGE>   334
                                                                       EXHIBIT J
                                                                         Page 75


STATE OF NEW YORK                      )
                                       )        ss.:
COUNTY OF NEW YORK                     )


          On this ___ day of __________, 1997, before me personally came
_______________________, who, being duly sworn, did depose and say that he is
________________ of [Assignor], that he is authorized to execute the foregoing
Assignment on behalf of said corporation and that he did so by authority of the
Board of Directors of said corporation.


                                     ____________________________
                                            Notary Public
<PAGE>   335
                                                                       EXHIBIT J
                                                                         Page 76


                                                                      SCHEDULE A



                                 U.S. COPYRIGHTS

REGISTRATION               PUBLICATION
  NUMBERS                    DATE                    COPYRIGHT TITLE
<PAGE>   336
                                                                       EXHIBIT J
                                                                         Page 77


                                               EXHIBIT C to the
                                               Security Documents Acknowledgment


                       COLLATERAL ASSIGNMENT OF MARKETING
                           AND DISTRIBUTION AGREEMENT


THIS COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS (the
"Agreement") is made as of this 7th day of July, 1997 by and between Golden Sky
Systems, Inc. (hereinafter referred to as "Borrower" or "Assignor"), and Fleet
National Bank, as Collateral Agent for the Banks party to the Credit Agreement
referred to below (hereinafter referred to "Assignee"), in accordance with the
following facts and understandings of the parties hereto.


          (a) Assignor is in the business of providing direct broadcast services
and related equipment pursuant to those certain NRTC/Member Agreement for
Marketing and Distribution of DBS Services listed in Exhibit A hereto, with
their respective exhibits and any amendments thereto, the "NRTC Agreements") by
and between Assignor and the National Rural Telecommunications Cooperative
("NRTC").

          (b) Pursuant to that certain Credit Agreement dated as of July 7,
1997, among Assignor, the financial institutions party thereto, Banque Paribas,
as Syndication Agent and as Managing Agent and Fleet National Bank, as
Administrative Agent and as Managing Agent (as such the "Credit Agreement" may
be amended, modified, extended, renewed, replaced, restated, supplemented,
restructured or refinanced from time to time), and in connection with the
closing of the transactions contemplated thereby, Assignor has assigned to
Assignee all of its rights in the NRTC Agreements, and NRTC and DIRECTV, INC.
("DIRECTV"), the successor rights holder to Hughes Communications Galaxy, Inc.
have consented to the assignment as set forth herein.

          (c) In connection with the closing of the transactions contemplated by
the Credit Agreement and the assignment by Assignor to Assignee of the NRTC
Agreements, Assignor has entered and may enter into various Credit Documents and
Interest Rate Protection or Other Hedging Agreements (as such terms are defined
in the Credit Agreement).

          (d) As a material inducement for the banks entering into the
Agreement, Assignor has agreed to secure its obligations under the Credit
Documents and Interest Rate Protection or Other Hedging Agreements by, among
other things, collaterally assigning its right, title and interest in and to the
NRTC Agreements with the consent of NRTC and DIRECTV.
<PAGE>   337
                                                                       EXHIBIT J
                                                                         Page 78


                                    AGREEMENT

          NOW, THEREFORE, in consideration of the mutual promises contained
herein and for such other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, Assignor and Assignee do hereby agree
as follows:

          (1) ASSIGNMENT. As security for Assignor's performance of its
obligations under the terms and provisions of the Credit Documents and the
Interest Rate Protection or Other Hedging Agreements, Assignor hereby assigns to
Assignee as collateral security, all of Assignor's right, title and interest in
and under the NRTC Agreements, including all warranties and guarantees of NRTC
under the NRTC Agreements, and all rights and interest of Assignor under any
payment issued in connection with or paid pursuant to the NRTC Agreements;
provided, however, that Assignee shall not exercise any rights under the NRTC
Agreements unless and until the occurrence of an "Event of Default" as defined
below, and until the occurrence of any such Event of Default, Assignor shall be
fully entitled to all rights and benefits thereunder.

          (2) RIGHTS UPON DEFAULT. If an Event of Default (as that term is
defined in Section 3, below) shall occur, Assignee may, at its option by written
notice to Assignee and NRTC, succeed to Assignor's rights and obligations under
the NRTC Agreements. If Assignee shall elect to succeed to the rights and
obligations of Assignor under the NRTC Agreements, upon receipt of written
notice from Assignee to NRTC, NRTC and DIRECTV shall continue to perform their
obligations under the NRTC Agreements in favor of Assignee or Assignee's
designee (which designee shall be subject to the prior written consent of NRTC
and DIRECTV as provided for in the NRTC Agreements and meets NRTC's requirements
for affiliation or membership which are in effect at the time of such notice,
which consent shall not be unreasonably withheld) in the manner and by the dates
provided for in the NRTC Agreements in all respects, as if Assignee or
Assignee's designee were originally a party to the NRTC Agreements, NRTC and
DIRECTV may rely on written notice from Assignee as to the occurrence of an
Event of Default, and shall not be held liable to Assignor or Assignee for
actions taken in reliance thereon. Any designee of Assignee must submit an
application for affiliation or membership to the NRTC, to the extent such
designee is not already a NRTC affiliate or member, and have the application
approved in accordance with the requirements for affiliation or membership which
are then in effect prior to such designee becoming entitled to the benefits of
the NRTC Agreements as provided in this Section 2, to the extent required by the
NRTC at such time. In addition, Assignee's designee shall be required prior to,
or concurrent with, assumption of the rights and obligations of Assignor, to pay
in full all amounts then due and owing to NRTC pursuant to the NRTC Agreements.

          (3) EVENT OF DEFAULT. As used in this Agreement, the term "Event of
Default" shall mean:


                                       78
<PAGE>   338
                                                                       EXHIBIT J
                                                                         Page 79


               3.1 NONPAYMENT. The failure of Assignor to pay principal,
interest (if applicable) or other amounts due or payable in accordance with the
terms of the Note when the same shall become due and payable, or to make any
other required payment under any other obligation of Assignor to Assignee, and
such failure remains unremedied within five (5) days following receipt by
Assignor of written notice from Assignee of such failure to pay;

               3.2 NONPERFORMANCE. Except as set forth in any other provisions
of this Section 3, the breach of, or other failure of Assignor to duly perform
or observe any term, covenant or agreement set forth in this Agreement on its
part to be performed or observed and any such failure shall remain unremedied
for thirty (30) days following receipt by Assignor of written notice for
Assignee of such breach or other failure;

               3.3 BANKRUPTCY. An adjudication of the Assignor as bankrupt or
insolvent; the institution by Assignor (by petition, application, answer,
consent or otherwise) of any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation, or similar
proceedings related to the Assignor under the laws of any jurisdiction; or the
institution of any such proceeding (by petition, application or otherwise)
against Assignor if such proceeding remains undismissed for a period of ninety
(90) days;

               3.4 ADMISSION. The admission in writing of Assignor's inability
to pay any of its debts as the same mature;

               3.5 ASSIGNMENT. The making of an assignment for the benefit of
Assignor's creditors;

               3.6 RECEIVERSHIP, ETC. The application of Assignor for or consent
by Assignor to the appointment of a receiver, trustee or similar custodian for
Assignor, or for all or any substantial part of its property; or the appointment
of such receiver, trustee, or similar officer without the application or consent
of Assignor, as the case may be, and if such appointment continues undischarged
for a period of ninety (90) days;

               3.7 SALE OR TRANSFER. The sale or transfer of substantially all
of Assignor's assets and properties, except as specifically provided for in the
Note or Security Agreement;

               3.8 LEVY. The issuance or levy of any judgment, writ, warrant of
attachment or execution, or similar process in the amount of $40,000.00 or more,
against substantially all of the property of Assignor and if such judgment, writ
or similar process is not released, vacated or fully bonded within thirty (30)
days after its issue or levy; and

               3.9 BREACH OF CREDIT DOCUMENTS. Any other act or event
constituting an event or default as set forth in the Credit Documents that shall
remain unremedied for a period in excess of the


                                       79
<PAGE>   339
                                                                       EXHIBIT J
                                                                         Page 80

applicable cure period provided for in the Credit Documents and the Interest
Rate or Other Hedging Agreements for a period of thirty (30) days after receipt
of written notice by Assignor from Assignee of such event of default, whichever
is less.

          (4) RIGHT TO CURE. NRTC agrees that it shall provide Assignor and
Assignee with copies of any written notice of default by Assignor in the
performance of its obligations under the NRTC Agreements. Assignee shall have
the right, but not the obligation, to cure Assignor's default under the NRTC
Agreements. Assignee shall have thirty (30) days following receipt of the
written notice of default of NRTC in which to cure, and NRTC agrees that it
shall not ??? the NRTC Agreements or take any other action which it may be
entitled to take as a result of such default unless Assignee and Assignor fail
to cure the default within such thirty (30) day period.

          (5) NO OTHER ASSIGNMENT. Assignor hereby represents and warrants to
Assignee that Assignor has not assigned, pledged, granted an interest in, or
otherwise encumbered or transferred any interest in the NRTC Agreements to any
other party, and Assignor further agrees that from and after the date hereof,
except for the security interest in the NRTC Agreements granted to Assignee
under the Credit Documents, Assignor shall not assign, pledge, grant a security
interest in, or otherwise encumber or transfer any interest in the NRTC
Agreements to any other party without Assignee's (and NRTC's and DIRECTV's)
prior written consent.

          (6) MISCELLANEOUS PROVISIONS.

               6.1 BENEFITS OF AGREEMENT. Nothing contained in this Agreement,
in the Credit Documents or in the Interest Rate Protection or Other Hedging
Agreements, is intended or shall be construed or applied so as to confer upon
any person other than the parties herein and their respective heirs, personal
representatives, successors and assigns, any right, remedy, or claim under or by
reason of this Agreement, the Credit Documents or in the Interest Rate
Protection or Other Hedging Agreements, or any covenant, condition, or agreement
hereof. Covenants, conditions and agreements contained in this Agreement shall
??? to and shall be for the sole and exclusive benefit of the parties hereto and
their respective heirs, personal representatives, successors and assigns.

               6.2 SUCCESSORS AND ASSIGNS. All of the covenants, conditions and
agreements contained in this Agreement by or on behalf of the parties hereto,
shall bind their respective heirs, personal representatives, successors and
assigns, whether ??? expressed or not.

               6.3 NOTICE. All notices, requests, demands or other
communications under this agreement shall be in writing. Notice shall be
sufficiently given for all purposes as follows:

               (a) PERSONAL DELIVERY. When personally delivered to the
recipient, Notice is effective on delivery.


                                       80
<PAGE>   340
                                                                       EXHIBIT J
                                                                         Page 81


               (b) CERTIFIED MAIL. When mailed certified mail, return receipt
requested, Notice is effective on receipt, if delivery is confirmed by a return
receipt.

               (c) OVERNIGHT DELIVERY. When delivered by Federal Express,
Airborne, United Parcel Service, or DHL WorldWide Express, charges prepaid or
charged to the sender's account, Notice is effective on delivery, if delivery is
confirmed by the delivery service.

               (d) TELEX OR FACSIMILE TRANSMISSION. When sent by telex or fax to
the last telex or fax number of the recipient known to the party giving notice,
Notice is effective of receipt, provided that (a) a duplicate copy of the notice
is promptly given by first-class or certified mail or by overnight delivery, or
(b) the receiving party delivers a written confirmation or receipt. Any notice
given by telex or fax shall be deemed received on the next business day if it is
received after 5:00 p.m. (recipient's time) or on a nonbusiness day.

               Addresses for purpose of giving notice are as follows:

          To NRTC      National Rural Telecommunications Cooperative
                       2201 Cooperative Way, Suite 400
                       Homdon, VA 20171
                       Attention: Chief Executive Officer
                       co: Steven T. Berman
                       Senior Vice President, Business Affairs & General Counsel
                       Facsimile No.: (703) 787-3355

          To DIRECTV:  _____________________________________________
                       _____________________________________________
                       _____________________________________________
                       _____________________________________________

          To Assignee: Fleet National Bank
                       Mail Stop MA0FD03D
                       1 Federal Plaza
                       Boston, MA 02110
                       Attention: Mark Bernier

          To Assignor: _____________________________________________
                       _____________________________________________
                       _____________________________________________
                       _____________________________________________


                                       81
<PAGE>   341
                                                                       EXHIBIT J
                                                                         Page 82


               With copy (which, standing alone, shall not constitute notice)
          to:

                       _____________________________________________
                       _____________________________________________
                       _____________________________________________
                       _____________________________________________


          Any correctly addressed notice that is refused, unclaimed, or
undeliverable because of an act or omission of the party to be notified shall be
deemed effective as of the first date that said notice was refused, unclaimed,
or deemed undeliverable by the postal authorities, messenger, or overnight
delivery service.

          Any party may change its address or telex or fax number by giving the
other party notice of the change in any manner permitted by this Agreement.

               (6.4) ENTIRE AGREEMENT. This Agreement, the Credit Documents and
the Interest Rate Protection or Other Hedging Agreements, represent the entire
Agreement and understanding between Assignor and Assignee with respect to the
subject matter hereof and supersede all other prior agreements. In order to be
effective, any modification or amendment to this Agreement must be in writing
and signed by the parties to be charged.

               (6.5) SEVERABILITY. Should one or more of the provisions
contained in this Agreement be held invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability or the remaining provisions
contained herein shall not in any way be effected or impaired thereby.

               (6.6) CHOICE OF LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York. Any dispute
that arises under or relates to this Agreement shall be resolved in the courts
of the State of New York or of the United States of the Southern District of New
York.

               (6.7) COUNTERPARTS. This agreement may be signed in any number of
counterparts with the same effect as if the signatures of each counterpart were
upon the same instrument.

               (6.8) ATTORNEY'S FEES. In the event of any dispute between the
parties out of or in connection with this Agreement, whether or not such
disputes result in litigation, the Borrower shall pay the reasonable attorney's
fees and costs incurred by the Assignee.

               (6.9) TIME. Unless otherwise agreed, time is of the essence of
each and every provision of this Agreement.


                                       82
<PAGE>   342
                                                                       EXHIBIT J
                                                                         Page 83


               (6.10) WAIVER. No delay or omission in the exercise of any right
or remedy by any party shall be construed as a waiver, nor shall the waiver of
any term or condition contained in this Agreement by any party be construed as a
waiver of any subsequent breach or failure of the same term and condition or
waiver of any other term or condition contained in this Agreement.

               (6.11) RECITALS/EXHIBITS. All recitals contained in the
introductory paragraphs in this Agreement and on exhibits hereto are
incorporated herein by this reference and made a part hereof.

               (6.12) AMBIGUITIES. Each party and its counsel have participated
fully in the review and revision of this Agreement. Any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in interpreting this Agreement.

          This Agreement has been executed and delivered as of the date set
forth above.

          ASSIGNOR:                        ASSIGNEE:

          By:_________________________     By:_________________________

          Name:_______________________     Name:_______________________

          Its:________________________     Its:________________________



                                       83
<PAGE>   343
                                                                       EXHIBIT J
                                                                         Page 84


                                                                       Exhibit A


                                 NRTC AGREEMENTS


1.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee,
         Inc.), dated as of July 12, 1993, as amended (Contract No. 1035), as
         assigned to Golden Sky Systems, Inc. ("GSS") pursuant to an Application
         for Assignment, effective as of November 22, 1996.

2.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee,
         Inc.), dated as of July 12, 1993, as amended (Contract No. 1035), as
         assigned to Aurora Cable TV, Inc., pursuant to an Application for
         Assignment, effective as of June 30, 1996, and as assigned to GSS
         pursuant to an Application for Assignment effective as of November 16,
         1996.

3.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Total Telephone Company, Inc., dated as of October 16,
         1992, as amended (Contract No. 0479), as assigned to Images DBS Kansas,
         LLC, pursuant to an Application of Assignment, effective as of May 23,
         1994, and as assigned to GSS pursuant to an Application of Assignment,
         effective as of February 12, 1997.

4.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Total Telephone Company, Inc., dated as of October 16,
         1992, as amended (Contract No. 0075), as assigned to Images DBS
         Oklahoma, LLS, pursuant to an Application of Assignment, effective as
         of May 23, 1994, and as assigned to GSS pursuant to an Application of
         Assignment, effective as of February 12, 1997.

5.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Direct Satellite TV, Limited, dated as of June 3,
         1993, as amended (Contract No. 1030), assigned to GSS pursuant to an
         Application for Assignment, effective as of February 28, 1997.

6.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Thunderbolt Systems, Inc., dated as of August 10,
         1992, as amended (Contract No. 1078), assigned to GSS pursuant to an
         Application for Partial Assignment, effective as of March 11, 1997.

7.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC


                                       84
<PAGE>   344
                                                                       EXHIBIT J
                                                                         PAGE 85

         and Deep East Texas Telecommunications, Inc., dated as of April 30,
         1993, as amended (Contract No. 1012), assigned to GSS pursuant to an
         Application for Assignment, effective as of April 11, 1997.

8.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
         dated as of May 4, 1993, as amended (Contract No. 1079), assigned to
         GSS pursuant to an Application for Partial Assignment, effective as of
         May 1, 1997.

9.       NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TEG-DBS Services, Inc., dated as of December 16, 1992,
         as amended (Contract No. 1076), assigned to GSS pursuant to an
         Application for Assignment effective as of November 23, 1994, and as
         assigned to GSS pursuant to an Application for Assignment effective as
         of June 12, 1997.

10.      Any other agreement between the Assignor (or any of its subsidiaries or
         any person acquired by the Assignor or any of its subsidiaries) and the
         NRTC.


                                       85
<PAGE>   345
                                                                       EXHIBIT J
                                                                         Page 86


          The undersigned hereby acknowledge that they have read the foregoing
Collateral Assignment of Marketing and Distribution Agreements (the "Collateral
Assignment"), agree to be bound by the terms thereof, including but not limited
to the terms contained in Sections 1, 2, 4 and 6 of said Collateral Assignment,
and consent to the assignment by Assignor of its rights under the NRTC
Agreements, as provided in Section 1 of the Collateral Assignment. Each of the
undersigned further acknowledges that a security interest in the NRTC Agreements
has validly been granted to Assignor.

          NRTC hereby confirms that, as of the date hereof, Assignor (i) is a
NRTC affiliate in good standing, (ii) is in full compliance with its payment and
other obligations under each of the NRTC Agreements and (iii) is not otherwise
in default under any of the NRTC Agreements.

          The persons signing on behalf of each of the undersigned is a duly
authorized officer of the entity for which he or she is signing, and has the
power to execute this instrument on behalf of such entity.

NATIONAL RURAL                               DIRECTV, INC., the successor rights
TELECOMMUNICATIONS                           holder to Hughes Communications
COOPERATIVE                                  Galaxy, Inc.


By:______________________________            By:______________________________


Name:____________________________            Name:____________________________


Title:___________________________            Title:___________________________


Date:______________________, 19__            Date:______________________, 19__



                                       86
<PAGE>   346
                                                                       EXHIBIT J
                                                                         Page 87


                                                                         ANNEX I
                                            to Security Documents Acknowledgment


                      COLLATERAL ASSIGNMENT ACKNOWLEDGMENT

                                  See attached.
<PAGE>   347
                                                                       EXHIBIT J
                                                                         Page 88



                      COLLATERAL ASSIGNMENT ACKNOWLEDGMENT


                                                                     May 8, 1998


To the Agents and each of the Banks
party to the Credit Agreement
referred to below:

Ladies and Gentlemen:

          Reference is made to (i) the Amended and Restated Credit Agreement,
dated as of July 7, 1997, amended and restated as of May 8, 1998, among Golden
Sky Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
financial institutions party thereto, Banque Paribas, as Syndication Agent,
Fleet National Bank, as Administrative agent, and General Electric Capital
Corporation, as Documentation Agent (as so amended and restated and as further
amended, modified or supplemented from time to time, the "Credit Agreement"),
pursuant to which, among other things, the Total Commitment was increased from
$100,000,000 to $150,000,000 and (ii) the Collateral Assignment of Marketing and
Distribution Agreements, dated as of July 7, 1997 (as amended, modified and
supplemented from time to time, including, without limitation, as modified
hereby, the "Collateral Assignment of Marketing and Distribution Agreements")
made by the Borrower, as Assignor under, and as defined in, the Collateral
Assignment of Marketing and Distribution Agreements, in favor of Fleet National
Bank, as Collateral Agent and Assignee for the benefit of the Secured Creditors
(as defined in the Collateral Assignment of Marketing and Distribution
Agreements), as acknowledged and agreed to by the NRTC and DirecTV, Inc.
(DirecTV, Inc. together with the Borrower, Fleet National Bank and the NRTC, the
"Collateral Assignment Parties"). Unless otherwise indicated herein, capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Credit Agreement.

I.   COLLATERAL ASSIGNMENT OF MARKETING AND DISTRIBUTION AGREEMENTS

          1. Each of the Collateral Assignment Parties hereby acknowledges the
Credit Agreement and the transactions contemplated thereby.

          2. Each of the Collateral Assignment Parties hereby acknowledges and
agrees, and represents and warrants, that on and after the occurrence of, and
after giving effect to, the Restatement Effective Date, (i) it remains party to
the Collateral Assignment of Marketing and Distribution Agreements and (ii) the
Collateral Assignment of Marketing and Distribution Agreements shall remain in
full force and effect with respect to each of the Collateral Assignment Parties.
<PAGE>   348
                                                                       EXHIBIT J
                                                                         Page 89


II.  MISCELLANEOUS PROVISIONS

          1. This Collateral Assignment Acknowledgment may be signed in any
number of counterparts and by the different parties hereto in separate
counterparts, each of which counterparts when executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.

          2. This Collateral Assignment Acknowledgment is limited as specified
and shall not constitute an acceptance, consent or waiver of any other provision
of the Collateral Assignment of Marketing and Distribution Agreements or any
other Credit Document.

          3. THIS ACKNOWLEDGMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.


                                      * * *
<PAGE>   349
                                                                       EXHIBIT J
                                                                         Page 90


          IN WITNESS WHEREOF, each of the undersigned has caused this Collateral
Assignment Acknowledgment to be duly executed and delivered as of the date first
above written.


                            GOLDEN SKY SYSTEMS, INC.



                            By: /s/ Robert B. Weaver
                                -----------------------------------------
                                Name:  Robert B. Weaver
                                Title: Chief Financial Officer


ACKNOWLEDGED AND AGREED:

FLEET NATIONAL BANK,
   as Collateral Agent


By: /s/ Christopher A. Swindell
    -----------------------------------------
    Name:   Christopher A. Swindell
    Title:  Vice President
<PAGE>   350
                                                                       EXHIBIT J
                                                                         Page 91



ACKNOWLEDGED AND AGREED:

NATIONAL RURAL
TELECOMMUNICATIONS
COOPERATIVE


By: /s/ Steven T. Berman
    -----------------------------------------
    Name:  Steven T. Berman
    Title: Senior Vice President, Business Affairs
           and General Counsel

DIRECTV, INC., the successor rights
holder to Hughes Communications Galaxy, Inc.



By:
    -----------------------------------------
    Name:
    Title:

<PAGE>   351
                                                                       EXHIBIT K



                         OFFICER'S SOLVENCY CERTIFICATE

         I, the undersigned, Chief Financial Officer of Golden Sky Systems,
Inc., do hereby certify on behalf of Golden Sky Systems, Inc. that:

         1. This Certificate is furnished to the Banks pursuant to Section
4.15(a) of the Amended and Restated Credit Agreement, dated as of July 7, 1997,
amended and restated as of May __, 1998, among Golden Sky Holdings, Inc., Golden
Sky Systems, Inc., various financial institutions from time to time party
thereto (the "Banks"), Banque Paribas, as Syndication Agent, Fleet National
Bank, as Administrative Agent, and General Electric Capital Corporation, as
Documentation Agent (such Amended and Restated Credit Agreement, as in effect on
the date of this Certificate, being herein called the "Credit Agreement").
Unless otherwise defined herein, capitalized terms used in this Certificate
shall have the meanings set forth in the Credit Agreement.

         2. For purposes of this Certificate, the terms below shall have the
following definitions:

         (1)      "Fair Value"

         The amount at which the assets, in their entirety, of the Borrower
         would change hands between a willing buyer and a willing seller, within
         a commercially reasonable period of time, each having reasonable
         knowledge of the relevant facts, with neither being under any
         compulsion to act.

         (2)      "Present Fair Salable Value"

         The amount that could be obtained by an independent willing seller from
         an independent willing buyer if the assets of the Borrower are sold
         with reasonable promptness under normal selling conditions in a current
         market.

         (3)      "New Financing"

         The Indebtedness incurred or to be incurred by the Borrower under the
         Credit Documents (assuming the full utilization by the Borrower of the
         Commitments) and the other Documents and all other financings
         contemplated by the Documents, in each case after giving effect to the
         Transaction and the incurrence of all financings contemplated
         therewith.

         (4)      "Stated Liabilities"

         The recorded liabilities (including contingent liabilities that would
         be recorded in accordance with generally accepted accounting principles
         ("GAAP")) of the Borrower 

<PAGE>   352
                                                                       EXHIBIT K
                                                                          Page 2


         at May __, 1998 after giving effect to the Transaction, determined in
         accordance with GAAP consistently applied, together with, without
         duplication, the amount of all New Financing.

         (5)      "Identified Contingent Liabilities"

         The maximum estimated amount of liabilities reasonably likely to result
         from pending litigation, asserted claims and assessments, guaranties,
         uninsured risks and other contingent liabilities of the Borrower after
         giving effect to the Transaction (exclusive of such contingent
         liabilities to the extent reflected in Stated Liabilities), as
         identified and explained in terms of their nature and estimated
         magnitude by an officer of the Borrower.

         (6) "Will be able to pay its Stated Liabilities and Identified
         Contingent Liabilities, as they mature"

         For the period from the date hereof through the seventh anniversary of
         the Restatement Effective Date, the Borrower will have sufficient
         assets and cash flow to pay their respective Stated Liabilities and
         Identified Contingent Liabilities as those liabilities mature or
         otherwise become payable.

         (7)      "Does not have Unreasonably Small Capital"

         For the period from the date hereof through the seventh anniversary of
         the Restatement Effective Date, the Borrower after consummation of the
         Transaction and all Indebtedness (including the Loans) being incurred
         or assumed and Liens created by the Borrower in connection therewith,
         is a going concern and has sufficient capital to ensure that it will
         continue to be a going concern for such period and to remain a going
         concern.

         3. For purposes of this Certificate, I or officers of the Borrower
under my direction and supervision, have performed the following procedures as
of and for the periods set forth below.

         (1) I have reviewed the financial statements referred to in Section
         6.05(a) of the Credit Agreement.

         (2) I have reviewed the unaudited pro forma consolidated balance sheet
         of the Borrower and its Subsidiaries referred to in Section 6.05(a) of
         the Credit Agreement.

         (3) I have made inquiries of certain officers of the Borrower who have
         responsibility for financial and accounting matters regarding (i) the
         existence and amount of Identified Contingent Liabilities associated
         with the business of the 

<PAGE>   353
                                                                       EXHIBIT K
                                                                          Page 3

         Borrower and its Subsidiaries, (ii) whether the unaudited pro forma
         consolidated financial statements referred to in paragraph (b) above
         are in conformity with GAAP applied on a basis substantially consistent
         with that of the audited financial statements as at December 31, 1997
         and (iii) whether omitted notes to the unaudited consolidated financial
         statements delivered pursuant to Section 6.05(a) of the Credit
         Agreement would have disclosed any new information, except to update
         amounts included in the notes to the December 31, 1997 audited
         consolidated financial statements.

         (4) I have knowledge of and have reviewed to my satisfaction the Credit
         Documents and the other Documents, and the respective Schedules and
         Exhibits thereto.

         (5) With respect to Identified Contingent Liabilities, I:

         1.       inquired of certain officials the Borrower who have
                  responsibility for legal, financial and accounting matters as
                  to the existence and estimated liability with respect to all
                  contingent liabilities known to them;

         2.       confirmed with officers the Borrower that, to the best of such
                  officers' knowledge, (i) all appropriate items were included
                  in Stated Liabilities or the listing of Identified Contingent
                  Liabilities and that (ii) the amounts relating thereto were
                  the maximum estimated amount of liabilities reasonably likely
                  to result therefrom as of the date hereof; and

         3        I hereby certify that, to the best of my knowledge, all
                  material Identified Contingent Liabilities that may arise from
                  any pending litigation, asserted claims and assessments,
                  guarantees, uninsured risks and other Identified Contingent
                  Liabilities of the Borrower and its Subsidiaries (exclusive of
                  such Identified Contingent Liabilities to the extent reflected
                  in Stated Liabilities) have been considered in making the
                  certification set forth in paragraph 4 below, and with respect
                  to each such Identified Contingent Liability the estimable
                  maximum amount of liability with respect thereto was used in
                  making such certification.

         (6) I have examined the Projections relating to the Borrower and its
         Subsidiaries which have been previously delivered to the Banks, and
         have re-examined the Projections on the date hereof and considered the
         effect thereon of any changes since the date of the preparation thereof
         on the results projected therein. After such review, I hereby certify
         that in my opinion the Projections are reasonable and attainable
         (although actual results may differ from the Projections and no
         representation is made that the Projections will in fact be attained)
         and the Projections support the conclusions contained in paragraph 4
         below.

<PAGE>   354
                                                                       EXHIBIT K
                                                                          Page 4

         (7) I have made inquiries of certain officers of the Borrower and their
         Subsidiaries who have responsibility for financial reporting and
         accounting matters regarding whether they were aware of any events or
         conditions that, as of the date hereof, would cause the Borrower after
         giving effect to the Transaction and the related financing transactions
         (including the incurrence of the New Financing), to (i) have assets
         with a Fair Value or Present Fair Salable Value that are less than the
         sum of Stated Liabilities and Identified Contingent Liabilities; (ii)
         have Unreasonably Small Capital; or (iii) not be able to pay its Stated
         Liabilities and Identified Contingent Liabilities as they mature or
         otherwise become payable.

         4. Based on and subject to the foregoing, I hereby certify on behalf of
the Borrower and its Subsidiaries that, after giving effect to the Transaction
and the related financing transactions (including the incurrence of the New
Financing), it is my informed opinion that (i) the Fair Value and Present Fair
Salable Value of the assets of the Borrower and its Subsidiaries taken as a
whole (each on a consolidated basis), exceed its Stated Liabilities and
Identified Contingent Liabilities; (ii) the Borrower does not have Unreasonably
Small Capital; and (iii) the Borrower will be able to pay its Stated Liabilities
and Identified Contingent Liabilities, as they mature or otherwise become
payable.

                                      * * *


<PAGE>   355


                                                                       EXHIBIT K
                                                                          PAGE 5

         IN WITNESS WHEREOF, I have hereto set my hand this ___ day of May,
1998.


                                            GOLDEN SKY SYSTEMS, INC.



                                            By: 
                                                 -------------------------------
                                                 Name:  Robert B. Weaver
                                                 Title:  Chief Financial Officer


<PAGE>   356



                                                                       EXHIBIT L



                             FORM OF CONSENT LETTER


                  [Letterhead of Agent for Service of Process]


                                                                          [Date]


To the Agents and the
  Banks party to the
  Credit Agreement referred to below:

Ladies and Gentlemen:

         Reference is made to the Amended and Restated Credit Agreement, dated
as of July 7, 1997, amended and restated as of May __, 1998, among Golden Sky
Holdings, Inc. ("Holdings"), Golden Sky Systems, Inc. (the "Borrower"), the
Banks (the "Banks") party thereto from time to time, Banque Paribas, as
Syndication Agent ("Banque Paribas"), Fleet National Bank, as Administrative
Agent (Fleet National Bank together with Banque Paribas, the "Agents"), and
General Electric Capital Corporation, as Documentation Agent, (as such Amended
and Restated Credit Agreement may be modified, supplemented or amended from time
to time, the "Credit Agreement").

         Pursuant to Section 12.08 of the Credit Agreement, each of Holdings and
the Borrower has irrevocably designated, appointed and empowered the
undersigned, Corporation Service Company, with offices currently located at 80
State Street, Albany, Nev York 12207, as its authorized designee, appointee and
agent to receive, accept and acknowledge for and on its behalf, and in respect
of its property, service of any and all legal process, summons, notices and
documents which may be served in any such action or proceeding with respect to
the Credit Agreement or any other Credit Document (as defined in the Credit
Agreement) brought in the courts of the State of New York or of the United
States of America for the Southern District of New York.

         The undersigned hereby informs you that it irrevocably accepts such
appointment as agent as set forth in Section 12.08 of the Credit Agreement and
agrees with you that the undersigned (i) shall inform the Administrative Agent
promptly in writing of any change of its address in New York City, (ii) shall
perform its obligations as such process agent in accordance with the provisions
of Section 12.08 of the Credit Agreement and (iii) shall forward promptly to
Holdings or the Borrower, as the case may be, any legal process, summons,
notices and documents received by the undersigned in its capacity as process
agent.

         As process agent, the undersigned, and its successor or successors,
agree to discharge 

<PAGE>   357
                                                                       EXHIBIT L
                                                                          Page 2

the above-mentioned obligations and will not refuse fulfillment of such
obligations under Section 12.08 of the Credit Agreement.

                                   Very truly yours,

                                   CORPORATION SERVICE SYSTEM



                                   By  __________________________
                                       Name:
                                       Title



<PAGE>   358


                                                                       EXHIBIT M

                     BORROWING BASE CERTIFICATE AS OF [DATE]


To: The Banks party to the Amended and Restated Credit
    Agreement, dated as of July 7, 1997, amended and
    restated as of May ____ , 1998, among Golden Sky
    Holdings, Inc., Golden Sky Systems, Inc., the financial
    institutions party thereto, Banque Paribas, as
    Syndication Agent, Fleet National Bank, as
    Administrative Agent, and General Electric Capital
    Corporation, as Documentation Agent (the "Credit
    Agreement")

1.  Qualified Paying Subscribers                                         Amount

    All subscribers (other than subscribers to the MDU Business)
    to DirecTV that are located in the Borrower's and its
    Subsidiaries' DirecTV Franchise areas and who have paid all
    amounts due within 60 days of the initial due date thereof.

2.  Subscribers to be Acquired(7)

    In connection with any Permitted Acquisition, the number of
    subscribers to DirecTV service to be acquired as such number
    shall be certified to the Banks in the Permitted Acquisition
    Notice

3.  Total Subscribers

 (Sum of No. 1 and No. 2)

- --------

(7) Only if Borrowing Base is being determined in connection with
    a Loan being made to finance a Permitted Acquisition. The
    number of subscribers to be acquired listed herein shall be
    as certified in the relevant Permitted Acquisition Notice.

<PAGE>   359
                                                                       EXHIBIT M
                                                                          Page 2
<TABLE>
<S>                                                                      <C>
4.  Borrowing Base

    Sum of (i) the product of (x) No. 3 and (y) $1,200 if on or
    before December 31, 1999 and $1,100 thereafter, plus (ii)
    $15,000,000 in the case of a Borrowing of Loans incurred to
    finance Permitted Acquisitions                                       $

5.  Outstanding Principal Amount of Term Loans and Revolving
    Loans                                                                $

6.  Letter of Credit Outstandings                                        $

7.  Outstanding Principal Amount of all other Net Adjusted
    Consolidated Indebtedness                                            $

8.  Borrowing Base Surplus (Deficiency) (No. 4 minus the sum of
    Nos. 5, 6 and 7)                                                     $
</TABLE>


         The undersigned hereby certifies on behalf of the Borrower and not in
his or her individual capacity that all of the information provided above is
true and correct as of the date first above written.

                              * * *

<PAGE>   360


                                                                       EXHIBIT M
                                                                          Page 3

    IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand
this ___ day of ____________,___.


                                    GOLDEN SKY SYSTEMS, INC.


                                    By:  ________________________________

                                         Name:
                                         Title:


<PAGE>   361




                                                                       EXHIBIT N
                    BANK ASSIGNMENT AND ASSUMPTION AGREEMENT

                                                      Date ______________ , 19__


         Reference is made to the Amended and Restated Credit Agreement
described in Item 2 of Annex I hereto (as such Credit Agreement may hereafter be
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"). Unless defined in Annex I hereto, terms defined in the Credit
Agreement are used herein as therein defined. __________________ (the 
"Assignor") and ________________ (the "Assignee") hereby agree as follows:

         1. The Assignor hereby sells and assigns to the Assignee without
recourse and without representation or warranty (other than as expressly
provided herein), and the Assignee hereby purchases and assumes from the
Assignor, that interest in and to all of the Assignor's rights and obligations
under the Credit Agreement as of the date hereof which represents the percentage
interest specified in Item 4 of Annex I hereto (the "Assigned Share") of all of
the outstanding rights and obligations under the Credit Agreement relating to
the facilities listed in Item 4 of Annex I hereto, including, without
limitation, (x) in the case of any assignment of all or any portion of the Total
Revolving Loan Commitment, all rights and obligations with respect to the
Assigned Share of such Total Revolving Loan Commitment and of the Revolving
Loans and Letters of Credit Outstandings relating thereto, (y) in the case of
any assignment of a Term Loan Commitment, all rights and obligations with
respect to the Assigned Share of such Total Term Loan Commitment, and (z) in the
case of any assignment of Term Loans, all rights and obligations with respect to
the Assigned Share of such Term Loans. After giving effect to such sale and
assignment, the Assignee's Revolving Loan Commitment, Term Loan Commitment and
the amount of the outstanding Term Loans owing to the Assignee will be as set
forth in Item 4 of Annex I hereto.

         2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Credit Agreement
or the other Credit Documents or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or the
other Credit Documents or any other instrument or document furnished pursuant
thereto; and (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of any of the Credit
Parties or the performance or observance by the Credit Parties of any of their
obligations under the Credit Agreement or the other Credit Documents to which
they are a party or any other instrument or document furnished pursuant thereto.

         3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement and the other Credit Documents, together with copies of the financial
statements referred to therein and such other documents and information as it
has deemed appropriate to make its own credit 

<PAGE>   362
                                                                       EXHIBIT N
                                                                          Page 2

analysis and decision to enter into this Assignment and Assumption Agreement;
(ii) agrees that it will, independently and without reliance upon the Agents,
the Assignor or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (iii) confirms that it
is an Eligible Transferee under the Credit Agreement; (iv) appoints and
authorizes the Administrative Agent and the Collateral Agent to take such action
as administrative agent and collateral agent on its behalf and to exercise such
powers under the Credit Agreement and the other Credit Documents as are
delegated to the Administrative Agent and the Collateral Agent by the terms
thereof, together with such powers as are reasonably incidental thereto; [and]
(v) agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank[; and (vi) to the extent legally entitled to do so,
attaches the forms described in Section 12.04(b) of the Credit Agreement].(1)

         4. Following the execution of this Bank Assignment and Assumption
Agreement by the Assignor and the Assignee, an executed original hereof
(together with all attachments) will be delivered to the Administrative Agent.
The effective date of this Bank Assignment and Assumption Agreement shall be the
date of execution hereof by the Assignor and the Assignee and the receipt of the
consent of the Agents and the Borrower pursuant to Section 12.04(b) of the
Credit Agreement and receipt by the Agents of the assignment fee referred to in
such Section 12.04(b) (the "Settlement Date").

         5. Upon the delivery of a fully executed original hereof to the
Administrative Agent, as of the Settlement Date, (i) the Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Bank
Assignment and Assumption Agreement, have the rights and obligations of a Bank
thereunder and under the other Credit Documents and (ii) the Assignor shall, to
the extent provided in this Bank Assignment and Assumption Agreement, relinquish
its rights and be released from its obligations under the Credit Agreement and
the other Credit Documents.

         6. It is agreed that the Assignee shall be entitled to (w) all interest
on the Assigned Share of the Loans at the rates specified in Item 6 of Annex I;
(x) all Commitment Commission (if applicable) on the Assigned Share of the
Aggregate Unutilized Commitment at the rate specified in Item 7 of Annex I
hereto; and (y) all Letter of Credit Fees (if applicable) on the Assignee's
participation in all Letters of Credit at the rate specified in Item 8 of Annex
I hereto, which, in each case, accrue on and after the Settlement Date, such
interest and, if applicable, Conunitment Commission and Letter of Credit Fees,
to be paid by the Administrative Agent directly to the Assignee. It is further
agreed that all payments of principal made on the Assigned Share of the Loans
which occur on and after the Settlement Date will be paid directly by the
Administrative Agent to the Assignee. Upon the Settlement Date, the Assignee
shall pay to the Assignor an amount specified by the Assignor in writing which
represents the Assigned Share of the principal amount of the respective Loans
made by the Assignor, and the Assignee's share of any Letter of Credit

- --------

(1) If the Assignee is organized under the laws of a jurisdiction outside the
    United States.


<PAGE>   363
                                                                       EXHIBIT N
                                                                          Page 3

Outstandings incurred pursuant to the Credit Agreement which are outstanding on
the Settlement Date, net of any closing costs, and which are being assigned
hereunder. The Assignor and the Assignee shall make all appropriate adjustments
in payments under the Credit Agreement for periods prior to the Settlement Date
directly between themselves on the Settlement Date.

         7. THIS BANK ASSIGNMENT AND ASSUMPTION AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

                                      * * *

<PAGE>   364
                                                                       EXHIBIT N
                                                                          Page 4

         IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Bank Assignment and Assumption
Agreement, as of the date first above written, such execution also being made on
Annex I hereto.

Accepted this _____ day               [NAME OF ASSIGNOR],
of _____________ , 19__               as Assignor


                                      By: _________________________________
                                          Name:
                                          Title:

                                      [NAME OF ASSIGNEE],
                                      as Assignee


                                      By: _________________________________
                                          Name:
                                          Title:


Acknowledged and Agreed:

BANQUE PARIBAS,
  as Syndication Agent


By:  ___________________________________
     Name:
     Title:


By:  ___________________________________
     Name:
     Title:






<PAGE>   365
                                                                       EXHIBIT N
                                                                          Page 5





FLEET NATIONAL BANK,
  as Administrative Agent


By:  ___________________________________
     Name:
     Title:


GOLDEN SKY SYSTEMS, INC.


By:  ___________________________________
     Name:
     Title:





<PAGE>   366


                                                                       EXHIBIT N
                                                                          Page 6


                                                                         ANNEX I



               ANNEX FOR BANK ASSIGNMENT AND ASSUMPTION AGREEMENT



1.       Borrower:  Golden Sky Systems, Inc.


2.       Name and Date of Credit Agreement:

 Amended and Restated Credit Agreement, dated as of July 7, 1997, amended and
 restated as of May   , 1998 (as modified, supplemented or amended from time to
 time) among Golden Sky Holdings, Inc., Golden Sky Systems, Inc., the Banks from
 time to time party thereto, Banque Paribas, as Syndication Agent, Fleet
 National Bank, as Administrative Agent, and General Electric Capital
 Corporation, as Documentation Agent.


3.  Date of Assignment Agreement:


4.  Amounts (as of date of item #3 above):

<TABLE>
<CAPTION>
                                                                                         Outstanding
                                    Revolving Loan            Term Loan                   Principal
                                    Commitment                Commitment                of Term Loans


<S>                                 <C>                       <C>                       <C>
a.  Aggregate Amount                $                         $                         $                
    for all Banks                   -----------------------   ---------------------     ----------------


b.  Assigned Share                 -----------------------%   --------------------%     ----------------%

c.  Amount of Assigned Share        $                         $                         $                      
                                    -----------------------   ---------------------     -----------------       
</TABLE>

5.  Settlement Date:


<PAGE>   367

                                                                       EXHIBIT N
                                                                          Page 7
                                                                        ANNEX I


6. Rate of Interest           As set forth in Section 1.08 of the Credit     
   to the Assignee:           Agreement (unless otherwise agreed to by the
                              Assignor and the Assignee)(1)
                                                                             
7. Commitment Commission      As set forth in Section 2.01(a) of the Credit 
   to the Assignee:           Agreement (unless otherwise agreed to by the  
                              Assignor and the Assignee)(2)

8. Letter of Credit           As set forth in Section 2.01(c) of the Credit
   Fees to the Assignee:      Agreement (unless otherwise agreed to by the 
                              Assignor and the Assignee)(3)
                              
    
    


9.  Notice:

 ASSIGNOR:


- --------

(1)   The Borrower and the Administrative Agent shall direct the entire amount
      of the interest to the Assignee at the rate set forth in Section 1.08 of
      the Credit Agreement, with the Assignor and Assignee effecting the agreed
      upon sharing of the interest through payments by the Assignee to the
      Assignor.

(2)   Insert "Not Applicable" in lieu of text if no portion of the Total
      Revolving Loan Commitment or Total Term Loan Commitment is being assigned.
      Otherwise, the Borrower and the Administrative Agent shall direct the
      entire amount of the Commitment Commission to the Assignee at the rate set
      forth in Section 2.01(a) of the Credit Agreement, with the Assignor and
      the Assignee effecting the agreed upon sharing of Commitment Commission
      through payment by the Assignee to the Assignor.

(3)   Insert "Not Applicable" in lieu of text if no portion of the Total
      Revolving Loan Commitment is being assigned. Otherwise, the Administrative
      Agent shall direct the entire amount of the Letter of Credit Fees to the
      Assignee at the rate set forth in Section 2.01(c) of the Credit Agreement,
      with the Assignor and the Assignee effecting the agreed upon sharing of
      Letter of Credit Fees through payment by the Assignee to the Assignor.

<PAGE>   368

                                                                       EXHIBIT N
                                                                          Page 8


                                                                         ANNEX I

______________________________

______________________________

______________________________

______________________________
 Attention:
 Telephone:
 Telecopier:
 Reference:


ASSIGNEE:

______________________________

______________________________

______________________________

______________________________
 Attention:
 Telephone:
 Telecopier:
 Reference:

Payment Instructions:

ASSIGNOR:

______________________________

______________________________

______________________________

______________________________
 Attention:
<PAGE>   369
                                                                       EXHIBIT N
                                                                          Page 9
                                                                        ANNEX I

 Reference:

ASSIGNEE:

______________________________

______________________________

______________________________

______________________________
 Reference:

<PAGE>   370


                                                                       EXHIBIT N
                                                                         Page 10

                                                                         ANNEX I
Accepted and Agreed:

[NAME OF ASSIGNEE]                          [NAME OF ASSIGNOR]


By __________________                       By _____________________

  ___________________                          _____________________
  (Print Name and Title)                       (Print Name and Title)


<PAGE>   1
                                                                    EXHIBIT 10.3
                                    FORM OF
                             NRTC/MEMBER AGREEMENT
                         FOR MARKETING AND DISTRIBUTION
                                OF DBS SERVICES

         This Agreement is made by and between the NATIONAL
RURALTELECOMMUNICATIONS COOPERATIVE, a District of Columbia corporation
("NRTC"),________________________ ("Member") on this ___ day of ______________,
199__.  Capitalized terms used herein and not otherwise defined shall have the
meaning given them in the Exhibits.

         WHEREAS, Hughes Communications Galaxy, Inc. ("HCG") has obtained
authorization from the Federal Communication Commission ("FCC") to construct,
launch and operate one or more satellites and to transmit on 27 frequencies
(the "HCG Frequencies") from the 101(degree) W.L. orbital location to provide
Ku-Band Direct Broadcast Service ("DBS") to the Continental United States
("CONUS").

         WHEREAS, NRTC has entered into an agreement with HCG (the "HCG
Agreement") in which NRTC has obtained the rights to distribute through its
members and others certain DBS Services to rural America;

         WHEREAS, HCG intends to distribute sports, movies and other video
entertainment and information programming as its own DBS business ("DirecTv")
over the 101(degree) satellite(s) and to make such programming available to
NRTC for distribution through its members and others;

         WHEREAS, NRTC wishes to provide Member with the right to distribute
such DBS Services to Subscribers, and Member wishes to become a distributor of
NRTC's DBS Services and HCG's DirecTv, if available, and to compensate NRTC for
these services;

         NOW, THEREFORE, in consideration of the mutual promises set forth
below and for other good and valuable consideration, the adequacy and receipt
of which are hereby acknowledged, NRTC and Member hereby mutually agree as
follows:

         1. DBS SERVICES. The DBS Services to be provided by NRTC to Member for
distributing to Committed Member Residences as defined under this Agreement
shall consist of twenty (20) Cable Programming Services (the "Cable
Programming"); the satellite transponder capacity; telemetry, tracking and
control ("TT&C") services to monitor the status of the satellite; service and
facilities necessary to uplink, transmit and process the signals to deliver the
Cable Programming access control services to control subscriber access to
programming, including report-back information related to purchase data;
security services designed to prevent and/or respond to and remedy security
breaches; subscriber terminal equipment availability and NRTC
<PAGE>   2
support services, all as set forth in Exhibit A. The Cable Programming shall be
provided in accordance with the terms and conditions set forth in Exhibit B.
NRTC may also provide Member, if available, distribution rights to serve
commercial establishments and to provide certain data and audio services under
terms and conditions to be later agreed to by Member and NRTC.

         2. NRTC ROLE (a) Grant of Distribution Rights. NRTC grants to Member
the exclusive right to market and sell DBS Services transmitted over the HCG
Frequencies to Committed Member Residences as set forth in Exhibit C ___. Any
Committed Member Residence which subscribes to DBS Services shall be deemed a
"Subscriber" under this Agreement.  Committed Member Residences shall be
determined by and limited to the specific residences listed or the specific
geographic area described in  Exhibit C ___, as appropriate. To the extent
consistent with this Agreement and the terms of the Cable Programming
agreements, Member shall have the right to establish the terms and conditions
upon which it will market and sell DBS Services to Committed Member Residences
and subject to its payment to NRTC or HCG, as appropriate of all sums required
under this Agreement, shall be entitled to all revenues from such marketing and
sales; provided, however that any rights to distribute any of the Cable
Programming shall extend only to the extent and for the duration as may be
provided under the relevant Cable Programming agreements. Member acknowledges
that NRTC may be unable to obtain the right for Member to distribute Cable
Programming to residences that have cable television service available.

         (b) DirecTv. NRTC grants to Member the non-exclusive right to market
and sell DirecTv to Committed Member Residences to the extent such rights are
granted to NRTC by HCG under the HCG Agreement. Member shall be compensated for
its marketing and sale of DirecTv as specified in Exhibit D and in accordance
with the terms and conditions contained in Exhibit D. The parties acknowledge
that HCG does not now have the right to distribute DirecTv programming and has
no obligation to NRTC or to Member to obtain such rights, but that HCG intends
to use reasonable efforts to obtain such rights. Member acknowledges that HCG,
on its own behalf, may market and sell DirecTv to residences, including
Committed Member Residences.

         (c) Marketing. NRTC shall assist Member in marketing and promoting DBS
Services. NRTC shall develop marketing materials and other information to be
used by Member for national and local advertising and promotion of DBS
Services.  Marketing materials shall be provided to Member at no cost or at
NRTC's cost.

         (d) Support Services. NRTC shall develop and provide Member with
subscriber authorization and data reporting capability, retail billing
services, central office subscriber support services and other services related
to the provision of DBS Services.

         (e) Subscriber Terminal Equipment Availability. NRTC at Member's
request shall contract with Thomson Consumer Electronics, Inc. ("TCE") to
deliver subscriber terminal equipment to Member in quantities and under terms
to be set forth in a separate agreement between Member and NRTC. TCE has
represented to NRTC that the subscriber terminal equipment will be available in
accordance with the terms and conditions set forth in Exhibit A.
<PAGE>   3
         3. MEMBER ROLE. (a) Marketing. Member shall at its own expenses, (i)
use best efforts to promote, market and sell DBS Services to Committed Member
Residences, (ii) participate in NRTC sponsored promotional and advertising
campaigns and cooperate with NRTC in marketing tests and research, as
reasonably requested by NRTC; (iii) respond promptly to all inquires about DBS
Services; and (iv) use print, electronic and other media to promote the sale of
DBS Services to the extent commercially practical. Member shall determine the
specific timing amount of funds expended in such promotion, marketing and
sales.
 
         (b) Subscriber Authorization. Member shall (i) authorize new
Subscribers through the Conditional Access Management Center ("CAMC") in
accordance with procedures established by NRTC and provide NRTC with the
Subscriber's name, address, zip code, descramble identification and such other
information as NRTC may reasonably request; (ii) maintain information regarding
the location of each Subscriber's descrambler; (iii) require all Subscribers
to notify Member in the event the location of any descrambler is changed; (iv)
promptly proved new descrambler location information and all updated Subscriber
information to NRTC; and (v) require Subscriber to agree to NRTC audit
procedures as necessary to maintain current information regarding the location
of descramblers. "Authorized Subscriber" means any and all Subscribers that are
authorized by the CAMC as of the 15th of any given billing month to receive any
and all DBS Services.

         (c) Billing and Collection. Member shall at its own expense (i)
receive and process orders; (ii) bill and collect payment; (iii) service
subscribers accounts; (iv) keep accurate books of account covering all
transactions relating to its responsibilities under this Agreement; and (v)
provide NRTC with such records and account information as may be reasonably
requested by NRTC.

         (d) Unauthorized Reception. Member shall take all reasonable steps
required to ensure that DBS Services are not received at any unauthorized
location or in any unauthorized manner. NRTC reserves the right to deny access
to DBS Services to Subscribers whose descramblers have been the subject of
unauthorized or inappropriate use as determined by NRTC. Member shall cooperate
with NRTC and assist in implementing security measures designed to prevent
and/or respond to or remedy security breaches related to the DBS Services.

         4. PAYMENT TERMS. (a) Committed Member Payment and NRTC Marketing and
Development Fee. Upon execution of this Agreement, Member shall pay NRTC on a
one-time basis the Committed Member Payment and the NRTC Marketing and
Development Fee in the amounts specified in Exhibit C ___.

         (b) Monthly Operating Fees. Member shall pay NRTC monthly operating
fees ("Monthly Fees") on a per Authorized Subscriber basis in accordance with
the terms and conditions set forth in Exhibit E. NRTC shall notify Member at
least 30 days in advance of any adjustments to the Monthly Fees.
<PAGE>   4
         (c) Monthly Security Services Fees. Member shall pay NRTC a monthly
fee for security services on a per Authorized Subscriber basis ("Security Fee")
in accordance with the terms and conditions set forth in Exhibit F. Member
shall notify NRTC of any activities which could result in a Security Breach (as
defined in Exhibit G). If NRTC is notified of a Security Breach by HCG and such
breach has not been cured in accordance with the procedures outlined in Exhibit
G, NRTC shall notify Member and Member's Security Fee shall be suspended until
the Security Breach is cured; provided, however, that such suspension shall not
relieve Member of its obligation to pay NRTC the amount of any Security Fee due
and payable to NRTC for services provided prior to such notice nor relieve
Member of any other payment obligations under this Agreement.
 
         (d) Monthly Programming Fees. Member shall pay NRTC on a monthly basis
all programming fees, compulsory copyright license fees and other fees required
for the Cable Programming on a per Authorized Subscriber basis.  Programming
fees shall be based substantially on accepted cable industry rate cards. NRTC
shall provide Member with a rate card specifying applicable fees prior to the
Service Commencement Date, which shall be attached hereto as Exhibit H. In
addition, beginning in the fourth year of operation, if required under the
Cable Programming agreements, Member shall agree to pay the cost of programming
fees for minimum subscriber levels of up to five percent (5%) (based on
Member's total number of Committed Member Residences) and/or any fees,
guarantees, penalties or costs due under the programming agreements that are
attributable to Member's failure to provide the required minimum subscriber
level.

         (e) NRTC Margin. NRTC shall be entitled to charge Member and Member
shall pay NRTC a reasonable margin on the cost of providing DBS Services under
this Agreement, as determined by NRTC's Board of Directors consistent with the
exercise of good faith and sound business judgment.

         (f) Invoices. Bills rendered by NRTC to Member under this Agreement
shall be due and payable within 15 days of the date of invoice. Member shall be
liable to NRTC for payment of all charges regardless of whether Member actually
collects or receives payment from Subscribers. Any charges due are delinquent
if not paid fifteen (15) days after the date of the invoice. Interest at a rate
of 1.5% per month will be paid by Member on any balance owed to NRTC which is
not paid when due. Should Member fail to pay in a timely manner any fees or
other amounts due NRTC, then NRTC shall have the right to offset such amounts
against and deduct such amounts from any fees of sums payable to Member for
marketing or sale of DirecTv or other services under this Agreement.

         (g) Place of Payment. All payments by Member pursuant to this
Agreement shall be made to NRTC at the address provided in Section 23 and shall
be deemed received and made only upon actual receipt by NRTC.
<PAGE>   5
         (h) Suspension of Services for Non-Payment. (I) If NRTC does not
receive full and timely payment from Member of the fees described in this
Section 4, after written notice to Member and a 10 day period to cure, NRTC may
(i) suspend any and all DBS Services to Member or Subscribers; (ii) provide all
DBS Services to and receive payment directly from Subscriber; and/or (iii)
commence collection procedures or judicial action, at law or in equity, to
collect such sums, damages, costs, liabilities and expenses (including, without
limitation, court costs and reasonable attorneys' fee and other third party
fee(s), collectively "Expenses"). In addition, NRTC may at any time identify
member in writing to HCG.  If NRTC identifies Member to HCG, HCG may, in its
sole discretion, after written notice to Member, followed by a 15 day period to
cure, (i) suspend any and all DBS Services to Member and/or Subscribers and/or
(ii) commence collection procedures or judicial action, at law and in equity to
collect such sums, damages, costs, liabilities and Expenses. If Member does not
pay NRTC (or HCG, as appropriate), then NRTC also may exercise its rights
pursuant to Section 14.

         (i) If NRTC (i) has received full payment of fees due from Member, but
does not timely pay HCG all or any portion of such fees that are due HCG by
NRTC or (ii) fails to identify Member to HCG as delinquent, then under the HCG
Agreement HCG may not suspend DBS Services to Member or Subscribers but may
thereafter require Member to pay such fees directly to HCG rather than to NRTC
under this Agreement.

         5. SERVICE COMMENCEMENT, SERVICE TERM. (a) Service Commencement Date.
The Service Commencement Date "shall mean the date on which HCG commences
provision of DBS Services. The scheduled Service Commencement Date under the
HCG Agreement is April 1, 1994. This date is based upon the scheduled launch of
the satellite in December of 1993. Member acknowledges that the schedule
Service Commencement Date is subject to change due to delays in launching the
satellite and implementation and development of the other elements of DBS
Services. Member acknowledges that the Services Commencement Date may occur
earlier than April 1, 1994.

         (b) Late Commencement Payments. If the Service Commencement Date has
not occurred by December 31, 1994, the HCG Agreement has not otherwise been
canceled or terminated, HCG is required to pay to NRTC for a maximum of 36
months a monthly Late Commencement Payment in an amount equal to 0.95 percent
of the aggregate Committed Member Payments actually paid to HCG by NRTC
pursuant to the HCG Agreement ("Late Commencement Payment"). Upon receipt of
any such Late Commencement Payment from HCG, NRTC shall pay Member on a
quarterly basis its pro rata share based on the Committed Member Payment made
by Member under this Agreement. Any Late Commencement Payment due to Member at
the end of a month in which the Service Commencement Date occurs shall be pro
rated. No Late Commencement Payment shall be due or payable if the failure or
delay in the performance by HCG of its obligations result from any acts or
omissions of NRTC, Member, other NRTC Members or their agents. If the Services
Commencement Day does not occur by December 31, 1997, NRTC or HCG may terminate
the HCG Agreement, and in such event this Agreement may be terminated pursuant
to Section 13 and Member shall be entitled to receive refunds pursuant to
Section 12.
<PAGE>   6
         (c) Service Term. Unless this Agreement is canceled, terminated, or
expires earlier, it shall remain in effect until HCG removes the satellite from
its assigned orbital location (the "Satellite Expiration Date"). In the event
the Satellite Expiration Date occurs earlier than ten (10) years from the
Service Commencement Date, Member shall receive a refund of its Committed
Member Payment in accordance with Section 12.

         6. CONTRACT DECISION PROCESS. (a) Conditions. If HCG has not met
certain conditions under the HCG Agreement related to development of DBS
Services and/or obtaining the necessary Cable Programming by December 1, 1992,
either NRTC or HCG may by December 11, 1992, terminate the HCG Agreement. If
HCG has not obtained the necessary Cable Programming but has met the other
conditions related to development of DBS Services, NRTC may elect not to
terminate the HCG Agreement and instead may attempt to obtain the Cable
Programming on its own behalf. If NRTC does not assume by March 1, 1993, the
obligation to obtain the Cable Programming, the HCG Agreement will terminate at
that time.

         (b) Threshold Payment. If NRTC has not paid HCG at least $100 million
in aggregate Committed Member Payments on or before December 11, 1992, the HCG
Agreement may terminate.

         (c) Escrow Account. All Committed Member Payments paid to NRTC prior
to December 1, 1992 (or March 1, 1993, applicable) shall be placed in an
interest-bearing Escrow Account. If the HCG Agreement is terminated as
described above, the escrowed Committed Member Payments plus accrued interest
shall be released to NRTC. Upon receipt, NRTC shall refund to Member its
Committed Member Payment plus its pro-rata share of any occurred interest. If
the HCG Agreement is not terminated, then the Committed Member Payments in the
Escrow Account, plus any accrued interest, shall be released to HCG.

         7. REPRESENTATIONS, WARRANTIES, AND COVENANTS. (a) Authority. NRTC and
Member each represent and warrant to the other that it has all requisite power
and authority (i) to execute, deliver and perform this Agreement and all
agreements, documents and instruments executed and delivered by each in
connection with this Agreement; (ii) to own, lease or operate its property and
assets; and (iii) to carry on its business as presently conducted.

         (b) Litigation. NRTC and Member each represent and warrant to the
other that, to the best of its knowledge there is no outstanding or threatened
judgement, threatened or pending litigation or proceeding, involving or
affecting the transactions provided for in, or contemplated by, this Agreement,
except as has been previously disclosed in writing by either party to the
other.

         (c) Laws. NRTC and Member each shall comply with all FCC and other
governmental (whether international, federal, state, municipal, or otherwise)
statutes, laws, rules, regulations, ordinances, codes, directives and orders of
any such governmental agency, body, or court applicable to it regarding the
provision of DBS Services.
<PAGE>   7
         (d) Member. For purposes of this Agreement, the term "Member" shall
include both Members and Affiliates of NRTC as defined in the Bylaws or NRTC.
Member shall comply with and be bound by the provisions of the Articles of
Incorporation and Bylaws of NRTC and by such policies as it may adopt from time
to time.

         8. INDEMNIFICATION. (a) Member shall indemnify and hold harmless NRTC,
its other Members, its affiliated companies, and its officers, directors,
employees and agents from all liabilities, claims, costs, damages and Expenses
arising out of any breach or claimed breach of any representations, warranties
or obligations of Member pursuant to this Agreement.

         (b) Member shall indemnify and hold harmless NRTC, its other Members,
HCG and their affiliated companies, and its officers, directors, employees and
agents from all liabilities, claims, cost, damages and Expenses arising out of
any breach or claimed breach of any representation, warranties or obligations
of Member pursuant to this Agreement.

         (c) If NRTC or HCG determines that is provisions of any programming
violates any applicable laws, NRTC or HCG may cease providing such programming
to Member. Member agrees that NRTC, HCG or program providers may change,
black-out, terminate or discontinue at any time any Cable Programming being
delivered. NRTC reserves the right with the exercise of good faith and
reasonable business judgement, to substitute or to change programming or modify
the terms and conditions related to the programming offered. In such event,
NRTC shall use reasonable best efforts to claim and provide Member alternate
programming. Member shall indemnify and hold harmless NRTC, its other Members,
HCG and their respective affiliated companies, officers, directors, employees
and agents from and against any and all liabilities, claims, costs, damages and
Expenses caused by or resulting from the content of the Cable Programming or
the cessation of any DBS Services.

         (d) Member recognizes that pursuant to the HCG Agreement, HCG may
deliberately preempt or interrupt the use of all or a portion of DBS Services
in unusual or abnormal situations to protect the overall performance of the
satellite and shall indemnify and hold harmless NRTC and HCG, and their
affiliated companies, officers, directors, employees and agents from and
against any and all liabilities, claims, costs, damages and Expenses resulting
from such cessation of any DBS Services.

         9. TRADEMARKS AND LOGOS. Member may use NRTC's or HCG's trademarks,
services marks or logos only in accordance with any licensing arrangements
established by NRTC and/or HCG, as appropriate. NRTC also may make available
approved promotional material with the names, trademarks and/or logos of HCG or
the programming providers for Member's use in marketing, advertising and
promotion of DBS Services or DirecTv in accordance with guidelines furnished by
NRTC. Member may not otherwise use any trademark, service mark or logo of
<PAGE>   8
NRTC, HCG or any programming providers in any promotional, marketing or
advertising materials without the permission of the owner of same. Member shall
contact NRTC to obtain permission from HCG or the programming providers when
necessary and for any information and assistance pertaining to HCG or the
programming providers.

         10. AVAILABILITY OF INFORMATION AND CERTIFICATE OF COMPLIANCE.

         (a) Statements. Member shall provide within 30 days of a request by
NRTC a statement, certified by an appropriate officer of Member or in
independent billing service, setting forth the number of Subscribers receiving
DBS Services during the month specified in such request and stating to the best
of the officer's knowledge that DBS Services were provided and
distributed during such month in full compliance with all of the provisions of
this Agreement. At NRTC request, Member shall permit NRTC or its
representatives at reasonable times during normal business hours (or at any
time if Member is in default or breach of this Agreement) to review during the
term of this Agreement and for one (1) year thereafter, its Subscriber
accounting system.

         (b) Accuracy of Information. If requested by NRTC, Member shall within
ninety (90) days following the end of Member's fiscal year, during any portion
of which this Agreement is in effect, provide a letter addressed to NRTC signed
by an appropriate officer of Member which attests to the completeness and
accuracy of all information supplied to NRTC by Member during the preceding
fiscal year. Member's obligation to supply letters of attention shall continue
after the termination of this Agreement until NRTC receives the letter with
respect to the last fiscal year during any portion of which this Agreement is
in effect.

         11. OUTAGE CREDITS. In the event of the occurrence of outages in
portions of DBS Services, as generally described in Exhibit I, HCG is required
to provide certain credits to NRTC pursuant to the HCG Agreement, to be applied
toward fees for future services. NRTC shall make all such credits provided by
HCG available to Member on a prorated basis in consideration of the amount of
such credits and the number of Members entitled to receive a proration of such
credits.

         12. REFUNDS TO MEMBER. Pursuant to the HCG Agreement, HCG is required
to provide refunds to NRTC as generally described in Exhibit J. NRTC shall make
all refunds it receives from HCG available to Member on a prorated basis in
consideration of the amount of the refunds, the amount of Member's Committed
Member Payment and the number of Members entitled to receive a portion of the
refunds. Member recognizes that refunds, if any, shall not include interest.

         13. TERMINATION OF HCG AGREEMENT. In the event the HCG Agreement is
terminated, except as provided in Section 15, NRTC may terminate this Agreement
and neither party shall have any further obligations regarding the other except
as specifically provided in this Agreement; provided, however, that Member
shall receive refunds from NRTC as may be due and payable under Section 12 of
this Agreement.
<PAGE>   9
14. BREACH BY MEMBER. If Member fails to make any and all payments due to NRTC
(or HCG, as appropriate) under this Agreement, or otherwise breaches or fails
to perform a material obligation under this Agreement, in addition to any other
remedies available in law or in equity, NRTC may in its sole discretion and
upon 30 days written notice to Member, including therein, a 10 day period for
Member to cure, (i) suspend all DBS Services to Member and/or Subscribers; (ii)
terminate this Agreement; and (iii) bring an action for and immediately
declare due and payable all sums due and owing NRTC (or HCG, as appropriate). In
addition, if HCG has suspended any or all of the DBS Services to Member and/or
Subscribers for sixty (60) or more days under Section 4(h), then NRTC may
terminate this Agreement immediately upon notice to Member, and HCG may bring
an action at law or in equity to collect from Member the sums due under Section
4 to NRTC (or HCG, as appropriate) and the liabilities, costs, damages
and Expenses associated therewith. In the event of a termination under this
Section, neither NRTC nor HCG shall be responsible or liable to Member or
others for any damages, costs or Expenses arising therefrom; nor shall NRTC or
HCG owe or be required to provide Member any refund of amounts previously paid
to NRTC or HCG by Member. Upon such termination, Member shall have no further
right to provide DBS Services to any Subscribers and DBS Services may be
provided to the Subscribers directly by NRTC or any other distributor as NRTC
may appoint.

         15. NRTC BREACH OF HCG AGREEMENT. If the HCG Agreement is terminated
or canceled as a result of a default or breach by NRTC, HCG is obligated to
NRTC under the HCG Agreement to continue to provide DBS Services to Member
(subject to Section 4(h)) either, at HCG's option, (i) by the assumption by HCG
of NRTC's rights and obligations under this Agreement (which assumption is
hereby expressly permitted upon written notice to Member) or (ii) under a new
agreement containing substantially the same terms or terms no less favorable
than those provided Member under this Agreement. This provision does not apply
in the case of a termination under Section 6.

         16. LIMITATION OF LIABILITY. NOTWITHSTANDING ANY OTHER PROVISIONS IN
THIS AGREEMENT TO THE CONTRARY, NRTC SHALL NOT BE LIABLE TO MEMBER FOR ANY
INDIRECT, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
LOSS OF REVENUE, LOSS OF CUSTOMERS OR CLIENTS, CLAIMS OF CUSTOMERS, LOSS OF
GOODWILL OR LOSS OF PROFITS OR MARGINS, ARISING IN ANY MANNER FROM THIS
AGREEMENT AND THE PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS. ANY AND
ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY EXCLUDED
AND DISCLAIMED BY NRTC EXCEPT TO THE EXTENT SPECIFICALLY AND EXPRESSLY PROVIDED
FOR HEREIN. IT EXPRESSLY IS AGREED THAT NRTC'S SOLE OBLIGATIONS AND LIABILITIES
RESULTING FROM A BREACH OF THIS AGREEMENT AND MEMBER'S EXCLUSIVE REMEDIES FOR
ANY CAUSE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LIABILITY ARISING FROM
NEGLIGENCE) ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE
TRANSACTIONS CONTEMPLATED HEREIN ARE THOSE SET FORTH IN SECTIONS 6, 11 AND 12
AND ALL OTHER REMEDIES OF ANY KIND ARE EXPRESSLY EXCLUDED.
<PAGE>   10
         17. INJUNCTIVE RELIEF. NRTC and Member each shall have the right to
obtain injunctive relief, if necessary, in order to prevent the other party
from willfully breaching its obligations under this Agreement or to compel the
other party to perform its obligations under this Agreement. If either party
should bring an action against the other in order to enforce any provision of
this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys fees and costs in addition to any other remedy it may have.

         18. FORCE MAJEURE. Any failure or delay of performance shall not be
deemed a breach of this Agreement by NRTC if such failure or delay results from
any acts of God, labor, dispute, breakdown of facilities, failure of equipment,
mechanical failure, weather, fire, flood, legal enactment, government order or
regulation, any act or omissions of Member or any similar cause beyond the
reasonable control of NRTC. Nothing in this Section shall be deemed to limit
Member's rights to receive Late Commencement Payments, release of escrowed
Committed Member Payment and any accrued interest, outage credit and refunds,
if applicable, pursuant to Sections 5, 6, 11 and 12 of this Agreement.

         19. ASSIGNMENT AND TRANSFER. Member shall not assign or transfer,
directly or indirectly, in whole or in part, its rights or obligations under
this Agreement without the prior written consent of NRTC and HCG, which consent
shall be not unreasonably withheld , NRTC may transfer this Agreement in whole
to a successor of all or substantially all of its assets upon written notice to
Member.

         20. CONFIDENTIALITY. (a) General. NRTC and Member shall hold in
confidence all provisions of this Agreement and all information provided by
either party to the other in connection with this Agreement. NRTC and Member
acknowledge and agree that all information related to this Agreement, not
otherwise known to the public, is confidential and proprietary and is not to be
disclosed to third persons (other than to affiliates, officers, directors,
employees and agents of NRTC and Member, each of whom is bound by this
provision) without the prior written consent of both Member and NRTC, except:
(i) at the written direction of the other party; (ii) to the extent necessary
to comply with law or valid court order of a court of competent jurisdiction,
in which event the party shall notify the other party as promptly as
practicable (and, if possible, prior to making any disclosure) and shall seek
confidential treatment of the information; (iii) as part of its normal
reporting or review procedures to its parent company, its auditors and its
attorneys who agree to be bound by this Section; (iv) in order to enforce any
rights pursuant to this Agreement (v) in order to comply with the provisions of
any programming agreements or copyright licensing requirements; (vi) to obtain
appropriate insurance, provided the insurance company agrees in writing to be
bound by this Section; (vii) to obtain financing; provided that any person or
entity providing financing agrees in writing to be bound by this Section;
(viii) to obtain programming services; (ix) and to the extent NRTC may be
permitted or required to disclose information or provide this Agreement to HCG
under the HCG Agreement.
<PAGE>   11
         (b) Subscriber Information. NRTC acknowledges that Member has
substantial proprietary interests and rights to subscriber information and
agrees to maintain all subscriber information on a strictly confidential basis.
NRTC and Member each further covenant that except as provided in Section 4(h)
and Section 14 under no circumstances will use or allow others to use the
subscriber information for any reason other than to verify amounts due under
the terms of this Agreement and for purposes as are approved in advance and in
writing by the other party. In the event a Subscriber subscribes to both DBS
Services and DirecTv, NRTC and Member recognize that HCG shall also have
proprietary interests in the subscriber information.
 
         (c) Confidentiality Survival. All provisions in this Agreement
relating to the confidentiality of information shall survive the termination,
expiration, cancellation or rescission of this Agreement for a period of five
(5) years.

         21. CONSTRUCTION AND MODIFICATION OF AGREEMENT. The existence,
validity, construction, operation and effect of this Agreement and all Exhibits
shall be determined in accordance with and be governed by the laws of the
District of Columbia. The Agreement and Exhibits constitute the entire
agreement between the parties and supersede all previous understandings,
commitments and representations concerning the subject matter. Each party
acknowledges that the other party has not made any representations other than
those that are contained in this Agreement and Exhibits. This Agreement and
Exhibits may not be amended or modified in any way, except (i) as provided in
the Agreement or Exhibits or (ii) by a writing signed by an authorized officer
of the party against whom the amendment, modification or waiver is sought to be
enforced. In addition, any amendment or modification to this Agreement or the
Exhibits is contingent on HCG's prior written approval (which shall not be
unreasonably withheld), except the amounts due and payable to NRTC for
Committed Member Payments, TT&C, Ground Services and Security Services may be
modified without HCG's prior approval to the extent that such modified amounts
are not less than those contained in the HCG Agreement.

         22. NO INFERENCE. No provision of this Agreement will be interpreted
against any party solely because the party or its legal representation drafted
the provision.

         23. NOTICES. All notices and other communications from either party to
the other under this Agreement shall be in writing and shall be deemed received
upon actual receipt or upon the expiration of the fifth business day after
being deposited in the United States' mails, postage prepaid, addressed to the
other party as follows:
<PAGE>   12
TO NRTC:                                        TO MEMBER:

National Rural Telecommunications
Cooperative
Woodland Park
Herndon, VA  22071
Attention:  Chief Executive Officer

cc:  Executive Director

         24. SEVERABILITY. Nothing contained in this Agreement shall be
construed to require the commission of any act contrary to law. Wherever there
is any conflict between any provision of this Agreement and any law, the law
shall prevail and this Agreement shall be limited only to the extent necessary
to permit compliance with the minimum legal requirement. No other provisions of
this Agreement shall be affected and all other provisions shall continue in
full force and effect.

         25. TAXES. Member shall be responsible for and shall pay all
applicable property, sales, use or similar taxes imposed by any local, state,
national or international, public or quasi-public governmental entity, in
respect to Member's marketing, sale, distribution or other activities related
to DBS Services.

         26. INTENDED THIRD PARTY BENEFICIARY. The provisions of this Agreement
are for the benefit of the parties. It is expressly agreed and understood that
HCG is an intended third party beneficiary of this Agreement. No other persons
or parties are intended as beneficiaries of this Agreement and none shall have
rights to enforce or benefit from the provisions of this Agreement. NRTC and
Member acknowledge and agree that (a) HCG is not a party to this Agreement and
is not bound by or liable to NRTC or Member under the provisions of this
Agreement except to the extent that HCG assumes NRTC's rights and obligations
under this Agreement pursuant to Section 15, and (b) that Member is not a third
party beneficiary under the HCG Agreement.

         27. NON WAIVER OF BREACH. Either party may specifically waive any
breach of this Agreement by the other party, provided that no waiver shall
binding or effective unless in writing and no waiver shall constitute a
continuing waiver of similar or other breaches. A waiving party, at any time,
and upon notice given in writing to the breaching party, may direct future
compliance with the waived term or terms of this Agreement, in which event the
breaching party shall comply as directed from that time forward.

         28. EXHIBITS. Each and every Exhibit associated with this Agreement,
and the terms and conditions contained in the Exhibits, are incorporated into
and made a part of this Agreement. Certain Exhibits may be amended from time to
time, pursuant to Section 21.
<PAGE>   13
         29. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all counterparts
together shall constitute but one and the same document.

         30. COOPERATION. Each party shall cooperate with the other and shall
execute additional documents as are reasonably necessary in order to carry out
the provisions of this Agreement.
<PAGE>   14
         WHEREOF, each of the parties to this Agreement has duly executed and
delivered this Agreement as of the day and year indicated below.

National Rural                             Member
Telecommunications Cooperative

By:                                        By:

Title:                                     Title:

Date:                                      Date:
<PAGE>   15
                                    FORM OF
                                  AMENDMENT TO
                      NRTC/MEMBER AGREEMENT FOR MARKETING
                        AND DISTRIBUTION OF DBS SERVICES

         This Amendment ("Amendment") to that certain NRTC/Member Agreement For
the Marketing And Distribution of DBS Services, dated ______________, 199__
("Agreement"), is made by and between ___________________________ ("Member")
and NATIONAL RURAL TELECOMMUNICATIONS COOPERATIVE ("NRTC").

         A. For other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto amend the Agreement and
Exhibits as follows:

         1. Section 1 of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:

                 1. DBS SERVICES. The DBS Services to be provided by NRTC to
         Member for distribution to Committed Member Residences and/or to
         Commercial Establishments (as both are defined under and subject to
         the terms of this Agreement) shall consist of twenty-two (22) cable
         programming services ("Cable Programming"); all other video, audio,
         data packages, "a la carte" programming services and other services
         which are transmitted by HCG over the HCG Frequencies to Committed
         Member Residences and/or to Commercial Establishments to the extent
         HCG has obtained such rights ("HCG DirecTv"); the satellite
         transponder capacity; telemetry, tracking and control ("TT&C")
         services to monitor the status of the satellite; services and
         facilities necessary to uplink, transmit and process the signals to
         deliver Cable Programming; access control services to control
         subscriber access to programming, including report-back information
         related to purchase data; security services designed to prevent and/or
         respond to and remedy security breaches; subscriber terminal equipment
         availability and NRTC support services, all as set forth in Exhibit A.
         Cable Programming shall be provided in accordance with the terms and
         conditions set forth in Exhibit B, which exhibit may be amended by
         NRTC from time to time. Cable Programming and HCG DirecTv are referred
         to in this Agreement collectively as "Programming".

         2. NRTC ROLE. (a) Grant of Distribution Rights. NRTC grants to Member
the exclusive right to market, sell and retain revenue from Programming (except
Non Select Services as defined in Section 2(b)) transmitted over the HCG
Frequencies directly to Committed Member Residences as set forth in  Exhibit
C__. Programming and the terms and conditions with respect to Programming
marketed and sold to Committed Member Residences are set forth in Exhibit H,
which exhibit may be amended by NRTC from time to time. Any Committed Member
Residence and/or Commercial Establishment as applicable, which subscribes to
Programming shall be deemed a "Subscriber" under this Agreement. Committed
Member Residences shall be determined by and limited to the specific residences
listed or the specific geographic area described in Exhibit
<PAGE>   16
C___, as appropriate. Member shall also have the right to market, sell and
retain revenue from the distribution of Programming (except Non Select
Services) directly to commercial establishments such as hotels, bars and
similar establishments being determined by and limited to those locations
within counties or zip codes for which Member has exercised Member Contract
Options C-2, C-6, C-7, C-8 or C-9. The Programming that is available to be
marketed and sold to Commercial Establishments shall be governed by the terms
and conditions to be set forth in Exhibit H-1, which exhibit may be amended by
NRTC from time to time. To the extent consistent with this Agreement and the
terms of the Programming agreements, Member shall have the right to establish
the terms and conditions upon which it will market and sell Programming (except
Non Select Services) to such Committed Member Residences and/or Commercial
Establishments and, subject to its payment to NRTC or HCG, as appropriate, of
all sums required under this Agreement, shall be entitled to all revenues from
such marketing and sales to Committed Member Residences and Commercial
Establishments ("Member Revenues"). Any rights to distribute, market, sell and
retain revenue from any of the Programming shall be subject to Section 8 of
this Agreement and shall extend only to the extent and for the duration as may
be provided under the relevant Programming agreements. Member acknowledges that
NRTC may be unable to obtain the right for Member to distribute Programming to
residences that have cable television services available. With respect to
Programming, NRTC shall pay to Member on a pro rata basis all other net
revenues that NRTC receives from HCG which are directly attributable to
Committed Member Residences and/or Commercial Establishments. The parties
acknowledge that HCG does not now have the right to distribute all of the
planned HCG DirecTv and has no obligation to NRTC or to Member to obtain all of
such rights, but that HCG intends to use reasonable efforts to obtain all of
such rights.

         3. Section 2(b) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:

         (b) Non Select Services. If a services or rights provider of HCG
DirecTv requires payment of minimum subscriber guarantees, advance payments or
other similar commitments (collectively, "Commitment"), and if and to the
extent NRTC requires Member to pay a pro rata share of such Commitment, NRTC
shall establish and notify Member of its share ("Member's Share"). If Member
pays its Member's Share, then such programming services shall be deemed
Programming. If Member is unwilling or unable to pay timely its Member's Share,
or if NRTC decides against such Commitment and does not establish a Member's
Share, then HCG shall become the exclusive distributor of such service(s)
vis-a-vis NRTC and Member ("Non Select Services") and, in such event, Member
shall bill and collect and pay to HCG or NRTC, as appropriate, the revenues for
Non Select Services to Committed Member Residences and/or Commercial
Establishments, as applicable. Member may retain five percent (5%) of the gross
revenues collected by Member for the Non Select Services and shall remit to
NRTC or HCG, as appropriate, the amounts pursuant to Section 4(d)(iii).

         4. Section 2(d) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:
<PAGE>   17
         (d) Support Services. NRTC shall develop and provide Member with
Subscriber authorization, retail billing and data, reporting services. With
respect to these support services. NRTC shall (i) provide and perform all
obligations necessary in connection with the DBS Billing and Authorization
System ("NRTC Billing System") described in the DBS Billing and Authorization
System Specifications (Section 7 of Exhibit A, "Specifications"), (ii) monitor
and control all subcontractors under agreement to provide specific portions of
the NRTC Billing System and (iii) request and manage any and all identified
change orders with subcontractors for NRTC Billing System improvements. From
time to time, NRTC may amend the Specifications, or any exhibits related to the
Specifications. NRTC shall provide further central office Subscriber support
services and other services related to the provisions of DBS Services as
circumstances dictate and shall notify Member of any amendments to the
Specifications as soon as reasonably possible.

         5. Section 3(c) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:

         (c) Billing and Collection. Member shall utilize the NRTC Billing
System according to procedural guidelines and requirements established and
amended by NRTC from time to time and shall perform Subscriber payment
processing described herein in a timely manner and on an accurate and efficient
basis. Member shall, at its own expense, (i) receive and process Subscriber
orders, (ii) bill Subscriber by and through the NRTC Billing System ("Member
Billing(s)") (iii) perform all obligations and adhere to all standards outlined
in the Specifications, (iv) service Subscriber accounts, (v) keep accurate
books of account covering all transactions relating to its responsibilities
under this Agreement and (vi) provide NRTC with such records and account
information as may be reasonably requested by NRTC. Member shall collect and
process Subscriber payments pursuant to Member Billings using the system ("NRTC
Remittance System") described in Exhibit K, which exhibit may be amended by
NRTC from time to time, unless Member elects to use the Member Remittance
System described in Exhibit K-1 by completing the election set forth in Exhibit
K-1. Member may change to NRTC at least 90 days prior to Member's requested
effective date for the change and (2) NRTC provides written approval of such
change, which approval shall not be unreasonably withheld.

         6. Section 4(d) of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:

         (d) Monthly Programming Fees. Member shall pay NRTC on a monthly basis
the following: (i) All applicable programming fees, compulsory copyright
license fees and other fees required for the Programming. Cable Programming
fees shall be based substantially on accepted cable industry rate cards, as
appropriate. Applicable fees for the Programming marketed and sold to Committed
Member Residences are listed on Exhibit H. Applicable fees for marketing the
Programming available to Commercial Establishments are to be set forth on
Exhibit H-1. In addition, beginning in the fourth year of operation, if
required under the Cable Programming agreements, Member shall agree to pay the
cost of
<PAGE>   18
programming fees for minimum subscriber levels of up to five percent (5%)
(based on Member's total number of Committed Member Residences) and/or any
fees, guarantees, penalties or costs due under the programming agreements that
are attributable to Member's failure to provide the required minimum subscriber
level.

(ii) A sum equal to five percent (5%) of the monthly Member Billing(s) for
Programming, excluding the following: Non Select Services; authorization fees;
late fees; taxes; and other fees or charges billed to Subscribers that are not
attributable to Programming.

(iii) Subject to Section 2(b), all gross revenues collected from Non Select
Services, except when such revenues are paid directly to HCG, as appropriate.

         7. Section 12 of the Agreement is hereby deleted in its entirety and
the following is inserted in lieu thereof:

         12. REFUNDS. (a) Pursuant to the HCG Agreement, HCG is required to
provide refunds to NRTC as generally described in Exhibit J. NRTC shall make
all refunds its receives from HCG available to Member on a prorated basis in
consideration of the amount of the refunds, the amount of Member's Committed
Member Payment and the number of Members entitled to receive a portion of the
refunds. Member recognizes that refunds, if any, shall not include interest.

         (b) Pursuant to the HCG Agreement, HCG is required to provide to NRTC
five percent (5%) of the Net Proceeds from any HCG Sale. The terms (a) "HCG
Sale" shall mean any sale or lease by HCG of any HCG Frequencies or associated
Transponder on either of the initial two DBS Satellites other than those
delivering Cable Programming and (b) "Net Proceeds" shall mean the proceeds net
of all NRTC and HCG expenses associated with an HCG Sale. NRTC shall pay all
Net Proceeds it receives from HCG to Member on a prorated basis in
consideration of the amount of the Net Proceeds, the amount of Member's
Committed Member Payment and the number of Members entitled to receive a
portion of the Net Proceeds.  Member recognizes that Net Proceeds, if any,
shall not include interest. HCG sale-leasebacks (or the like), public offerings
or stock offerings, inter-Affiliate transfers or restructures or other HCG
sales or leases in which NRTC continues to retain the distribution rights to
Programming transmitted over the capacity are specifically excluded from the
definition of an HCG Sale. For purposes of Section 13, the term "refunds" as
used therein shall include Net Proceeds, if applicable.

         8. Section 20(b) of the Agreement is hereby deleted in its entirety
and the following is inserted in lieu thereof:

         (b) Subscriber Information. NRTC acknowledges that Member has
substantial proprietary interests and rights to Subscriber information and
agrees to maintain all Subscriber information on a strictly confidential basis.
NRTC and Member each further covenant that except as provided in Section 4(h)
and Section 14 under no circumstances will it use or allow others to use the
Subscriber information for any reason other than to verify amounts due under
the terms of this
<PAGE>   19
Agreement and for purposes as are approved in advance and in writing by the
other party. In the event HCG distributes Non Select Services to a Subscriber.
NRTC and Member recognize that HCG shall also have proprietary interests in
such Subscriber's information.

         9. Section 7 of Exhibit A to this Agreement is hereby deleted in its
entirety and replaced by the attached Section 7 dated February 14, 1994.

         10. Exhibit D to this Agreement is hereby deleted in its entirety.

         11. Exhibit E to this Agreement is hereby deleted in it entirety and
replaced by the attached Exhibit E dated February 14, 1994.

B. Except as specifically provided above, all terms and provisions of the
Agreement and Exhibits shall remain unmodified and in full force and effect.

C. This Amendment may be executed in counterparts, each of which shall be
deemed an original, and all such counterparts together shall constitute but one
and the same instrument.

D. MEMBER SPECIFICALLY ACKNOWLEDGES THAT NRTC MUST MEET CERTAIN  REQUIREMENTS
OF HCG BEFORE THIS AMENDMENT CAN BECOME LEGALLY BINDING. IF NRTC IN SUCCESSFUL
IN MEETING THESE REQUIREMENTS, NRTC SHALL EXECUTE THIS AMENDMENT. IF NRTC IS
UNSUCCESSFUL IN MEETING THESE REQUIREMENTS, THIS AMENDMENT SHALL BE NULL AND
VOID AND THE AGREEMENT SHALL CONTINUE IN FULL FORCE AND EFFECT UNMODIFIED BY
THE TERMS AND CONDITIONS OF THIS AMENDMENT.

         IN WITNESS WHEREOF, the parties have executed this Amendment through
their duly authorized representatives effective as of the date signed by NRTC.

                                                NATIONAL RURAL
                                                TELECOMMUNICATIONS
                                                COOPERATIVE

By:                                             By:
   --------------------                            ---------------------------
Date:                                           Date:
Title: President                                Title: Chief Operating Officer
<PAGE>   20
                                                                       EXHIBIT A

                     TECHNICAL DESCRIPTION OF DBS SERVICES


1.0      Pursuant to the HCG Agreement, HCG has warranted to deliver to NRTC
         the minimum requirements described in Sections 2.0 and 3.0 below.
         Additional general information concerning TT&C and Security Services
         is also provided below in Sections 4.0 and 5.0. These descriptions of
         TT&C and Security Services are not all-inclusive and are intended for
         informational purposes only.  Capitalized terms used in this Exhibit
         have the meaning given them in the HCG Agreement.


2.0      TRANSMISSION MINIMUM REQUIREMENTS

         2.1     CLEAR WEATHER QUALITY.  Provided that the C-Band Source Signal
                 for a given Program Channel is Available, the minimum received
                 quality level for such Program Channel Measured during clear
                 weather from any Test Site using a Reference Subscriber
                 Terminal with an antenna diameter as specified in Table 2-2a
                 shall meet the specifications set forth in Table 2-1.

         2.2     AVAILABILITY.  The quality level specified in Section 2.1
                 above shall be maintained at an availability level of 99.5%.
                 This availability specification shall be verified by
                 confirming that the received quality level meets or exceeds
                 the specifications set forth in Table 2-1 when the downlink
                 thermal carrier-to-noise ratio ("C/N") of the received DBS
                 carrier signal is reduced by an amount equal to the 0.5% rain
                 degradation level for each Test Site.  The rain degradation
                 levels for each Test Site are determined using the Crane Rain
                 Model (1980 version); the calculation method is illustrated in
                 Table 2- 2b.

                 The above terms shall have the meanings set forth below:

                 a.       A "Test Site" shall mean any of the geographic
                          locations specified in Table 2-2a.

                 b.       A "C-Band Source Signal" shall mean the original
                          C-Band satellite downlink signal associated with a
                          programming service that is to be provided as part of
                          the Cable Programming.

                 c.       A C-Band Source Signal shall be deemed to be
                          "Available" if the signal has the capability to be
                          received by a C-Band Reference Terminal at the
                          quality levels set forth in Table 2-3.  A "C- Band
                          Reference Terminal" shall mean a
<PAGE>   21
                          C-Band satellite earth station with the performance 
                          characteristics specified in Table 2-4.

                 d.       A "Reference Subscriber Terminal" shall mean a
                          subscriber terminal equipment unit that meets the
                          specifications (except for antenna size) [under the
                          HCG Agreement].  The antenna size of the Reference
                          Subscriber Terminal for each Test Site is specified
                          in Table 2-1a.

                 e.       "Measured" shall mean on an end-to-end basis for the
                          C-Band link and DBS link in tandem or with the
                          end-to-end performance calculated by the expression
                          as follows:


<TABLE>
                 <S>      <C>
                             1           =         1           +        1   
                          -------                -------             -------
                          (S/N)(EE)               (S/N)(C)            (S/N)(D)

                 where     (S/N)(EE) = calculated end-to-end signal-to-noise ratio ("SNR")
                           (S/N)(C)  = measured or calculated C-band link SNR
                           (S/N)(D)  = measured DBS link SNR
</TABLE>
<PAGE>   22
TABLE 2-1                 MINIMUM RECEIVED QUALITY FOR PROGRAM CHANNEL
                                (CLEAR WEATHER)

                       Video signal-to-noise ratio                        47 dB1

                       Audio signal-to-noise-ratio                        72 dB2


NOTES:

1        Video Measurement Conditions

         o       Measurement Image:         Still image source (flat grey field)
         o       Measuring Instrument:      ShibaSoku Video Noise Meter VN30A 
                                            or equivalent
         o       Measurement Bandwidth:     10 KHz to 4.2 MHz
         o       Weighting Filter:          As defined by CCIR Rec. 567

2        Audio Measurement Conditions
                                     

         o       Measurement Signal:        Steady-state 1 KHz tone
         o       Measuring Instrument:      Audio Precision System One or 
                                            equivalent with a
                                            Digital Signal Processor
         o       Measurement Bandwidth:     20 Hz to 20 KHz
         o       Weighting Filter:          "A" weighting
<PAGE>   23
TABLE 2-2A                TEST SITES AND ANTENNA DIMENSIONS


<TABLE>
<CAPTION>
                                                  MINIMUM REQUIREMENTS
                                         -------------------------------------
                                           Nominal                   Antenna                               
                                           Antenna                  Projected                             
                                          Diameter,                 Aperature,                             
            City                           Inches                  (Inches)(2)
- ------------------------------------------------------------------------------
       <S>                                    <C>                      <C>                                 
       * Los Angeles                          20                       315                                
    
         Miami                                20                       315                                
                                                                                                                     
         Minneapolis                          20                       315                                
                                                                                                                     
       * New York                             20                       315                                

         Seattle                              20                       315                                
                                                                                                                     
       * Castle Rock, CO                      20                       315                                
- ------------------------------------------------------------------------------

</TABLE>

*      After Service Commencement performance measurement performed from
       Castle Rock and either Los Angeles or New York.





<PAGE>   24
TABLE 2-2B               RAIN FADE DEGRADATION FOR 99.5%
                           DOWNLINK RAIN AVAILABILITY


<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
                                          (1)                        (2)                               (3)
                                       Downlink              Subscriber Terminal             Rain Fade Degradation*
                                         Rain               Receiver Temperature         (Required Downlink Carrier-to-
                                     Attenuation,                Increase,                    Thermal Noise Margin)
 City                                     dB                         dB                                dB
- ------------------------------------------------------------------------------------------------------------------------
 <S>                                     <C>                     <C>                                   <C>
 Los Angeles                               .2                      .4                                   .6

 Miami                                    2.3                     2.6                                  4.9

 Minneapolis                               .4                      .7                                  1.1

 New York                                 1.0                     1.5                                  2.5

 Seattle                                   .3                      .6                                   .9

 Castle Rock, CO                           .03                     .06                                  .1
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Attenuation from Crane Rain Model for line-of-sight to 101degreesW
         satellite, fc = 12.45 GHz and 99.5% availability

(2)      Apparent temperature increase for 1.1 dB noise figure receiver given
         attenuation in column (1)

(3)      Sum of column (1) and column (2)

*        Actual required margin with respect to the clear weather performance
         shall be calculated based on the NRTC subscriber terminal's
         characteristics including its noise figure and the demodulator/decoder
         performance.


TABLE 2-3     C-BAND REFERENCE QUALITY LEVEL
<TABLE>
- ---------------------------------------------------------
<S>                                                <C>
Received video signal-to-noise ratio                53 dB
- ---------------------------------------------------------
Received (digital) audio signal-to-noise ratio      75 dB
- ---------------------------------------------------------
</TABLE>
                                          

<PAGE>   25
TABLE 2-4               C-BAND REFERENCE TERMINAL CHARACTERISTICS


<TABLE>
- ---------------------------------------------------------------------------------------------------------   
 <S>                                                           <C>
 Gain-to-system noise temperature ratio                        25.3 dB/K
 On-axis antenna gain                                          43.6
 Off-axis antenna gain                                         < 29-25 log  o, dB
                                                               -  (o = angle off boresite, o > 2 degrees)
                                                                                             -         

 Antenna on-axis cross polarization discrimination             > 33 dB
                                                               -      
 Off-axis antenna cross polarization gain                      < 19-25 log o, dB
                                                               -                
- ---------------------------------------------------------------------------------------------------------
 VideoCipher II IRD performance at C/(N+I)                     14 dB
    Video Signal-to-noise ratio                                53 dB
    Digital audio signal-to-noise ratio                        75 dB
- ---------------------------------------------------------------------------------------------------------
</TABLE>


3.0      CONDITIONAL ACCESS MINIMUM REQUIREMENTS

         3.1     The transmission of service authorization/deauthorization
                 commands (or, if given priority by NRTC [under the HCG
                 Agreement], the NRTC control packets) shall occur within one
                 (1) hour of receiving the initial service request from NRTC's
                 computer system.

         3.2     A Reference CAM shall respond appropriately to authentic
                 authorization/deauthorization commands when such commands are
                 received using a Reference Subscriber Terminal.  A "Reference
                 CAM" shall mean an unmodified Conditional Access Module that
                 meets the technical specifications set forth in the
                 Conditional Access Segment Developer Agreement.


4.0      TELEMETRY, TRACKING AND CONTROL (TT&C)

         The "TT&C Services" to include:

         a.      Monitoring and managing the use of electric power on the
                 Satellite to operate each of the Transponders used to provide
                 the Transponder Capacity;

         b.      Monitoring and managing the use of the Satellite propellant so
                 that the satellite and orbital position are maintained;

         c.      Other functions of the Satellite which support the Transponder
                 Capacity so as to enable the DBS Services to meet the Minimum
                 Requirements pursuant to the provisions of the HCG Agreement;


<PAGE>   26
         d.      Monitoring and analyzing the Satellite telemetry data.

5.0      SECURITY SERVICES

         The Security Services portion of the PBS Services to be provided to
         NRTC under the HCG Agreement are generally described below.  These
         services include security breach investigation and analysis, periodic
         replacement of the Conditional Access Module ("CAM") units  used by
         Subscribers, and remedial actions to cure Security Breaches.

         For purposes of this Exhibit, the term "Contractor" means HCG, its
         Affiliates and/or its Subcontractors.  The terms for provision of
         Security Services may be changed in the event HCG is required to
         renegotiate with or replace the contractor providing Security
         Services.

         o       SECURITY BREACH ANALYSIS AND INVESTIGATION

                 Contractor shall provide ongoing analysis and investigation of
                 potential security breaches.  Contractor shall use its
                 reasonable best efforts, consistent with its ongoing business,
                 to monitor public sources (e.g., trade publications, public
                 computer networks, public computer bulletin boards and public
                 trade shows) and system statistics for evidence of potential
                 security breaches.

         o       CHANGE OF CAM ALGORITHMS

                 Contractor shall cause, using the Satellite link or through
                 CAM replacement, the algorithms used by CAM units to be
                 changed at least once every ten months from and after the
                 Service Commencement Date.

         o       PERIODIC REPLACEMENT OF CAM UNITS

                 Contractor shall cause the production and distribution to
                 Subscribers of a new generation of CAM units (including new
                 hardware and/or algorithms) on a periodic basis.  The first
                 such CAM change-over shall commence 24 months after the
                 Service Commencement Date and subsequent change-overs shall
                 occur at least once every 20 months.


6.0      SUBSCRIBER TERMINAL EQUIPMENT AVAILABILITY

         Thomson Consumer Electronics, Inc. ("TCE") has represented to NRTC (i)
         that TCE's suggested retail price to a retailer for the subscriber
         terminal equipment will not exceed ___ dollars ($___) per unit; (ii)
         that the subscriber terminal equipment will meet certain
         specifications; and (iii) that manufacturing of the subscriber
         terminal equipment is scheduled to commence no later than the date set
         forth below.
<PAGE>   27
         SUBSCRIBER TERMINAL EQUIPMENT PRICING.  The table below specifies the
         not-to-exceed pricing for the purchase from NRTC of subscriber
         terminal equipment.  These prices apply only to subscriber terminal
         equipment that complies with certain standard solutions; any
         modifications to such equipment required by NRTC may result in changes
         to the pricing set forth below.

<TABLE>
<CAPTION>>
- ----------------------------------------------------------------------------------
                  Number of Basic Equipment             Not-to-Exceed Price
                       Units Purchased(1)                    per Unit 
- ----------------------------------------------------------------------------------                                
<S>                                                     <C>
                             X                                  X
- ----------------------------------------------------------------------------------
</TABLE>

1        Terms:

         1.      Ordered through firm, non-cancellable purchase order submitted
                 120 days in advance of delivery.

         2.      Purchase volume level applies to units ordered for delivery
                 within 12 consecutive month period.

         3.      Delivery terms:  FOB Developer warehouse.

         SUBSCRIBER TERMINAL EQUIPMENT PRODUCTION. The key production
         commitments of TCE for the manufacture of subscriber terminal
         equipment.

         (1)     Pilot production of the subscriber terminal equipment shall
                 begin on or before August 16, 1993, and be completed on or
                 before November 30, 1993.

         (2)     Commencement of production of subscriber terminal equipment
                 shall occur on or before January 10, 1994, or at the launch
                 date of the Satellite, whichever occurs later.

7.0      NRTC SUPPORT SERVICES

         NRTC will provide support services as follows:

         (a)     Subscriber set-up including processing and forwarding
                 authorization requests to the CAMC and processing and
                 distribution of billing information;

         (b)     Processing of service change transactions including
                 deauthorizations and reauthorizations;

         (c)     Creation and delivery of Standard System Report and other 
                 data reports.

         (d)     Additional Services as required to deliver DBS Services or
                 other services to Member.
<PAGE>   28
                                                                       EXHIBIT B

CABLE PROGRAMMING TO INCLUDE

AT LEAST TWELVE (12) OF THE FOLLOWING PROGRAMS:

<TABLE>
<S>                                               <C>
         Headline News                             WGN (Superstation)
         ESPN                                      TNN
         TNT                                       MTV
         USA                                       CNN
         A&E                                       Disney
         Discovery                                 HBO
         Nickelodeon                               Showtime
         WTBS (Superstation)

NO MORE THAN FIVE (5) OF THE FOLLOWING PROGRAMS:

         AMC                                       Lifetime
         CNBC                                      Bravo
         Weather Channel                           Prime Net (national feed)
         PBS*                                      WPIX (Superstation)
         WWOR (Superstation)                       Cinemax
         Family Channel                            Movie Channel
         VH-1                                      FOX (Affiliate)*
         County Music TV

AT LEAST THREE (3) OF THE FOLLOWING PROGRAMS:

         Disney
         HBO
         Showtime
         Cinemax
         Movie Channel

NRTC MAY SUBSTITUTE NETWORK AFFILIATES BELOW FOR ANY OF THE PROGRAMS LISTED ABOVE:

         ABC (Local Affiliate)*
         CBS (Local Affiliate)*
         NBC (Local Affiliate)*
</TABLE>
<PAGE>   29
         The terms and conditions of the Cable Programming agreements shall be
based on cable industry standards for C-Band TVRO satellite delivery.  All
terms and conditions contained in the Cable Programming agreements are material
to this Agreement and shall be binding on Member.

         NRTC is not the originator of the Cable Programming and has no control
over the content or subject matter of the Cable Programming Services being
delivered.  NRTC makes no representation or warranties whatsoever concerning
the content of the Cable Programming Services.


* If these programs are included in Cable Programming pursuant to a compulsory
copyright license under 17 U.S.C. Section 119 (or any similar or successor
statute), Member acknowledges and agrees that these programs may only be
provided to households that qualify as "Unserved Households" (as defined by 17
U.S.C. Section  119(d)(10) (or similar or successor statute). Member shall
provide information regarding Unserved Households in the form requested by NRTC.

<PAGE>   30
                                                                     EXHIBIT C-2

COMMITTED MEMBER PAYMENT:  RSA COUNTY OPTION

         (1)     Member elects to distribute and pay for rights to distribute
DBS Services under the Rural Service Area ("RSA") County Option.  Subject to
Section 2, Member shall have the exclusive right to distribute the DBS Services
to all residences (now or hereafter existing) in the following county(ies) in
the specified RSA(s) (hereinafter "Committed Member Residences"):

<TABLE>
<CAPTION>
 RSA COUNTY,                  TOTAL COUNTY              RSA COUNTY,            TOTAL COUNTY
 STATE                        RESIDENCES                STATE                  RESIDENCES
<S>                          <C>                       <C>                          <C>
- -------------------           ------------------       ------------------      ------------------

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

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

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

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

- -------------------           ------------------       ------------------      ------------------
</TABLE>
         (2)     The total number of County Residences in the above-listed
county(ies) is _________.

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

                         Below for NRTC Completion Only

         (3)     Member agrees to pay to NRTC a Committed Member Payment equal
to the product or (a) thirty-one dollars and fifty cents ($31.50) multiplied by
(b) the number of all residences within the county(ies) specified above as
follows:

         $31.50 x __________________   =   ______________________________
              (total county residences)    Committed Member Payment Due

MARKETING AND DEVELOPMENT FEE

         1.      Member agrees to pay to NRTC a Marketing and Development Fee
in an amount equal to:

<TABLE>
         <S>             <C>                      <C>
         $__________  x   __________________     =  _________________________________
                       (total county residences)    Total Marketing & Development Fee Due
</TABLE>
<PAGE>   31
                                                                     EXHIBIT C-3
COMMITTED MEMBER PAYMENT:   RSA NON-CABLED COUNTY OPTION

         1.      Member elects to distribute and pay for rights to distribute
DBS Services under the Rural Service Area ("RSA") Non-Cabled County Option.
Subject to Section 2, Member shall have the exclusive right to distribute DBS
Services to all residences (now or hereafter existing) which do not have cable
television available in the following county(ies) within the specified RSA(s)
(hereinafter "Committed Member Residences"):

<TABLE>
<CAPTION>
                              Non-Cabled                                             Non-Cabled
 RSA County, State            Residences                RSA County, State            Residences
<S>                          <C>                       <C>                          <C>
- -------------------           --------------            ----------------------       --------------

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

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

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

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

- -------------------           --------------            ----------------------       --------------
</TABLE>
         2.      The total number of non-cabled residences in the above-listed
county(ies) is ______.

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

                         Below for NRTC Completion Only

         3.      Member agrees to pay to NRTC a Committed Member Payment equal
to thirty-five dollars ($35.00) multiplied by the total number of the
non-cabled residences in the above-listed county(ies) as follows:

                 $35.00 x __________________   =   _____________________
                          (total non-cabled          Committed Member
                             residences)               Payment Due

MARKETING AND DEVELOPMENT FEE

         1.      Member agrees to pay to NRTC a Marketing and Development Fee
                 in an amount equal to:


<TABLE>
         <S>             <C>
         $__________  x  __________________     =  _________________________________
                      (total county residences)    Total Marketing & Development Fee Due
</TABLE>
<PAGE>   32
                                                                     EXHIBIT C-5

COMMITTED MEMBER PAYMENT:  MSA NON-CABLED ZIP CODE OPTION

         1.      Member elects to distribute and pay for the rights to
distribute DBS Services under the MSA Non-Cabled Zip code Option.  Subject to
Section 2, Member shall have the exclusive right to distribute and sell the DBS
Services to all non-cabled residences (now or hereafter existing) within the
zip codes in portions of Metropolitan Statistical Areas ("MSA(s)") listed below
(hereinafter "Committed Member Residences"):

<TABLE>
<CAPTION>
                              Non-Cabled                                             Non-Cabled
 RSA County, State            Residences                RSA County, State            Residences
<S>                          <C>                       <C>                          <C>
- --------------------         ---------------           --------------------         -----------------

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

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

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

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

- --------------------         ---------------           --------------------         -----------------
</TABLE>
         2.      The total number of non-cabled residences in the above-listed
zip codes is ______.


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

                         Below for NRTC Completion Only

         3.      Member agrees to pay to NRTC a Committed Member Payment equal
to thirty-five dollars ($35.00) multiplied by the total number of the
non-cabled residences in the zip codes listed above as follows:

                 $35.00 x __________________   =   _____________________
                          (total non-cabled          Committed Member
                            residences in              Payment Due
                           MSA Zip Codes)

MARKETING AND DEVELOPMENT FEE

         1.      Member agrees to pay to NRTC a Marketing and Development Fee
                 in an amount equal to:

<TABLE>
         <S>             <C>
         $__________  x   __________________       =  _________________________________
                     (total non-cabled residences     Total Marketing & Development Fee Due
                     In MSA Zip Codes)
</TABLE>
<PAGE>   33
                                                                       EXHIBIT D

DIRECTV FEE

         Upon receipt of the DirecTv fee from HCG, NRTC shall pay Member a
share of the DirecTv fee as specified below.  Member's share of DirecTv fees
shall be payable to Member annually with the first payment due 45 days after
the first anniversary of the Service Commencement Date and each subsequent
payment due on each one year anniversary thereafter, and, in any event, no
later than 90 days after the expiration, cancellation or termination of this
Agreement.  Member shall also receive compensation for other services such as
billing and collection provided in connection with DirecTv under terms and
conditions to be agreed upon at a later date.

                              Minimum Payment Due

<TABLE>
         <S>                                      <C>   
         Gross DirecTv Revenues Received by HCG
            from Member's Authorized Subscribers   x .04 = ____________________
                                                           (Payment Due Member)
</TABLE>
<PAGE>   34
                                                                       EXHIBIT E
                             MONTHLY OPERATING FEES
                                  PAGE 1 OF 4

1.       TT&C             $_________ per Authorized Subscriber per month

         This fee may be (1) reduced prior to Service Commencement Date based
on total Committed Member Payments and thereafter due to capping of fees by HCG
after certain total Subscriber levels are met or (2) increased annually after
the tenth one-year anniversary of the Service Commencement Date to reflect
increased costs, but such increases shall be limited to the lesser of five
percent (5%) or the percentage increase in the Consumer Price Index.

2        Ground Services  $_________ per Authorized Subscriber per month

         Includes services and facilities for access control and uplinking
transmissions.  This fee may be (1) reduced prior to Service Commencement Date
based on total Committed Member Payments and thereafter due to capping of fees
after certain total Subscriber levels are met or due to shared use of
facilities, or (2) increased annually after the third one-year anniversary of
the Service Commencement Date to reflect increased costs, but such increases
shall be limited to the lesser of five percent (5%) or the percentage increase
in the Consumer Price Index or (3) increased in the event the CAMC must be
expanded to service more than 10 million Subscribers and NRTC Subscribers
exceed 1.8 million.

3.       Authorization Fees

<TABLE>
                 <S>                                       <C>
                 Initial Set-Up Fee:

                 Recurring
                          Authorization Fee:       $        per Authorized
                                                    ------  Subscriber per Month

                 Recurring Inactive
                          Subscriber Fee:          $        per Inactive Subscriber
                                                    ------  per month

                 Communication Costs:              $        per Authorized
                                                    ------  Subscriber per month
                                                           
                 Member Terminal                   $        per Unit -or-
                                                    ------               
                          Equipment:               $        Rental per month
                                                    ------                  
                                                           
                 Optional                          $        per Unit -or-
                                                    ------               
                          Laser Printer:           $        Rental per month
                                                    ------                  
</TABLE>





                                                                         
<PAGE>   35
                                                                       EXHIBIT E
                             MONTHLY OPERATING FEES
                                  PAGE 2 OF 4


4.       Other NRTC Office Support Service Fees

         May include such services as telephone support services, retail
         billing, and other services required to deliver DBS Services or as may
         be requested by Member.


<TABLE>

(i)      Billing Fees:

<S>      <C>                               <C>              <C>
                 Recurring Billing Fee:    $                per Authorized Subscriber per month
                                            ---------                                          

                 Postage:                  $                per Authorized Subscriber per month (or such amount as
                                            ---------       charged by the U.S. Postal Service for first-class mail)

                 Paper Goods/Other:        $                per Authorized Subscriber per month
                                            ---------                                          

(ii)     Remittance Fees:

                 Remittance Fee:           $                per Authorized Subscriber per month (includes banking fee)
                                            --------                                                                  

                 Custom Member
                 Logo on Billing
                 Statement:                $                per Authorized Subscriber per month
                                            ---------                                          
                                           (plus $          one time set up charge)
                                                  ---------                        

(iii)    Credit Card Processing Fees:

</TABLE>

                             ANNUAL VOLUME SCHEDULE
                                  (See Note 1)

<TABLE>
<CAPTION>

Transaction Volume                                 Bank Card Deposits                             Authorizations
- ------------------                                 ------------------                             --------------
<S>                                                         <C>                                       <C>
First 50,000                                                $___                                      $___
Next 150,000                                                $___                                      $___
Next 450,000                                                $___                                      $___
Next 1,000,000                                              $___                                      $___
Next 1,500,000                                              $___                                      $___

</TABLE>





                                                                         
<PAGE>   36
                                                                       EXHIBIT E
                             MONTHLY OPERATING FEES
                                  PAGE 3 OF 4


Transaction volume will be analyzed monthly and fees will be assessed over the
term of this AGREEMENT based on the above price schedule.


Note (1)         Annual volume is based on all collective Member transaction
                 volume and not on an individual DBS participant.

                               MISCELLANEOUS FEES

<TABLE>
<S>                                                                 <C>
Per CHARGEBACK Processed/Represented                                $ ___
Collection, Pre-Arbitration & Compliance                            $ ___
ACH (Automated Clearing House) Funds Transfer                       $ ___
Postage, Supplies, Equipment & Other Services                       Charged As Used
</TABLE>

PASS THROUGH FEES

                           DIRECT MARKETING DEPOSITS

<TABLE>
<CAPTION>
                 Visa Classification                                         MasterCard Classification
                 -------------------                                         -------------------------
         <S>       <C>                             <C>                       <C>
         TIIF 1    ___% + $___                     Merit 1                   ___% + $___
</TABLE>

DUES & ASSESSMENT FEES

<TABLE>
<CAPTION>
                 Visa                                                        MasterCard
                 ----                                                        ----------
                 <S>                                                         <C>
                 ___%                                                        ___%
</TABLE>

5.       Backup Telephone Customer Service Support

         To the extent technically feasible, NRTC shall provide or cause to be
provided backup telephone customer service support seven days a week during the
hours of 4:30 pm and 8:00 am in the Member's time zone ("Backup") to Member.
Member shall be responsible for all costs related to calls from Committed
Member Residences.

Backup support shall include the Subscriber authorization, deauthorizations and
subscriber service changes, order ahead pay-per-view and all other services
offered by NRTC or its backup provider.

Charges:

(i)      Order Ahead
         Pay-per-view:                 Rate Set by Member





                                                                        
<PAGE>   37
                                                                       EXHIBIT E
                             MONTHLY OPERATING FEES
                                  PAGE 4 OF 4


(ii)     For Participating TeleServ (formerly "Phone Base") DBS Members and
         Affiliates: 

         (a)     Beginning February 22, 1995, Member will be charged $___/per 
                 minute/per call for all calls that are answered by TeleServ 
                 (or its successor) from potential, new or existing customers 
                 from your Committed Member Residences or otherwise who are 
                 rolled-over to TeleServ through your local telephone number. 
                 Note:  Participating members will be billed from the time 
                 that a TeleServ operator receives a call to the completion of
                 all work necessary to service that call (including call 
                 disposition).  The length of each call will include the time 
                 during which a call is in queue waiting to be answered.

Member shall not promote the use of a DirecTv(R) phone number (including
"1-800-DirecTv") without the prior written approval of HCG.

NRTC makes no warranties and shall have no liability regarding the performance
of such Backup Support.





                                                                         
<PAGE>   38
                                                                       EXHIBIT F

MONTHLY SECURITY SERVICE FEE

Member shall pay the Security Service Fee, listed below, for each Authorized
Subscriber registered by Member with the CAMC.  These fees may be adjusted in
accordance with the HCG Agreement to reflect increases or decreases for
telephone usage charges in connection with security services or due to HCG's
requirement to renegotiate with or replace the provider of security services.
These fee may also be decreased due to volume usage with the first such
decrease beginning after the first million Subscribers are registered.  NRTC
may, upon at least 30 days prior written notice, adjust the Security Fee in an
amount commensurate with any such increase or decrease.

         The Conditional Access Modules ("CAMs") to be used as security cards
by Subscribers may be replaced and provided to Member from time to time.  The
replacement CAMs shall be provided to Member at no cost, however, Member shall
be responsible for any costs of delivery of CAMs to Authorized Subscribers.


         Security Service Fee              $___ per CAM per Authorized
                                           Subscriber per month





                                                                         
<PAGE>   39
                                                                       EXHIBIT G

SECURITY BREACH PROCEDURES

                 The Security Breach procedures to be followed under the HCG
Agreement are generally described below.  These procedures and terms may be
changed in the event HCG renegotiates with or replaces the provider of Security
Services.  For purposes of the Exhibit, the term "Contractor" means HCG, its
Affiliates and/or its Subcontractors.

         o       Response to Security Breach

         The terms listed below have the following messages:

         (a)     "Security Failure" means either of the following:

                 (i)      the ability to decrypt audio and/or visual portions
                          of a currently broadcast service consisting of at
                          least one full Pay-per-view program or one continuous
                          day of scrambled programming without using or being
                          connected to a CAM currently authorized in the
                          Conditional Access Management Center ("CAMC") to
                          decrypt such particular service or program;

                 (ii)     the ability to block or modify Pay-per-view purchase
                          history data and/or other CAM report back data in a
                          manner which will not cause the CAMC to obtain
                          knowledge or such blockage or modification within
                          forty; five (45) days.

         (b)     "Security Subcontractor" shall mean the entity with whom HCG
                 contracts to respond to Security Breaches.
 
         (c)     "Security Breach" means the delivery and demonstration to the
                 Security Subcontractor of  a device which (i) causes Security
                 Failure to the reasonable satisfaction of HCG Security
                 Subcontractor; (ii) is available (e.g., can be obtained in kit
                 or complete immediately on a retail basis by visiting a retail
                 outlet or can be obtained within commercially reasonable time,
                 not to exceed 8 weeks, via mail order) to individuals in the
                 United States; and (iii) is capable of being purchased for
                 less than $5,000, which price does not include the cost of any
                 personal computer to which the device may have to be attached
                 in order to become operative.





                                                                         
<PAGE>   40
         (d)     "Security Breach Date" shall mean the date of first delivery
                 and demonstration to HCG and the Security Subcontractor of a
                 device which causes a Security Failure constituting a Security
                 Breach as described above.

         o       Security Breach Cure

         In the event of a Security Breach, Contractor shall use its reasonable
         best efforts to cause the prompt Cure of said Security Breach.  "Cure"
         means, in connection with a Security Breach, that Contractor has
         caused the implementation of measures such that the device causing the
         Security Breach can no longer be used to effect a Security Failure.
         Such Cure may be effected in a manner to be determined in the sole
         reasonable discretion of the Security Subcontractor, and may include,
         without limitation, the replacement of CAM units and/or the over the
         air/telephone downloading of new algorithm(s) (the "Cure
         Implementation").  In the event that the replacement of CAM units is
         used to accomplish the Cure, then the Cure shall be deemed to have
         occurred 7 days after completion of the "CAM Replacement Plan" set
         forth in the Conditional Access Segment Security Services Agreement.
         Under the CAM Replacement Plan, replacement CAM units will be
         delivered to NRTC in a quantity equal to or greater than the
         then-existing number of NRTC Subscribers.  In the event that a method
         other than the replacement of CAM units is used to accomplish the
         Cure, then the Cure shall be deemed to have occurred upon commencement
         of the Cure Implementation..

         A Cure shall not be deemed to have occurred if, within fifty (50) days
         of the Cure Implementation, NRTC is able to demonstrate to the
         reasonable satisfaction of HCG and the Security Subcontractor that the
         same device which caused such Security Breach is able to cause a
         Security Breach.  For purposes of the foregoing, a device shall be
         deemed the "same" as the originally demonstrated device if such device
         operates identically as the originally demonstrated device or where
         such device is modified only through the use of switch and/or jumper
         devices or where the software/firmware used in the originally
         demonstrated device has been modified using software/firmware or CAM
         replacement from the same source as that which was used in the
         originally demonstrated device and such software/firmware and/or
         switches or jumpers have been obtained on a commercially available
         basis.

MSA ZIP CODE (CABLED/NON-CABLED) RESIDENCES

         THE FOLLOWING MSA ZIP CODES MAY INCLUDE ZIP CODES THAT ARE NOT
         AVAILABLE AND CANNOT BE APPROVED.  THE APPLICANT, UPON REQUEST BY
         NRTC, MUST DEMONSTRATE THAT ELECTRIC AND/OR TELEPHONE UTILITY SERVICE
         IS CURRENTLY PROVIDED IN ANY ZIP CODE(S) FROM THIS LIST BY A MEMBER OR
         POTENTIAL MEMBER OF NRTC.


COOP ID:  013526                                              Control # 00000104

<TABLE>
<CAPTION>
                                                              Cabled                 Non-Cabled
St       County                   Zipcode                   Residences               Residences
<S>      <C>                      <C>                       <C>                      <C>
                                                                                                        
- ----     -----------              -------------             -----------------        -------------------
</TABLE>





                                                                         
<PAGE>   41
            COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H      CONFIDENTIAL
                                                                               

<TABLE>
<CAPTION>
CORE  PACKAGES
- -------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>
DIRECTV LIMITED                           
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGINS                          $___

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

PLUS DIRECTV
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

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

ECONOMY CHOICE w/out NETWORKS                      ECONOMY CHOICE - EAST and ECONOMY CHOICE - WEST
SUGGESTED RETAIL                           $___    SUGGESTED RETAIL                                                  $___
WHOLESALE COSTS                            $___    WHOLESALE COSTS                                                   $___
SUGGESTED MARGIN                           $___    SUGGESTED MARGIN                                                  $___


ECONOMY CHOICE - All Networks
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

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

SELECT CHOICE 
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

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

TOTAL CHOICE - (Single RSN)                        TOTAL CHOICE - (New England)
SUGGESTED RETAIL                           $___    Dual RSN - Connection, Massachusetts, New Hampshire.
WHOLESALE COSTS                            $___    New York, Vermont
SUGGESTED MARGIN                           $___    SUGGESTED RETAIL                                                  $___
                                                   WHOLESALE COSTS                                                   $___
                                                   SUGGESTED MARGIN                                                  $___

TOTAL CHOICE - (Florida)*                          TOTAL CHOICE - (Florida)*
Dual RSN - Florida                                 Dual RSN - Florida
Effective first billing cycle 1/1/98               Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___    SUGGESTED RETAIL                                                  $___
WHOLESALE COSTS                            $___    WHOLESALE COSTS                                                   $___
SUGGESTED MARGIN                           $___    SUGGESTED MARGIN                                                  $___

TOTAL CHOICE - (WEST)*
Dual RSN - Southern California and Southern Nevada
Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             *New wholesale rates will be effective the first billing
WHOLESALE COSTS                            $___             cycle after 1/1/98 making all dual RSN package rates
SUGGESTED MARGIN                           $___             consistent with Total Choice - (New England)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>





                                                                         
<PAGE>   42
            COMMITTED MEMBER RESIDENT PROGRAMMING - EXHIBIT H       CONFIDENTIAL
                                                                               


<TABLE>
<CAPTION>
CORE PACKAGES - continued
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>
TOTAL CHOICE PLUS ENCORE - (Single RSN)                     TOTAL CHOICE PLUS ENCORE - (New England)
SUGGESTED RETAIL                           $___             Dual RSN - Connecticut, Massachusetts, New Hampshire,
WHOLESALE COSTS                            $___             New York, Vermont
SUGGESTED MARGIN                           $___             SUGGESTED RETAIL                                         $___
                                                            WHOLESALE COSTS                                          $___
                                                            SUGGESTED MARGIN                                         $___

TOTAL CHOICE PLUS ENCORE - (Florida)*                       TOTAL CHOICE PLUS ENCORE - (Florida)*
Dual RSN - Florida                                          Dual RSN - Florida
Effective until first billing cycle 1/1/98                  Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             SUGGESTED RETAIL                                         $___
WHOLESALE COSTS                            $___             WHOLESALE COSTS                                          $___
SUGGESTED MARGIN                           $___             SUGGESTED MARGIN                                         $___

TOTAL CHOICE PLUS ENCORE - (West)*
Dual RSN - Southern California and Southern Nevada
Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             *New wholesale rates will be effective the first billing
                                                            cycle after 1/1/98 making all dual RSN package rates
WHOLESALE COSTS                            $___             consistent with Total Choice - (New England)
SUGGESTED MARGIN                           $___            

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

TOTAL CHOICE SILVER - (Single RSN)                          TOTAL CHOICE SILVER - (New England)
Total Choice plus Silver - movie services                   Total Choice plus Silver - movie services
RETAIL                                     $___             Dual RSN - Connecticut, Massachusetts, New Hampshire,
WHOLESALE COSTS                            $___             New York, Vermont
SUGGESTED MARGIN                           $___             RETAIL                                                   $___
                                                            WHOLESALE COSTS                                          $___
                                                            SUGGESTED MARGIN                                         $___

TOTAL CHOICE SILVER - (Florida)*                            TOTAL CHOICE SILVER - (Florida)*
- --------------------------------                            --------------------------------
Total Choice plus Silver - movie services                   Total Choice plus Silver - movie services
Dual RSN - Florida                                          Dual RSN - Florida
Effective until first billing cycle 1/1/98                  Effective first billing cycle after 1/1/98
RETAIL                                     $___             SUGGESTED RETAIL                                         $___
WHOLE SALE COSTS                           $___             WHOLESALE COSTS                                          $___
SUGGESTED MARGIN                           $___             SUGGESTED MARGIN                                         $___

TOTAL CHOICE SILVER - (West)
Total Choice plus Silver - movie services
Dual RSN - Southern California and Southern Nevada
Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             *New wholesale rates will be effective the first billing
                                                            cycle after 1/1/98 making all dual RSN package rates
WHOLESALE COSTS                            $___             consistent with Total Choice - (New England)
SUGGESTED MARGIN                           $___             

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

TOTAL CHOICE GOLD - (Single RSN)                            TOTAL CHOICE GOLD - (New England)
Total Choice plus Gold - sports service                     Total Choice plus Gold - sports service
RETAIL                                     $___             Dual RSN - Connecticut, Massachusetts, New Hampshire,
WHOLESALE COSTS                            $___             New York, Vermont
SUGGESTED MARGIN                           $___             RETAIL                                                   $___
                                                            WHOLESALE COSTS                                          $___
                                                            SUGGESTED MARGIN                                         $___

TOTAL CHOICE GOLD - (Florida)*                              TOTAL CHOICE GOLD - (Florida)*
Total Choice plus Gold - sports service                     Total Choice plus gold - sports service
Dual RSN - Florida                                          Dual RSN - Florida

</TABLE>




                                                                         
<PAGE>   43
              COMMITTED MEMBER RESIDENT PROGRAMMING - EXHIBIT H     CONFIDENTIAL
                                                                               


<TABLE>
<CAPTION>
CORE PACKAGES - continued
- -------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>
Effective until first billing cycle 1/1/98                  Effective first billing cycle after 1/1/98
RETAIL                                     $___             SUGGESTED RETAIL                                         $___
WHOLESALE COSTS                            $___             WHOLESALE COSTS                                          $___
SUGGESTED MARGIN                           $___             SUGGESTED MARGIN                                         $___

TOTAL CHOICE GOLD - (West)
Total Choice plus Gold - sports service
Dual RSN - Southern California and Southern Nevada
Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             *New wholesale rates will be effective the first billing
                                                            cycle after 1/1/98 making all dual RSN package rates
WHOLESALE COSTS                            $___             consistent with Total Choice - (New England)
SUGGESTED MARGIN                           $___             

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

TOTAL CHOICE PLATINUM - Single RSN                          TOTAL CHOICE PLATINUM - (New England)
Total Choice plus Platinum - movie and sports services      Total choice plus Platinum - movie and sports services
RETAIL                                     $___             Dual RSN - Connecticut, Massachusetts, New Hampshire,
WHOLESALE COSTS                            $___             New York, Vermont
SUGGESTED MARGIN                           $___             RETAIL                                                   $___
                                                            WHOLESALE COSTS                                          $___
                                                            SUGGESTED MARGIN                                         $___

TOTAL CHOICE PLATINUM - (Florida)*                          TOTAL CHOICE PLATINUM - (Florida)*
Total choice plus Platinum - movie and sports services      Total Choice plus Platinum - movie and sports services
Dual RSN - Florida                                          Dual RSN - Florida
Effective until first billing cycle                         Effective first billing cycle after 1/1/98
RETAIL                                     $___             SUGGESTED RETAIL                                    $___
WHOLESALE COSTS                            $___             WHOLESALE COSTS                                          $___
SUGGESTED MARGIN                           $___             SUGGESTED MARGIN                                         $___

TOTAL CHOICE PLATINUM - (West)*
Total Choice plus Platinum - movie and sports services
Dual RSN - Southern California and Southern Nevada
Effective first billing cycle after 1/1/98
SUGGESTED RETAIL                           $___             *New wholesale rates will be effective the first billing
                                                            cycle after 1/1/98 making all dual RSN package rates
WHOLESALE COSTS                            $___             consistent with Total Choice - (New England)
SUGGESTED MARGIN                           $___             

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

A LA CARTE SERVICES

DISNEY (A LA CARTE)               Includes either east or west feed
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

PLUS ENCORE                       8 theme channels
(formerly known as Encore Multiplex)
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

GOLF CHANNEL
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___
</TABLE>





                                                                         
<PAGE>   44
              COMMITTED MEMBER RESIDENT PROGRAMMING - EXHIBIT H     CONFIDENTIAL
                                                                               


<TABLE>
<CAPTION>
A LA CARTE SERVICES - continued
- -------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>
MUSIC CHOICE
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___


INDIVIDUAL NETWORKS
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___


EAST/WEST COAST FEEDS OF INDIVIDUAL NETWORKS (3 total)
ABC or CBS or NBC East and West Coast Feeds
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___


NETWORK PACKAGE [2 ABC (EAST & WEST). 2 CBS (EAST & WEST. 2 NBC (EAST & WEST). FOX, PBS]
Package also known as PrimeTime 24 Plus
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___


PLAYBOY - MONTHLY
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
MARGIN                                     $___

REAL NET - MONTHLY
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

GOLD (formerly known as NRTC SPORTS CHOICE and DIRECTV SPORTS CHOICE)
Sold in combination with Total Choice
Includes out-of-market RSNs (up to 23), Golf Channel, Classic Sports, NewSport, Speed Vision and Outdoor Life
SUGGESTED RETAIL                           $___
SALE COSTS                                 $___
SUGGESTED MARGIN                           $___

GOLD (formerly known as NRTC SPORTS CHOICE and DIRECTV SPORTS CHOICE)
Sold in combination with packages other than Total Choice
Includes in-market RSN(s), out-of market RSNs (up to 23), Golf Channel, Classic Sports, NewSport, Speed Vision and
Outdoor Life
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

SILVER
Includes STARZ! 1, STARZ!  I west, STARZ! 2, STARZ.1 2 west, Encore Multiplex, Independent Film Channel, Romance
Classics
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___

PLATINUM
Includes all channels in Silver and Gold a la carte
SUGGESTED RETAIL                           $___
WHOLESALE COSTS                            $___
SUGGESTED MARGIN                           $___
</TABLE>





                                                                         
<PAGE>   45
            COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H      CONFIDENTIAL
                                                                               


SPORTS SEASON TICKETS

NOTE- RETAIL PRICE FOR SPORTS SEASON  TICKETS WILL VARY BASED ON THE PROMOTION
WINDOW.  MEMBER WILL NOTIFIED DURING EACH PROMOTION WINDOW.  MEMBER
MARGIN/COMMISSION IS DEPENDENT ON THE RETAIL PRICE.

<TABLE>
<CAPTION>
NBA LEAGUE PASS 96-97 SEASON
<S>                               <C>
RETAIL                           $___-$___
WHOLESALE COSTS                   ___% OF RETAIL
MARGIN                            ___% OF RETAIL

BLAZERVISION 
(in-Market Package for the Portland Trailblazers)
RETAIL                           $___-$___
WHOLESALE COSTS                   ___% OF RETAIL
MARGIN                            ___% OF RETAIL

SONICS TV 96-97
(in-Market Package for the Seattle Supersonics)
RETAIL                           $___-$___
WHOLESALE COSTS                   ___% OF RETAIL
MARGIN                            ___% OF RETAIL

NFL SUNDAY TICKET - NON SELECT SERVICE - 97 SEASON
RETAIL                           TBD - $___
MEMBER IS COMMISSIONED ___% OF RETAIL PRICE

NHL CENTER ICE 96-97 SEASON
RETAIL                           $___-$___
WHOLESALE COSTS                   ___% OF RETAIL
MARGIN                            ___% OF RETAIL

ESPN COLLEGE FOOTBALL - 97 SEASON
RETAIL                           $___-$___
WHOLESALE COSTS                   TBD
MARGIN                            TBD

ESPN FULL COURT - COLLEGE BASKETBALL - 96-97 SEASON
RETAIL                           $___-$___
WHOLESALE COSTS                   TBD
MARGIN                            TBD

MLB EXTRA INNINGS - 97 SEASON
RETAIL                           $___-$___
WHOLESALE COSTS                   ___% OF RETAIL
MARGIN                            ___% of RETAIL

MAJOR LEAGUE SOCCER - 97 SEASON
RETAIL                            $___
WHOLESALE COSTS                   $___
MARGIN                            $___
</TABLE>





                                                                         
<PAGE>   46
                                                                              
             COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H     CONFIDENTIAL
                                                                               


DIRECT TICKET PAY PER VIEW EVENTS

NOTE:    THE WHOLESALE COST OF ALL PPV MOVIES WILL BE CHARGED SEPARATELY FROM
         THE PACKAGE COST.  PAY PER VIEW (DIRECT TICKET) EVENTS WILL BE
         NEGOTIATED AND PRICED BY EVENT. (WITH THE EXCEPTION OF PLAYBOY - 12
         HOUR AND ADULT-12 HOUR MEMBER WILL BE NOTIFIED AS EACH EVENT'S RETAIL
         AND WHOLESALE COSTS ARE DETERMINED.

<TABLE>
<S>                               <C>
PPV MOVIE
RETAIL                            $___
WHOLESALE COSTS                   $___
MARGIN                            $___

PPV EVENTS, MOVIE AND SPORTS SPECIALS
RETAIL                            TBD
WHOLESALE COSTS                   TBD
MARGIN                            TBD

PLAYBOY 12-HOUR
SUGGESTED RETAIL                  $___
WHOLESALE COSTS                   $___
SUGGESTED MARGIN                  $___

ADULT 12-HOUR
SUGGESTED RETAIL                  $___
WHOLESALE COSTS                   $___
SUGGESTED MARGIN                  $___

DIRECTV RINGSIDE - NON SELECT SERVICE
DIRECTV monthly boxing series
SUGGESTED RETAIL                  $___
MEMBER IS COMMISSIONED 5%  OF RETAIL PRICE

TOP RANK DE LA HOYA FIGHTS NON SELECT SERVICE
DIRECTV quarterly boxing series
SUGGESTED RETAIL                  $___
MEMBER IS COMMISSIONED 5% OF RETAIL PRICE
</TABLE>

ADDITIONAL SERVICES (to be set locally)

NOTE:    The following rates are charged by DIRECTV for such services.  Member
control these rates locally.

<TABLE>
<S>                               <C>
PPV PHONE ORDERS (OPPV)
DIRECTV'S FEE                     $___
WHOLESALE COST                    $___

ADDITIONAL  IRD (Each)
DIRECTV'S FEE                      $___
WHOLESALE COST                     $___

DISCONNECT FEE
DIRECTV'S FEE                     $___
WHOLESALE COST                    $___

CHANGE OF SERVICE  - Downgrade Service Fe
DIRECTV'S FEE                     $___
WHOLESALE COST                    $___
</TABLE>





                                                                         
<PAGE>   47

               COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H             
                                                                              
                 SMATV (APARTMENTS, CONDOMINIUMS, TOWNHOUSES)                 
                                                                              
SMATV - BASIC PROGRAMMING PACKAGES                                            
                                                                              
                                                                              
<TABLE>                                                                       
<CAPTION>                                                                     
                                                                                       ACCOUNT TYPES:    HTL
                                                                                                                          
                SUB                     SUBSCRIPTION                          MEMBER           MEMBER          MEMBER      
               UNITS                       LENGTH            RETAIL           WHOLESALE        MARGIN          MARGIN %    
- ----------------------                  ------------         ------           ---------        ------          --------   
<S>                                        <C>              <C>              <C>              <C>             <C>         
BUSINESS PACK 1  -  25                     Monthly            $___                $___         $___             ___%  
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  
                                                                                                                      

FAMILY PACK   1  -  25                     Monthly            $___                $___         $ ___            ___%
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  
                                                                                                                      
FUN PACK      1  -  25                     Monthly            $___                $___         $___             ___%
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  
</TABLE>
                                                                              
                                                                         
<PAGE>   48
               COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H

                 SMATV (APARTMENTS, CONDOMINIUMS, TOWNHOUSES)

SMATV - BASIC PROGRAMMING PACKAGES

<TABLE>                                                                       
<CAPTION>                                                                     
                                                                                       ACCOUNT TYPES:    HTL
                                                                                                                          
                SUB                     SUBSCRIPTION                          MEMBER           MEMBER          MEMBER     
               UNITS                       LENGTH            RETAIL           WHOLESALE        MARGIN          MARGIN %   
- ----------------------                  ------------         ------           ---------        ------          --------   
<S>                                        <C>              <C>              <C>              <C>             <C>         

MUSIC PACK    1  -  25                     Monthly            $___                $___         $___             ___%
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  
                                                                                                                      
TURNER PLUS   1  -  25                     Monthly            $___                $___         $___             ___%
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  

TURNER 2 PACK 1  -  25                     Monthly            $___                $___         $___             ___%
             26  -  50                     Monthly            $___                $___         $___             ___%  
             51  -  75                     Monthly            $___                $___         $___             ___%  
             76  - 100                     Monthly            $___                $___         $___             ___%  
             101 - 125                     Monthly            $___                $___         $___             ___%  
             126 - 150                     Monthly            $___                $___         $___             ___%  
             151 - 175                     Monthly            $___                $___         $___             ___%  
             176 - 200                     Monthly            $___                $___         $___             ___%  
             201 - 225                     Monthly            $___                $___         $___             ___%  
             226 - 250                     Monthly            $___                $___         $___             ___%  
             251 - 275                     Monthly            $___                $___         $___             ___%  
             276 - 300                     Monthly            $___                $___         $___             ___%  
             301 - 350                     Monthly            $___                $___         $___             ___%  
             351 - 400                     Monthly            $___                $___         $___             ___%  
             401 - 450                     Monthly            $___                $___         $___             ___%  
             451 - 500                     Monthly            $___                $___         $___             ___%  
       Unit Price for over 500 Units       Monthly            $___                $___         $___             ___%  
</TABLE>

NOTE:   Contractually, NRTC members MUST sell Turner Plus and Turner 2 Pack
together.





                                                                         
<PAGE>   49
             COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H     CONFIDENTIAL
                                                                               

                 SMATV (APARTMENTS, CONDOMINIUMS, TOWNHOUSES)

SMATV - A LA CARTE                                                            
                                                                              
<TABLE>                                                                       
<CAPTION>                                                                     
                SUB                     SUBSCRIPTION                           MEMBER          MEMBER           MEMBER     
               UNITS                       LENGTH            RETAIL           WHOLESALE        MARGIN          MARGIN %   
             ---------                  ------------         ------           ---------        ------          --------   
<S>                                        <C>              <C>              <C>              <C>             <C>         
ESPN and ESPN2 1 -  25                     Monthly            $___              $___           $___             ___%
              26 -  50                     Monthly            $___              $___           $___             ___%  
              51 -  75                     Monthly            $___              $___           $___             ___%  
              76 - 100                     Monthly            $___              $___           $___             ___%  
             101 - 125                     Monthly            $___              $___           $___             ___%  
             126 - 150                     Monthly            $___              $___           $___             ___%  
             151 - 175                     Monthly            $___              $___           $___             ___%  
             176 - 200                     Monthly            $___              $___           $___             ___%  
             201 - 225                     Monthly            $___              $___           $___             ___%  
             226 - 250                     Monthly            $___              $___           $___             ___%  
             251 - 275                     Monthly            $___              $___           $___             ___%  
             276 - 300                     Monthly            $___              $___           $___             ___%  
             301 - 350                     Monthly            $___              $___           $___             ___%  
             351 - 400                     Monthly            $___              $___           $___             ___%  
             401 - 450                     Monthly            $___              $___           $___             ___%  
             451 - 500                     Monthly            $___              $___           $___             ___%  
       Unit Price for Over 500 Units       Monthly            $___              $___           $___             ___%  

DISNEY EAST    1 -  25                     Monthly            $___              $___           $___             ___%
and/or WEST   26 -  50                     Monthly            $___              $___           $___             ___%  
              51 -  75                     Monthly            $___              $___           $___             ___%  
              76 - 100                     Monthly            $___              $___           $___             ___%  
             101 - 125                     Monthly            $___              $___           $___             ___%  
             126 - 150                     Monthly            $___              $___           $___             ___%  
             151 - 175                     Monthly            $___              $___           $___             ___%  
             176 - 200                     Monthly            $___              $___           $___             ___%  
             201 - 225                     Monthly            $___              $___           $___             ___%  
             226 - 250                     Monthly            $___              $___           $___             ___%  
             251 - 275                     Monthly            $___              $___           $___             ___%  
             276 - 300                     Monthly            $___              $___           $___             ___%  
             301 - 350                     Monthly            $___              $___           $___             ___%  
             351 - 400                     Monthly            $___              $___           $___             ___%  
             401 - 450                     Monthly            $___              $___           $___             ___%  
             451 - 500                     Monthly            $___              $___           $___             ___%  
       Unit Price for Over 500 Units       Monthly            $___              $___           $___             ___%  

C-SPAN 1 &     1 -  25                     Monthly            $___              $___           $___             ___%
C-SPAN 2      26 -  50                     Monthly            $___              $___           $___             ___%  
              51 -  75                     Monthly            $___              $___           $___             ___%  
              76 - 100                     Monthly            $___              $___           $___             ___%  
             101 - 125                     Monthly            $___              $___           $___             ___%  
             126 - 150                     Monthly            $___              $___           $___             ___%  
             151 - 175                     Monthly            $___              $___           $___             ___%  
             176 - 200                     Monthly            $___              $___           $___             ___%  
             201 - 225                     Monthly            $___              $___           $___             ___%  
             226 - 250                     Monthly            $___              $___           $___             ___%  
             251 - 275                     Monthly            $___              $___           $___             ___%  
             276 - 300                     Monthly            $___              $___           $___             ___%  
             301 - 350                     Monthly            $___              $___           $___             ___%  
             351 - 400                     Monthly            $___              $___           $___             ___%  
             401 - 450                     Monthly            $___              $___           $___             ___%  
             451 - 500                     Monthly            $___              $___           $___             ___%  
       Unit Price for Over 500 Units       Monthly            $___              $___           $___             ___%  
</TABLE>

                                                                         
<PAGE>   50
                                                                    CONFIDENTIAL


              COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H

                 SMATV (APARTMENTS, CONDOMINIUMS, TOWNHOUSES)

SMATV - A LA CARTE                                                            
                                                                              
<TABLE>                                                                       
<CAPTION>                                                                     
                SUB                     SUBSCRIPTION                           MEMBER          MEMBER           MEMBER    
               UNITS                       LENGTH            RETAIL           WHOLESALE        MARGIN          MARGIN %  
             ---------                  ------------         ------           ---------        ------          --------  
<S>                                     <C>                  <C>              <C>              <C>             <C> 
STARZ! and     1 -  25                     Monthly            $___            $___              $___              ___%
ENCORE 1      26 -  50                     Monthly            $___            $___              $___              ___%  
              51 -  75                     Monthly            $___            $___              $___              ___%  
              76 - 100                     Monthly            $___            $___              $___              ___%  
             101 - 125                     Monthly            $___            $___              $___              ___%  
             126 - 150                     Monthly            $___            $___              $___              ___%  
             151 - 175                     Monthly            $___            $___              $___              ___%  
             176 - 200                     Monthly            $___            $___              $___              ___%  
             201 - 225                     Monthly            $___            $___              $___              ___%  
             226 - 250                     Monthly            $___            $___              $___              ___%  
             251 - 275                     Monthly            $___            $___              $___              ___%  
             276 - 300                     Monthly            $___            $___              $___              ___%  
             301 - 350                     Monthly            $___            $___              $___              ___%  
             351 - 400                     Monthly            $___            $___              $___              ___%  
             401 - 450                     Monthly            $___            $___              $___              ___%  
             451 - 500                     Monthly            $___            $___              $___              ___%  
       Unit Price for Over 500 Units       Monthly            $___            $___              $___              ___%  
                                                                                     
GOLF CHANNEL   1 -  25                     Monthly            $___            $___              $___              ___%
              26 -  50                     Monthly            $___            $___              $___              ___%  
              51 -  75                     Monthly            $___            $___              $___              ___%  
              76 - 100                     Monthly            $___            $___              $___              ___%  
             101 - 125                     Monthly            $___            $___              $___              ___%  
             126 - 150                     Monthly            $___            $___              $___              ___%  
             151 - 175                     Monthly            $___            $___              $___              ___%  
             176 - 200                     Monthly            $___            $___              $___              ___%  
             201 - 225                     Monthly            $___            $___              $___              ___%  
             226 - 250                     Monthly            $___            $___              $___              ___%  
             251 - 275                     Monthly            $___            $___              $___              ___%  
             276 - 300                     Monthly            $___            $___              $___              ___%  
             301 - 350                     Monthly            $___            $___              $___              ___%  
             351 - 400                     Monthly            $___            $___              $___              ___%  
             401 - 450                     Monthly            $___            $___              $___              ___%  
             451 - 500                     Monthly            $___            $___              $___              ___%  
       Unit Price for Over 500 Units       Monthly            $___            $___              $___              ___%  
                                                                                     
HOME AND       1 -  25                     Monthly            $___            $___              $___              ___%
GARDEN TV     26 -  50                     Monthly            $___            $___              $___              ___%  
              51 -  75                     Monthly            $___            $___              $___              ___%  
              76 - 100                     Monthly            $___            $___              $___              ___%  
             101 - 125                     Monthly            $___            $___              $___              ___%  
             126 - 150                     Monthly            $___            $___              $___              ___%  
             151 - 175                     Monthly            $___            $___              $___              ___%  
             176 - 200                     Monthly            $___            $___              $___              ___%  
             201 - 225                     Monthly            $___            $___              $___              ___%  
             226 - 250                     Monthly            $___            $___              $___              ___%  
             251 - 275                     Monthly            $___            $___              $___              ___%  
             276 - 300                     Monthly            $___            $___              $___              ___%  
             301 - 350                     Monthly            $___            $___              $___              ___%  
             351 - 400                     Monthly            $___            $___              $___              ___%  
             401 - 450                     Monthly            $___            $___              $___              ___%  
             451 - 500                     Monthly            $___            $___              $___              ___%  
       Unit Price for Over 500 Units       Monthly            $___            $___              $___              ___%  
</TABLE>





                                                                         
<PAGE>   51
               COMMITTED MEMBER RESIDENCE PROGRAMMING - EXHIBIT H

                  SMATV (APARTMENTS, CONDOMINIUMS, TOWNHOUSES)

SMATV - SPECIAL CONDITIONS

SMATV Applications use Subscriber Units Per Property instead of Fire Code
Occupancy These are defined as follows:

<TABLE>
<S>                       <C>
DORMITORY ROOMS           Total number of televisions on site
APARTMENTS                Total number of units (apartments)
CONDOMINIUMS              Total number of units (condominiums)
TOWNHOUSES                Total number of units (townhouses)
CONVALESCENT  HOUSES      Total number of televisions on site
</TABLE>

SMATV applications can only include multiple dwelling units (MDU's) such as
apartments, condominiums and townhouses if the service is distributed to 100%
of the units. 

All SMATV applications are to be "Free To Guest" (FTG) - (i.e. no separate 
charge for the services) 

Pay-Per-View is not available to SMATV applications

A minimum of 4 (four) A La Carte Services must be purchased

Members must price at DIRECTV national pricing.

SMATV Subscribers with over 500 units will be charged the per unit rate.
Member margin will be the same percent on a per unit basis as in the tiered
levels.





                                                                         
<PAGE>   52
                                                                       EXHIBIT H

                    COMMITTED MEMBER RESIDENCES PROGRAMMING

                                  PAGE 3 OF 3

         All terms and conditions contained in the Programming agreements are
         material to this Agreement and shall be binding on Member.

         NRTC is not the originator of the Programming and has no control over
         the content or subject matter of the Programming being delivered.
         NRTC makes no representation or warranties whatsoever concerning the
         content of the Programming.

         If any programming services are included in the Programming pursuant
         to a compulsory copyright license under 17 U.S.C. 119(d) (or any
         similar or successor statute), Member acknowledges and agrees that
         these programs may only be provided to households that qualify as
         "Unserved Households" (as defined by 17 U.S.C. 119(d) (10) or similar
         or successor statute).  Members shall provide information regarding
         Unserved Households in the form requested by NRTC.

         NRTC reserves the right with the exercise of good faith and reasonable
         business judgment, to substitute or to change the programming or to
         modify the terms and conditions of the programming and to modify any
         of the terms and condition and fees of this Exhibit H upon notice to
         Member.





                                                                         
<PAGE>   53
                                                                       EXHIBIT H


PROGRAMMING RATE CARD

                          TO BE DETERMINED.





                                                                         
<PAGE>   54
                                                                   (EXHIBIT H-1)

                     COMMERCIAL ESTABLISHMENTS PROGRAMMING


PRIVATE VIEWING

<TABLE>
<CAPTION>
         PACKAGE                  RETAIL           WHOLESALE COST   MBR. MARGIN      MARGIN %
         -------                  ------           --------------   -----------      --------
<S>                          <C>                 <C>               <C>               <C>
1. OFFICE ENTERTAINMENT           $___/Mo              $___/Mo       $___/Mo          ___%

2. OFFICE INFORMATION              ___                  ___           ___             ___%

3. OFFICE PLUS                     ___                  ___           ___             ___%

         A La Carte
         ----------

         STARZ!                    ___/Mo               ___/Mo        ___/Mo          ___%
                                   ___/Yr               ___/Yr        ___/Yr          ___%

         Playboy                   ___/Mo               ___/Mo        ___/Mo          ___%
                                   ___/Yr               ___/Yr        ___/Yr          ___%         

         TV Asia                   ___/Mo               ___/Mo        ___/Mo          ___%         
                                   ___/Yr               ___/Yr        ___/Yr          ___%      

         Golf                      ___/Mo               ___/Mo        ___/Mo          ___%    
                                   ___/Yr               ___/Yr        ___/Yr          ___%

         NFL Sunday Ticket         ___/Season           ___/Season    ___/Season      ___%
         [Non-Select]

         Movies                    ___                  ___           ___             ___%

         PBTV Night                ___                  ___           ___             ___%

         Special Events           Residential Rate/Margin
         Additional IRD's         No Mirroring
         PPV Phone Orders         Member Sets Rate
</TABLE>


Note:            Each DSS receiver located in an office (3 Private Viewing
                 Packages) will require a separate subscription.  (I.e., no
                 mirroring, allowed.)





                                                                         
<PAGE>   55
                 The 3 Private Viewing Packages require telephone connection
                 with business telephone line for A La Carte Sports Services.

                 The OPPV fee waived for special events where IPPV is not
                 offered in the 3 Private Viewing packages.

                 The following services are not available to the 3 Private
                 Viewing Packages:

                          o       TBS
                          o       Prime Time 24
                          o       PPV Coupon

                 STARZ! is not available with the Office Information Package.
                 All other A La Carte services are available with all of the
                 above packages.





                                                                         
<PAGE>   56
                                                                   (Exhibit H-1)

PUBLIC VIEWING

<TABLE>
<CAPTION>
                        FIRE CODE
PACKAGE                OCCUPANCY     RETAIL                  WHOLESALE COST            MBR. MARGIN    MARGIN %
- --------               ---------     ------                  --------------            -----------    --------
<S>                    <C>           <C>                     <C>                      <C>             <C>
Commercial Basic         0-100        ___/Yr                     ___/Yr                    ___/Yr        ___% 
                                      ___/Mo                     ___/Mo                    ___/Mo        ___% 

Commercial Basic       101-200        ___/Yr                     ___/Yr                    ___/Yr        ___%      
                                      ___/Mo                     ___/Mo                    ___/Mo        ___% 

Commercial Basic       201-600        ___/Yr                     ___/Yr                    ___/Yr        ___% 
                                      ___/Mo                     ___/Mo                    ___/Mo        ___%             

Commercial Basic       601-2000       ___/Yr                     ___/Yr                    ___/Yr        ___%           
                                      ___/Mo                     ___/Mo                    ___/Mo        ___%            

Commercial Basic         2000 +       ___/Yr                     ___/Yr                    ___/Yr        ___%            
                                      ___/Mo                     ___/Mo                    ___/Mo        ___%             
</TABLE>



             A LA CARTE - Same For All Commercial Basic Packages

<TABLE>
<S>                      <C>          <C>                        <C>                      <C>           <C>
ESP/ESPN2                 ALL         ___/Yr                     ___/Yr                    ___/Yr        ___% 

TNT                      0 - 50       ___/Yr                     ___/Yr                    ___/Yr        ___% 
                        51 - 200      ___/Yr                     ___/Yr                    ___/Yr        ___% 
                          200+        ___/Yr                     ___/Yr                    ___/Yr        ___%                      

Music Choice              ALL         ___/Yr                     ___/Yr                    ___/Yr        ___%     

TV ASIA                   ALL         ___/Yr                     ___/Yr                    ___/Yr        ___%                      

Golf                      ALL         ___/Yr                     ___/Yr                    ___/Yr        ___% 

NFL 1995                0 - 50        ___/Season                 ___/Season                ___           ___%
[Non-Select]           51 - 100       ___/Season                 ___/Season                ___           ___%
                      101 - 200       ___/Season                 ___/Season                ___           ___%
                      201 - 600       ___/Season                 ___/Season                ___           ___%
                      601 - 2000      ___/Season                 ___/Season                ___           ___%
                     2001 - 5000      ___/Season                 ___/Season                ___           ___%
                     5001 - 10000     ___/Season                 ___/Season                ___           ___%
                        10000 +       ___/Season                 ___/Season                ___           ___%

Oil Rigs                              ___/Season                 ___/Season                ___           ___%
</TABLE>





                                                                         
<PAGE>   57
The following services are not available to the Public Viewing Packages
(Commercial Basic).

                  o        Disney
                  o        Multichannel Encore (1-7)
                  o        TBS
                  o        PrimeTime 24
                  o        STARZ!
                  o        Playboy TV
                  o        NBA League Pass
                  o        Regional sports (local & out of market)
                  o        PPV Movies
                  o        Special Events (unless rights required)
                  o        PPV Coupon
                  o        NHL Center Ice

Note:    Currently Member must price at DIRECTV national pricing.  As local
         pricing control becomes available the member's commercial wholesale
         rates will increase if the member sets commercial retail rates higher
         than the DIRECTV national pricing.





                                                                         
<PAGE>   58
                                                                       EXHIBIT I

OUTAGE CREDITS

         THIS EXHIBIT SUMMARIZES OUTAGE PROVISIONS CONTAINED IN THE HCG
AGREEMENT.  NOT ALL DETAILS IN THE HCG AGREEMENT RELATED TO OUTAGES ARE
DESCRIBED IN THIS EXHIBIT.  CAPITALIZED TERMS USED IN THIS EXHIBIT HAVE THE
MEANING GIVEN THEM IN THE HCG AGREEMENT.

                                   *   *   *

         I.      Outage Credits

         (a)     A "Transmission Outage" means the failure after the Service
                 Commencement Date of a channel to meet certain transmission
                 minimum requirements due to a failure of a component of the
                 Transponder Capacity, TT&C Services, or Transmission Services.
                 If a Transmission Outage occurs and the corresponding Outage
                 Period exceeds thirty (30) consecutive minutes, then NRTC
                 shall be entitled to receive a credit for each channel
                 experiencing a Transmission Outage in an amount equal to the
                 product of (x) the sum of the then-current monthly Ground
                 Services Fee and TT&C Fee for one channel (in dollars)
                 multiplied by (y) the outage Period (in minutes) and divided
                 by (z) 43,___0 (i.e., the number of minutes in a thirty-day
                 month).  In the case where the Ground Services Fees and TT&C
                 Fees are paid on a per Authorized Subscriber basis, the fees
                 associated with a single channel shall be calculated by HCG by
                 dividing the fee amounts by the number of channels provided
                 immediately prior to the outage.  Such outage credit shall be
                 applied against the Ground Services Fee and the TT&C Fee due
                 for the month(s) immediately following the month in which the
                 Transmission Outage occurs.

         (b)     An "Access Control Outage" means the failure after the Service
                 Commencement Date of a component of the Access Control
                 Services to meet certain access control minimum requirements.
                 If an Access Control Outage occurs and the corresponding
                 Outage Period exceeds forty-eight (48) consecutive hours, then
                 NRTC shall be entitled to receive a credit in an amount equal
                 to the product of (x) the aggregate of the then-current
                 monthly Ground Services Fee for three Program Channels (in
                 dollars) multiplied by (y) the Outage Period (in minutes) and
                 divided by (x) 43,___0 (i.e., the number of minutes in a
                 thirty-day month).  In the case where the Ground Services Fees
                 are paid on a per Authorized Subscriber basis, the fees
                 associated with a single channel shall be calculated by HCG by
                 dividing the then-current fee amounts by the number of
                 channels provided immediately prior to the outage.  Such
                 Outage Credit shall be applied against Ground Services Fees
                 due for the months immediately following the month(s)
                 immediately following the month in which the Access Control
                 Outage occurs.

         (c)     The "Outage Period" associated with a Transmission Outage or
                 Access Control Outage means the period of time commencing on
                 the earlier of such time as an operational manager of HCG
                 becomes aware of, or NRTC notifies HCG of, such Outage and
                 ending at such time as the services are restored such that
                 they meet the relevant minimum requirements.

         (d)     A Transmission Outage or Access Control Outage shall not be
                 deemed to have occurred if a failure of a component of the
                 Transponder Capacity TT&C Services, Transmission Services or
                 Access Control Services (a "Component") to meet the applicable
                 minimum requirements is (i) caused by any action or inaction
                 of NRTC or any of NRTC's Members, Affiliates, or agents, (ii)
                 related to any failure or misoperation of subscriber terminal
                 equipment or any component thereof, (iii) related to any
                 weather event or any other circumstances (including, without
                 limitation, sun outage effects) occurring in the transmission
                 path between the Satellite and reception equipment, (iv)
                 related to any interference generated from any sources other
                 than the HCG Frequencies or the users of such frequencies, or
                 (v) related to the quality or availability of the C-Band
                 downlink or other source signal for the channels.

         (e)     In no event shall any outage credits exceed the amount of the
                 Ground Services Fee (and/or TT&C Fee, as appropriated)
                 actually paid for the corresponding Outage Period.





                                                                         
<PAGE>   59
REFUNDS                                                                EXHIBIT J

         THIS EXHIBIT SUMMARIZES REFUND PROVISIONS CONTAINED IN THE HCG
AGREEMENT.  NOT ALL DETAILS IN THE HCG AGREEMENT RELATED TO REFUNDS ARE
DESCRIBED IN THIS EXHIBIT.  CAPITALIZED TERMS USED IN THIS EXHIBIT HAVE THE
MEANING GIVEN THEM IN THE HCG AGREEMENT.

                                   *   *   *

1.       HCG REFUND TO NRTC

         (a)     If on or after April 1, 1994, the Transponder Capacity is
                 Available and other components of the DBS Distribution
                 Services (i.e., the Ground Services, the TT&C Services, the
                 Security Services, and/or the Programming Services) have not
                 completed Acceptance, the NRTC may terminate this Agreement
                 and HCG shall provide NRTC with a Complete Refund.

         (b)     If all ___ Program Channels are not available on the Service
                 Commencement Date, then NRTC shall have the right to partially
                 terminate the HCG Agreement as to the undelivered channels
                 (and receive a Partial Refund).  If NRTC chooses not to accept
                 delivery of fewer than ___ channels and HCG is not able to
                 deliver all ___ Cable Programs by December 31, 1997, then
                 either NRTC or HCG may terminate the HCG Agreement and HCG
                 shall provide NRTC with a Complete Refund.

         (c)     If all ___ Program Channels are available on the Service
                 Commencement Date and HCG is unable at a later date to
                 continue provision of all ___ channels, NRTC shall have the
                 right to partially terminate the HCG Agreement as to any
                 channels that are no longer provided, and HCG shall provide
                 NRTC with a Partial Refund for such non-provided channels.

         (d)     If the Service Commencement Date does not occur on or before
                 December 31, 1997 (the "Rescission Date"), then NRTC or HCG
                 may terminate the HCG Agreement and HCG shall provide NRTC
                 with a Complete Refund.

         (e)     If an Outage Period associated with a Transmission Outage
                 exceeds ten (10) consecutive days or twenty (___) Outage Units
                 occur in any consecutive thirty (30) day period, or if the
                 Outage Period associated with an Access Control Outage exceeds
                 sixty (60) consecutive days, then NRTC shall have the right to
                 partially terminate the HCG Agreement.  An "Outage Unit" means
                 a failure to meet the Transmission Minimum Requirements due to
                 a Transponder Capacity failure for fifteen (15) or more
                 minutes in any one day.  If such termination occurs on or
                 before the tenth anniversary of the Service Commencement Date,
                 NRTC shall be entitled to a Partial Refund for each terminated
                 Program Channel.

         (f)     If after April 1, 1994, the Service Commencement Date has not
                 occurred and HCG has determined, based on demonstrable facts,
                 that events have occurred that make it impossible for HCG to
                 cause the Service Commencement Date to occur by the Rescission
                 Date HCG may, at its option, provide notice to NRTC of NRTC's
                 Rescission Option.  NRTC shall notify HCG of its termination
                 of its obligations within ninety (90) days following HCG's
                 notice, or such Rescission Option shall expire.  If NRTC
                 exercises its Rescission Option, then HCG shall provide NRTC
                 with a Complete Refund.  If NRTC does not exercise the
                 Rescission Option, then HCG may terminate the HCG Agreement
                 and provide NRTC with a Complete Refund.

         (g)     NRTC also is entitled to a Complete or Partial Refund, as
                 appropriate, if:





                                                                         
<PAGE>   60
                 (x)      HCG fails to perform or observe in any material
                          respect any material covenant, condition or agreement
                          to be performed or observed by it under the HCG
                          Agreement and such failure continues unremedied;

                 (y)      Any representation or warranty made by HCG in the HCG
                          Agreement was incorrect in any material respect at
                          the time made and continues unremedied; or

                 (z)      HCG consents to bankruptcy proceedings.

         (h)     "Complete Refund" means HCG's refund to NRTC of all Committed
                 Member Payments actually paid to HCG, and not previously
                 refunded to NRTC.

         (i)     "Partial Refund" means HCG's refund to NRTC of an amount equal
                 to the product of (x) a fraction of whose numerator is the
                 refund period and whose denominator is 3,6___ days multiplied
                 by (y) a fraction whose numerator is the aggregate of the
                 Committed Member Payments actually paid to HCG and whose
                 denominator is ___, multiplied by (z) the number of Program
                 Channels for which a Partial Refund is due (i.e., Partial
                 Refunds are issued per channel and are based on a satellite
                 life expectancy of 10 years).





                                                                         
<PAGE>   61
                                                                       EXHIBIT K
                             NRTC REMITTANCE SYSTEM
 
                                NRTC Obligations

                 NRTC shall perform certain of the remittance processing and
collection obligations ("RPC Obligation(s)"), at a minimum, in accordance with
the performance and service standards set forth in this Exhibit K.  As used
herein, "NRTC" shall mean any person performing any of RPC Obligations set
forth in this exhibit, including without limitation, NRTC or any contractor or
subcontractor of NRTC.

                 a.       General Requirements.

                 1.       Basic processing.  Basic processing includes the
                          following services:

                          (a)     Transaction processing, including, encoding
                                  of checks, money orders and other drafts
                                  ("Checks") and document scanning;

                          (b)     Creation of a host update record (i.e.,
                                  customer payment information file that
                                  contains listings of payment transactions);
                                  and

                          (c)     Archiving copies of Remittances, Billing
                                  Documents and other documents contained in a
                                  Remittance Envelope.

"Remittance" shall mean payments of any type and by any means made by a
Subscriber for any DBS services.  "Billing Documents" shall mean that portion
of a Subscriber's billing statement which is enclosed and returned by such
Subscriber with Remittance.  "Remittance Envelope" shall mean any envelope
containing a Remittance.

                 b.       Processing Time - Scannable Items.  98% of all items,
which are processed under NRTC's standard remittance-processing methodology, by
means of OCR (Optical Character Reader) or other technology which performs at
the same or better performance levels than OCR ("Scannable Items"), shall be
processed and made ready for transmission no later than 24 hours after the
Remittances are collected every day of the year, and 100% of all such Scannable
Items shall be processed and made ready for transmission no later than 48 hours
after the Remittances are collected every day of the year.  NRTC shall be in
non-compliance with these performance and service standards if it fails to
comply with such 24 and/or 48-hour processing time requirements more than two
times in any consecutive 30-day period.

                 c.       Processing Time - Non-Scannable Items.  98% of all
non-Scannable items ("NonScannable Item") shall be processed and made ready for
pickup by overnight courier to NRTC no later than 24 hours after the
Remittances are collected every day of the year, and 100% of all such
Non-Scannable Items shall be processed and made ready for pick up by overnight





                                                                         
<PAGE>   62
courier no later than 48 hours after the Remittances are collected every day of
the year.  NRTC shall be in noncompliance with these performance and service
standards if it fails to comply with such 24 and/or 48-hour processing time
requirements more than two times in any consecutive 30-day period.

                 d.       Processable Checks.  The following types of Checks
("Processable Checks") shall be processable in the regular course of business
and with the following additional and/or other steps, as applicable:

                          1.      Checks with restrictive notations, including
                                  but not limited to those marked "Paid in
                                  Full," shall be processed in the regular
                                  course.

                          2.      Checks not completed shall be handled as
                                  follows:

                                  (a)      If the date is missing, NRTC shall 
                                  process the Check in the regular course.

                                  (b)      If the payee is missing, NRTC shall
                                  enter the Member's name and thereafter
                                  process the Check in the regular course.

                                  (c)      If the numerical amount of the Check
                                  is missing, NRTC shall rely upon and
                                  key-enter the spelled-out amount and
                                  thereafter process the Check in the regular
                                  course.

                                  (d)      If the spelled-out amount of the
                                  Check is missing, NRTC shall rely upon and
                                  key-enter the numerical amount and thereafter
                                  process the Check in the regular course.

                                  (e)      If the signature of the maker is
                                  missing, NRTC shall process the Check in the
                                  regular course.

                          3.      Checks showing different numerical and
                                  spelled-out  amounts shall be processed for
                                  the amount, if any, that matches the "amount
                                  due" on the Remittance.  If all amounts are
                                  different, NRTC shall process the Check for
                                  the written amount stated on the Check.

                          4.      Post-dated and pre-dated Checks shall be 
                                  processed in the regular course.

                          5.      NRTC shall repair the Check where Magnetic
                                  Ink Character Recognition ("NHCR") lines are
                                  damaged and thereafter shall process it in
                                  the regular course.





                                                                         
<PAGE>   63
                          6.      Foreign checks drawn in U.S. dollars shall 
                                  be processed in the regular course.

                          7.      Multiple-party Checks where the original
                                  payee specifies the person to whom or to
                                  whose order the Check is payable and where
                                  the other payees have properly endorsed the
                                  check by signature shall be processed in the
                                  regular course.

                 e.       Unprocessable Items.  The following types of items
shall be deemed unprocessable ("Unprocessable Items") and shall require further
handling by Member:

                          1.      Canceled Checks.

                          2.      Checks written in pencil.

                          3.      Improperly endorsed multiple party Checks.

                          4.      Checks where all information is left blank.

                          5.      Checks where both the numerical and the 
                                  written amounts are left blank.

                 f.       Exception Remittances.  The following items shall be
deemed exceptions ("Exception Remittance(s)") and shall be processed using
NRTC's standard Exception Remittance processing methodology:

                          1.      OCR Rejections.  Exception Remittances shall
                                  include OCR rejections in excess of 15% of
                                  aggregate Remittances per month, excluding
                                  however, any documents which NRTC chooses to
                                  print the OCR scan lines.

                          2.      Odd Payments.  Any Remittance where the total
                                  amount of the Check(s) in the Remittance
                                  Envelope does not match the corresponding
                                  amount on the accompanying Billing Documents
                                  by $5.00 or more.  NRTC may change the dollar
                                  discrepancy amount whereby a Remittance is
                                  included as an Exception Remittance in its
                                  sole discretion.

                          3.      Foreign Checks.  Any foreign Checks drawn in
                                  foreign currency.  Such foreign checks shall
                                  require further handling by NRTC.

                 g.       Errors.  The number of Errors shall not exceed 0.8
Errors per 10,000 Remittances received, processed, deposited or otherwise
handled by NRTC.  "Error(s)" means any failure by NRTC to comply with those RPC
Obligations set forth in this Exhibit K. NRTC shall correct any and all Errors
within 24 hours after either: (a) NRTC knows or has reason to know of such
Errors or (b) Member notifies NRTC of the Errors.





                                                                         
<PAGE>   64
                 h.       Correspondence.  NRTC shall separate change of
address information from all other correspondence (miscellaneous customer
letters, messages, notes and any remittance documents with customer written
comments not pertaining to address changes).  NRTC shall forward on a timely
basis all such correspondence to Member.

                 i.       Check Photocopy Requests.  Member may request a
facsimile of Checks and Billing Documents and other documents contained in a
Remittance Envelope as archived on microfilm or paper.  If Member provides a
document identification number ("DIN") and processing date for each item of
which it wishes a facsimile, then NRTC shall provide to Member the printed
facsimiles) as soon as reasonably possible.  If Member does not provide a DIN
and processing date for each item of which it wishes a facsimile, then NRTC
shall provide timely to Member the printed facsimiles) as available.

                 j.       RPC Obligation Performance.  NRTC will use its
reasonable best efforts to ensure that any and all contractors and/or
subcontractors perform in compliance with this Exhibit K, including,
transitions to alternate contractors or subcontractors, if necessary.  In the
event of any nonperformance by any contractors or subcontractors, NRTC will
enforce all remedies available to it under all contracts with such contractors
or subcontractors for the benefit of NRTC and its Members.  If NRTC breaches or
fails to perform any material RPC Obligation, Member may in its sole discretion
and upon thirty (30) days written notice to NRTC, including therein a ten (10)
day period for NRTC to cure. immediately change to the Member Remittance System
described in Exhibit K-1 of this Agreement, and, under such circumstances such
change shall be deemed to have been made in accordance with Sections 3(c)(1)
and (2) of the Agreement.





                                                                         
<PAGE>   65
                 By electing below and returning this form to NRTC, Member
elects to use the collection and remittance process or methodology ordinarily
and customarily used by Member ("Member Remittance System") to collect and
process Subscriber payments.  Member shall make this election by placing a
check mark and the initials of Member's authorized representative as set forth
below:

                          Mark         Initials

                                                  Member Remittance System
                          ----         -----------

                          Member Name: 
                                       -------------------------               
                                                      
                          Address: 
                                   -----------------------------

                          --------------------------------------
                                    
                          Contact Name: 
                                        ------------------------     
                          Today's Date: 
                                        ------------------------     

                          Requested Effective Date:
                                                   -------------   



<PAGE>   66
                                   SCHEDULE I

                             NRTC Member Agreements:

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
         dated July 12, 1993, as amended, and assigned to the Company pursuant
         to an Application for Assignment effective as of November 20, 1996.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and TV Tennessee, Inc. (formerly Rural TV Tennessee, Inc.)
         dated July 12, 1993, as amended, assigned to Aurora Cable TV, Inc.,
         pursuant to an Application for Assignment effective as of June 30,
         1996, and assigned to the Company pursuant to an Application for
         Assignment effective as of November 15, 1996.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
         as amended, assigned to Images DBS Kansas, LLC pursuant to an
         Application for Assignment dated as of May 23, 1994, and assigned to
         the Company pursuant to an Application for Assignment effective as of
         February 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Totah Telephone Company, Inc. dated October 16, 1992,
         as amended, assigned to Images DBS Oklahoma, LLC pursuant to an
         Application for Assignment dated as of May 23, 1994, and assigned to
         the Company pursuant to an Application for Assignment effective as of
         February 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Direct Satellite TV, Limited dated June 3, 1993, as
         amended, and assigned to the Company pursuant to an Application for
         Assignment effective as of February 19, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Thunderbolt Systems, Inc. dated August 10, 1992, as
         amended, and assigned to the Company pursuant to an Application for
         Partial Assignment effective as of March 11, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Deep East Texas Telecommunications, Inc. dated April
         30, 1993, as amended and assigned to the Company pursuant to an
         Application for Assignment effective as of April 11, 1997.

<PAGE>   67

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Hickory Tech Corporation dated July 23, 1993, as
         amended and assigned to the Company pursuant to an Application for
         Assignment effective as of July 15, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Western Montana DBS, Inc., d/b/a Rocky Mountain DBS,
         dated May 4, 1993, as amended, and assigned to the Company pursuant to
         a Partial Application for Assignment effective as of May 1, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Coast Satellite TV dated December 16, 1992, as
         amended, assigned to TEG - DBS Services, Inc. pursuant to an 
         Application for Assignment dated as of November 23, 1994 and assigned 
         to the Company pursuant to an Application for Assignment effective as
         of June 12, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and GVEC Rural; TV, Inc. dated July 8, 1997, as amended
         and assigned to the Company pursuant to an Application for Assignment
         effective as of July 8, 1997.

         NRTC/Member Agreements for Marketing and Distribution of DBS Services
         between NRTC and Argos Support Services Company, formerly Argos Direct
         Broadcast Satellite Services dated July 16, 1994 and October 20, 1994,
         as amended and assigned to the Company pursuant to an Application for
         Assignment effective as of August 8, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Satellite Entertainment, Inc. dated January 29, 1993,
         as amended and assigned to the Company pursuant to an Application for
         Assignment effective as of July 14, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Jackson Electric Cooperation, Inc. dated August 19,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of August 26, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Gardonville Systems, Inc. d/b/a Lakes Area TV dated
         September 30, 1992, as amended, assigned to the Company pursuant to an
         Application for Assignment effective as of September 2, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and DBS, LC dated July 13, 1993, as amended, assigned to
         the Company pursuant to an Application for Assignment effective as of
         November 17, 1997.

<PAGE>   68


         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Dunn County Electric Cooperative, Inc. dated September
         30, 1992, as amended, assigned to the DCE Satellite Entertainment, LLC
         pursuant to an Application for Assignment effective as of October 14,
         1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and CTS Communications Corporation dated December 4, 1992,
         as amended, assigned to the Company pursuant to an Application for
         Assignment effective as of November 7, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Panora Telecommunications, Inc. dated September 24,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of November 20, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Souris River Telecommunications Cooperative dated July
         1, 1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of November 21, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Cal-Ore Digital TV, Inc. dated July 29, 1993, as
         amended, assigned to the Company pursuant to an Application for
         Assignment effective as of December 9, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Cable & Communications Corporation and Mid-Rivers
         Telephone Cooperative, Inc. dated June 3, 1992, as amended, assigned to
         the Company pursuant to an Application for Assignment effective as of
         December 24, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Missoula Electric Cooperative, Inc. dated November 17,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of December 22, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Lakeland DBS, Inc. dated October 30, 1992, as amended,
         assigned to the Company pursuant to an Application for Assignment
         effective as of December 29, 1997.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Nemont Communications, Inc. dated July 6, 1992, as
         amended, assigned to the Company pursuant to an Application for
         Assignment effective as of January 14, 1998.

<PAGE>   69

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Triangle Communication System, Inc. dated June 8,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of January 20, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Wyoming Mutual Telephone Company dated December 2,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of January 21, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Northwest Communications Cooperative dated June 29,
         1992, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of March 6, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and North Willamette Telecom, Inc. dated November 3, 1992,
         as amended, assigned to the Company pursuant to an Application for
         Assignment effective as of March 10, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and Beulahland Communications, Inc. d/b/a Sangre De Cristo
         DBS dated June 8, 1992, as amended, assigned to the Company pursuant to
         an Application for Assignment effective as of March 19, 1998.

         NRTC/Member Agreement for Marketing and Distribution of DBS Services
         between NRTC and SCS Communications & Security, Inc. dated January 1,
         1993, as amended, assigned to the Company pursuant to an Application
         for Assignment effective as of April 21, 1998.






<PAGE>   1
                                                                   EXHIBIT 10.15


                            GOLDEN SKY SYSTEMS, INC.

                CONFIDENTIALITY AND PROPRIETARY RIGHTS AGREEMENT


Employee Name:    John R. Hager

Date:             August 24, 1998


         In consideration of my employment by Golden Sky Systems, Inc. (the
"Company"), I, the above-named Employee, hereby agree with the Company as
follows.

         1.       Definitions

                  (a)    Proprietary Information. As used in this Agreement,
"Proprietary Information" means information which the Company possesses or to
which the Company has rights which has commercial value. Proprietary Information
includes, by way of example and without limitation, trade secrets, product
ideas, designs, configurations, processes, techniques, formulas, software,
improvements, inventions, data, know-how, copyrightable materials, marketing
plans and strategies, sales and financial reports and forecasts, and customer
lists. Proprietary Information includes information developed by me in the
course of my employment by the Company or otherwise relating to Inventions which
belong to the Company under Section 4 below, as well as other information to
which I may have access in connection with my employment.

                  (b)    Inventions and Developments. As used in this Agreement,
"Inventions and Developments" means any and all inventions, developments,
creative works and useful ideas of any description whatsoever, whether or not
patentable. Inventions and improvements which consist of or relate to any form
of Proprietary Information.

                  (c)    Company-Related Inventions and Developments. For
purposes of this Agreement, "Company-Related Inventions and Developments" means
all Inventions and Developments which either (a) relate at the time of
conception or development to the actual or demonstrably anticipated business of
the Company or to its actual or demonstrably anticipated research and
development; (b) result from or relate to any work performed for the Company,
whether or not during normal business hours; (c) are developed on Company time;
or (d) are developed through the use of the Company's Proprietary Information,
equipment and software, or other facilities or resources.

                  (d)    Company. For purposes of this Agreement, all references
to the "Company" will be deemed to include the Company and its direct or
indirect subsidiaries and affiliates.


<PAGE>   2
 
         2.   Confidentiality. I understand and agree that my employment creates
a relationship of confidence and trust between me and the Company with respect
to (a) all Proprietary Information, and (b) the confidential information of
others with which the Company has a business relationship. The information
referred to in clauses (a) and (b) of the preceding sentence is referred to in
this Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision.

         3.   Documents, Records, etc. All documents, records, apparatus,
equipment and other physical property, whether or not pertaining to Proprietary
Information, which are furnished to me by the Company or produced by me in
connection with my employment will be and remain the sole property of the
Company. I will return to the Company all such materials and property as and
when requested by the Company. In any event, I will return all such materials
and property immediately upon termination of my employment for any reason. I
will not take with me any such material or property or any copies thereof upon
such termination.

         4.   Ownership of Inventions and Developments. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company any proprietary rights which I may have or acquire in any such
Company-Related Inventions and Developments, and I waive any moral rights or
other special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which are conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing evidence. The provisions of this Section 4 will not apply,
however, to any Inventions and Developments which may be disclosed in a separate
Schedule attached to this Agreement prior to its acceptance by the Company,
representing Inventions and Developments made by me prior to my employment by
the Company.

<PAGE>   3

         5.   Disclosure of Inventions and Developments. I agree promptly to
disclose to the Company, or any persons designated by it, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.

         6.   Obtaining and Enforcing Proprietary Rights. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agents and
attorneys-in-fact to act for me and on my behalf, but only for the purpose of
executing and filing any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.

   
         7.   Third-Party Agreements and Rights. I represent to the Company that
my execution of this Agreement, my employment with the Company and the
performance of my proposed duties for the Company will violate any obligations I
may have to any previous employer or other party. In my work for the Company, I
will not disclose or make use of any information in violation of any agreements
with or rights of any previous employer or other party, and I will not bring to
the premises of the Company any copies of other tangible embodiments of
non-public information belonging to or obtained from any such previous
employment or other party.
    

         8.   Injunction. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
promises set forth in this Agreement, and that in any event money damages would
be an adequate remedy for any such breach. Accordingly, I agree that if I
breach, or propose to breach, any portion of this Agreement, the Company shall
be entitled, in addition to all other remedies that it may have, to an
injunction or other appropriate equitable relief to restrain any such breach
without showing or proving any actual damage to the Company.

         9.   Binding Effect. This Agreement will be binding upon me and my
heirs, executors, administrators and legal representatives and will inure to the
benefit of the Company, and any subsidiary of the Company, and its and their
respective successors and assigns.


<PAGE>   4
         10.   Enforceability. If any portion or provision of this Agreement is
to any extent declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, will not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law. In the event that any provision of this
Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of excessive scope as to geographic, temporal or
functional coverage, such provision will be deemed to extend only over the
maximum geographic, temporal and functional scope as to which it may be
enforceable.

         11.   Entire Agreement. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter. This Agreement may not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.

         12.   Notices. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.

         13.   Governing Law. This is a Missouri contract and shall be construed
under and be governed in all respects by the laws of the State of Missouri.


<PAGE>   5



         I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ
IT CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.




                                                 /s/ John R. Hager
                                                 ------------------------------
                                                 John R. Hager


ACCEPTED AND AGREED TO BY
GOLDEN SKY SYSTEMS, INC.



By: /s/ Rodney A. Weary
- ------------------------------

Name:       Rodney A. Weary
Title:      President

Date:       August 24, 1998


<PAGE>   6



                          SCHEDULE OF PRIOR INVENTIONS


Employee Name:    John R. Hager

Date:             August 24, 1998



NONE








                                                 /s/ John R. Hager
                                                 ------------------------------
                                                 John R. Hager




ACCEPTED BY
GOLDEN SKY SYSTEMS, INC.



By: Rodney A. Weary
- ------------------------------
Name:  Rodney A. Weary
Title: President



<PAGE>   1

   
                                                                        Ex. 23.2

              CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the Registration Statement.



/s/ KPMG Peat Marwick LLP

December 23, 1998
Kansas City, Missouri
    

<PAGE>   1
                                                                    EXHIBIT 23.3


                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT

As independent public accountants, we hereby consent to the use of our reports 
and to all references to our firm included in or made part of the Registration 
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which 
this Exhibit forms a part.


/s/ Eide Bailly LLP

   
December 23, 1998
Sioux Falls, South Dakota
    

<PAGE>   1
                                                                    EXHIBIT 23.4

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.

   
                                                     /s/ LOUCKS & GLASSLEY, pllp
    

   
Great Falls, Montana
December 23, 1998
    

<PAGE>   1
                                                                    EXHIBIT 23.5

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. of which this Exhibit forms a
part.

                                   /s/ BOLINGER, SEGARS, GILBERT & MOSS, L.L.P.
                                   Certified Public Accountants

   
Lubbock, Texas
December 23, 1998
    

<PAGE>   1
                                                                    EXHIBIT 23.6

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. of which this Exhibit forms a
part.

                                       CHMS, P.C.

                                       By: /s/ Rocky L. Torgeson

   
Sidney, Montana
December 23, 1998
    

<PAGE>   1



                                                                   EXHIBIT 23.7

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made part of the Registration
Statement on Form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which
this Exhibit forms a part.


                         /s/  Aldrich, Kilbride & Tatone LLP


   
Salem, OR
December 23, 1998
    



<PAGE>   1
                                                                    EXHIBIT 23.8



                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


   
As independent public accountants, we hereby consent to the use of our report 
dated March 30, 1998, for PrimeWatch, Inc. (and to all references to our firm) 
included in or made part of the Registration Statement on Form S-4 of Golden Sky
Systems, Inc. (Registration File No. 333-64367 Amendment No. 1 dated 
November __, 1998).
    


   
                                          /s/ Arthur Andersen LLP
    

   
Raleigh, North Carolina,
  December 23, 1998.
    

<PAGE>   1



                                                                   EXHIBIT 23.9


                         INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation on Form S-4 (File No. 333-64367) of our report
relating to the audited financial statements of Direct Broadcast Satellite, a
division of Baldwin County Electric Membership Corporation as of December 31,
1997.  We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of the Registration Statement.


                         /s/ Jackson Thornton & Co., P.C.

   
Montgomery, Alabama
December 23, 1998
    


<PAGE>   1
                                                                   EXHIBIT 23.10


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made part of the 
Registration Statement on Form S-4 of Golden Sky Systems, Inc., of which this 
Exhibit forms a part.

                                                  /s/ Moss Adams LLP


   
Stockton, California
December 23, 1998
    


<PAGE>   1
                                                                   EXHIBIT 23.11

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports 
and to all references to our firm included in or made part of the Registration 
Statement on form S-4 of Golden Sky Systems, Inc. (File No. 333-64367) of which 
this Exhibit forms a part.

                                        CURTIS BLAKELY & CO., P.C.

                                        /s/ Curtis Blakely & Co., P.C.
                                        ----------------------------------------

   
Longview, Texas
December 23, 1998
    

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPANY'S
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998.
</LEGEND>
<CIK> 0001070669
<NAME> GOLDEN SKY SYSTEMS, INC.
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               SEP-30-1998
<CASH>                                          81,941
<SECURITIES>                                         0
<RECEIVABLES>                                    7,980
<ALLOWANCES>                                         0
<INVENTORY>                                     10,780
<CURRENT-ASSETS>                                75,057
<PP&E>                                           7,031
<DEPRECIATION>                                 (2,537)
<TOTAL-ASSETS>                                 302,517
<CURRENT-LIABILITIES>                           32,015
<BONDS>                                        247,301
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                      30,470
<TOTAL-LIABILITY-AND-EQUITY>                 (302,517)
<SALES>                                         50,890
<TOTAL-REVENUES>                                50,890
<CGS>                                           29,764
<TOTAL-COSTS>                                   77,192
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              11,966
<INCOME-PRETAX>                               (37,402)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                           (37,402)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                (2,577)
<CHANGES>                                            0
<NET-INCOME>                                  (39,979)
<EPS-PRIMARY>                                        0
<EPS-DILUTED>                                        0
        

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