KABELMEDIA HOLDING GMBH, 10-K, 1998-03-31

KABELMEDIA HOLDING GMBH
10-K, 1998-03-31
CABLE & OTHER PAY TELEVISION SERVICES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended December 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number x-xxxxx

KABELMEDIA HOLDING GMBH
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
FEDERAL REPUBLIC OF GERMANY NOT APPLICABLE
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>

KOLNER STRASSE 6, 65760 ESCHBORN, GERMANY
(Address of principal executive offices)

Registrant's telephone number, including area code: 011-49-6196-926360

The registrant does not have a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934.

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

Yes X No ____________

Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

There is currently no market for the common equity of the registrant. In
particular, there have been no sales of, or average bid or asked prices
available for, the common equity of the registrant during the 60 day period
prior to the date of the filing on this Form 10-K.

The total nominal share capital of the registrant (or of any other limited
liability company or GmbH organized under German law) is expressed as a
particular Deutsch Mark amount. The interests held by the shareholders are
represented by individual shares in the total capital, each of which carries a
Deutsch Mark nominal value (the aggregate of which is the total nominal capital
of the GmbH) and entitles the holder to a proportional share in the capital of
the GmbH. As a result, the registrant does not have a total number of shares
outstanding. As at March 31, 1998, the total nominal share capital of the
registrant was DM10 million.

No documents have been incorporated by reference into this Form 10-K.

Included in this filing are 54 pages, sequentially numbered in the bottom
center of each page.

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KABELMEDIA HOLDING GMBH

FORM 10-K

INDEX

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I.
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 13
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 35
PART III.
Item 10. Directors and Executive Officers of Registrant.............. 35
Item 11. Executive Compensation...................................... 38
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 38
Item 13. Certain Relationships and Related Transactions.............. 40
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 45
</TABLE>

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PART I.

ITEM 1 BUSINESS

The Company acquires, owns and operates cable television systems that serve
primarily medium-and small-sized communities in Germany. Principally as a result
of completing 17 acquisitions since its inception in 1992, the Company owned and
operated cable systems passing approximately 560,000 homes and serving
approximately 420,000 customers as of December 31, 1997.

The Company has followed a systematic approach in acquiring, consolidating
and operating cable television systems, based on the goal of increasing
operating cash flow while maintaining or improving service standards. A key
element of the Company's strategy is to expand its existing regional clusters of
cable television systems and to establish new regional clusters of systems large
enough to serve as cores for new operating regions. In addition, the Company
aggressively consolidates cable systems following their acquisition to improve
operating performance by eliminating duplicative personnel and office locations,
creating regional customer service centers and signal distribution facilities
and centralizing corporate support functions, including accounting, billing,
marketing and administration services.

The Company's cable television systems are organized into six operating
regions: the Plauen Region, the Leipzig Region, the Berlin Region, and the
Dresden Region, all of which are located within the New German States (the
former East Germany), and the Stuttgart Region and the Osnabruck Region both of
which are located within the Old German States (the former West Germany). During
1997 the Company went through a reorganization and transferred approximately
26,000 subscribers from its Leipzig Region to its Plauen Region. This
reorganization better aligns customers within the regions and allows the Company
to better realize its goals while improving customer services. The following
table sets forth certain information relating to the Company's cable television
systems within each of these regions as of December 31, 1997.

<TABLE>
<CAPTION>
PLAUEN LEIPZIG BERLIN DRESDEN STUTTGART OSNABRUCK
REGION REGION REGION REGION REGION REGION TOTAL
------ ------- ------ ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Homes passed....................... 70,697 198,059 76,082 50,681 83,417 81,195 560,131
Customers.......................... 58,316 168,466 65,668 41,295 42,654 44,071 420,470
Penetration(1)..................... 82.5% 85.1% 86.3% 81.5% 51.1% 54.3% 75.0%
</TABLE>

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

(1) Customers as a percentage of homes passes

RECENT DEVELOPMENTS

On January 31, 1997, the Company acquired the shares of Antennen-Lindemann
GmbH ("Lindemann") for total consideration of DM19,229,000, after the assumption
of acquired bank and related obligations, plus closing costs and expenses of
DM525,000. Lindemann passed approximately 21,700 homes and had 19,300 customers
at the acquisition date. Lindemann is included in the Leipzig Region.

On May 30, 1997, Lindemann acquired the assets of Telekommunikation Doebis
Antennenservice ("Doebis") for total consideration of DM3,643,000, after the
assumption of acquired bank and related obligations, plus closing costs and
expenses of DM85,000. Doebis passed approximately 6,100 homes and had 6,100
customers at the acquisition date.

On July 4, 1997, the Company sold its 50% interest in BKG
Breitbandkabelgesellschaft mbH, Neuruppin ("Neuruppin") for total consideration
of DM1,807,000, less closing costs and expenses of DM157,000. Neuruppin passed
4,674 homes and had 4,566 subscribers on the date of sale. Neuruppin was the
Company's only minority interest of any consequence and was previously included
in the Berlin Region.

On December 1, 1997, Kabelmedia acquired the shares of Innocom Schwerin
Kabel-Antennen-und Kommunikationsanlagen Service GmbH ("Innocom") for total
consideration of DM20,740,000, after the assumption of acquired bank and related
obligations, plus closing costs and expenses of approximately

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DM937,000. Innocom passed 35,895 homes and had 34,100 subscribers at the
acquisition date. Innocom is included in the Berlin Region.

NETWORK CONFIGURATION

The Company emphasizes high technological standards in its cable television
systems and considers the application of new technology on the basis of
cost-effectiveness, enhancement of product quality and service delivery and
industry-wide acceptance.

As of December 31, 1997, substantially all of the Company's cable systems
had bandwidths of at least 450MHz, were capable of distributing over 40
channels, and utilized star architecture.

The Company monitors and evaluates new technological developments on the
basis of its ability to make optimal use of its existing assets and to
anticipate the introduction of new services and program delivery capabilities.
The use of fiber optic cable as an enhancement to coaxial cable is playing a
significant role in expanding channel capacity and improving the performance of
cable television systems. Fiber optic cable is capable of carrying hundreds of
video, data and voice channels. Based on discussions with suppliers of equipment
required to implement these technologies, the Company believes that private
cable system operators with which it competes have not implemented fiber optic
technology, except to a limited extent. In 1997, the Company began to deploy
fiber optic technology in one of the largest systems in its Leipzig Region. By
1999, the Company plans to consolidate approximately 70,000 subscribers onto one
connection point or head-end in that system through the use of fiber optic
technology.

The Company generally does not use addressable technology in its cable
systems and, based on discussions with relevant equipment suppliers, does not
believe that its competitors have introduced such technology other than on a
modest basis. The principal benefits of addressable or two-way technology
include remote monitoring and extension of access to selected programming and
termination of service for non-payment. Due to the low churn rate and limited
amount of multiple programming tiers and pay-per-view programming offered in
Germany, the Company does not believe that the cost of addressable technology is
currently justified. The Company intends to continue to assess the potential
benefits of fiber optic and addressable technologies.

New technological advances that are anticipated to become commercially
viable in the foreseeable future include digital compression and expanded
bandwidth amplifiers, which offer cable operators the potential for a dramatic
expansion of channel capacity, along with alternative communications delivery
systems. As these new technologies and related services become available, the
Company intends to assess their economic return and market demand, with the goal
of implementing additional services in a cost-effective manner.

PROGRAMMING

The Company's systems typically offer a choice of at least two tiers of
basic cable television programming service: a "lifetime" or "ground" tier
(consisting generally of network and public terrestrial television signals
available over the air in the franchise area) and a "standard package" or basic
satellite programming tier (consisting primarily of satellite-delivered
programming). Additionally, in certain markets, the Company offers either one or
two additional tiers of basic cable television programming service.
Approximately 90% of the Company's customers subscribed to at least the
"standard package" tier of service as of December 31, 1997.

The Company obtains its programming either directly from program
broadcasters via a Company-owned head-end or indirectly through a signal
delivery contract with Deutsche Telekom. As of December 31, 1997, approximately
49% of the Company's customers were served by systems that acquired their
programming directly from broadcasters via a Company-owned head-end and
approximately 51% of the Company's customers were served by systems that
obtained their programming indirectly through signal delivery agreements with
Deutsche Telekom.

In those cases where the Company acquires its programming indirectly
through Deutsche Telekom, it does so pursuant to signal delivery contracts with
Deutsche Telekom. The Deutsche Telekom contracts are

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generally for a fixed period of time and are subject to negotiated renewal.
Under these agreements, the Company typically pays Deutsche Telekom either a
flat fee or a fee per customer that is determined by reference to a published
fee schedule based on the number of homes connected to one connection point.
Deutsche Telekom instituted a general increase in its fees on November 1, 1997.
These rate increases coupled with escalation clauses in certain signal delivery
contracts could result in an increase in the aggregate amount paid by the
Company to Deutsche Telekom as signal delivery fees by approximately 33.75%,
from approximately DM8,000,000 in 1997 to DM10,700,000 in 1998. Kabelmedia is
seeking to negotiate a reduction of its signal delivery fees with Deutsche
Telekom or to cancel certain of its signal delivery contracts prior to the end
of their terms, in cases where the Company believes it would be more cost
effective to install signal from its own head-end. Regardless of the outcome of
these negotiations, Kabelmedia believes that the increase in Deutsche Telekom
fees can be passed through to its customers with little or no impact on its
churn or penetration rate.

In those cases where the Company acquires its programming directly from
broadcasters via a Company-owned head-end, historically the Company has been
able, and believes that all other German cable system operators have been able,
to acquire such programming at no cost and without any formal agreements or
contract with or approval or authorization from such broadcasters. The Company's
beliefs are based on discussions with its competitors and German copyright
royalty collecting societies, which act as royalty processing and clearing
agencies for those entitled to copyright protection. The Company further
believes, based on those discussions, that with the exception of possible claims
for copyright fees which may be assessed for the retransmission by the Company
of programs received by the Company on its own head-ends, as discussed below,
the Company does not have any potential liability arising from its acquisition
of programming in this manner. The Company has no present plans to enter into
formal agreements with broadcasters for the acquisition of programming via its
own head-ends.

Other than any portion of the fees paid by the Company to Deutsche Telekom
under signal delivery contracts which may be allocable to copyright license
fees, the Company has not to date paid any copyright license fees in respect of
programming carried on its cable systems. The Company believes, based on
discussions with its competitors and copyright royalty collecting societies,
that, with the exception of one small cable system operator, its competitors
similarly have paid no copyright license fees in respect of programming carried
on their cable systems. The Company expects that copyright license fees will be
imposed in the future in respect of retransmission of programming on cable
systems in Germany, but the possible imposition of such fees is uncertain. The
complexity of the debate in this area is increased due to the differing
approaches which apply to the retransmission of terrestrial broadcasting, on the
one hand, and satellite broadcasting, on the other. The applicable legal
framework is in the course of being modified by legislation and the judicial
interpretations of that framework include inconsistent decisions. Discussions
within the cable television industry in Germany in respect of retransmission
rights and license fees, in particular between broadcasters and copyright
royalty collecting societies, are ongoing and the Company's information on the
status of those discussions is based solely on informal discussions with
representatives of its competitors, including Deutsche Telekom, broadcasters and
German copyright royalty collecting societies. The Company is unable to assess
the accuracy and completeness of information given by those sources and believes
that some of such information may reflect current negotiating positions of the
sources and is subject to change.

While the Company expects in the foreseeable future to be required to pay
some copyright license fees in respect of programming carried in its cable
systems, it is unable at present to predict when such license fees might become
payable, what programming might attract such fees, the basis and level of the
assessment of such fees or the possible impact in the Company and its financial
position. The Company believes that if it becomes liable for copyright license
fees, such liability will extend generally to cable system operators in Germany
and that the Company and such other operators are likely to be able to increase
the cost of their future cable services in order to recover the amount of any
such license fees from their cable customers. The Company is generally permitted
under the term of its concession and franchise agreements to increase fees to
cover increased programming costs, and the terms and conditions governing its
provision of cable services to customers either permit increased fees, or
generally could be modified unilaterally by the Company to permit fees to be
increased, subject to the giving of notice by the Company to such customers
conditioning the

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Company's future provision of cable services on the application of such modified
terms and conditions. However, the Company's ability to recover future license
fees from customers cannot be assured in all instances; it may be unable to pass
on to its customers any copyright license fees which may be assessed with
references to past periods, and any need to revise applicable customer terms and
conditions would delay the increase in the Company's fees reflecting such
increased costs.

CONCESSION AND FRANCHISE AGREEMENTS

The Company's cable television systems are generally operated pursuant to
long-term concession agreements with local governmental authorities and
franchise agreements with housing authorities that administer large housing
blocks. Concession agreements with local governmental authorities provide the
Company with the right to use public rights-of-way, while franchise agreements
with housing authorities provide the Company with access to potential customers
living in the housing blocks. Each individual franchise agreement typically
provides access to a relatively small number of homes. As of December 31, 1997,
the Company's cable systems operated pursuant to 132 concession agreements with
local governmental authorities and 617 franchise agreements with housing
authorities, providing access to approximately 560,431 homes.

The Company's concession and franchise agreements typically contain
standardized conditions, such as conditions of service and limitations on
commencement and completion of construction. Additionally, most of the Company's
concession and franchise agreements contain provisions that permit the Company
to raise the prices for its existing level of cable services with reference to
general inflation indices and to raise prices to cover increased costs of
programming. However, by timing rate increases to published cost of living
increases or the introduction of new or improved programming, the Company has
generally been able to increase the rates for its cable services without the
objection of the respective housing authority.

Most of the Company's franchise agreements with housing authorities provide
that the Company is the exclusive provider of cable services in the franchise
area. Although the Company generally does not pay concession/franchise fees on
any of its cable systems, in certain cases it pays housing authorities for
billing and collecting subscription fees from homes within the applicable
apartment blocks pursuant to agreements entered into prior to the Company's
acquisition of the related cable system. In addition, certain governmental
authorities have attempted to extract concession fees from the Company, and
there can be no assurance that the Company will not be required to pay
concession fees in the future in connection with the acquisition, establishment
or renewal of concessions.

The table below illustrates the groupings of the concession and franchise
agreements of the Company's cable systems by date of expiration (inclusive of
any period for which the Company can unilaterally extend the term by the giving
or withholding of notice if it is not in breach of the terms thereof) as of
December 31, 1997:

<TABLE>
<CAPTION>
TOTAL NUMBER
NUMBER OF NUMBER OF OF CONCESSION
CONCESSION FRANCHISE AND FRANCHISE
YEARS OF EXPIRATION AGREEMENTS AGREEMENTS AGREEMENTS
------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Prior to 2000......................................... 9 61 70
2001 to 2005.......................................... 8 111 119
2006 and after........................................ 115 445 560
--- --- ---
Total................................................. 132 617 749
=== === ===
</TABLE>

Because its concession and franchise agreements have the remaining terms
reflected in the above table, the Company has addressed the possible extension
of concession and franchise agreements in only limited circumstances. Such
limited extensions to-date have been and are in the future expected by the
Company to be negotiated on a case-by-case basis, principally with reference to
the services to be provided and the costs of such services. Any cable system
operator would be required, if awarded such concession or franchise, to build

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out its cable system in the concession or franchise area, which the Company
believes will give existing system operators a competitive advantage when
negotiating extensions.

CABLE TELEVISION LICENSES

On August 1, 1996, the new German Telecommunications Act ("the Act") came
into force. The purposes of the Act are, by means of regulation in the
telecommunications sector, to foster competition, to ensure adequate services
nation-wide and to establish an administration system for band width
frequencies. The Act ends the network monopoly of Deutsche Telekom. The network
monopoly was previously established in the Telecommunications Installations Act
of 1989. Telecommunications services, including the provision of transmission
capacity, may now be provided by anybody subject to the requirements established
in the Act: The Act sets forth licensing requirements for, among others, the
operation of transmission paths which exceed the limits of a piece of property
and which are used to offer telecommunications services to the public. The
establishment and operation of cable television networks falls within the scope
of the licensing requirements set forth in the Telecommunication Act.

The Act establishes four different license categories:

-- licenses for the operation of transmission paths for mobile radio
services to the public by the licensee or another entity (license
category 1: mobile radio license),

-- licenses for the operation of transmission paths for satellite radio
services to the public by the licensee or another entity (license
category 2: satellite radio license),

-- licenses for the operation of transmission paths for telecommunications
services to the public by the licensee or another entity, to which
provision the license category 1 and 2 are not applicable (license
category 3).

-- licenses for voice telephony services to the public (license category
4).

The Federal Ministry of Posts and Telecommunications ("BMPT") had published
an administrative order setting forth in detail the application procedure with
regard to future licenses for the establishment and operation of
telecommunications networks ("Amtsblattverfugung 116/1996"). The administrative
order establishes, inter alia, requirements with regard to the technical
expertise, financial capacity and personal reliability of the applicant.

The establishment and operation of transmission paths for the purpose of
receipt and distribution of broadcasting signals ("Empfangs- und Verteilanlagen
fur Rundfunksignale" -- "EVA"), i.e. the establishment of operation of cable
television systems, would fall within license category 3.

Licenses for the establishment and operation of cable television systems
which have been issued to the Company prior to the entry into force of the Act,
i.e. under the "Ordinance on the Opening of the Market for Services and on the
Regulation of Content, Scope and Procedures for Licenses in the
Telecommunications Sector" of October 19, 1995, or under Rule 3/1994; remain
valid under the Act until the expiration date set forth in such license. This
has been confirmed in a letter from the Federal Office of Posts and
Telecommunications (the "BAPT"), dated February 24, 1997, by which holders of
licenses for the establishment and operation of cable television systems issued
prior to the entry into force of the Act ("old installations") were informed of
the effects of the new Act on existing licenses. According to the BAPT, existing
licenses remain valid until their expiration date, provided the installations
remain unchanged and there is no change of the operator's name. Old
installations which are changed and newly established installations are subject
to the provisions of, and require a new license pursuant to, the Act.

According to the BAPT, for the operation of transmission paths for
installations for the receipt and distribution of broadcasting signals, such as
cable television systems, there will be two alternative types of licenses in
license category 3:

(1) a so-called "limited" license for the operation of transmission paths
which receive and distribute broadcasting signals only, i.e., which
are not used for any other data transmission,

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(2) a so-called "unlimited" license, which allows the operation of
transmission paths for the provision of any telecommunications
service, with the exception of voice telephony and mobile and
satellite communication services.

Licensing fees will be regulated in an ordinance which is still under
discussion within the BMPT. The BMPT had published a Draft Ordinance on License
and Frequency Fees of October 23, 1996. This Draft Ordinance had been
substantially revised and has been circulated for public comment in the version
of 16 January, 1997. The relevant provision regarding the license fee for a
category 3 license sets forth a fee schedule tied to the size of the particular
market, with a minimum fee of DM2,000 and a maximum fee of DM40,000,000. It is
unclear when the Ordinance will be adopted, since it remains subject to
discussions with regard to the maximum amounts established in the Draft.

The current Draft Ordinance on licensing fees provides that the
above-mentioned "limited" license would incur 1/40 of the fee for the
above-mentioned unlimited license. In case of a "limited" license, the Draft
Ordinance provides for a fee of DM250 per 20,000 inhabitants in the license
area, the minimum fee being DM250, the maximum fee DM1,000,000.

Furthermore, the Act subjects market-dominating telecommunications
enterprises to special provisions, in particular with regard to the regulation
of tariffs, business terms and conditions and the granting of open network
access, including interconnection obligations. Tariffs for telecommunications
services of market-dominating enterprises are subject to the control of the
regulatory authority in cases where the enterprise abuses its market-dominating
position. Detailed regulations are included in the "Ordinance on
Telecommunications Tariff Regulation" of October 1, 1996. The business terms and
conditions of market-dominating enterprises are also subject to the regulatory
authority's control. The regulatory authority has the right to object to
business terms and conditions which are not in conformance with relevant
provisions of European Union law. With regard to open network access and
interconnection, the Act establishes an obligation of market-dominating
operators of public telecommunications networks to provide for interconnection
between their networks and the public telecommunications networks of other
operators and to grant other users access to their networks. Detailed
regulations are included in the "Ordinance on Special Network Access" of October
23, 1996.

During 1997, Kabelmedia applied for "limited" licenses in license category
3 to operate transmission paths in 43 cities. These licenses would cover
1,579,552 homes and the estimated one time cost of the licenses to Kabelmedia
would be DM230,834.

CONSTRUCTION PERMITS

The Act also regulates the right of network operators to use public ways.
According to the Act, public ways may be used by licensees free of charge. This
right is granted, however, only to licensees under the Act. In addition, the
consent of public authorities is required in case new telecommunications lines
are laid or existing telecommunications lines are changed. The Act establishes a
number of obligations related to this free-of-charge use of public ways.

Concession and franchise agreements concluded by the Company prior to the
effective date of the Act provide public rights-of-way to the Company during the
remaining terms of those agreements. See "Business -- Concession and Franchise
Agreements."

DEUTSCHE TELEKOM SIGNAL DELIVERY CONTRACTS

Deutsche Telekom has entered into signal delivery contracts with private
cable television operators in certain designated expansion areas in which
Deutsche Telekom's broadband distribution networks have not been completed.
Private operators may apply for a license to establish and operate a private
cable television system, which may include a head-end station, until Deutsche
Telekom had provided a connection or "interface", including a head-end station
operated by Deutsche Telekom, between the private cable television system and
Deutsche Telekom's broadband distribution network. Under the signal delivery
contracts, when the system interface is established, the private operators are
required to connect their private cable television

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systems to the Deutsche Telekom interface. Licenses granted for the operation of
a head-end station in instances where a signal delivery contract has been
entered into with Deutsche Telekom are granted subject to expiration or
revocation by the BAPT when the interface becomes available. The Company is not
party to any signal delivery contracts with Deutsche Telekom of the type
described in this paragraph. See "Business -- Programming."

RETRANSMISSION AND CHANNEL LINE-UP PROVISIONS; MEDIA SERVICES

The retransmission of cable television programs within Germany through
private cable television systems is regulated at the federal level pursuant to
The State Treaty on Broadcasting within the United Germany of 1994 (the "State
Broadcasting Treaty") and at the state level pursuant to the media laws of the
various states. The State Broadcasting Treaty authorizes the various states to
make decisions with respect to the assignment and use of transmission
capacities. The State Broadcasting Treaty also provides that the retransmission
of cable television programs which may be received nationwide and which have
been produced in accordance with applicable European legal provisions must be
permitted by the federal states within the framework of existing technical
capabilities. State laws generally provide that the simultaneous retransmission
of an unchanged and complete cable television program is not subject to any
licensing requirement, but does subject the operator to an obligation to report
the retransmission to the relevant state media institution. Broadcasting
activity (which is defined to exclude the simultaneous and unchanged
retransmission of programming), such as the insertion of local commercials,
subjects the cable television operator to a different regulatory regime.

Private broadcasting companies require a broadcasting license issued in
accordance with the provisions of the State Broadcasting Treaty and the media
laws of the federal states. While the State Broadcasting Treaty sets forth the
framework for the regulation of private broadcasting, the state media laws set
forth the detailed requirements with respect to diversity of opinion,
observation of constitutional principles, professional ethics and restrictions
on advertisement.

Private cable television operators are required to observe channel line-up
priorities established by the states with reference to the technical
capabilities of the cable television systems in connection with the
retransmission of cable television programs. These requirements have not to date
affected the Company's programming decisions, because its systems have excess
channel capacity, so that all program priorities can be met without limiting the
Company's ability to offer non-prioritized programs. Generally, the
retransmission priority has been established as follows: (i) programs which have
been legally prescribed by the state, (ii) local programs (i.e., those programs
which may otherwise be received without additional antennae), (iii) programs
which may be received locally with the use of additional antennae, and (iv) all
other programs. In addition, certain state media laws have established
priorities for programs falling within category (iv) for programming produced
within European Union.

Certain states within Germany, including states where the Company maintains
cable television operations, have adopted channel line-up statutes, which
establish line-up priorities in situations where the technical capacities of a
licensed cable television system are limited. The Sachsen Channel Line-Up
Statute, for example, provides that when the number of available channels is
insufficient to carry all programs in the same priority category, the German
language programs will be given priority. In addition, the statute requires
cable network operators to report their proposed channel line-up to the state
media authority, which has the right to reconfigure nonconforming proposed
channel line-ups or to exempt certain proposed channel line-ups from the
statutory requirements.

The German federal states have recently signed a State Treaty on new media
services which came into force on August 1, 1997, concurrently with a new
Federal statute on "tele-services". Whereas a draft of the State Treaty included
an obligation on cable system operators to grant non-discriminatory network
access to providers of so-called "media services", the State Treaty which was
signed does not contain such obligation. However, the State Treaty imposes
various obligations on providers of "media services". "Media services" are
defined as information and communication services which are addressed to the
general public, as opposed to "tele-services" which are defined in the new
Federal statute on "tele-services" as information and communication services for
individual uses on the basis of telecommunication transmission. Media services
include

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distribution services offering directly the sale or lease of objects or services
(teleshopping), distribution services in the form of television text, radio text
or similar text services and certain "call-services" which offer text, sound or
pictures in electronically stored form. Providers of such media services include
persons who offer their own or third party media services or who provide access
to media services. To the extent that the Company is considered a provider of
media services, it is subject to obligations under the State Treaty. The State
Treaty includes, inter alia, rules on responsibility for content, advertising,
data protection and protection of minors. Similar rules apply for the provision
of "tele-services" under the applicable new Federal statute.

The State Treaty on "media services" and the new Federal statute on
"tele-services" has not to date materially affected the Company's ability to
make independent business decisions with respect to the rates charged for, or
other matters relating to the provision of, such services. There can be no
assurance that legislation will not have a material adverse effect on such
matters in the future.

TELEPHONY DEREGULATION

The Telecommunications Act establishes licensing requirements for the
provision of voice telephony services to the public on the basis of own or third
party operated transmission paths. Regulations governing licenses for voice
telephony services came into effect on January 1, 1998. The Company could apply
for a license to operate voice telephony services over its networks, but at
present has no plans to apply for such licenses.

ITEM 2. PROPERTIES

The Company currently operates cable television systems in approximately
276 communities in Germany. In connection with the operation of its cable
systems, the Company owns or leases real property for signal reception sites
(antennae towers and head-ends), microwave facilities and business offices. As
of December 31, 1997 the Company's central operation center was located in
approximately 11,000 square feet of leased space in Eschborn, Germany. The
Company believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Company's business operations.

Cable television systems generally consist of four principal operating
components. The first component is program generation and transmission (referred
to as "level 1" in Germany). The Company does not operate at level 1. The second
component, known as the head-end facility (referred to as "level 2" in Germany),
receives television and radio signals and other programming and information by
means of terrestrial and satellite antennae and microwave relays. The third
component, the principal transmission line from the head-end to the "front door"
or trunk-distribution network (referred to as "level 3" in Germany), extends
throughout the system service area and in the Company's systems consists
primarily of coaxial and to a lesser extent fiber optic cables buried
underground and associated electronic equipment. The fourth component of the
system (referred to as "level 4" in Germany) is a drop cable, which extends from
the end of the distribution network at the "front door" to the in-house
connections in each customer's home, where the distribution system is connected
to the customer's television set.

The Company's cables generally are buried in underground ducts or trenches.
The physical components of the Company's systems require maintenance and
periodic upgrading to keep pace with technological advances.

German law generally provides that where an element, such as a cable
network, is built into real property, ownership of that element automatically
passes to the owner of the real property. However, where it can be demonstrated
that the parties only intended that the network be on-site "temporarily", title
will remain with the party building the network, rather than the owner of the
real property. It is in each case a question of fact whether elements of a cable
network have been built into real property and whether it is the intention of
the parties that the network will remain there temporarily. The Company has
indicated in many of its concession and franchise agreements an intention that
its network remain on the relevant real property only temporarily, and believes
that in such instance title to the cable network should be retained by the
Company. If a court were to determine under these legal principles that legal
title to the network has been transferred to the owner

9
<PAGE> 11

of the real property, the Company would be entitled under German law to payment
of the value of its cable network.

ITEM 3. LEGAL PROCEEDINGS

The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not a party to any lawsuit or legal
proceeding that, in the opinion of management, is likely to have a material
adverse effect on the Company.

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

None

10
<PAGE> 12

PART II.

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

None

11
<PAGE> 13

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated balance sheet data set forth below as at December
31, 1994, 1995, 1996 and 1997 and selected consolidated statement of operations
data set forth below for the years ended December 31, 1993, 1994, 1995, 1996 and
1997 have been derived from the financial statements of the Company, which have
been audited by Schitag Ernst & Young AG, independent auditors. Acquisitions of
cable television systems during the periods for which the selected financial
data are presented below materially affect the comparability of such data from
one period to another. The selected consolidated financial data should be read
in conjunction with the Company's consolidated financial statements and notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this document.

<TABLE>
<CAPTION>
HISTORICAL(1)
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997 1997(2)
------ ------- ------- ------- ------- -------
DM'000 DM'000 DM'000 DM'000 DM'000 $'000
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................. 2,220 4,551 33,510 64,422 73,633 40,928
Operating costs and expenses:
Operations.............................. 183 1,161 6,029 11,513 12,811 7,121
Selling, general and administrative..... 749 1,761 9,564 10,888 12,591 6,998
Corporate overhead(3)................... 274 857 5,417 8,662 8,411 4,675
Depreciation and amortization........... 1,460 3,028 23,685 48,103 52,302 29,072
Restructuring charge.................... -- -- -- 1,611 -- --
------ ------- ------- ------- ------- -------
Total..................................... 2,666 6,807 44,695 80,777 86,115 47,866
====== ======= ======= ======= ======= =======
Operating loss............................ (446) (2,256) (11,185) (16,355) (12,482) (6,938)
Interest expense
Cash interest expense................... 312 812 11,166 12,469 7,856 4,367
Non -- cash interest expense............ 743 3,048 14,177 18,243 27,488 15,278
------ ------- ------- ------- ------- -------
Total................................... 1,055 3,860 25,343 30,712 35,344 19,645
Unrealized foreign currency loss.......... -- -- -- 4,246 834 464
Gain on sale of business.................. -- -- -- -- 2,024 1,125
------ ------- ------- ------- ------- -------
Net loss before income tax benefit
(expense) and extraordinary items....... (1,501) (6,116) (36,528) (51,313) (46,636) (25,922)
Income tax benefit (expense).............. -- -- 916 (546) (4,550) (2,529)
------ ------- ------- ------- ------- -------
Net loss before extraordinary items....... (1,501) (6,116) (35,612) (51,859) (51,186) (28,451)
------ ------- ------- ------- ------- -------
OTHER FINANCIAL DATA:
Capital expenditures (excluding
acquisitions)........................... 6,635 5,617 10,955 17,423 13,472 7,488
Deficiency of earnings to fixed
charges(4).............................. (1,501) (6,116) (39,198) (56,635) (49,525) (27,528)
------ ------- ------- ------- ------- -------
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................. 14,761 128,229 420,865 422,032 467,216 259,695
Total debt less Subordinated Shareholder
Loans................................... 7,267 47,178 228,812 282,181 380,060 211,251
Subordinated Shareholder Loans............ 4,833 63,584 172,638 -- -- --
Total debt.............................. 12,100 110,762 401,450 282,181 380,060 211,251
Total liabilities......................... 15,812 120,559 448,477 314,920 414,180 230,216
Shareholder's equity (deficiency)......... (1,051) 7,670 (27,612) 107,112 53,036 29,479
OPERATIONS DATA
Homes passed(5)........................... 23,890 71,032 452,948 495,311 560,131 --
Customers(5).............................. 22,655 58,613 342,752 362,940 420,470 --
Penetration(5)(6)......................... 94.8% 82.5% 75.7% 73.3% 75.0% --
Average monthly revenue per customer(7)... 9.24 9.37 12.44 14.91 15.67 8.70
</TABLE>

12
<PAGE> 14

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

(1) Reflects acquisitions completed by the Company from inception through
December 31, 1997 as of the effective dates. See "Business".

(2) For convenience, the financial data have been translated at the rate of
DM1.7991 = $1.00, the Noon Buying Rate of the Federal Reserve Bank of New
York on December 31, 1997.

(3) In 1997 the Company made the decision to report its corporate overhead as a
separate line item in its Consolidated Statements of Operations. The years
ended December 31, 1993, 1994, 1995 and 1996 have been restated to reflect
this change in accounting presentation.

(4) For purposes of these computations earnings consist of historical loss
before income taxes and minority interest, plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest on indebtedness
(including capitalized interest and amortization of debt issuance costs).
Fixed charges include non-cash fixed charges of DM743,000, DM3,048,000,
DM16,847,000, DM27,811,000, and DM27,028,000 for the years ended December
31, 1993, 1994, 1995, 1996, and 1997 respectively.

(5) At end of period.

(6) Customers as a percentage of homes passed.

(7) Equals (a) (i) revenues for the period divided by (ii) twelve divided by (b)
the average monthly number of customers for such period. Equals (a) (i)
EBITDA for the period divided by (ii) twelve divided by (b) the average
monthly number of customer for such period.

(8) EBITDA is defined as earnings (loss) before extraordinary items, minority
interest, net interest expense, income taxes, depreciation and amortization.
The Company believes that EBITDA and related measures of cash flow serve as
important financial indicators in measuring and comparing cable television
companies in several areas, including liquidity, operating performance and
leverage. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow
from operations and should not be considered as an alternative to net income
as a indication of the Company's financial performance or as an alternative
to cash flow from operating activities as a measure of liquidity.

(9) Represents EBITDA as a percentage of revenues.

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

The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included elsewhere in this document.

YEARS ENDED DECEMBER 31, 1996 AND 1997

REVENUES. Revenues increased 14.3% from DM64,422,000 in 1996 to
DM73,633,000 in 1997. The increase was primarily attributable to an increase
(from 359,946 to 391,475) in the average monthly number of customers and a 5.1%
increase (from DM14.91 to DM15.67) in the average monthly revenue per customer
from 1996 to 1997. The increase in the Company's average monthly number of
customers primarily resulted from acquisitions of cable television companies
subsequent to December 31, 1996, which as of the respective dates of the
acquisitions, collectively served approximately 59,500 customers. ("the 1997
Acquisitions"). All of the increase in the average monthly revenue per customer
in 1997 is attributable to rate increases

13
<PAGE> 15

implemented since December 31, 1995. The 1997 Acquisitions had, as of the
respective dates of the acquisitions, average monthly revenue per customer of
DM14.65, which is less than for the other cable television systems of
Kabelmedia.

OPERATING EXPENSES. Operating expenses increased 11.3% from DM11,513,000
in 1996 to DM12,811,000 in 1997, principally as a result of the 1997
Acquisitions. The remainder of the increase was attributable to increased costs
under the Company's signal delivery contracts with Deutsche Telekom.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 15.6% from DM10,888,000 in 1996 to DM12,591,000 in 1997,
principally as a result of the 1997 acquisitions, an increase in salaries and
wages and sales commissions.

CORPORATE OVERHEAD. Corporate overhead declined 2.9% from DM8,662,000 in
1996 to DM8,411,000 in 1997, principally as a result of a decline in legal and
consulting costs.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
8.7% from DM48,103,000 in 1996 to DM52,302,000 in 1997, principally as a result
of increased depreciation and amortization associated with the cable television
companies acquired subsequent to December 31, 1996 and the full amortization of
an investment in a project to install a new billing subscriber system, which was
cancelled in October of 1997.

RESTRUCTURING CHARGE. On December 12, 1996, the Company adopted a plan of
reorganization to allow for the move of its corporate offices from Plauen to
Eschborn in the vicinity of Frankfurt, and recorded a restructuring charge of
DM1,611,000 in 1996. The restructuring charge was principally comprised of lease
termination costs, the write-down of leasehold improvements and severance and
termination benefits for 17 employees primarily engaged in corporate
administrative functions. The balance of the restructuring reserve at December
31, 1997 was DM377,000, which the Company believes will be sufficient to cover
the remaining costs associated with the lease termination.

INTEREST EXPENSE. Interest expense increased 15.1% from DM30,712,000 in
1996 to DM35,344,000 in 1997, as a result of accruing interest on an increased
average outstanding balance under the Senior Discount Notes and marking the
Senior Discount Notes to the year end exchange rate of US $1 to DM1.7991 in
1997, compared to a rate of US $1 to DM1.5387 in 1996. Bank interest declined
from 1996 to 1997 due to a reduction in the average outstanding bank
indebtedness which was a result of the issuance of the Senior Discount Notes. Of
the total interest accrued in 1997, DM25,798,000 related to non-cash interest on
the Company's 13.625% Senior Discount Notes due 2006. The accrued non-cash
interest on the Senior Discount Notes was added to the principal of the Notes.
Also included in interest on indebtedness was DM2,222,000, representing a
noncash expense associated with the amortization of financing fees and related
costs and DM2,041,000 representing a noncash reduction of interest expense
associated with the amortization of the discount on foreign currency forward
contracts.

UNREALIZED FOREIGN EXCHANGE LOSS. Unrealized foreign exchange loss of
DM834,000 in 1997 represents the net effect of marking the U.S. dollar
denominated Senior Discount Notes and the foreign exchange forward contracts to
the year end exchange rate. At December 31, 1997 the Company had foreign
exchange forward contracts to acquire $130,000,000 at rates between DM1.4385 and
DM1.7552 per US $. See Note 9 to the consolidated financial statements of the
Company found elsewhere in this document.

GAIN ON SALE OF BUSINESS. The Company recorded a net gain of DM2,024,000
(after closing costs and expenses of approximately DM214,000) as the result of
the sale of its 50% interest in Neuruppin.

NET LOSS BEFORE EXTRAORDINARY ITEMS. Net loss before extraordinary items
decreased from DM51,859,000 in 1996 to DM51,186,000 in 1997 as a result of the
items discussed above.

EXTRAORDINARY LOSS. In July 1997, the Company fully amortized DM1,013,000
of the financing fees related to the early cancellation of DM75,000,000 of its
DM400,000,000 1996 Bank facilities. In December 1997, the Company purchased and
canceled a portion of its Senior Discount Notes with a net book value of
DM10,923,000 for DM12,239,000. As a result of the repurchase and cancellation of
these Senior Discount Notes, the Company recorded an extraordinary loss of
DM1,877,000 which includes the difference

14
<PAGE> 16

between the accreted value of the notes and the amount paid to repurchase the
notes and the full amortization of the costs and expenses related to the
issuance of the cancelled notes.

NET LOSS. Net loss decreased DM3,105,000 from DM57,181,000 in 1996 to
DM54,076,000 in 1997 as a result of the above discussed factors.

EBITDA. In addition to other items, some of which are reflected in its
statement of operations data, the Company measures its financial performance by
EBITDA. The Company defines EBITDA as earnings (loss) before extraordinary
items, net interest expense, income taxes and depreciation and amortization, The
Company believes that EBITDA is a meaningful measure of performance because it
is commonly used in the cable television industry to analyze and compare cable
television companies on the basis of operating performance, leverage and
liquidity. EBITDA is not a U.S. GAAP measure of income (loss) or cash flow from
operations and should not be considered as an alternative to net income as an
indication of the Company's financial performance or as an alternative to cash
flow from operating activities as a measure of liquidity. EBITDA before the
restructuring charge increased 19.3% from DM33,359,000 for 1996 to DM39,820,000
for 1997, primarily as a result of revenues increasing at a faster rate than
operating and selling, general and administrative costs and expenses and
corporate overhead. The Company's EBITDA margin before the restructuring charge
improved from 51.8% in 1996 to 54.1% in 1997. EBITDA per average monthly
subscriber before the restructuring charge increased from DM7.72 per subscriber
in 1996 to DM8.48 per subscriber in 1997.

YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUES. Revenues increased 92.2% from DM33,510,000 in 1995 to
DM64,422,000 in 1996. The increase was primarily attributable to an increase
(from 224,516 to 359,946) in the average monthly number of customers and a 19.9%
increase (from DM12.44 to DM14.91) in the average monthly revenue per customer
from 1995 to 1996. The increase in the Company's average monthly number of
customers was primarily related to acquisitions of cable television companies
subsequent to December 31, 1994, substantially all of which were owned for the
entirety of 1996 but only for varying portions of 1995, which, as of the
respective dates of the acquisitions, collectively served approximately 284,700
customers (270,000 acquired at various dates during 1995 and 14,700 acquired in
1996). In addition, the Company acquired approximately 19,600 additional
customers by building out its existing cable systems (14,200 in 1995 and 5,400
in 1996). Approximately 67% of the increase in the average monthly revenue per
customer in 1996 is attributable to higher average monthly revenue per customer
in the cable television companies acquired subsequent to December 31, 1994. The
remaining 33% of the increase in average monthly revenue per customer in 1996 is
attributable to rate increases implemented since December 31, 1994.

OPERATING EXPENSES. Operating expenses increased 91.0% from DM6,029,000 in
1995 to DM11,513,000 in 1996, principally as a result of the increased number of
personnel related to the cable television companies acquired subsequent to
December 31, 1994, increased costs under the Company's signal delivery contracts
with Deutsche Telekom. The increase in costs associated with the signal delivery
contracts with Deutsche Telekom primarily relates to a system in Osnabruck, a
Level 4 or B-I Model. The total increase in Deutsche Telekom signal delivery
fees for Level 4 or B-I Model Systems attributable to the Osnabruck system in
1996 was approximately DM3,120,000 over such fees in 1995. Signal delivery fees
for Level 4 or B-1 Systems represent a higher percentage of revenues than
applies to the Company's remaining systems, which are predominately Level 2 or
Level 3 Systems, because the signal delivery fees for such Level 4 or B-1 Model
Systems include a fee for the rental of Deutsche Telekom's principal
transmission lines to the home.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 13.8% from DM9,564,000 in 1995 to DM10,888,000 in 1996,
principally as a result of the increased cost of personnel and office leases
associated with the cable television companies acquired subsequent to December
31, 1994.

15
<PAGE> 17

CORPORATE OVERHEAD. Corporate overhead increased by DM3,245,000 from
DM5,417,000 in 1995 to DM8,662,000 in 1996, principally as a result of increased
legal and financial costs related to due diligence on acquisitions, the
development of accounting and other in-house functions, and the addition of
senior management.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
103% from DM23,685,000 in 1995 to DM48,103,00 in 1996, principally as a result
of increased depreciation and amortization associated with the cable television
companies acquired subsequent to December 31, 1994.

RESTRUCTURING CHARGE. On December 12, 1996, the Company adopted a plan of
reorganization to allow for the move of its corporate offices from Plauen to
Eschborn in the vicinity of Frankfurt, and recorded a restructuring charge of
DM1,611,000. The restructuring charge is principally comprised of lease
termination costs, the write-down of leasehold improvements and severance and
termination benefits for 17 employees primarily engaged in corporate
administrative functions.

INTEREST EXPENSE. Interest expense increased 21.2% from DM25,343,000 in
1995 to DM30,712,000 in 1996, as a result of a 53% increase in average
indebtedness outstanding from DM234,264,000 to DM357,581,000. Of the total
interest accrued in 1996, DM18,243,000 related to non-cash interest on
subordinated loans to the Company by its shareholders and the Company's 13 5/8%
Senior Discount Notes due 2006. The accrued interest on the subordinated
shareholder loans was contributed to the Company's capital surplus on June 19,
1996. The accrued interest on the Senior Discount Notes was added to the
principal of the Notes. Also included in interest on indebtedness was
DM1,089,000, representing a noncash expense associated with the amortization of
financing fees and related costs and DM422,000 representing a noncash reduction
of interest expense associated with the amortization of the discount on foreign
currency forward contracts.

UNREALIZED FOREIGN EXCHANGE LOSS. Unrealized foreign exchange loss of
DM4,246,000 in 1996 related to the period when the dollar denominated Senior
Discount Notes, which were issued on July 29, 1996, were not hedged against
currency fluctuations. Subsequent to September 30, 1996, the Company entered
into foreign currency forward contracts to hedge against the effect of exchange
rate fluctuations in the future. See Note 9 to the consolidated financial
statements of the Company found elsewhere in this document.

NET LOSS BEFORE EXTRAORDINARY ITEM. Net loss before extraordinary item
increased from DM35,612,000 in 1995 to DM51,859,000 in 1996 as a result of the
items discussed above.

EXTRAORDINARY LOSS. Extraordinary loss in 1996 consisted of the full
amortization of the unamortized financing fees paid to the Company's banks in
connection with the 1995 facilities. The 1995 facilities were refinanced and
replaced by the 1996 facilities.

NET LOSS. Net loss increased 18,899,000 from 38,282,000 in 1995 to
DM57,181,000 in 1996, as a result of the above discussed factors.

EBITDA. EBITDA before the restructuring charge increased significantly from
DM12,500,000 for 1995 to DM33,359,000 for 1996,primarily as a result of revenues
increasing at a faster rate than operating, selling, general and administrative
costs and expenses. The Company's EBITDA margin before the restructuring charge
improved from 37.3% in 1995 to 51.8% in 1996. EBITDA per average monthly
subscriber before the restructuring charge increased from DM4.64 per subscriber
in 1995 to DM7.72 per subscriber in 1996. EBITDA after the restructuring charge
of DM1,611,000 was DM31,748,000 for 1996.

INCOME TAXES. The Company had insignificant income taxes in 1995 and 1996
as a result of the losses it incurred. In 1997, the Company incurred current tax
expense of DM1,467,000 principally attributable to 1997 Acquisitions and
deferred tax expense of DM3,083,000 principally resulting from the utilization
of fully reserved acquired operating loss carryforwards. At December 31, 1997
the Company had operating loss carryforwards for German corporate and trade tax
purposes of approximately DM146,941,000 and DM76,445,000, respectively, which
have no time limitation in respect of their usage. Management intends to

16
<PAGE> 18

maximize the utilization of available operating loss carryforwards to minimize
future tax. See Note 10 to the consolidated financial statements of the Company
included elsewhere in this document.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically relied on three sources for necessary funding:

(i) borrowings under its bank facilities

(ii) issuance of the Senior Discount Notes

(iii) cash flow from operations.

At December 31, 1997, the Company's aggregate consolidated indebtedness was
approximately DM380,060,000 comprised of DM170,000,000 of debt outstanding under
its Amended 1996 facilities, DM937,000 of other bank debt, DM2,729,000 of
deferred purchase obligations and DM206,394,000 of Senior Discount Notes. The
Senior Discount Notes, which have been hedged with forward contracts, are
recorded in Deutsche Marks at the applicable year end rate. At December 31,
1997, the unamortized discount on the foreign currency forward contracts
amounted to DM8,581,000 which is being amortized over the life of the contracts.
See Note 9 to the consolidated notes to the Company's financial statements found
elsewhere in this document.

The Company generated cash flow from operating activities of DM20,976,000
for 1997. For year ended December 31, 1997 the Company used cash in investing
activities of DM55,362,000. Such cash uses were primarily related to the
acquisition of a cable television company and capital expenditures. Net cash
provided by financing activities amounted to DM35,003,000. Such cash was
primarily provided by net proceeds of DM54,525,000 from borrowings under the
Amended 1996 facility less the payment of financial fees of DM2,385,000, the
repurchase of Senior Discount Notes of DM12,239,000 and net repayment of
deferred purchase price obligations of DM4,898,000.

Capital expenditures of DM13,472,000 for the year ended December 31, 1997,
were related to the continued construction, expansion and upgrading of existing
systems. The Company has only minimal commitments to make capital expenditures
under the terms of concession or franchise agreements or otherwise, but
anticipates that it will continue to increase its capital expenditures in the
near future to further upgrade existing cable systems once they have been
acquired. To the extent cash flow is not sufficient to fund its capital
expenditures, the Company expects to borrow the necessary funds under the
Amended 1996 Facility.

Substantial amounts of depreciation and amortization expense and non-cash
interest on the Senior Discount Notes continued to contribute to the net losses
experienced by the Company. These expenses, however, do not result in an outflow
of cash.

The Company believes that EBITDA provides a more meaningful measure of
fixed cost coverage than does a deficiency of earnings to fixed charges. EBITDA
amounts in each period are not solely available to satisfy cash interest expense
amounts payable by the Company and may also be required for other corporate
purposes, including increases in working capital, principal payments on debt and
capital expenditures. EBITDA for year ended December 31, 1997 was DM39,820,000.
Cash interest on bank debt for the same period was DM7,856,800.

At December 31, 1997 the Company had borrowed DM3,500,000 from an Overdraft
Facility within its Amended 1996 facilities. The Company uses its Overdraft
Facility from time to time to meet short term cash needs.

TREASURY POLICIES

The Senior Discount Notes, are denominated in U.S. dollars, and, therefore,
the Company will encounter currency exchange rate risk. At December 31, 1997 the
Company had entered into forward contracts for delivery of $130,000,000 between
October 4, 2001 and June 28, 2002, at prices ranging from DM1.4385 to

17
<PAGE> 19

DM1.7752 per US$1.00. See Note 9 to the consolidated financial statements of the
Company included elsewhere in this document.

In November of 1997, the Company adopted a plan to repurchase its Senior
Discount Notes under certain conditions. On December 1, 1997 the Company
purchased and canceled a portion of its Senior Discount Notes with a net book
value of DM10,923,000 on the open market for DM12,239,000. The transaction
resulted in an extraordinary loss of DM1,877,000, which includes the difference
between the accreted value of the notes and the amount paid to repurchase the
notes and the full amortization of the costs and expenses related to the
issuance of the canceled Senior Discount Notes.

On February 17, 1998 the Company purchased and cancelled a portion of its
Senior Discount Notes with a net book value of DM5,505,000 for cash
consideration of DM7,200,000. The purchase of the notes will result in an
extraordinary loss of DM1,943,000 in fiscal 1998, which includes the difference
between the accreted value of the notes and the amount paid to repurchase the
notes and the full amortization of the costs and expenses related to the
issuance of the canceled Senior Discount Notes.

On December 1, 1997 the Company executed an amendment to its 1996
facilities (the "Amended 1996 facilities"). The amendment extends the revolving
availability and final maturity of the 1996 facilities. The amendment also
expands the permitted use of proceeds to allow the Company to borrow in order to
make open market repurchases of its Senior Discount Notes under certain
conditions. See Note 6 to the Consolidated Financial Statements of the Company
included elsewhere in this document.

YEAR 2000

The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. The Company uses purchased
software for its accounting system and subscriber management system. Upgrades to
this software which are Year 2000 compliant are currently available. The total
cost of acquiring these upgrades and achieving Year 2000 compliance is not
expected to have a material effect on the operations and the consolidated
financial position and results of operations of the Company.

18
<PAGE> 20

ITEM 8. FINANCIAL STATEMENTS

19
<PAGE> 21

INDEPENDENT AUDITORS REPORT

To the Board of Directors,
KABELMEDIA HOLDING GMBH

We have audited the accompanying consolidated balance sheets of Kabelmedia
Holding GmbH and subsidiaries as of December 31, 1997 and 1996 and related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kabelmedia
Holding GmbH and subsidiaries at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statements schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

SCHITAG ERNST & YOUNG
Deutsche Allgemeine Treuhand AG

Frankfurt, Germany
March 27, 1997

20
<PAGE> 22

KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997 1997
------- ------- ------- -------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
Revenues.......................................... 33,510 64,422 73,633 40,928
Operating costs and expenses
Operations...................................... 6,029 11,513 12,811 7,121
Selling, general and administrative............. 9,564 10,888 12,591 6,998
Corporate overhead.............................. 5,417 8,662 8,411 4,675
Depreciation and amortization................... 23,685 48,103 52,302 29,072
Restructuring charge (Note 15).................. -- 1,611 -- --
------- ------- ------- -------
Total............................................. 44,695 80,777 86,115 47,866
------- ------- ------- -------
Operating loss.................................... (11,185) (16,355) (12,482) (6,938)
Interest expense:
Bank debt....................................... 11,691 13,323 11,587 6,439
Senior Discount Notes........................... -- 8,421 23,757 13,206
Subordinated Shareholder Loans.................. 13,652 8,968 -- --
Unrealized foreign exchange loss.................. -- 4,246 834 464
Gain on sale of business (Note 3)................. -- -- 2,024 1,125
------- ------- ------- -------
Loss before income taxes.......................... (36,528) (51,313) (46,636) (25,922)
------- ------- ------- -------
Income tax benefit (expense)...................... 916 (546) (4,550) (2,529)
------- ------- ------- -------
Net loss before extraordinary items............... (35,612) (51,859) (51,186) (28,451)
Extraordinary items (Notes 6 and 7)............... (2,670) (5,322) (2,890) (1,606)
------- ------- ------- -------
Net loss.......................................... (38,282) (57,181) (54,076) (30,057)
======= ======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements

21
<PAGE> 23

KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1997 1997
-------- -------- -------
DM DM U.S.$
<S> <C> <C> <C>
Cash (Note 6)............................................. 951 1,568 872
Trade accounts receivable -- net.......................... 2,815 1,160 645
Inventory................................................. 1,811 2,256 1,254
Property, plant and equipment -- net (Note 5)............. 230,341 225,966 125,599
Goodwill -- net (Note 2).................................. 150,047 170,598 94,824
Foreign currency forward contracts........................ 9,062 39,632 22,029
Other assets.............................................. 27,005 26,036 14,472
-------- -------- -------
TOTAL ASSETS.............................................. 422,032 467,216 259,695
-------- -------- -------
Accounts payable.......................................... 6,290 8,256 4,589
Accrued expenses and other liabilities.................... 10,140 9,611 5,342
Unamortized discount on foreign currency forward
contracts............................................... 7,606 8,581 4,770
Deferred revenue (Note 2)................................. 8,703 7,672 4,264
Deferred purchase obligations............................. 7,875 2,729 1,517
Bank debt (Note 6)........................................ 111,175 170,937 95,013
Senior Discount Notes (Note 7)............................ 163,131 206,394 114,721
-------- -------- -------
TOTAL LIABILITIES......................................... 314,920 414,180 230,216
SHAREHOLDERS' EQUITY
Registered capital (Note 13).............................. 10,000 10,000 5,558
Capital contributions..................................... 200,192 200,192 111,273
Accumulated deficit....................................... (103,080) (157,156) (87,352)
-------- -------- -------
TOTAL SHAREHOLDERS' EQUITY................................ 107,112 53,036 29,479
-------- -------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ 422,032 467,216 259,695
======== ======== =======
</TABLE>

See accompanying notes to consolidated financial statements

22
<PAGE> 24

KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
REGISTERED CAPITAL ACCUMULATED SHAREHOLDERS'
CAPITAL CONTRIBUTIONS DEFICIT EQUITY
---------- ------------- ----------- -------------
DM DM DM DM
<S> <C> <C> <C> <C>
Balance at December 31, 1994............. 100 15,187 (7,617) 7,670
Net loss................................. -- -- (38,282) (38,282)
Additional shareholder contribution...... -- 3,000 -- 3,000
------ ------- -------- -------
Balance at December 31, 1995............. 100 18,187 (45,899) (27,612)
Conversion of debt to capital (Note 8)... -- 191,805 -- 191,805
Cash contribution to registered
capital................................ 100 -- -- 100
Capital contribution to registered
capital................................ 9,800 (9,800) -- --
Net loss................................. -- -- (57,181) (57,181)
------ ------- -------- -------
Balance at December 31, 1996............. 10,000 200,192 (103,080) 107,112
Net loss................................. -- -- (54,076) (54,076)
------ ------- -------- -------
Balance at December 31, 1997............. 10,000 200,192 (157,156) 53,036
====== ======= ======== =======
</TABLE>

See accompanying notes to consolidated financial statements

23
<PAGE> 25

KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997 1997
-------- -------- -------- --------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... (38,282) (57,181) (54,076) (30,057)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of business.................................... -- -- (2,024) (1,125)
Extraordinary loss on early retirement of debt.............. 2,670 5,322 2,890 1,606
Restructuring charge........................................ -- 1,611 -- --
Depreciation and amortization............................... 23,685 48,103 52,302 29,072
Accreted interest on Senior Discount Notes.................. -- 8,843 25,798 14,339
Amortization of discount on foreign currency forward
contracts................................................. -- (422) (2,041) (1,134)
Accrued interest on Subordinated Shareholder Loans.......... 13,652 8,968 -- --
Unrealized foreign exchange loss............................ -- 4,246 834 464
Amortization of loan financing fees......................... 515 1,089 2,222 1,235
Deferred income taxes....................................... (1,020) 135 3,083 1,714
Amortization of purchased deferred revenues................. (1,004) (1,648) (1,335) (742)
Changes in assets and liabilities, net of effects of
business acquisitions and disposition:
Trade accounts receivable................................... 2,781 (1,480) (936) (520)
Inventories................................................. 615 (483) (433) (241)
Other assets................................................ 3,445 (7,031) (3,474) (1,931)
Accounts payable............................................ 72 (7,867) 637 354
Accrued expenses and other liabilities...................... (18,719) 493 (2,151) (1,196)
Deferred revenue............................................ (36) 943 (320) (178)
-------- -------- -------- --------
Net cash provided by (used in) operating activities......... (11,626) 3,641 20,976 11,660
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (10,955) (17,423) (13,472) (7,488)
Cash from sale of business.................................. -- -- 1,807 1,004
Acquisition of businesses, less cash acquired............... (118,445) (15,795) (43,697) (24,288)
Acquisition of other assets................................. (593) (105) -- --
-------- -------- -------- --------
Net cash used in investing activities....................... (129,993) (33,323) (55,362) (30,772)
FINANCING ACTIVITIES
Proceeds from bank debt..................................... 177,311 127,000 68,800 38,241
Repayment of bank debt...................................... -- (246,247) (9,258) (5,146)
Proceeds from deferred purchase obligations................. 9,502 956 3,228 1,795
Repayments of deferred purchase obligations................. -- (3,819) (8,126) (4,517)
Payments of acquired debt................................... (132,804) (4,625) (5,572) (3,097)
Payments of capitalized financing costs..................... (6,047) (11,415) (2,385) (1,326)
Proceeds from (payments of) bank overdrafts................. 638 1,610 555 309
Proceeds from (repurchase of) Senior Discount Notes......... -- 149,008 (12,239) (6,803)
Contributions to capital.................................... 3,000 100 -- --
Proceeds from Subordinated Shareholder Loans................ 95,407 10,199 -- --
-------- -------- -------- --------
Net cash provided by financing activities................... 147,007 22,767 35,003 19,456
Net increase (decrease) in cash and cash equivalents........ 5,388 (6,915) 617 344
Cash and cash equivalents at beginning of year.............. 2,478 7,866 951 528
-------- -------- -------- --------
Cash and cash equivalents at end of year.................... 7,866 951 1,568 872
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements

24
<PAGE> 26

KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION

Kabelmedia Holding GmbH, formerly Kabelmedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On June
19, 1996 Kabelvision Beteiligungs GmbH ("Kabelvision"), a company controlled by
certain shareholders of Kabelmedia was merged with and into the Company.
Furthermore, the outstanding Subordinated Shareholder Loans of DM191,805,000
(including accrued interest) at the time of the merger were contributed to the
capital of Kabelmedia. Kabelvision was founded in 1992 to acquire, own and
operate cable television systems serving communities throughout Germany.
Kabelvision began operations in 1993 when their first cable system was acquired.
The accompanying financial statements have been prepared using historical costs
of each entity as if the merger were a pooling of interests.

The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP") including
those principles specific to the cable television industry. The Company
maintains its financial records in accordance with the German Commercial Code,
which represents generally accepted accounting principles in Germany ("German
GAAP"). Generally, accepted accounting principles in Germany vary in certain
significant respects from U.S. GAAP. Accordingly, the Company has recorded
certain adjustments in order that these financial statements be in accordance
with U.S. GAAP.

Solely for the convenience of the reader, the accompanying consolidated
financial statements as of and for the year ended December 31, 1997 have been
translated into United States dollars ("U.S. $") at the rate of DM1.7991 per
U.S. $1.00 the Noon Buying Rate of the Federal Reserve Bank of New York on
December 31, 1997. The translations should not be construed as a representation
that the amounts shown could have been, or could be, converted into U.S. dollars
at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.

CASH EQUIVALENTS

All highly liquid investments purchased with an original maturity of three
months or less are considered cash equivalents.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrated
credit risks consist primarily of cash and trade receivables. Credit risk on
trade receivables is minimized as a result of the large and diverse nature of
the Company's customer base. The Company maintains cash and equivalents, with
various financial institutions located throughout Germany. The Company policy is
designed to limit exposure to any one institution.

REVENUE RECOGNITION

Revenue is comprised of revenue earned from subscription fees and charges
for installation and connections. Revenue is recognized at the time services are
provided to customers.

Deferred revenue consists principally of one time installation fees.
Installation fees are recorded as income to the extent of direct costs in the
period service is rendered with the remainder deferred. The deferred portion of
installation fees are amortized on a straight-line basis into income over a
period of eight to ten years based upon the related service agreements.

25
<PAGE> 27
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories, consisting primarily of supplies used in the construction of
cable television systems, are stated at the lower of cost or market. Inventory
costs have been determined by the first in, first out (FIFO) method.

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment are stated at cost and are comprised
principally of assets used in the development and operation of cable television
systems. These assets are depreciated or amortized in accordance with Statement
of Financial Accounting Standards No. 51 "Financial Reporting by Cable
Television Companies".

Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 to 20 years; equipment and
fixtures: 3 to 5 years.

GOODWILL

Goodwill consists of the excess purchase price over the fair value of
assets acquired in various acquisitions. Such amounts are generally amortized
using straight-line method over 12 years. Accumulated amortization for goodwill
at December 31, 1996 and 1997 was DM30,622,000 and DM51,863,000, respectively.

IMPAIRMENT OF LONG LIVED AND IDENTIFIABLE INTANGIBLE ASSETS

The Company evaluates the carrying value of long lived assets and
identifiable intangible assets for potential impairment on an ongoing basis. An
impairment loss would be recognized when the estimated undiscounted future cash
flows is less than the carrying amount of the asset.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109. "Accounting for Income Taxes", which has
been applied for all periods presented. Under this method, deferred tax assets
and liabilities are based between financial reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The effect of a
change in tax rates on deferred tax assets and liabilities is recognized in the
period that includes the enactment date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximate their fair value based on the short
term maturities of these instruments. The carrying value of bank debt and the
Senior Discount Notes approximate fair value based on quoted market prices for
the same or similar issues as well as the current rates offered to the Company.
See Note 9 for fair value information on the foreign currency forward contracts.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

In 1997 the Company made the decision to report its corporate overhead as a
separate line item in its Consolidated Statements of Operations. In addition,
the Company is reporting deferred purchase obligations as a separate line in its
Consolidated Statements of Cash Flows. The years ended December 31, 1995 and
1996 have been reclassified to reflect these changes, as well as other certain
changes, in accounting presentation.

26
<PAGE> 28
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. BUSINESS ACQUISITIONS AND DISPOSITION

Kabelmedia and Kabelvision have made a series of acquisitions of cable
television systems and operations. The following table summarizes these
acquisitions for the three years ended December 31, 1997:

<TABLE>
<CAPTION>
TRANSACTION
DATE COMPANY TYPE
---- ------- -----------
<S> <C> <C>
1995 ACQUISITIONS
January 1995................... APA Basic Beteiligungsgasellschaft mbH Share
PKG Holding GmbH Share
PKG Kabelbeteiligungsgesellschaft mbH Share
May 1995....................... Kabel Plus Gesellschaft fur Kabel und Asset
Satellitenfernsehen mbH and Wiedmann-Dettwiler St.
Georgen GmbH
August 1995.................... Telecable Betriebsgesellschaft Halle mbH Share
September 1995................. BFR Beteiligungsgesellschaft mbH, Kabelcom GmbH and Share
ISIT GmbH
October 1995................... TBK Telecable Betriebsgesellschaft mbH Share
October 1995................... ERKA II Erfurt Asset
October 1995................... KSW GmbH & Co KG Kabel- und Satellitenempfangsanlagen Share
fur Wohngebiete und Kommunen
1996 ACQUISITION
January 1996................... Info-Sat Elektro- und Kommunikationstechnik GmbH Share
1997 ACQUISITIONS
January 1997................... Antennen Lindemann GmbH Share
May 1997....................... Telekommunikation Doebis Antennenservice Asset
December 1997.................. Schwerin Kabel-, Antennen- und Kommunikationsanlagen Share
Service GmbH
</TABLE>

The acquisitions referred to above have been accounted for using the
purchase method of accounting and accordingly the accompanying financial
statements reflect the results of operation commencing on the effective dates.

The aggregate purchase price of the 1995 Acquisitions, including
acquisition costs, consisted of cash of DM183,071,000 and deferred payments of
DM12,583,000. The deferred payments represent the remaining purchase price to be
paid to the respective sellers for two separate acquisitions amounting to
DM2,583,000 and DM10,000,000. On June 30, 1996 Kabelmedia paid the deferred
purchase price of DM2,585,000 plus accrued interest of DM182,000. On September
30, 1997, Kabelmedia paid DM7,875,000 representing the discounted present value
of the DM10,000,000 deferred purchase price obligation. These transactions
resulted in goodwill of DM143,181,000.

The purchase price of the 1996 Acquisition, including acquisition costs,
consisted of cash of DM14,795,000, and deferred payments of DM1,234,000. The
deferred purchase price was paid in full on July 8, 1996. This transaction
resulted in goodwill of DM11,803,000.

In 1996, Kabelmedia acquired additional ownership interest of Kabelcom
increasing its effective ownership interest to 99% for total consideration of
DM1,740,000, including transaction charges of DM554,000.

The aggregate purchase price of the 1997 Acquisitions consisted of cash of
DM40,469,000 and deferred payments of DM3,228,000. These transactions resulted
in goodwill of DM41,427,000. Deferred purchase payments of DM500,000 were paid
on May 28, 1997. Closing costs for the 1997 Acquisitions totaled DM1,547,000.

27
<PAGE> 29
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following represents the unaudited pro forma results of operations as
if the 1997 Acquisitions had occurred on January 1, 1996:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1996 1997
------ ------
(UNAUDITED)
(DM IN
THOUSANDS)
<S> <C> <C>
Revenues.................................................... 73,136 78,175
Net loss before extraordinary items......................... 51,094 50,589
Net loss.................................................... 56,416 53,479
</TABLE>

On July 4, 1997, KabelMedia sold its 50% interest in BKG
Breitbandkabelgesellschaft mbH, Neuruppin for total cash consideration on
DM1,807,000. The resulting sale resulted in a gain of DM2,024,000, net of costs
and expenses of DM157,000.

4. INVESTMENT GRANTS

Investment grants from the government for certain acquisitions of property,
plant and equipment are recognized by the Company when estimable and realizable.
The basis of property, plant and equipment is reduced by investments grants
recognized, and depreciated over the useful life of the acquired property.
During 1996 and 1997 fixed assets were reduced by investment grants received of
DM739,000 and DM469,000, respectively.

5. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant and equipment were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(DM IN THOUSANDS)
<S> <C> <C>
Cable television systems.................................... 269,333 295,259
Equipment and fixtures...................................... 7,895 8,655
-------- --------
Total....................................................... 277,228 303,914
Less accumulated depreciation............................... (46,887) (77,948)
-------- --------
Property. plant and equipment -- net........................ 230,341 225,966
======== ========
</TABLE>

Depreciation expense on the property, plant and equipment was DM13,556,000,
DM25,954,000 and DM28,029,000 for 1995, 1996 and 1997, respectively.

6. BANK DEBT

Bank debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(DM IN THOUSANDS)
<S> <C> <C>
Revolver and Term Loan...................................... 107,000 166,500
Overdraft facility.......................................... 1,528 3,500
Other....................................................... 2,647 937
-------- --------
Total bank debt............................................. 111,175 170,937
======== ========
Current portion thereof..................................... 306 316
</TABLE>

Effective June 28, 1995 and August 8, 1995, respectively, Kabelvision and
Kabelmedia entered into two revolving credit facilities (hereafter the "1995
facilities") with a number of banks. A portion of the proceeds

28
<PAGE> 30
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

received under the 1995 facilities were used to pay off previous credit
facilities. An extraordinary loss of DM2,670,000 resulting from the full
amortization of unamortized bank financing fees relating to the previous
facilities was recorded in 1995 upon the payment of amounts outstanding under
those facilities.

Effective July 23, 1996 Kabelmedia Management GmbH ("Guarantor"), a
wholly-owned subsidiary of Kabelmedia Holding GmbH and eight of the Guarantor's
subsidiaries ("Borrowers") entered into a new credit facility (hereafter the
"1996 facilities") with a number of banks. An extraordinary loss of DM5,322,000
resulting from the full amortization of unamortized bank financing fees relating
to the 1995 facilities was recorded in 1996 upon the repayment of the amounts
outstanding under the 1995 facilities.

The total aggregate amount of the 1996 facilities was DM400,000,000,
comprised of a DM375,000,000 Revolver and Term Loan and a DM20,000,000 Revolving
Facility. In addition, an Overdraft facility of DM5,000,000 is available to the
Guarantors. In July of 1997 the Borrowers canceled DM75,000,000 of the
DM375,000,000 Revolver and Term Loan. An extraordinary loss of DM1,013,000 was
recorded resulting from the full amortization of the unamortized bank financing
fees relating to the canceled portion of the 1996 facilities.

On December 1, 1997, an amendment to the 1996 facilities was executed. The
amended facility is comprised of a DM255,000,000 Revolver and Term Loan and a
DM65,000,000 Reducing Revolver Commitment. In addition an Overdraft facility of
DM5,000,000 is available to the Borrower (the "Amended 1996 facilities").

Under the terms of the Amended 1996 facilities, the Borrower was changed to
Kabelmedia Management GmbH and the previous Borrowers were made Guarantors. This
change was made solely for the purpose of reducing the administration burden
associated with the facilities.

The Borrower may borrow, repay and reborrow under the Revolver and Term
Loan until December 31, 1998 ("Conversion Date"). Upon the Conversion Date the
outstanding balance under the Revolver and Term Loan will convert into a six and
one half year Term Loan and will amortize in equal quarterly installments such
that the annual installments will be equal to the following percentages:

<TABLE>
<CAPTION>
% ANNUAL REDUCTION
------------------
<S> <C>
1999........................................................ 7.5%
2000........................................................ 12.5%
2001........................................................ 17.5%
2002........................................................ 17.5%
2003........................................................ 17.5%
2004........................................................ 17.5%
2005........................................................ 10.0%
</TABLE>

At December 31, 1997 the Borrower had unused availability under the
Revolver and Term Loan of DM88,500,000.

The Borrower may borrow, repay and reborrow up to the Reducing Revolver
Commitment. The Reducing Revolver Commitment will reduce in equal quarterly
installments such that annual reductions will be equal to the following
percentages:

29
<PAGE> 31
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
% ANNUAL REDUCTION
------------------
<S> <C>
1999........................................................ 0%
2000........................................................ 0%
2001........................................................ 0%
2002........................................................ 20%
2003........................................................ 20%
2004........................................................ 30%
2005........................................................ 30%
</TABLE>

At December 31, 1997 the Borrower had unused availability under the
Reducing Revolver Commitment of DM65,000,000.

The Borrower may borrow, repay and reborrow under the Overdraft Facility
until June 30, 2005 when all outstanding amounts will become due and payable. At
December 31, 1997, DM1,500,000 of the Overdraft Facility was unused. The
interest rate on the Overdraft Facility was 7.0% at December 31, 1997.

The interest rates under the Amended 1996 facilities are determined at the
time of borrowing and are based on LIBOR plus a margin of between 1.00% and
1.50% per annum depending on the ratio of Senior Indebtedness to the Company's
annualized operating cash flows. At December 31, 1997 the effective margin was
1.50% and LIBOR was 3.50%.

The Amended 1996 facilities are secured through first ranking security
interests on substantially all assets and revenues of the Borrower and its
subsidiaries, a pledge of the shares of the Guarantors and their subsidiaries,
as well as guarantees from all subsidiaries. Kabelmedia Holding, GmbH is
restricted under the Amended 1996 facilities in accessing its investment in and
amounts due from its subsidiaries. In addition, the Amended 1996 facilities
contain certain covenants which, among other things, require the Company to
maintain specified ratios relating to cash flow and total debt to contributed
equity.

Bank financing fees of DM2,385,000 relating to the execution of the
Amendment to the 1996 facilities have been capitalized in other assets. These
fees coupled with the remaining fees on the 1996 facilities are being amortized
and recorded as bank interest over a period of 8 years representing the term of
the Amended 1996 facilities. Commitment fees of 0.3875% per year are charged on
the unused portion of the respective facilities.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ------ -----
(DM IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for interest on bank debt during the period....... 11,166 12,469 7,856
</TABLE>

7. SENIOR DISCOUNT NOTES

On July 29, 1996 the Company issued $100,180,000 of Senior Discount Notes
at 13.625% per annum maturing August 1, 2006. Cash interest will not accrue on
the Senior Discount Notes prior to August 1, 2001. Thereafter, cash interest on
the Senior Discount Notes will be payable at 13.625% per annum, semi-annually in
arrears on each February 1 and August 1, commencing February 1, 2002. The Senior
Discount Notes are unsecured senior obligations of the Company. The Company
raised approximately DM143,792,000 in net proceeds after the payment of
underwriting discounts and commissions from the sale of the Senior Discount
Notes.

Costs and expenses of DM10,361,000 associated with the issuance of the
Senior Discount Notes have been capitalized in other assets. They are being
amortized over 10 years representing the term of the Senior Discount Notes.

30
<PAGE> 32
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Using proceeds from the Amended 1996 facilities, on December 1, 1997 the
Company purchased and canceled a portion of its Senior Discount Notes with a net
book value of DM 10,923,000 for cash consideration of DM 12,239,000. The
purchase of the notes resulted in an extraordinary loss of DM1,877,000
representing the difference between the purchase price and the accreted value of
the Senior Discount Notes at the time of repurchase and the full amortization of
the unamortized costs and expenses related to the issuance of the canceled
notes.

8. RELATED PARTY TRANSACTIONS

Subordinated Shareholder Loans from the Company's shareholders were subject
to annual interest rates ranging between 12% and 20% for the periods presented
and were subordinate to bank debt of the Company and its subsidiaries. Interest
expense on these loans amounted to DM13,652,000 and DM8,968,000 for 1995 and
1996, respectively.

On July 19, 1996 the Subordinated Shareholder Loans, including accrued
interest thereon, in the aggregate amount of DM191,805,000 were contributed to
the capital of Kabelmedia Holding GmbH by such shareholders and the Company's
contributed capital was increased by the equivalent amount.

9. FOREIGN EXCHANGE

The Company entered into foreign currency forward contracts to hedge
against the effect of exchange rate fluctuations on the U.S. dollar denominated
Senior Discount Notes. The foreign currency forward contracts require the
Company to exchange Deutsche Marks for U.S. dollars and generally mature on the
first call date of the Senior Discount Notes. The discount on the foreign
currency forward contracts, representing the difference between the contracted
forward rate and the spot rate at the date of the contracts, is amortized into
interest expense over the life of the contracts. The contracts are adjusted to
the year-end exchange rate and therefore are subject to fluctuations in value.
Such fluctuations, however, are generally offset by the U.S. dollar denominated
Senior Discount Notes which are also adjusted to the year end exchange rate.

The Company does not hold or use financial instruments for speculative
purposes. The counterparties to the Company's forward contracts are several
major financial institutions. The Company's policy is designed to limit exposure
to any one institution.

The fair values of the foreign currency forward contracts are estimated by
obtaining quotes from brokers. Information at December 31, 1996 and 1997 is as
follows:

<TABLE>
<CAPTION>
NOTIONAL FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
December 31, 1996........................................... $100,000,000 $ 161,000
December 31, 1997........................................... $130,000,000 $ 12,785,000
</TABLE>

10. INCOME TAXES

The Company and its consolidated subsidiaries each file separate tax
returns in accordance with German tax laws. Under German corporate tax law,
taxes on income are composed of corporate taxes and trade taxes. For financial
reporting purposes, the Company and its consolidated subsidiaries calculate
their respective tax liabilities on a separate return basis which are combined
in the accompanying consolidated financial statements.

31
<PAGE> 33
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provisions for income tax (expense) benefit consisted of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
----- ----- ------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Current..................................................... (104) (411) (1,467)
Deferred.................................................... 1,020 (135) (3,083)
----- ----- ------
916 (546) (4,550)
===== ===== ======
</TABLE>

A reconciliation between the German corporate statutory tax rate of 45% for
1995, 1996 and 1997 and the Company's effective tax rate before extraordinary
item is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(DM IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax benefit at German statutory rate........ 16,438 23,091 20,986
Tax loss on which no benefit is provided.................... (19,068) (23,799) (17,642)
Trade taxes on income, net of corporate tax benefit......... 3,345 2,281 415
Amortization of goodwill.................................... (2,023) (4,112) (5,650)
Other....................................................... 2,224 1,993 (2,659)
------- ------- -------
916 (546) (4,550)
======= ======= =======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 1996 and 1997 are presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(DM IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Net operating loss carry forwards......................... 56,361 73,128
Interest expense on Subordinated Shareholder Loans........ -- --
Other..................................................... 4,104 5,816
------- -------
60,465 78,944
less -- valuation allowance............................... (50,062) (67,589)
------- -------
10,403 11,355
Deferred tax liabilities
Property, plant and equipment............................. (4,047) (5,410)
Unamortized bank financing fees........................... (6,484) (7,291)
Capitalized acquisition costs............................. (2,787) (2,262)
Other assets.............................................. (1,151) (670)
------- -------
(14,469) (15,633)
------- -------
(4,066) (4,278)
======= =======
</TABLE>

Included in the valuation allowance at December 31, 1997 and 1996 are
DM8,078,000 and DM9,808,000, respectively, for which subsequently realized tax
benefits will be allocated to goodwill. In 1997, DM2,871,000 of loss
carryforwards were realized and recorded directly against goodwill.

As of December 31, 1997, the Company and its subsidiaries had available
combined cumulative tax loss carryforwards for corporate income tax of
approximately DM146,941,000 and for trade tax on income of

32
<PAGE> 34
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately DM76,445,000. Under current German tax laws, these loss
carryforwards have an indefinite life and may be used to offset the Company's
and its consolidated subsidiaries future taxable income.

11. COMMITMENTS

The Company obtains certain programming directly from Deutsche Telekom
through signal delivery contracts. The signal delivery contracts with Deutsche
Telekom are generally for a fixed period of time and are subject to negotiated
renewal. Under these contracts the Company typically pays Deutsche Telekom
either a flat fee or a fee per customer that is determined by reference to a
published fee schedule. For the years ended December 31, 1996 and 1997 total
fees paid to Deutsche Telekom amounted to approximately DM7,200,000 and
DM8,000,000, respectively.

The Company operates primarily in leased facilities and in addition leases
certain technical and office equipment. Lease terms generally range up to 5
years with options to renew at varying terms. Rental expense was DM1,527,000,
DM2,404,000 and DM1,284,300 in 1995, 1996 and 1997 respectively.

Future minimum payments under non-cancelable operating leases with initial
or remaining terms in excess of one year consisted of the following at December
31, 1997:

<TABLE>
<CAPTION>
(DM IN THOUSANDS)
-----------------
<S> <C>
1998........................................................ 1,240
1999........................................................ 1,240
2000........................................................ 946
2001........................................................ 623
2002........................................................ 572
Thereafter.................................................. 247
-----
4,868
=====
</TABLE>

12. CONTINGENCIES

The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings and claims will not have a material effect
on the consolidated financial position and results of operations of the Company.

13. REGISTERED CAPITAL

The Company is a limited liability company (hereafter GmbH) under German
law. Shareholders are generally not liable for the Company's obligations, except
to the extent of their capital investment. Registered capital of a GmbH is not
in the form of shares and does not represent negotiable securities. The minimum
capital requirement for a GmbH is DM50,000.

Capital contributions represent additional contributions made by the
shareholders in the form of cash or conversion of debt. In 1996, certain
shareholders contributed additional registered capital of DM100,000 and
converted DM9,800,000 of capital contributions to registered capital, bringing
total registered capital to DM10,000,000.

14. PENSION AND EMPLOYEE BENEFIT PLANS

The Company provides no significant pension, post retirement or post
employment benefits to its employees.

33
<PAGE> 35
KABELMEDIA HOLDING GMBH AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. RESERVE FOR CORPORATE RESTRUCTURING

On December 12, 1996 the Company adopted a plan of reorganization to allow
for the move of its corporate offices from Plauen to Eschborn in the vicinity of
Frankfurt and recorded a related restructuring charge of DM1,611,000.

The restructuring charge was principally comprised of lease termination
costs and the write-down of leasehold improvements. The charge also included
severance and termination benefits for 17 employees primarily engaged in
corporate administrative functions. At December 31, 1997 the Company had
DM377,000 remaining in the restructuring reserve which is adequate to cover the
remaining costs associated with the lease termination.

16. SUBSEQUENT EVENT

On February 17, 1998 the Company purchased and canceled a portion of its
Senior Discount Notes with a net book value of DM 5,505,000 for cash
consideration of DM 7,200,000. The purchase of the notes resulted in an
extraordinary loss of DM 1,943,000 which includes the full amortization of the
pro-rata portion of unamortized costs and expenses related to the issuance of
the cancelled Senior Discount Notes.

34
<PAGE> 36

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

None.

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

In accordance with its Articles of Association (Gesellschaftsvertrag), the
Company may have one or more Managing Directors (Geschaftsfuhrer) appointed by
the shareholders, who are charged with carrying on the business of the Company.
In addition to its Managing Director, the Company also has an Executive
Committee of Shareholders (the "Executive Committee") comprised of ten members
appointed by the Company's shareholders. The Executive Committee is not a
statutory body under German law, but rather is constituted pursuant to the
Shareholder Agreement. Under the Shareholder Agreement, the Executive Committee
members will be appointed by seven shareholders or groups of affiliated
shareholders. Two members, Messrs. Brown and Prelz Oltramonti, have been
appointed to the Executive Committee by investment funds managed by affiliates
of Advent International Corporation ("Advent International"). Mr. Hoch was
appointed by investment funds managed by affiliates of Morgan Stanley Group
Inc.("Morgan Stanley Group"); Mr. Berylson was appointed by a shareholder
affiliated with GC Companies Inc. ("General Cinema"), Mr. Meggs was appointed by
a shareholder affiliated with the Chase Manhattan corporation ("Chase
Manhattan"), Mrs. Manfrey was appointed by a shareholder affiliated with APAX
Partners & Co. Ventures Ltd. ("APAX"), Mr. van der Hyden was appointed by a
shareholder affiliated with Vision Networks, N.V. ("Vision Networks") and Dr.
von Dohnanyi is an independent member of the Executive Committee appointed by
the vote of 75% of the shareholders as a group. Mr. Hackenberg and Mr. Thomason
are the Chief Executive Officer and the Chief Financial Officer of the Company
and were appointed by a vote of 75% of the shareholders as a group.

The Executive Committee has no independent policy or management function
similar to that of a board of directors, but rather is a contractually
constituted body designed to facilitate the making of decisions on certain
matters reserved to the shareholders of the Company. For this reason and because
it is not a statutory body under German law, the Executive Committee members
have no fiduciary duty to the Company arising by reason of their membership on
the Executive Committee. Rather, the members represent the interests of the
respective shareholders who appointed them or, in the case of the independent
director, is intended to express his independent business judgment. The
authority of the Executive Committee is limited to considering matters which are
reserved pursuant to the Shareholder Agreement for decision by the shareholders
and are removed by contract from the authority of the Managing Director. Matters
requiring shareholder approval as a matter of German law must be considered by a
shareholder's meeting. The Executive Committee can approve by unanimous vote
matters reserved for shareholder approval under the Shareholder Agreement. In
the event such unanimous approval is not obtained, but three or more votes of
Executive Committee members have been cast in support of the matter, the matter
will automatically be referred to a shareholders' meeting, and in the absence of
such a vote any shareholder or shareholders holding 10% or more of the shares of
the Company can place a resolution in respect of the matter before a
shareholders' meeting.

35
<PAGE> 37

Set forth below is certain information with respect to the Company's
executive officers and members of its Executive Committee.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Jacques Hackenberg............................ 61 Chief Executive Officer, Managing Director
and Member of Executive Committee
Ernst Uhlig................................... 55 Chief Operating Officer
Paul Thomason................................. 42 Chief Financial Officer and Member of
Executive Committee
Douglas R. Brown.............................. 43 Member of Executive Committee
Massimo Prelz Oltramonti...................... 42 Member of Executive Committee
James S. Hoch................................. 37 Member of Executive Committee
John G. Berylson.............................. 44 Member of Executive Committee
Jonathan Meggs................................ 36 Member of Executive Committee
Barbara Manfrey............................... 43 Member of Executive Committee
Jos van der Hyden............................. 41 Member of Executive Committee
Klaus von Dohnanyi............................ 67 Chairman of Executive Committee
</TABLE>

Mr. Hackenberg has more than ten years of experience in the cable
television industry. He has been Co-Managing Director of the Company since July
1, 1997. On December 31, 1997 he became the Chief Executive Officer and Managing
Director of Kabelmedia. From 1995 until June 1997, Mr. Hackenberg served as CEO
of United and Phillips Communication B.V., the largest European private cable
operator. From 1990 until 1995 he was managing director of Phillips Cable
Systems. From 1963 until 1990, Mr. Hackenberg held various positions at Phillips
Electronics.

Mr. Uhlig has more than six years' experience in the cable television
industry. He has been the Chief Operating Officer of the Company since October
1995. From March 1992 to September 1995, Mr. Uhlig held various positions at
Robert Bosch GmbH ("Bosch"), one of the largest cable television providers in
Germany, including Sales Director for its broadband communications division from
July 1994 to September 1995. From January 1990 to February 1992, he was
Technical Director of Telenorma S.A., Brussels, Belgium, a wholly-owned
subsidiary of Bosch, which was engaged in the sale and rental of telephone and
alarm system equipment. Additionally, from October 1993 to September 1995, Mr.
Uhlig was a member of the board of directors of the broadband division of the
Central Federation of the Electronic Industry (Zentralverband der
Elektrotechnischen Industrie), headquartered in Frankfurt, Germany.

Mr. Thomason has more than ten years' experience in the communication and
media industry. He has been the Chief Financial Officer of the Company since
February 1996. Additionally, Mr. Thomason has provided financial advice to the
Company since 1993. From 1980 until January 1996, he was employed by the First
Union National Bank of North Carolina, where he served as Senior Vice President
in such bank's communications and media finance group from 1986 to January 1996.

Mr. Brown has more than six years' experience in the cable television
industry. He has served as Chairman of the Executive Committee of the Company
from May 1996 until December 31, 1997. Mr. Brown has been President and Chief
Executive Officer of Advent International since 1995, prior to which and from
1994 he was Chief Investment Officer for Advent International's worldwide
investment activities. From 1990 through 1994, he headed Advent International's
European operations. He has been employed by Advent International since 1985.
Before that he worked for Ionics, Inc., which manufactured membrane separation
and water treatment systems, where he held engineering and staff positions with
responsibilities for production, marketing and applications development. Mr.
Brown has served as a director of Aspen Technology, Inc., ChemDesign
Corporation, Inspec Group plc, Ionics Inc., and several Advent European fund
management companies.

36
<PAGE> 38

Mr. Prelz Oltramonti has more than five years' experience in the cable
television industry, having been a director of Cable Management (Ireland) Ltd.
since October 1992. He has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since April 1993. Mr.
Prelz Oltramonti is a Senior Vice President of Advent International and a
Managing Director of its affiliate Advent International plc. He assists in the
management of Advent International's European investment activities, with a
particular focus on the media and communications sectors. Prior to joining
Advent International in February 1991, he was General Partner of Alta Berkeley
Associates. Before that he worked with the Boston Consulting Group and Ing. C.
Olivetti & Co, where he focused on mergers and acquisitions and venture capital
and where he assisted in establishing Olivetti's financial information services
business in Italy.

Mr. Hoch has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since September 1995. Since
1994, Mr. Hoch has been Executive Director of Morgan Stanley & Co., Ltd since
February 1993, Mr. Hoch has been a Principal of Morgan Stanley & Co., Ltd
Incorporated. From January 1991 to February 1993, Mr. Hoch has been a Vice
President of Morgan Stanley & Co. Incorporated and prior to such time he was an
Associate. Mr. Hoch has been a director of SITA Telecommunications Holding N.V.
since 1995 and a director of Silgan Corporation since 1991. Mr. Hoch has also
served as Chairman of Nokia Alumiini Oy since 1995.

Mr. Berylson has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. He is the
President of GCC Investments Inc., an affiliate of General Cinema, responsible
for making equity investments with capital generated by the theater business of
the General Cinema group. He is also a director of Grandvision, Ltd. Prior to
joining General Cinema in August 1993, he was Vice President and Managing
Director of Advent International Financial Services, Inc., which he joined in
1989. From 1984 to 1989, he was a Partner and founder of Cowen & Company's
corporate finance department. Before that he was a Vice President at Blyth
Eastman Paine Webber in its corporate finance group.

Mr. Meggs has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since April 1994. Mr. Meggs
was employed by The Chase Manhattan Bank, N.A. from 1985 to 1989 and thereafter
by Chase Mezzanine Capital, later known as Chase Capital, where he became a
Principal in 1992. Chase Capital is now known as Chase Capital Partners
following the merger of Chase Manhattan with Chemical Banking Corporation in
April 1996. Mr. Meggs is also a Vice President of The Chase Manhattan Bank, N.A.
and a director of Chase Investment Bank Limited. Prior to joining Chase, Mr.
Meggs worked for Andersen Consulting.

Ms. Manfrey has served on the Executive Committee of the Company or on a
predecessor body carrying out comparable functions since January 1995. Ms.
Manfrey is a director of Apax Partner & Co. Ventures Ltd. ("Apax"), where she
specializes in media investments. Prior to joining Apax in 1992, she was a
Partner of E.M. Warburg, Pincus & Co, Inc., where she served as Managing
Director from 1988 to 1992 and was a co-founder of the firm's London office, a
Managing Director of the firm's New York office from 1985 to 1992 and an
Associate from 1976 to 1984. Ms. Manfrey currently serves on the board of
directors of Virgin Radio Ltd.

Mr. van der Hyden has served on the Executive Committee of the Company or
on a predecessor body carrying out comparable functions since January 1995. Mr.
van der Hyden has been the Business Development Director of Vision Networks,
N.V. since February 1995. He is responsible for acquiring and running cable
television networks for Vision Networks, N.V. in several European countries. He
is President of Reseaux Cables de France, President of Interkabel Polska S.P.
zo.o and STK S.P. zo.o in Poland and a Director of Intercable s.r.o. in the
Czech Republic. From 1992 to February 1995, he was employed by PTT Telecom as
Marketing Director of the Mobile Communications Services Business Unit,
responsible for the marketing of mobile telephony and paging, and as the head of
the strategy department of the international Communications Business Unit. From
1989 to 1992, Mr. van der Hyden was an Associate with McKinsey & Company in
Amsterdam and, from 1981 to 1988, he was employed by the Schlumberger Group in
New York, where his main responsibilities were in the development and
commercialization of data interpretation services for clients in the petroleum
industry.

37
<PAGE> 39

Dr. von Dohnanyi has served on the Executive Committee of the Company or a
predecessor body carrying out comparable functions since January 1996. On
December 31, 1997 he was unanimously elected Chairman of the Executive
Committee. Between 1954 and 1960, he worked for Ford Motor Company, both in the
United States and Germany. From 1960 to 1968, Dr. von Dohnanyi was a co-owner
and Managing Director of the Institut fur Marktforschung und
Unternehmensberatung Infratest, Munich (Market and Social Research, Infratest)
and, between 1968 and 1969, he was Permanent Secretary at the German Ministry of
Economics. Dr. von Dohnanyi was a Member of Parliament in Bonn from 1969 to
1981, Parliamentary Undersecretary from 1969 to 1972, and Minister for Science,
Technology and Education from 1972 to 1974. From 1976 to 1981, he was Deputy
Foreign Minister (Staatsminister), Bonn (in charge of European affairs). From
1981 to 1988, he was Governor of the City State of Hamburg. From 1990 to 1994,
Dr. von Dohnanyi was Chairman of the Board of TAKRAF Heavy Machinery, Leipzig,
and since 1994 he has been a Special Advisor to board of directors of the
Treuhandanstalt (since January 1, 1995, Bundesanstalt fur Vereinigungsbedingte
Sonderaufgaben), Berlin.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid by the Company for the
years ended December 31, 1995, 1996, and 1997 to the Company's Chief Executive
Officer and each of the other two most highly compensated executive officers of
the Company for the last three fiscal years, to the extent those officers were
in the employ of the Company.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
OTHER ANNUAL(1) ALL OTHER(2)
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- ------ ----- --------------- ------------
DM DM DM DM
<S> <C> <C> <C> <C> <C>
Jacques Hackenberg................... 1997 180,000 29,945 --
Chief Executive Officer
Ben Bartel........................... 1997 452,592 -- 53,654 888,687
Chief Executive Officer 1996 85,100 -- 312,071 --
1995 136,730 174,589 --
Ernst Uhlig.......................... 1997 281,315 -- 6,370 --
Chief Operating Officer 1996 271,613 -- -- --
1995 84,245 --
Paul Thomason........................ 1997 324,752 21,469 11,888
Chief Financial Officer 1996 85,100 79,465 888,067
</TABLE>

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

(1) Represents the value of the provision of a housing and car allowance and tax
gross up payments.

(2) Represents a special relocation bonus for Mr. Thomason in 1996. Represents
special bonuses for the sale of Neuruppin and the acquisition of Innocom for
Mr. Bartel in 1997.

On December 31, 1997, Mr. Bartel resigned as the Co-Managing Director of
Kabelmedia. Jacques Hackenberg who had been Co-Managing Director of Kabelmedia
since July 1, 1997 became the Managing Director at that time.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Shareholders' table sets forth certain information regarding the
beneficial ownership of the share capital of the Company as of the date hereof
by: (i) each person known by the Company to own beneficially 5% or more of the
outstanding share capital of the Company; (ii) each of the Company's Executive
Committee members; (iii) each of the executive officers of the Company; and (iv)
all Executive Committee members and executive officers of the Company as a
group.

38
<PAGE> 40

<TABLE>
<CAPTION>
PERCENTAGE
NAME OF BENEFICIAL OWNER (1)(2) OF SHARES
------------------------------- ----------
<S> <C>
SHAREHOLDERS
Advent International (3).................................. 42.49%
Morgan Stanley Group (4).................................. 14.34%
General Cinema (5)........................................ 9.56%
Chase Manhattan (6)....................................... 8.10%
APAX Partners (7)......................................... 7.17%
Vision Networks (8)....................................... 7.17%
Ben Bartel (9)............................................ 5.00%
MANAGEMENT AND EXECUTIVE COMMITTEE (10)
Jacques Hackenberg (11)................................... 0.00%
Paul Thomason (12)........................................ 1.25%
Ernst Uhlig............................................... 1.00%
All Executive Committee members and executive officers as
a group (10)........................................... 2.25%
</TABLE>

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

(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to the share
capital of the Company shown as beneficially owned by them, subject to
community property laws where applicable.

(2) The total nominal share capital (Stammkapital) of the Company (or of any
other limited liability company or GmbH organized under German law) is
expressed as a particular Deutsch Mark amount. The interests held by the
shareholders are represented by individual shares in the total capital,
each of which carries a Deutsche Mark nominal value (the aggregate of which
is the nominal capital of the GmbH) and entitles the holder to participate
upon distribution in an equivalent percentage of capital other than nominal
capital, such as capital surplus and retained earnings, if any. For
convenience, interests in the nominal capital of the Company are referred
to herein as shares.

(3) Represents shares held by European Special Situations Fund Limited
Partnership, which holds 15.83% of the Company's shares, Global Private
Equity II Limited Partnership, which holds 13.98% of the Company's shares,
Kabelgate L.L.C., which holds 11.29% of the Company's shares, Advent
Partners Limited Partnership, which holds 0.67% of the Company's shares,
Advent Crown Fund C.V., which holds 0.65% of the Company's shares, Advent
International Investors II Limited Partnership, which holds 0.02% of the
Company's shares, and Advent International Investors III Limited
Partnership, which holds 0.05% of the Company's shares. The general
partners or members of the above limited partnerships and limited liability
company are affiliates of Advent International and such shares of the
Company may be deemed to be beneficially owned by Advent International.
Advent International disclaims beneficial ownership of shares held by such
investment limited partnerships and limited liability company, except to
the extent of its pecuniary interest therein, The address for each of the
above limited partnerships and limited liability company is c/o Advent
International Corporation, 101 Federal Street, Boston, Massachusetts 02110.

(4) Represents shares held by Morgan Stanley Partners III, L.P., which holds
12.68% of the Company's shares, MSCP III 892 Investors, L.P., which holds
1.30% of the Company's shares, and Morgan Stanley Capital Investors, L.P.,
which holds 0.36% of the Company's shares. The general partner of each of
these investment limited partnerships is an affiliate of Morgan Stanley
Group. Morgan Stanley Group disclaims beneficial ownership of shares of the
Company held by such investment limited partnerships, except to the extent
of its pecuniary interest therein. The address for each of the above
limited partnerships is c/o Morgan Stanley Capital Partners, 1221 Avenue of
the Americas, New York, New York 10020.

39
<PAGE> 41

(5) Represent shares held by Chestnut Hill Media, an affiliate of General
Cinema Corporation. General Cinema disclaims beneficial ownership of the
shares held by Chestnut Hill Media Inc., except to the extent of its
pecuniary interest therein. The address for Chestnut Hill Media Inc. is 27
Boylston Street, Chestnut Hill, Massachusetts 02167.

(6) Represent shares held by Willard Holdings Inc., which holds 4.05% of the
Company's shares, and Woodward Holdigs Inc., which holds 4.05% of the
Company's shares, each of which is an affiliate of Chase Manhattan. Chase
Manhattan disclaims beneficial ownership of shares held by such companies,
except to the extent of its pecuniary interest therein. The address for
each of Willard Holdings Inc. and Woodward Holdings Inc. is c/o The Chase
Manhattan Bank, N.A., Woolgate house, Coleman Street, London EC2P, 2HD,
England.

(7) Represents shares held by ECO Holdings (Cayman) Limited. APAX Partners
disclaims beneficial ownership for the shares held by ECO Holdings (Cayman)
Limited, except to the extent of its pecuniary interest therein. ECO
Holdings (Cayman) Limited is not affiliated with either ECO I or ECO II,
other than as a limited partner in ECO II and to the extent of its
pecuniary interest therein. The address of ECO Holdings (Cayman) Limited is
c/o Maples & Calder, Ugland House, George Town, Grand Cayman. Cayman
Islands, British West Indies.

(8) The address for Vision Networks, N.Y., formerly KPN Kabel BV, is
Polarisavenue 27, 2132 Hoofddorp, The Netherlands.

(9) Represent Shares held by Ben Bartel and Charlotte Cable Holdings, Inc., a
company owned and controlled by Ben Bartel ("Charlotte").

(10) Pursuant to the Shareholder Agreement, eight members of the Executive
Committee are appointed by a designated shareholder or affiliated group of
shareholders of the Company to represent those shareholders, and one
independent member of the Executive Committee is elected by the vote of 75%
of the shareholders as a group. See "Management". Other than Paul Thomason,
no member of the Executive Committee is the registered holder of any of the
share capital of the Company. Mr. Brown and Mr. Prelz Oltramonti were
appointed to the Executive Committee by shareholders affiliated with Advent
International; Mr. Hoch by shareholders affiliated with Morgan Stanley
Group; Mr. Berylson by a shareholder affiliated with General Cinema; Mr.
Meggs by shareholders affiliated with Chase Manhattan; Ms. Manfrey by a
shareholder affiliated with APAX Partners & Co. Ventures Ltd. and Mr. van
der Hyden by a shareholder affiliated with KPN Kabel BV, in each case to
represent its or their interests, and certain members of the Executive
Committee are officers of shareholders of general partners of limited
partnerships which are shareholders of the Company. None of such Executive
Committee members is a registered holder of any shares and each such person
disclaims beneficial ownership of the shares held by the shareholder whose
interest he represents on the Executive Committee, except to the extent of
his pecuniary interest therein.

(11) Jacques Hackenberg has been awarded options which allow him to purchase up
to 2.5% of the Company's shares at different exercise prices equivalent to
an equity evaluation of between DM185,000,000 and DM370,000,000. The
options become vested over a two year period beginning with his date of
employment.

(12) Paul Thomason owns 1.25% of the registered shares and has been awarded
options to acquire an additional 1.25% of the Company's shares at different
exercise prices equivalent to an equity evaluation of between DM185,000,000
and DM370,000,000. The options and shares become fully vested by November
30, 1998

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On September 1, 1992, Plauen Cable, Inc. ("Plauen Cable"), a company owned
and controlled by Lloyd Bartel, the father of Ben Bartel, the Chief Executive
Officer of the Company, and Charlotte purchased from unaffiliated parties 95% of
the ownership interests in KFP Kabelfersehen Plauen GmbH & Co. KG ("Plauen KG")
and in Kabelfernsehen Plauen GmbH ("Plauen GmbH"), the general partner
(Komplementar) of Plauen KG.

40
<PAGE> 42

On April 2, 1993, Plauen Cable, Charlotte and two other minority
shareholders (the "Minority Shareholders") exchanged their interests in Plauen
KG and Plauen GmbH for 25% of the share capital of Kabelvision Beteiligungs GmbH
("Kabelvision"), which was merged into the Company on June 19, 1996 (the
"Merger"), which at the time of such exchange had no assets other than DM50,000
of contributed capital. The Minority Shareholders held their interest indirectly
through a civil law partnership. The holder of the remaining 75% of the share
capital of Kabelvision was European Special Situations Fund Limited Partnership
("ESSF"), a limited partnership affiliated with Advent International, which
subsequently became the general partner and a limited partner in ECO Holdings
Limited Partnership ("ECO I"). Contemporaneously with this transaction, ESSF
made a loan (the "Initial Loan") to Plauen KG in the sum of DM2,500,000. An
arrangement fee of DM400,000 payable by Plauen KG to ESSF in respect of the
Initial Loan was contributed by ESSF to the capital of Kabelvision, which loaned
that amount to Plauen KG to fund its payment of that arrangement fee. The
Initial Loan bore interest at the rate of 15% per annum and was to be repaid on
December 31, 1993. In May 1994, the Minority Shareholders under the civil law
partnership agreement and as former partners in Plauen KG. In July 1994, the
shareholders of Kabelvision, other than Charlotte, exchanged their interests in
the share capital of Kabelvision for limited partnership interests of ECO I.

On July 19, 1994, the obligations of Plauen KG under the Initial Loan were
assumed by a subsidiary of Kabelvision, the amount of the loan was increased to
DM7,500,000 and the terms of the Initial Loan were amended loan bore interest at
the rate of 20% per annum until contributed to the capital of Kabelmedia as part
of the Shareholder Debt Conversion. ECO I contributed to the capital of
Kabelvision DM6,000,000 by way of assignment of a portion of the loan and
DM2,000,000 of cash. On March 31, 1994, ESSF, the general partner and a limited
partner of ECO I, made a loan to a subsidiary of Kabelvision in the principal
amount of DM13,000,000, which was subsequently assigned by ESSF to ECO I. The
proceeds of such loan were used by Kabelvision to make acquisitions of cable
television systems. The loan bore interest at the rate of 20% per annum until
contributed to the capital of Kabelmedia as part of the Shareholder Debt
Conversion. In 1994 and 1995, ECO made loans to a subsidiary of Kabelvision in
the principal amounts of DM12,361,000 (of which DM6,787,000 was contributed to
the capital of Kabelvision), DM8,000,000 and Kabelvision DM12,000,000
(DM3,000,000 of which was contributed to the capital of Kabelvision), which were
utilized by Kabelvision in connection with the acquisition of cable television
systems. Each of these contributions from ECO I to Kabelvision was made by way
of assignment of a portion of the relevant loan by ECO I to Kabelvision. Each of
these loans bore interest at the rate of 15% per annum until contributed to the
capital of Kabelmedia as part of the Shareholder Debt Conversion.

On December 28, 1994, ECO II Holdings Limited Partnership ("ECO II") and
Ben Bartel formed Kabelmedia with DM50,000 of capital and made a loan to the
Company in the principal amount of DM49,300,000, which was utilized by the
Company in connection with the acquisition of cable television systems. On
August 31, 1995, ECO II made a loan to the Company in the principal amount of
DM40,252,000, which was utilized by the Company in connection with the
acquisition of Beta Asset Management GmbH ("Beta Asset"), which then acquired
TELECable Betriebsgesellschaft mbH. The loan bore interest at the rate of 12%
per annum commencing January 1, 1996, until contributed to the capital of
Kabelmedia as part of the Shareholder Debt Conversion. The Company acquired Beta
Asset from Morgan Stanley Partners III, Inc. and certain of its affiliates for
DM58,000. Morgan Stanley Partners III, Inc. is as affiliate f Morgan Stanley and
certain of its affiliates partners were limited of ECO II. On October 6, 1995,
ECO II made a loan to the Company in the principal amount of DM30,900,000, which
was utilized by the Company in connection with the acquisition of cable
television systems. The loan bore interest at the rate of 12% per annum
commencing January 1, 1996, until contributed to the capital of Kabelmedia as
part of the Shareholder Debt Conversion.

Each of the loans described above was subordinated and was repayable in a
single installment on January 1, 2007. The interest on such loans was not
required to be currently paid, but rather was to accrue until maturity. The
total principal amount of such loans plus accrued interest thereon through June
14, 1996 were contributed to the capital of KabelMedia in the Shareholder Debt
Conversion.

41
<PAGE> 43

ECO I and ECO II were dissolved and the capital stock of Kabelmedia was
distributed to the partners of ECO I and ECO II, who became shareholder in
Kabelmedia. As part of a capital increase on July 15, 1996, Paul Thomason and
Ernst Uhlig, the Chief Financial Officer and Chief Operating Officer of the
Company, respectively, subscribed for 1.25% and 1%, respectively, of the shares
of the Company, at a price equal to the nominal value thereof, DM2,500 and
DM2,000, respectively. The Company and its shareholders, other than Ben Bartel,
Charlotte, Paul Thomason and Ernst Uhlig , have entered into a Registration
Rights Agreement which, under certain circumstances, would permit such
shareholders to require the Company to register their shares under the
Securities Act.

CERTAIN INTERESTS OF AFFILIATES OF THE UNDERWRITERS

The MSCP Funds are affiliates of Morgan Stanley & Co., one of the
underwriters of the offering of the Senior Discount Notes, collectively own
approximately 14.34% of capital stock of Kabelmedia. Pursuant to the terms of
the Shareholder Agreement, MSCP III, L.P., as general partner of the MSCP Funds,
has the right to appoint one member of the Executive Committee of Kabelmedia. An
officer of Morgan Stanley currently serves on the Executive Committee of
Kabelmedia.

Chase Investment Bank Limited ("CIBL") and Chase Manhattan Bank AG are
affiliates of Chase Securities Inc., one of the Underwriters for the offering of
the Senior Discount Notes, and are the Arranger and the Agent, respectively, of
the 1996 Bank facilities and the Amended 1996 facilities. The loan commitments
of CIBL to the Company as of December 31, 1997 under the Amended 1996 facilities
were approximately DM31,500,000, representing approximately 9.7% of the total
loan commitments under the Amended 1996 facilities. Certain customary fees were
paid to certain affiliates of Chase Securities Inc. in connection with the
arrangement of the 1996 facilities and the Amended 1996 facilities and its
services as agent thereunder. Certain affiliates of Chase Securities Inc. also
collectively own approximately 8.10% of the capital stock of Kabelmedia.
Pursuant to the terms of the Shareholder Agreement, such affiliates of Chase
Securities Inc. have the right to appoint one member of the Executive Committee
of Kabelmedia. An officer of such affiliates of Chase Securities Inc. currently
serves on the Executive Committee of Kabelmedia.

SHAREHOLDER AGREEMENT

The Company, each of its current shareholders and each of the partners of
ECO I and ECO II entered into a Shareholders' Agreement (the "Shareholder
Agreement") pursuant to which the capital of Kabelmedia was increased effective
July 15, 1996 from DM74,600 to DM200,000 by way of a cash contribution in
amounts which, following the dissolution of ECO I and ECO II, resulted in the
respective percentage shareholdings reflected in "Item 12" found elsewhere in
this document.

In addition, the Shareholder Agreement provided for a further increase in
the nominal capital of Kabelmedia by DM9,800,000 to DM10,000,000, by the
conversion of capital surplus to nominal capital, without changing the
percentage holdings of the shareholders, which was filed with the relevant
Commercial Court in July 19, 1996, and became effective upon the recording
thereof with the Commercial Register. The parties to the Shareholder Agreement
also agreed to take all necessary steps to dissolve ECO I and ECO II distributed
the assets held by them, comprised of the shares in the Company, to their
partners, pro rata to their respective partnership interests.

The Shareholder Agreement reserves certain matters for decision by the
shareholders of the Company. Certain shareholder approvals can be granted upon
the unanimous approval of the Executive Committee. The matters which are
reserved to the shareholders by German law or the Shareholder Agreement can be
categorized as follows:

(i) matters which are required by law to be approved by the shareholders
by either a simple majority or a 75% majority of the shareholders
present at a meeting called to consider such resolution which, under
the Shareholder Agreement uniformly require the prior written consent
of a 75% majority of the shareholders;

(ii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a 75% majority of the
shareholders present at a meeting called to consider such resolution;
and

42
<PAGE> 44

(iii) matters which require either a prior unanimous resolution of the
Executive Committee or a resolution passed by a simple majority of
the shareholders present at a meeting called to consider such
resolution.

The matters referred to in clause (i) above include any change to the share
capital of the Company, the grant of any option over or interest in, or the
issue of any instrument carrying rights of conversion into, any other security
of the Company, the redemption, purchase, reorganization, consolidation,
cancellation or conversion of any share capital or other securities issued by
the Company, a change of the Company's auditors or fiscal year, the declaration
of any dividend, the appointment or removal of any Geschaftsfuhrer or Prokurist
of the Company, a change of the Company's name, the adoption of the Company's
annual financial statements, any variation of the Company's accounting policies
and any amendment of the Company's Articles of Association.

The matters referred to in clause (ii) above include refinancings involving
over DM150,000,000 or new financings involving over DM50,000,000, acquisition or
disposals of any assets which account for more than 10% of the operating cash
flow, net revenues or total assets of the Company, the acquisition of any
capital asset for more than DM1,000,000, entering into any joint venture or
similar arrangement, implementing any change in the nature of the business or
commencing business outside Germany, entering into any contract with a related
party, approving the annual business plan and entering into any contract
affecting more than 10% of the homes passed by the Company's cable television
systems.

The matters referred to in clause (iii) above include any financing,
acquisition or disposal involving more than DM1,000,000 in any calendar year,
any loan (subject to a de minimis exception) and any political or charitable
donation.

The Shareholder Agreement provides that shareholders may only transfer
shares (i) to a "connected person," which is defined in the Company's Articles
of Association as including a family member, a family trust or, in the case of a
transfer by a partnership, any of its partners, provided such transfer is a
distribution made in accordance with the relevant partnership agreement; or (ii)
to a third party, provided (A) such transfer takes place after June 12, 1997,
(B) the transferring shareholder complies with the right of first offer
procedure which is set out in the Articles of Association, pursuant to which
each of the other shareholder has the right to purchase all or a portion of the
shares to be sold by the shareholder at a price not greater than the price to be
paid by the proposed third party acquiror and (C) the proposed third party
acquiror, in the event that the price per DM100 of nominal capital to be paid by
the proposed third party acquiror is not greater than 110% of the price at which
such shares were offered to the other shareholders, has made an offer to acquire
on like terms the same percentage of any shares were offered for sale by other
shareholders, has made an offer to acquire on same first offer procedure or, in
the event that the price per DM100 of nominal capital to be paid by the proposed
third party acquiror is greater than 110% of the price at which such shares were
offered to the other shareholders.

In addition, if a person makes an offer to all of the shareholders to
acquire all of their shares and such offer is accepted by shareholders holding
at least 66 2/3% of the share capital of the Company (excluding any capital held
by any offeror), the remaining shareholders can be forced by such accepting
shareholders to accept such offer. Prior to pursuing any acquisition or other
business opportunity in the cable television industry in Germany, each
shareholder is required under the Shareholder Agreement to offer such
opportunity to the Company.

Pursuant to a Share Transfer and Option Agreement, which is an exhibit to
the Shareholder Agreement (the "Share Transfer and Option Agreement"), each of
ECO I and ECO II agreed to the Shareholder Debt Conversion, in return for which
Ben Bartel and Charlotte agreed that, upon the increase in the capital of the
Company from DM74,600 to DM200,000, they only subscribed for such amount of
share capital as will result in their aggregate percentage holding of such
increased share capital being 5% of the Company's share capital. In addition,
Ben Bartel and Charlotte granted options to the Company implementing the
contingent share purchase provisions applicable upon certain terminations of Mr.
Bartel's employment. Further, the Share Transfer and Option Agreement contained
provisions which the parties thereto have agreed to include in the Articles of
Association, designed to protect Ben Bartel and Charlotte from dilution of their
shareholdings by permitting Ben Bartel and Charlotte to sell their rights to
participate in future capital increases to the extent

43
<PAGE> 45

that such capital increases are not made by unrelated third parties and are made
at a subscription price per DM100 of nominal capital which is below certain
valuation thresholds.

Paul Thomason and Ernst Uhlig entered into Share Transfer and Option
Agreements, which are exhibits to their respective employment agreements and
which include comparable terms to the Share Transfer and Option Agreement,
implementing the contingent share purchase provision applicable upon certain
terminations of their respective employment and designed to protect them from
dilution of their respective shareholdings.

The Company and its shareholders, other than Ben Bartel, Charlotte, Paul
Thomason and Ernst Uhlig, have entered into a Registration Rights Agreement
which, under certain circumstances, permits such shareholders to require the
Company to register their shares under the Securities Act.

44
<PAGE> 46

PART IV. OTHER INFORMATION

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

(a)1. The following consolidated financial statements of Kabelmedia Holding GmbH
and subsidiaries are included in Item 8:

Independent Auditors Report
Consolidated Statements of Operations -- Years ended December 31, 1997,
1996 and 1995
Consolidated Balance Sheets -- December 31, 1997 and 1996
Consolidated Statement of Shareholders' Equity (Deficiency) -- Years ended
December 31, 1997, 1996, 1995 and 1994
Consolidated Statements of Cash Flows --Years ended December 31, 1997,
1996 and 1995
Notes to Consolidated Financial Statements

(a)2. Financial Statement Schedules

All financial statement schedules other than the schedule listed on the
following page have been omitted because they are not required or the
information required to be set forth therein is included in the
Consolidated Financial Statements or the Notes thereto.

(a)3. None

(b)3. None

45
<PAGE> 47

SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

KABELMEDIA HOLDING GMBH

CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997 1997
------- ------- ------- -------
DM DM DM U.S.$
<S> <C> <C> <C> <C>
Revenues.......................................... 6 12 49 27
Selling, general and administrative expenses...... 837 964 496 276
------- ------- ------- -------
Operating loss.................................... (831) (952) (447) (249)
Dividend income................................... -- 600 600 334
Interest income from subsidiaries................. 2,850 12,167 31,755 17,651
Interest expense from Subordinated Shareholder
Loans........................................... (6,872) (8,968) -- --
Interest expense from Senior Discount Notes....... -- (8,421) (23,757) (13,205)
Other interest expense............................ -- (1,852) (1,476) (820)
Unrealized foreign exchange loss.................. -- (4,246) (834) (464)
------- ------- ------- -------
Gain (loss) before income taxes, equity in net
loss of subsidiaries and extraordinary item..... (4,853) (11,672) 5,841 3,247
Deferred income tax (expense) benefit............. -- (4,577) (881) (490)
------- ------- ------- -------
Income (loss) before equity in net loss of
subsidiaries and extraordinary item............. (4,853) (16,249) 4,960 2,757
Equity in net loss of subsidiaries................ (33,429) (40,932) (57,159) (31,770)
------- ------- ------- -------
Net loss before extraordinary item................ (38,282) (57,181) (52,199) (29,014)
Extraordinary item................................ -- -- (1,877) (1,043)
------- ------- ------- -------
Net loss.......................................... (38,282) (57,181) (54,076) (30,057)
======= ======= ======= =======
</TABLE>

See accompanying notes to condensed financial statements

46
<PAGE> 48
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

KABELMEDIA HOLDING GMBH

CONDENSED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1996 1997 1997
-------- -------- --------
DM DM U.S.$
<S> <C> <C> <C>
Cash..................................................... 3 -- --
Investment in and amounts due from subsidiaries
(Notes 1 and 5).......................................... 259,701 220,828 122,744
Foreign currency forward contracts (Note 4).............. 9,062 39,632 22,029
Other assets............................................. 15,188 12,820 7,125
-------- -------- --------
TOTAL ASSETS............................................. 283,954 273,280 151,898
======== ======== ========
Unamortized discount on foreign currency forward
contracts (Note 4)..................................... 7,606 8,581 4,770
Senior discount Notes (Note 3)........................... 163,131 206,394 114,721
Other liabilities........................................ 6,105 5,269 2,928
-------- -------- --------
TOTAL LIABILITIES........................................ 176,842 220,244 122,419
Registered capital....................................... 10,000 10,000 5,558
Capital contributions.................................... 200,192 200,192 111,273
Accumulated deficit...................................... (103,080) (157,156) (87,352)
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY............................... 107,112 53,036 29,479
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... 283,954 273,280 151,898
======== ======== ========
</TABLE>

See accompanying notes to condensed financial statements

47
<PAGE> 49
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

KABELMEDIA HOLDING GMBH

CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1996 1997 1997
-------- --------- --------- ---------
DM DM DM U.S.S.
<S> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................... 16,313 (5,157) 12,236 6,801
INVESTING ACTIVITIES
Acquisitions of shares in subsidiaries..... (7,509) -- -- --
Issuance of loans to subsidiaries.......... (90,318) (149,008) -- --
-------- --------- --------- ---------
Net cash used for investing activities..... (97,827) (149,008) -- --
FINANCING ACTIVITIES
Contributions to capital................... -- 100 -- --
Proceeds from Subordinated Shareholder
Loans.................................... 81,532 10,199 -- --
Proceeds from Senior Discount Notes........ -- 149,008 -- --
Repurchase of Senior Discount Notes........ -- -- (12,239) (6,803)
Payment of capitalized financing costs..... -- (5,215) -- --
-------- --------- --------- ---------
Net cash provided by financing
activities............................... 81,532 154,092 (12,239) (6,803)
-------- --------- --------- ---------
Net increase (decrease) in cash............ 18 (73) (3) (2)
Cash at beginning of year.................. 58 76 3 2
-------- --------- --------- ---------
Cash at end of year........................ 76 3 0 0
======== ========= ========= =========
</TABLE>

See accompanying notes to condensed financial statements

48
<PAGE> 50
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

KABELMEDIA HOLDING GMBH

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. FORMATION OF BUSINESS AND BASIS OF PRESENTATION

Kabelmedia Holding GmbH, formerly Kablemedia Beteiligungs GmbH (the
"Company" or "Kabelmedia"), was formed in December 1994 to acquire, own and
operate cable television systems serving communities throughout Germany. On June
19, 1996 Kabelvision Beteiligungs GmbH ("Kabelvision"), a company controlled by
certain shareholders of Kabelmedia, was merged with and into the Company.
Furthermore, the outstanding Subordinated Shareholder Loans (including accrued
interest) at the time of the merger were contributed to the capital of
Kabelmedia. Kabelvision was founded in 1992 to acquire, own and operate cable
television systems serving communities throughout Germany. Kabelvision began
operations in 1993 when their first cable system was acquired. The accompanying
parent company-only condensed financial statements have been prepared using the
historical costs of each entity as if the merger were a pooling of interests.

In the parent company-only condensed financial statements, the Company's
investment in subsidiaries is stated at cost plus equity in undistributed
earnings of subsidiaries since the date of acquisition. The Company's share of
net income of its unconsolidated subsidiaries is included in consolidated income
(loss) using the equity method. The parent company-only financial statements
should be read in conjunction with the Company's consolidated financial
statements.

Certain amounts in the prior year have been reclassified to conform with
the 1997 condensed financial statement presentation.

The condensed financial statements have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP"). The
Company maintains its financial records in accordance with German Commercial
Code, which represents generally accepted accounting principles in Germany
("German GAAP"). Generally accepted accounting principles in Germany vary in
certain significant respects from U.S. GAAP. Accordingly, the Company has
recorded certain adjustments in order that these financial statements be in
accordance with U.S. GAAP.

Solely for the convenience of the reader, the accompanying condensed
financial statements as of and for the year ended December 31, 1997 have been
translated into United States dollars (U.S.$) at the rate of 1.7991 per $1.00
the Noon Buying Rate of the federal Reserve Bank of New York on December 31,
1997. The transmission should not be construed as a representation that the
amounts shown could have been, or could be, converted into U.S. dollars at that
or any other rate.

2. SUBORDINATED SHAREHOLDER LOANS

Subordinated Shareholder Loans from the Company's shareholders were subject
to an annual interest rate of 12% for the periods presented. On June 19, 1996
the Subordinated Shareholder Loans, including accrued interest thereon, were
contributed to the capital of Kabelmedia Holding GmbH by such shareholders.

3. SENIOR DISCOUNT NOTES

49
<PAGE> 51
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

The Company purchased and canceled a portion of its Senior Discount Notes
with a net book value of DM 10,923,000 for cash consideration of DM 12,239,000.
The purchase of the notes resulted in an extraordinary loss of DM 1,877,000
representing the difference between the purchase price and the accreted value of
the Senior Discount Notes at the time of repurchase and the full amortization of
the unamortized costs and expenses related to the issuance of the canceled
notes.

4. FOREIGN EXCHANGE

The fair values of the foreign currency forward contracts are estimated by
obtaining quotes from brokers. Information at December 31, 1996 and 1997 is as
follows:

5. GUARANTEES AND ASSET RESTRICTIONS

Bank obligations existing on the subsidiaries books are secured through
first ranking security interests on substantially all assets and revenues of the
Company and its subsidiaries. The ability of the Company to access its
investment in and amounts due from subsidiaries is restricted by the terms of
these bank obligations.

6. SUBSEQUENT EVENT

50
<PAGE> 52

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

KABELMEDIA HOLDING GMBH

/s/ JACQUES HACKENBERG
Jacques Hackenberg
Chief Executive Officer and Managing
Director

Dated: March 31, 1998

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Jacques Hackenberg
Chief Executive Officer and
Managing Director

Paul Thomason
Chief Financial Officer and Controller

Dated: March 31, 1998

51
<PAGE> 53

Supplemental information to be furnished with reports filed pursuant to
section 15(d) of the Act by registrants which have not registered securities
pursuant to Section 12 of the Act -- None.

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K DATED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> DEUTSCHE MARK

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1.7991
<CASH> 1,568
<SECURITIES> 0
<RECEIVABLES> 1,160
<ALLOWANCES> 0
<INVENTORY> 2,256
<CURRENT-ASSETS> 0
<PP&E> 225,966
<DEPRECIATION> 0
<TOTAL-ASSETS> 467,216
<CURRENT-LIABILITIES> 36,849
<BONDS> 377,331
<COMMON> 10,000
0
0
<OTHER-SE> 43,036
<TOTAL-LIABILITY-AND-EQUITY> 467,216
<SALES> 73,633
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 33,813
<OTHER-EXPENSES> 52,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,340
<INCOME-PRETAX> (46,636)
<INCOME-TAX> (4,550)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (2,890)
<CHANGES> 0
<NET-INCOME> (54,076)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>