UNITED PAN EUROPE COMMUNICATIONS NV
S-1, 1999-08-03
CABLE & OTHER PAY TELEVISION SERVICES
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<PAGE>

     As filed with the Securities and Exchange Commission on August 3, 1999

                                                        Registration No. 333-

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               ----------------
                                    FORM S-1
                             REGISTRATION STATEMENT
                        Under The Securities Act of 1933
                               ----------------
                     United Pan-Europe Communications N.V.
             (Exact name of registrant as specified in its charter)

     The Netherlands                   4841                  98-0191997
                                 (Primary Standard        (I.R.S. Employer
     (State or other                Industrial           Identification No.)
      jurisdiction              Classification Code
   ofincorporation or                 Number)
      organization)

                             Fred. Roeskestraat 123
                                 P.O. Box 74763
                       1076 EE Amsterdam, The Netherlands
                                +31 20 778 9840
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)

                               ----------------
                           Michael T. Fries, Chairman
                           c/o UnitedGlobalCom, Inc.
                      4643 South Ulster Street, Suite 1300
                             Denver, Colorado 80237
                                 (303) 770-4001
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)

                               ----------------
                                   Copies to:
  Garth B. Jensen, Esq.
                                                 Richard L. Muglia, Esq.
Holme Roberts & Owen LLP                  Skadden, Arps, Slate, Meagher & Flom
1700 Lincoln, Suite 4100                                   LLP
 Denver, Colorado 80203                      One Canada Square, Canary Wharf
     (303) 861-7000                              London E14 5DS England
                                                    +44 171 519 7000
                               ----------------
      Approximate Date of Commencement of Proposed Sale to the Public: As soon
as practicable after the effective date of this Registration Statement.
      If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
      If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]

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

                        CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                 Proposed
                                                  maximum
           Title of each class of                aggregate        Amount of
        securities to be registered          offering price(2) registration fee
- -------------------------------------------------------------------------------
<S>                                          <C>               <C>
Ordinary Shares B(1)......................      $10,000,000         $2,780
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Includes (i) Ordinary Shares B that are to be offered and sold in the form
    of Ordinary Shares or American Depositary Shares, (ii) Ordinary Shares that
    the Underwriters may purchase in the form of Ordinary Shares or American
    Depositary Shares to cover over-allotments, if any, and (iii) Ordinary
    Shares that are to be offered and sold to persons outside the United States
    but that may be resold by persons from time to time in the United States
    during the distribution. The Ordinary Shares are not being registered
    hereby for purposes of sale outside the United States. The American
    Depositary Shares (each representing one Ordinary Share) evidenced by
    American Depositary Receipts upon deposit of the Ordinary Shares registered
    hereby are being registered under a separate registration statement on Form
    F-6.
(2) Estimated solely for the purpose of calculating the registration fee
    pursuant to Rule 457(o).

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

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be     +
+changed. We may not sell these securities until the registration statement    +
+filed with the Securities and Exchange Commission is effective. This          +
+preliminary prospectus is not an offer to sell these securities nor does it   +
+seek an offer to buy these securities in any jurisdiction where the offer or  +
+sale is not permitted.                                                        +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

                  Subject to Completion. Dated August 3, 1999.

          [LOGO OF UNITED PAN-EUROPE COMMUNICATIONS N.V. APPEARS HERE]

                     United Pan-Europe Communications N.V.
                                  Ordinary Shares B
         in the form of American Depositary Shares or Ordinary Shares B

                                  -----------

  This is a public offering of ordinary shares B of United Pan-Europe
Communications N.V. UPC is also offering the B shares in the form of American
Depositary Shares. Each ADS represents one B share. This prospectus relates to
an offering of      B shares, in the form of B shares or ADSs, in the United
States. In addition,      B shares, in the form of B shares or ADSs, are being
offered outside the United States.

  Our B shares have similar rights to our ordinary shares A, except for the
following primary differences:

 .Holders of B shares are entitled to one vote per share and holders of A shares
    are entitled to 100 votes per share;

 .Our Board of Management must obtain the approval of the meeting of holders of
    the B shares before cooperating with a public offer for our shares if the
    offer is limited to our A shares or the offer is not made on equal
    financial terms for both the A shares and the B shares; andl

  . Our articles of association and certain other agreements will include
    provisions relating to the rights of the A shares and the B shares upon
    certain change of control events resulting from the sale of our A shares.

  Our A shares trade on the Amsterdam Stock Exchange under the symbol "UPC" and
ADSs representing our A shares trade on the Nasdaq National Market under the
symbol "UPCOY". On July 30, 1999, the last reported sale price of our A share
ADSs on the Nasdaq National Market was $64.00 per ADS.

  Prior to this offering, there has been no trading market for our B shares. We
intend to list our B shares in bearer form on the Official Market of the
Amsterdam Stock Exchange under the symbol "UPCB". We also intend to have the
ADSs quoted on the Nasdaq National Market System under the symbol "UPCBY".

                                  -----------

  See "Risk Factors" beginning on page 13 to read about certain factors you
should consider before buying ordinary shares or ADSs.
                                  -----------

  Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.

                                  -----------

<TABLE>
<CAPTION>
                               Per ADS Per Ordinary Share B Total, at ADS price
                               ------- -------------------- -------------------
<S>                            <C>     <C>                  <C>
Offering price...............    $           (Euro)                 $
Underwriting discount........    $           (Euro)                 $
Proceeds, before expenses, to
 UPC.........................    $           (Euro)                 $
</TABLE>

  The U.S. underwriters may, under certain circumstances, purchase up to an
additional      B shares, in the form of B shares or ADSs, from UPC at the
offering price less the underwriting discount. The international underwriters
may similarly purchase up to an additional      B shares, in the form of B
shares or ADSs.

                                  -----------
Goldman, Sachs & Co.                                  Morgan Stanley Dean Witter
                                  -----------

                          Prospectus dated     , 1999.
<PAGE>

                    [MAP OF OUR SERVICE AREAS APPEARS HERE]




          /1/Since our initial public offering in February 1999.



<TABLE>
<CAPTION>
[LOGO OF UNITED PAN-          [LOGO OF PRIORITY              [LOGO OF CHELLO
EUROPE COMMUNICATIONS         TELECOM APPEARS HERE]          BROADBAND APPEARS
APPEARS HERE]                                                HERE]
<S>                             <C>                           <C>
 . Established, highly           . Offering residential and    . High speed Internet/data
  penetrated cable networks       business services at          services
                                  discounted pricing
 . 5.7 million aggregate         . 118,000 aggregate           . 35,000 aggregate
  franchise homes                 telephone lines (27,000       subscribers
  (10.7 million including our     cable telephone lines)
  new
  acquisitions)
 . 4.7 million aggregate homes   .European market              . E-commerce/advertising,
  passed                        deregulation                    content aggregation and
  (8.5 million including our                                    integration
  new
  acquisitions)
 . 3.4 million aggregate         . Number portability          . Flat fee, "always on"
  subscribers                                                   service
  (5.6 million including our
  new
  acquisitions)
</TABLE>

       One stop shopping for all personal and business communication needs.
<PAGE>

                               PROSPECTUS SUMMARY

   This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information that you should consider
before investing in our B shares. You should read the entire prospectus
carefully, especially the risks of investing in our B shares discussed under
"Risk Factors."

   Unless otherwise stated, the information presented in this prospectus has
not been adjusted for the acquisitions described below under "The New
Acquisitions." Certain of these new acquisitions, including the acquisitions of
@Entertainment, A2000, Time Warner Cable France, Videopole and Kabel Plus, have
not yet been completed and are subject to closing conditions, including
regulatory approvals. There can be no assurance that all such approvals will be
obtained or conditions satisfied and, accordingly, one or more of these new
acquisitions may not be completed.

   Some of the financial and operating figures appearing in this prospectus are
qualified by the terms "aggregate," "proportionate" and "consolidated." When we
refer to information as "aggregate," we mean that the information is given in
respect of all systems in which we hold any equity interest that we either
consolidate or account for using the equity method for financial accounting
purposes in accordance with the applicable generally accepted accounting
principles as though we wholly owned them. When we refer to information as
"proportionate," we mean that we have multiplied the figures attributable to
each operating system in which we own any equity interest by our percentage of
the equity of that system we own. When we refer to information as
"consolidated," we mean that the figures that we present are the sum of those
for all systems we consolidate in accordance with applicable generally accepted
accounting principles. All references in the prospectus to "guilders" and "NLG"
are to Dutch guilders and all references to "dollars" and "$" are to United
States dollars. Unless otherwise indicated, we have calculated all conversions
in this prospectus between dollars and Dutch guilders on the basis of March 31,
1999 exchange rates.

                 General Information About Us and Our Business

 Overview

   We own and operate broadband communications networks in 10 countries in
Europe and in Israel. We provide communications services in many European
countries through our three business lines: cable television, telephone and
Internet/data services. Our subscriber base is one of the largest of any group
of broadband communications networks operated across Europe. Our Western
European systems are located in Austria, Belgium, France, The Netherlands,
Norway and Sweden. These systems are located in the capital cities of Vienna,
Brussels, Amsterdam, Oslo and Stockholm, as well as suburban Paris. Our Central
and Eastern European systems are located in the Czech Republic, Hungary,
Romania, the Slovak Republic and, subject to the acquisition of @Entertainment,
Poland. These operations are located in the capital cities of Prague, Budapest
and Bratislava. We also have operations in distinct regions in the Czech
Republic, Romania, and the Slovak Republic and, in the case of Poland, in eight
regional clusters centered around ten major cities. We also have systems in
Israel and Malta located in and around the cities of Tel Aviv and Valletta. We
intend to continue to increase our presence in the European market through
acquisitions as the European telecommunications market consolidates, and to
implement our branded package of video, voice and Internet/data product
offerings in systems we acquire. In February 1999, we completed our initial
public offering, and as of July 30, 1999, our equity market capitalization was
approximately NLG17.3 billion ($8.4 billion).


                                       1
<PAGE>

   Our existing operating companies consist primarily of highly penetrated,
mature, broadband systems that generate stable cash flow. As of March 31, 1999,
our average aggregate cable television subscriber penetration rate was 73.0%.
Our average monthly cable television subscriber churn during 1998 was less than
1% for our basic video services. Some of our key operating statistics as of
March 31, 1999 are as follows:

  . On an aggregate basis, our systems had about 5.7 million homes in their
    service areas. Of these, approximately 4.7 million homes were passed by
    the cable in our network and thus capable of receiving our video
    services. About 3.4 million of these homes, or approximately 73% of the
    homes passed, subscribed to our basic video services.

  . Adjusted for the completion of all of our new acquisitions, on an
    aggregate basis, our systems would have had 10.7 million homes in their
    license areas, 8.5 million of which were passed by our networks, and 5.6
    million subscribers, or approximately 65.7% of the homes passed, would
    have subscribed to our basic video service.

  . On a proportionate basis, 3.0 million subscribers, or 73.9% of the homes
    passed, subscribe to our basic video services. Adjusted for completion of
    all of our new acquisitions, on a proportionate basis, our systems would
    have had 5.1 million subscribers to our basic video services, or 66.0% of
    the homes passed.

   We have undertaken a significant upgrade of our cable television
infrastructure, beginning in 1994 with our Western European systems. When we
upgrade, we replace parts of the coaxial cable with fiber optic lines and
upgrade the remaining coaxial cable to increase transmission speed and enable
signals to be sent both to and from the subscriber's home. This upgrading
enables us to provide digital video, telephone and Internet/data services. As
of March 31, 1999, the upgraded parts of our existing networks in Austria,
Belgium, France, Norway and The Netherlands passed about 70% of the 3.1 million
homes passed by those networks and we anticipate that, by the end of 1999,
upgraded systems will pass 87% of homes in those service areas. We have also
begun to upgrade our Central and Eastern European systems. As of March 31,
1999, on an aggregate basis, our existing systems had approximately 27,000
cable telephone lines and approximately 35,300 high speed Internet access
subscribers. By May 30, 1999, our existing systems had about 5,228 kilometers
of high capacity active fiber optic infrastructure. We also had more than
39,549 kilometers of coaxial distribution cable. About 24,908 kilometers of
this coaxial cable has been upgraded.

   Our large existing customer base, combined with our upgraded network,
provides us with an opportunity to add to our cash flow by selling additional
services, such as enhanced video, telephone and Internet/data services to our
existing cable subscribers. Once the network upgrade is complete, these
additional services can be added at a relatively low incremental cost. During
the three months ended March 31, 1999, we increased the number of cable
telephone and Internet access subscribers by approximately 5,950 and 11,000,
respectively, which represent 15.4% and 45.2% increases from December 31, 1998,
respectively.

   In addition to the intrinsic growth of our existing systems, we have
expanded our coverage by selectively acquiring cable television and
telecommunications systems and by increasing our ownership percentage in some
systems. Since our initial public offering in February 1999, we have made or
agreed to make 10 acquisitions in Europe that pass a total of 5.3 million homes
with a total of 3.5 million subscribers, plus an additional 130,000 direct-to-
home ("DTH") subscribers in Poland, as of March 31, 1999. For example, we
recently agreed to acquire @Entertainment, Inc., which owns and operates
systems in Poland, and the remaining 50% interest in A2000 that we did not
already own. Our strategy also has been to dispose of some minority ownership
interests where we could not acquire control. Our continuing program of
acquisitions and consolidation allows us to upgrade and improve our current

                                       2
<PAGE>

services and to achieve substantial economies of scale and to implement our
branded package of video, voice and Internet/data product offerings.

 New Business Lines

   We believe the European telecommunications market offers significant growth
opportunities. Most European Union member countries and Norway had opened their
telephone industries to competition by January 1, 1998. This liberalization
means that new providers like our company can offer telephone and other
telecommunications services in addition to core broadband, cable-based video
services. Due to this change in regulation and technological advances, a single
cable connection to the home or business can deliver video, telephone and
Internet/data services. We can now offer all three services as an integrated
package in those Western European markets where we have upgraded our network.
We believe that our upgraded networks, combined with our ability to leverage
our existing subscriber base, give us a considerable advantage over existing
fixed line operators and over other new market entrants.

   We offer local telephone services under the brand name Priority Telecom in
our Austrian, Dutch, French and Norwegian systems. We use the brand name
Nedpoint for these services in A2000, our Amsterdam system. A2000 has offered
cable telephone services since July 1997. By March 31, 1999, A2000 served
approximately 25,325 lines (including business lines) covering approximately
22,325 cable telephone subscribers. We launched cable telephone services in
Vienna in February 1999, in suburban Paris in March 1999, in Oslo in April
1999, and in The Netherlands in Arnhem in May 1999 and in Apeldoorn and
Eindhoven in June 1999.

   Under our chello broadband brand name, we have introduced a portal service
giving high speed access to the Internet through cable modems. Cable modem
technology can provide Internet access at speeds significantly faster than
traditional modems that use telephone lines. Through our chello portal we see
significant opportunities to increase revenues through the offering of content,
e-commerce and advertising.

   We believe that we can further increase the attractiveness of our video
service offerings by providing additional programming content on our video and
Internet services. We intend to enhance the quality of our content through
development of our own existing programming businesses and the acquisition of
interests in other programming businesses. We already are pursuing this
strategy through UPC tv, which launched two channels in April 1999 and plans to
launch three more by Autumn 1999 (See "Business--UPC Video Services: Video
Distribution and Programming--Video Distribution Overview"). In February 1999,
we acquired from our majority shareholder, UnitedGlobalCom, Inc. ("United"), a
33.5% interest in IPS, a group of programming entities focusing on the Spanish-
and Portuguese-speaking markets. In addition, through our pending acquisition
of @Entertainment, we will acquire a programming business in Poland. We also
recently purchased a strategic interest in another programming business, SBS
Broadcasting S.A., which is chartered in Luxembourg and primarily operates in
Sweden and in eight other countries in Europe.

                                       3
<PAGE>


 Our New Acquisitions

   The following are the acquisitions we have made or agreed to make since our
initial public offering in February 1999. Those acquisitions that have not yet
closed are subject to a number of significant closing conditions, including
regulatory approvals, that may not be satisfied. Some of these acquisitions may
not, therefore, close. See "Business--Operating Companies" and "Risk Factors--
Our acquisition strategy involves significant risks."

<TABLE>
<CAPTION>
                                                           Video
                                                        Subscribers
                         Ownership                       at March   Actual/Scheduled(*)
        Company          Interest        Location        31, 1999      Closing Date
        -------          ---------  ------------------- ----------- -------------------
<S>                      <C>        <C>                 <C>         <C>
Operating Systems:
  UTH...................     49%    The Netherlands       870,400    February 1999
  GelreVision...........    100%    The Netherlands       132,000    June 1999
  A2000.................     50%(1) The Netherlands       533,700    3Q 1999*
  RCF...................   95.7%    France                 74,275    June 1999
  Time Warner Cable
   France...............    100%    France                 66,600    3Q 1999*
  Videopole.............    100%    France                139,300    3Q 1999*
  Stjarn................    100%    Sweden                239,775    July 1999
  @Entertainment........    100%    Poland                948,200    3Q 1999*
                                                         +130,000
                                                            DTH
                                                          subscribers
  SKT...................    100%    Slovak Republic       156,950    June 1999
  Kabel Plus............   94.6%    Czech Republic        362,950    3Q 1999*
                                    Slovak Republic
Programming Companies:
  IPS...................     50%    Spanish- and              n/a    Feb./May 1999
                                    Portuguese-speaking
                                    markets
  SBS...................   12.8%    Scandinavia and           n/a    July 1999
                                    Eastern Europe                   (Initial tranche)
                                                                     3Q 1999*
                                                                     (Final tranche)
</TABLE>
- -------
(1) We are acquiring the 50% of A2000 that we do not already own.

                                       4
<PAGE>


     Historical Growth

    Most of our operating systems have provided video services for a long time.
These systems have grown significantly over the past few years, both in terms
of the number of subscribers and revenues. We have grown by developing our
existing systems and strategically acquiring cable television systems. The
operating information in the tables below demonstrates this growth.

    The first table shows aggregate operating data for all of the systems in
which we have an interest. The second table presents proportionate operating
data for our operating companies. The fifth column in each table shows the data
at March 31, 1999, as adjusted for our new acquisitions.

<TABLE>
<CAPTION>
                                                                            As Adjusted for
                                                                                  New
                                               Historical                    Acquisitions
                              --------------------------------------------- ---------------
                                   As of December 31,
                              ----------------------------- As of March 31, As of March 31,
                                1996      1997      1998         1999            1999
                              --------- --------- --------- --------------- ---------------
<S>                           <C>       <C>       <C>       <C>             <C>
Aggregate Operating Data
  Homes in our service
   areas....................  4,007,760 4,134,656 5,645,738    5,692,858      10,676,071
  Homes passed by cable in
   our networks.............  3,254,865 3,553,756 4,664,345    4,715,653       8,460,597
  Homes passed by two-way
   cable....................        --    966,510 1,932,922    2,183,583       2,504,243
  Basic video subscribers...  2,061,197 2,311,708 3,414,820    3,437,931       5,558,087(/1/)
  Telephone subscribers.....        --      3,255    38,686      114,853         118,853
  Internet/data subscrib-
   ers......................        --      2,037    24,338       35,339          38,339
<CAPTION>
                                                                            As Adjusted for
                                                                                  New
                                               Historical                    Acquisitions
                              --------------------------------------------- ---------------
                                   As of December 31,
                              ----------------------------- As of March 31, As of March 31,
                                1996      1997      1998         1999            1999
                              --------- --------- --------- --------------- ---------------
<S>                           <C>       <C>       <C>       <C>             <C>
Proportionate Operating Data
  Homes in our service
   areas....................  2,650,156 2,870,982 4,037,037    4,977,553       9,783,848
  Homes passed by cable in
   our networks.............  2,088,108 2,351,539 3,193,000    4,110,925       7,764,097
  Homes passed by two-way
   cable....................        --    539,546 1,187,634    1,955,065       2,275,726
  Basic video subscribers...  1,321,004 1,514,606 2,200,251    3,039,542       5,124,033
  Telephone subscribers.....        --      1,628    15,111       64,850          79,803
  Internet/data subscrib-
   ers......................        --      1,735    15,956       34,596          37,596
</TABLE>
- --------
(1) Excludes 130,000 DTH subscribers in Poland.

                                       5
<PAGE>

                      Summary Operating and Financial Data

   In the tables below, the "UPC Ownership Interest" column shows the
percentage we own of the operating systems or programming companies in which we
have an interest, assuming consummation of our new acquisitions, some of which
in France, The Netherlands, Poland and the Czech Republic have not closed. The
remaining columns show aggregate operating data and historical financial
information for these systems or programming companies. The information for our
systems in France, the Czech Republic, Romania and the Slovak Republic has been
adjusted to take account of ownership percentages of multiple systems. The
adjusted financial information for the twelve months ended December 31, 1998
has been translated at the relevant exchange rate as at December 31, 1998.
<TABLE>
<CAPTION>
                                                                                             Adjusted Financial
                                                                                             Information For the
                                                                                                Twelve Months
                                                     Aggregate Operating Data                       Ended
                                                        At March 31, 1999                     December 31, 1998
                                      ------------------------------------------------------ -------------------
                                        Homes
                             UPC        in our              Two-Way     Basic       Basic
                          Ownership    Service     Homes     Homes      Video       Video              Adjusted
                          Interest       Area     Passed    Passed   Subscribers Penetration  Revenue  EBITDA(8)
                          ---------   ---------- --------- --------- ----------- ----------- --------- ---------
                                                                                                 (unaudited)
                                                                                              (Dutch guilders,
Western European Systems                                                                        in thousands)
<S>                       <C>         <C>        <C>       <C>       <C>         <C>         <C>       <C>
Austria.................       95.0%   1,076,190   903,200   623,490    457,165     50.6%      177,151   81,012
Belgium.................      100.0%     133,030   133,030   104,039    126,818     95.3%       36,782   13,263
France..................  74.5-99.6%   1,262,575   851,989   230,980    312,873     36.7%       95,021  (11,320)
The Netherlands.........      100.0%   1,706,214 1,639,526 1,074,109  1,536,131     93.7%      370,055  128,725
Norway..................      100.0%     529,900   464,941    18,685    322,735     69.4%       92,671   33,048
Sweden..................      100.0%     770,000   421,600    84,000    239,788     56.9%       63,160   12,661
                                      ---------- --------- ---------  ---------              --------- --------
 Subtotal...............               5,477,909 4,414,286 2,135,303  2,995,510     67.9%      834,840  257,389
Other Systems
Israel..................       46.6%     595,000   583,408   368,940    406,970     69.8%      273,507  151,271
Malta...................       50.0%     179,000   164,553       --      71,040     43.2%       30,010   11,097
                                      ---------- --------- ---------  ---------              --------- --------
 Subtotal...............                 774,000   747,961   368,940    478,010     63.9%      303,517  162,368
Central and Eastern
 Europe
Poland(1)...............        100%   1,950,000 1,624,119       --     948,223     58.4%      123,161 (148,273)
Hungary:
 Telekabel Hungary......       79.3%     901,500   528,719       --     442,390     83.7%       52,697   19,569
 Monor..................       47.5%      85,000    68,339       --      31,108     45.5%       35,647   22,551
Czech Republic..........       94.6%-
                              100.0%     979,531   772,764       --     417,653     54.0%       56,449    1,746
Romania.................       51.0%-
                              100.0%     180,000    98,174       --      62,524     63.7%        4,161    1,905
Slovak Republic.........       75.0%-
                              100.0%     328,131   206,235       --     182,669     88.6%       12,515    5,222
                                      ---------- --------- ---------  ---------     ----     --------- --------
 Subtotal...............               4,424,162 3,298,350       --   2,084,567     63.2%      284,630  (97,280)
 Total on an aggregate
  basis.................              10,676,071 8,460,597 2,504,243  5,558,087     65.7%    1,449,721  337,263
                                      ========== ========= =========  =========              ========= ========
 Total on a
  proportionate basis...               9,783,848 7,764,097 2,275,726  5,124,033     66.0%    1,228,025  223,566
                                      ========== ========= =========  =========              ========= ========
</TABLE>
- -------------------
(1) Excluding 130,000 DTH subscribers.


                                       6
<PAGE>

<TABLE>
<CAPTION>
                                              Adjusted         Adjusted
                                                as of      for the Year Ended
                                            March 31, 1999 December 31, 1998
                                            -------------- -------------------
                                                 UPC
                                              Ownership              Adjusted
                                               Interest    Revenue    EBITDA
                                            -------------- --------- ---------
                                                              (unaudited)
                                                            (Dutch guilders,
Programming                                                  in thousands)
<S>                                         <C>            <C>       <C>
Tara (United Kingdom)......................      80.0%           709    (4,899)
IPS (Spain and Portugal)...................      50.0%        34,027     6,828
SBS Broadcasting S.A. .....................      12.8%       697,915    17,314
                                                           ---------  --------
Total......................................                  732,651    19,243
                                                           =========  ========
</TABLE>

   We have presented "Adjusted EBITDA" statistics in the table below and
elsewhere in this prospectus. The term "Adjusted EBITDA" represents earnings
before:
  . net interest expense,
  . income tax expense,
  . depreciation,
  . amortization,
  . stock-based compensation charges,
  . minority interest,
  . share in results of affiliated companies (net),
  . currency exchange gains (losses), and
  . other non-operating income (expense) items.

   Industry analysts generally consider Adjusted EBITDA to be a helpful way to
measure the performance of cable television operations and communications
companies such as us. We believe Adjusted EBITDA helps investors to assess the
cash flow from our operations from period to period and thus to value our
business. Adjusted EBITDA should not, however, be considered a replacement for
net income, cash flows or for any other measure of performance or liquidity
under generally accepted accounting principles, or as an indicator of a
company's operating performance. We are not free to use the cash represented by
our Adjusted EBITDA as we please. Several of our consolidated operating
companies are restricted by the terms of their debt arrangements. Each company
has its own operating expenses and capital expenditure requirements, which can
limit our use of cash. Our presentation of Adjusted EBITDA may not be
comparable to statistics with a similar name reported by other companies. Not
all companies and analysts calculate Adjusted EBITDA in the same manner.

                                       7
<PAGE>

                            Strategic Relationships

   UnitedGlobalCom, Inc. ("United") currently owns approximately 62.5% of our
outstanding A Shares. Because we are a strategic holding of United, United is
likely to continue to control us for the foreseeable future. United is a
leading provider of video, voice and Internet/data services in Europe (through
us), the Asia/Pacific region and Latin America. At March 31, 1999, on an
aggregate basis, United's systems passed 9.5 million homes and served 4.4
million basic video subscribers. Measured by the percentage it holds of its
operating systems, United's systems passed 5.6 million homes and served 2.3
million subscribers. United's Class A common shares are traded on the Nasdaq
National Market System under the symbol "UCOMA." As of July 30, 1999, United
had an equity market capitalization of approximately $3.2 billion (NLG6.6
billion).

   In our initial public offering, Microsoft Corporation purchased
approximately $333 million worth of our A Shares and currently holds an
approximate 7.9% interest in our A Shares. In January 1999, we signed a letter
of intent with Microsoft to establish a technical services relationship and
agreed to set up a series of joint projects to deliver Internet, non-
traditional telephone and other interactive video and general services to
digital cable set-top devices, personal computers and other devices within and
beyond our service areas. We and Microsoft would also be preferred suppliers to
one another, with Microsoft having the first opportunity to license
technologies to us. As part of this technology relationship, we have agreed to
grant Microsoft warrants to purchase up to 3.8 million of our American
Depositary Shares, which would currently represent approximately 3.0% of our
outstanding ordinary stock. Half of these warrants are issuable on the earlier
of three months from the date of the letter of intent and the signing of the
first definitive agreement with Microsoft. The other half of the warrants will
be issued upon the signing of the first definitive agreement and will vest
subject to certain performance requirements. Microsoft also has the right to
acquire 10% of chello broadband n.v. See "Certain Transactions and
Relationships--Relationship with Microsoft."

                        Our Address and Telephone Number

   Our office address is Fred. Roeskestraat 123, 1076 EE Amsterdam, The
Netherlands. Our telephone number is +31 20 778 9840.

                                       8
<PAGE>

                                  The Offering

   The information throughout this prospectus assumes that the underwriters do
not exercise their option to purchase additional ordinary shares in this
offering.

<TABLE>
                   <S>   <C>                    <C>
The Offering............
                                  U.S. offering            B shares
                         International offering            B shares
                                                -------------------
                                          Total            B shares
                                                ===================
</TABLE>

Shares Outstanding......    After this offering, we will have the following
                            shares issued and outstanding:

                               129,246,123 A shares (nominal value (Euro)2.00)

                                       B shares (nominal value (Euro)0.02)

                               100 priority shares (nominal value (Euro)2.00)

                            Priority shares have special approval and other
                            rights.

Voting Rights...........    Holders of B shares have one vote per share on all
                            matters submitted to the general meeting of
                            shareholders, and holders of A shares have 100
                            votes per share. Our Board of Management is
                            required to obtain the approval of the meeting of
                            holders of B shares before cooperating with a
                            public offer for our shares if the offer is
                            limited to A shares or the offer is not made on
                            equal financial terms for the sale of both classes
                            of ordinary shares require the approval of a
                            majority of the outstanding B shares.

                            Immediately following this offering, B shares will
                            have approximately    % of the combined voting
                            power of our outstanding A shares and B shares.

Other Rights............    Our articles of association and certain other
                            agreements will include provisions relating to the
                            rights of the A shares and the B shares upon
                            certain change of control events resulting from
                            the sale of our A shares.

Dividends...............    If a dividend is declared, holders of B shares
                            will receive the same amount per B share as
                            holders of A shares receive per A share.

Liquidation Rights......    Each B share has the same rights upon our
                            liquidation as an A share.

Use of Proceeds.........    We intend to use the net proceeds from this
                            offering for general corporate purposes and future
                            acquisitions.

Listing/Trading             ADSs on Nasdaq: "UPCBY"
Symbols.................    Ordinary shares on the Amsterdam Stock Exchange:
                            "UPCB"

Risk Factors............    You should review the "Risk Factors" section for a
                            discussion of certain factors about us, the
                            industries in which we operate and this offering
                            that you should consider before buying B shares or
                            ADSs.

                                       9
<PAGE>


Payment and Delivery....    The underwriters expect to deliver the ADSs
                            against payment in U.S. dollars through The
                            Depository Trust Company's book-entry facilities
                            and to deliver the B shares against payment in
                            euros through the book-entry facilities of the
                            Dutch clearing house, which is called NECIGEF,
                            Euroclear and Cedelbank on or about            ,
                            1999.

Security Codes..........    B shares:

                            .Amsterdam Stock Exchange:
                            .ISIN:
                            .Common Code:

                            ADSs:

                            .CUSIP:
                            .ISIN:

                           American Depositary Shares

   We are selling our B shares in the form of ordinary shares or ADSs. ADSs are
American depositary shares that represent our shares. Each ADS, as of the date
of issuance of the ADSs, will represent one B share. Citibank N.A. will deliver
the ADSs. Because ADSs usually make owning foreign shares easier, ADSs are
commonly used in offerings by foreign companies. We are using them because we
believe they will provide you with the following benefits:

 .  Citibank will normally convert the cash dividends and other payments made
   from Dutch guilders or euros to U.S. dollars for you. Citibank will also
   assist you in claiming refunds for Dutch withholding taxes if refunds are
   available.

 .  When we invite you to vote, we expect Citibank to put in place procedures to
   allow you to vote the shares, so you will not need to come to The
   Netherlands or comply with Dutch law to exercise your right to vote.

 .  We expect to make certain information available in English. This would
   include notices of meetings of shareholders, the taking of any action by
   shareholders other than at a meeting, or of any action regarding
   distributions on the shares. Citibank will make this information available
   in the United States. We will also ask Citibank to send you or otherwise
   make available to you other notices and reports made to shareholders and our
   annual and semi-annual reports, which will also be in English.

 .  Although you must pay the fees associated with owning ADSs, you will not
   need to make special custody arrangements to hold the shares in The
   Netherlands.

   Your specific rights in the ADSs and in our B shares underlying the ADSs are
set out in an agreement among us, Citibank and you, as an ADS holder. To
understand the terms of the ADSs, you should read carefully the section in this
prospectus entitled "Description of American Depositary Shares", which
describes the agreement. We also encourage you to read the agreement, which is
an exhibit to our registration statement filed with the U.S. Securities and
Exchange Commission. See "Available Information."

                                       10
<PAGE>

         Summary Historical Consolidated Financial Data of the Company

   The financial data in the tables below for the years ended December 31,
1996, 1997 and 1998 and as of December 31, 1998 is derived from our audited
consolidated financial statements contained elsewhere in this prospectus. The
financial information for the three months ended March 31, 1998 and 1999 and as
of March 31, 1999 comes from our unaudited financial statements contained
elsewhere in this prospectus. As a result of United's acquisition in December
1997 of the 50% of us owned by Philips Electronics N.V. and the associated
push-down of United's basis on December 11, 1997, financial information as of
and subsequent to December 31, 1997 is presented on a "post-acquisition" basis.
For more information about these accounting changes, see note 1 to the audited
consolidated financial statements at the back of this prospectus.

<TABLE>
<CAPTION>
                                                          Three Months Ended
                             Year Ended December 31,          March 31,
                            ----------------------------  -------------------
                              1996      1997      1998      1998      1999
                            --------  --------  --------  --------  ---------
                                                             (unaudited)
                              (Dutch guilders, in thousands, except per
                                             share data)
<S>                         <C>       <C>       <C>       <C>       <C>
Statement of Operations
 Data:
Service and other revenue
 Cable television..........  240,746   320,440   377,817    91,255    132,913
 Telephone.................      --        --        531       120      7,303
 Internet/data.............      --        764     9,465     1,003      6,473
 Programming and other.....    4,433    16,051    21,157     2,627      2,131
                            --------  --------  --------  --------  ---------
Total service and other
 revenue...................  245,179   337,255   408,970    95,005    148,820
Operating expense..........  (82,439) (118,508) (138,459)  (30,899)   (67,067)
Selling, general &
 administrative expense....  (81,176) (119,067) (481,703)  (27,551)  (104,333)
Depreciation and
 amortization..............  (79,832) (132,888) (187,646)  (48,457)   (63,198)
                            --------  --------  --------  --------  ---------
Net operating income
 (loss)....................    1,732   (33,208) (398,838)  (11,902)   (85,778)
                            --------  --------  --------  --------  ---------
Net loss before income
 taxes and other items.....  (55,186) (157,385) (499,336)  (38,716)  (119,822)
                            --------  --------  --------  --------  ---------
Net loss...................  (88,615) (181,042) (563,221)  (51,895)  (140,539)
                            ========  ========  ========  ========  =========
Basic diluted loss per
 ordinary share............    (0.96)    (1.98)    (6.80)    (0.56)     (1.31)
                            ========  ========  ========  ========  =========
Weighted-average number of
 ordinary shares
 outstanding...............   92,062    91,533    82,869    92,062    107,396
Other Data:
Adjusted EBITDA:
 Cable television..........   99,405   132,565   168,805    44,813     59,924
 Telephony.................      --        --    (11,568)     (262)   (12,117)
 Internet/data.............      --        385   (24,859)   (2,640)   (18,303)
 Programming and other.....  (17,841)  (28,452)  (20,943)   (4,950)   (15,524)
                            --------  --------  --------  --------  ---------
Total Adjusted EBITDA......   81,564   104,498   111,435    36,961     13,980
                            ========  ========  ========  ========  =========
Capital expenditure........  106,647   145,630   281,678    33,970    124,187
Cash flows from operating
 activities................   42,530   132,433    73,000    59,782     44,170
Cash flows from investing
 activities................   (6,394) (402,340) (613,347) (208,896)  (639,933)
Cash flows from financing
 activities................ (116,756)  326,482   471,913   114,767  1,627,875
</TABLE>

<TABLE>
<CAPTION>
                                  As of December 31, 1998 As of March 31, 1999
                                  ----------------------- --------------------
                                                              (unaudited)
                                         (Dutch guilders, in thousands)
<S>                               <C>                     <C>
Balance Sheet Data:
Property, plant and equipment....          602,997             1,528,580
Intangible assets................          680,032             1,454,742
Total assets.....................        2,067,779             5,003,572
Short-term and long-term debt....        1,526,602             1,344,042
Total liabilities................        2,116,019             1,819,841
Total shareholders' equity
 (deficit).......................          (74,174)            3,156,492
</TABLE>

                                       11
<PAGE>

   In the above table, we have calculated Adjusted EBITDA as follows:

<TABLE>
<CAPTION>
                                     Year Ended          Three Months Ended
                                    December 31,              March 31,
                               ------------------------  --------------------
                                1996   1997      1998      1998       1999
                               ------ -------  --------  ---------  ---------
                                                             (unaudited)
                                     (Dutch guilders, in thousands)
<S>                            <C>    <C>      <C>       <C>        <C>
Net operating income/(loss)...  1,732 (33,208) (398,838)   (11,902)   (85,778)
Add Back:
Depreciation and
 amortization................. 79,832 132,888   187,646     48,457     63,198
Compensation expense related
 to stock options.............    --    4,818   322,627        406     36,560
                               ------ -------  --------  ---------  ---------
Adjusted EBITDA............... 81,564 104,498   111,435     36,961     13,980
                               ====== =======  ========  =========  =========
</TABLE>

    Summary Unaudited Pro Forma Condensed Consolidated Financial Data of the
                                    Company

   The three tables that follow show our unaudited condensed consolidated
financial data, pro forma for the UTH, @Entertainment, A2000, Kabel Plus,
Stjarn and SBS acquisitions and for the offering of our senior notes completed
in July 1999. The information in the Balance Sheet Data table is given as of
March 31, 1999. The information in these tables comes from pro forma financial
statements contained later in this prospectus.

<TABLE>
<CAPTION>
                                             Year Ended     Three Months Ended
                                          December 31, 1998   March 31, 1999
                                          ----------------- ------------------
                                                      (unaudited)
                                             (Dutch guilders, in thousands)
<S>                                       <C>               <C>
Statement of Operations Data:
Service and other revenue
 Cable television........................       833,986           230,633
 Telephone...............................        46,227            17,028
 Internet/data...........................        15,098             9,569
 DTH, Programming and other..............        57,728            14,130
                                             ----------          --------
 Total service and other revenue.........       953,039           271,360
Operating expenses.......................      (397,026)         (130,148)
Selling, general and administrative
 expense.................................      (803,248)         (168,580)
Depreciation and amortization............      (616,301)         (159,634)
Net operating income/(loss) .............      (863,536)         (187,002)
Net loss before income taxes and other
 items...................................    (1,414,869)         (342,436)
Net loss.................................    (1,451,501)         (355,197)
Other Data:
Adjusted EBITDA..........................        75,394             9,191
</TABLE>

<TABLE>
<CAPTION>
                                                            As of March 31, 1999
                                                            --------------------
                                                                (unaudited)
                                                            (Dutch guilders, in
Balance Sheet Data:                                              thousands)
<S>                                                         <C>
Property, plant and equipment..............................       2,566,084
Goodwill and other intangibles.............................       4,909,025
Total assets...............................................      10,043,171
Short-term and long-term debt..............................       5,965,466
Total liabilities..........................................       6,647,281
Total shareholders' equity.................................       3,361,492
</TABLE>

                                       12
<PAGE>

                                  RISK FACTORS

    An investment in our B shares is subject to many risks. You should consider
carefully the following risk factors, as well as the more detailed descriptions
cross-referenced to other sections of this prospectus and all of the other
information in this prospectus. You should be aware that the multi-channel
television, telephone and Internet/data service industries are changing
rapidly, and, therefore, the forward-looking statements and statements of
expectations, plans and intent in this prospectus are subject to a greater
degree of risk than similar statements regarding certain other industries.

We expect to experience net losses for the foreseeable future

    We have experienced net losses every year since we started business in July
1995. Through March 31, 1999, we had recognized cumulative losses of
approximately NLG1,022.3 million, excluding the NLG154.7 million in losses
allocated to a former shareholder, Philips, through December 11, 1997. New
lines of business, in particular, generally have negative cash flow. We expect
negative cash flow from the new business ventures to increase as these
operations expand. We expect to incur net losses for the foreseeable future.
Continuing net losses will increase our capital needs.

Our acquisitions strategy involves significant risks

    A key element of our growth strategy is to continue to acquire systems, and
to increase the percentage we own in some systems in order to expand our
coverage and implement our branded package of video, voice and Internet/data
offerings. We are often engaged in discussions or negotiations regarding the
acquisition of businesses and systems, some potentially significant in relation
to our size. Our pending new acquisitions, as well as future acquisitions, will
be accompanied by risks such as:

  . Difficulty of identifying appropriate acquisitions. Our growth may suffer
    if we are not able to identify and acquire cable/telephone systems that
    are either near our existing networks or are large enough to serve as the
    basis for expanded operations.

  . Difficulties in completing acquisitions. We may not be able to satisfy
    conditions that sellers of networks may demand in order to close
    acquisitions. In addition, there may be significant legal and contractual
    issues in connection with acquisitions, such as change of control
    provisions in licenses and agreements, that could delay or prevent
    completion. Regulatory bodies may impose adverse conditions on the
    completion of our acquisitions. At the time of closing any new
    acquisition, we may waive conditions to closing, either because we
    believe that the condition will be satisfied in the future or because we
    believe an unsatisfactory resolution would not materially adversely
    affect us and our subsidiaries as a whole. There is a risk that our
    beliefs in some of these instances will prove to be incorrect.

  . Entry into new markets. If we consummate acquisitions in markets in which
    we have not previously operated, we will have no prior experience in
    dealing with local regulators or with local market conditions.

We may not be able to raise sufficient capital to fund our acquisitions
strategy

    We will need to raise more capital in the future to fund our acquisitions
strategy. If we are unable to raise significant capital in the future, we may
not be able to execute our business plan including building a digital
distribution platform. We may raise further capital by selling assets, issuing
debt or equity or borrowing funds. We are not sure whether we will be able to
raise capital through any of these or other methods. If we cannot, we may not
be able to grow by acquiring systems as we intend. In addition, our
acquisitions strategy exposes us to the risk of unanticipated expenditures. For
example, although we normally negotiate customary warranty protection when
acquiring new systems, we may be liable for undisclosed liabilities, or we may
have to incur greater capital expenditures than we intended, in relation to a
particular acquisition.


                                       13
<PAGE>

We cannot be certain that we will be successful in integrating acquired
businesses with our existing businesses

   Our success depends, in part, upon the successful integration of our new
acquisitions and any future acquisitions we make. Although we believe that the
consummation of our new acquisitions will result in significant benefits and
synergies, the integration of these businesses will also present significant
challenges, including:

  . realizing economies of scale in interconnection, programming and network
    operations, and eliminating duplicate overheads; and

  . integrating networks, financial systems and operational systems.

  We cannot assure you, with respect to either our new acquisitions or future
   acquisitions, that we:

  . will realize any anticipated benefits; or

  . will successfully integrate any acquired business with our operations.

Failure to raise necessary capital could restrict the development of our
network and the introduction of new services

   The video, telephone and Internet/data business is capital intensive
because it requires extensive telecommunications infrastructure, equipment and
labor. We may not have access to sufficient capital to remain competitive.
Lack of capital could harm our business.

   Many of our operating companies are expanding and upgrading their networks
to offer new services. Technological change may make even more upgrades
necessary if our operating companies are to compete effectively in their
markets. Our financial resources, even with the proceeds from this offering,
may not be enough for our capital needs. Also, we expect that equipment
vendors will finance a good part of the cost of the equipment for our new
services. This vendor financing is not yet in place. We may not be able to
secure vendor financing on satisfactory terms or at all. Not upgrading our
operating systems or making other planned capital expenditures could harm our
operations and competitive position. We have budgeted NLG863.7 million for
capital expenditures in 1999 for our consolidated companies and NLG1.6 billion
pro forma for our new acquisitions. During the period 2000-2010, we currently
must repay or refinance over NLG1.28 billion of indebtedness existing as of
March 31, 1999 and NLG3.8 billion in principal amount of our senior notes
offered in July 1999. See "UPC Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Sources of Capital."

If we complete our acquisition of @Entertainment, we will be subject to a
number of risks

   If we complete our acquisition of @Entertainment, we will be subject to a
number of risks, including:

  . Possible termination of conduit agreements. As of March 31, 1999, about
    61.8% of @Entertainment's cable plant was constructed using pre-existing
    conduits of the Polish national telephone company ("TPSA"). A substantial
    portion of @Entertainment's contracts with TPSA permit termination by
    TPSA without penalty at any time either immediately upon the occurrence
    of certain conditions or upon provision of three to six months' notice
    without cause. If TPSA terminated @Entertainment's access to these
    conduits, @Entertainment might not be able to replace or locate a
    substitute for the conduits. In addition, @Entertainment would incur
    significant costs if it were forced to build its own conduits. In
    addition, as of March 31, 1999, TPSA was legally entitled to terminate
    conduit agreements covering approximately 4% of @Entertainment's
    subscribers as a result of @ Entertainment's failure to comply with
    certain terms of its conduit agreements with TPSA. Any termination for
    cause by TPSA of these contracts could result in the loss of
    @Entertainment's permits, the termination of its agreements with Polish
    cooperative authorities and programmers, and an inability to service
    customers in affected areas.


                                      14
<PAGE>

  . Compliance with foreign ownership and change of control rules.  Under the
    Polish Communications Act of 1990, permits for cable television operators
    may be issued only to Polish citizens or companies in which foreign
    persons do not hold more than 49% of the share capital and voting rights,
    and in which the majority of members of the governing bodies are Polish
    citizens residing in Poland. @Entertainment believes that the current
    ownership structure of PTK Operator Sp.z o.o., its licensee company, is
    in material compliance with Polish foreign ownership rules. However,
    certain aspects of this structure have not been tested for compliance
    with Polish foreign ownership rules in Polish administrative or court
    proceedings, and there can be no assurance that such structure will not
    be challenged by Polish telecommunications regulatory authorities. If
    such ownership structure was found to be in breach of Polish foreign
    ownership rules, this could result in the cancellation of
    @Entertainment's permits and the imposition of monetary penalties. In
    addition, under the Polish Telecommunications Act, @Entertainment's
    permits could be revoked or limited in scope upon a direct or indirect
    change of control of PTK Operator Sp.z o.o. The Telecommunications Act
    does not define what constitutes a direct or indirect change of control.
    There is a risk that our acquisition of @Entertainment will constitute an
    indirect change of control of PTK Operator Sp.z o.o.

  . Operating without necessary permits. @Entertainment is currently
    operating in certain areas without the permits necessary for the
    construction and operation of a cable television network issued by the
    Polish State Agency for Radio Communications (the "PAR"). Failure to
    obtain these permits could lead to governmental orders requiring
    @Entertainment to stop operating in those areas, the imposition of
    monetary penalties, as well as forfeiture of our cable networks. In
    addition, failure to be in compliance with all regulatory laws and
    licensing requirements could result in @Entertainment being in breach
    under a number of its operating agreements. In order to obtain new
    permits from the PAR, @Entertainment must show that it is in compliance
    with Polish foreign ownership restrictions. @Entertainment's operation
    without requisite permits could impair its ability to obtain new permits
    in the future, renew current licenses and conduct its business.

  . Arbitration with Canal+. @Entertainment is engaged in arbitration with
    Telewizyna Korporacja Partycypacyjna ("TKP"), the parent company of
    Canal+ Polska, in relation to a letter of intent to form a joint venture
    for the purpose of combining @Entertainment's Wizja TV programming
    service and the Canal+ Polska premium pay-television channel. The
    arbitration arises from the failure of the parties to reach definitive
    agreements contemplated by the letter of intent by the date required. As
    a result of this, @Entertainment terminated the letter of intent. TKP and
    its shareholders have informed @Entertainment that they believe
    @Entertainment did not have the right to terminate the letter of intent.
    If this arbitration is determined in a manner adverse to @Entertainment,
    @Entertainment may be liable for damages up to $10.0 million, plus
    interest and costs. This arbitration may also have adverse effects on
    @Entertainment's programming services.

  . Polish Regulation of the DTH Market. The Polish Radio and Television Act
    of 1992 does not include regulations directly applicable to the
    broadcasting of programs broadcast from abroad and which are received in
    Poland. Specifically, there are no Polish regulations in force concerning
    satellite broadcasting of a program dedicated to a Polish audience where
    the uplink for the broadcasting of such a program is made by a foreign
    broadcaster from outside Poland. @Entertainment believes that the
    Television Act does not apply to such broadcasting from outside Poland
    and that such activity is not subject to Polish broadcasting
    requirements. The Polish National Radio and Television Council, which,
    among other things, regulates the broadcasting operations of
    broadcasters, has not officially adopted an interpretation of this issue
    and there have been no court rulings on this issue. If @Entertainment's
    interpretation were successfully challenged, its DTH broadcasts from
    outside Poland would be required to comply with the requirements of the
    Television Act. The Television Act would require a broadcasting license
    and would impose foreign ownership restrictions. We cannot assure you
    that @Entertainment would be able to comply with these requirements. In
    addition, Poland has not currently sought to regulate

                                       15
<PAGE>

   foreign DTH broadcasters who uplink outside of Poland. There can be no
   assurances, however, that Poland will not seek to regulate this aspect of
   the DTH industry.

  . Litigation. A lawsuit was filed in July 1999 in the U.S. District Court,
    Southern District of Ohio, Eastern Division, against a wholly-owned
    subsidiary of @Entertainment, by minority shareholders of a 92.3% owned
    second tier subsidiary of @Entertainment. The plaintiffs own
    approximately 1.7% of the second tier subsidiary and are parties to a
    shareholders agreement with the first tier subsidiary of @Entertainment.
    The plaintiffs have claimed damages in the amount of at least 1.7% of the
    total amount to be paid by us for @Entertainment's common stock. The
    other minority shareholders, owning 6% of the second tier subsidiary,
    have made similar claims but have not filed suit. Based on the damages
    claimed in the suit filed, the total claim if made by all minority
    shareholders would be for damages in the amount of at least 7.7% of the
    total amount to be paid by us for @Entertainment's common stock. We have
    also been named in the suit as a defendant. @Entertainment is evaluating
    the claims and has indicated that it will defend the action. However,
    there can be no assurance that we or @Entertainment will successfully be
    able to defend this claim.

Stjarn relies upon agreements with Stokab

    Our recently acquired system, Stjarn, leases fiber optic cables to link its
main headend to over 40 fiber nodes under agreements with Stokab, a city-
controlled entity with exclusive rights to lay ducts for cables for
communications or broadcast services in the downtown area of the City of
Stockholm. The main part of the leased ducting and fiber optic cables is
governed by an agreement entered into by Stjarn and Stokab in 1993 which
expires in 2019. Stjarn's operations are critically dependent upon these
agreements with Stokab. If Stjarn were unable to lease fiber optic cables from
Stokab, this would have a material adverse effect on Stjarn's operations.

Adverse regulation of our video services could limit our revenues and growth
plans and expose us to various penalties

    In most of our markets, regulation of video services takes the form of
price controls and programming content restrictions. Also, in The Netherlands
and Austria, local municipalities have contractual rights that restrict our
flexibility to increase prices, change programming and introduce new services.
In addition, laws in Belgium may require us to obtain special authorization for
distributing programming from non-European Union sources (which we are
currently distributing without such authorization), and to distribute certain
digital multiplexed programming (which we are not distributing). In Israel, our
subscription fees and program offerings are restricted by franchise agreements
and are subject to review by governmental agencies, including the Restrictive
Trade Practices Tribunal. We are subject to pending claims in Israel alleging
that we have engaged in certain unlawful acts, including violation of our cable
television franchise agreements. Such restrictions could limit our plans to
increase our revenues and expose us to various potential penalties, including
monetary fines, discontinuance of certain programming and impairment of our
cable authorizations. See "Regulation." Regulation could also cause us to incur
substantial capital and operating costs as well as limit the number of channels
we carry, such as in connection with the distribution of high-definition or
advanced television services.

Regulation may increase the cost of introducing our new telephone and
Internet/data services, subject them to competitive pressures and slow their
growth

    Regulation could slow the introduction of our new services and increase
their costs. The regulatory regimes in our European markets present some risks.
Our operating companies need to obtain and retain licenses and other regulatory
approvals for our new services. They may not succeed. In order to offer our new
services, our operating companies need to connect their networks to those of
the incumbent telecommunications operators. The regulatory regimes in our
Western European markets have been designed to help companies like us to obtain
fairly priced interconnect arrangements. As we found in

                                       16
<PAGE>

Austria, however, the regulatory process can be time-consuming. This may impede
our ability to obtain favorable interconnect arrangements on schedule. Problems
such as these would delay the introduction or impede the profitability of the
new services. Regulators may also impose universal service contribution
requirements on our services which would raise our costs.

    The Internet access business has, to date, not been materially restricted
by regulation in our markets. The legal and regulatory environment of Internet
access and electronic commerce is uncertain, however, and may change. New laws
and regulations may be adopted for Internet service offerings. Existing laws
may be applied to the new forms of electronic commerce. Uncertainty and new
regulation could increase our costs. It could also slow the growth of
electronic commerce on the Internet significantly. This could delay growth in
demand for our Internet/data services and limit the growth of our revenues. New
and existing laws may cover issues such as:

  .sales and other taxes,
  .user privacy,
  .pricing controls,
  .characteristics and quality of products and services,
  .consumer protection,
  .cross-border commerce,
  .libel and defamation,
  .copyright and trademark infringement,
  .pornography and indecency, and
  .other claims based on the nature and content of Internet materials.

Low demand, competition, unplanned costs and difficulties with interconnection
could hinder the profitability of our telephone services

    Our telephone services may not become profitable for a number of reasons.
Customer demand could be low, or we may encounter competition and pricing
pressure from incumbent and other telecommunications operators. Our network
upgrade may cost more than planned. Furthermore, our operating systems need to
interconnect their networks with those of the incumbent telecommunications
operators in order to provide telephone services. Not all of our systems have
interconnection agreements in place, and interconnection agreements have
limited duration and may be subject to regulatory and judicial review. We are
negotiating interconnection agreements for our planned telephone markets that
do not yet have them. This may involve time-consuming negotiations and
regulatory proceedings. While incumbent telecommunications operators in the
European Union are required by law to provide interconnection, incumbent
telecommunications operators may not agree to interconnect on a time scale or
on terms that will permit us to offer profitable telephone services. After
interconnection agreements are concluded, we remain reliant upon the good faith
and cooperation of the other parties to these agreements for reliable
interconnection. We are currently involved in a dispute with the Austrian
telecommunications operator in the Austrian courts over our interconnection
arrangement there, as well as mediation or regulatory proceedings concerning
our interconnection agreements in The Netherlands and Norway.

The complexities of the operating systems we need to develop for our new
services could increase their costs and slow their introduction

    We only recently began to offer local telephone and advanced Internet/data
services. We may not have planned for or be able to overcome all of the
problems in introducing these new services. Our new services may not meet our
financial expectations. This would impede our planned revenue growth and harm
our financial condition.

    The new services involve many operating complexities. We will need to
develop and enhance new services, products and systems, as well as marketing
plans to sell the new services. For example, we

                                       17
<PAGE>

intend to introduce a comprehensive new billing system to support our new
telephone and Internet/data businesses. Until then, however, we plan to employ
enhanced versions of our existing customer care and billing systems for these
services. Problems with the existing or new systems could delay the
introduction of the new services, increase their costs, or slow successful
marketing. These complexities and others may cause the new services not to meet
our financial expectations. This could impede our planned revenue growth and
harm our financial condition.

The success of our new telephone and Internet/data services depends on whether
we can keep achieving technological advances

    Technology in the cable television and telecommunications industry is
changing very rapidly. These changes influence the demand for our products and
services. We need to be able to anticipate these changes and to develop
successful new and enhanced products quickly enough for the changing market.
This will determine whether we can continue to increase our revenues and the
number of our subscribers and be competitive.

    We have introduced new services, including:

  .additional video channels and tiers,
  .pay-per-view services with frequent starting times, which are known as
  "impulse" pay-per-view,
  .high speed data and Internet access services, and
  .cable telephone services.

    The technologies used to provide these services are in operation in some of
our systems as well as systems of other providers. However, we cannot be sure
that demand for our services will develop or be maintained in light of other
new technological advances. There could be delays in introducing our new
services, such as access to the Internet through cable modems and telephone
services. Our new services may also not operate as intended.

Lack of necessary equipment could delay or impair the expansion of our new
services

    If we cannot obtain the equipment needed for our existing and planned
services, our operating results and financial condition may be harmed. For
example, a customer will need a digital set-top box to access the Internet or
receive our other enhanced services through a television set. These boxes are
being developed by several suppliers. If there are not enough affordable set-
top boxes for subscribers, however, we may have to delay our expansion plans.

Inability to obtain the necessary programming could reduce demand for our
services

    Our success depends on obtaining or developing affordable and popular
programming for our subscribers. We may not be able to obtain or develop enough
competitive programming to meet our needs. This would reduce demand for our
video services, limiting their revenues. We rely on other programming suppliers
for most of our programming. In some markets, there is only a limited amount of
local language programming available. In those markets, we must repackage other
programming in the local language. We plan to commit substantial resources to
obtaining and developing new programming. We expect to seek partners for this.
We may not, however, find the appropriate partners, obtain the necessary
broadcasting licenses or successfully implement our programming plans.

European use of the Internet, electronic commerce and other bandwidth intensive
applications may not increase as we expect

    Our business plan assumes that Western European use of the Internet,
electronic commerce and other bandwidth intensive applications will increase
substantially in the next few years, in a manner similar

                                       18
<PAGE>

to the increased use in the United States in the past few years. Our business
plan assumes a less rapid increase in Eastern Europe. If the use of
applications requiring intensive bandwidth does not increase in Europe as
anticipated, chello broadband and other services involving managed bandwidth
could be materially lower than we currently anticipate. Reduced demand for our
services may have a negative effect on our pricing and our financial condition.

Increased competition in video services could reduce our revenues

    The cable television industry in many of our markets is competitive and
changing rapidly. Competition could result in the loss of our customers and a
decrease in our revenues.

    We expect that competition will increase with new entrants who use multi-
channel television technologies different from the technologies our cable
systems use. These technologies may include:

  .services that receive satellite signals at the subscriber's home,

  .private cable systems used by housing associations and multiple unit
  dwellings, and

  .""wireless'' cable transmitted by low frequency radio.

    We may also face competition from other communications and entertainment
media companies. These could include incumbent telecommunications operators and
providers of services over the Internet. In some franchise areas, our rights to
provide video services are not exclusive. We currently compete with other cable
operators and in the future may have to compete with other cable operators. In
Israel, we may be required to divest our interest in a provider of video
programming, which may increase our costs and make the programming available to
competing providers of direct-to-home satellite services.

The competitiveness of the telephone services industry will make it difficult
for our new telephone service to enter the market

    We will face competition from incumbent telecommunications operators,
wireless telephone carriers and other new entrants to the European telephone
market. Some of these competitors have more experience in providing telephone
services than we have. Some of our competitors can also devote more capital to
these services than we can.

    Developing a profitable telephone service will depend, among other things,
on whether we can:

  .attract customers,

  .maintain competitive prices,

  .limit loss of customers, and

  .provide high quality customer care and billing services without incurring
  significant additional costs.

    As part of our strategy to offer integrated telecommunications services, we
plan to offer local and long distance telephone services. The long distance
telephone business is extremely competitive. Prices for long distance calls
have gone down significantly in recent years and we expect them to continue to
drop. Increased competition may also push prices down for local telephone
services. Regulators may make incumbent telecommunications operators lower
their rates or increase their pricing flexibility. Because these are our
principal competitors, this could force us to lower our rates to remain
competitive.

Growing competition in Internet/data services will make it harder for our
Internet/data service to succeed

    The Internet services business in Europe is increasingly competitive. This
will make it harder for our new Internet/data service to gain a share of the
market. At the moment, we compete with companies that provide Internet service
using traditional, low speed telephone lines, including many incumbent
telecommunications operators. We expect chello broadband to face growing
competition from Internet

                                       19
<PAGE>

service providers that, like it, use higher-speed, higher-capacity cable
modems. These could include @Home and Roadrunner, as they move to the European
market. In the future, and in some areas currently, we expect to compete with
other telecommunications service providers, including incumbent
telecommunications operators, using other broadband technologies, such as
fiber, microwave, satellite and digital subscriber lines.

The loss of key personnel could weaken our technological and operational
expertise, delay the introduction of our new business lines and lower the
quality of service

    We may not be able to attract and retain key employees. This could hinder
the introduction of our new services as planned. There is intense competition
for qualified personnel in our industry. Our success and growth strategy
depends upon being able to attract and retain key management, technological and
operating personnel. Without these, we might make less successful strategic
decisions. We would also be less prepared for technological and marketing
problems, which could reduce our ability to serve subscribers and lower the
quality of our services. As a result, our financial condition could worsen.

Foreign currency exchange rate fluctuations may cause financial losses

    Changes in foreign currency exchange rates can reduce the value of our
assets and revenues and increase our liabilities and costs. In general, neither
we nor our operating companies try to reduce our exposure to these exchange
rate risks by using hedging transactions. We may therefore suffer losses solely
as a result of exchange rate currencies. In each country, our operating
companies attempt to match costs, revenues, borrowings and repayments in their
local currencies. Nonetheless, they have had to pay for a lot of equipment in
currencies other than their own. They may continue to be required to do so. On
an aggregate basis, as of March 31, 1999, pro forma for all of our new
acquisitions and our recent note offering, about 28.1% of our consolidated debt
was denominated in currencies other than Dutch guilders or euros. See "UPC
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

    At the UPC level, the value of our investment in an operating company
outside the euro "zone" is affected by the exchange rate between the euro and
the local currency of the operating company.

Computer systems may malfunction and interrupt our operating systems and our
services if they do not achieve Year 2000 readiness

    Our cable television, programming, telephone and Internet/data operations
are heavily dependent upon computer systems and other technological devices
with imbedded chips. Such computer systems and other technological devices may
not be capable of accurately recognizing dates beginning on January 1, 2000.
This problem could cause miscalculations, resulting in our cable television,
telephone and Internet/data systems or programming services malfunctioning or
failing to operate. These problems are generally expected to be more
significant outside the United States, particularly in Eastern Europe.

    In response to possible Year 2000 problems, the Board of Directors of
United established a task force to assess the impact that potential Year 2000
problems may have on company-wide operations, including us and our operating
companies, and to implement necessary changes to address such problems. The
task force, which includes our staff, external consultants and staff from
United, and subcommittees at the operating company levels, has developed a
program to minimize Year 2000 problems.

    We intend to include our new acquisitions in our Year 2000 program. We are
currently determining whether any of these systems have their own programs in
place for Year 2000 compliance and at what level their systems are within our
Year 2000 program. We can give no assurance that any or all of our new
acquisitions will fit within our Year 2000 program. If we cannot successfully
integrate our new acquisitions into our Year 2000 program, our business could
be harmed.

                                       20
<PAGE>

    Some of our critical operations depend on other companies and we believe
that our largest Year 2000 risk is our dependence upon third-party products.
Two significant areas in which our systems depend upon third-party products are
programming and telephony interconnects. We do not have the ability to control
third parties in their assessment and remediation procedures for potential Year
2000 problems. Should these parties not be prepared for Year 2000, their
systems may fail and we would not be able to provide our services to our
customers. Notwithstanding these limitations, the task force monitors the
websites for all vendors used by us, to the extent applicable, for information
on such vendors' Year 2000 programs. To the extent applicable, the task force
uses such information to verify Year 2000 compliance and to implement
remediation procedures. We also have requested information from various third
parties on the state of their Year 2000 compliance programs in an effort to
prevent any possible interruptions or failures. To date, responses by
programming vendors to such communications have been limited. The responses
received state only that the party is working on Year 2000 issues and does not
have a definitive position at this time. As a result, we are unable to assess
the risk posed by our dependence upon such third parties' systems. Vendors for
critical equipment components, such as the headend controllers mentioned below,
have been more responsive, and we believe substantially all of our equipment
will be Year 2000 compliant. We cannot, however, give any assurances concerning
compliance of equipment because such belief is based on information provided by
vendors, which cannot be independently verified, and because of the
uncertainties inherent in Year 2000 remediation. We have already considered
certain limited contingency plans, including preparing back-up programming and
stand-by power generators. These may not be sufficient, however, to prevent
interruptions on our systems. If we or other companies on whom we depend fail
to implement Year 2000 procedures on time, our business, operating results and
financial condition could be significantly harmed.

    The task force is also including our minority investments in its program.
No assurance can be given, however, that these entities will implement the
recommendations of the task force or otherwise be Year 2000 compliant.

    The task force is not able to determine the full cost of its Year 2000
program and its related impact on our financial condition. In the course of our
business, we have made substantial capital investments over the past few years
in improving our systems, primarily for reasons other than Year 2000. Because
the systems' upgrades also result in Year 2000 compliance, replacement and
remediation costs have been low. Based on the task force review to date, we
currently estimate that these costs will not exceed NLG5.0 million. No
assurance can be made, however, as to the total cost for our Year 2000 program
until all of the data has been gathered. In addition, we cannot predict the
financial impact we will experience if Year 2000 problems are caused by third
parties upon which our systems are dependent or experienced by entities in
which we hold investments. The failure of any one of these parties to implement
Year 2000 procedures could have a material adverse impact on our operations and
financial condition.

Our high level of debt and limitations on our capacity to borrow and invest
could slow down growth in subscribers and revenue

    We are highly leveraged. Our high level of debt and limitations on our
capacity to borrow and invest reduce our financial flexibility. This could
reduce the amount of money available to develop our businesses and result in
slower growth in subscribers and revenues than we plan. On a pro forma basis,
including our recent offering of senior notes and the completion of all of our
new acquisitions, as of March 31, 1999, we would have owed NLG6.0 billion in
consolidated debt. See "Capitalization." Many of our unconsolidated
subsidiaries and affiliates also have long- and short-term debt.

    The terms of many of our debt facilities limit our borrowing capacity. They
also limit our ability to invest in some of our subsidiaries and limit certain
transactions between subsidiaries.

    As a subsidiary of United, we are restricted by the terms of United's debt
instruments. We have agreed with United not to take any action that would
result in a breach of these terms. This limits our

                                       21
<PAGE>

ability to incur more debt and issue certain preferred stock. Our freedom to
invest in entities that we do not control is also limited. Even if we do not
cause a breach of the terms of United's debt securities, a breach that is
caused by United or one of its other subsidiaries could still restrict us from
incurring more debt or taking other actions.

    For more detailed information about our level of debt and restrictions on
our ability to borrow, see "UPC Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Holders of our B shares have substantially lower voting rights than holders of
our A shares

    Our shares are divided into A shares and B shares. Holders of A shares have
100 votes per share on all matters submitted to the general meeting of
shareholders and holders of B shares have one vote per share. See "Description
of Share Capital--Ordinary Shares." While our B shares have the same dividend
and liquidation payment rights as our A shares, there can be no assurance that
the market price of B shares will correspond to that of the A shares.

We will continue to be controlled by United, whose interests may be different
from those of other shareholders

    United owns about 62.5% of our outstanding A shares and all of our priority
shares and following this offering will have approximately  % of the total
votes of all ordinary shares. As a result, United is able to control the
election of all but two of the members of our Supervisory Board. Philips has
had the right to appoint one member since United acquired 50% of us from
Philips in 1997. In addition, the Discount Group, our partner in our Israeli
system, has a contractual right to appoint one director although they have not
yet exercised this right. United will be able to determine the outcome of
almost all corporate actions requiring the approval of our shareholders. Thus,
United will continue to control substantially all of our business affairs and
policies. The priority shares give United additional approval rights over
certain of our actions.

    Our Supervisory Board has the power to approve transactions in which United
has an interest. This power is subject to directors' fiduciary duties to our
other shareholders. Nonetheless, conflicts may arise between the interests of
United and our other shareholders. For example, United may choose to invest in
other properties or incur additional long-term debt. Further, United could
cause us to provide financial resources to our shareholders. This could limit
our current strategy of investing in our new businesses.

There has been no prior market for our B shares and the trading price may
be volatile

    Prior to this offering, there has been no market for the B shares or the
ADSs. Although we intend to list the B shares on the Amsterdam Stock Exchange
and the ADSs on the Nasdaq National Market, we cannot guarantee that an active
trading market for the B shares and ADSs will develop or be sustained, or that
the trading price of the B shares and ADSs will exceed the offering price. The
trading price of the B shares and ADSs could fluctuate widely in response to
changes in our financial performance or prospects, changes in the prospects for
companies in our industry generally, foreign currency exchange rate
fluctuations, or other events or factors beyond our control.

Future sales into the public market could cause the price of our B shares to
decline

    The market price of our B shares could drop if substantial amounts of A
shares or B shares are sold in the public market or if sales of substantial
amounts of A shares or B shares are expected to occur. This could also impair
our ability to raise capital by offering equity securities.

                                       22
<PAGE>

    After this offering, all of the B shares sold in this offering will be
freely tradeable in the United States without restriction or further
registration under the U.S. securities laws. They will also be freely tradeable
on the Amsterdam Stock Exchange. After this offering, there are legal and
contractual restrictions on the sale of our shares by United, our officers and
directors. These restrictions will expire after varying time periods. For more
information about these restrictions, see "Shares Eligible For Future Sale."

We do not intend to pay dividends for the foreseeable future

    We have never paid dividends on our shares. We do not intend to pay
dividends in the foreseeable future. The terms of some of our existing debt
facilities and indentures prevent us from paying dividends. At the moment, we
do not have sufficient statutory capital under Dutch regulations to make
distributions. You should therefore not expect to receive dividends on our
shares for the foreseeable future.

                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

    We caution readers that, in addition to the historical financial
information included herein, this prospectus includes certain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Litigation Reform Act") that are based on management's beliefs,
as well as on assumptions made by and information currently available to
management. All statements other than statements of historical fact included in
this prospectus, including, without limitation, budgeted, future, and certain
other statements under "Prospectus Summary," "UPC Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" and
located elsewhere herein regarding our financial position and business
strategy, may constitute forward-looking statements. In addition, forward-
looking statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "believe," "plan," "seek," or "continue" or the negative thereof
or variations thereon or similar terminology. Such forward-looking statements
involve known and unknown risks, including, but not limited to, national and
international economic and market conditions, competitive activities or other
business conditions, and customer reception of our existing and future
services. Although we believe that our expectations with respect to the
forward-looking statements are based upon reasonable assumptions within the
bounds of our knowledge of our business and operations as of the date hereof,
there can be no assurance that our actual results, performance or achievements
will not differ materially from any future results, performance or achievements
expressed or implied from such forward-looking statements. You should be aware
that the multi-channel television, telephone and Internet/data service
industries are changing rapidly, and, therefore, the forward-looking statements
and statements of expectations, plans and intent in this prospectus are subject
to a greater degree of risk than similar statements regarding certain other
industries. Important factors that could cause actual results to differ
materially from our expectations ("Cautionary Statements") are disclosed in
this prospectus, including without limitation in conjunction with the forward-
looking statements included in this prospectus and under "Risk Factors." All
subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
Cautionary Statements.

                                       23
<PAGE>

                                USE OF PROCEEDS

    The net proceeds to us from this offering will be approximately NLG
million ($   million). We plan to use the proceeds from this offering, together
with proceeds from our senior note offering in July 1999, as a portion of the
funds required to finance our new acquisitions. We plan to use the remainder of
the proceeds for general corporate purposes and other new acquisitions.

    Until the net proceeds of this offering are used as described above, we
intend to hold them in short-term, interest-bearing, investment grade
securities, including governmental obligations and other money market
instruments.

                                DIVIDEND POLICY

    We have never declared or paid cash dividends on our ordinary shares. We do
not intend to pay dividends for the foreseeable future. Some of our debt
facilities currently prohibit us from paying dividends. The indenture governing
our 10 7/8% senior notes and 12 1/2% senior discount notes may also limit our
ability to pay cash dividends. In addition, Dutch regulations limit our
distributions from statutory capital equity. See "Risk Factors -- We do not
intend to pay dividends for the foreseeable future."

                                       24
<PAGE>

                               EXCHANGE RATE DATA

    We report all of our historical financial results in Dutch guilders. For
your convenience, we have converted some amounts in non-Dutch currencies to
Dutch guilders. These foreign currency translations for amounts prior to
December 31, 1998 use the same exchange rates used for the 1998 financial
statements. For amounts after December 31, 1998, we have used March 31, 1999
exchange rates, except as otherwise noted. These translated amounts may not
currently equal such Dutch guilder amounts nor may they necessarily be
converted into Dutch guilders at the translation exchange rates used.

    In the future, we expect to report our financial results in euros. The
fixed exchange rate is 0.45378 euros per NLG1.00. The average exchange rate for
June 1999 was 1.03377 euros per $1.00.

    The following table sets forth, for the periods indicated, information
concerning the exchange rate at the end of the period, the average of the
exchange rates at 12:00 p.m. Eastern Standard Time on the last day of each
month during the applicable period and the high and low exchange rates for
Dutch guilders expressed in guilders per $1.00. Exchange rates have been
rounded to the nearest 1/100th of one dollar. The source of the information in
this table is derived from U.S. Federal Reserve Statistical Release H.10(512).

<TABLE>
<CAPTION>
                                        As of or for the Year  As of or for the
Exchange Rates: Dutch Guilders per       Ended December 31,      Three Months
$1.00                                  -----------------------      Ended
                                        1996    1997    1998    March 31, 1999
                                       ------- ------- ------- ----------------
<S>                                    <C>     <C>     <C>     <C>
Exchange rate at end of period.......     1.73    2.03    1.88       2.04
Average exchange rate during period..     1.69    1.97    1.99       1.96
Highest exchange rate during period..     1.76    2.12    2.09       2.06
Lowest exchange rate during period...     1.61    1.73    1.81       1.87
</TABLE>

    The following table presents the spot rates used to translate the balance
sheets and the average rates used to translate the income statements of our
operating systems into Dutch guilders presented in this prospectus. The amounts
below represent the number of Dutch guilders per unit of each functional
currency, unless otherwise indicated.

<TABLE>
<CAPTION>
                          Average Rate               Average Rate               Average Rate                Average Rate
                             Twelve                     Twelve                     Twelve                      Three
                             Months                     Months                     Months                      Months
                             Ended        Balance       Ended        Balance       Ended        Balance        Ended
Exchange Rates: Dutch       Dec. 31,   Sheet Rate at   Dec. 31,   Sheet Rate at   Dec. 31,   Sheet Rate at   March 31,
Guilders per Other            1996     Dec. 31, 1997     1997     Dec. 31, 1998     1998     March 31, 1999     1999
Currency                  ------------ ------------- ------------ ------------- ------------ -------------- ------------
<S>                       <C>          <C>           <C>          <C>           <C>          <C>            <C>
Austrian Schilling......     0.1593       0.1602        0.1599       0.1602        0.1602        0.1602        0.1602
Belgian Franc...........     0.0544       0.0546        0.0545       0.0546        0.0546        0.0546        0.0546
Czech Koruna............     0.0626       0.0585        0.0622       0.0627        0.0617        0.0574        0.0594
French Franc............     0.3295       0.3369        0.3243       0.3362        0.3363        0.3360        0.3360
German Mark.............        --           --            --        1.1268        1.1273        1.1267        1.1267
Hungarian Forint(per 100
 units).................        --        0.99          1.05         0.88          0.93          0.87          0.87
Irish Pound.............        --        2.89          2.96         2.80          2.82          2.80          2.80
New Israeli Shekel......        --        0.5720        0.5522       0.4546        0.5293        0.5092        0.4822
Maltese Lira............        --        5.11          4.99         5.02          5.09          5.17          5.08
Norwegian Kroner........     0.2645       0.2745        0.2755       0.2479        0.2637        0.2641        0.2557
Polish Zloty............     0.6254       0.5738        0.5989       0.5398        0.5687        0.5138        0.5216
Romania Lei(per 100
 units).................        --        0.0250        0.0277       0.0179        0.0227        0.0135        0.0160
Slovak Koruna...........        --        0.0579        0.0579       0.0512        0.0566        0.0491        0.0506
Swedish Kronor..........     0.2512       0.2553        0.2551       0.2325        0.2503        0.2483        0.2448
U.S. Dollar.............     1.69         2.02          1.95         1.89          1.99          2.05          1.97
</TABLE>


                                       25
<PAGE>

                                 CAPITALIZATION

    The following table sets forth, on a consolidated basis, our non-restricted
cash and cash equivalents, short-term and long-term debt and equity
capitalization as of March 31, 1999, to reflect the offering of the B shares
and our recent offering of senior notes in July 1999, and the use of proceeds
from the note offering and this offering to be used to finance a portion of the
following new acquisitions, which, together with UTH, are included in the
unaudited pro forma condensed consolidated balance sheet contained in this
prospectus:

  .@Entertainment;
  .A2000;
  .Kabel Plus;
  .Stjarn; and
  .12.8% of SBS.

    The table should be read in conjunction with our audited consolidated
financial statements, the notes and interim supplements thereto, and "UPC
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our " Unaudited Pro Forma Condensed Consolidated Financial
Data," all of which are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
                                                 As of March 31, 1999
                                            ----------------------------------
                                                Actual         As Adjusted
                                            ---------------  -----------------
                                            (Dutch guilders, in thousands)
<S>                                         <C>              <C>
Non-restricted cash and cash equivalents...       1,062,002          1,278,813
                                            ===============   ===============
Short-term debt:
  Telekabel Hungary........................          48,921             41,777
  United loan..............................          15,881             15,881
  Stjarn Facility A (current portion)......             --              18,250
  Stjarn Facility B........................             --              37,245
  A2000 Loan...............................             --              44,318
  Other....................................             --              21,665
                                            ---------------    ---------------
  Total short-term debt....................          64,802            179,136
                                            ===============   ===============
Long-term debt:
  UPC senior notes and senior discount
   notes...................................             --           3,122,607
  Senior refinanced credit facility........             --             361,854
  Senior revolving credit facility.........         361,854                --
  CNBH Facility............................         239,495            239,495
  New TeleKabel Facility...................         539,909            539,909
  Mediareseaux Facility....................          59,821             59,821
  @Entertainment senior notes..............             --             482,969
  @Entertainment/PCI senior notes..........             --             269,727
  A2000 facilities.........................             --             458,000
  Stjarn Facility A........................             --              73,869
  Bank and other loans.....................          78,161            178,679
                                            ---------------    ---------------
  Total long-term debt.....................       1,279,240          5,786,930
Minority interest in subsidiaries..........          27,239             34,398
Shareholders' equity:
  A shares ................................          85,446            569,642
  B shares ................................             --                  34
  Additional paid-in capital...............       3,836,929          3,576,149
  Deferred compensation....................         (85,445)           (85,445)
  Accumulated deficit......................        (867,589)          (867,589)
  Other cumulative comprehensive income
   (loss)..................................         187,151            187,151
                                            ---------------   ---------------
    Total shareholders' equity.............       3,156,492          3,379,942
                                            ===============   ===============
    Total capitalization...................       4,462,971          9,201,270
                                            ===============    ===============
</TABLE>

                                       26
<PAGE>

    The @Entertainment and @Entertainment/PCI senior notes include put
provisions which may be triggered by holders as a result of our acquisition of
@Entertainment. Our acquisition of Stjarn may result in an obligation to repay
the Stjarn facilities listed above.

    The capitalization table does not include the pro forma effects of the
acquisitions or planned acquisitions of IPS, GelreVision, SKT, Time Warner
Cable France, Videopole or RCF. These transactions, which occurred or were
agreed to subsequent to March 31, 1999, are expected to result in the following
use of cash, consolidation of debt or issuance of equity. The purchase prices
for purposes of the following table are assumed to be financed with existing
cash. The actual consideration paid for these acquisitions may change.

<TABLE>
<CAPTION>
                                                          Consideration
                                                          --------------
                                                                         Assumed
                                                           Cash  Equity   Debt
                                                          ------ ------- -------
                                                           (Dutch guilders, in
                                                                millions)
   <S>                                                    <C>    <C>     <C>
          IPS............................................   15.6    --      --
          GelreVision....................................  243.0    --      --
          SKT............................................   88.7    --      --
          Time Warner Cable France.......................  145.6    --    100.8
          Videopole and RCF..............................  205.5  133.3    86.6
                                                          ------ ------   -----
                                                           698.4  133.3   187.4
                                                          ====== ======   =====
</TABLE>

                         MARKET PRICES OF OUR A SHARES

    Our A shares trade on the Amsterdam Stock Exchange ("AEX") under the symbol
"UPC" and ADSs representing A shares trade on the Nasdaq National Market under
the symbol "UPCOY." Both began trading on February 12, 1999, at the time of our
initial public offering. The following table shows the range of high and low
closing prices reported on the AEX and Nasdaq:

<TABLE>
<CAPTION>
                                                    AEX              Nasdaq
                                          ----------------------- -------------
                                             High         Low      High   Low
                                          ----------- ----------- ------ ------
<S>                                       <C>         <C>         <C>    <C>
First Quarter (from February 12, 1999)... (Euro)38.25 (Euro)29.45 $41.44 $32.56
Second Quarter...........................       62.65       37.20  65.13  39.38
Third Quarter (through July 30, 1999)....       69.35       56.00  70.50  57.88
</TABLE>

                                       27
<PAGE>

           UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

   The following unaudited pro forma condensed consolidated financial data are
presented to reflect the pro forma effect of certain of the new acquisitions.
The unaudited pro forma condensed consolidated balance sheet and statements of
operations and notes thereto do not purport to represent what our results of
operations would actually have been if such transactions had in fact occurred
on such dates. The pro forma adjustments are based upon currently available
information and upon certain assumptions that we believe are reasonable. The
unaudited pro forma condensed consolidated financial data and accompanying
notes should be read in conjunction with our audited consolidated financial
statements and the notes thereto, our unaudited interim consolidated financial
statements and notes thereto, certain financial statements of certain of our
new acquisitions and other financial information, including "UPC Management's
Discussion and Analysis of Financial Condition and Results of Operations," all
of which are included elsewhere in this prospectus.

   In August 1998, we and NUON created United TeleKabel Holding ("UTH") by
contributing each of our interests in Dutch cable television systems to UTH. We
contributed our 100% interest in CNBH and our 50% interest in A2000. NUON
contributed its 100% interest in N.V. TeleKabel Beheer. Effective August 1998,
we deconsolidated our assets contributed to UTH and accounted for our
investment in UTH under the equity method. In February 1999, we acquired NUON's
49% interest in UTH for NLG518.1 million. The NUON acquisition completed the
purchase of a 100.0% interest in N.V. Telekabel Beheer. We began consolidating
UTH effective February 1, 1999.

   In June 1999, we agreed to acquire 100% of @Entertainment for $884.3 million
(NLG1,812.8 million). The @Entertainment acquisition will be accounted for
under the purchase accounting method. Upon closing of the @Entertainment
acquisition, we will consolidate @Entertainment, including its cash, which was
$128.0 million (NLG262.4 million) as of March 31, 1999, and its debt, which was
$373.7 million (NLG766.0 million). Prior to closing the @Entertainment
acquisition, we will have completed a tender offer for 100% of @Entertainment's
outstanding shares, on a fully-diluted basis. Assuming 100% of @Entertainment's
options and warrants are exercised, @Entertainment will receive cash of
approximately $128.9 million (NLG264.2 million), which we will also
consolidate.

   In June 1999, we agreed to acquire the remaining 50% of A2000 that we did
not already own for $229.0 million (NLG469.5 million). The A2000 acquisition
will be accounted for under the purchase accounting method. Upon closing of the
A2000 acquisition, we will consolidate A2000, including its debt. As of March
31, 1999, A2000 had debt of NLG502.3 million.

   In June 1999, we agreed to acquire MediaOne's interest in Kabel Plus, which
currently is approximately 94.6%, for $150.0 million (NLG307.5 million). The
Kabel Plus acquisition will be accounted for under the purchase accounting
method. Upon closing of the Kabel Plus acquisition, we will consolidate Kabel
Plus, including its debt. As of March 31, 1999, Kabel Plus had debt of NLG98.4
million, including NLG52.2 million of debt to MediaOne which was contributed to
equity subsequent to March 31, 1999.

   In June 1999, we agreed to acquire between 12.8% and 26.5% of SBS. In July
1999, we closed the purchase of the initial tranche of 4.8% of SBS's shares for
cash of approximately $24.3 million (NLG50.0 million). The final tranche will
bring our interest to 13.4%. The total purchase price for 13.4% of SBS will be
$100.2 million (NLG206.0 million). We will account for our investment in SBS
under the equity method of accounting.

   In July 1999, we acquired Stjarn for a purchase price of approximately
$400.0 million (NLG820.0 million), after adjustments for debt and cash as of
July 31, 1999. $100.0 million of the purchase price was paid in the form of a
one year note with interest at 8% per year and the balance of the purchase
price was paid in cash. The note will automatically convert into our B shares
upon completion of this offering. If no public equity offering occurs prior to
the maturity of the notes, we will have the option to pay the note in either
cash or our stock. We have assumed in these pro formas that the note will
convert to equity. The Stjarn acquisition was structured as

                                       28
<PAGE>

a purchase of shares of Stjarn's parent holding company, NBS Nordic Broadband
Services AB. The Stjarn acquisition was accounted for under the purchase
accounting method. We began consolidating Stjarn effective upon the closing of
the acquisition, including its cash, which was SEK132.3 million (NLG32.8
million) as of March 31, 1999, and its debt, which was SEK528.1 million
(NLG131.1 million) as of March 31, 1999.

   The following unaudited pro forma condensed consolidated financial data also
gives effect to our offering of 10 7/8% senior notes and 12 1/2% senior
discount notes in July 1999. These pro formas assume gross proceeds from the
senior note offering of NLG3,122.6 and net proceeds of NLG3,055.9 million.
Concurrent with the closing of the senior note offering, we executed a cross-
currency swap on the proceeds of the U.S. dollar-denominated senior note
offering ($800.0 million), exchanging the dollar proceeds for euros. After the
swap, the initial weighted average blended interest rate on the notes is 9.7%.
Proceeds from the offering of the senior notes were used for or are to be used
for the acquisition of @Entertainment, A2000, Kabel Plus, Stjarn and 12.8% of
SBS and existing cash is used to fund the excess of the total purchase price of
these acquisitions over the proceeds of the recent senior note offering.


                                       29
<PAGE>

            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

    The following unaudited pro forma condensed consolidated balance sheet as
of March 31, 1999 gives effect to (1) the acquisitions of @Entertainment,
A2000, Kabel Plus, Stjarn and 12.8% of SBS, and (2) the offering of our senior
notes in July 1999, as if each had occurred on March 31, 1999.
<TABLE>
<CAPTION>
                                                                                As of March 31, 1999
                                       ----------------------------------------------------------------------------------------
                                                                               Pro Forma Adjustments
                                                  -----------------------------------------------------------------------------
                                                        @
                                          UPC     Entertainment       A2000          Kabel Plus       Stjarn          SBS
                                       Historical Acquisition(a)  Acquisition(e)   Acquisition(j) Acquisition(n)  Acquisition
                                       ---------- --------------  --------------   -------------- --------------  -----------
                                                                           (Dutch guilders, in thousands)
<S>                                    <C>        <C>             <C>              <C>            <C>             <C>
Assets:
Current assets
 Cash and cash
  equivalents...                       1,062,002      526,642(b)          249           4,328        (116,070)(o)  (216,788)(s)
 Restricted
  cash..........                          84,050          --              --            1,132             --            --
 Subscriber
  receivables,
  net...........                          42,140       13,112          26,202           5,798           3,755           --
 Costs to be
  reimbursed,
  net...........                          28,703          --              --              --              --            --
 Other current
  assets........                         125,319       70,407          16,540           8,359           1,675           --
                                       ---------    ---------       ---------         -------        --------      --------
  Total current
   assets.......                       1,342,214      610,161          42,991          19,617        (110,640)     (216,788)
Marketable
 equity
 securities of
 parent.........                         248,319          --              --              --              --            --
Investments in
 and advances
 to, net........                         390,767       44,852        (161,163)(f)       1,450             --        216,788(t)
Property, plant
 & equipment,
 net............                       1,528,580      417,562         364,394         168,958          86,590           --
Goodwill and
 other
 intangibles,
 net............                       1,454,742    1,571,034(c)      794,613(g)      183,082(k)      905,554(p)        --
Deferred
 financing
 costs, net.....                          35,681          --              --              --              --            --
Non-current
 restricted cash
 and other
 assets.........                           3,269       33,792             --              --              --            --
                                       ---------    ---------       ---------         -------        --------      --------
  Total
   assets.......                       5,003,572    2,677,401       1,040,835         373,107         881,504           --
                                       =========    =========       =========         =======        ========      ========
Liabilities and shareholders' equity:
Current
 liabilities
 Accounts
  payable,
  accrued
  liabilities
  and other
  current
  liabilities...                         421,085       98,562          67,486          12,250          20,251           --
 Short-term
  debt..........                          48,921          --           44,318(h)          --           56,091           --
 Note payable to
  shareholder...                          15,881          --              --              --              --            --
 Current portion
  of long-term
  debt..........                             --        13,325             --              --              --            --
                                       ---------    ---------       ---------         -------        --------      --------
  Total current
   liabilities...                        485,887      111,887         111,804          12,250          76,342           --
Long-term debt..                       1,279,240    2,565,514(d)      927,450(i)      353,698(l)      594,276(q)        --
Deferred taxes
 and other long-
 term
 liabilities....                          54,714          --            1,581             --            5,886           --
                                       ---------    ---------       ---------         -------        --------      --------
 Total
  liabilities...                       1,819,841    2,677,401       1,040,835         365,948         676,504           --
Minority
 interest in
 subsidiaries...                          27,239          --              --            7,159(m)          --            --
                                       ---------    ---------       ---------         -------        --------      --------
 Total
  shareholders'
  equity........                       3,156,492          --              --              --          205,000(r)        --
                                       ---------    ---------       ---------         -------        --------      --------
 Total
  liabilities
  and
  shareholders'
  equity........                       5,003,572    2,677,401       1,040,835         373,107         881,504           --
                                       =========    =========       =========         =======        ========      ========
<CAPTION>
                                        Senior
                                         Note
                                       Offering      UPC
                                        Costs     Pro Forma
                                       ---------- ----------
<S>                                    <C>        <C>
Assets:
Current assets
 Cash and cash
  equivalents...                           --      1,260,363
 Restricted
  cash..........                           --         85,182
 Subscriber
  receivables,
  net...........                           --         91,007
 Costs to be
  reimbursed,
  net...........                           --         28,703
 Other current
  assets........                           --        222,300
                                       ---------- ----------
  Total current
   assets.......                           --      1,687,555
Marketable
 equity
 securities of
 parent.........                           --        248,319
Investments in
 and advances
 to, net........                           --        492,694
Property, plant
 & equipment,
 net............                           --      2,566,084
Goodwill and
 other
 intangibles,
 net............                           --      4,909,025
Deferred
 financing
 costs, net.....                        66,752(u)    102,433
Non-current
 restricted cash
 and other
 assets.........                           --         37,061
                                       ---------- ----------
  Total
   assets.......                        66,752    10,043,171
                                       ========== ==========
Liabilities and shareholders' equity:
Current
 liabilities
 Accounts
  payable,
  accrued
  liabilities
  and other
  current
  liabilities...                           --        619,634
 Short-term
  debt..........                           --        149,330
 Note payable to
  shareholder...                           --         15,881
 Current portion
  of long-term
  debt..........                           --         13,325
                                       ---------- ----------
  Total current
   liabilities...                          --        798,170
Long-term debt..                        66,752(v)  5,786,930
Deferred taxes
 and other long-
 term
 liabilities....                           --         62,181
                                       ---------- ----------
 Total
  liabilities...                        66,752     6,647,281
Minority
 interest in
 subsidiaries...                           --         34,398
                                       ---------- ----------
 Total
  shareholders'
  equity........                           --      3,361,492
                                       ---------- ----------
 Total
  liabilities
  and
  shareholders'
  equity........                        66,752    10,043,171
                                       ========== ==========
</TABLE>

                                       30
<PAGE>

- --------
(a) Represents the historical amounts included in @Entertainment's balance
    sheet at March 31, 1999, except as indicated in (b), (c) and (d), which
    were converted from U.S. dollars to Dutch guilders at the March 31, 1999
    spot exchange rate.

(b) Represents the pro forma increase in cash and cash equivalents as a result
    of the @Entertainment acquisition:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical cash and cash equivalents.......... NLG262,404
    Additional pro forma increase in cash from exercise of options
     and warrants in the tender offer.............................. NLG264,238
                                                                    ----------
                                                                    NLG526,642
                                                                    ==========
</TABLE>

(c) Represents the pro forma increase in goodwill and other intangibles as a
    result of the @Entertainment acquisition:

<TABLE>
    <S>                                             <C>           <C>
    Consolidation of historical @Entertainment
     goodwill and other intangibles...............                NLG   75,327
    Additional pro forma goodwill and other
     intangibles due to the @Entertainment
     acquisition:
      Historical shareholders' equity, including
       12% cumulative redeemable preferred........  NLG  (52,874)
      Pro forma cash received from exercise of
       warrants and options in tender offer.......  NLG (264,238)
      Purchase price..............................  NLG1,812,819
                                                    ------------
                                                                  NLG1,495,707
                                                                  ------------
                                                                  NLG1,571,034
                                                                  ============
(d) Represents the pro forma increase in long-term debt as a result of the
    @Entertainment acquisition:

    Consolidation of historical @Entertainment
     long-term debt...............................                NLG  752,697
    Offering of the notes to fund the
     @Entertainment acquisition...................                NLG1,812,817
                                                                  ------------
                                                                  NLG2,565,514
                                                                  ============
(e) Represents the historical amounts included in A2000's balance sheet at
    March 31, 1999, except as indicated in (f), (g), (h) and (i).
(f) Represents the pro forma decrease in investments in affiliates as a result
    of the A2000 acquisition:
    Consolidation of historical A2000 investments
     in affiliates................................                NLG      325
    Reclassification of UTH's historical excess
     basis in A2000 to goodwill...................                NLG (211,936)
    Elimination of historical UTH investment in
     A2000........................................                NLG   50,448
                                                                  ------------
                                                                  NLG (161,163)
                                                                  ============
(g) Represents the pro forma increase in goodwill and other intangibles as a
    result of the A2000 acquisition:
    Consolidation of historical A2000 goodwill and
     other intangibles............................                NLG  110,010
    Reclassification of historical goodwill and
     other intangibles recorded by UTH as part of
     its investment in A2000......................                NLG  211,936
    Additional pro forma goodwill and other
     intangibles due to the A2000 acquisition:
      50% of A2000's historical shareholders'
       equity ....................................  NLG   50,448
      Shareholder loans ..........................  NLG  (47,231)
      Purchase price..............................  NLG  469,450
                                                    ------------
                                                                  NLG  472,667
                                                                  ------------
                                                                  NLG  794,613
                                                                  ============
</TABLE>

                                       31
<PAGE>

(h) Represents the pro forma increase in short-term debt as a result of the
    A2000 acquisition:
<TABLE>
    <S>                                                 <C>          <C>
    Consolidation of historical A2000 short-term debt
     .................................................               NLG 91,549
    Shareholder loans.................................               NLG(47,231)
                                                                     ----------
                                                                     NLG 44,318
                                                                     ==========
(i) Represents the pro forma increase in long-term debt as a result of the
    A2000 acquisition:

    Consolidation of historical A2000 long-term debt..               NLG458,000
    Offering of the notes to fund the A2000
     acquisition......................................               NLG469,450
                                                                     ----------
                                                                     NLG927,450
                                                                     ==========
(j) Represents the historical amounts included in Kabel Plus's balance sheet at
    March 31, 1999, except as indicated in (k), (l) and (m), converted from
    Czech korunas to Dutch guilders at the March 31, 1999 spot exchange rate.
(k) Represents the pro forma increase in goodwill and other intangibles as a
    result of the Kabel Plus acquisition:
    Consolidation of historical Kabel Plus goodwill
     and other intangibles............................               NLG  1,004
    Additional pro forma goodwill and other
     intangibles due to the Kabel Plus acquisition:
      Historical shareholders' equity, including
       NLG52,186 of debt to former shareholder which
       was contributed to equity......................  NLG(125,422)
      Purchase price..................................  NLG 307,500
                                                        -----------
                                                                     NLG182,078
                                                                     ----------
                                                                     NLG183,082
                                                                     ==========
(l) Represents the pro forma increase in long-term debt as a result of the
    Kabel Plus acquisition:
    Consolidation of historical Kabel Plus long-term
     debt, excluding NLG52,186 of debt to former
     shareholder which was contributed to equity......               NLG 46,198
    Offering of the notes to fund the Kabel Plus
     acquisition......................................               NLG307,500
                                                                     ----------
                                                                     NLG353,698
                                                                     ==========
</TABLE>
(m) Represents the allocation of historical net assets to minority interest in
    Kabel Plus.

(n) Represents the historical amounts included in NBS Nordic Broadband Services
    AB's balance sheet at March 31, 1999, except as indicated in (o), (p), (q)
    and (r), which were converted from Swedish kronor to Dutch guilders at the
    March 31, 1999, spot exchange rate.

(o) Represents the pro forma decrease in cash and cash equivalents as a result
    of the Stjarn acquisition:
<TABLE>
    <S>                                               <C>         <C>
    Consolidation of historical Stjarn cash and cash
     equivalents.....................................             NLG  32,842
    Cash used to fund the Stjarn acquisition.........             NLG(148,912)
                                                                  -----------
                                                                  NLG(116,070)
                                                                  ===========
(p) Represents the pro forma increase in goodwill and other intangibles as a
    result of the Stjarn acquisition:
    Consolidation of historical Stjarn goodwill and
     other intangibles...............................             NLG 134,485
    Additional pro forma goodwill and other
     intangibles due to the Stjarn acquisition:
      Historical shareholders' equity................ NLG(48,931)
      Purchase price................................. NLG820,000
                                                      ----------
                                                                  NLG 771,069
                                                                  -----------
                                                                  NLG 905,554
                                                                  ===========
</TABLE>

                                       32
<PAGE>

(q) Represents the pro forma increase in long-term debt as a result of the
    Stjarn acquisition:
<TABLE>
    <S>                                                      <C>    <C>
    Consolidation of historical Stjarn long-term debt.......        NLG128,188
    Offering of the notes to partially fund the Stjarn
     acquisition............................................        NLG466,088
                                                                    ----------
                                                                    NLG594,276
                                                                    ==========
</TABLE>

(r) Represents the portion of the Stjarn acquisition financed with our equity.

(s) Represents the decrease in cash for financing the SBS acquisition.

(t) Represents the investment made for a 12.8% interest in SBS.

(u) Represents the estimated offering costs relating to the issuance of our
    senior notes in July 1999.

(v) Represents the proceeds from our senior notes used to pay estimated costs
    of our senior note offering.

                                       33
<PAGE>

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

   The following unaudited pro forma condensed consolidated statement of
operations for the three months ended March 31, 1999 gives effect to (1) the
UTH transaction and the NUON acquisition (together the "NUON Transaction"), (2)
the acquisitions of @Entertainment, A2000, Kabel Plus, Stjarn and 12.8% of SBS,
and (3) the offering of our senior notes in July 1999, as if each had occurred
as of January 1, 1998.

<TABLE>
<CAPTION>
                                                            For the Three Months Ended March 31, 1999
                   -----------------------------------------------------------------------------------------------------------
                                                                       Pro Forma Adjustments
                                ----------------------------------------------------------------------------------------------
                                                       @
                       UPC           NUON        Entertainment        A2000        Kabel Plus        Stjarn          SBS
                   Historical   Transaction (a) Acquisition (d)  Acquisition (g) Acquisition (k) Acquisition (o) Acquisition
                   -----------  --------------- ---------------  --------------- --------------- --------------- -----------
                                                                            (unaudited)
                                                                   (Dutch guilders, in thousands)
<S>                <C>          <C>             <C>              <C>             <C>             <C>             <C>
Statement of
 Operations Data:
 Service and
  other revenue..      148,820       19,844          36,959           35,979          13,204          16,554           --
 Operating
  expense........      (67,067)      (6,616)        (35,421)         (10,403)         (3,705)         (6,936)          --
 Selling, general
  &
  administrative
  expense........     (104,333)      (6,013)        (30,709)         (15,204)         (7,123)         (5,198)          --
 Depreciation and
  amortization...      (63,198)      (9,913)(b)     (37,486)(e)      (25,968)(h)      (6,996)(l)     (16,073)(p)       --
                   -----------      -------        --------          -------         -------         -------       -------
 Net operating
  (loss) income..      (85,778)      (2,698)        (66,657)         (15,596)         (4,620)        (11,653)          --
 Interest
  income.........        4,911          --            2,937              103              33             251           --
 Interest
  expense........      (38,245)      (4,790)        (67,927)(f)      (18,688)(i)     (10,542)(m)     (14,406)(q)       --
 Gain on sale of
  assets.........       14,625          --              --               --              --              --            --
 Foreign exchange
  gain (loss) and
  other expense        (15,335)         --           (2,041)          (2,982)            (85)            --            --
                   -----------      -------        --------          -------         -------         -------       -------
 Net loss before
  income taxes
  and other items     (119,822)      (7,488)       (133,688)         (37,163)        (15,214)        (25,808)         --
 Shares in
  results of
  affiliated
  companies,
  net............      (20,272)         385 (c)       2,015           11,796(j)          --              --         (7,176)(r)
 Minority
  interests in
  subsidiaries...          (77)          22             --               --              822(n)          --            --
 Income tax
  benefit
  (expense)......         (368)         242             (37)             --              --             (113)          --
                   -----------      -------        --------          -------         -------         -------       -------
 Net loss........     (140,539)      (6,839)       (131,710)         (25,367)        (14,392)        (25,921)       (7,176)
                   ===========      =======        ========          =======         =======         =======       =======
Basic and diluted
 net loss per A
 Share...........        (1.31)
                   ===========
Weighted-average
 number of A
 Shares
 outstanding.....  107,395,811
                   ===========
<CAPTION>
                    Senior
                     Note           UPC
                   Offering      Pro Forma
                   ------------ --------------
<S>                <C>          <C>
Statement of
 Operations Data:
 Service and
  other revenue..      --           271,360
 Operating
  expense........      --          (130,148)
 Selling, general
  &
  administrative
  expense........      --          (168,580)
 Depreciation and
  amortization...      --          (159,634)
                   ------------ --------------
 Net operating
  (loss) income..      --          (187,002)
 Interest
  income.........      --             8,235
 Interest
  expense........   (3,253)(s)     (157,851)
 Gain on sale of
  assets.........      --            14,625
 Foreign exchange
  gain (loss) and
  other expense        --           (20,443)
                   ------------ --------------
 Net loss before
  income taxes
  and other items   (3,253)        (342,436)
 Shares in
  results of
  affiliated
  companies,
  net............      --           (13,252)
 Minority
  interests in
  subsidiaries...      --               767
 Income tax
  benefit
  (expense)......      --              (276)
                   ------------ --------------
 Net loss........   (3,253)        (355,197)
                   ============ ==============
Basic and diluted
 net loss per A
 Share...........                     (3.07)
                                ==============
Weighted-average
 number of A
 Shares
 outstanding.....               115,581,874(t)
                                ==============
</TABLE>
<TABLE>
    <S>                                                               <C>
    Consolidation of historical amortization and depreciation of UTH
     for the month ended January 31, 1999...........................  NLG(8,246)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15 year life, for the month ended January
     31, 1999.......................................................  NLG(1,667)
                                                                      ---------
                                                                      NLG(9,913)
                                                                      =========
</TABLE>
<TABLE>
    <S>                                                             <C>
    Consolidation of historical share in results of affiliates of
     UTH for the month ended January 31, 1999...................... NLG(5,022)
    Elimination of the historical share in results recorded by UPC
     for its 51% investment in UTH for the month ended
     January 31, 1999 ............................................. NLG 5,407
                                                                    ---------
                                                                    NLG   385
                                                                    =========
</TABLE>
- ------------------
(a) Represents the consolidation of the historical results of operations for
    UTH for the month ended January 31, 1999, except as indicated in (b) and
    (c).

(b) Represents additional depreciation and amortization expense as a result of
    the NUON Transaction:

(c) Represents additional share in results of affiliates as a result of the
    NUON Transaction:
(d) Represents the consolidation of the historical results of operations for
    @Entertainment for the three months ended March 31, 1999, except as
    indicated in (e) and (f), converted from U.S. dollars to Dutch guilders
    using the March 31, 1999 three month average exchange rate.

                                       34
<PAGE>

(e) Represents additional depreciation and amortization expense as a result of
    the @Entertainment acquisition:
<TABLE>
    <S>                                                             <C>
    Consolidation of historical amortization and depreciation of
     @Entertainment for the three months ended March 31, 1999...... NLG(18,490)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15 year life, for the three months ended
     March 31, 1999................................................ NLG(18,996)
                                                                    ----------
                                                                    NLG(37,486)
                                                                    ==========
</TABLE>

(f) Represents additional interest expense as a result of the @Entertainment
    acquisition:

<TABLE>
    <S>                                                           <C>
    Consolidation of historical interest expense of
     @Entertainment for the three months ended March 31, 1999...   NLG (23,287)
    Additional interest expense as a result of the debt incurred
     for the @Entertainment acquisition for the three months
     ended March 31, 1999, at an initial blended weighted
     average interest rate of 9.7%..............................  NLG (44,640)
                                                                  ------------
                                                                  NLG (67,927)
                                                                  ============
</TABLE>

(g) Represents the consolidation of the historical results of operations for
    A2000 for the three months ended March 31, 1999, except as indicated in
    (h), (i) and (j).

(h) Represents additional depreciation and amortization expense as a result of
    the A2000 acquisition:

<TABLE>
    <S>                                                            <C>
    Consolidation of historical amortization and depreciation of
     A2000 for the three months ended March 31, 1999.............. NLG (14,114)
    Reclassification of UTH's amortization of its excess basis in
     A2000 for the three months ended March 31, 1999.............. NLG  (4,472)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15 year life, for the three months ended
     March 31, 1999............................................... NLG  (7,382)
                                                                   -----------
                                                                   NLG (25,968)
                                                                   ===========
</TABLE>

(i) Represents additional interest expense as a result of the A2000
    acquisition:

<TABLE>
    <S>                                                            <C>
    Consolidation of historical interest expense of A2000 for the
     three months ended March 31, 1999...........................  NLG   (7,128)
    Additional interest expense as a result of the debt incurred
     for the A2000 acquisition for the three months ended March
     31, 1999, at an initial blended weighted average interest
     rate of 9.7%................................................  NLG (11,560)
                                                                   ------------
                                                                   NLG (18,688)
                                                                   ============
</TABLE>

(j) Represents the elimination of the historical equity pick-up recorded by UTH
    for its investment in A2000:

<TABLE>
    <S>                                                               <C>
    Elimination of UTH's share in results of A2000 for the three
     months ended March 31, 1999....................................  NLG 7,324
    Reclassification of UTH's amortization of its excess basis in
     A2000 for the three months ended March 31, 1999 to amortization
     expense........................................................  NLG 4,472
                                                                      ---------
                                                                      NLG11,796
                                                                      =========
</TABLE>

(k) Represents the consolidation of the historical results of operations for
    Kabel Plus for the three months ended March 31, 1999, except as indicated
    in (l), (m) and (n), converted from Czech korunas to Dutch guilders, using
    the March 31, 1999 three month average exchange rate.

                                       35
<PAGE>

(l) Represents additional depreciation and amortization expense as a result of
    the Kabel Plus acquisition:

<TABLE>
    <S>                                                            <C>
    Consolidation of historical amortization and depreciation of
     Kabel Plus for the three months ended March 31, 1999........  NLG  (5,040)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15 year life, for the three months ended
     March 31, 1999..............................................  NLG  (1,956)
                                                                   -----------
                                                                   NLG  (6,996)
                                                                   ===========

(m) Represents additional interest expense as a result of the Kabel Plus
    acquisition:

    Consolidation of historical interest expense of Kabel Plus
     for the three months ended March 31, 1999...................  NLG  (2,970)
    Additional interest expense as a result of the debt incurred
     for the Kabel Plus acquisition for the three months ended
     March 31, 1999, at an initial blended weighted average
     interest rate of 9.7%.......................................  NLG  (7,572)
                                                                   -----------
                                                                   NLG (10,542)
                                                                   ===========
</TABLE>

(n) Represents minority interest in the net loss of Kabel Plus for the three
    months ended March 31, 1999.

(o) Represents the consolidation of the historical results of operations for
    NBS Nordic Broadband Services AB for the three months ended March 31, 1999,
    except as indicated in (p) and (q), converted from Swedish kronor, using
    the March 31, 1999 three month average exchange rate.

(p) Represents additional depreciation and amortization expense as a result of
    the Stjarn acquisition.

<TABLE>
    <S>                                                            <C>
    Consolidation of historical amortization and depreciation of
     Stjarn for the three months ended March 31, 1999............. NLG  (4,380)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15 year life, for the three months ended
     March 31, 1999............................................... NLG (11,693)
                                                                   -----------
                                                                   NLG (16,073)
                                                                   ===========
</TABLE>

(q) Represents additional interest expense as a result of the Stjarn
    acquisition.

<TABLE>
    <S>                                                            <C>
    Consolidation of historical interest expense of Stjarn for
     the three months ended March 31, 1999.......................  NLG  (1,587)
    Additional interest expense as a result of the debt incurred
     for the Stjarn acquisition for the three months ended March
     31, 1999, at an initial blended weighted average interest
     rate of 9.7%................................................  NLG (12,819)
                                                                   -----------
                                                                   NLG (14,406)
                                                                   ===========

(r) Represents share of results in SBS as a result of the acquisition of a
    12.8% interest:

    UPC's proportionate interest in historical results of SBS for
     the three months ended March 31, 1999.......................  NLG  (3,793)
    Additional amortization resulting from excess basis in the
     investment of SBS for the three months ended March 31, 1999,
     using a 15 year life........................................  NLG  (3,383)
                                                                   -----------
                                                                   NLG  (7,176)
                                                                   ===========
</TABLE>

(s) Represents amortization of deferred finance costs related to the senior
    note offering, using straight line amortization over a 10 year life, for
    the three months ended March 31, 1999, plus additional interest expense
    related to the offering proceeds used for senior note offering costs, at an
    initial blended weighted average interest rate of 9.7%.

(t) For pro forma purposes, the cash portion of the purchase price for UTH,
    Stjarn and SBS, plus the equity portion of the Stjarn acquisition, which
    totaled NLG994.0  million, assuming the acquisitions had occurred on
    January 1, 1998, are assumed to have been funded from proceeds of our
    initial public offering in February 1999. Consequently, the pro forma
    weighted average number of shares outstanding for the three months ended
    March 31, 1999 assumes the issuance of 16,372,125 common shares at the IPO
    price of NLG63.91 per share, discounted for underwriting commissions of 5%.

                                       36
<PAGE>

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

   The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1998 gives effect to (1) the NUON
Transaction, (2) the acquisitions of @Entertainment, A2000, Kabel Plus, Stjarn
and 12.8% of SBS and (3) the offering of our senior notes in July 1999, as if
each had occurred as of January 1, 1998.

<TABLE>
<CAPTION>
                                                           For the Year Ended December 31, 1998
                   ---------------------------------------------------------------------------------------------------------
                                                                    Pro Forma Adjustments
                               ---------------------------------------------------------------------------------------------
                                                     @
                      UPC           NUON       Entertainment       A2000         Kabel Plus        Stjarn          SBS
                   Historical  Transaction(a)  Acquisition(d)  Acquisition(g)  Acquisition(k)  Acquisition(o)  Acquisition
                   ----------  --------------  --------------  --------------  --------------  --------------  -----------
                   (audited)                                                  (unaudited)
                                                                     (Dutch guilders, in thousands)
<S>                <C>         <C>             <C>             <C>             <C>             <C>             <C>
Statement of
 Operations Data:
 Service and
  other revenue..     408,970     186,041          123,161         124,167         47,540           63,160           --
 Operating
  expense........    (138,459)    (62,314)        (123,191)        (31,914)       (15,000)         (26,148)          --
 Selling, general
  &
  administrative
  expense........    (481,703)    (58,195)        (148,318)        (61,773)       (28,908)         (24,351)          --
 Depreciation and
  amortization...    (187,646)    (87,539)(b)     (128,355)(e)    (120,669)(h)    (28,246)(l)      (63,846)(p)       --
                   ----------     -------         --------        --------        -------         --------       -------
  Net operating
   (loss) income.    (398,838)    (22,007)        (276,703)        (90,189)       (24,614)         (51,185)          --
 Interest
  income.........       7,397         --             6,680             674            --             1,801           --
 Interest
  expense........    (104,355)    (37,926)        (217,525)(f)     (70,031)(i)    (59,432)(m)      (57,037)(q)       --
 Provision for
  loss on
  investment.....      (6,230)        --               --              --             --               --            --
 Foreign exchange
  gain (loss) and
  other expense..       2,690         --              (259)          1,100         (6,047)             --
                   ----------     -------         --------        --------        -------         --------       -------
  Net loss before
   income taxes
   and other
   items.........    (499,336)    (59,933)        (487,807)       (158,446)       (90,093)        (106,421)          --
 Shares in
  results of
  affiliated
  companies,
  net............     (63,823)      5,216 (c)      (12,563)         50,333 (j)        123              --        (22,125)(r)
 Minority
  interests
  in subsidiaries..     1,153         235              --              --           4,858 (n)          --            --
 Income tax
  benefit
  (expense)......      (1,215)      1,212             (418)             13            --               369           --
                   ----------     -------         --------        --------        -------         --------       -------
 Net loss........    (563,221)    (53,270)        (500,788)       (108,100)       (85,112)        (106,052)      (22,125)
                   ==========     =======         ========        ========        =======         ========       =======
 Basic and
  diluted net
  loss per
  A Share .......       (6.80)
                   ==========
 Weighted-average
  number of
  A Shares
  outstanding....  82,869,342
                   ==========
<CAPTION>
                    Senior
                     Note          UPC
                   Offering     Pro Forma
                   ------------ -------------
<S>                <C>          <C>
Statement of
 Operations Data:
 Service and
  other revenue..       --         953,039
 Operating
  expense........       --        (397,026)
 Selling, general
  &
  administrative
  expense........       --        (803,248)
 Depreciation and
  amortization...       --        (616,301)
                   ------------ -------------
  Net operating
   (loss) income.       --        (863,536)
 Interest
  income.........       --          16,552
 Interest
  expense........   (12,833)(s)   (559,139)
 Provision for
  loss on
  investment.....       --          (6,230)
 Foreign exchange
  gain (loss) and
  other expense..       --          (2,516)
                   ------------ -------------
  Net loss before
   income taxes
   and other
   items.........  (12,833)     (1,414,869)
 Shares in
  results of
  affiliated
  companies,
  net............       --         (42,839)
 Minority
  interests
  in subsidiaries..     --           6,246
 Income tax
  benefit
  (expense)......       --             (39)
                   ------------ -------------
 Net loss........   (12,833)    (1,451,501)
                   ============ =============
 Basic and
  diluted net
  loss per
  A Share .......                   (14.63)
                                =============
 Weighted-average
  number of
  A Shares
  outstanding....               99,241,467(t)
                                =============
</TABLE>
- -------
(a) Represents the consolidation of the historical results of operations of
    N.V. TeleKabel Beheer for the seven months ended July 1998 and the
    historical results of UTH from inception (August 1998) through December 31,
    1998, except as indicated in (b) and (c).

<TABLE>
<CAPTION>
                                             December 31, 1998
                               ---------------------------------------------
                                  N.V.
                               TeleKabel
                                 Beheer      UTH      Pro Forma     NUON
                               Historical Historical Adjustments Transaction
                               ---------- ---------- ----------- -----------
   <S>                         <C>        <C>        <C>         <C>
   Consolidated Statement of
    Operations:
    Revenue...................   86,919     99,122         --      186,041
    Operating expense.........  (29,142)   (33,172)        --      (62,314)
    Selling, general and
     administrative expense...  (22,099)   (36,096)        --      (58,195)
    Depreciation and
     amortization.............  (32,128)   (35,408)    (20,003)    (87,539)(b)
                                -------    -------     -------     -------
    Net operating loss........    3,550     (5,554)    (20,003)    (22,007)
    Interest income...........      --         --          --          --
    Interest expense..........  (21,227)   (16,699)        --      (37,926)
    Provision for loss on
     investment related
     costs....................      --         --          --          --
    Foreign exchange gain
     (loss) and other
     expenses.................      --         --          --          --
                                -------    -------     -------     -------
    Net loss before income
     taxes and other items....  (17,677)   (22,253)    (20,003)    (59,933)
    Share in results of
     affiliated companies,
     net......................    6,237    (23,739)     22,718       5,216(c)
    Minority interests in
     subsidiaries.............      --         235         --          235
    Income tax benefit
     (expense)................      --       1,212         --        1,212
                                -------    -------     -------     -------
    Net loss..................  (11,440)   (44,545)      2,715     (53,270)
                                =======    =======     =======     =======
</TABLE>


                                       37
<PAGE>

(b) Represents additional depreciation and amortization expense as a result of
    the NUON Transaction:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical amortization and depreciation of
     N.V. TeleKabel Beheer for the seven months ended July 31,
     1998.........................................................  NLG(32,128)
    Consolidation of historical amortization and depreciation of
     UTH for the five months ended December 31, 1998..............  NLG(35,408)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15-year life, for the year ended December
     31, 1998.....................................................  NLG(20,003)
                                                                    ----------
                                                                    NLG(87,539)
                                                                    ==========
</TABLE>

(c) Represents additional share in results of affiliates as a result of the
    NUON Transaction:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical share in results of affiliates of
     N.V. TeleKabel Beheer for the seven months ended July 31,
     1998.........................................................  NLG  6,237
    Consolidation of historical share in results of affiliates of
     UTH for the five months ended December 31, 1998..............  NLG(23,739)
    Elimination of the historical share in results recorded by UPC
     for its 51% investment in UTH for the five months ended
     December 31, 1998............................................  NLG 22,718
                                                                    ----------
                                                                    NLG  5,216
                                                                    ==========
</TABLE>

(d) Represents the consolidation of the historical results of operations for
    @Entertainment for the year ended December 31, 1998, except as indicated in
    (e) and (f), converted from U.S. dollars to Dutch guilders using the
    December 31, 1998 twelve month average exchange rate.

(e) Represents additional depreciation and amortization expense as a result of
    the @Entertainment acquisition:

<TABLE>
    <S>                                                           <C>
    Consolidation of historical amortization and depreciation of
     @Entertainment for the year ended December 31, 1998........  NLG  (52,371)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15-year life, for the year ended
     December 31, 1998..........................................  NLG  (75,984)
                                                                  ------------
                                                                  NLG(128,355)
                                                                  ============
</TABLE>

(f) Represents additional interest expense as a result of the @Entertainment
    acquisition:

<TABLE>
    <S>                                                           <C>
    Consolidation of historical interest expense of
     @Entertainment for the year ended December 31, 1998........  NLG  (43,716)
    Additional interest expense as a result of the debt incurred
     for the @Entertainment acquisition for the year ended
     December 31, 1998, at an initial blended weighted average
     interest rate of 9.7%......................................  NLG (173,809)
                                                                  ------------
                                                                  NLG (217,525)
                                                                  ============
</TABLE>

(g) Represents the consolidation of the historical results of operations for
    A2000 for the year ended December 31, 1998, except as indicated in (h), (i)
    and (j).

                                       38
<PAGE>

(h) Represents additional depreciation and amortization expense as a result of
    the A2000 acquisition:

<TABLE>
    <S>                                                            <C>
    Consolidation of historical amortization and depreciation of
     A2000 for the year ended December 31, 1998..................  NLG  (73,254)
    Reclassification of UPC's amortization of its excess basis in
     A2000 for the seven months ended July 31, 1998..............  NLG  (10,434)
    Reclassification of UTH's amortization of its excess basis
     for the five months ended December 31, 1998.................  NLG   (7,451)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15-year life, for the year ended
     December 31, 1998...........................................  NLG  (29,530)
                                                                   ------------
                                                                   NLG (120,669)
                                                                   ============
</TABLE>

(i) Represents additional interest expense as a result of the A2000
    acquisition:

<TABLE>
    <S>                                                            <C>
    Consolidation of historical interest expense of A2000 for the
     year ended December 31, 1998................................. NLG (25,021)
    Additional interest expense as a result of the debt incurred
     for the A2000 acquisition for the year ended
     December 31, 1998, at an initial blended weighted average
     interest rate of 9.7%........................................ NLG (45,010)
                                                                   -----------
                                                                   NLG (70,031)
                                                                   ===========
</TABLE>

(j) Represents the elimination of the historical equity pick-up recorded by UPC
    and UTH for their investment in A2000:

<TABLE>
    <S>                                                              <C>
    Elimination of UPC's share in results of A2000 for the seven
     months ended July 31, 1998....................................  NLG 16,198
    Elimination of UTH's share in results of A2000 for the five
     months ended December 31, 1998................................  NLG 16,250
    Reclassification of amortization of UPC's excess basis in A2000
     for the seven months ended July 31, 1998......................  NLG 10,434
    Reclassification of amortization of UTH's excess basis in A2000
     for the five months ended December 31, 1998...................  NLG  7,451
                                                                     ----------
                                                                     NLG 50,333
                                                                     ==========
</TABLE>

(k) Represents the consolidation of the historical results of operations for
    Kabel Plus for the year ended December 31, 1998, except as indicated in
    (l), (m) and (n), converted from Czech korunas to U.S. dollars, using the
    December 31, 1998 twelve month average exchange rate.

(l) Represents additional depreciation and amortization expense as a result of
    the Kabel Plus acquisition:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical amortization and depreciation of
     Kabel Plus for the year ended December 31, 1998..............  NLG (20,423)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a 15-year life, for the year ended December
     31, 1998.....................................................  NLG  (7,823)
                                                                    -----------
                                                                    NLG (28,246)
                                                                    ===========
</TABLE>

(m) Represents additional interest expense as a result of the Kabel Plus
    acquisition:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical interest expense of Kabel Plus for
     the year ended December 31, 1998.............................  NLG (29,949)
    Additional interest expense as a result of the debt incurred
     for the Kabel Plus acquisition for the year ended December
     31, 1998, at an initial blended weighted average interest
     rate of 9.7%.................................................  NLG (29,483)
                                                                    -----------
                                                                    NLG (59,432)
                                                                    ===========
</TABLE>


                                       39
<PAGE>

(n) Represents the minority interest in Kabel Plus for the year ended December
    31, 1998.

(o) Represents the consolidation of the pro forma results of operations for NBS
    Nordic Broadband Services AB for the twelve months ended December 31, 1998,
    except as indicated in (p) and (q), converted from Swedish Kronor, using
    the December 31, 1998 twelve month average exchange rate. These pro forma
    results of operations include Stjarn, as if NBS Nordic Broadband Services
    AB acquired Stjarn on January 1, 1998.

(p) Represents additional depreciation and amortization expense as a result of
    the Stjarn acquisition:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical amortization and depreciation of
     Stjarn for the twelve months ended December 31, 1998.......... NLG(17,075)
    Amortization of the step-up in basis recorded under purchase
     accounting, using a
     15-year life, for the year ended December 31, 1998............ NLG(46,771)
                                                                    ----------
                                                                    NLG(63,846)
                                                                    ==========
</TABLE>

(q) Represents additional interest expense as a result of the Stjarn
    acquisition:

<TABLE>
    <S>                                                             <C>
    Consolidation of historical interest expense of Stjarn for the
     twelve months ended December 31, 1999......................... NLG (7,126)
    Additional interest expense as a result of the debt incurred
     for the Stjarn acquisition for the year ended December 31,
     1998, at an initial blended weighted average interest rate of
     9.7%.......................................................... NLG(49,911)
                                                                    ----------
                                                                    NLG(57,037)
                                                                    ==========
</TABLE>

(r) Represents share of results in SBS as a result of the acquisition of a
    12.8% interest:

<TABLE>
    <S>                                                             <C>
    UPC's proportionate interest in historical results of SBS for
     the year ended December 31, 1998.............................. NLG (8,593)
    Additional amortization resulting from excess basis in the
     investment of SBS for the year ended December 31, 1998........ NLG(13,532)
                                                                    ----------
                                                                    NLG(22,125)
                                                                    ==========
</TABLE>

(s) Represents amortization of deferred finance costs related to the senior
    note offering, using straight-line amortization over a 10-year life, for
    the year ended December 31, 1998, plus additional interest expense related
    to the senior note offering proceeds used for the senior note offering
    costs, at an initial blended weighted average interest rate of 9.7%.

(t) For pro forma purposes, the cash portion of the purchase price for UTH,
    Stjarn and SBS, plus the equity portion of the Stjarn acquisition, which
    totaled NLG994.0 million, assuming the acquisitions had occurred on January
    1, 1998, are assumed to have been funded from proceeds of our initial
    public offering in February 1999. Consequently, the pro forma weighted
    average number of shares for the year ended December 31, 1998 assumes the
    issuance of 16,372,125 common shares at the IPO price of NLG63.91 per
    share, discounted for underwriting commissions of 5%.

                                       40
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

    The following selected consolidated financial data for the years ended
December 31, 1996, 1997 and 1998 have been derived from our audited
consolidated financial statements included in this prospectus as restated to
include Monor Communications Group, Inc. ("Monor"), Tara Television Limited
("Tara") and Iberian Programming Services, Inc. ("IPS") for all periods in
which their operations were part of United's consolidated results. The selected
consolidated financial data for the year ended December 31, 1994 has been
derived from the audited financial statements of the European cable television
operations of Philips Electronics N.V. contributed to us upon our formation as
a joint venture. The following selected consolidated financial data for the six
months ended December 31, 1995 have been derived from our audited consolidated
financial statements not included in this prospectus as restated to include
Monor, Tara and IPS. The following selected consolidated financial data for the
six months ended June 30, 1995, the three months ended March 31, 1998 and for
the three months ended March 31, 1999 have been derived from unaudited
financial statements that, in our opinion, reflect all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial data
for such periods and as of such date. Due to the relative value of the assets
contributed by United and Philips, the cable television properties contributed
by Philips are deemed to be our predecessor. On December 11, 1997, United
acquired the 50% of us that it did not already own from Philips. As a result of
this acquisition and the associated push-down of United's basis on December 11,
1997, the financial information for the year ended December 31, 1998, the three
months ended March 31, 1998 and the three months ended March 31, 1999 is
presented on a "post-acquisition" basis. The data set forth below for us is
qualified by reference to, and should be read in conjunction with, our audited
consolidated financial statements and notes thereto and also with "UPC
Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus.

<TABLE>
<CAPTION>
                           Predecessor Interest                             UPC
                         ------------------------ -----------------------------------------------------------
                                      Six Months   Six Months                                 Three Months
                          Year Ended     Ended       Ended      Year Ended December 31,     Ended March 31,
                         December 31,  June 30,   December 31, ---------------------------  -----------------
                             1994        1995         1995      1996      1997      1998     1998      1999
                         ------------ ----------- ------------ -------  --------  --------  -------  --------
                                      (unaudited)                                             (unaudited)
                                       (Dutch guilders, in thousands except per share data)
<S>                      <C>          <C>         <C>          <C>      <C>       <C>       <C>      <C>
Statement of Operations
 Data:
 Service and other
  revenue...............   183,600       91,100     100,179    245,179   337,255   408,970   95,005   148,820
 Operating expense......   (44,100)     (23,000)    (32,806)   (82,439) (118,508) (138,459) (30,899)  (67,067)
 Selling, general &
  administrative
  expense...............   (44,500)     (23,600)    (33,617)   (81,176) (119,067) (481,703) (27,551) (104,333)
 Depreciation and
  amortization..........   (42,200)     (21,100)    (33,974)   (79,832) (132,888) (187,646) (48,457)  (63,198)
                           -------      -------     -------    -------  --------  --------  -------  --------
 Net operating income
  (loss)................    52,800       23,400        (218)     1,732   (33,208) (398,838) (11,902)  (85,778)
 Interest income........       --           --        6,403      2,757     6,512     7,397      814     4,911
 Interest expense.......       --           --      (19,873)   (38,475)  (70,738) (104,355) (22,734)  (38,245)
 Provision for loss on
  investment related
  costs.................       --           --          --         --    (18,888)   (6,230)     --        --
 Gain on sale of
  assets................       --           --          --         --        --        --       --     14,625
 Foreign exchange gain
  (loss) and other
  expense...............       --           --       (3,376)   (21,200)  (41,063)    2,690   (4,894)  (15,335)
                           -------      -------     -------    -------  --------  --------  -------  --------
 Net income (loss)
  before income taxes
  and other items.......    52,800       23,400     (17,064)   (55,186) (157,385) (499,336) (38,716) (119,822)
 Shares in results of
  affiliated companies,
  net...................    (2,800)      (2,300)    (31,756)   (30,712)  (25,458)  (63,823) (14,139)  (20,272)
 Minority interests in
  subsidiaries..........      (200)         --         (191)    (2,208)      152     1,153      241       (77)
 Income tax benefit
  (expense).............       --           --          155       (509)    1,649    (1,215)     719      (368)
                           -------      -------     -------    -------  --------  --------  -------  --------
 Net income (loss)......    49,800       21,100     (48,856)   (88,615) (181,042) (563,221) (51,895) (140,539)
                           =======      =======     =======    =======  ========  ========  =======  ========
 Adjusted EBITDA........    95,000       44,500      33,756     81,564   104,498   111,435   36,961    13,980
                           =======      =======     =======    =======  ========  ========  =======  ========
 Basic and diluted loss
  per ordinary share....       n/a          n/a       (0.53)     (0.96)    (1.98)    (6.80)   (0.56)    (1.31)
                                                    =======    =======  ========  ========  =======  ========
 Weighted-average number
  of ordinary shares
  outstanding...........       n/a          n/a      92,063     92,063    91,533    82,869   92,063   107,396
                                                    =======    =======  ========  ========  =======  ========
</TABLE>

                                       41
<PAGE>

<TABLE>
<CAPTION>
                            Predecessor Interest                                UPC
                          ------------------------ ---------------------------------------------------------------
                                       Six Months   Six Months
                           Year Ended     Ended       Ended        Year Ended December 31,      Three Months
                          December 31,  June 30,   December 31, -----------------------------  Ended March 31,
                              1994        1995         1995       1996      1997      1998          1999
                          ------------ ----------- ------------ --------- --------- ---------  ---------------
                                       (unaudited)                                                 (unaudited)
                                                      (Dutch guilders, in thousands)
<S>                       <C>          <C>         <C>          <C>       <C>       <C>        <C>             <C>
Selected Balance Sheet
 Data
 Non-restricted cash and
  cash equivalents......        700          400      123,895      43,649   100,144    29,571     1,062,002
 Other current assets...     14,700       10,000      172,687      83,265    85,421   136,046       280,212
 Investments in
  affiliated companies..      5,900        5,200      270,664     260,468   413,649   493,051       390,767
 Property, plant and
  equipment.............    197,800      192,000      277,785     415,989   484,982   602,997     1,528,580
 Intangible assets......      2,300        2,200      209,274     270,407   690,046   680,032     1,454,742
  Total assets..........    222,000      220,400    1,055,094   1,076,552 1,915,704 2,067,779     5,003,572
 Short-term debt........      3,400          --       443,401     449,892   257,515   351,853        64,802
 Other current
  liabilities...........     41,100      132,300       92,574     120,649   185,442   244,514       421,085
 Long-term debt.........        --           --       236,140     275,802   966,100 1,174,749     1,279,240
  Total liabilities.....    165,100      132,300      777,506     858,059 1,467,184 2,116,019     1,819,841
  Total shareholders'
  equity (deficit)......     56,900       86,700      276,188     213,938   439,805   (74,174)    3,156,492
</TABLE>

    In the above table, we have calculated Adjusted EBITDA as follows:

<TABLE>
<CAPTION>
                           Predecessor Interest                           UPC
                         ------------------------ -------------------------------------------------------
                                      Six Months   Six Months                             Three Months
                          Year Ended     Ended       Ended     Year Ended December 31,   Ended March 31,
                         December 31,  June 30,   December 31, ------------------------  ----------------
                             1994        1995         1995      1996   1997      1998     1998     1999
                         ------------ ----------- ------------ ------ -------  --------  -------  -------
                                      (unaudited)                                          (unaudited)
                                                (Dutch guilders, in thousands)
<S>                      <C>          <C>         <C>          <C>    <C>      <C>       <C>      <C>
Net operating
 income/(loss)..........    52,800      23,400         (218)    1,732 (33,208) (398,838) (11,902) (85,778)
Add Back:
Depreciation and
 amortization...........    42,200      21,100       33,974    79,832 132,888   187,646   48,457   63,198
Compensation expense
 related to stock
 options................       --          --           --        --    4,818   322,627      406   36,560
                            ------      ------       ------    ------ -------  --------  -------  -------
Adjusted EBITDA.........    95,000      44,500       33,756    81,564 104,498   111,435   36,961   13,980
                            ======      ======       ======    ====== =======  ========  =======  =======
</TABLE>


                                       42
<PAGE>

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

    The following discussion and analysis of financial condition and results of
operations covers the years ended December 31, 1996, 1997 and 1998, and the
three months ended March 31, 1998 and 1999, as restated to include Monor, Tara
and IPS for all periods in which their operations were part of United's
consolidated results, and should be read together with our consolidated
financial statements and related notes included elsewhere herein. These
consolidated financial statements provide additional information regarding our
financial activities and condition.

Introduction

    We commenced our present business in July 1995. We provide communications
services in 10 European countries and Israel through our three business lines:
cable television video services, telephone services and Internet/data services.
Our subscriber base is one of the largest of any group of broadband
communications networks operated across Europe. We are in the process of
developing and upgrading our network to provide digital video, voice and
Internet/data services. We have established a working relationship with
Microsoft under a letter of intent and are working jointly with them on
Internet, telephone and video projects.

History of UPC and Recent Developments

    Since formation, we have developed largely through acquisitions. The most
recent acquisitions have resulted in significant growth in consolidated
revenues and expenditures. The following acquisitions, apart from the IPS
acquisition, were made prior to our initial public offering in February 1999.

September
 1996 Norkabel and    In September 1996, we increased our ownership in Norkabel
 Kabelkom             (Norway) from 8.3% to 100%, Kabelkom (Hungary) from 3.9%
 Acquisitions         to effectively 50% and the Swedish system from 2.1% to
                      25.9%. We subsequently sold our interest in the Swedish
                      system. Norkabel was consolidated effective upon its
                      acquisition. Kabelkom was accounted for using the equity
                      method.

January 1997 Janco    In January 1997, we acquired 70.2% of Janco, a cable
 Acquisition          system in Oslo, Norway, from Helsinki Media. In November
                      1997, we merged Norkabel into Janco to form Janco
                      Multicom, of which we held 87.3%. In November 1998, we
                      acquired the remaining 12.7% of Janco Multicom for
                      approximately NLG37.2 million.

December 1997 UPC     On December 11, 1997, we and United acquired the 50% of
 Acquisition          our A shares held by Philips for NLG450.0 million. As
                      part of this acquisition, we purchased 3.17 million
                      shares of Class A Common Stock of United held by Philips
                      for NLG66.8 million and we and United purchased all of
                      our convertible notes back from Philips for NLG339.8
                      million. The acquisition of UPC was financed with
                      proceeds from our senior revolving credit facility and
                      our bridge bank facility and cash from United.

1996-1998             We sold our unconsolidated interests in our systems in
 Miscellaneous        France called Citecable in 1996, Germany in 1997 and
 System Sales         Spain in 1998 and our consolidated interest in Portugal
                      in 1998.

                                       43
<PAGE>

January 1998 CNBH
 Formation and        Effective January 1, 1998, we acquired the Combivisie
 Combivisie           cable television systems in the region surrounding our
 Acquisition          KTE system in The Netherlands for a purchase price of
                      NLG180.8 million. Effective January 1, 1998, we combined
                      the Combivisie and KTE systems to form CNBH and
                      consolidated the results of CNBH through July 31, 1998
                      (see "UTH Formation").

June 1998 Eastern     On June 29, 1998, we acquired from Time Warner
 Europe               Entertainment Company L.P. 50% of Kabelkom, the Hungarian
 Transactions         cable television system holding company, increasing our
                      ownership to 100%. The purchase price was approximately
                      $27.5 million, $9.5 million of which was payable in cash
                      and $18.0 million by delivery of a non-interest bearing
                      note. We gave Time Warner the option, exercisable until
                      March 26, 1999, to purchase 50% of the Hungarian
                      programming businesses formerly held by Kabelkom,
                      including HBO Hungary, and 100% of TV Max, a Czech and
                      Slovak Republic programming business, for approximately
                      $18.25 million. In March 1999, Time Warner exercised
                      their option. Effective June 30, 1998, we combined our
                      interests in Kabelkom with Kabeltel, a group of Hungarian
                      cable television systems located in Budapest and other
                      large Hungarian cities, forming Telekabel Hungary. We own
                      79.25% of Telekabel Hungary, Hungary's largest cable
                      television operator, and started consolidating its
                      results as of such date.

August 1998 UTH       In August 1998, UPC and NUON combined all of their Dutch
 Formation            broadband cable television and telecommunications
                      businesses to form UTH. We contributed 100% of CNBH and
                      50% of A2000 for a 51% interest in UTH. NUON contributed
                      100% of TeleKabel Beheer. UPC and NUON agreed on the
                      relative values of their respective assets and NUON made
                      a small balancing payment of approximately NLG2.0 million
                      for its 49% interest. As a result of the creation of UTH,
                      as of August 1, 1998, we did not consolidate the results
                      of CNBH and accounted for UTH using the equity method of
                      accounting. As described below, however, we purchased the
                      other 49% of UTH in February 1999 and began consolidating
                      UTH as of February 1, 1999.

November 1998
 Increase in          We held our interest in the Israeli, Maltese and Irish
 Israeli and          operating systems through a partnership with a subsidiary
 Maltese Systems      of Tele-Communications International, Inc. In November
 Ownership            1998, we acquired Tele-Communications International
                      Inc.'s indirect 23.3% and 25.0% interests in the Israeli
                      and Maltese systems for approximately $88.5 million, net
                      of closing adjustments, doubling our respective interests
                      in these systems to 46.6% and 50%. We financed these
                      acquisitions through a loan of $90 million (NLG184.5
                      million) from our primary partners in the Israeli
                      operating system.

November 1998 Sale    As part of the Israeli and Maltese transaction described
 of Irish System      above, in November 1998, we purchased from Riordan
                      Communications Ltd., an indirect 5% interest in an Irish
                      multi-channel television system and 5% of Tara, a company
                      providing Irish programming to the U.K. markets. The
                      purchase price was 384,531 shares of United, which we
                      indirectly held. In November 1998, we sold the newly
                      acquired 5% interest in the Irish multi-channel
                      television system, together with our previously-held 20%
                      interest in this system, to Tele-Communications
                      International, Inc. The purchase price for this
                      transaction was $20.5 million, offsetting part of the
                      purchase price payable for the Israeli and Maltese
                      systems.

                                       44
<PAGE>

December 1998
 Purchase of Monor    In December 1998, United sold to us, in exchange for
 and Tara from        6,330,340 of our A shares, United's:
 United

                      --44.75% economic interest in a company that operates a
                       traditional telephone system in the Monor region of
                       Hungary.

                      --75% interest in Tara, our programming company that
                       provides Irish programming in the UK with revenues of
                       approximately NLG1.3 million for the year ended December
                       31, 1998.

                      Accordingly, because this was an exchange between
                      companies under common control, we have restated our
                      financial statements for all periods in which the
                      operations of these companies were part of United's
                      consolidated financial statements.

February 1999
 Purchase of IPS      In February 1999, we completed the purchase from United,
 from United          in exchange for 4,955,264 of our A shares, United's
                      approximately 33.5% interest in IPS, a group of
                      programming entities focusing on the Spanish- and
                      Portuguese-speaking markets. IPS had revenues of
                      approximately NLG34.0 million for the year ended December
                      31, 1998. In April 1999, we increased our interest in IPS
                      to 50%.

                      Accordingly, because this was an exchange between
                      companies under common control, we have restated our
                      financial statements for all periods in which the
                      operations of IPS were part of United's consolidated
                      financial statements.

The New Acquisitions

    Since our initial public offering in February 1999, we have made or agreed
to make a significant number of acquisitions, which we refer to in this
prospectus collectively as our "new acquisitions." The new acquisitions are all
consistent with one of the key elements of our growth strategy, which is to
continue to acquire systems and to increase the percentage we own in some
systems in order to expand our coverage and implement our branded package of
video, voice and Internet/data product offerings in areas adjacent to our
existing systems or in new areas if the acquisition is sufficiently large. By
this strategy we seek to upgrade and improve our current services and to
achieve substantial economies of scale. We are often engaged in discussions or
negotiations regarding the acquisition of businesses and systems, some
potentially significant in relation to our size.

    The following are the acquisitions we have made or agreed to make since our
initial public offering in February 1999. Those acquisitions that have not yet
closed are subject to a number of closing conditions, including regulatory
approvals, that may not be satisfied. Some of these acquisitions may not,
therefore, close. See "Business--Operating Companies."

 The Netherlands

    We have made or agreed to make three acquisitions in The Netherlands, two
of which increase our percentage ownership in existing systems to 100% and one
of which adds systems to our network that are contiguous to our existing
systems.

    UTH Acquisition. In February 1999, we acquired the remaining 49% of UTH
that we did not already own. UTH owns and operates our systems in The
Netherlands. This transaction completed our purchase

                                       45
<PAGE>

of 100% of N.V. TeleKabel Beheer. The purchase price was approximately NLG551.4
million, including our assumption of NLG33.3 million of debt that we repaid.
UTH systems passed approximately 916,200 homes and had approximately 870,400
subscribers as of March 31, 1999. This transaction, together with the A2000
acquisition, described below, fully consolidates ownership of our Dutch systems
and allows us to jointly manage their operations.

    A2000 Acquisition. In June 1999, we agreed to acquire the 50% interest in
A2000 that we did not already own for $229.0 million (NLG469.5 million). At
closing, we will consolidate A2000's debt. As of March 31, 1999, A2000 had
approximately NLG502.3 million of debt. A2000 operates systems serving
Amsterdam and its surrounding communities of Landsmeer, Purmerend, Zaanstad,
Ouder-Amstel and Hilversum. A2000 systems passed approximately 578,300 homes
and had approximately 533,700 cable subscribers, 22,325 cable telephone
subscribers and 11,550 high speed Internet subscribers as of March 31, 1999.
The A2000 acquisition is structured as a purchase of shares and is expected to
close in August 1999, subject to receipt of the necessary cable regulatory
authority approval.

    GelreVision Acquisition. In June 1999, we acquired 100% of the GelreVision
multi-channel television systems in The Netherlands. The acquisition increased
our homes passed by 145,000 and our subscriber base by 132,000, based on March
31, 1999 data. We paid NLG243.0 million for GelreVision. These systems are
contiguous to our A2000 and TeleKabel Beheer operations.

 France

    We have made or agreed to make three acquisitions in France, all of which
serve to extend our footprint in France.

    Time Warner Cable France Acquisition. In March 1999, we agreed to acquire
100% of Time Warner Cable France, a company that controls and operates three
cable television systems in the suburbs of Paris and Lyon and in the city of
Limoges. The systems passed approximately 210,950 homes and had approximately
66,600 subscribers as of March 31, 1999. The purchase price is approximately
$71.0 million (NLG145.6 million). At closing, we will consolidate Time Warner
Cable France's debt. As of March 31, 1999, Time Warner Cable France had
approximately $49.2 million (NLG100.8 million) of debt. We will purchase 100%
of one operating company and 74.53% of another. We are continuing to negotiate
with other shareholders to increase our ownership in the non-wholly owned
operating company. The Time Warner Cable France Acquisition is structured as a
purchase of shares and is expected to close in August 1999, subject to receipt
of the necessary regulatory approval.

    RCF Acquisition and Videopole Acquisition. In June 1999, we acquired 95.7%
of Reseaux Cables de France, the fifth largest cable television operation in
France, which operates cable television systems throughout France. These
systems passed approximately 202,475 homes and had an aggregate of
approximately 74,275 subscribers as of March 31, 1999. This acquisition is
currently subject to pending arbitration proceedings between the seller and a
third party and our purchase of RCF may be challenged following the conclusion
of this arbitration. In June 1999, we agreed to acquire 100% of Videopole, the
fourth largest cable television operation in France. The Videopole systems
passed approximately 356,200 homes and had approximately 139,300 subscribers as
of March 31, 1999. The aggregate purchase price for the RCF acquisition and the
Videopole acquisition is approximately NLG333.8 million. At closing, we will
consolidate the debt from both acquisitions. As of March 31, 1999, the two
systems had approximately NLG86.6 million of debt. The Videopole acquisition is
structured as a purchase of shares and is expected to close in August 1999,
following the receipt of the necessary regulatory approval.

 Sweden

    Stjarn Acquisition. In July 1999, we acquired Stjarn for a purchase price
of approximately $400.0 million (NLG820.0 million) after adjustments for debt
and cash as of July 31, 1999. $100.0 million

                                       46
<PAGE>

(NLG205.0 million) of the purchase price was paid in the form of a one year
note with interest at 8% per year and the balance of the purchase price was
paid in cash. The note will automatically convert into our equity upon the
closing of this offering. If no public equity offering occurs, we will have the
option, at maturity of the note, to pay the note in either cash or our B
shares. At closing, we began consolidating Stjarn's debt. As of March 31, 1999,
Stjarn had approximately SEK528.1 million (NLG131.1 million) of debt and
SEK132.3 million (NLG32.8 million) of cash and cash equivalents. Approximately
SEK521.0 million (NLG129.4 million) of Stjarn's debt as of March 31, 1999 may
become due upon closing of the acquisition unless the lenders consent to the
acquisition. Stjarn operates cable television systems serving the greater
Stockholm area. Stjarn systems passed approximately 421,600 homes and had
approximately 239,775 subscribers as of March 31, 1999.

 Central and Eastern Europe

    We will significantly expand our footprint in Central and Eastern Europe
through our acquisition of a cable television system in the Slovak Republic and
our agreements to acquire systems in Poland and the Czech Republic.

    SKT Acquisition. In June 1999, we completed the acquisition of SKT spol. s
r.o., which operates a cable television system in Bratislava, the capital of
the Slovak Republic. The purchase price was $43.25 million (NLG88.7 million).
This system passed approximately 165,725 homes and had approximately 156,950
subscribers as of March 31, 1999.

    @Entertainment Acquisition. In June 1999, we agreed to acquire
@Entertainment, which provides cable television, DTH satellite television
services and related programming services in Poland. These systems had
approximately 1,624,100 homes passed, 948,200 cable subscribers and 130,000 DTH
subscribers as of March 31, 1999. The purchase price is approximately $884.3
million (NLG1,812.8 million). At closing, UPC will consolidate the debt and
cash of @Entertainment. We expect that the holders of the @Entertainment PCI
notes and the Series C Senior Discount Notes described under "--Liquidity and
Capital Resources--Debt Facilities" may exercise their rights to require the
purchase of their notes following the change of control triggered by our
acquisition of @Entertainment. If the holders of those notes exercised their
rights to put all of their notes, this would require @Entertainment to repay
NLG286.7 million of debt. The @Entertainment 1999 Series B 14 1/2% Senior
Discount Notes and the @Entertainment 1998 14 1/2% Senior Discount Notes
described under "--Liquidity and Capital Resources--Debt Facilities," of which
a total of NLG462.1 million was outstanding as at March 31, 1999, contain a
similar provision enabling holders to require @Entertainment to purchase the
notes following a change of control. Given the coupon on those notes, however,
we do not expect any significant number of holders of those notes to exercise
their put rights. We cannot assure you, however, that this will be the case.
This acquisition adds a significant number of cable subscribers, valuable
programming and DTH operations to our existing service. The @Entertainment
acquisition is structured as a tender offer for @Entertainment's common stock,
which is traded on NASDAQ. The acquisition is expected to close in August 1999.
It is a condition to closing that a majority of @Entertainment's common stock,
on a fully diluted basis, be tendered. As of July 30, 1999, 64.7% of
@Entertainment's common stock, on a fully diluted basis, had been tendered.

    Kabel Plus Acquisition. In June 1999, we agreed to acquire MediaOne's 94.6%
interest in Kabel Plus, which owns and operates cable television and telephony
systems in the Czech and Slovak Republics. The systems of Kabel Plus passed
approximately 618,800 homes and had an aggregate of approximately 362,950
subscribers as of March 31, 1999. The purchase price is $150.0 million
(NLG307.5 million). At closing, we will consolidate Kabel Plus' debt. As of
March 31, 1999, Kabel Plus had debt of approximately NLG98.4 million, including
NLG52.2 million of debt to MediaOne which was contributed to equity subsequent
to March 31, 1999. Approximately NLG46.2 million of Kabel Plus' debt as of
March 31, 1999 may become due upon closing of the acquisition unless the
lenders consent to the acquisition. The Kabel Plus acquisition is structured as
a purchase of shares and is expected to close in October 1999,

                                       47
<PAGE>

following the receipt of the necessary cable regulatory authority approval and
anti-monopoly authority approval.

 Programming

   In February 1999, we completed the acquisition from United of a 33.5%
interest in IPS, a group of programming entities focusing on the Spanish and
Portuguese speaking markets. United received 4,955,264 of our A Shares for its
33.5% interest in IPS. In May 1999, we acquired a further 16.5% interest in
IPS from an unaffiliated party for approximately $7.6 million (NLG15.6
million), increasing our ownership to 50%.

   In June 1999, we agreed to acquire between 12.8% and 26.5% of SBS
Broadcasting S.A., which owns and operates television and radio broadcasting
stations across nine countries in Europe. This investment will align us with
one of the leading European broadcasting companies with which we intend to
jointly develop and purchase new programming services. In July 1999, we closed
the purchase of approximately 4.8% of SBS for cash of approximately $24.3
million (NLG50.0 million). This was the initial tranche of what will be an
aggregate acquisition of at least 13.4% of SBS. The total purchase price for
13.4% of SBS will be $100.2 million (NLG206.0 million). We expect the final
tranche of the acquisition to close in August 1999.

Overview of Our Activities

 Services

   Our operating systems generally offer a range of video service subscription
packages including a basic tier, which includes 26 to 32 channels, and an
expanded basic tier, which includes 6 to 13 additional channels. In some
systems, we also offer mini-tiers, premium programming, which typically
includes 2 channels, and pay-per-view programming, which includes 5 to 10
channels.

   To date, our primary source of revenue has been cable television video
services. For the year ended December 31, 1997, the year ended December 31,
1998 and the three months ended March 31, 1999, video services accounted for
approximately 95.0%, 92.4% and 89.3%, respectively, of our consolidated
revenues. For the same periods, our Internet/data service accounted for about
0.2%, 2.3% and 4.3%, respectively, and our telephone services accounted for
0%, 0.1% and 4.9%, respectively, of our consolidated revenues.

   Historically, video service revenue has increased as a result of:

  . subscriber growth from both well-established and developing systems,
    primarily in our Austrian and Central and Eastern European systems,

  . increases in revenue per subscriber from basic rate increases and the
    introduction of expanded basic tiers and pay-per-view services, and

  .  acquisition of systems, primarily in The Netherlands, Norway and
     Hungary.

   For a discussion of our revenue recognition policies, see note 2 of the
Notes to our Consolidated Financial Statements.

   We believe that an increasing percentage of our future revenues will come
from telephone and Internet/data services. Within a decade, video services
could account for half of our total revenue, as our revenue from other
services increases. These are forward-looking statements and will not be
fulfilled unless our new services grow significantly. Capital constraints,
technological limitations, competition, lack

                                      48
<PAGE>

of programming, loss of personnel, adverse regulation and many other factors
could prevent our new services from growing as we expect.

 Pricing

    We usually charge a one-time installation fee when we connect subscribers,
a monthly subscription fee that depends on whether a basic or expanded basic
tier service is provided and which includes use of the set-top box, and
incremental amounts for those subscribers purchasing pay-per-view and premium
programming, which are generally offered only to expanded basic tier
subscribers. The Polish system that we have agreed to acquire, @Entertainment,
currently operates by selling a set-top box to each subscriber. In order to
prevent this practice acting as a barrier to entry for subscribers, effective
April 1, 1999, the boxes are sold for less than their unit cost. This policy
will have a significant negative impact on @Entertainment's Adjusted EBITDA.
Prior to April 1, 1999, @Entertainment retained ownership of the installed set-
top boxes. If this acquisition is completed, we plan to conform this aspect of
@Entertainment's operations to our general policy of retaining ownership of the
installed set-top boxes and providing them to subscribers for a monthly rental
fee.

    In our Western European markets, price controls by various local and
national governmental agencies apply to the basic tier services. Expanded basic
tier, pay-per-view and premium programming are subject to EU and national
competition laws generally but are not subject to sector-specific price
controls.

 Costs of Operations

    Video services operating costs include the direct costs of programming,
franchise fees and operating expenses necessary to provide the service to the
subscriber. Direct costs of programming are primarily variable, based on the
number of subscribers. The cost per subscriber is established by negotiation
between us and the program supplier or rates negotiated by cable associations.
Franchise fees, where applicable, are typically based upon a percentage of
revenue and typically range from a low of 3% to 5% in Belgium to approximately
13.5% in Austria. Other direct operating expenses include operating personnel,
service vehicles, maintenance and plant electricity.

    Selling, general and administrative expenses include personnel-related
costs such as stock-based compensation expenses, marketing, sales and
commissions, legal and accounting, office facilities and other overhead costs.

    Stock-based compensation expense results from our stock option and phantom
stock option plans, which, prior to our initial public offering in February
1999, required variable plan accounting. Increases in the fair market value of
our shares result in compensation charges that are expensed for vested options.
Decreases in fair market value would result in compensation credits. A
compensation charge is generally a non-cash expense unless the option holder
puts the vested option to us for cash. Following our initial public offering,
we settle the option in shares upon exercise; therefore options issued pursuant
to the stock option plan no longer require variable plan accounting. Our
phantom stock option plans, however, continue to require variable plan
accounting.


                                       49
<PAGE>

Results of Operations

    The following table sets forth summary information derived from our
Consolidated Statements of Operations for the years ended December 31, 1996,
1997 and 1998, and the three months ended March 31, 1998 and 1999 (unaudited).
As a result of United's acquisition of our company and the associated push-down
of United's basis on December 11, 1997, this information is presented on a
"post-acquisition" basis. The operating results from which these percentages
have been derived were restated to include Monor, Tara and IPS for all periods
for which their operations were part of United's consolidated results.

<TABLE>
<CAPTION>
                                                          Three Months Ended
                           Year Ended December 31,            March 31,
                          -----------------------------   --------------------
                           1996       1997       1998       1998       1999
                          -------   --------   --------   ---------  ---------
                                                             (unaudited)
                                 (Dutch guilders, in thousands)
<S>                       <C>       <C>        <C>        <C>        <C>
Service and other
 revenue................  245,179    337,255    408,970     95,005     148,820
Operating expense.......  (82,439)  (118,508)  (138,459)   (30,899)    (67,067)
Selling, general and
 administrative
 expense................  (81,176)  (119,067)  (481,703)   (27,551)   (104,333)
Depreciation and
 amortization...........  (79,832)  (132,888)  (187,646)   (48,457)    (63,198)
                          -------   --------   --------   --------   ---------
 Net operating income
 (loss).................    1,732    (33,208)  (398,838)   (11,902)    (85,778)
Interest income.........    2,757      6,512      7,397        814       4,911
Interest expense........  (14,263)   (41,995)   (92,308)   (22,387)    (34,152)
Interest expense,
 related party..........  (24,212)   (28,743)   (12,047)      (347)     (4,093)
Provision for loss on
 investment related
 costs..................      --     (18,888)    (6,230)       --          --
Gain on sale of assets..      --         --         --         --       14,625
Foreign exchange gain
 (loss) and other
 expense................  (21,200)   (41,063)     2,690     (4,894)    (15,335)
                          -------   --------   --------   --------   ---------
 Net loss before income
 taxes and other items..  (55,186)  (157,385)  (499,336)   (38,716)   (119,822)
Share in results of
 affiliated companies,
 net....................  (30,712)   (25,458)   (63,823)   (14,139)    (20,272)
Minority interests in
 subsidiaries...........   (2,208)       152      1,153        241         (77)
Income tax benefit
 (expense)..............     (509)     1,649     (1,215)       719        (368)
                          -------   --------   --------   --------   ---------
Net loss................  (88,615)  (181,042)  (563,221)   (51,895)   (140,539)
                          =======   ========   ========   ========   =========
Other information:
Adjusted EBITDA.........   81,564    104,498    111,435     36,961      13,980
                          =======   ========   ========   ========   =========
As a Percentage of
 Revenue:
Operating expense.......     33.6%      35.1%      33.9%      32.5%       45.1%
Selling, general and
 administrative
 expense................     33.1%      35.3%     117.8%      29.0%       70.1%
Depreciation and
 amortization...........     32.6%      39.4%      45.9%      51.0%       42.5%
Net operating (loss)
 income.................      0.7%      (9.8%)    (97.5%)    (12.5%)     (57.6%)
Net loss................    (36.1%)    (53.7%)   (137.7%)    (54.6%)     (94.4%)
Adjusted EBITDA.........     33.3%      31.0%      27.2%      38.9%        9.4%
</TABLE>

 Revenue

    During the three months ended March 31, 1999, our revenue increased NLG53.8
million to NLG148.8 million from NLG95.0 million for the three months ended
March 31, 1998, a 56.6% increase. Of this increase, approximately NLG41.7
million resulted from increased cable television revenue, NLG7.2 million
resulted from increased telephony revenue and NLG5.5 million resulted from
increased Internet/data revenue. These increases were partially offset by a
decrease of NLG0.5 million in revenue from other services. The increase in
cable television revenue primarily resulted from the consolidation of UTH
effective February 1, 1999 and the consolidation of Telekabel Hungary effective
July 1, 1998. For the period from February 1, 1999 through March 31, 1999,
cable television revenue from UTH was NLG32.7 million, as compared to cable
television revenue from CNBH, UPC's only consolidated Dutch system for the
three months ended March 31, 1998, of NLG13.2 million. Total cable television
revenue of Telekabel

                                       50
<PAGE>

Hungary was NLG17.4 million for the three months ended March 31, 1999 as
compared with NLG0 for the three months ended March 31, 1998. The balance of
the increase in cable television revenue came from subscriber growth. The
increase in telephony revenue is primarily a result of the consolidation of
UTH. Internet/data revenue increased primarily due to increased Internet
subscribers in Austria, Belgium and The Netherlands.

    During the year ended December 31, 1998, our revenue increased NLG71.7
million to NLG409.0 million from NLG337.3 million for the year ended December
31, 1997, a 21.3% increase. Of this increase approximately NLG57.4 million
resulted from increased cable television revenue, NLG8.7 million resulted from
increased Internet/data revenue and the remainder, NLG5.6 million, resulted
from Tara and other services. The increase in cable television revenue resulted
primarily from the acquisition of Combivisie in January 1998 which was
consolidated through July 31, 1998 and the consolidation of Telekabel Hungary
effective July 1, 1998. Of the NLG57.4 million approximately 21.6% was
attributable to Combivisie and 48.2% was attributable to Telekabel Hungary. The
balance of the increase in cable television revenue came from subscriber growth
and in increased revenue per subscriber in Austria, and increased revenue from
subscriber growth in the systems we are developing in France and Eastern
Europe.

    During the year ended December 31, 1997, our revenue increased NLG92.1
million to NLG337.3 million from NLG245.2 million for the year ended December
31, 1996, a 37.6% increase. A substantial portion of this increase was
attributable to the acquisition of Norkabel in October 1996 and the acquisition
of Janco in January 1997, which together amounted to NLG77.0 million. The
remaining increase in revenue was attributable to subscriber growth in the
Austrian systems, increases in subscription fees in some systems and revenues
from developing systems in France, Romania and the Slovak Republic, which were
not included in the 1996 operating results.

 Operating Expense

    During the three months ended March 31, 1999, our operating expense
increased NLG36.2 million to NLG67.1 million from NLG30.9 million for the three
months ended March 31,1998, a 117.2% increase. Of this increase, approximately
NLG15.3 million resulted from increased cable television operating costs,
NLG8.3 million resulted from increased telephony operating costs, NLG9.2
million resulted from increased Internet/data operating costs and NLG3.4
million resulted from increased operating costs for other services. The
increase in cable television operating costs primarily resulted from the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. For the period from February 1, 1999
through March 31,1999, cable television operating costs from UTH were NLG7.7
million, as compared to cable television operating costs from CNBH, UPC's only
consolidated Dutch system for the three months ended March 31, 1998, of NLG2.7
million. Total cable television operating costs of Telekabel Hungary were
NLG6.0 million for the three months ended March 31, 1999 as compared with NLG0
for the three months ended March 31, 1998. The balance of the increase in cable
television operating costs came from subscriber growth. The increase in
telephony operating costs is primarily a result of the consolidation of UTH, as
well as continued development of our telephony business. The increase in
Internet/data operating costs is attributable to development of chello
broadband and increased Internet/data operating company costs. UPC launched
chello broadband in March 1999 and began recognizing revenue in the second
quarter of 1999. Included in the increase in other operating expenses is an
increase in Tara's operating expenses of NLG1.4 million over the comparable
period in 1998. We expect operating expense as a percentage of revenue to
increase as new video, telephone and Internet/data services are introduced.

    During the year ended December 31, 1998, our operating expense increased
NLG20.0 million to NLG138.5 million from NLG118.5 million for the year ended
December 31, 1997, an 16.9% increase. Approximately NLG9.9 million of this
increase was attributable to the results of Telekabel Hungary, which were
consolidated effective July 1, 1998. In addition, approximately NLG2.0 million
was attributable to the

                                       51
<PAGE>

acquisition of Combivisie. The remaining increase comprised direct costs
related to subscriber growth and increased operating costs related to the
introduction of our Internet/data services. As a percentage of revenues,
operating expense declined from 35.1% for the comparable period in 1997 to
33.9%. This was due primarily to the lower operating costs in the Combivisie
system and a reduction of operating costs in Tara. We expect operating expense
as a percentage of revenue to increase as new video, telephone and
Internet/data services are introduced.

    During the year ended December 31, 1997, our operating expense increased
NLG36.1 million to NLG118.5 million from NLG82.4 million the previous year, a
43.8% increase. Most of this increase was attributable to the acquisition of
Norkabel in October 1996 and of Janco in January 1997, which together amounted
to NLG27.5 million, the consolidation of Tara amounting to NLG6.6 million, as
well as the inclusion of operating expenses related to developing systems in
France, Romania and the Slovak Republic that were not included in the 1996
operating results. In addition, operating expenses during 1997 included
expenses related to the introduction of expanded basic tier programming in
Austria, Belgium and The Netherlands and Internet/data services in Austria and
Belgium.

 Selling, General and Administrative Expense

    During the three months ended March 31, 1999, our selling, general and
administrative expense increased NLG76.7 million to NLG104.3 million from
NLG27.6 million for the three months ended March 31, 1998, a 277.9% increase. A
substantial portion of this increase, and the increase as a percentage of
revenue, results from a stock-based compensation charge of NLG36.6 million
attributable to our stock option plans for the three months ended March 31,
1999, compared to NLG0.4 million for the same period in 1998. Of the remaining
increase in selling, general and administrative expense, NLG11.2 million is an
increase in cable television selling, general and administrative expense,
NLG10.8 million is an increase in telephone selling, general and administrative
expense, NLG11.9 million is an increase in Internet/data selling, general and
administrative expense (excluding NLG0.7 million of chello broadband stock-
based compensation for the three months ended March 31, 1999) and NLG6.3
million is an increase in corporate and other selling, general and
administrative costs. The increase in cable television selling, general and
administrative costs is primarily attributable to the consolidation of UTH
effective February 1, 1999 and the consolidation of Telekabel Hungary as of
July 1, 1998. For the period from February 1, 1999 through March 31, 1999,
cable television selling, general and administrative costs from UTH were NLG8.1
million, as compared to cable television selling, general and administrative
costs from CNBH, UPC's only consolidated Dutch system for the three months
ended March 31, 1998, of NLG1.8 million. Total cable television selling,
general and administrative costs of Telekabel Hungary were NLG5.4 million for
the three months ended March 31, 1999 as compared with NLG0 for the three
months ended March 31, 1998. The increase in telephone selling, general and
administrative expenses is a combination of the consolidation of UTH, as well
as increased development and the launch of telephony services in Austria,
Norway and France in the first quarter of 1999. The increase in Internet/data
selling, general and administrative expenses is also attributable to further
development and launch preparation costs. Included in the increase in other
operating expenses is an increase in selling, general and administrative
expense related to programming of NLG3.6 million compared to the same period in
1998. We expect selling, general and administrative costs as a percentage of
revenue to decrease in the future as the new video, telephone and Internet/data
services mature.

    During the year ended December 31, 1998, our selling, general and
administrative expense increased NLG362.6 million to NLG481.7 million from
NLG119.1 million for the year ended December 31, 1997, a 304.5% increase. A
substantial portion of this increase and the increase as a percentage of net
revenue resulted from a stock-based compensation charge of NLG322.6 million
attributable to our stock option plans for the year ended December 31, 1998. In
addition, we incurred NLG15.9 million in general and administrative expenses
attributable to the formation and start up of chello broadband. A portion of
this increase was also attributable to the acquisition of Combivisie and the
acquisition of Telekabel

                                       52
<PAGE>

Hungary, with the remaining increase comprising additional selling, general and
administrative expenses related to the development of new businesses, including
further development of Internet/data services and preparation for the launch of
telephone services in The Netherlands, Norway and France. We expect selling,
general and administrative expense, excluding stock-based compensation expense,
as a percentage of revenue to continue to increase as new video, telephone and
Internet/data services are introduced. In the future, stock-based compensation
expense will be recognized only for our phantom stock option plans which
continues to require variable plan accounting. Therefore, we expect this
expense as a percentage of selling, general and administrative expense to
decrease.

    During the year ended December 31, 1997, our selling, general and
administrative expense increased NLG37.9 million to NLG119.1 million from
NLG81.2 million for the prior year, a 46.7% increase. A substantial portion of
this increase was attributable to the acquisition of Norkabel in October 1996
and of Janco in January 1997, which together amounted to an increase in
selling, general and administrative expense of NLG19.1 million, as well as the
inclusion of expenses related to the consolidation of Tara and developing
systems in France, Romania and the Slovak Republic that were not included in
1996. Selling, general and administrative expense during the year ended
December 31, 1997, also included expenses related to the introduction of
expanded basic tier programming in Austria, Belgium and The Netherlands and
Internet/data services in Austria and Belgium, as well as a stock-based
compensation charge of NLG4.8 million.

    Our allowance for doubtful accounts as a percentage of trade receivables
for the years ended December 31, 1996, 1997 and 1998 was 37.9%, 40.6% and
41.6%, respectively. This high allowance as a percentage of trade receivables
results primarily from our billing process, whereby subscribers receive and
generally pay their invoice before the service period begins. Therefore, most
of our outstanding receivables generally represent overdue accounts requiring
consideration for an allowance. Our receivable balance is generally less than
one half of a month of our revenue.

 Depreciation and Amortization

    During the three months ended March 31, 1999, our depreciation and
amortization expense increased NLG14.7 million to NLG63.2 million from NLG48.5
million for the three months ended March 31, 1998, a 30.3% increase. The
increase is primarily due to additional depreciation and amortization from the
consolidation of UTH effective February 1, 1999 and the consolidation of
Telekabel Hungary effective July 1, 1998. The remaining increase comprised
additional depreciation related to additional capital expenditures to upgrade
the network in our Western European systems and new-build for developing
systems.

    During the year ended December 31, 1998, our depreciation and amortization
expense increased NLG54.8 million to NLG187.7 million from NLG132.9 million for
the year ended December 31, 1997, a 41.2% increase. NLG26.3 million of this
increase and much of the increase as a percentage of our net revenue was
attributable to the application of push-down accounting, including goodwill
created in connection with the acquisition of UPC. The remaining increase
comprised additional depreciation related to the acquisition of Combivisie and
acquisition of Telekabel Hungary, additional capital expenditures to upgrade
the network in our Western European systems and new-build for developing
systems.

    During the year ended December 31, 1997, our depreciation and amortization
expense increased NLG53.1 million to NLG132.9 million from NLG79.8 million in
1996, a 66.5% increase. The majority of the increase was directly attributable
to the acquisition of Norkabel in October 1996 and of Janco in January 1997,
which together amounted to NLG45.4 million. The remaining increase comprised
additional depreciation from capital expenditures to upgrade the network in our
primary systems and new-build for developing systems.

                                       53
<PAGE>

    On January 25, 1999 we entered into a letter of intent with Microsoft
providing for the establishment of a technical services relationship. In
connection with this letter of intent, we have agreed to grant Microsoft
warrants to purchase up to 3,800,000 A shares or ADSs representing such shares
at Microsoft's option, at an exercise price of $28.00 per A share or ADS. Half
of these warrants are expected to be issued in the near future. These warrants
will be exercisable after one year from issuance for a period of three years.
The other half of the warrants will be issued upon the signing of the first
definitive agreement. This half of the warrants will vest and become
exercisable based on performance criteria to be established in the definitive
agreements, although they also will not be exercisable until February 11, 2000.
The first half of the warrants are for the right to negotiate to license
technology from Microsoft under definitive agreements to be negotiated in the
future. Concurrent with our initial public offering, we recorded as contract
acquisition rights approximately NLG64.4 million associated with the first half
of the warrants. Such costs will be amortized on a straight-line basis over the
expected contract life, which is yet to be determined. The accounting for the
cost associated with the second half of the warrants will depend upon the
ultimate nature of the performance criteria giving rise to the earn-out of
these warrants. These warrants will be recorded as such at fair value when it
is probable the performance criteria will be met, in accordance with EITF Issue
No. 96-18.

 Operating Income (Loss); Adjusted EBITDA

    During the three months ended March 31, 1999, operating loss increased
NLG73.9 million to NLG85.8 million from NLG11.9 million for the three months
ended March 31, 1998, a 621.0% increase. Approximately 49.5% of this increase
resulted from the stock-based compensation charge of NLG36.6 million related to
our stock option plans. A substantial portion of the remaining increase in net
operating loss is due to the focus on the continued development of our
telephone and Internet/data services. Adjusted EBITDA for the three months
ended March 31, 1999 decreased NLG23.0 million to NLG14.0 million, a 62.2%
decrease. Substantially all of this decrease in Adjusted EBITDA can be
attributed to the increased negative EBITDA related to development of our
telephone, Internet/data and programming services.

    During the year ended December 31, 1998, operating loss increased NLG365.6
million to NLG398.8 million from NLG33.2 million, a 1,101.2% increase.
Approximately 88.2% of this increase resulted from the stock-based compensation
charge of NLG322.6 million related to our stock option plans. A substantial
portion of the remaining increase resulted from new depreciation and
amortization expense from the acquisition of UPC, the acquisition of Combivisie
and the acquisition of Telekabel Hungary. Adjusted EBITDA increased NLG6.9
million to NLG111.4 million from NLG104.5 million, a 6.6% increase. As a
percentage of revenue, Adjusted EBITDA decreased to 27.2% from 31.0%, a 12.3%
decrease. The decrease in Adjusted EBITDA was primarily attributable to NLG15.9
million in costs attributable to the formation and start up of chello broadband
in addition to additional expenses related to the further development of
Internet/data services and the preparation for launch of telephone services.

    During the year ended December 31, 1997, operating loss increased to
NLG33.2 million from operating income of NLG1.7 million for the year ended
December 31, 1996. This increase was primarily related to depreciation and
amortization expense and the consolidation of Tara. Adjusted EBITDA increased
NLG22.9 million to NLG104.5 million from NLG81.6 million, a 28.1% increase.
During the year ended December 31, 1997, Adjusted EBITDA as a percentage of
revenue dropped from 33.3% in 1996 to 31.0%, a decrease of about 6.9%. This
decrease was primarily related to negative Adjusted EBITDA from developing
systems in France and the Slovak Republic and the consolidation of Tara.

    We believe the introduction of telephone services and Internet/data
services will have a significant negative impact on operating income and
Adjusted EBITDA during 1999. Thereafter, this negative impact is expected to
decline. We intend for our new businesses to be Adjusted EBITDA positive after
two to three years following introduction of service, but there can be no
assurance that this will occur. The

                                       54
<PAGE>

financial effect of the development of our video programming businesses and the
construction of our digital distribution platform will depend upon our ability
to find joint venture partners for these new investments. If we are unable to
find joint venture partners for these new investments, we will be required to
consolidate all of the losses of these new investments.

 Interest Expense

    During the three months ended March 31, 1999, interest expense increased
NLG15.5 million to NLG38.2 million from NLG22.7 million for the three months
ended March 31, 1998, a 68.3% increase. This increase was due primarily to
increases in interest cost related to the DIC Loan, consolidation of the NUON
Facility and the acquisition of Telekabel Hungary in June 1998. See "--
Liquidity and Capital Resources."

    During the year ended December 31, 1998, interest expense increased NLG33.7
million to NLG104.4 million from NLG70.7 million during the same period in
1997, a 47.7% increase. This increase was due primarily to increases in
indebtedness related to the UPC Acquisition in December 1997, the acquisition
of Combivisie in January 1998 and the acquisition of Telekabel Hungary in June
1998. See "--Liquidity and Capital Resources."

    During the year ended December 31, 1997, interest expense increased NLG32.2
million to NLG70.7 million from NLG38.5 million during the same period in 1996,
an 83.6% increase. This increase was due primarily to additional indebtedness
incurred for the acquisition of Norkabel in October 1996 and, to a lesser
extent, indebtedness incurred to fund developing systems, corporate overhead
and the acquisition of UPC. See "--Liquidity and Capital Resources."

 Provision for Loss on Investment Related Costs

    The provision for loss on investment-related costs totaled NLG18.9 million,
NLG6.2 million and NLG0 million for the years ended December 31, 1997 and 1998,
and the three months ended March 31, 1999, respectively. During 1998, Tara
wrote-off its deferred development costs. During 1997, we made a strategic
decision to sell our interest in our Portuguese system due to competitive
pressures beyond our control. After receiving several offers for the sale of
our Portuguese system substantially less than the carrying value of our
investment, we recorded a permanent impairment on the investment. The system
was subsequently sold in January 1998.

 Foreign Exchange Gain (Loss) and Other Expense

    Foreign exchange gain (loss) and other expense reflected a loss of NLG15.3
million for the three months ended March 31, 1999 as compared to a loss of
NLG4.9 million for the same period in 1998. The foreign exchange loss during
the three months ended March 31, 1999 was due primarily to a decrease in the
value of the Dutch guilder in relation to the U.S. dollar as compared to
December 31, 1998. Subsequent to December 31, 1998, we repaid a significant
portion of our remaining U.S. dollar-denominated indebtedness with proceeds
from our initial public offering. Foreign exchange gain (loss) and other
expense reflected a gain of NLG2.7 million for year ended December 31, 1998 as
compared to a loss of NLG41.1 million for the same period in 1997. The foreign
exchange gain during 1998 was due primarily to a more stable Dutch guilder in
relation to the U.S. dollar during 1998 as compared to 1997.

    Foreign exchange loss and other expense increased NLG19.9 million to a loss
of NLG41.1 million for the year ended December 31, 1997 from a loss of NLG21.2
million for the previous year. This increase in foreign exchange loss was due
primarily to the weakening of the Dutch guilder in relation to the U.S. dollar
and its related impact on our U.S. dollar-denominated indebtedness, primarily
pay-in-kind convertible notes owed to Philips.


                                       55
<PAGE>

 Share in Results of Affiliated Companies, Net

    The table below sets forth our share in results of affiliated companies for
the applicable periods. It shows the consolidation, following our July 1, 1998
acquisition, of our Hungarian cable television holding company, although our
Hungarian programming business continues to be accounted for using the equity
method.

<TABLE>
<CAPTION>
                                                       For the Three Months
                            Year Ended December 31        Ended March 31,
                            -------------------------  ----------------------
                             1996     1997     1998       1998        1999
                            -------  -------  -------  ----------  ----------
                                                            (unaudited)
                                   (Dutch guilders, in thousands)
<S>                         <C>      <C>      <C>      <C>         <C>
A2000...................... (19,965) (25,458) (26,631)    (11,387)     (9,981)
UTH........................     --       --   (22,780)        --       (5,407)
Hungary (Kabelkom,
 programming and cable
 television)...............    (262)   4,431   (7,970)       (856)       (219)
UII Partnership (Israel,
 Ireland and Malta)........   1,896   10,589     (666)       (441)        --
Tevel(1)...................     --       --       --          --       (4,116)
Melita(1)..................     --       --       --          --           10
Monor......................  (4,475)  (9,633)  (4,381)       (612)       (300)
IPS........................  (8,426)  (5,188)    (337)       (181)        328
Other(2)...................     520     (199)  (1,058)       (662)       (587)
                            -------  -------  -------  ----------  ----------
Total...................... (30,712) (25,458) (63,823)    (14,139)    (20,272)
                            =======  =======  =======  ==========  ==========
</TABLE>
- --------------------
(1) Historically, we held our interests in Israel, Ireland and Malta in UII, a
    general partnership. In November 1998, we acquired our partner's interest
    in Tevel and Melita and sold our interest in PHL.
(2) "Other" shows in 1996 our share in results from Spain, France and Germany,
    in 1997 our share in results from TV Max, a Czech and Slovak Republic
    programming business and in 1998 and 1999 our share in TV Max and Xtra
    Music.

    For the three months ended March 31, 1999, our share in net losses of
affiliated companies increased to NLG20.3 million from NLG14.1 million for the
three months ended March 31, 1998, a 44.0% increase. A substantial portion of
the increase in share in net losses was attributable to our 51% investment in
UTH, accounted for as an equity investment until February 1, 1999 when we
acquired the remaining 49% and began consolidating the investment. Additional
increased losses are also attributable to additional amortization of goodwill
related to our acquisition of an additional 23.3% and 25% interest in Melita
and Tevel, respectively, in November 1998. The increase in losses from Tevel
also results from losses incurred by Tevel resulting from goodwill amortization
and financing expense related to Tevel's acquisition of Gvanim Cable Television
Ltd in the second half of 1998.

    For the year ended December 31, 1998, our share in net losses of affiliated
companies increased to NLG63.8 million from NLG25.5 million for the year ended
December 31, 1997, a 150.2% increase. A substantial portion of the increase in
share in net losses was attributable to additional amortization of goodwill of
A2000, Kabelkom, our Hungarian cable television holding company, and the
partnership through which we held our interests in the Israeli, Irish and
Maltese operating companies, in each case related to the new basis of
accounting established in the step acquisition of us by United. A2000 also had
increased losses as it began to introduce telephone services during this
period. The share in net losses of Kabelkom for the year ended December 31,
1998 as compared to the net income over the comparable period in 1997 was
related to the introduction of a new programming channel, increased programming
fees, a loss of HBO subscribers due to the introduction of two additional
commercial channels by competitors, and additional overhead costs. Effective
July 1, 1998, we consolidated results from our Hungarian cable television
businesses and no longer accounted for them in share of results of affiliated
companies. The loss in the UII Partnership resulted from additional
amortization as discussed above, in

                                       56
<PAGE>

addition to losses incurred by Tevel during the last quarter of the year of
which our share increased from 23.3% to 46.6%. These losses resulted from
goodwill amortization and financing expense related to Tevel's acquisition of
Gvanim Cable Television Ltd.

    For the year ended December 31, 1997, our share in net losses of affiliated
companies decreased to NLG25.5 million from NLG30.7 million for the previous
year, a 16.9% decrease, primarily as a result of improved earnings from the
partnership holding the Israeli, Irish and Maltese systems, offset by increased
losses from Monor.

Statements of Cash Flows

    We had cash and cash equivalents of NLG1,062.0 million as of March 31,
1999, an increase of NLG1,032.4 million from NLG29.6 million as of December 31,
1998. We had cash and cash equivalents of NLG29.6 million as of December 31,
1998, a decrease of NLG70.5 million from NLG100.1 million as of December 31,
1997. Cash and cash equivalents as of December 31, 1997 represented an increase
of NLG56.5 million from NLG43.6 million as of December 31, 1996.

<TABLE>
<CAPTION>
                                                         For the Three Months
                            Year Ended December 31,        Ended March 31,
                           ----------------------------  ---------------------
                             1996      1997      1998      1998        1999
                           --------  --------  --------  ---------- ----------
                                                             (unaudited)
                                   (Dutch guilders, in thousands)
<S>                        <C>       <C>       <C>       <C>        <C>
Cash flows from operating
 activities..............    42,530   132,433    73,000     59,782      44,170
Cash flows from investing
 activities..............    (6,394) (402,340) (613,347)  (208,896)   (639,933)
Cash flows from financing
 activities..............  (116,756)  326,482   471,913    114,767   1,627,875
Effect of exchange rates
 on cash.................       366       (72)   (2,139)       (20)        319
Net increase (decrease)
 in cash and cash
 equivalents.............   (80,254)   56,503   (70,573)   (34,367)  1,032,431
Cash and cash equivalents
 at beginning of period..   123,895    43,641   100,144    100,144      29,571
                           --------  --------  --------  ---------  ----------
Cash and cash equivalents
 at end of period........    43,641   100,144    29,571     65,777   1,062,002
                           ========  ========  ========  =========  ==========
</TABLE>

 Cash Flows from Operating Activities

    During the three months ended March 31, 1999, net cash flow from operating
activities decreased NLG15.6 million to NLG44.2 million from NLG59.8 million
for the comparable period in 1998, a 26.1% decrease. This decrease was
primarily related to increased cash needs for working capital and the
consolidation of UTH as of February 1, 1999.

    During the year ended December 31, 1998, net cash flow from operating
activities decreased NLG59.4 million to NLG73.0 million from NLG132.4 million
for the comparable period in 1997, a 44.9% decrease. This decrease was
primarily related to increased cash needs for working capital.

    Net cash flow from operating activities totaled NLG132.4 million for the
year ended December 31, 1997, as compared to NLG42.5 million for the year ended
December 31, 1996, an increase of NLG89.9 million. This increase was primarily
related to cash generated from working capital including increased current
liabilities and a reduction of accounts receivable.

 Cash Flows from Investing Activities

    We used approximately NLG639.9 million of cash in investing activities
during the three months ended March 31, 1999, compared to NLG208.9 million for
the three months ended March 31, 1998. During the three months ended March 31,
1999, cash was used principally for the acquisition of UTH, which represented
NLG491.5 million, net of cash acquired, and for capital expenditures for
property, plant and

                                       57
<PAGE>

equipment, including other tangible assets such as system upgrade and new-build
activities, which represented NLG124.2 million. Also during the three months
ended March 31, 1999, we had a net increase in restricted cash from the deposit
of NLG84.1 million for the acquisition of SKT and the release of NLG30.3
million of restricted cash upon pay-off of the bridge bank facility. During
this period we made a net investment in affiliates of NLG7.2 million and
received proceeds from the sale of our Hungarian programming assets of NLG36.7
million.

    We used approximately NLG613.3 million of cash in investing activities
during the year ended December 31, 1998, compared to NLG402.3 million for the
year ended December 31, 1997. During the year ended December 31, 1998, cash was
used principally for new acquisitions including the acquisitions of Combivisie
and Kabelkom, which together represented NLG200.2 million, including goodwill
related to the acquisitions, and for capital expenditures for property, plant
and equipment, including other tangible assets such as system upgrade and new-
build activities, which represented NLG281.7 million. Also during 1998, we
acquired an additional 23.3% and 25% interest in Tevel and Melita,
respectively, for approximately NLG170.1 million, acquired the remaining
minority interest in Janco Multicom and sold our investment in PHL. Both the
acquisition of the minority interest in Janco Multicom, through the release of
escrowed funds, and the sale of PHL provided funds to us which offset our other
investing activities. During the year ended December 31, 1997, cash was used
for new acquisitions, primarily Janco Multicom for NLG85.1 million, an
additional cash-funded letter of credit of NLG47.0 million to acquire the
remaining interest in Janco Multicom, and capital expenditures including
upgrade and new-build activities totaling NLG145.6 million.

    We used approximately NLG402.3 million of cash in investing activities
during the year ended December 31, 1997, compared to NLG6.4 million for the
year ended December 31, 1996. During the year ended December 31, 1997, cash was
used principally for (1) the acquisition of Janco and other acquisitions, which
represented NLG127.9 million including goodwill related to the acquisitions,
(2) a cash-funded letter of credit to purchase the remaining interest in Janco
Multicom, which represented NLG47.0 million, (3) the continuation of our
upgrade and new-build construction program, which represented NLG145.6 million
of capital expenditures and also including goodwill and other intangible
assets, and (4) the purchase of United stock, which represented NLG66.8
million. In contrast, during the year ended December 31, 1996 cash was used
principally for purchases of property, plant and equipment, goodwill and other
intangible assets, which represented NLG106.6 million, for the continuation of
our upgrade and new-build construction and for acquisitions, which represented
NLG46.5 million and was primarily as a result of our acquisition of our
partner's interest in the partnership that held the Norwegian, Swedish and
Hungarian cable television systems. These investing activities were offset by
repayments from A2000 and its subsidiaries of NLG146.7 million after these
companies obtained long-term financing.

 Cash Flows from Financing Activities

    We had NLG1,627.9 million of cash flows from financing activities during
the three months ended March 31, 1999, as compared to NLG114.8 million for the
three months ended March 31, 1998. Principal sources of cash include net
proceeds from our initial public offering of NLG2,669.6 million. Additional
sources of cash were from short-term borrowings of NLG16.1 million and long-
term borrowings of NLG754.9 million, which includes borrowings on the UTH
facility of NLG539.9 million, borrowings under the senior credit facility of
NLG195.5 million and borrowings under the Mediareseaux facility of NLG19.5
million. Concurrent with the public offering DIC exercised its option to
acquire shares for proceeds of NLG89.6 million, which we used to pay $45.0
million (NLG87.8 million) of the DIC Loan. We used proceeds from the public
offering to pay NLG620.0 million of the senior revolving credit facility,
NLG110.0 million of the bridge bank facility and the note payable to United of
NLG157.4 million. An additional NLG191.0 million of the senior revolving credit
facility was paid by Telekabel Wien. As part of the acquisition of UTH, we also
paid a loan to NUON of NLG33.0 million. In March, UTH paid off its existing
credit facility of NLG625.2 million with a new facility, plus funding from UPC.
We paid down other loans of

                                       58
<PAGE>

NLG31.1 million. We used proceeds from the sale of our programming assets in
Hungary to pay the Time Warner note totaling NLG36.4 million.

    We had NLG471.9 million of cash flows from financing activities during the
year ended December 31, 1998, as compared to NLG326.5 million for the year
ended December 31, 1997. Principal sources of cash during that period included
gross proceeds from long-term debt, which represented NLG529.6 million,
including additional borrowings from our senior revolving credit facility and
CNBH's major facility, a loan from our primary partners in the Israeli
operating system of $90 million (NLG170.1 million) and borrowings from United,
which represented NLG176.1 million. We repaid long-term and short-term
borrowings of approximately NLG252.6 million during the same period, including
NLG131.1 million of our bridge bank facility and NLG65.0 million under a KTE
bank facility.

    Cash flows from financing activities during the year ended December 31,
1997 were NLG326.5 million, as compared to negative cash flow from financing
activities of NLG116.8 million for the year ended December 31, 1996. Principal
sources of cash from financing activities during that period included gross
proceeds of NLG1,402.1 million from short-term and long-term debt including
NLG883.9 million under our senior revolving credit facility, NLG252.5 million
under our bridge bank facility, bank loans and other obligations of NLG65.0
million in The Netherlands and other obligations primarily related to the
acquisition of Janco and the refinancing of Norkabel, which represented
NLG200.7 million. During the same period, we repaid approximately NLG587.9
million of short-term borrowings, including Dutch credit facilities of NLG384.7
million, short-term debt assumed in the acquisition of Norkabel of NLG138.4
million, other short-term credit arrangements of NLG22.1 million and other
long-term debt of NLG24.8 million. In December 1997, we also repaid NLG170.4
million of the pay-in-kind convertible notes and purchased NLG292.6 million of
A shares from Philips as part of the acquisition of UPC.

    Cash flows from financing activities during the year ended December 31,
1996 were negative NLG116.8 million. Financing activities during the year ended
December 31, 1996 included raising gross proceeds of NLG326.1 million from
short-term and long-term loans and repayment of long-and short-term facilities
of NLG440.4 million.

Liquidity and Capital Resources

    Historically, we have financed our operations and acquisitions primarily
from:

  .cash contributed by United upon our formation,
  .debt financed at the UPC corporate level and project debt financed at the
  operating company level,
  .equity raised in our initial public offering, and
  .debt raised in our recent offering of senior notes, and
  .operating cash flow.

    We have both well-established and developing systems. In general, we have
used the cash contributed by United upon formation and debt financed at the UPC
corporate level to fund acquisitions, developing systems and corporate
overhead. We have financed our well-established systems and, when possible, our
developing systems, with project debt and operating cash flow. Also, well-
established systems generally have stable positive cash flows that, to the
extent permitted by applicable credit facilities, may be used to fund other
operations. Developing systems are at various stages of construction and
development and generally depend on us for some of the funding for their
operating needs until project financing can be secured.


                                       59
<PAGE>

Debt Facilities

    We, our consolidated subsidiaries and our unconsolidated affiliates had the
following principal long-term and short-term debt facilities outstanding as of
March 31, 1999, as well as the senior notes we recently sold. Debt denominated
in currencies other than Dutch guilders has been translated to Dutch guilders
for the last column.
<TABLE>
<CAPTION>
                                                            Facility Size  Outstanding
                                                            or Principal    At March
 Description (Borrower)    Final Maturity   Interest Rate      Amount       31, 1999
 ----------------------   ----------------- -------------- --------------- -----------
                                                            (in millions)
<S>                       <C>               <C>            <C>             <C>
UPC and Consolidated
 Subsidiaries:
Long-Term Debt
Senior notes                           2009 10 7/8%                 $800.0       --
                                                               (Euro)300.0       --
Senior discount notes                  2009 12 1/2%                 $735.0       --
                                                           (upon maturity)
Senior Credit Facility                 2006 EU LIBOR,        (Euro)1,000.0  NLG361.9
 (UPC, Telekabel Wien                       LIBOR + 0.75%
 and Janco Multicom)                        to  2.0%
                                            per annum
TeleKabel Facility (The                2007 EU LIBOR +         (Euro)340.0  NLG539.9
 Netherlands)                               0.75% to 2.0%
                                            per annum
CNBH Facility                          2008 AIBOR + 0.60%         NLG274.0  NLG239.5
                                            to 1.6% per
                                            annum
Mediareseaux Facility                  2007 FFR LIBOR +          FFR 680.0   NLG59.8
                                            0.75% to 2.0%
DIC Loan (UPC)                         2000 8.0% per annum           $45.0   NLG92.3
                                            + 6.0% of
                                            principal
                                            amount at
                                            maturity
United Loan (UPC)                March 2001 10.75% per              $100.0   NLG12.1
                                            annum
Short-Term Debt
Telekabel Hungary         Repaid April 1999 BUBOR 12.5%             DM65.6   NLG41.2
 Facility
New Acquisition Debt
Long-Term Debt
A2000 Group Facilities            2005-2006 AIBOR +               NLG510.0  NLG502.3
                                            0.7/0.75% or a
                                            fixed rate
                                            advance +
                                            0.7/0.75%
@Entertainment:
 PCI Discount Notes                    2003 9.78% per               $130.0  NLG269.7
                                            annum
 1998 Senior Discount                  2008 14.5% per               $125.1  NLG266.9
  Notes                                     annum
 1999 Series B Senior                  2009 14.5% per                $92.6  NLG195.2
  Discount Notes                            annum
 1999 Series C Senior                  2008 7% per annum              $9.8   NLG20.9
  Discount Notes
RCF Credit Facility                Dec 2005 PIBOR + 1.5%         FFR 252.4   NGL80.6
Time Warner Cable France          June 2002 LIBOR + 1%           FFR 680.0  NLG100.8
 Credit Facility
Kabel Plus Facility                    2000 PRIBOR              CZK1,345.4   NLG46.2
Stjarn Credit Facility A           Oct 2004 STIBOR + 1.25%        SEK371.0   NLG92.1
Short-Term Debt
Stjarn Credit Facility B    Repaid May 1999 STIBOR + 0.70%        SEK150.0   NLG37.2
Unconsolidated
 Affiliates:
Tevel Facilities                 2007- 2010 Fixed rate              $250.0  NLG486.0
                                            ranging from
                                            5.5%-6.0%
Melita Facility                        2007 7.44%-7.93%             Lm14.0   NLG46.8
Monor Facility                         2006 LIBOR + 1.5%             $50.0   NLG84.3
</TABLE>

                                       60
<PAGE>

    Senior Revolving Credit Facility. We and certain of our subsidiaries were
parties to a NLG1.1 billion revolving credit facility, which had an outstanding
balance at March 31, 1999 of NLG361.9 million. We repaid this facility in full
in July 1999 with the initial drawdown on the Senior Credit Facility described
below.

    Senior Credit Facility. On July 27, 1999, a newly formed subsidiary, UPC
Facility B.V., Telekabel Wien and Janco Multicom and Bank of America
International Limited, CIBC World Markets plc, Citibank N.A., MeesPierson N.V.,
Paribas, The Royal Bank of Scotland plc, Toronto Dominion Bank Europe Limited,
and The Toronto-Dominion Bank, as Facility Agent and Security Agent, executed a
Loan and Note Issuance Agreement for a (Euro)1 billion (NLG2.2 billion)
multicurrency senior secured credit facility (the "Senior Credit Facility").
Until the earlier of October 31, 1999 and the completion of the syndication of
the Senior Credit Facility, availability under the Senior Credit Facility is
limited to (Euro)500 million and such amount may not be used to finance any
acquisitions.

    The Senior Credit Facility matures on July 27, 2006 and is comprised of two
tranches. The (Euro)750.0 million Tranche A is a senior secured reducing
revolving credit facility. Tranche B is a (Euro)250.0 million term loan credit
facility. The Senior Credit Facility bears interest at the Euro Interbank
Offered Rate (for borrowings in euro) and at the London Interbank Offered Rate
(for all other borrowings) plus a margin of between 0.75% and 2.0% (which shall
be at least 1.5% for the first six months following closing) plus an additional
cost of funding calculation. In addition to repaying our senior revolving
credit facility, proceeds from the Senior Credit Facility are to be used to
fund acquisitions, repay certain intercompany debts, pay interest on funds
downstreamed from the proceeds of high yield issues, general corporate
purposes, capital expenditures, pay amounts due under the Senior Credit
Facility and other permitted distributions. Borrowings under the Senior Credit
Facility are limited by financial ratio tests. The Senior Credit Facility
contains provisions that require its immediate prepayment at the option of the
lenders if we cease to own more than 50% of, or lose our ability to exercise
control over, UPC Facility B.V. Immediate prepayment is also required, unless
waived by the banks to whom 66 2/3% of the outstanding principal is owing, or,
if no principal amounts are outstanding, banks whose aggregate principal
committments exceed 66 2/3% of the total principal available, if United ceases
to own more than 50% and loses its ability to control us. In addition, the
Senior Credit Facility limits UPC Facility B.V.'s and its subsidiaries'
acquisitions funded by loan proceeds to (Euro)400 million over the life of the
Senior Credit Facility, with a further limitation on Eastern European new
acquisitions to businesses or entities having no more than 150,000 cable
subscribers (excluding certain acquisitions announced before signing the
facility). Furthermore, the Senior Credit Facility contains certain financial
covenants and restrictions on UPC Facility B.V. and most of its subsidiaries'
ability to incur indebtedness, dispose of assets, merge and enter into
affiliate transactions. Net proceeds of certain disposals (including sales by
us of less than 50% of our current interest in UPC Facility B.V.) are required
to be used to prepay the facility. Among other things, the facility would
prohibit dividends and other payments to us (other than certain management fees
and the repayment of specified intercompany indebtedness in an aggregate
principal amount not to exceed $250 million, if such repayment does not result
in a breach of any covenants), unless UPC Facility B.V. has received an
equivalent distribution from certain of its subsidiaries. In addition, the
Senior Credit Facility permits UPC Facility B.V. to upstream payments to us
after April 1, 2002 for the purpose of servicing interest on our senior notes
(in addition to the $250 million noted above) only if UPC Facility B.V.'s ratio
of Senior Debt to ANOCF (Annualised Net Operating Cash Flow) is less than or
equal to 4.5:1.0. The Senior Credit Facility contains customary events of
default, including a material adverse change default.

    This facility is secured by, among other things, pledges of the shares of
UPC Facility B.V., Janco Multicom, TVD, CNAH, Stipdon and Telekabel Hungary.
UPC Facility B.V., TVD, CNAH, Stipdon and Telekabel Hungary are guarantors
under the facility. The collateral and guarantees under this facility also
secure our liability under any currency and/or interest rate hedging
arrangements entered into in connection with the senior notes and senior
discount notes, although only (Euro)100.0 million of the indebtedness
represented by such arrangements is pari passu with the indebtedness under the
Senior Credit Facility. This facility limits the amount of yearly management
fees that can be paid to us, in addition

                                       61
<PAGE>

to management, consultancy and similar fees paid on bona fide arm's length
terms in the ordinary course of business to affiliates, to (Euro)5.0 million.

    TeleKabel Facility (The Netherlands). In March 1999, TeleKabel Beheer
replaced their existing NLG690.0 million facility with a senior facility and
additional shareholder loans. The senior facility consists of a Euro 340
million (NLG750.0 million) revolving facility to N.V. TeleKabel that will
convert to a term facility on December 31, 2001. Euro 5 million of this
facility is in the form of an overdraft facility that is available until
December 31, 2007. This facility was used, among other things, to repay a
portion of the UTH facility and for capital expenditures. The facility bears
interest at the Euro Interbank Offered Rate plus a margin between 0.75% and
2.00% based on leverage multiples tied to N.V. TeleKabel's net operating income
plus an additional cost of funding calculator. The new facility is secured,
among other things, by a pledge over the shares in N.V. TeleKabel and by
pledges over shares in its subsidiaries as well as asset pledges. The facility
restricts N.V. TeleKabel's ability to incur additional debt. This facility
generally restricts the payment of dividends and distributions, unless, among
other things, we achieve certain financial ratios. This facility also restricts
the amount of management fees that can be paid to us. The facility is
immediately due and payable if TeleKabel Beheer ceases to own 100% of N.V.
TeleKabel or if we cease to own directly or indirectly more than 50% of
TeleKabel Beheer.

    CNBH Facility. In February 1998, CNBH entered into a secured NLG250.0
million ten-year term facility with a syndicate of banks led by Rabobank. In
August 1998, this facility was increased to NLG266.0 million. The facility
bears interest at the AIBOR plus a margin of between 0.6% and 1.6%. Most of the
proceeds were used to repay in full a Combivisie bridge facility entered into
in connection with the acquisition of Combivisie (NLG122.0 million) and a KTE
bank facility (NLG65.0 million). The remaining amount under this facility is
available to finance certain capital expenditures. Beginning in 2001, CNBH will
be required to apply 50% of its excess cash flow to prepayment of this
facility. The facility restricts the incurrence of debt, the payment of
dividends and distributions and limits the amount of payments to us under our
general services agreement. In January 1999, this facility was increased to
NLG274.0 million. In connection with this facility, we entered into a project
support agreement providing, among other things, for us to retain majority
ownership of CNBH. In connection with this facility, CNBH also entered into a
NLG5.0 million ten-year term working capital facility with Rabobank.

    Mediareseaux Facility. In July 1998, Mediareseaux entered into an FFR680.0
million (NLG228.8 million) term facility with Paribas to finance capital
expenditures, working capital and acquisitions. This facility is secured by the
assets of Mediareseaux and a pledge of our stock of Mediareseaux. The
availability of this facility depends on revenue generated and its debt to
equity ratios. Drawings under this facility may be made until December 31,
2002. The repayment period runs from January 1, 2003 to final maturity in 2007.
Mediareseaux may not draw more than FFR120 million (NLG40.4 million) of this
facility for acquisitions. During the repayment period, Mediareseaux must apply
50% of its excess cash flow in prepaying the facility. This facility generally
restricts the payment of dividends and distributions. This facility also
restricts Mediareseaux from incurring additional indebtedness, subject to
certain exceptions. In July 1998, Mediareseaux also secured a 9.5 year FFR20
million (NLG6.7 million) overdraft facility, subject to the same terms and
conditions as this facility except for the availability tests which are not
applicable. Until certain financial covenants are met, we must own more than
51% of Mediareseaux. Generally, investments by Mediareseaux and its
subsidiaries require approval of the facility agent except for investments in
cash and certain marketable securities that are pledged to support the
facility. This facility also restricts the amount of management fees that
Mediareseaux may pay to us.

    DIC Loan. In November 1998, a subsidiary of DIC loaned us $90.0 million.
The loan from DIC was subsequently assigned to an Israeli bank. We used the
proceeds to acquire interests in the Israeli and Maltese systems. The loan from
DIC matures in November 2000 and is secured by our pledge of our ownership
interest in the Israeli system. The loan from DIC bears interest at the nominal
rate of 8% per annum. This interest is payable, together with an additional 6%
of the principal amount, on maturity. The

                                       62
<PAGE>

loan from DIC may be repaid on quarterly prepayment dates with three months'
prior notice by us. In connection with the loan from DIC, we granted the
Discount Group, our partner in the Israeli system, an option to acquire $90.0
million, plus accrued interest, of A shares at a price equal to 90% of the
initial public offering price. Subsequent to December 31, 1998, we negotiated
an amendment to this option, resulting in an option to acquire $45.0 million,
plus accrued interest, of A shares at a price equal to 90.0% of the initial
public offering price, and, if this option is exercised, another option to
acquire $45.0 million, plus accrued interest, of A shares at a price equal to
the 30 day average closing price of our shares on the Amsterdam Stock Exchange,
or the initial public offering price, whichever is higher. At our initial
public offering, DIC exercised the first option and acquired 1,558,654 million
A shares. We repaid $45.0 million of the loan, plus accrued interest, with
proceeds from the option exercise. The other option is exercisable until
September 30, 2000.

    United Loan. We entered into a promissory note with United of $100.0
million in March 1998. The note bears interest at 10.75% per annum and is
payable on March 31, 2001. The $100.0 million note is convertible at United's
option into A shares. Any conversion into or payment in A shares will be at the
initial public offering price. As of March 31, 1999, $24.7 million of this
amount was outstanding.

    Telekabel Hungary Facility. In October 1998, Telekabel Hungary entered into
a DM65.6 million (NLG74.0 million) six month secured bridge facility. This
facility was repaid in April 1999 with proceeds from our initial public
offering.

    A2000 Facilities. In January 1996, A2000 and its wholly-owned subsidiary
Kabeltelevisie Amsterdam entered into bank facilities of NLG90.0 million and
NLG375.0 million, respectively. In October 1996, A2000 Hilversum, a wholly-
owned subsidiary of A2000, entered into a bank facility of NLG45.0 million.
These facilities have between nine- and ten-year terms and interest rates of
AIBOR + 0.75% or AIBOR + 0.7% or fixed-rate (fixed prior to each advance)
increased by 0.7% or 0.75% per annum. These facilities also restrict the
borrowers from incurring additional indebtedness and from paying dividends and
distributions, subject to certain exceptions. The A2000 facilities are secured
by mortgages and pledges, including pledges on Kabeltelevisie Amsterdam and
A2000 Hilversum shares and assets. A2000 is currently negotiating a credit of
NLG680.0 million to replace these facilities.

    PCI Discount notes. Poland Communications, Inc. ("PCI"), @Entertainment's
major operating subsidiary, in October 1996 sold $130.0 million of PCI notes.
The PCI notes bear interest at 9 7/8%, and are payable on May 1 and November 1
of each year. The PCI notes mature on November 1, 2003.

    The indenture governing the PCI notes contains covenants limiting, among
other things, @Entertainment's ability to:

  . incur additional indebtedness,
  . make certain payments and distributions, including dividends,
  . approve the issuance and sale of the capital stock of @Entertainment's
    subsidiaries,
  . sell its assets,
  . create certain liens,
  . enter into transactions with its affiliates, and
  . invest in non-controlled entities.

    The PCI indenture also entitles holders of PCI notes to require
@Entertainment to purchase such note holders' PCI notes upon certain changes in
control of @Entertainment, including our acquisition of @Entertainment.

    1998 Senior Discount Notes. On July 14, 1998, @Entertainment sold 252,000
units, each consisting of 14 1/2% senior discount notes due 2008 and warrants
entitling the warrant holders to purchase shares of @Entertainment common
stock. This 1998 offering generated approximately $125.1 million gross proceeds

                                       63
<PAGE>

to @Entertainment. The notes are unsubordinated and unsecured obligations of
@Entertainment. Cash interest on the notes will not accrue prior to July 15,
2003. After that, cash interest will accrue at a rate of 14.5% per year and
will be payable semi-annually in arrears on January 15 and July 15 of each
year, beginning on January 15, 2004. The notes will mature on July 15, 2008.

    The indenture governing the notes has covenants substantially similar to
the PCI indenture.

    1999 Series B 14 1/2% Senior Discount Notes. In January 1999,
@Entertainment sold 256,800 units consisting of Series B senior discount notes
due 2009 and warrants to purchase 1,813,665 shares of @Entertainment's common
stock (the "1999 Units Offering"). The 14 1/2% senior discount notes were
issued at a discount to their aggregate principal amount at maturity yielding
gross proceeds of approximately $100.0 million. Cash interest on the 14 1/2%
senior discount notes will not accrue prior to February 1, 2004. Thereafter,
cash interest will accrue at a rate of 14 1/2% per annum, payable semi-annually
in arrears on August 1 and February 1 of each year, commencing August 1, 2004.

    The indenture governing the Series B senior discount notes has covenants
substantially similar to the PCI indenture.

    1999 Series C Senior Discount Notes. On January 20, 1999, @Entertainment
sold $36,001,321 aggregate principal amount at maturity of series C senior
discount notes generating approximately $9.8 million of gross proceeds. The
series C senior discount notes are senior unsecured obligations of
@Entertainment. The series C senior discount notes were issued at a discount to
their aggregate amount. Original issue discount will accrete from January 20,
1999, until July 15, 2008, the date of maturity of the series C senior discount
notes. Cash interest on the series C senior discount notes will accrue from
July 15, 2004 at a rate of 7.0% per year on the principal amount at maturity,
and will be payable semi-annually in arrears, on July 15 and January 15 of each
year beginning January 15, 2005. Before January 15, 2004, cash interest on the
series C senior discount notes will not accrue.

    The indenture governing the Series C senior discount notes has covenants
substantially similar to the PCI indenture.

    RCF credit facility. In 1990, RCF and six of its subsidiaries entered into
a FFR160.0 million (NLG53.8 million) credit facility with a consortium of banks
led by Banque Bruxelles Lambert to finance working capital and operations. In
1995 this facility was amended and extended to FFR252.4 million (NLG84.8
million) to refinance three further credit facilities entered into by other
subsidiaries of RCF with a consortium of banks including Banque Bruxelles
Lambert and led by Banque Nationale de Paris in an aggregate amount of FFR
108.0 million (NLG36.3 million) in 1993. The loan bears an interest rate of
PIBOR (the French interbank offer rate) plus 1.5%, payable in arrears
quarterly. The loan had to be repaid in yearly installments of FFR34.6 million
(NLG11.6 million) beginning at the end of 1999 until December 31, 2005. Subject
to certain exceptions, the loan restricts RCF and certain of its subsidiaries
from incurring certain additional indebtedness, from having liens on or
disposing of certain assets, from merging or consolidating and from making
dividend payments.

    Time Warner France credit facility. In July 1996, Rhone Vision Cable
entered into a FFR 680.0 million (NLG228.8 million) credit facility with
Paribas and NatWest Markets to finance construction and installation of Rhone
Vision Cable networks. The facility bears interest of LIBOR plus 1%, payable
quarterly. The facility must be repaid by June 30, 2002, or six months after
network completion. The facility is secured by pledges of all the shares and
the most important assets of Rhone Vision Cable and by a guarantee given by the
Departement du Rhone (for up to 50% of any sum due under the facility). The
facility restricts Rhone Vision Cable's ability to secure additional financing,
incur additional debt or transfer shares and a change of control is deemed an
event of default under the facility. Moreover, under certain circumstances, the
lenders are entitled to set up a company as successor of Rhone Vision Cable to
benefit from the terms of the concession agreement and EPARI is entitled to
prepay the facility and assume Rhone Vision Cable's position.

                                       64
<PAGE>

    Kabel Plus Facility. In December 1996, Kabel Plus entered into a CZK1,345.4
million (NLG79.9 million) credit facility with Citibank International to
finance and refinance the construction of their cable system in the Czech
Republic and for general operational purposes. The facility bears interest of
PRIBOR. The facility must be repaid by June 30, 2000. The facility restricts
Kabel Plus' ability to secure additional debt and a change of control is deemed
an event of default under the facility. Prepayment of advances made under the
facility is permitted provided ten days advance notice of such prepayment is
given. This facility may become due upon closing of the acquisition unless the
lenders consent to the sale.

    Stjarn credit facility. In December 1998, Stjarn's parent company entered
into a SEK521.0 million loan agreement with Nordbanken AB to refinance certain
debt. The loan consists of a facility A, a medium term loan in the amount of
SEK371.0 million and a facility B, a short term loan in the amount of SEK150.0
million. These facilities are secured by pledges of shares in Stjarns parent
company's subsidiary and bears interest at the rate of STIBOR plus between
0.75% and 1.25%. The A facility must be repaid in eleven semi-annual
installments of between SEK41.0 million and SEK25.0 million beginning in May
1999 until November 2004. The B facility has been fully repaid and replaced by
a revolving credit facility in the amount of SEK150.0 million. The commitment
fee for the revolving facility amounts to 0.30% and is based on the difference
between the committed credit amount and the utilized amount. The contract fee
is 0.15% and is based on the committed credit amount. Interest on utilized
funds amounts to NBU +0.60% units. The interest period is three months. The A
facility restricts Stjarn's ability to encumber its present or future assets
and to enter into sale-leaseback agreements. Both the A facility and the
revolving facility may become due upon closing of the acquisition unless the
lenders consent to the sale.

    Tevel Facilities. In August 1998, Tevel entered into three secured loan
agreements totaling NIS955.4 million (NLG460.7 million) to finance the
acquisition of Gvanim and working capital. These facilities bear interest at a
fixed margin of 5.5% to 6.0% over the Israeli consumer price index. The loans
mature in the years 2007 to 2010 and the repayment periods of the principal
amounts commence in the year 2000. These facilities are secured by Tevel's
pledge of its ownership interest in Gvanim and limit Tevel's ability to pay
dividends, encumber, sell or transfer its assets, issue or allot shares, alter
its corporate structure and incur indebtedness.

    Melita Facility. In December 1998, Melita, the Maltese system operator,
entered into two term loans and an overdraft facility, facilitating a total of
Lm 14.0 million with a maturity in 2007 to refinance a Lm 9.0 million facility
and to finance capital expenditure and working capital. The interest rates on
the term loans and overdraft facility vary between 7.44% and 7.93%. The loans
are secured by a general pledge on all of Melita's present and future property.
Availability depends on satisfaction of leverage covenants and interest
coverage. The loans restrict Melita's ability to encumber or transfer its
assets.

    Monor Facility. In September 1997, Monor entered into a $50.0 million term
loan facility with a syndicate of banks led by Credit Lyonnais. The proceeds of
Monor's facility were used to repay indebtedness and for capital expenditures
in the build-out of Monor's network. Monor's facility matures on December 31,
2006 and bears interest at LIBOR plus 1.5%. Monor's facility is secured by a
pledge over the shares of Monor and its assets. This facility limits Monor's
ability to encumber its assets, incur indebtedness and pay dividends.

 Restrictions under Our Indentures

    Our activities are restricted by the covenants of our indentures dated July
30, 1999 under which the senior notes were issued. Among other things, our
indentures place certain limitations on our ability, and the ability of our
subsidiaries, to:

  .borrow money,
  .issue capital stock,
  .pay dividends in stock or repurchase stock,

                                       65
<PAGE>

  .make investments,
  .create certain liens,
  .engage in certain transactions with affiliates, and
  .sell certain assets or merge with or into other companies.

    Under the terms of our indentures, if we raise additional equity (including
the proceeds of this offering), we will be permitted to incur additional debt.

 Restrictions under United Indentures

    As a subsidiary of United, our activities are also restricted by the
covenants in United's indentures dated February 5, 1998 and April 29, 1999. The
United indentures generally limit the additional amount of debt that we or our
subsidiaries or controlled affiliates may borrow, or preferred shares that we
or they may issue.

 Sources of Capital

    We had approximately NLG1,062.0 million of unrestricted cash and cash
equivalents on hand as of March 31, 1999. In addition, we had additional
borrowing capacity at the corporate and project debt level including CNBH,
Mediareseaux and Telekabel Hungary facilities.

    During February 1999, we successfully completed an initial public offering
selling 44.6 million shares on the Amsterdam Stock Exchange and Nasdaq National
Market System and raising gross and net proceeds from the offering of
approximately NLG2,852.9 million and NLG2,669.6 million, respectively.
Concurrent with the offering DIC exercised one of its two option agreements
acquiring approximately 1.6 million shares for NLG89.6 million. Proceeds from
the sale of the shares to DIC were used to repay $45.0 million of the DIC Loan
and related interest. Proceeds from the offering were used to reduce the senior
revolving credit facility (NLG635.8 million, including accrued interest of
NLG15.8 million), repay in its entirety the bridge bank facility (NLG110.0
million, net of the interest reserve account), acquire NUON's 49% interest in
UTH (NLG518.1 million) and assume from NUON a NLG33.0 million subordinated
loan, including accrued interest (NLG33.3 million). Subsequent to the offering,
we also repaid $80.0 million (NLG157.6 million) of the note payable to United
and an additional NLG191.0 million of the senior revolving credit facility. The
remaining proceeds from the initial public offering, in addition to our ability
to re-borrow under our senior revolving credit facility, are expected to be
used primarily for capital expenditures and to fund other costs associated with
our network upgrade, the build and launch of our telephone and Internet/data
services businesses as well as our video distribution and programming
businesses.

    On July 30, 1999, we closed an offering of our 10 7/8% senior notes due
2009 and our 12 1/2% senior discount notes due 2009. The offering generated
gross proceeds of approximately $1.5 billion (NLG    billion), consisting of
$800 million of 10 7/8% notes, (Euro)300 million of 10 7/8% notes and $400
million of 12 1/2% discount notes. The proceeds from the note offerings are
intended to partially fund the new acquisitions. In addition to the proceeds
from the note offerings we expect that the holders of the @Entertainment PCI
notes and the Series C Senior Discount Notes described under "--Debt
Facilities" may exercise their rights to require the purchase of their notes
following the change of control triggered by our acquisition of @Entertainment.
If the holders of those notes exercised their rights to put all of such notes,
this would require @Entertainment to repay NLG286.7 million of debt. The
@Entertainment 1999 Series B 14 1/2% Senior Discount Notes and the
@Entertainment 1998 14 1/2% Senior Discount Notes described under "Description
of Other Debt," of which a total of NLG462.1 million in aggregate was
outstanding as at March 31, 1999, contain similar provisions enabling holders
to require @Entertainment to purchase the notes following a change of control.
Given the coupon on such notes, however, we do not expect any significant
number of holders of those notes to exercise their put rights. However, we
cannot assure you that this will be the case.


                                       66
<PAGE>

    We may need to raise additional capital in the future to the extent we
pursue new acquisition or development opportunities or if cash flow from
operations is insufficient to satisfy our liquidity requirements.

 Consolidated Capital Expenditures

    The table below sets forth our consolidated capital expenditures for the
last three fiscal years, the three months ended March 31, 1998 and 1999 and
projected capital expenditure for the year ended December 31, 1999. The
historical information below does not reflect capital expenditures by A2000,
UTH (through February 1, 1999), Tevel or other unconsolidated systems. CNBH has
been deconsolidated as of August 1, 1998; its capital expenditures amounting to
NLG18.6 million for the first seven months of 1998, are included for the year
ended December 31, 1998. UTH's projected capital expenditures for 1999 have
been included in the table below for the full year. The projected 1999 figures
also include capital expenditures for GelreVision and SKT, both of which closed
subsequent to March 31, 1999.

<TABLE>
<CAPTION>
                                                  Historical
                          -----------------------------------------------------------  Projected
                           Year Ended   Year Ended   Year Ended  For the Three Months  Year Ended
                          December 31, December 31, December 31,   Ended March 31,    December 31,
                              1996         1997         1998       1998       1999        1999
                          ------------ ------------ ------------ -------------------- ------------
                                               (Dutch guilders, in thousands)
<S>                       <C>          <C>          <C>          <C>       <C>        <C>
Cable network
 Upgrade................     61,345       48,484       87,654       14,775     29,338   354,802
 New build..............     12,581       55,042       75,293        8,362     14,950   106,652
                            -------      -------      -------    --------- ----------   -------
 Total cable network....     73,926      103,526      162,947       23,137     44,288   461,454
Master telecom center:
 Video services.........      8,713        4,734        4,065        1,116      1,998    29,288
 Cable telephone
  (Priority Telecom)....        --           --        17,278          112     14,857    74,630
 Internet/data
  services..............        349        4,480          629          170      5,871     7,028
                            -------      -------      -------    --------- ----------   -------
 Total master telecom
  center................      9,062        9,214       21,972        1,398     22,726   110,946
Customer premise
 equipment (CPE):
 Video services.........      4,179        5,833       14,268        2,935      6,953    20,710
 Cable telephone
  (Priority Telecom)....        --           --         1,677          --         215    77,089
 Internet/data
  services..............        430        3,890       12,855          651      6,181    50,367
                            -------      -------      -------    --------- ----------   -------
 Total CPE..............      4,609        9,723       28,800        3,586     13,349   148,166
Support systems and
 equipment (SSE)........      8,098        9,221       15,608        1,810      7,108    47,804
Land, buildings,
 leasehold and Other....      4,347        5,629       18,795        2,479     31,328    17,300
                            -------      -------      -------    --------- ----------   -------
 Total SSE and Other....     12,445       14,850       34,403        4,289     38,436    65,104
New businesses:
 chello broadband.......        --           --         4,589          --       4,937    42,500
 Digital distribution
  platform..............        --           --           --           --         --     35,500
                            -------      -------      -------    --------- ----------   -------
 Total new businesses...        --           --         4,589          --       4,937    78,000
Other...................      6,605        8,317       28,967        1,560        451       --
                            -------      -------      -------    --------- ----------   -------
 Total capital
  expenditures..........    106,647      145,630      281,678       33,970    124,187   863,670
                            =======      =======      =======    ========= ==========   =======
</TABLE>

                                       67
<PAGE>

    The projected 1999 capital expenditures, including all of the new
acquisitions as if they had taken place on January 1, 1999, would total
approximately NLG1,561.3 million, consisting of approximately NLG870.7 million,
NLG132.6 million, NLG223.8 million, NLG256.2 million and NLG78.0 million for
cable network, master telecom center, customer premise equipment, system
support equipment and other and new businesses, respectively.

 Cable Network

    Since our formation as a joint venture, we have been aggressively upgrading
our existing cable television system infrastructure and constructing our new-
build infrastructure with two-way high capacity technology to support digital
video, telephone and Internet/data services. Capital expenditures for the
upgrade and new-build construction can be reduced at our discretion, although
such reductions require lead-time in order to complete work in progress and can
result in higher total costs of construction.

    We expect that the upgrade of the cable network and related equipment will
cause us to write off some of our existing cable network and equipment. We do
not expect the write off to be significant, except in certain limited
circumstances where it will be necessary to rebuild the network. While there
are some exceptions, most of the existing cable plant and related equipment has
been in service for over ten years and the remaining book value is very low.
While we believe the upgrade will extend the life of our existing plant, we do
not anticipate extending the useful life of our existing coaxial cable and
equipment for financial reporting purposes.

    During the year ended December 31, 1998, and the three months ended March
31, 1999, we spent approximately NLG162.9 million and NLG44.3 million in cable
network capital expenditures, respectively. For 1999, we have projected cable
network capital expenditures of approximately NLG461.5 million for our existing
systems and NLG409.2 million for the new acquisitions.

 Master Telecom Center

    The master telecom center includes the headend and all central network
equipment needed for services provided through the operating system. For cable
television, this includes satellite antennas, encryption devices and original
transmission facilities. For telephone service, this includes the central
office switch and synchronous digital hierarchy and other telephone-related
equipment. For Internet/data service, this includes servers and equipment for
connection to the Internet.

    During the year ended December 31, 1998 and the three months ended March
31, 1999, we spent approximately NLG22.0 million and NLG22.7 million for master
telecom center equipment, respectively. For 1999, we have projected capital
expenditures for master telecom center equipment of approximately NLG110.9
million for our existing systems and NLG21.7 million for the new acquisitions.

 Customer Premise Equipment

    Customer premise equipment includes television set-top converters for video
services, cable phone equipment for telephone and cable modems and network
interface cards for Internet/data services. Customer premise equipment is a
variable capital expenditure, except for inventory on hand, and generally will
not be incurred unless we need the equipment for a subscriber.

    During the year ended December 31, 1998 and the three months ended March
31, 1999, we spent approximately NLG28.8 million and NLG13.3 million on
customer premise equipment, respectively.

    For 1999, we have budgeted capital expenditures for customer premise
equipment of approximately NLG148.2 million for our existing systems and
NLG75.6 million for the new acquisitions. We recently entered into agreements
with Philips and General Instruments for the development and purchase of an
integrated digital set-top box for video and Internet/data services, as well as
for Internet-based telephone.

                                       68
<PAGE>

A2000 has agreed with the City of Amsterdam to deploy during the year 2000, a
significant number of digital set top boxes to our existing customers who elect
to take our expanded tier service. Our current projection for capital
expenditures related to this digital set-top box rollout is approximately
NLG332.0 million, although we do not expect to incur the full amount in the
year 2000.

 Support Systems and Equipment

    Support systems and equipment includes ancillary systems such as
operational and business support systems, including network management,
customer care, inventory and billing. During the year ended December 31, 1998
and the three months ended March 31, 1999, we spent NLG34.4 million and NLG38.4
million in total support systems and equipment. For 1999, we have projected
NLG65.1 million for support systems and equipment for our existing systems and
NLG191.1 million for our new acquisitions.

 New Businesses

    In addition to the network infrastructure and related equipment and capital
resources described above, development of our newer businesses, chello
broadband and our digital distribution platform, require capital expenditures
for construction and development of our pan-European distribution and
programming facilities, including our origination facility, network operating
center, near video on demand server complex and related support systems and
equipment. For the year ended December 31, 1998 and the three months ended
March 31, 1999, we incurred capital expenditures of approximately NLG4.6
million and NLG4.9 million for chello broadband, respectively. We have
projected for 1999 approximately NLG42.5 million and NLG35.5 million for
capital expenditures for chello broadband and our digital distribution
platform, respectively.

 New Business Lines--Revenue, Operating and Selling, General and Administrative
Expenses

    During late 1997 we introduced Internet/data service as a product offering
in our consolidated systems. During 1998 we began the development of several
other new businesses including chello broadband, Priority Telecom and UPC tv.
During 1998 the Internet/data service business and telephony business were
developed at both local country operating companies and at the corporate pan-
European level. The information below provides an overview of the revenues,
operating expenses and selling, general and administrative expenses for 1997
and 1998 and the three months ended March 31, 1998 and 1999 related to these
new services in relation to our cable television business. Historically, we did
not fully allocate overhead and general and administrative expenses to these
new businesses. Full allocation began in 1999.

    Corporate overhead selling, general and administrative expense includes a
stock-based compensation charge of NLG406,000 for the three months ended March
31, 1998, compared to a charge of NLG35.9 million for the three months ended
March 31, 1999, and a charge of NLG4.8 million for the year ended December 31,
1997 compared to NLG320.5 million for the year ended December 31, 1998. chello
broadband selling, general and administrative expense does not include a stock-
based compensation charge for the three months ended March 31, 1998, compared
to a charge of NLG660,000 for the three months ended March 31, 1999, and no
charge for the year ended December 31, 1997, compared to a charge of NLG2.1
million for the year ended December 31, 1998. Operating expenses do not include
depreciation and amortization, which for the three months ended March 31, 1998
and 1999 totaled NLG48.5 million and NLG63.2 million respectively, and for the
years ended December 31, 1997 and 1998 totaled NLG132.8 million and NLG187.6
million, respectively.

                                       69
<PAGE>

<TABLE>
<CAPTION>
                              For the Year Ended           For the Year Ended
                              December 31, 1997            December 31, 1998
                          ---------------------------  ---------------------------
                                  Operating    SG&A            Operating    SG&A
                          Revenue Expenses   Expenses  Revenue Expenses   Expenses
                          ------- ---------  --------  ------- ---------  --------
                                     (Dutch guilders, in thousands)
<S>                       <C>     <C>        <C>       <C>     <C>        <C>
Cable television........  320,440 (111,543)  (111,800) 377,817 (122,786)   (86,226)
Telephony
  Operating companies...      --       --         --       531   (1,369)   (10,730)
  Priority Telecom......      --       --         --       --       --         --
Internet/data
  Operating companies...      764     (378)       --     9,465   (7,654)   (28,813)
  chello broadband......      --       --         --       --       --      (2,144)
Corporate overhead, UPC
 tv, Tara and other.....   16,051   (6,587)    (7,267)  21,157   (6,650)  (353,790)
                          ------- --------   --------  ------- --------   --------
    Total...............  337,255 (118,508)  (119,067) 408,970 (138,459)  (481,703)
                          ======= ========   ========  ======= ========   ========
<CAPTION>
                          For the Three Months Ended   For the Three Months Ended
                                March 31, 1998               March 31, 1999
                          ---------------------------  ---------------------------
                                  Operating    SG&A            Operating    SG&A
                          Revenue Expenses   Expenses  Revenue Expenses   Expenses
                          ------- ---------  --------  ------- ---------  --------
                                     (Dutch guilders, in thousands)
<S>                       <C>     <C>        <C>       <C>     <C>        <C>
Cable television........   91,255  (28,692)   (17,750) 132,913  (44,016)   (28,973)
Telephony
  Operating companies...      120      (23)      (359)   7,303   (8,274)   (10,818)
  Priority Telecom......      --       --         --       --       --        (328)
Internet/data
  Operating companies...    1,003   (1,378)    (2,039)   6,473   (6,358)    (6,364)
  chello broadband......      --       --        (226)     --    (4,210)    (8,504)
Corporate overhead,
 UPCtv, Tara and other..    2,627     (806)    (7,177)   2,131   (4,209)   (49,346)
                          ------- --------   --------  ------- --------   --------
    Total...............   95,005  (30,899)   (27,551) 148,820  (67,067)  (104,333)
                          ======= ========   ========  ======= ========   ========
</TABLE>

Certain Dutch Property Tax Issues

    One of our Dutch systems was recently assessed for a transfer tax on the
purchase of immovable property in the amount of NLG1.8 million for the purchase
of a cable network. We have always regarded our cable networks as movable
property and not subject to such transfer tax. We are appealing this tax
assessment. Should we be unsuccessful, our Dutch systems may be assessed for
taxes on similar transactions. We cannot predict the extent to which the taxes
could be assessed retroactively or the amount of tax that our systems may be
assessed for, although it may be substantial, being 6% of the value
attributable to our systems at the date of transfer. Because we own 100% of
UTH, any tax liabilities assessed against our Dutch systems, including A2000
subsequent to its purchase, will be consolidated with our results. We believe
that, if our appeal is unsuccessful, most cable television companies and other
utilities in The Netherlands would become subject to similar tax liabilities.
If this happens, we expect these entities would lobby with us against such tax
assessments. We cannot assure you that such lobbying would be successful.

Inflation and Foreign Currency Exchange Rate Losses

    To date, we have not been impacted materially by inflation.

    The value of our monetary assets and liabilities is affected by
fluctuations in foreign currency exchange rates as accounts payable for certain
equipment purchases and certain operating expenses, such as programming
expenses, are denominated in currencies other than the functional currency of
the entity making such payments. We and some of our operating companies have
notes payable and notes receivable that are denominated in, and loans payable
that are linked to, a currency other than their own functional currency,
exposing us to foreign currency exchange risks on these monetary assets and

                                       70
<PAGE>

liabilities. In general, we and our operating companies do not execute hedge
transactions to reduce our exposure to foreign currency exchange rate risks.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of foreign currency
exchange rate fluctuations.

    The functional currency for our operations generally is the applicable
local currency for each operating company. Assets and liabilities of foreign
subsidiaries are translated at the exchange rates in effect at year-end, and
the statements of operations are translated at the average exchange rates
during the period. Exchange rate fluctuations on translating foreign currency
financial statements into Dutch guilders result in unrealized gains or losses
referred to as translation adjustments. Cumulative translation adjustments are
recorded as a separate component of shareholders' equity. Transactions
denominated in currencies other than the local currency are recorded based on
exchange rates at the time such transactions arise. Subsequent changes in
exchange rates result in transaction gains and losses which are reflected in
income as unrealized, based on period-end translations, or realized upon
settlement of the transactions.

    Cash flows from our operations in foreign countries are translated based on
their reporting currencies. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
agree to changes in the corresponding balances on the consolidated balance
sheets. The effects of exchange rate changes on cash balances held in foreign
currencies are reported as a separate line below cash flows from financing
activities.

New Accounting Principles

    The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities,"
which is required to be adopted by affected companies for fiscal years
beginning after December 15, 1998. This statement defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
As of December 31, 1998, our deferred start-up and organization costs were
insignificant. We adopted this statement effective January 1, 1999, with no
material effect on our financial statements.

    The Financial Accounting Standards Board ("FASB") recently issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS 133") which requires that companies
recognize all derivatives as either assets or liabilities in the balance sheet
at fair value. Under this statement, accounting for changes in fair value of a
derivative depends on its intended use and designation. In June 1999, the FASB
approved Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date of
SFAS 133. SFAS 133 will now be effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. We currently are assessing the effect of
this new standard.

    In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. We adopted this statement
effective January 1, 1999, with no material effect on our financial statements.

                                       71
<PAGE>

European Economic and Monetary Union

    On January 1, 1999, eleven of the fifteen member countries of the European
Union established fixed conversion rates between their existing sovereign
currencies and the euro. The participating countries adopted the euro as their
common legal currency on that day. The euro trades on currency exchanges and is
available for non-cash transactions during the transition period between
January 1, 1999 and January 1, 2002. During this transition period, the
existing currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro and public and private parties may pay
for goods and services using either the euro or the participating countries'
existing currencies.

    During the transition period, all operating companies' billing systems will
include amounts in euro as well as the respective country's existing currency.
All of our accounting and management reporting systems currently are multi-
currency.

    We intend to use the euro as our reporting currency by the end of 2000. We
do not expect the introduction of the euro to affect materially our cable
television and other operations. We have not yet taken steps to confirm that
the financial institutions and other third parties with whom we have financial
relationships are prepared for the use of the euro. Thus far, we have not
experienced any material problem with third parties as a result of the
introduction of the euro. We believe the introduction of the euro will not
require us to amend any of our financial instruments or loan facilities, other
than amendments that will be made automatically by operation of law. These will
include automatic replacement of the currencies of participating countries with
the euro. They will also include automatic replacement of interest rates of
participating countries with European interest rates. We believe the
introduction of the euro has reduced our exposure to risk from foreign currency
and interest rate fluctuations.

 Quantitative and Qualitative Disclosure About Market Risk

    Investment Portfolio

    As of March 31, 1999, we had cash and cash equivalents of approximately
NLG1.1 billion. We have invested this cash in highly liquid instruments which
meet high credit quality standards with original maturities at the date of
purchase of less than three months. These investments will be subject to
interest rate risk and foreign exchange fluctuations (with respect to amounts
invested in currencies outside the European Monetary Union), however, we do not
expect any material losses with respect to its investment portfolio.

    Impact of Foreign Currency Rate Changes

    The table below provides information about our and our consolidated
subsidiaries' foreign currency exchange risk for cash and debt which is
denominated in foreign currencies outside of the European Monetary Union as of
March 31, 1999, including cash flows based on the expected repayment date and
related weighted-average interest rates for debt. The information is presented
in NLG equivalents, which is our reporting currency. The instruments' actual
cash flows are denominated in U.S. dollars. See "--Liquidity and Capital
Resources--Debt Facilities."

<TABLE>
<CAPTION>
                                                            Amount Outstanding
                                                           As of March 31, 1999
                                                           ---------------------
                                                           Book Value Fair Value
                                                              (in thousands)
<S>                                                        <C>        <C>
Dollar-denominated Investments
Cash Account..............................................   74,437     74,437
</TABLE>

<TABLE>
<CAPTION>
                                       Amount Outstanding   Expected Repayment
                                      as of March 31, 1999  as of December 31,
                                      --------------------- -------------------
                                      Book Value Fair Value   1999      2000
                                                   (in thousands)
<S>                                   <C>        <C>        <C>       <C>
Dollar-denominated Facilities
DIC Loan
 8.0% per annum + 6.0% of principal
 at maturity, due 2000...............   92,250     92,250         --     92,250
United Loan
 10.75% per annum, due 2001..........   12,056     12,056      12,056       --
</TABLE>

                                       72
<PAGE>

    Historically, we and our operating companies have not execute hedge
transactions to reduce our exposure to foreign currency exchange rate risk.
Accordingly, we may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of foreign currency
exchange rate fluctuations. In connection with our offering of senior discount
notes in July 1999, we entered into a swap agreement.

    Interest Rate Sensitivity

    The table below provides information about our financial instruments that
are sensitive to changes in interest rates as of March 31, 1999, including cash
flows based on the expected repayment dates and the related weight-average
interest rates. The information is presented in NLG equivalents, which is our
reporting currency.

<TABLE>
<CAPTION>
                           Amount Outstanding    Expected Repayment as of December
                          as of March 31, 1999                  31,
                          --------------------- ------------------------------------
                          Book Value Fair Value  1999   2000   2001   2002    2003
                          ---------- ---------- ------ ------ ------ ------- -------
                                                (in thousands)
<S>                       <C>        <C>        <C>    <C>    <C>    <C>     <C>
Variable Rate Facilities
Senior Credit
Facility(1)
LIBOR + 0.55% to 2.0%,
average rate in 1999 of
5.09%...................   361,854    361,854      --     --  50,000 200,000 111,854

UTH Facility
EIOR + 0.75% to 2.0%,
average rate in 1999 of
5.09%...................   539,909    539,909      --     --     --   26,995  53,991

CNBH Facility
AIBOR + 0.7% to 0.75% or
fixed rate advance +
0.7% and 0.75% average
rate in 1999 of 4.69%...   239,495    239,495      --     --   7,028  16,398  30,454

Mediareseaux Facility
FRF LIBOR + 0.75% to
2.0% average rate in
1999 of 5.09%...........    59,821     59,821      --     --     --      --    5,982

Telekabel Hungary
Facility(2)
BUBOR + 2.5%, average
rate in 1999 of 5.59%...    41,777     41,777   41,777    --     --      --      --

Fixed Rate Facilities
DIC Loan
8.0% per annum + 6.0% of
principal at maturity,
due 2000................    92,250     92,250      --  92,250    --      --      --

United Loan
10.75% per annum, due
2001....................    12,056     12,056   12,056    --     --      --      --
</TABLE>
- --------
(1) This facility was refinanced in July 1999. See "--Liquidity and Capital
    Resources--Debt Facilities".
(2) Repaid in April 1999.

    Equity Prices

    We are exposed to equity price fluctuations related to our investment in
United stock, which is classified as an investment available for sale. Changes
in the price of the stock are reflected as unrealized gains (losses) in our
statement of shareholders' equity (deficit), until such time as the stock is
sold and any unrealized gain (loss) will be reflected in the statement of
operations.

<TABLE>
<CAPTION>
                                                                Fair Value as of
                                               Number of Shares  March 31, 1999
                                               ---------------- ----------------
                                                 (Dutch guilders, in thousands
                                                     except share amounts)
<S>                                            <C>              <C>
Investment in United Stock....................    2,784,620         248,319
</TABLE>

                                       73
<PAGE>

    We are also exposed to equity price fluctuations related to our debt which
is convertible into our A Shares. The table below provides information about
our convertible debt, including expected cash flows and related weight-average
interest rates.

<TABLE>
<CAPTION>
                                                                   Expected
                                                 Amount            Repayment
                                               Outstanding      as of December
                                          as of March 31, 1999        31,
                                          --------------------- ---------------
                                          Book Value Fair Value  1999    2000
                                          ---------- ---------- ------- -------
                                             (Dutch guilders, in thousands)
Convertible Debt
- ----------------
<S>                                       <C>        <C>        <C>     <C>
DIC Loan
 8.0% per annum + 6.0% of principal at
 maturity, due 2000......................   92,250     92,250       --   92,250
United Loan
 10.75% per annum, due 2001..............   12,056     12,056    12,056     --
</TABLE>

 Offering of Senior Notes

    In July 1999, we completed an offering of $800.0 million 10 7/8% senior
notes due 2009, (Euro)300.0 million 10 7/8% senior notes due 2009 and $735.0
million 12 1/2% senior discount notes due 2009. Interest payments on the senior
notes will be due semi-annually, commencing February 1, 2000. The senior
discount notes will not accrue interest until August 1, 2004. Commencing
February 1, 2005, interest on the senior discount notes will be payable semi-
annually.

    In order to minimize our currency and interest rate exposure, the $800.0
million 10 7/8% senior notes have been swapped into euro notes totalling
(Euro)754.7 million. Of the euro notes, (Euro)377.35 million have a fixed
interest rate of 8.54% through August 1, 2004; thereafter switching to a
variable rate of EURIBOR +4.15%. The remaining (Euro)377.35 million have a
variable interest rate of EURIBOR +4.15%, for an initial rate of 7.093%.

                                       74
<PAGE>

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

    The following information and discussion has been extracted from the May
13, 1999 prospectus published by @Entertainment, Inc. relating to an Exchange
Offer for $256,800,000 14 1/2% Series B Senior Discount notes Due 2009 of
@Entertainment, Inc. and from @Entertainment's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999. As our acquisition of @Entertainment has
not yet been consummated, this information has not been independently verified
and differs in its presentation from certain information presented by UPC in
the rest of this prospectus.

Overview

    Until the limited launch of @Entertainment's DTH business on July 1, 1998
and subsequent full-scale launch on September 18, 1998, @Entertainment's
revenues were derived entirely from its cable television business and
programming related thereto. @Entertainment's revenue increased 48% from $12.7
million in the three months ended March 31, 1998 to $18.8 million in the three
months ended March 31, 1999. This increase was due primarily to internal growth
in subscribers through increased penetration and new network expansion,
increases in cable subscription rates, the launch of the Wizja TV DTH
programming package, and advertising sales.

    Prior to June 1997, @Entertainment's expenses were primarily incurred in
connection with its cable television business and programming related thereto.
Since June 1997, @Entertainment has been incurring, in addition to expenses
related to its cable television and programming businesses, expenses in
connection with the operation of its DTH business and Wizja TV.

    @Entertainment generated operating income of $3.5 million in 1995, but had
operating losses of $1.3 million for 1996, $42.7 million for 1997, $100.8
million for 1998 and $24.2 million for the three months ended March 31, 1999,
primarily due to the significant costs associated with the development and
launch of its DTH and programming business, promotion of those businesses, and
the development, production and acquisition of programming for Wizja TV.

    @Entertainment divides operating expenses into (i) direct operating
expenses, (ii) selling, general and administrative expenses, and (iii)
depreciation and amortization expenses. Direct operating expenses consist of
programming expenses, maintenance and related expenses necessary to service,
maintain and operate @Entertainment's cable systems, DTH programming platform,
billing and collection expenses and customer service expenses. Selling, general
and administrative expenses consist principally of administrative costs,
including office related expenses, professional fees and salaries, wages and
benefits of non-technical employees, advertising and marketing expenses, bank
fees and bad debt expense. Depreciation and amortization expenses consist of
depreciation of property, plant and equipment and amortization of intangible
assets.

Segment Results of Operations

    @Entertainment classifies its business into three fundamental areas: (1)
cable television, (2) DTH television and programming, and (3) corporate and
other. Information about the operations of @Entertainment in different business
segments is set forth below based on the nature of the services offered.

    In addition to other operating statistics, @Entertainment measures its
financial performance by EBITDA, an acronym for earnings before interest,
taxes, depreciation and amortization. @Entertainment defines EBITDA to be net
loss adjusted for interest and investment income, depreciation and
amortization, interest expense, foreign currency gains and losses, equity in
losses of affiliated companies, income taxes,

                                       75
<PAGE>

extraordinary items, non-recurring items (e.g., compensation expenses related
to stock options), gains and losses from the sale of assets other than in a
normal course of business and minority interest. The items excluded from EBITDA
are significant components in understanding and assessing @Entertainment's
financial performance. @Entertainment believes that EBITDA and related measures
of cash flow from operating activities serve as important financial indicators
in measuring and comparing the operating performance of media companies. EBITDA
is not a U.S. GAAP measure of loss or cash flow from operations and should not
be considered as an alternative to cash flows from operations as a measure of
liquidity.

    The following table presents the segment results of @Entertainment's
operations for the three months ended March 31, 1998 and 1999.

<TABLE>
<CAPTION>
                                          Three Months ended March 31,
                                      -----------------------------------------
                                      Revenues   Operating Loss      EBITDA
                                      ---------  ----------------  ------------
                                      1998 1999   1998     1999    1998   1999
                                      ---- ----  -------  -------  -----  -----
                                         (unaudited, in millions of U.S.
                                                    dollars)
<S>                                   <C>  <C>   <C>      <C>      <C>    <C>
Cable................................ 12.1 14.8     (0.9)    (4.3)   3.9    1.7
DTH and programming..................  0.6  9.1    (10.7)   (18.2) (10.5) (14.8)
Corporate and other..................  --   --      (2.8)    (1.7)  (2.8)  (1.7)
Inter segment elimination(1).........  --  (5.1)     --       --     --     --
                                      ---- ----  -------  -------  -----  -----
Total................................ 12.7 18.8    (14.4)   (24.2)  (9.4) (14.8)
                                      ==== ====  =======  =======  =====  =====
</TABLE>
- --------
(1) Includes $5,102,000 of Wizja programming charged to the Cable Segment by
    the DTH and Programming Segment in the three months ended March 31, 1999.

    The following table presents the segment results of @Entertainment's
operations for the years ended December 31, 1996, 1997 and 1998.

<TABLE>
<CAPTION>
                               Revenues             Operating Loss                EBITDA
                         ---------------------  -------------------------  ----------------------
                          1996   1997   1998     1996   1997(3)    1998    1996   1997     1998
Year Ended December 31,  ------ ------ -------  ------  -------  --------  ----- -------  -------
                                      (unaudited, in thousands of U.S. dollars)
<S>                      <C>    <C>    <C>      <C>     <C>      <C>       <C>   <C>      <C>
Cable(1)................ 24,923 38,138  52,971  (1,347) (20,308)  (23,066) 8,441   5,387   (1,431)
DTH and programming.....    --     --   22,320     --   (10,210)  (69,047)   --  (10,186) (64,378)
Corporate and other.....    --     --      --      --   (12,152)   (8,700)   --   (3,475)  (8,700)
Inter segment
 elimination(2).........    --     --  (13,432)    --       --        --     --      --       --
                         ------ ------ -------  ------  -------  --------  ----- -------  -------
  Total................. 24,923 38,138  61,859  (1,347) (42,670) (100,813) 8,441  (8,274) (74,509)
                         ====== ====== =======  ======  =======  ========  ===== =======  =======
</TABLE>
- --------
(1) In 1997, the cable segment included the activities of Mozaic Entertainment,
    Inc., a subsidiary which provided programming content for the cable
    business. In 1998, @Entertainment's programming activities related solely
    to the development of the Wizja TV platform and have been included solely
    in the DTH and programming segment. For the year ended December 31, 1997,
    Mozaic Entertainment, Inc. revenues were $563,000, operating loss was
    $2,071,000 and EBITDA was $(2,071,000). For the year ended December 31,
    1998, Mozaic Entertainment, Inc. was dormant.
(2) Includes $12,932,000 of Wizja TV programming fees charged to the cable
    segment by the DTH and programming segment in 1998.
(3) The year ended December 31, 1997 included a non-recurring non-cash
    compensation expense charge relating to the granting of certain management
    stock options of $9,425,000, in the cable segment and $8,677,000 in the
    corporate and other segment.

    Unless otherwise indicated, the separate business discussions that follow
provide comparisons of actual 1998 result with the actual results for 1997.

                                       76
<PAGE>

Cable Segment Overview

    @Entertainment's revenue in its cable segment has been and will continue to
be derived primarily from monthly subscription fees for cable television
services and one-time installation fees for connection to its cable television
networks. @Entertainment charges cable subscribers fixed monthly fees for their
choice of service packages and for other services, such as premium channels,
tuner rentals and additional outlets, all of which are included in monthly
subscription fees. Through its cable segment, @Entertainment currently offers
broadcast, intermediate (in limited areas) and basic packages of cable service.

    At March 31, 1999, approximately 74.5% of @Entertainment's cable
subscribers received its basic package. For the three months ended March 31,
1999, approximately 97% of @Entertainment's cable revenue was derived from
monthly subscription fees compared to approximately 92% for the three months
ended March 31, 1998. Revenue from installation fees is deferred to the extent
it exceeds direct selling costs and then amortized to income over the estimated
average period that new subscribers are expected to remain connected to
@Entertainment's cable system.

    At December 31, 1998, approximately 74.7% of @Entertainment's cable
subscribers received its basic package. For the year ended December 31, 1998,
approximately 89% of @Entertainment's cable revenue was derived from monthly
subscription fees. Revenue from installation fees is deferred to the extent it
exceeds direct selling costs and amortized to income over the estimated average
period that new subscribers are expected to remain connected to the
@Entertainment's cable system.

    When @Entertainment began operations in 1990, revenue from installation
fees exceeded revenue from monthly subscription fees because of the significant
number of new installations and the high amount of the installation fees
relative to the small existing subscriber base. As @Entertainment's cable
subscriber base has grown, aggregate monthly subscription revenue has increased
and installation fees, while currently increasing on an absolute basis, have
declined as a percentage of total revenue. @Entertainment expects that
installation fees will continue to constitute a declining portion of
@Entertainment revenue.

    During 1998 and the first quarter of 1999, management completed several
strategic actions in support of its cable business and operating strategy. On
June 5, 1998, @Entertainment began providing the Wizja TV programming package,
with its initial 11 channel primarily Polish-language programming, to its basic
cable subscribers. Since that date, the basic Wizja TV package has been
expanded to 24 channels. @Entertainment's management believes that this
selection of high quality primarily Polish-language programming will provide it
with a significant competitive advantage in increasing its cable subscriber
penetration rates.

    @Entertainment has implemented a pricing strategy designed to increase
revenue per cable subscriber and to achieve real profit margin increases in
U.S. dollar terms. @Entertainment has increased the monthly price for the
"basic" package to reflect the increased channel availability, and premium
channels such as the HBO Poland service (a Polish-language version of HBO's
premium movie channel) will each be offered to cable customers for an
additional monthly charge. @ Entertainment expects that it may continue to
experience increases in its churn rate above historical levels during the
implementation of its current pricing strategy.

    For the three months ended March 31, 1999, @Entertainment's churn rate
increased to 4.1%. For the three months ended March 31, 1999, @Entertainment
experienced churn in the HBO Poland service with penetration falling by 12,966
subscribers or 27.4% in comparison to the three months ended March 31, 1998.
@Entertainment is planning to encrypt the HBO Poland service on cable and
install analog decoders for all premium channel subscribers during 1999.

    For the year ended December 31, 1998, @Entertainment's churn rate increased
to 15.25%. For the year ended December 31, 1998, @Entertainment experienced
churn in the HBO Poland service with penetration falling by 8,494 subscribers
or 18.8% from December 31, 1997.

                                       77
<PAGE>

    The cable segment generated operating losses of $1.3 million for 1996,
$20.3 million for 1997 and $23.1 million for 1998, primarily due to the
purchase of Wizja TV programming in 1998 from @Entertainment's DTH
and programming segment for $12.9 million, increased levels of acquisitions and
related costs, increases in depreciation and amortization due to the growth in
cable systems and goodwill from acquisitions. In addition, in the year ended
December 31, 1997, @Entertainment recorded a one-time charge in the cable
segment for non-cash compensation related to stock options of $9.4 million.

    An analysis of quarterly cable subscriber growth is presented in the table
below:

<TABLE>
<CAPTION>
                          March 31,  June 30,   September 30,   December 31, March 31,
                            1998       1998         1998            1998       1999
                          ---------  ---------  -------------   ------------ ---------
<S>                       <C>        <C>        <C>             <C>          <C>
Homes passed............  1,505,256  1,546,540    1,565,287      1,591,981   1,624,119
Basic subscribers.......    627,713    660,067      658,584        698,342     706,179
Subscriber growth (three
 month period)
  Organic...............     26,868     57,007       41,904         70,935      38,226 (1)
  Through acquisitions..     16,360      1,363      (10,245)(2)        --          --
  Churn.................    (22,145)   (26,016)     (33,142)       (31,177)    (30,389)
                          ---------  ---------    ---------      ---------   ---------
  Total net growth......     21,083     32,354       (1,483)        39,758       7,837
Basic penetration.......       41.7%      42.7%        42.1%          43.9%       43.5%
Intermediate
 subscribers............     48,077     43,204       42,538         40,037      33,587
                          ---------  ---------    ---------      ---------   ---------
Basic and intermediate
 subscribers............    675,790    703,271      701,122        738,379     739,766
                          ---------  ---------    ---------      ---------   ---------
Broadcast subscribers...    154,860    167,859      186,334        196,961     208,457
                          ---------  ---------    ---------      ---------   ---------
Total subscribers.......    830,650    871,130      887,456        935,340     948,223
                          ---------  ---------    ---------      ---------   ---------
Premium subscribers--
 HBO....................     47,298     45,674       39,035         36,615      34,332
Premium penetration--
 HBO....................        7.5%       6.9%         5.9%           5.2%        4.9%
Basic revenue/basic
 sub./month.............  $    5.19  $    4.99    $    5.19      $    5.69   $    6.20
Total revenue/basic
 sub/month..............  $    6.42  $    6.08    $    6.42      $    6.75   $    6.97
</TABLE>
- --------
(1) The increase in basic subscribers for the three months ended March 31, 1999
    included 4,121 subscribers in Szczecin that switched from the
    "intermediate" to the "basic" package.
(2) As part of the purchase of a minority interest in one of @Entertainment's
    cable systems, @Entertainment sold an isolated part of that system to the
    previous owner.

                                       78
<PAGE>

    An analysis of @Entertainment annual cable subscriber growth is presented
in the table below:

<TABLE>
<CAPTION>
                                                 December 31,
                                         ----------------------------------
                                           1996       1997          1998
                                         ---------  ---------     ---------
<S>                                      <C>        <C>           <C>
Homes passed............................ 1,088,540  1,408,099     1,591,981
Basic subscribers.......................   437,999    606,630       698,342
Subscriber growth
  Organic...............................    98,213    135,019       196,714
  Through acquisition...................   108,657    110,919         7,478
  Churn.................................   (25,747)   (77,307)(1)  (112,480)(1)
                                         ---------  ---------     ---------
    Total net growth....................   181,123    168,631        91,712
                                         ---------  ---------     ---------
Basic penetration.......................      40.2%      43.1%         43.9%
Intermediate subscribers................    22,626     29,653        40,037
Basic and intermediate subscribers......   460,625    636,283       738,379
Broadcast subscribers...................    78,717    132,618       196,961
Total subscribers.......................   539,342    768,901       935,340
Premium subscribers--HBO................       --      45,109        36,615
Premium penetration--HBO................       0.0%       7.4%          5.2%
Basic revenue/basic subscribers/month...     $4.36      $4.99         $5.69
Total revenue/basic subscribers/month...     $6.35      $6.08         $6.75
</TABLE>
- --------
(1) The increases in churn were mainly due to increases in subscription rates
    and the disconnection of non-paying customers.

DTH and Programming Segment Overview

    DTH. The principal objectives of @Entertainment for the DTH and programming
segment are to develop, acquire and distribute high-quality Polish-language
programming that can be commercially exploited throughout Poland through DTH
and cable television exhibition, and to develop and maximize advertising sales.

    @Entertainment's DTH roll-out strategy was to lease DTH reception systems
to up to 380,000 initial subscribers at promotional prices in the start-up
phase of its DTH service. The launch of its DTH service has been supported by
@Entertainment's development of the Wizja TV programming package, which
@Entertainment believes addresses the demand for high-quality Polish-language
programming in Poland.

    As of March 31, 1999, @Entertainment had sold to Philips' authorized
retailers approximately 137,600 DTH packages, which include the rental of the
DTH reception system, installation and a one-year subscription to
@Entertainment's DTH service. As of March 31, 1999, Philips had sold and
installed approximately 130,000 of these packages to consumers.

    In September 1998, the number of Philips authorized electronics retailers
distributing the Wizja TV package increased from 70 to 550, and since November
more than 1,200 retailers have been distributing the Wizja TV package. Each
store is staffed with personnel specifically trained by @Entertainment to
provide information on the Wizja TV packages. Installation personnel are also
trained to complete each customer's installation within 48 hours of order
placement.

    As of December 31, 1998, @Entertainment had sold to Philips' authorized
retailers approximately 125,000 D-DTH packages, which included the rental of
the DTH reception system, installation and a one-year subscription to
@Entertainment's DTH service. As of December 31, 1998, Philips had sold and
installed approximately 95,400 of these packages to consumers. Subsequent to
March 31, 1999, @Entertainment began selling, instead of leasing, D-DTH
reception systems to consumers.

                                       79
<PAGE>

    Programming. @Entertainment, both directly and through other joint
ventures, produces television programming for distribution. @Entertainment has
developed a multi-channel, primarily Polish-language programming platform under
the brand name Wizja TV. Wizja TV's current channel line-up includes four
channels, Atomic TV, Wizja 1, Wizja Pogoda and Twoja Wizja, that are owned and
operated by @Entertainment, and 20 channels that are produced by third parties,
11 of which are broadcast under exclusive agreements for pay television in
Poland.

    @Entertainment currently distributes Atomic TV and intends to distribute
the Wizja TV programming package to third party cable operators in Poland on a
per-subscriber fee basis. @Entertainment exchanged letters and continues
negotiations with two major cable associations in Poland, representing an
aggregate of approximately 2.6 million subscribers (including @Entertainment's
cable subscribers), with the objective of making the Wizja TV programming
package available for distribution within the cable networks of other providers
which are members of the associations.

    @Entertainment expects to incur substantial operating losses and negative
cash flows related to the launch of its DTH business for at least the next two
years while it develops and expands its DTH subscriber base. To date,
@Entertainment has relied primarily on funds raised in its initial public
equity offering in August 1997, its 14 1/2% Senior Discount Notes offering in
July 1998, its Series C Senior Discount Notes offering in January 1999, its 14
1/2% Senior Discount Notes offering in January 1999, and its Cumulative
Preference Shares offering in January 1999 to fund the development of its DTH
business. @Entertainment's DTH business plan requires substantial capital
expenditures to fund, among other things, the promotional incentives that are
anticipated to be required to expand its DTH business. @Entertainment's
business plan anticipates spending up to approximately $150 million to provide
DTH reception systems to the 380,000 initial subscribers at a price that is
significantly decreased by promotional incentives in order to increase the
number of subscribers.

    An analysis of DTH subscribers is presented in the table below:

                              @Entertainment, Inc.
                    Summary of Selected Operating Statistics

<TABLE>
<CAPTION>
                                                          December 31, March 31,
                                                              1998       1999
                                                          ------------ ---------
<S>                                                       <C>          <C>
DTH
Satellite receiver packages sold to dealers..............   125,167     137,629
Installed subscribers....................................    95,378     130,000
Churn....................................................       --
Total subscribers........................................    95,378     130,000
Premium subscribers--HBO--promotional(1).................    76,633      56,162
Premium subscribers--HBO--paying.........................    15,555      58,705
HBO churn(2).............................................     3,190      15,133
HBO churn................................................      20.5%       25.8%
</TABLE>
- --------
(1) From July 5, 1998 to March 31, 1999 @Entertainment offered a three-month
    trial period of the HBO Poland service to each new DTH subscriber. From
    April 1, 1999, this was changed to a one-month trial period of the HBO
    Poland service for each new DTH subscriber.
(2) The churn figures relate only to paying subscribers.

First Quarter 1999 Compared to First Quarter 1998

Cable Segment

    Cable Television Revenue. Revenue increased $2.7 million or 22.3% from
$12.1 million in the three months ended March 31, 1998 to $14.8 million in the
three months ended March 31, 1999. This increase

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was primarily attributable to a 9.5% net increase in the number of basic and
intermediate subscribers from approximately 676,000 at March 31, 1998 to
approximately 740,000 at March 31, 1999, as well as an increase in monthly
subscription rates. The increase in basic and intermediate subscribers was
primarily due to build-out of @Entertainment's existing cable networks.

    Revenue from monthly subscription fees represented 91.6% and 97.2% of cable
television revenue for the three months ended March 31, 1998 and 1999,
respectively. During the three months ended March 31, 1999, @Entertainment
generated approximately $0.6 million of premium subscription revenue as a
result of providing the HBO Poland service pay movie channel to cable
subscribers as compared to $0.8 million for the three months ended March 31,
1998.

    Direct Operating Expenses. Direct operating expenses increased $6.4
million, or 173.0%, from $3.7 million for the three months ended March 31, 1998
to $10.1 million for the three months ended March 31, 1999, principally as a
result of the purchase of the Wizja TV programming package for approximately
$5.1 million from @Entertainment's DTH and Programming segment as well as the
increased size of @Entertainment's cable television system. Direct operating
expenses increased from 30.6% of revenues for the three months ended March 31,
1998 to 68.3% of revenues for the three months ended March 31, 1999. However,
without considering the programming cost for the purchase of the Wizja
programming package recorded in 1999, the comparison would have been 30.6% and
33.8% for the three months ended March 31, 1998 and 1999, respectively.

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $1.5 million or 33% from $4.5 million for the
three months ended March 31, 1998 to $3.0 million for the three months ended
March 31, 1999. This decrease was attributable to operating efficiencies
realized by @Entertainment in the three months ended March 31, 1999. As a
percentage of revenue, selling, general and administrative expenses decreased
from 37.2% for the three months ended March 31, 1998 to approximately 20.3% for
the three months ended March 31, 1999.

    Depreciation and Amortization. Depreciation and amortization expense rose
$1.1 million, or 22.9%, from $4.8 million for the three months ended March 31,
1998 to $5.9 million for the three months ended March 31, 1999, principally as
a result of depreciation and amortization of additional cable television
systems and related goodwill acquired and the continued build-out of
@Entertainment's cable networks. Depreciation and amortization expense as a
percentage of revenues increased from 40.0% for the three months ended March
31, 1998 to 40.2% for the three months ended March 31, 1999.

    Each of these factors contributed to an operating loss of $0.9 million and
$4.2 million for the three months ended March 31, 1998 and 1999, respectively.

DTH and Programming Segment

    DTH and Programming Revenue. DTH and programming revenue amounted to $0.6
million and $9.1 million for the three months ended March 31, 1998 and 1999,
respectively. Since @Entertainment only commenced the broadcast of its Wizja TV
programming package over its cable systems on June 5, 1998 and through its DTH
service in July 1998, no subscription revenue related to this segment existed
for the three months ended March 31, 1998.

    Revenue from monthly subscription fees, after elimination of inter-segment
revenue from Poland Communications, Inc., a wholly owned subsidiary of
@Entertainment ("PCI"), represented 89% of DTH and programming revenue for the
three months ended March 31, 1999. Advertising revenue for the three months
ended March 31, 1999 represented 11% of DTH and programming revenue after the
inter-segment elimination.

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<PAGE>

    Revenue from the supply of the Wizja TV programming package to
@Entertainment's cable systems, which is eliminated on consolidation,
represented $5.1 million of DTH and programming revenue for the three months
ended March 31, 1999.

    Direct Operating Expenses. Direct operating expenses increased $8.1
million, or 165.3%, from $4.9 million for the three months ended March 31, 1998
to $13.0 million for the three months ended March 31, 1999. These increases
principally were the result of a $9.1 million increase in programming costs and
a $1.0 million decrease in maintenance expenses associated with the
establishment of a satellite up-link and studio facility located in Maidstone,
United Kingdom, and costs associated with the lease of three transponders on
the Astra satellites which provide the capability to deliver @Entertainment's
Polish-language programming platform to cable and DTH customers in Poland. The
decrease in maintenance expenses was the result of non-recurring start-up costs
for the Wizja TV programming platform recorded in the three months ended March
31, 1998. Direct operating expenses amounted to 142.9% of revenues for the
three months ended March 31, 1999 compared to 122.4% revenues for the three
months ended March 31, 1998.

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.8 million or 77.4% from $6.2 million for
the three months ended March 31, 1998 to $11.0 million for the three months
ended March 31, 1999. As a percentage of revenue, selling, general and
administrative expenses amounted to approximately 127% for the three months
ended March 31, 1999. The increase in selling, general and administrative
expenses over the corresponding 1998 period was attributable mainly to sales
and marketing expenses associated with the promotion of @Entertainment's DTH
service and Wizja TV programming platform, an increase in the number of
administrative staff associated with the Maidstone facility and the Wizja TV
programming platform, as well as an increase in professional fees associated
with obtaining long-term programming contracts and broadcast/exhibition rights.

    Depreciation and Amortization. Depreciation and amortization charges of DTH
tangible assets increased $3.3 million from $0.1 million for the three months
ended March 31, 1998 to $3.4 million for the three months ended March 31, 1999.
Depreciation and amortization expense as a percentage of revenues amounted to
38% for the three months ended March 31, 1999. This primarily relates to DTH
production equipment and decoders leased to consumers.

    Each of these factors contributed to an operating loss of $18.3 million for
the three months ended March 31, 1999, compared to an operating loss of $10.6
million for the three months ended March 31, 1998.

Corporate Segment

    Corporate segment consists of corporate overhead costs. @Entertainment
continues to evaluate opportunities for improving its operations and reducing
its cost structure. Corporate expenses amounted to $1.7 million for the three
months ended March 31, 1999 as compared to $2.8 million for the corresponding
period in 1998, the reduction being due to non-recurring fees and costs related
to merger negotiations in 1998.

Non-Operating Result

    Interest Expense. Interest expense increased $8.1 million, or 218.9%, from
$3.7 million for the three months ended March 31, 1998 to $11.8 million for the
three months ended March 31, 1999. Interest expense increased mainly as a
result of the accretion of interest of the $252 million aggregate principal
amount at maturity of @Entertainment's 14 1/2% Senior Discount Notes due 2008,
which were issued on July 14, 1998, $256.8 million aggregate principal amount
at maturity of @Entertainment's 14 1/2% Senior Discount Notes due 2009, which
were issued on January 22, 1999 and $36.0 million aggregate principal

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<PAGE>

amount at maturity of @Entertainment's 7% Series C Senior Discount Notes due
2008 issued on January 20, 1999.

    Interest and Investment Income. Interest and investment income increased
$0.6 million, or 66.7%, from $0.9 million for the three months ended March 31,
1998 to $1.5 million for the three months ended March 31, 1999, primarily due
to investment of part of the proceeds from the notes and preferred stock
issuances.

    Equity In Profits Of Affiliated Companies. @Entertainment recorded $1.0
million of equity in profits of affiliated companies for the three months ended
March 31, 1999 compared to $0.3 of equity in profits of affiliated companies
for the three months ended March 31, 1998. The profit, which relates to write-
up of funds provided to Fox Kids Poland, amounted to approximately net $1.3
million expensed in 1998 and $0.3 million amortization of goodwill of
@Entertainment's 50% investment in Twoj Styl, a publishing company.

    Foreign Exchange Loss, Net. For the three months ended March 31, 1999,
foreign exchange loss amounted to $1.0 million, primarily due to the 12.6%
appreciation of the U.S. dollar against the Polish zloty in the first quarter
of 1999.

    Minority Interest. Minority interest in subsidiary loss was $0.1 million
for the three months ended March 31, 1998, compared to minority interest in
subsidiary income of null for the corresponding period in 1999.

    Net Loss. For the three months ended March 31, 1998 and 1999,
@Entertainment had net losses of $17.3 million and $33.6 million, respectively.
These losses were the result of the factors discussed above.

    Net Loss Applicable To Common Stockholders. Net loss applicable to common
stockholders increased from a loss of $17.3 million for the three months ended
March 31, 1998 to a loss of $34.4 million for the three months ended March 31,
1999 due to the accreted dividends on preferred stock and the factors discussed
above. For the three months ended March 31, 1999, net loss applicable to common
stockholders included $0.8 million related to the accretion of redeemable
preferred stock.

1998 Compared To 1997

Cable Segment

    Cable Television Revenue. Revenue increased $14.9 million or 39.1% from
$38.1 million in the year ended December 31, 1997 to $53.0 million in the year
ended December 31, 1998. This increase was primarily attributable to a 16% net
increase in the number of basic and intermediate subscribers from approximately
636,300 at December 31, 1997 to approximately 738,000 at December 31, 1998, as
well as an increase in monthly subscription rates. @Entertainment introduced
the Wizja TV programming package on its cable systems for basic subscribers on
June 5, 1998, and after an initial free period, increased prices significantly
in September 1998. Approximately 91.85% of the increase in basic subscribers
was the result of build-out of @Entertainment's existing cable networks and the
remainder was due to acquisitions.

    Revenue from monthly subscription fees represented 90.1% of cable
television revenue for the year ended December 31, 1997 and 88.9% for the year
ended December 31, 1998. During the year ended December 31, 1998,
@Entertainment generated approximately $3.1 million of additional premium
subscription revenue as a result of providing the HBO Poland service and Canal+
premium movie channels to cable subscribers as compared to $1.0 million for the
year ended December 31, 1997.

    Direct Operating Expenses. Direct operating expenses increased $23.0
million, or 194.9% from $11.8 million for the year ended December 31, 1997 to
$34.8 million for the year ended December 31,

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<PAGE>

1998, principally as a result of the purchase in 1998 of the Wizja TV
programming package from @Entertainment's DTH and programming segment, higher
levels of technical personnel and increased maintenance expenses associated
with recently acquired networks as well as the increased size of
@Entertainment's cable television system. Direct operating expenses increased
from 31.0% of revenues for the year ended December 31, 1997 to 65.7% of
revenues for the year ended December 31, 1998. However, without considering the
intersegment charge for the Wizja TV programming package, direct operating
expenses as a percentage of revenue would have been 41.0% in 1998.

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $10.7 million or 35.3% from $30.3 million for
the year ended December 31, 1997 to $19.6 million for the year ended December
31, 1998. A portion of this decrease was attributable to non-recurring, non-
cash compensation expense of approximately $9.4 million recorded in the year
ended December 31, 1997 in connection with stock options granted to certain key
executives. Selling, general and administrative expenses decreased from 79.5%
of revenues for the year ended December 31, 1997 to 37.0% for the year ended
December 31, 1998. However, without considering the non-cash compensation
expense related to the stock options described above, selling, general and
administrative expenses as percentage of revenues would have been 54.9% in
1997. This percentage decrease was attributable to operating efficiencies
realized by @Entertainment in 1998.

    Depreciation and Amortization. Depreciation and amortization expense rose
$5.3 million, or 32.5%, from $16.3 million for the year ended December 31, 1997
to $21.6 million for the year ended December 31, 1998 principally as a result
of depreciation and amortization of additional cable television systems and
related goodwill acquired and the continued build-out of @Entertainment's cable
networks. Depreciation and amortization expense as a percentage of revenues
decreased from 42.8% for the year ended December 31, 1997 to 40.8% for the year
ended December 31, 1998.

    Each of these factors contributed to an operating loss of $20.3 million for
the year ended December 31, 1997 and $23.1 million for the year ended December
31, 1998.

DTH and Programming Segment

    DTH and Programming Revenue. DTH and programming revenue amounted to $22.3
million for the year ended December 31, 1998. Revenue from the supply of the
Wizja TV programming package to @Entertainment's cable systems, which
eliminates on consolidation, represented $12.9 million or 57.8% of DTH revenue
for the year ended December 31, 1998.

    Since @Entertainment only commenced the broadcast of its Wizja TV
programming package over its cable systems on June 5, 1998 and through its DTH
service in July 1998, there were no revenues related to this segment in 1997.

    Revenue from subscription fees, after elimination of revenue from the cable
segment represented 88.6% of D-DTH revenue for the year ended December 31,
1998. Advertising and other revenue for the year ended December 31, 1998
represented 11.3% of DTH revenue after elimination of inter-segment revenues.

    Direct Operating Expenses. Direct operating expenses increased $37.6
million, from $2.8 million for the year ended December 31, 1997 to $40.4
million for the year ended December 31, 1998. These costs principally were the
result of the following: programming costs for the Wizja TV platform of $22.6
million, expenses associated with the establishment of a satellite up-link and
studio facility located in Maidstone, U.K., the $4.1 million in costs for the
development of the Wizja TV brand name, and costs associated with the lease of
three transponders on the Astra satellites which provide the capability to
deliver @Entertainment's Polish-language programming platform to cable and DTH
customers in Poland. Direct operating expenses amounted to 181.2% of revenues
for the year ended December 31, 1998.

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<PAGE>

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $38.9 million or 525.7% from $7.4 million for
the year ended December 31, 1997 to $46.3 million for the year ended December
31, 1998. As a percentage of revenue, selling, general and administrative
expenses amounted to approximately 207.6% for the year ended December 31, 1998.
The increase in selling, general and administrative expenses was attributable
mainly to an increase in sales and marketing expenses incurred in preparation
for launch and operation of @Entertainment's DTH service and Wizja TV
programming package, installation and distribution costs associated with the
sale of Wizja TV programming packages, an increase in the number of
administrative staff associated with the Maidstone facility, a $5 million
payment to Philips to compensate it for costs incurred as a result of a
temporary suspension of production of the DTH reception systems, as well as an
increase in professional fees associated with obtaining long-term programming
contracts and broadcast/exhibition rights, and negotiations with TKP, a Polish
pay television provider, regarding a potential joint venture.

    Depreciation and Amortization. @Entertainment incurred $4.7 million in
depreciation and amortization for the year ended December 31, 1998.
Depreciation and amortization expense as a percentage of revenues amounted to
21.1% for the year ended December 31, 1998.

    Each of these factors contributed to an operating loss of $69.0 million for
the year ended December 31, 1998 compared to an operating loss of $10.2 million
for the year ended December 31, 1997.

Corporate and Other Segment

    Corporate and other expenses consist of corporate overhead costs which
primarily include remuneration of corporate employees, costs associated with
operation of @Entertainment's corporate offices, consulting fees and certain
legal costs. Corporate expenses amounted to $8.7 million for the year ended
December 31, 1998 compared with $12.2 million for the year ended December 31,
1997. Included in 1997 costs is an $8.7 million non-cash compensation expense
relating to stock options granted to certain key executives.

Non Operating Results

    Interest Expense. Interest expense increased $8.1 million, or 58.3%, from
$13.9 million for the year ended December 31, 1997 to $22.0 million for the
year ended December 31, 1998 mainly as a result of the accretion of interest on
the $252.0 million aggregate principal amount at maturity of @Entertainment's
14 1/2% Senior Discount notes due 2008, which were issued on July 14, 1998.

    Interest And Investment Income. Interest and investment income decreased
$2.4 million, or 41.4%, from $5.8 million for the year ended December 31, 1997
to $3.4 million for the year ended December 31, 1998, primarily due to
reduction of cash balances resulting from the increased payments and expenses
described above and decrease in interest rates.

    Equity In Losses Of Affiliated Companies. @Entertainment recorded $6.3
million of equity in losses of affiliated companies for the year ended December
31, 1998. The amount relates to the equity accounting of @Entertainment's 50%
investment in Twoj Styl, a publishing company, and its 20% investment in Fox
Kids Poland Ltd., a channel content provider.

    Foreign Exchange Loss, Net. For the year ended December 31, 1998, foreign
exchange loss amounted to $0.1 million. For the year ended December 31, 1997,
foreign exchange loss amounted to $1.0 million.

    Minority Interest. No minority interest was recorded for the year ended
December 31, 1998, compared to minority interest expense of $3.6 million for
the corresponding period in 1997. The 1997 expense represents a fourth quarter
adjustment to write-off certain receivable balances that were not

                                       85
<PAGE>

recoverable. All minority interests were eliminated in 1998 as the minority
interest share of the losses exceeded the value of the minority interest
investments.

    Net Loss. For the year ended December 31, 1997, @Entertainment had a net
loss of $54.8 million and for the year ended December 31, 1998, @Entertainment
had a net loss of $126.1 million. These losses were the result of the factors
discussed above.

    Net Loss Applicable To Common Stockholders. Net loss applicable to common
stockholders increased from a loss of $91.1 million for the year ended December
31, 1997 to a loss of $126.1 million for the year ended December 31, 1998 due
to the factors discussed above. For the year ended December 31, 1997, net loss
applicable to common stockholders included the excess of consideration paid for
preferred stock over the carrying amount of such stock of $33.8 million and
$2.4 million related to the accretion of redeemable preferred stock.

1997 Compared to 1996

Cable Segment

    Cable Television Revenue. Revenue increased $13.2 million or 53.0% from
$24.9 million in the year ended December 31, 1996 to $38.1 million in the year
ended December 31, 1997. This increase was primarily attributable to a 45.2%
net increase in the number of basic and intermediate subscribers from
approximately 460,000 at December 31, 1996 to approximately 636,000 at December
31, 1997, as well as an increase in monthly subscription rates. Approximately
69.3% of the increase in basic subscribers was the result of acquisitions and
the remainder was due to expansion of @Entertainment's existing cable networks.

    Revenue from monthly subscription fees represented 87.2% of cable
television revenue for the year ended December 31, 1996 and 90.1% of cable
television revenue in 1997. Installation fee revenue for the year ended
December 31, 1997 decreased by 6.3% compared to the year ended December 31,
1996, from $3.2 million to $3.0 million due to a reduction in installation
charges. During the year ended December 31, 1997, @Entertainment generated
approximately $56,000 of additional premium subscription revenue and
approximately $941,000 of additional premium channel installation revenue as a
result of providing the HBO Poland service pay movie channel to cable
subscribers.

    Direct Operating Expenses. Direct operating expenses increased $4.6
million, or 63.9%, from $7.2 million in 1996 to $11.8 million in 1997,
principally as a result of higher levels of technical personnel and increased
maintenance expenses associated with recently acquired networks as well as the
increased size of @Entertainment's cable television system. Direct operating
expenses as a percentage of revenues increased from 28.9% for the year ended
December 31, 1996 to 31.0% for the year ended December 31, 1997.

    Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $21.0 million or 225.8% from $9.3 million for
the year ended December 31, 1996 to $30.3 million for the year ended December
31, 1997. A portion of this increase was attributable to the non-recurring,
non-cash compensation expenses of $9.4 million recorded in the year ended
December 31, 1997 related to stock options granted to key executives. The
remainder of the increase was attributable to an increase in sales and
marketing expenses incurred in newly acquired networks, costs associated with
the agreement relating to sale of advertising on Atomic TV, and the cost of
launching the distribution of the HBO Poland service premium pay movie channel.
Compensation expense also increased as @Entertainment established in 1997 a
management team of senior executives who have significant experience in the
cable television and programming business.


                                       86
<PAGE>

    As a percentage of revenue, selling, general and administrative expenses
increased from 37.3% for 1996 to approximately 79.5% for 1997. However, without
considering the non-cash compensation expense related to the stock options
described above, selling, general and administrative expenses as a percentage
of revenues would have been 54.9% in 1997.

    Depreciation and Amortization. Depreciation and amortization expense rose
$6.5 million, or 66.3%, from $9.8 million for the year ended December 31, 1996
to $16.3 million for the year ended December 31, 1997 principally as a result
of depreciation and amortization of additional cable television systems and the
continued build-out of @Entertainment's cable networks. Depreciation and
amortization expense as a percentage of revenues increased from 39.4% for the
year ended December 31, 1996 to 42.8% for the year ended December 31, 1997.

    Each of these factors contributed to an operating loss of $1.3 million for
the year ended December 31, 1996 and $20.3 million for the year ended December
31, 1997.

DTH and Programming Segment

    DTH and Programming Revenue. @Entertainment generated no DTH and
programming revenue for the years ended December 31, 1997 and 1996 since
@Entertainment only commenced the broadcast of its Wizja TV programming package
over its cable systems on June 5, 1998 and through its DTH service in July
1998.

    Direct Operating Expenses. The DTH and programming segment incurred direct
operating expenses of approximately $2.8 million for the year ended December
31, 1997. There were no direct operating expenses related to this segment in
1996.

    Selling, General and Administrative Expenses. The DTH and programming
segment incurred selling, general and administrative expenses of approximately
$7.4 million for the year ended December 31, 1997. There were no selling,
general and administrative expenses related to this segment in 1996.

    Depreciation and Amortization. The DTH and programming segment incurred
$24,000 of depreciation and amortization charges of DTH tangible assets in the
year ended December 31, 1997. There was no depreciation and amortization
expense related to this segment in 1996.

    Each of these factors contributed to an operating loss which amounted to
$10.2 million for the year ended December 31, 1997. There was neither operating
loss nor gain related to this segment in 1996.

Corporate and Other Segment

    Corporate and other expenses consist of corporate overhead costs. Corporate
expenses for the year ended December 31, 1997 amounted to $12.2 million which
included $8.7 million of non-cash compensation expense relating to stock
options granted to certain key executives.

Non Operating Results

    Interest Expense. Interest expense increased $9.2 million, or 195.7%, from
$4.7 million for the year ended December 31, 1996 to $13.9 million for the year
ended December 31, 1997 mainly due to the inclusion of a full year's interest
on Poland Communications, Inc.'s 9 7/8% Senior notes due 2003 which were issued
in October 1996.

    Interest and Investment Income. Interest and investment income increased
$4.5 million, or 346.2%, from $1.3 million for the year ended December 31, 1996
to $5.8 million for the year ended December 31,

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1997, primarily due to the income derived from the investment of a portion of
the net proceeds from the issuance of Poland Communications, Inc.'s 9% Senior
notes in October 1996 and @Entertainment's initial public equity offering in
August 1997.

    Foreign Exchange Loss, Net. For the year ended December 31, 1997 foreign
exchange loss amounted to $1.0 million compared to a foreign exchange loss of
$761,000 for the year ended December 31, 1996, primarily due to less favorable
exchange rate fluctuations.

    Minority Interest. Minority interest in subsidiary loss was $3.6 million
for the year ended December 31, 1997, resulting from a fourth quarter
adjustment to write off certain receivable balances that were not recoverable,
compared to minority interest in subsidiary income of $1.9 million for the
corresponding period in 1996.

    Extraordinary Item. During 1996 @Entertainment prepaid a loan from Overseas
Private Investment Corporation ("OPIC"), resulting in an extraordinary loss of
$1.7 million, consisting of a prepayment penalty of $147,000 and non-cash
charge of $1,566,000 to write off deferred financing costs.

    Net Loss. For the year ended December 31, 1996 and 1997, @Entertainment had
net losses of $6.6 million and $54.8 million, respectively. These losses were
the result of the factors discussed above.

    Net Loss Applicable To Common Stockholders. Net loss applicable to common
stockholders increased from a loss of $7.7 million for the year ended December
31, 1996 to a loss of $91.1 million for the year ended December 31, 1997 due to
the excess of consideration paid for preferred stock over the carrying amount
of such stock of $33.8 million and the factors discussed above. For the year
ended December 31, 1997, net loss applicable to common stockholders included
$2.4 million related to the accretion of redeemable preferred stock.

 Liquidity And Capital Resources

    @Entertainment has met its cash requirements in recent years primarily with
(i) capital contributions and loans from certain of @Entertainment's principal
stockholders, (ii) borrowings under available credit facilities, (iii) cash
flows from operations, (iv) the sale by PCI of $130 million of 9 7/8% Senior
Notes due 2003 and 9 7/8% Series B Senior Notes due 2003 (collectively, the
"PCI Notes"), (v) the sale of approximately $200 million of common stock
through @Entertainment's initial public equity offering in August 1997 and (vi)
the sale of $252 million at maturity of 14 1/2% Senior Discount Notes due 2008
in July 1998.

    On January 19, 1999 @Entertainment sold $36,001,321 principal amount at
maturity of its Series C Senior Discount Notes due 2008 to an initial purchaser
pursuant to a purchase agreement for gross proceeds of approximately $9.8
million. The Series C Senior Discount Notes were issued pursuant to an
indenture.

    On January 22, 1999 @Entertainment also sold $256.8 million principal
amount at maturity of its 14 1/2% Senior Discount Notes due 2009 to initial
purchasers pursuant to a purchase agreement for gross proceeds of approximately
$96.0 million. The 14 1/2% Senior Discount Notes were issued pursuant to an
indenture.

    Pursuant to the indentures governing the PCI Notes, the 14 1/2% Senior
Discount Notes sold on July 14, 1998 and the Series C Senior Discount Notes
sold on January 19, 1999 and the 14 1/2% Senior Discount Notes sold on January
22, 1999, @Entertainment is subject to certain restrictions and covenants,
including, without limitation, covenants with respect to the following matters:

  .  limitation on indebtedness;
  .  limitation on restricted payments;

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<PAGE>

  .  limitation on issuances and sale of capital stock of restricted
     subsidiaries;
  .  limitation on transactions with affiliates;
  .  limitation on liens;
  .  limitation of guarantees of indebtedness by subsidiaries;
  .  purchase of the notes upon a change of control;
  .  limitation on sale of assets;
  .  limitation on dividends and other payment restrictions affecting
     restricted subsidiaries;
  .  limitation on investments in unrestricted subsidiaries;
  .  consolidations, mergers, and sale of assets;
  .  limitation on lines of business; and
  .  limitation on change of ownership.

   @Entertainment is in compliance with these covenants. We expect that the
holders of the @Entertainment PCI notes and the Series C Senior Discount Notes
may exercise their rights to require the purchase of their notes following the
change of control triggered by our acquisition of @Entertainment. If the
holders of those notes exercised their rights to put all of their notes, this
would require @Entertainment to repay NLG286.7 million of debt. The
@Entertainment 1999 Series B 14 1/2% Senior Discount Notes and the
@Entertainment 1998 14 1/2% Senior Discount Notes, of which a total of
NLG462.1 million was outstanding as at March 31, 1999, contain a similar
provision enabling holders to require @Entertainment to purchase the notes
following a change of control. Given the coupon on those notes, however, we do
not expect any significant number of holders of those notes to exercise their
put rights.

   On January 22, 1999 @Entertainment also sold Series A 12% Cumulative
Preference Shares, Series B 12% Cumulative Preference Shares and Warrants,
with gross proceeds of approximately $48.2 million.

   @Entertainment had negative cash flows from operating activities for the
three months ended March 31, 1998 and 1999 of $11.8 million and $21.2 million,
respectively, due to the significant operating costs associated with the
promotion and operation of its DTH service and the Wizja TV programming
package.

   Cash used for the purchase and build-out of @Entertainment's cable
television networks, DTH equipment and the purchase of other property, plant
and equipment was $15.5 million in the three months ended March 31, 1999 and
$23.1 million in the corresponding period in 1998. The decrease primarily
relates to the purchase of fixed assets related to the development of the
Maidstone uplink facility for the three months ended March 31, 1998. Cash used
for the acquisition of subsidiaries, net of cash received, was $0 million and
$10.5 million for the three months ended March 31, 1999 and 1998,
respectively.

   At March 31, 1999, @Entertainment was committed to pay at least
approximately $539 million in guaranteed payments (including but not limited
to payments for the DTH Reception Systems and payments of guaranteed minimum
amounts due under programming agreements and satellite transponder leases)
over the next nine years, of which at least approximately $225 million was
committed through the end of 2000. These payments may increase if
@Entertainment enters into additional programming agreements.

   @Entertainment intends to use:

  . the net proceeds of its sale of the 14 1/2% Senior Discount Notes due
    2009, which was approximately $96.0 million (after deducting offering
    expenses and the initial purchasers' discount),

  . the net proceeds of the sale of the Series A 12% Cumulative Preference
    Shares, the Series B 12% cumulative Preference Shares and Warrants,
    which was approximately $48.2 million (after deducting offering expenses
    and commissions), and

  . the net proceeds of the sale of the Series C Senior Discount Notes,
    which was approximately $9.5 million (after deducting offering expenses
    and the initial purchaser's discount)

                                      89
<PAGE>

  for the following purposes:

  . to fund capital expenditures, operating losses and working capital
    primarily related to the development and operation of its DTH business,
    and

  . for general corporate purposes and certain other investments, including
    the possible acquisition of cable television networks and certain
    minority interests in subsidiaries which are held by unaffiliated third
    parties.

    In the event that @Entertainment and TKP are able to reach an agreement
regarding a joint venture, investment or some other form of cooperation,
@Entertainment's use of net proceeds from these three recent offerings may be
reallocated and some portion thereof may be used to fund participation in a
joint venture.

    @Entertainment believes that the net proceeds of these three recent
offerings and cash on hand will provide @Entertainment with sufficient capital
to fulfill its current business plan and to fund these commitments until it
achieves positive cash flow from operations. @Entertainment expects that it
will require additional external funding for its business development plan in
years subsequent to 1999 if it continues to provide DTH reception systems
(other than the 380,000 initial subscribers) at the promotional prices
@Entertainment is now charging in the start-up phase of its DTH service.
@Entertainment will need to attract a substantial number of additional DTH
subscribers beyond the 380,000 initial subscribers in order to repay principal
and interest on its outstanding notes. Future sources of financing for
@Entertainment could include public or private debt or equity offerings or bank
financing or any combination thereof, subject to the restrictions contained in
the indentures governing @Entertainment's senior indebtedness.

    Moreover, if @Entertainment's plans or assumptions change, if its
assumptions prove inaccurate, if it consummates unanticipated investments in or
acquisitions of other companies, if it experiences unexpected costs or
competitive pressures, or if the net proceeds from its recent offerings,
existing cash, and projected cash flow from operations prove to be
insufficient, @Entertainment may need to obtain greater amounts of additional
financing. While it is @Entertainment's intention to enter only into new
financing or refinancing that it considers advantageous, there can be no
assurance that such sources of financing would be available to @Entertainment
in the future, or, if available, that they could be obtained on terms
acceptable to @Entertainment.

 Year 2000 Compliance

    @Entertainment's cable television, DTH and programming operations are
dependent upon computer systems and other technological devices with imbedded
microprocessor chips that are intended to utilize dates and process data beyond
December 31, 1999. In January 1997, @Entertainment developed a plan to address
the impact that potential Year 2000 problems may have on @Entertainment
operations and to implement necessary changes to address such problems (the
"Y2K Plan"). During the course of the development of its Y2K Plan,
@Entertainment has identified certain critical operations, which need to be
Year 2000 compliant for @Entertainment to operate effectively. These critical
operations include accounting and billing systems, customer service and service
delivery systems, and field and headend devices.

    Largely as a result of its high rate of growth over the past few years,
@Entertainment has entered into an agreement to purchase a new system to
replace its current accounting system and an agreement to purchase specialized
billing software for @Entertainment's new customer service and billing center.
The vendors of the new accounting system and of the billing software have
confirmed to @Entertainment that these products are Year 2000 compliant.
@Entertainment has completed the testing phase of the new accounting system,
and the implementation phase was substantially completed at the end of 1998.

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<PAGE>

@Entertainment has implemented the new billing software for DTH subscribers and
expects implementation of the billing software to be completed for the majority
of its cable subscribers by the end of 1999.

    @Entertainment believes that its most significant Year 2000 risk is its
dependency upon third party programming, software, services and equipment,
because @Entertainment does not have the ability to control third parties in
their assessment and remediation procedures for potential Year 2000 problems.
Should these parties not be prepared for Year 2000 conversion, their products
or services may fail and may cause interruptions in, or limitations upon,
@Entertainment's provision of the full range of its DTH and/or cable service to
its customers. In an effort to prevent any such interruptions or limitations,
@Entertainment is in the process of communicating with each of its material
third party suppliers of programming, software, services and equipment to
determine the status of their Year 2000 compliance programs. @Entertainment
expects to complete this process by September 30, 1999, and it anticipates that
all phases of its Y2K Plan will be completed by December 31, 1999.

    @Entertainment has not yet developed a contingency plan to address the
situation that may result in @Entertainment or its third party suppliers are
unable to achieve Year 2000 compliance with regard to any products or services
utilized in @Entertainment's operations. @Entertainment does not intend to
decide on the development of such a contingency until has gathered all of the
relevant Year 2000 compliance data from its third party suppliers.

    @Entertainment has not yet determined the full cost of its Y2K Plan and its
related impact on the financial condition of @Entertainment. @Entertainment has
to date not incurred any replacement and remediation costs for equipment or
systems as a result of Year 2000 non-compliance. Rather, due to the rapid
growth and development of its cable system and its DTH service, @Entertainment
had made substantial capital investments in equipment and systems for reasons
other than Year 2000 concerns. The total cost of @Entertainment's new
accounting system and billing software package is estimated to be approximately
$2,400,000.

    @Entertainment believes that any Year 2000 compliance issues it may face
can be remedied without a material financial impact on @Entertainment, but no
assurance can be made in this regard until all of the data has been gathered
from @Entertainment's third party suppliers. At March 31, 1999 @Entertainment
could not predict the financial impact on its operations if Year 2000 problems
are caused by products or services supplied to @Entertainment by such third
parties.

 Current or Accumulated Earnings and Profits

    For the three months ended March 31, 1999, @Entertainment had no current or
accumulated earnings and profits. Therefore, none of the interest which
accreted during the three months ended March 31, 1999 with respect to
@Entertainment's 14 1/2% Senior Discount Notes due 2008 and its 14 1/2% Series
B Discount Notes due 2008, will be deemed to be a "Dividend Equivalent Portion"
as such term is defined in Section 163(e)(5)(B) of the Internal Revenue Code,
as amended.

 Impact of New Accounting Standards Not Yet Adopted

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which
establishes standards of accounting for these transactions. SFAS No. 133 is
effective for @Entertainment beginning on July 1, 1999. @Entertainment had no
derivative instruments or hedging activities as of March 31, 1999.

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<PAGE>

                                    BUSINESS

    We own and operate broadband communications networks in 10 countries in
Europe and in Israel. We provide communications services in many European
countries through our three business lines: cable television, telephone and
Internet/data services. Our subscriber base is one of the largest of any group
of broadband communications networks operated across Europe.

 Our Growth Strategy

    We believe our leading position in providing video services across Europe
will help us to expand and integrate our three lines of business. Our goal is
to enhance our position as a leading pan-European distributor of video
programming services and to become a leading pan-European provider of telephone
services and Internet/data services, offering a one-stop shopping solution for
personal and business communication needs.

    The key elements of our strategy to achieve this goal are to:

  . continue to increase our average cable revenue per subscriber by
    developing our expanded basic tier service, pay-per-view, video on demand
    and audio-only program offerings;

  . continue to upgrade our systems and take advantage of our upgraded
    broadband infrastructure and high cable penetration to offer telephone
    and Internet/data services to residential and business customers;

  . continue to position Priority Telecom as our high quality, pan-European,
    full-service branded telephone product with competitive pricing and
    superior service;

  . capitalize on our ability to provide high speed Internet access through
    our chello portal, aggregate and integrate content into the portal and
    develop e-commerce and advertising lines of business;

  . continue to develop our programming business and partnerships in order to
    secure high quality programming content for our systems and for sale to
    other television operators;

  . utilize digital distribution technology to deliver and integrate our
    video, Internet/data and programming businesses; and

  . continue to acquire systems and increase the percentage we own in some
    systems in order to expand our coverage and implement our branded,
    packaged video, voice and data product offerings.

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<PAGE>

Implementation of New Services

    The following table shows, in respect of our existing systems, the status
of the implementation of the new services that we are adding in addition to our
existing basic video services.

<TABLE>
<CAPTION>
                                   Services Launched or Currently Planned For Launch
                         ---------------------------------------------------------------------
                                       Video                    Internet/Data       Telephone
                         --------------------------------- ------------------------ ----------
                          Expanded   Premium  Impulse Pay- Internet/Data   chello     Cable
                         Basic Tier Channels    Per-View     Services      Portal   Telephone
                         ---------- --------- ------------ ------------- ---------- ----------
Western Europe:
<S>                      <C>        <C>       <C>          <C>           <C>        <C>
  Austria............... May 1997   --         May 1997     Sept. 1997   June 1999  Feb. 1999
  Belgium............... Oct. 1996  1989       Planned      Sept. 1997   March 1999 Planned
  France................ Oct. 1996  Oct. 1996  May 1998     March 1999   June 1999  March 1999
  The Netherlands
  A2000................. Oct. 1996  1989       Apr. 1997    Oct. 1997    Planned(2) July 1997
  UTH(1)................ Dec. 1996  1988       June 1998    Nov. 1997    June 1999  May 1999
  Malta................. 1994       1994       Planned      Planned      Planned    --
  Norway................ 1989       1990       Planned      Mar. 1998    March 1999 Apr. 1999
Central and Eastern Europe:
  Czech Republic........ 1994       1994       --           --           Planned    --
  Hungary............... 1991       1991       --           Planned      Planned    --
  Romania............... Apr. 1998  Feb. 1998  --           --           --         --
  Slovakia.............. 1995       Apr. 1997  --           Planned      --         --
Israel.................. 1990       --         1994         --           Planned    --
</TABLE>
- --------
(1) Some of these services were launched by KTE or Combivisie prior to the
    formation of UTH.
(2) Conditional upon completion of the A2000 Acquisition.

    As we introduce new services, we will promote Priority Telecom and chello
broadband as independent brands, within both UPC systems and non-affiliated
cable systems. In addition, a key element of our strategy is to market the
products in our three lines of business as an integrated, branded package of
services, establishing UPC as a unified brand. We plan to increasingly market
our expanded array of products as a value package offering, which we believe
will be attractive to subscribers. As we introduce digital set-top boxes on a
more widespread basis, we will make these integrated offerings the core focus
of our marketing efforts.

UPC Video Services: Video Distribution and Programming

 Video Distribution Overview

    We own and operate established cable television systems and are expanding
and upgrading those systems. At March 31, 1999, our operating systems had
approximately 3.4 million aggregate subscribers to their basic tier video
services. Video distribution services accounted for approximately 92.4% of our
consolidated revenue in 1998. Pro forma for the new acquisitions, we had 5.6
million aggregate subscribers to our basic tier video service at March 31,
1999, excluding 130,000 DTH subscribers. We offer our subscribers some of the
most advanced analog video services available today and a large choice of FM
radio programs and plan to increase our offerings through an integrated digital
set-top box. In addition, because many of our operations are two-way capable,
we have been able to add more services. In many systems, for example, we have
introduced impulse pay-per-view services, which enable subscribers to our
expanded basic tier to select and purchase programming services, such as movies
and special events, directly by remote control.

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<PAGE>

 Growth Strategy

    We are focusing on a multi-part growth strategy, the key elements of which
are to:

  . continue to increase our average revenue per subscriber by developing our
    expanded basic tier service, pay-per-view, video on demand and audio-only
    program offerings,

  . continue to develop our programming business in order to secure high
    quality programming content for our systems and for sale to other
    television operators, and

 Continue to Increase Video Service Revenue Per Subscriber

    We plan to continue increasing our average revenue per subscriber by
expanding our video services program offerings in the expanded basic tier
service, pay-per-view and digital audio areas. We plan to continue improving
our expanded basic tier offerings by adding new channels and, where possible,
migrate popular commercial channels into the expanded basic tier service.
Generally, basic tier pricing is regulated while the expanded basic tier is not
price-regulated. In addition, we plan to offer subscribers additional choice by
offering thematic groupings of tiered video services in a variety of genres and
by increasing the number and time availability of pay-per-view offerings. For
example, we currently offer six to nine pay-per-view offerings but anticipate
that, once our digital distribution platform is operational, we will offer over
75 channels of near video on demand pay-per-view programming. Near video on
demand is an advanced television service that provides premium programming,
movies and events on numerous channels each with a staggered starting time at
frequent intervals. Because of the frequent starting times, subscribers have a
greater number of purchase opportunities relatively "on demand."

    We have increased our average revenue per subscriber by offering enhanced
video services in the form of impulse pay-per-view services in some of our
markets for several years. In Israel, Tevel's 250,000 subscribers with two-way
capabilities buy an aggregate of more than 100,000 pay-per-view programs per
month, for an average monthly buy rate of 0.4 per subscriber. In our Austrian
and the A2000 systems, during 1998, the average impulse pay-per-view monthly
buy rate was over 1.7 and 1.0 per expanded basic tier subscriber, respectively.

                                       94
<PAGE>

    The chart below sets forth for the three months ended March 31, 1999, the
average monthly revenue per subscriber for certain of our systems, as well as
in the United Kingdom and the United States, countries of comparable per capita
income where these types of enhanced services have been offered for longer
periods. Although we do not expect that we will achieve the average monthly
revenue per subscriber in our systems that is realized in the United Kingdom
and the United States, these figures illustrate the potential to increase our
average monthly revenue per subscriber through the introduction of enhanced
service offerings. Information for the U.K. and U.S. comes from Kagan World
Media, Ltd. and Paul Kagan Associates, Inc., Cable Television Investor,
respectively.

     Average monthly revenue per video subscriber for selected UPC systems
            and for the U.K. and the U.S. for the three months ended
                       March 31, 1999 (in Dutch Guilders)

                              [GRAPH APPEARS HERE]

    The higher average revenue per subscriber in our Israeli, Norwegian and
Maltese systems is attributable to offering enhanced video services. Depending
on the system, this was done through introducing new channels, including
country-specific program channels, introducing stand-alone pay-per-view and
through migrating channels from rate-regulated basic service to unregulated
tiers.

    Our management team has substantial experience in the European cable
television industry and has demonstrated the potential to increase revenue per
basic cable television subscriber by offering additional services that appeal
to our subscribers. We believe that we have the opportunity to apply these
principles to our recently acquired systems and our new acquisitions, which
currently have much lower revenues per subscriber, while adding major
innovations in pan-European programming and distribution to increase further
our average revenue per subscriber in all systems.

 Continue to Develop Programming Business

    We have been involved in several country-specific programming ventures
including ventures dedicated to creating channels for Spain, Czech Republic,
Hungary, Israel and Malta. Together, these programming ventures have developed
channels in key genres including sports, children, documentary and movies,
which are subtitled or dubbed in the local language. We believe that our
programming ventures add value to our cable television networks by providing
compelling content to our subscribers. In connection with our acquisition of
Time Warner's interest in the Hungary cable television systems, Time Warner has
purchased our interests in the Czech and Hungarian programming services.

                                       95
<PAGE>

    We own 80% of Tara, having recently acquired United's 75% interest in Tara.
Tara provides Irish general entertainment programming to the U.K. markets. The
remaining 20% of Tara is owned by RTE Commercial Enterprises Ltd., an affiliate
of the Irish national broadcasting company. In addition, we recently acquired
United's 33.5% interest in IPS. In May 1999, we acquired a further 16.5%
interest in IPS from an unaffiliated party, bringing our total percentage
ownership of IPS to 50%. IPS produces a movie channel, a documentary channel, a
children's channel, a history channel and a music channel for the Spanish and
Portuguese markets. The other partner of IPS is a subsidiary of The Walt Disney
Corporation. As of March 31, 1999, Tara and IPS have sold programming content
to non-UPC cable operators serving an aggregate of approximately 1.7 million
subscribers.

    In June 1999, we agreed to acquire @Entertainment, Inc., which, in addition
to having the largest number of cable subscribers in Poland, also operates a
Polish language programming business. In July 1999, we acquired 12.8% of SBS.
SBS owns and operates television and radio broadcasting stations in Scandinavia
and other European markets. SBS both produces and purchases programming for its
stations with an emphasis on the importance of producing programs locally in
each market.

    We believe that we have a strong competitive opportunity to become a
provider of new channels due to our ready access to our customer base and our
ability to affordably adapt our channels for distribution to multiple European
markets and languages. We plan to:

  . operate six new 24-hour channels by the end of 1999 and two new channels
    thereafter;

  . acquire rights to up to 30 channels created by third parties over the
    next few years; and

  . acquire rights to and distribute up to 75 near video on demand channels
    over the next few years.

    The initial six channels planned for 1999 are:

  . EXPO: an architecture, design, style and photography channel;

  . Club: a women's interest channel created by licensing content from E!,
    Carlton Food Network, and others;

  . UPC Sport One: a general sports channel;

  . EX-Extreme Sports: an extreme sports channel created by licensing content
    from X-Dream;

  . Avanti: an Air and Space Channel: a topical channel adapted for European
    markets pursuant to a licensing and revenue sharing arrangement with
    Wingspan International; and

  . UPC Film I: a movie channel showing films from our movie library.

    UPC tv has launched two television channels, EX-Extreme Sports and UPC Film
I, to date. These channels were first offered on the A2000 network in May 1999
and are due to be offered on the UTH network in September 1999. In the case of
all new channels, our role includes acquisition, scheduling and content
aggregation, channel design and transmitting the channels to satellites for
distribution. In addition to developing our eight pan-European channels, we are
negotiating for additional channels and near video on demand pay-per-view
programming on a pan-European basis.

    We are constructing a satellite-based pan-European digital distribution
platform that will enable digital distribution of our new channels and other
television signals to our upgraded networks. When this digital distribution
platform is constructed, we will convert our impulse pay-per-view services into
a near video on demand service that would be able to provide up to 75 channels
of programming. We are negotiating to acquire rights to broadcast first-run hit
movies, adult programming and special events over this planned digital
distribution platform. Upon obtaining appropriate rights, the near video on
demand service would likely include between 12 and 16 new movie titles per
month that would be broadcast as frequently as every 15 minutes, thus enabling
subscribers to choose a movie at a convenient start time. Although near video
on demand channels cannot be offered simultaneously on a pan-European basis due
to licensing restrictions, we intend to use remote content servers located in
the cable operator's headend to store the library for playout at the
appropriate time.

                                       96
<PAGE>

    Full digitalization of our television signals, to be made possible by our
network upgrade to full two-way capability, will provide our Western European
systems with substantially more channel capacity. This increased channel
capacity will enable subscribers to customize their subscriptions for our
products and services to suit their lifestyles and personal interests. When the
planned digital distribution platform is completed, we also intend to provide
our subscribers with customizable programming guides that would enable them to
program favorite channels and also allow parents to restrict their children's
viewing habits. The construction of the planned digital distribution platform
will involve significant capital investment and the use of new technologies. We
cannot assure you that we will be able to complete the construction of the
digital distribution platform on the planned schedule. See "Risk Factors--
Failure to raise necessary capital could restrict the development of our
network and the introduction of new services."

UPC Telephone Services: Priority Telecom

 Overview

    We believe that our existing customer base and upgraded network give us a
unique opportunity to provide telephone services in Europe. We offer local
telephone services, under the brand name Priority Telecom, in our Austrian,
Dutch, French and Norwegian systems. We currently call our local telephone
services Nedpoint in the A2000 systems and these will be rebranded as Priority
Telecom following the A2000 acquisition. We also provide national and
international long distance voice telephone services. Our operating companies
are licensed to provide telephone services in Austria, France, Hungary, The
Netherlands and Norway. We believe that our fiber and broadband, coaxial cable
and cable-based subscriber relationships provide ready access to potential
residential telephone subscribers. We believe our networks and facilities also
provide the opportunity for cost-effective access to potential business
telephone customers.

    A2000 began offering cable telephone services in July 1997 on a trial basis
in Purmerend, a town outside Amsterdam, and since then has begun to offer these
services to its customers in Hilversum, Zaanstad and part of Amsterdam. We
launched Priority Telecom's cable telephone service on a trial basis in Vienna
in November 1998 and in Oslo in March 1999. Full launches then took place in
February 1999 and April 1999, respectively. UTH launched Priority Telecom cable
telephone service in parts of its network in May 1999. Priority Telecom's cable
telephone service was launched on Mediareseaux's network in March 1999.

    We have negotiated interconnection agreements with a number of
telecommunications operators and continue to evaluate and enter into agreements
with other new telecommunication service providers in order to achieve more
cost effective rates for national and international long distance services. In
addition, we are in the process of connecting the switches in our operating
companies over the pan-European AORTA backbone, allowing us to keep a greater
proportion of calls on our network, thereby reducing the amount of
interconnection fees we must pay to other telecommunications operators.

                                       97
<PAGE>

 Market Opportunity

    We believe there are significant growth opportunities in the European
telecommunications market as a result of the January 1, 1998 liberalization of
the telephone industry in most EU member countries and Norway. This
liberalization allows new providers to offer telephone and other
telecommunications services in markets that have historically been dominated by
incumbent national operators. The current local telephone rates charged to
subscribers are high in comparison to those in the United States. The following
table illustrates this disparity. The source for this information is the
Organization for Economic Cooperation and Development. The monthly revenue
comes from their average monthly basket of local residential charges assuming
peak time usage on a discount plan.

<TABLE>
<CAPTION>
                                         Total 1997 Revenue Monthly basket of
                          Incumbent         of National         local PSTN
                      Telecommunications Telecommunications Residential Charges
                           Operator          Operators      per line (May 1998)
                      ------------------ ------------------ -------------------
                                           (U.S. dollars)
                                            (in millions)
<S>                   <C>                <C>                <C>
Austria..............   PTA                     3,734             $78.75
Belgium..............   Belgacom                4,244              75.63
France...............   France Telecom         28,636              58.99
The Netherlands......   KPN                     7,931              49.22
Norway...............   Telenor                 3,608              41.07
United States........   Various               256,801              19.92
</TABLE>

    With approximately 4,430 kilometers of telephone-capable fiber optic cable
already deployed in its Western European systems, we believe that Priority
Telecom has an advantage over other new entrants in the telephone services
market. Currently, Priority Telecom has broadband, coaxial cable access to
approximately 1.8 million homes and, through us, long standing cable
television-based relationships with approximately 2.8 million residential
subscribers in its planned telephone markets. We believe that our international
telephone backbone capacity needs, especially when combined with our branded
Internet/data services business, chello broadband, will create international
traffic volumes that will provide significant economies of scale, thereby
allowing the long-term lease of fiber capacity and the resale of excess
capacity to business and carrier customers.

 Competition

    Priority Telecom will face competition in its markets from incumbent
telecommunications operators and other competitive operators that have
substantially more experience in providing, and significantly greater resources
devoted to, telephone services. In addition, we will depend on interconnection
arrangements provided by incumbent telecommunications operators. We believe,
however, that our strategy for Priority Telecom will allow us to compete
effectively with incumbent telecommunications operators and any other local
loop providers who subsequently enter the market. See "Risk Factors--The
competitiveness of the telephone industry will make it difficult for our new
telephone service to enter the market."

 Priority Telecom Growth Strategy

    Because of the relatively high European local tariff rates, we believe
potential customers will be receptive to our telephone services, which we
intend to price at a discount compared to services offered by incumbent
telecommunications operators. In addition to competing on the basis of price,
we offer a full complement of services to telephone subscribers including
customer local access service, "CLASS," including caller ID, call waiting, call
forwarding, call blocking, distinctive ringing and three-way calling. We also
are able to provide voice mail and second lines. We now offer these telephone
services in our Austrian, Dutch, Norwegian and French systems. The introduction
of number portability in some of our markets, including The Netherlands and
France, provides an even greater opportunity as potential customers will be
able to subscribe to our service without having to change their existing
telephone numbers.

                                       98
<PAGE>

    Our strategy for Priority Telecom is to achieve high-growth from early
market entry with the goal of establishing a strong market position prior to
market entry by other potential local loop competitors. The key elements of our
telephone penetration strategy are:

  . pricing at a discount to the incumbent telecommunications operators,
  . waiving or substantially discounting installation fees,
  . integrating telephone with our video and Internet/data services, and
  . providing an equal or superior quality of service than that of other
    providers.

    We also plan to use short-term promotions, special calling plans and non-
cash incentives to support the marketing of our telephone services. We intend
to concentrate on building brand awareness for Priority Telecom as a pan-
European telecommunications brand, which may be co-branded with our existing
local video services brands. We also plan to integrate Priority Telecom's
residential and small office/home office telephone products with our video
services and chello broadband's Internet access services, thus enabling us to
offer pricing packages designed to encourage multiple product purchases and
minimize churn.

    Priority Telecom will pursue this pricing, branding and integration
strategy in the following three market segments:

      1. Residential and Small Office/Home Office Served by Cable Phone. In
  most cases, Priority Telecom is the only operator other than the incumbent
  in its respective operating areas that has direct, facilities-based access
  to many potential residential and small office/home office customers.

      2. Medium-sized Businesses Served by Cable Phone. Priority Telecom's
  network is able to reach many medium-sized businesses that may not be
  reached economically with direct fiber connections.

      3. Large Businesses and Other Licensed Operators Served Directly by
  Fiber or Point-to-Point Microwave. Priority Telecom exploits its early
  entry advantage from its existing local fiber rings to provide high
  quality, cost competitive telephone service to businesses as an alternative
  to the incumbent telecommunications operators.

    We believe the residential and small office/home office market sectors
represent a significant business opportunity for Priority Telecom. Simple
marketing offers are being used to encourage rapid take-up by overcoming
consumer inertia and increasing brand awareness of our products. The approach
includes, for example, innovative offers and periodic deep discounts. Large and
medium-sized business customers are marketed through a key account management
direct sales force targeting specific industry sectors such as other licensed
operators, Internet service providers, banks and financial services, retail and
professional services.

    We utilize cable phone equipment with various line capabilities. For the
residential and small office/home office market, a one-, two- or four-line unit
is utilized. Four-, eight- and twelve-line cable phone equipment units are used
to provide service to segments of the medium-sized business market. Large
businesses generally will be connected to the network with direct fiber
connections using self-healing fiber optic ring synchronous digital hierarchy
technology. This technology automatically detects disruptions in the fiber and
reroutes calls within 1/20 of a second, thereby providing reliable service to
these customers.

 The A2000 Experience

    A2000 has successfully launched cable telephone services in parts of its
systems under the brand name Nedpoint. As of March 31, 1999, A2000 had
approximately 25,300 lines serving 22,325 cable telephone subscribers. As of
the same date, A2000 achieved a penetration rate of approximately 12.3% of the
homes marketed in Purmerend, its first market where the service was launched in
July 1997. The

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<PAGE>

installation rate for A2000 averaged about 350 installations per week during
the three months ended March 31, 1999. Current churn rates are approximately
2.25% on an annualized basis, although we expect churn rates to increase due to
typical subscriber moves and the introduction of telephone number portability
on April 1, 1999.

    Following the common European pricing model, A2000's tariffs are usage-
based rather than a flat fee and every call is metered. In March 1999, A2000's
average monthly revenue per telephone subscriber was approximately NLG84.10.
This compares with approximately NLG71 for KPN subscribers during 1998,
although this amount may decrease as a result of KPN rate cuts. A2000 believes
that interconnection rates with KPN may decline, thereby reducing its costs.
See "Regulation--The Netherlands."

 Cost of Implementation

    Traditional telephone service is carried over twisted copper pair in the
local loop. Cable phone technology allows telephone traffic to be carried over
our upgraded network without requiring the installation of twisted copper pair.
Therefore, instead of the expensive addition of a second cable into every home
and small business, cable phone technology only requires the addition of
equipment at the master telecom center, the distribution hub and in the
customer's home to transform voice communication into signals capable of
transmission over the fiber and coaxial cable. The equipment required in the
home is housed in a small, secure, self-contained unit that is usually mounted
on the wall inside the home. This box is capable of passing through cable
television, Internet cable modem and radio signals and providing standard
telephone services. It also includes an emergency back-up battery.

    Once the network has been upgraded to two-way capability, the cost of
implementation for telephone services will include a typical estimated
equipment cost of $72 (NLG142) per line for the voice switch, $36 (NLG71) per
line for the host digital terminal and, giving two lines of capacity, $404
(NLG796) for the equipment required in the home. Nortel has supplied our DMS
100E telephone switches. We have cable phone equipment supply agreements with
Tellabs and Nortel. We are also in the process of undertaking a substantial
upgrade of our customer care and billing system for each operating system
providing telephone services. See "Risk Factors--The complexities of the
operating systems we need to develop for our new services could increase their
costs and slow their introduction" and "UPC Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

 Interconnection Agreements

    Each of our operating companies that offers telephone services has entered
into an interconnection agreement with the incumbent national
telecommunications service provider. In addition, certain of these operating
companies have also entered into interconnection agreements with other
telecommunications service providers, providing alternative routes and
additional flexibility. Even though we have secured interconnection
arrangements, we may still experience difficulty operating under them. In our
A2000 system, for example, capacity constraints at the interconnection have
lowered the quality of A2000's telephone service, resulting in a higher rate of
customer loss than A2000 has experienced before. In Austria, while Telekabel
Wien secured its interconnection arrangement with the support of the Austrian
telecommunications regulator, the Austrian incumbent telecommunication operator
is challenging the arrangement in the Austrian courts. See "Regulation--
Austria."

 Roll-Out and Implementation Schedule

    We began to offer cable telephone services in July 1997, with the launch of
our A2000 service under the brand name Nedpoint. Priority Telecom launched its
service on a trial basis in Vienna during November 1998 and in February 1999
launched its business and residential service in a service area of
approximately 100,000 homes. The number of homes in this service area increased
to 462,000 homes by the end of the second quarter of 1999. Our Priority Telecom
service was officially launched in

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<PAGE>

Mediareseaux's service area in France in March 1999, Janco Multicom's service
areas in Norway in April 1999, and in a part of UTH's service area in The
Netherlands in May 1999.

    Because strong back office systems are important to support and integrate
successfully Priority Telecom and our other services, we have dedicated
significant resources to the development of our support plan. The plan includes
a convergent customer care and billing system that will allow residential
customers to receive a single bill for all of the services we intend to offer.
See "Risk Factors--The complexities of the operating systems we need to develop
for our new services could increase their costs and slow their introduction."

 Pan-European Backbone

    We are developing a pan-European backbone and telecommunications resale
business. This backbone is designed to link our major cable and telephone
networks through a combination of leased capacity arrangements to allow us to
capture more traffic between our operating areas. In October 1998, we entered
into a contract with Hermes Europe Railtel for the purchase of high speed fiber
optic-based transmission capacity. This network is currently expected to be in
place for international telephone traffic by the first half of 2000.

 Traditional Telephone System

    In addition to our cable telephone operations, our Monor system has offered
traditional telephone services since December 1994 and as of March 31, 1999,
had approximately 70,210 traditional telephone lines.

 Regulation

    Regulation significantly affects our telephone business, including its
profitability and the timing of its introduction. See "Risk Factors" and
"Regulation."

UPC Internet/Data Services: High Speed Access and chello broadband

 Overview

    At year-end 1997, International Data Corporation estimated that there were
approximately 69 million World Wide Web users, of which approximately 24% were
in Western Europe. By 2002, International Data Corporation estimates that the
number of World Wide Web users will increase to approximately 320 million, with
approximately 26% of these in Western Europe.

    We believe there are significant growth opportunities in the European
Internet market, as evidenced by the projected rapid growth in World Wide Web
users in our Western European markets. The following information comes from
International Data Corporation.

<TABLE>
<CAPTION>
                                                 Number of World Wide Web Users
                                                 -------------------------------
                                                      1997            2001
                                                 --------------- ---------------
<S>                                              <C>             <C>
Austria.........................................         279,000       1,280,000
Belgium.........................................         370,000       1,390,000
France..........................................       1,140,000       4,030,000
The Netherlands.................................       1,070,000       4,540,000
Norway..........................................         481,000       1,330,000
</TABLE>

    We also believe that the slow speed of current residential "dial-up'
Internet access is a significant deterrent to Internet users. Cable modems
allow Internet access at speeds significantly faster than dial-up access.
Although a number of different technologies designed to provide much faster
access than dial-up

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<PAGE>

modems have been proposed and are being tested, we believe that cable modem
access technology is superior to all other current technologies because:

  . cable modem technology is based on the widely used Transport Control
    Protocol/Internet Protocol (TCP/IP), which is used on local area networks
    (LANs) and the Internet,

  . a global standard has been created and accepted, and

  . customers are served by a shared infrastructure, which allows for lower-
    cost service offerings.

    We have launched residential and business cable-modem based high speed
Internet access services, branded as chello broadband, in Austria, Belgium,
France, The Netherlands and Norway earlier this year. We believe that always
switched on, flat fee chello broadband service will benefit from the rapid
growth of the Internet and will enable us to gain more customers in the
business and residential Internet market by capitalizing on our existing
network capabilities, continuing network upgrade and broad customer base in
certain markets with high personal computer penetration. In marketing chello
broadband, we intend to emphasize the always switched on feature, the speed,
flat fee price advantages and compelling multi-media portal and content of our
cable modem-based Internet service. An integral part of our strategy is to
market chello broadband's services for sale to other cable television systems.
Through the chello portal, we see significant opportunities to increase
revenues through content, e-commerce and advertising.

    chello broadband acts as a European Internet access gateway and a portal
delivering specially created content. chello broadband provides high speed
broadband access over its AORTA-branded, pan-European backbone. AORTA was
launched in December 1998 and is designed to link our major cable network
through a combination of leased capacity arrangements to allow us to capture
more traffic between our operating areas. chello broadband stores the most
popular Internet sites locally, thus making them available at the high speeds
made possible by our network. The existence of the AORTA pan-European backbone
enables chello broadband to aggregate the volume of data stored for
availability at high speeds to its customers. Although chello broadband prices
its service at a subscription level that is above that of dial-up services,
cable modem users do not incur any telephone usage charges and thus, depending
on usage, the overall monthly cost to the subscriber may actually be lower than
the cost of an analog modem connection over the telephone network.

    We launched chello broadband on the upgraded portions of our network in
Austria, Belgium, France, The Netherlands (with the exception of A2000) and
Norway during the first quarter of 1999. As of March 31, 1999, we had more than
33,600 residential and 1,850 business chello broadband subscribers.

    With approximately 5,228 kilometers of high-capacity two-way active fiber
plant deployed throughout our Western European systems as of March 31, 1999, we
believe that chello broadband has a competitive advantage over traditional
Internet service providers that rely on dial-up access. chello broadband also
has broadband, coaxial cable access to approximately 1.8 million homes, and is
able to leverage our long standing cable television-based relationships with
approximately 2.8 million residential subscribers in chello broadband's planned
Internet markets. As an Internet portal, chello broadband associates with other
cable television operators to provide Internet/data service to their
subscribers.

    We will also enable our cable television operators to offer customers an
"Internet TV" service. Internet TV service consists of a set-top box that
allows customers to use their existing television to access the chello
broadband network and the Internet.

 Competition

    The Internet services business in Europe is highly competitive. We believe,
however, that our strategy for chello broadband, which encompasses competitive
pricing and superior service combined with high speed access and compelling
content, will mitigate the effects of competition from other Internet

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<PAGE>

service providers in its markets. We currently compete with traditional dial-up
Internet service providers and other providers (including many incumbent
telecommunications service providers) and expect that chello broadband will
face competition from other broadband service providers, such as @Home and
Roadrunner as they move to the European market. In the future, and in some
areas currently, we expect competition from providers using other broadband
technologies, including fiber, microwave, satellite and digital subscriber
lines.

 chello broadband Growth Strategy

    We are creating chello broadband as part of a pan-European strategy
designed to capture value by developing economies of scale and market share by
leveraging our existing cable television and telephone subscriber base. To
accomplish this goal, chello broadband provides over the AORTA-branded pan-
European backbone, local cable television operators with high speed broadband
access, server farms, proprietary high-bandwidth content, and centralized
customer service and billing. These server farms can store the most popular
content locally for quick retrieval by subscribers.

    We market chello broadband to the residential, small office/home office and
medium-sized business segments. We are targeting chello broadband's service to
small office/home office and medium-sized business customers who may view the
services as a lower cost alternative to leased lines. Cable modem service
initially will be targeted primarily to high-end Internet users frustrated with
the speed of access, quality of service and high telephone bills associated
with their existing dial-up service. We believe that local partners, in
addition to our operating systems, will be crucial for chello broadband's
success. chello broadband has entered into partnerships with non-UPC local
cable operators in order to share responsibilities in creating the service and
revenues generated by the service. We may offer equity securities of chello
broadband to its partners or other investors to fund further development or to
encourage third-party cable operators to become chello broadband affiliates, as
we plan to do with Microsoft. See "Certain Transactions and Relationships--
Relationship with Microsoft." In these partnering arrangements, we expect that
chello broadband will provide connection to the AORTA-branded pan-European
backbone network, purchase and maintain the regional server farms, provide
general customer service and billing and develop proprietary broadband content.
The local cable operators would generally install the customer premise cable
modems and termination modems and offer first level telephone-based technical
support. The precise division of responsibility will be negotiated on a case-
by-case basis.

 chello broadband Content Strategy

    chello broadband intends to develop an Internet portal business by
partnering with providers of local, regional, national and international
content, rather than attempting to create the majority of its own content. We
believe that high bandwidth and compelling content are necessary from the
outset to provide users with a rewarding broadband experience that is superior
to our competitors' offerings. chello broadband intends to develop as part of
its portfolio interactive content for set top boxes designed to provide cable
affiliates with Internet-enabled content such as electronic programming guides,
electronic banking, home shopping and on-line gaming. chello broadband also
intends to leverage its "first-screen advantage" to drive traffic into its
Internet portal.

 Cost of Implementation

    Cable modem technology allows access to the Internet over our existing
upgraded network. All that is required to transform data communication into
signals capable of transmission over fiber and coaxial cable is the addition of
incremental electronic equipment, including servers, routers and switches at
the master telecom center. The equipment in the home is a small, self-contained
cable modem that is placed nearby the customer's personal computer and
connected to the cable system. We also plan to offer our customers an Internet
TV service. The Internet TV service will consist of a set-top box that allows
customers to use their existing television as a platform for accessing chello
broadband's network.

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<PAGE>

    Once the network has been upgraded to two-way capability, the cost of
implementation for Internet/data services will include the estimated
incremental master telecom center and distribution hub equipment costs of
approximately NLG400 per subscriber and approximately NLG450 per cable modem
for the required equipment in the home in mid-1999. We are currently
negotiating with cable modem suppliers, however, and expect that prices for
cable modems will decrease to approximately NLG400 by 2000. We have entered
into supply agreements to obtain cable modems primarily from Bay
Networks/Nortel and Terayon.

    See "UPC Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Risk Factors--
Failure to raise necessary capital could restrict the development of our
network and the introduction of new services."

 Roll-Out and Implementation Schedule

    The launch of chello broadband in our upgraded Western European markets
occurred during the first half of 1999. The back office support plan described
under "--UPC Telephone Services: Priority Telecom--Roll-Out and Implementation
Schedule" is similar to the back office support plan that chello broadband
intends to implement.

 Development of the Pan-European Backbone

    The AORTA pan-European backbone will facilitate a direct U.S. Internet link
in the future. In October 1998, we entered into a contract with Hermes Europe
Railtel for the purchase of high speed fiber optic-based transmission capacity.
This network is now in place for international Internet traffic. In April 1999,
chello broadband signed a letter of intent with Flag Atlantic-1 for a 1.28
terabits transatlantic link.

 Regulation

    Our Internet access business currently is subject to limited regulation.
However, the legal and regulatory environment applicable to the Internet is in
a fluid state. Adverse regulatory developments could negatively affect our
Internet business. See "Regulation."

                              Operating Companies

    We have operations in 10 countries in Europe and in Israel. While they all
offer a basic video service, their other services vary. We are also currently
upgrading the network in some countries but not in others. We therefore
describe each of our operating companies and their operations below. We believe
understanding them individually will help you to understand our business as a
whole and our consolidated financial information in this prospectus.

    We also provide selected financial and operating data for each operating
company. For all our operating companies, we have calculated average monthly
service revenues per subscriber using service revenues excluding installation
revenues. For the operating companies that do not use Dutch guilders as their
operating currency, we have converted the amounts to Dutch guilders using the
average exchange rate or fixed exchange rate for the period presented.

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<PAGE>

Western Europe

 Austria: Telekabel Group


     The following selected financial data have been derived from the
 financial statements of Telekabel Group. These financial statements have
 been prepared in accordance with Dutch GAAP with the Austrian schilling as
 the functional currency. The following selected financial data for the
 three months ended March 31, 1999 includes a translation using the fixed
 exchange rate of 0.16015 Dutch guilders per Austrian schilling.

<TABLE>
<CAPTION>
                                                                               Translation
                                                                               to Guilders
                                                                              -------------
                                                                 Three Months Three Months
                                                                    Ended         Ended
                                   Year Ended December 31,        March 31,     March 31,
                                 ------------------------------  ------------ -------------
                                   1996      1997       1998         1999         1999
                                 --------  ---------  ---------  ------------ -------------
                                                                        (unaudited)
                                           (in thousands, except percentages)
  <S>                       <C>  <C>       <C>        <C>        <C>          <C>
  Selected Financial Data:
  Revenues................  (AS)  985,338  1,018,095  1,105,535     302,947   (NLG)  48,517
  Net operating income
   (loss).................  (AS)  103,139    105,866      9,504      18,601   (NLG)   2,979
  Adjusted EBITDA.........  (AS)  512,356    507,022    505,567     125,108   (NLG)  20,036
  Adjusted EBITDA margin..           52.0%      49.8%      45.7%       41.3%           41.3%
  Total capital
   expenditures...........  (AS)  388,813    374,717    514,859     124,521   (NLG)  19,942
  Cash flows from
   operating activities...  (AS)  387,679    494,891    458,125     478,177   (NLG)  76,580
  Cash flows from
   investing activities...  (AS) (416,432)  (519,511)  (388,311)   (141,105)  (NLG) (22,598)
  Cash flows from
   financing activities...  (AS)   30,001    124,137   (180,504)   (299,919)  (NLG) (48,032)
</TABLE>

<TABLE>
<CAPTION>
                                      As of December 31,
                                    -------------------------  As of March 31,
                                     1996     1997     1998         1999
                                    -------  -------  -------  ---------------
  <S>                         <C>   <C>      <C>      <C>      <C>
  Other Data:
  Homes passed...............       872,016  890,305  900,350      903,200
  Basic video subscribers....       428,453  435,859  454,957      457,165
  Basic video penetration....          49.1%    49.0%    50.5%        50.6%
  Avg. mo. service rev. per
   video subscriber.......... (NLG)   27.54    27.79    28.82        31.25
  Two-way homes passed.......           --   339,900  516,700      623,490
  Internet subscribers:
      Residential............           --     1,177    9,054       13,918
      Business...............           --        21      603          941
  Telephone subscribers:
      Residential............           --       --       --           767
      Business...............           --       --       --            41
</TABLE>


    Overview/Growth Strategy.  We own 95% of the Telekabel Group, which
provides communications services to the Austrian cities of Vienna, Klagenfurt,
Graz, Baden and Wiener Neustadt and is the largest video distribution system in
Austria with over 40% of the market. Telekabel Group's largest subsidiary,
Telekabel Wien, which serves Vienna and represents approximately 87% of
Telekabel Group's total subscribers, owns and operates one of the larger
clusters of cable systems in the world in terms of subscriber numbers served
from a single headend.

                                      105
<PAGE>

    We are capitalizing on Telekabel Group's strong market position and
positive perception by its customers by aggressively expanding Telekabel
Group's service offerings as its network is upgraded to full two-way
capability. The upgraded network enabled Telekabel Group to launch an expanded
basic tier, impulse pay-per-view services and Internet/data services in 1997.
Telekabel Group was the first Austrian cable television company to offer tiered
and pay-per-view services when it launched such services in Vienna. The pay-
per-view buy rate has since grown to more than two movies per expanded basic
subscriber per month, although Telekabel Group expects this average to decrease
because high-demand customers subscribed early to the expanded basic tier and
later subscribers will likely have a lower demand for pay-per-view services.
Telekabel Group is considering restructuring its basic and expanded tiers to
increase further its average revenue per subscriber, although the extent and
timing of any such restructuring would depend upon market studies and, in
Vienna, the approval of the Telekabel Wien's board of management, which
includes a representative appointed by the municipality. See "Regulation--
Austria."

    Telekabel Group launched an Internet access service in September 1997 and
had approximately 14,850 Internet access subscribers as of March 31, 1999. The
chello broadband service was introduced in June 1999. Telekabel Group is
currently averaging monthly additions of 1,700 customers for its Internet
service following its market launch. In addition, Telekabel Group launched
Priority Telecom's cable telephone service in Vienna on a commercial basis in
early 1999. Following intervention of regulatory authorities on behalf of
Telekabel Group, Telekabel Group entered into an interconnection arrangement
with PTA, the incumbent telecommunications service operator, in November 1998.
See "Regulation--Austria--Telephone and Internet/Data Services."

    Network. Telekabel Group owns the complete cable television infrastructure
for each of its systems from the headend to the home. In 1996, Telekabel Wien
started plant construction on the rebuild and upgrade of its existing cable
network in Vienna. The upgrade, which incorporates high capacity 860 MHz
technology, was approximately 70% complete and passed approximately 623,475
homes and businesses as of March 31, 1999. This upgrade is expected to be 85%
complete by the end of 1999.

    Programming. Telekabel Group offers basic subscribers 32 channels of cable
programming, including substantially all of the broadcast channels from Austria
and Germany, as well as CNN, Super Channel, MTV, an informational channel, Tips
and Hits, Telekino Heute and Vienna cable text. Telekabel Group launched an
expanded basic tier in May 1997 by providing subscribers whose homes are passed
by the upgraded network an advanced analog decoder box, the cost of which is
provided for in the monthly rate. The expanded basic tier currently provides
seven channels of additional programming: ONYX, VH-1 Germany, BET, Muzzik, BBC
World, BBC Prime and an adult channel. In conjunction with the launch of this
tier, Telekabel Group launched an impulse pay-per-view service with up to nine
channels of programming.

    Results of Operations. For the year ended December 31, 1998, Telekabel
Group had total revenues of approximately NLG177.2 million, representing
approximately 43.3% of our consolidated revenues for the same period, and
Adjusted EBITDA of approximately NLG81.0 million. For the year ended December
31, 1997, Telekabel Group had total revenues of approximately NLG162.8 million,
which represented approximately 48.3% of our consolidated revenues for the
year, and Adjusted EBITDA of approximately NLG80.5 million. Telekabel Group's
Adjusted EBITDA margin declined slightly from 49.8% for the year ended December
31, 1997 to 45.7% for the year ended December 31, 1998. This decline was due
primarily to the increased operating costs and selling, general and
administrative costs associated with the start up of Telekabel Group's cable
telephone and Internet/data services. These costs were approximately NLG12.0
million for 1998. The Adjusted EBITDA margin for Telekabel Group's video
services business on a stand-alone basis was approximately 53% for the year
ended December 31, 1998. A large component of Telekabel Group's operating
expenses are franchise and other fees paid to the respective municipalities,
which were approximately NLG22.5 million and approximately NLG22.1 million,
respectively, for 1997 and 1998.

                                      106
<PAGE>

    Budgeted Capital Expenditures and Capital Resources. Telekabel Group has
budgeted approximately NLG208.0 million and NLG161.0 million for capital
expenditures in 1999 and 2000, respectively, primarily to continue to upgrade
its network to full two-way capacity, purchase customer premise equipment for
its new services, install a telephone switch and implement a subscriber
management system. Telekabel Group expects to fund these expenditures through
available cash flow and support from us.

    Competition. Telekabel Group's cable systems compete with a DTH satellite
service that is available throughout Austria. Currently, direct-to-home
satellite service penetration of the Austrian market is approximately 35% and
is concentrated primarily in the rural areas of the country. There is less
competition from direct-to-home satellite service in Vienna where we estimate
that the penetration is approximately 8%. Competition in the Internet/data
business in Austria is intensifying. PTA, the national incumbent
telecommunications service provider, is promoting its high speed lines and a
number of other companies recently have entered, or are expected to enter, the
market. In its telephone service in Vienna, Telekabel Group competes with PTA
and other new telephony providers. New facilities-based telephony and
Internet/data service providers that compete with the Telekabel Group in its
operating areas include United Telkom Austria, Tele.ring and Citykom. In
addition, there are three wireless telephone providers in Telekabel Group's
operating areas.

    Regulatory Issues. The regulatory environment in which the Telekabel Group
operates significantly affects the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--European Union" and "--Austria."

  Corporate Ownership. Telekabel Group consists of five Austrian corporations,
each of which owns a cable television operating system. We own 95% of, and
manage, each Telekabel Group company. Each of the respective cities in which
the operating systems are located owns, directly or indirectly, the remaining
5% interest in each company.

    Telekabel Wien's 5% shareholder Kabel-TV-Wien Gesellschaft m.b.H ("KTV") is
owned by the City of Vienna. KTV has the right to appoint a member to Telekabel
Wien's supervisory board. If four to six members have been appointed by
shareholder resolution, KTV has the right to appoint two members. KTV also has
the right to appoint one member of Telekabel Wien's board of management. We
have appointed six members of the supervisory board and two members of the
board of management. KTV has appointed two members of the supervisory board and
one member of the board of management. The remaining four members of the
supervisory board are employee representatives. Under the agreements among
Telekabel Wien and KTV, decisions regarding the subscriber rates and
programming content of Telekabel Wien's basic subscription package require the
unanimous approval of Telekabel Wien's board of management. Although we believe
the cooperation between KTV's managing director and the other managing
directors has been successful in the past, there can be no assurance that the
board of management will unanimously approve decisions regarding the subscriber
rates and programming content of Telekabel Wien's basic subscription package.
Should the Board not reach a unanimous decision in respect of these matters,
then pursuant to our syndicate agreement with KTV and Philips, a shareholders
meeting can be called. We, as a 95% shareholder, can call that meeting and
decide on the agenda. Under Austrian law, a majority shareholder such as us may
generally take a decision at the shareholders meeting rather than through the
Board of Management. However, we as the majority shareholder have never taken
this action and do not anticipate doing so in the future.

    In connection with the UPC acquisition in December 1997, KTV and Philips
agreed that Philips will continue to guarantee the capital level to be
maintained by Telekabel Wien. Philips has also agreed to guarantee the
continued fulfillment of the agreements that were originally concluded between
KTV and Philips and that were assigned by Philips to us. We have agreed to
indemnify Philips for any liability under Philips' guarantee.

                                      107
<PAGE>

    Philips, KTV and ourselves have agreed that the agreements concluded
between KTV and Philips will run until December 31, 2022 with an option to
extend them.

    Due to its position as a guarantor, Philips has the right to appoint one
member to our Supervisory Board. This Supervisory Director has a veto right
that is limited to fundamental decisions and exceptional business matters, such
as the sale or disposition of our interests in Telekabel Wien, if certain
threshold values are met. See "Certain Transactions and Relationships--
Relationship with Philips."

    The articles of association of the companies in the Telekabel Group
restrict their shareholders from divesting their interests for periods ranging
from the end of 2009 to 2022. In addition, a sale of shares requires notice of
two years and is subject to a right of first refusal of the other shareholders.

    The City of Vienna's approval is required for any change of control over
us, which approval cannot be unreasonably withheld if the buyer is a reputable
telecommunications and/or cable television operator. In the absence of such
approval, the City of Vienna can require United to own Telekabel Wien
separately from us. See "Certain Transactions and Relationships."

    We may provide Priority Telecom's services to Telekabel Group's subscribers
through a subsidiary wholly-owned by us, even though the services will continue
to be marketed by Telekabel Group.

                                      108
<PAGE>

 Belgium: Radio Public N.V./S.A.


     The following selected financial data have been derived from the
 financial statements of Radio Public N.V./S.A., which is marketed under the
 name "TVD." These financial statements have been prepared in accordance with
 Dutch GAAP with the Belgian franc as the functional currency. The following
 selected financial data for the three months ended March 31, 1999 includes a
 translation using the fixed exchange rate of 0.054629 Dutch guilders per
 Belgian franc.

<TABLE>
<CAPTION>
                                                                             Translation to
                                                                                Guilders
                                                                             --------------
                                                                Three Months  Three Months
                                   Year Ended December 31,         Ended         Ended
                                  ----------------------------   March 31,     March 31,
                                    1996      1997      1998        1999          1999
                                  --------  --------  --------  ------------ --------------
                                                                              (unaudited)
                                        (in thousands, except percentages)
  <S>                       <C>   <C>       <C>       <C>       <C>          <C>             <C> <C> <C>
  Selected Financial Data:
  Revenues................  (BEF)  693,990   710,521   673,170     160,922   (NLG)   8,791
  Net operating income
   (loss).................  (BEF)  (78,805)  (70,861) (161,365)    (69,688)  (NLG)  (3,807)
  Adjusted EBITDA.........  (BEF)  268,232   267,815   242,734      15,010   (NLG)     820
  Adjusted EBITDA margin..            38.7%     37.7%     36.1%        9.3%            9.3%
  Total capital
   expenditures...........  (BEF)   56,018   213,728   361,622      50,468   (NLG)   2,757
  Cash flows from
   operating activities...  (BEF)  (37,483) (112,423)  548,975     767,578   (NLG)  41,932
  Cash flows from
   investing activities...  (BEF) (187,667) (485,745) (557,961)    (30,240)  (NLG)  (1,652)
  Cash flows from
   financing activities...  (BEF)  259,336  (405,133)   (1,025)   (722,821)  (NLG) (39,487)
</TABLE>

<TABLE>
<CAPTION>
                                      As of December 31,
                                    -------------------------  As of March 31,
                                     1996     1997     1998         1999
                                    -------  -------  -------  ---------------
  <S>                         <C>   <C>      <C>      <C>      <C>
  Other Data:
  Homes passed...............       133,000  133,000  133,000      133,030
  Basic video subscribers....       127,815  127,529  127,398      126,818
  Basic video penetration....          96.1%    95.9%    95.8%        95.3%
  Avg. mo. service rev. per
   video subscriber.......... (NLG)   19.20    19.58    19.67        18.63
  Two-way homes passed.......           --    27,600   91,735      104,039
  Internet subscribers:
    Residential..............           --       214    1,869        2,551
    Business.................           --        42      284          365
</TABLE>


    Overview/Growth Strategy. TVD, our 100% owned subsidiary, provides cable
television and communications services in selected areas of Brussels and nearby
Leuven in Belgium. We estimate that there are currently approximately 133,000
homes under license in TVD's franchise areas. TVD, which currently has 95%
penetration in its franchise areas, plans to grow through the introduction of
new services that currently are not subject to the price regulations applicable
to basic cable services.

    TVD's management believes there is a strong demand for enhanced services in
its market. TVD introduced an expanded basic tier service in October 1996 and
an Internet access service in September 1997. As of March 31, 1999, TVD had
approximately 5,375 expanded basic subscribers and 2,550 residential, 650
student and 350 business Internet access subscribers. TVD introduced the chello
broadband service in the first quarter of 1999. As TVD upgrades additional
portions of its network to full two-way capability, it plans to introduce
impulse pay-per-view at the beginning of the third quarter of 1999. TVD intends
to provide cable telephone services beginning in 2000.

                                      109
<PAGE>

    Network. TVD owns the complete cable television infrastructure for each of
its systems from the headend to the home, with the exception of Etterbeek which
has 15,500 subscribers, where TVD has an agreement with the municipality to
operate the network until at least 2016. In late 1996, TVD began upgrading its
network through fiber optic overlay of its trunk lines and replacement of all
amplifiers. Employing high capacity 860 MHz technology, TVD's upgraded networks
passed approximately 104,025 homes, or 78% of its total network as of March 31,
1999. TVD expects to complete this upgrade by the end of 1999.

    Programming. TVD offers in Brussels a basic tier consisting of 32 channels,
17 expanded basic programs in six tiers, 20 FM radio channels and 16 premium
digital radio channels. Its system in Leuven offers a basic tier consisting of
37 channels, an expanded basic tier with five channels, 20 FM radio channels
and 16 premium digital radio channels. TVD also distributes three premium
channels, two in Brussels and one in Leuven, which are provided by Canal+.

    Results of Operations. For the year ended December 31, 1998, TVD had total
revenues of approximately NLG36.8 million, representing approximately 9.0% of
our consolidated revenues for the same period, and Adjusted EBITDA of
approximately NLG13.3 million. For the year ended December 31, 1997, TVD had
total revenues of approximately NLG38.7 million, which represented
approximately 11.5% of our consolidated revenues for the year, and Adjusted
EBITDA of approximately NLG14.6 million. TVD's Adjusted EBITDA margin declined
from 37.7% for the year ended December 31, 1997 to 36.1% for the year ended
December 31, 1998. This decline was due primarily to the increased start up
costs associated with TVD's Internet/data services. These costs were
approximately NLG3.6 million for the year ended December 31, 1998. The Adjusted
EBITDA margin for TVD's video services business on a stand-alone basis was
approximately 46.1% for the year ended December 31, 1998. In early 1998, TVD
ceased providing engineering services for some of our affiliates and third
parties. This resulted in a slight decrease in revenue in 1998; however,
Adjusted EBITDA was not affected by this change.

    Budgeted Capital Expenditures and Capital Resources. TVD has budgeted
approximately NLG25.7 million and NLG14.7 million for capital expenditures in
1999 and 2000, respectively, primarily to continue its network upgrade to full
two-way capacity, purchase customer premise equipment for its new services and
implement a subscriber management system. TVD expects to fund these
expenditures through available cash flow.

    Competition. TVD has approximately 95% penetration of its cable television
services in its service areas. TVD faces competition from one other cable
television provider, Iverlek, which was granted a license for the provision of
cable television services in Leuven and is constructing a cable network there.
As of March 31, 1999, TVD had approximately 26,800 subscribers in Leuven. To
date, TVD has experienced only limited competition from direct to home
satellite service providers. In its Internet access business, TVD competes with
traditional dial-up Internet service providers as well as various higher speed
access services offered by the incumbent telephone operator, Belgacom, and
other operators of public telecommunications networks. In addition, we
understand that Telenet offers a broadband access and content service using
Iverlek's new cable network in Leuven.

    Regulatory Issues. The regulatory environment in which TVD operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--European Union" and "--Belgium."

    Corporate Ownership. We own 100% of TVD.

                                      110
<PAGE>

 France

     The following selected financial data have been derived from the
 financial statements of Mediareseaux, CiteReseau, Rhone Vision Cable,
 Videopole and RCF. The financial statements of Mediareseaux have been
 prepared in accordance with generally accepted accounting principles in The
 Netherlands. The financial statements of CiteReseau, Rhone Vision Cable,
 Videopole and RCF have been prepared in accordance with generally accepted
 accounting principles in France with the French franc as the functional
 currency. The following selected financial data for the three months ended
 March 31, 1999 includes a translation using the fixed exchange rate of 0.336
 Dutch guilders per French franc.

<TABLE>
<CAPTION>
                                                                          Translation to
                                     Year Ended                              Guilders
                                    December 31,                        ------------------
                                  -----------------  Three Months Ended Three Months Ended
                                   1997      1998      March 31, 1999     March 31, 1999
                                  -------  --------  ------------------ ------------------
  Mediareseaux                                                    (unaudited)
                                                      (in thousands)
  <S>                       <C>   <C>      <C>       <C>                <C>
  Selected Financial Data:
   Revenues...............  (FFR)   7,789    23,961         9,411         (NLG)   3,162
   Net operating income
    (loss)................  (FFR) (18,295)  (28,605)      (15,948)        (NLG)  (5,359)
   Adjusted EBITDA........  (FFR) (13,790)  (15,097)       (9,321)        (NLG)  (3,132)
   Adjusted EBITDA
    margin................            N/A       N/A           N/A                   N/A
   Total capital
    expenditures..........  (FFR)  70,333   155,795        46,548         (NLG)  15,640
   Cash flows from
    operating activities..  (FFR) (12,862)   10,042       (68,827)        (NLG) (23,126)
   Cash flows from
    investing activities..  (FFR) (71,073) (156,069)      (44,765)        (NLG) (15,041)
   Cash flows from
    financing activities..  (FFR)  78,927   149,405       139,780         (NLG)  46,966
</TABLE>

<TABLE>
<CAPTION>
                                               As of December 31,     As of
                                               --------------------  March 31,
                                                 1997       1998       1999
  Other Data:                                  ---------  ---------  ---------
  <S>                                    <C>   <C>        <C>        <C>
   Homes passed.........................          28,267     74,623   82,320
   Basic video subscribers..............           6,758     29,107   32,662
   Basic video penetration..............            23.9%      39.0%    39.7%
   Avg. mo. service rev. per video sub-
    scriber............................. (NLG)     18.92      24.86    29.80
   Two-way homes passed.................          28,267     74,623   82,320
</TABLE>

<TABLE>
<CAPTION>
                                                                           Translation to
                                     Year Ended                               Guilders
                                    December 31,                         ------------------
                                  ------------------  Three Months Ended Three Months Ended
                                    1997      1998      March 31, 1999     March 31, 1999
                                  --------  --------  ------------------ ------------------
  Time Warner Cable
  France(1)                                                        (unaudited)
                                                      (in thousands)
  <S>                       <C>   <C>       <C>       <C>                <C>
  Selected Financial Data:
   Revenues...............  (FFR)   21,662    44,930        16,196         (NLG)   5,442
   Net operating income
    (loss)................  (FFR)  (41,787)  (57,234)      (14,903)        (NLG)  (5,008)
   Adjusted EBITDA........  (FFR)  (22,347)  (17,725)       (2,909)        (NLG)    (977)
   Adjusted EBITDA
    margin................             N/A       N/A           N/A                   N/A
   Total capital
    expenditures..........  (FFR)  173,065   348,671        84,963         (NLG)  28,547
   Cash flows from
    operating activities..  (FFR)  (42,373)  (28,376)      (10,573)        (NLG)  (3,552)
   Cash flows from
    investing activities..  (FFR) (184,097) (355,141)      (86,843)        (NLG) (29,179)
   Cash flows from
    financing activities..  (FFR)  191,592   420,864       159,444         (NLG)  53,573
</TABLE>

<TABLE>
<CAPTION>
                                               As of December 31,      As of
                                               --------------------   March 31,
                                                 1997       1998        1999
  Other Data:                                  ---------  ---------  ----------
  <S>                                    <C>   <C>        <C>        <C>
   Homes passed........................          100,031    182,408   210,965
   Basic video subscribers.............           37,309     59,042    66,613
   Basic video penetration.............             37.3%      32.4%     31.6%
   Avg. mo. service rev. per video sub-
    scriber............................  (NLG)     23.15      22.59     25.32
   Two-way homes passed................           12,600     39,887   108,972
</TABLE>
 --------------------
 (1) Represents the combined aggregate results of Time Warner Cable France's
     two operating systems, CiteReseau and Rhone Vision Cable.

                                      111
<PAGE>

<TABLE>
<CAPTION>
                                                                     Translation to
                                                                        Guilders
                                                                     --------------
                                     Year Ended
                                    December 31,       Three Months   Three Months
                                  ------------------      Ended          Ended
                                    1997      1998    March 31, 1999 March 31, 1999
                                  --------  --------  -------------- --------------
  Videopole                                                    (unaudited)
                                        (in thousands, except percentages)
  <S>                       <C>   <C>       <C>       <C>            <C>
  Selected Financial Data:
   Revenues...............  (FFR)  107,543   123,341      33,435      (NLG) 11,234
   Net operating income
    (loss)................  (FFR)  (95,909)  (99,179)    (21,097)     (NLG) (7,089)
   Adjusted EBITDA........  (FFR)  (29,934)  (14,359)        117      (NLG)     39
   Adjusted EBITDA
    margin................             N/A       N/A         0.3%              0.3%
   Total capital
    expenditures..........  (FFR)  136,295   111,386      20,956      (NLG)  7,041
   Cash flows from
    operating activities..  (FFR)  (79,023)  (83,893)      8,579      (NLG)  2,883
   Cash flows from
    investing activities..  (FFR) (149,657) (119,840)    (21,171)     (NLG) (7,113)
   Cash flows from
    financing activities..  (FFR)  210,135   200,766      20,320      (NLG)  6,828
</TABLE>

<TABLE>
<CAPTION>
                                         As of December 31,
                                         --------------------  As of March 31,
                                           1997       1998          1999
  Other Data:                            ---------  ---------  ---------------
  <S>                             <C>    <C>        <C>        <C>
   Homes passed..................          314,586    353,234      356,214
   Basic video subscribers.......          109,949    133,928      139,320
   Basic video penetration.......             35.0%      37.9%        39.1%
   Avg. mo. service rev. per
    video subscriber............. (NLG)      20.38      22.76        25.71
   Two-way homes passed..........           29,644     39,660       39,688
</TABLE>

<TABLE>
<CAPTION>
                                                                    Translation to
                                                                       Guilders
                                                                    --------------
                                     Year Ended
                                    December 31,      Three Months   Three Months
                                   ----------------      Ended          Ended
                                    1997     1998    March 31, 1999 March 31, 1999
                                   -------  -------  -------------- --------------
  Reseaux Cables de France                                    (unaudited)
                                        (in thousands, except percentages)
  <S>                        <C>   <C>      <C>      <C>            <C>
  Selected Financial Data:
   Revenues...............   (FFR)  83,305   90,316      23,258      (NLG) 7,815
   Net operating income
    (loss)................   (FFR) (21,148) (19,315)     (4,559)     (NLG)(1,532)
   Adjusted EBITDA........   (FFR)   9,610   13,521       3,124      (NLG) 1,050
   Adjusted EBITDA
    margin................            11.5%    15.0%       13.4%            13.4%
   Total capital
    expenditures..........   (FFR)  23,206   18,094       2,761      (NLG)   928
   Cash flows from
    operating activities..   (FFR)  (7,873)  (7,027)        618      (NLG)   208
   Cash flows from
    investing activities..   (FFR) (23,046) (18,679)     (2,886)     (NLG)  (970)
   Cash flows from
    financing activities..   (FFR)  69,628      585     (10,179)     (NLG)(3,420)
</TABLE>

<TABLE>
<CAPTION>
                                         As of December 31,
                                         --------------------  As of March 31,
                                           1997       1998          1999
  Other Data:                            ---------  ---------  ---------------
  <S>                             <C>    <C>        <C>        <C>
   Homes passed..................          200,000    200,000      202,490
   Basic video subscribers.......           70,606     73,720       74,278
   Basic video penetration.......             35.3%      36.9%        36.7%
   Avg. mo. service rev. per
    video subscriber............. (NLG)      31.92      32.74        33.48
   Two-way homes passed..........              --         --           --
</TABLE>

    We have an approximate 99.6% ownership interest and a 95% economic interest
(after exercise of warrants described below) in Mediareseaux Marne S.A.
("Mediareseaux"), which currently holds cable television franchises for 190,000
homes in the Marne-la-Vallee area east of Paris. Mediareseaux began
construction of its network in September 1996, and as of March 31, 1999,
Mediareseaux's system passed approximately 82,300 homes and had approximately
32,650 basic subscribers, giving it a penetration rate of 39.7%. To increase
its average monthly revenue per subscriber, Mediareseaux began offering pay-
per-view services in May 1998, and to date, the pay-per-view buy rate is
approximately 0.5 movies per expanded basic tier subscriber per month. Since
inception, Mediareseaux's average monthly service revenue per video subscriber
has averaged over NLG29.80.

                                      112
<PAGE>

    In June 1998, Mediareseaux obtained a 15 year telephone and network
operator license for an area that includes 1.5 million homes in the eastern
suburbs of Paris (three Departments) and in September 1998, Mediareseaux began
installing a telephone switch. Mediareseaux began offering telephone services
in March 1999 within its cable television franchise area. Mediareseaux also
offers chello broadband's Internet access services via its cable systems, and
is carrying out a trial offering of broadband fixed wireless local loop service
in two towns in the eastern suburbs of Paris under a temporary license for
1999. To expand its operations, Mediareseaux is pursuing potential acquisition
opportunities and plans to develop these franchises as one clustered system
offering integrated video, voice and Internet/data services.

    In March 1999, we agreed to acquire 100% of Time Warner Cable France. The
Time Warner Cable France systems are located in suburban Paris and Lyon and in
Limoges. The numbers of homes passed and subscribers are approximately 201,950
and 66,600, respectively, as of March 31, 1999.

    In June 1999, we agreed to acquire 100% of Videopole, which operates 83
cable systems serving approximately 123 towns and cities throughout France
including suburban Paris. The number of homes passed and subscribers were
approximately 356,200 and approximately 139,300, respectively as of March 31,
1999. At present, these systems offer analog cable television services and, in
some of Videopole's systems, digital cable television services. Videopole began
offering Internet/data services at the end of 1997. Following our acquisition
of Videopole, we plan to upgrade these systems to offer enhanced video within
three years. We would begin this upgrade with the systems in and around Paris,
which we plan to upgrade and link into the Mediareseaux systems in order to
provide full video, voice and Internet/data services by the second quarter of
2000.

    In June 1999, we acquired 95.7% of RCF. RCF's cable systems serve 9 regions
throughout France. RCF's systems passed approximately 202,475 homes and had
approximately 74,275 subscribers as of March 31, 1999. At present, these
systems offer only cable television services. We plan to upgrade the RCF
systems to offer enhanced video, telephone and Internet/data services. The RCF
system architecture is older than that of Time Warner Cable France or Videopole
and will, therefore, be more expensive to upgrade. We plan, however, to
complete the upgrade and launch full service in our three lines of business on
the RCF systems by the end of 2001.

    Network. Mediareseaux owns the complete cable television infrastructure for
each of its cable systems from the headend to the home. The hybrid fiber
coaxial network's initial architecture was a 750 MHz UHF-VHF frequency band
network with a 5-65 MHz return path. The systems' post-1998 construction
incorporates 860 MHz hybrid fiber coaxial capacity with a 5-65 MHz return
providing full two-way capability. As of March 31, 1999, Mediareseaux's network
passed approximately 43% of the 190,000 homes then in its franchise areas.
Since December 1998, we have increased the number of our franchises and we
expect the network to pass all 190,000 homes in our current franchise areas by
the end of 2000.

    The Time Warner Cable France systems are constructed to 860 MHz hybrid
fiber coaxial capacity, as are 90% of Videopole's systems. The remaining 10% of
Videopole's systems are constructed to 550 MHz capacity. Approximately 60% of
RCF's systems are constructed to 450 MHz capacity, and the remaining 40% are
constructed to 600 MHz capacity.

    Programming. Mediareseaux currently offers the following programming
packages:

  . a basic eight-channel package containing off-air, local and promotional
    programs,
  . four extended basic tiers, called News & Current Events, Youth &
    Discovery, International Channels and Sports & Leisure, with five to ten
    channels each,
  . three premium tiers containing three children's channels, three sports
    channels and four movie channels, and
  . ten impulse pay-per-view channels.

                                      113
<PAGE>

    Time Warner Cable France's programming offerings currently include a basic
service comprised of between 21 and 22 channels, an extended basic service
comprised of three groups of three to six channels each and a premium tier
comprised of three channels. Rhone Vision Cable also offers a digital package
of five expanded basic tiers and two premium packages.

    Videopole's basic service programming offerings vary by system and include
between 14 and 28 channels. RCF currently offers (i) a mini basic package of 14
channels, (ii) a basic package of 25 channels and (iii) a digital package with
four premium tiers.

    Results of Operations. As of December 31, 1998, Mediareseaux had total
revenues of approximately NLG8.1 million for the year then ended, representing
approximately 2% of our consolidated revenues for the same date, and Adjusted
EBITDA of approximately negative NLG5.1 million. For the year ended December
31, 1997, Mediareseaux had total revenues of approximately NLG2.5 million,
which represented approximately 0.7% of our consolidated revenues for the year,
and Adjusted EBITDA of approximately negative NLG4.5 million.

    As of December 31, 1998, Time Warner Cable France had total revenues of
approximately NLG15.1 million for the year then ended and Adjusted EBITDA of
approximately negative NLG6.0 million. For the year ended December 31, 1997,
Time Warner Cable France had total revenues of approximately NLG7.3 million and
Adjusted EBITDA of approximately negative NLG7.5 million.

    As of December 31, 1998, Videopole had total revenues of approximately
NLG41.4 million for the year then ended and Adjusted EBITDA of approximately
negative NLG4.8 million. For the year ended December 31, 1997, Videopole had
total revenues of approximately NLG34.9 million and Adjusted EBITDA of
approximately negative NLG9.7 million.

    As of December 31, 1998, RCF had total revenues of approximately NLG30.0
million for the year then ended and Adjusted EBITDA of approximately NLG3.7
million. For the year ended December 31, 1997, RCF had total revenues of
approximately NLG27.9 million and Adjusted EBITDA of approximately negative
NLG2.7 million.

    Budgeted Capital Expenditures and Capital Resources. Mediareseaux has
budgeted approximately NLG64.0 million and NLG102.2 million for capital
expenditures in 1999 and 2000, respectively, primarily to complete construction
of the network in its franchise areas, purchase customer premise equipment for
its new services, install a telephone switch and implement a subscriber
management system. Mediareseaux expects to fund these expenditures through
drawings under its debt facility and equity contributions from us to match the
debt to equity ratio of the facility. See "Description of Other Debt."

    Time Warner Cable France has budgeted approximately NLG114.4 million and
NLG131.3 million for capital expenditures in 1999 and 2000, respectively,
primarily to continue construction of the network in suburban Lyon and to
launch cable telephone and Internet services. Time Warner Cable France expects
to fund these expenditures through debt at the UPC level and operating cash
flow. See "Description of Other Debt."

    Videopole has budgeted approximately NLG34.3 million and NLG63.4 million
for capital expenditures in 1999 and 2000, respectively, primarily to introduce
new services such as telephone and Internet. Videopole expects to fund these
expenditures through debt at the UPC level and operating cash flow.

    RCF has budgeted approximately NLG2.4 million and NLG48.7 million for
capital expenditures in 1999 and 2000, respectively, primarily to introduce new
services such as telephone and Internet. RCF expects to fund these expenditures
through debt at the UPC level and operating cash flow.

    Time Warner Cable France had bank debt of approximately NLG100.8 million as
of March 31, 1999. RCF and Videopole had combined bank debt of approximately
NLG86.6 million as of March 31, 1999. We will consolidate this debt following
these acquisitions.

                                      114
<PAGE>

   Competition. Our French operating companies compete with other video
service providers in their license areas including direct-to-home satellite
service providers such as Canal Satellite and TPS. In the provision of their
cable telephone services, our French operating companies face competition
mainly from France Telecom, the French incumbent telecommunications operator,
and Cegetel. Mediareseaux faces competition from France Telecom's Wanadoo
service and other high-speed data services including AOL France, Club Internet
and other providers in the provision of Internet services.

   Regulatory Issues. The regulatory environment in which our French companies
operate significantly affect the operations of their businesses, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--France."

   Corporate Ownership. We own 99.6% of Mediareseaux, our French operating
system. The other owner of Mediareseaux is an entity controlled by Patrick
Drahi, its founder and current chairman, which holds warrants giving it the
right to purchase for a nominal amount new shares corresponding to 4.6% of
Mediareseaux's share capital. Accordingly, we will have only a 95% economic
interest in Mediareseaux should the above entity exercise the warrants.
Pursuant to an agreement dated June 16, 1998, we and the entity controlled by
Patrick Drahi have granted to each other options to purchase and sell, at a
price based on fair market value, the shares of Mediareseaux that the entity
may hold in the future.

   In June 1999, we acquired 95.7% of RCF. The remaining 4.3% is held by SLF,
a Belgian company.

   Although we have agreed to acquire 100% of Time Warner Cable France and
Videopole, these acquisitions have not yet closed.

                                      115
<PAGE>

 The Netherlands

     The following selected financial data have been derived from the
 financial statements of Kabeltelevisie Eindhoven N.V., which we refer to as
 "KTE," Stichting Combivisie Regio, which we refer to as "Combivisie," and NV
 TeleKabel Beheer, all of which are now wholly owned by UTH, and from the
 financial statements of A2000 Holding N.V. and GelreVision Holding B.V. We
 combined the assets of KTE and Combivisie in January 1998 to form CNBH. In
 August 1998, we contributed CNBH and 50% of A2000 and NUON contributed NV
 TeleKabel Beheer to form UTH. In June 1999, we acquired 100% of GelreVision
 and agreed to purchase the 50% of A2000 that we did not own from Media One,
 bringing our ownership of A2000 to 100%. Because UTH began operations in
 August 1998, the financial information presented below for the year ended
 December 31, 1998 includes results of CNBH and NV TeleKabel Beheer for the
 first seven months of 1998 and includes results from UTH from formation to
 December 31, 1998. The financial information below has been prepared in
 accordance with Dutch GAAP with the Dutch guilder as the functional currency.

<TABLE>
<CAPTION>
                                          KTE               Combivisie        NV TeleKabel Beheer
                                  --------------------  --------------------  --------------------
                                      Year Ended            Year Ended            Year Ended
                                     December 31,          December 31,          December 31,
                                  --------------------  --------------------  --------------------
                                    1996       1997       1996       1997       1996       1997
                                  ---------  ---------  ---------  ---------  ---------  ---------
  <S>                       <C>   <C>        <C>        <C>        <C>        <C>        <C>
  Selected Financial Data:                    (in thousands, except percentages)
   Revenues...............  (NLG)    17,932     20,669     27,143     29,001    113,917    137,167
   Net operating income
    (loss)................  (NLG)     1,650      2,156     11,958     12,864     22,846     27,395
   Adjusted EBITDA........  (NLG)    11,298     12,719     19,816     21,032     45,041     58,813
   Adjusted EBITDA
    margin................             63.0%      61.5%      73.0%      72.5%      39.5%      42.9%
   Total capital
    expenditures..........  (NLG)     5,591      8,192      9,250     19,121     36,000     71,875
   Cash flows from
    operating activities..  (NLG)     6,939      4,207     16,204     14,456     (8,534)    38,374
   Cash flows from
    investing activities..  (NLG)    (5,592)    (8,441)    (9,251)   (19,726)  (230,592)  (266,954)
   Cash flows from
    financing activities..  (NLG)    (2,602)     3,505     (7,715)      (101)   238,148    246,045
<CAPTION>
                                  As of December 31,    As of December 31,    As of December 31,
                                  ------------------    --------------------  --------------------
                                    1996       1997       1996       1997       1996       1997
                                  ---------  ---------  ---------  ---------  ---------  ---------
  <S>                       <C>   <C>        <C>        <C>        <C>        <C>        <C>
  Other Data:
   Homes passed...........           89,116     95,442    139,062    143,376    511,300    642,000
   Basic video
    subscribers...........           84,660     90,671    133,775    139,249    475,000    595,000
   Basic video
    penetration...........             95.0%      95.0%      96.2%      97.1%      92.9%      92.7%
   Avg. mo. service rev.
    per video subscriber..  (NLG)     17.69      18.03      16.21      17.19      15.69      16.20
   Two-way homes passed...              --      90,000        --      35,000        --      50,000
</TABLE>
<TABLE>
<CAPTION>
                                                                  Three Months
                                                  Year Ended          Ended
                                                 December 31,       March 31,
                                                     1998             1999
  UTH                                         ------------------ ---------------
                                                         (unaudited)
  Selected Financial Data:                    (in thousands, except percentages)
  <S>                                   <C>   <C>                <C>
   Revenues...........................  (NLG)       219,314           60,277
   Net operating income (loss)........  (NLG)           764           (7,962)
   Adjusted EBITDA....................  (NLG)        86,249           22,410
   Adjusted EBITDA margin.............                 39.3%            37.2%
   Total capital expenditures.........  (NLG)       214,606           22,639
   Cash flows from operating
    activities........................  (NLG)        70,750          (31,920)
   Cash flows from investing
    activities........................  (NLG)      (255,440)         (33,855)
   Cash flows from financing
    activities........................  (NLG)       178,714           78,093
<CAPTION>
                                              As of December 31, As of March 31,
                                                     1998             1999
                                              ------------------ ---------------
  <S>                                   <C>   <C>                <C>
  Other Data:
   Homes passed.......................              914,737          916,220
   Basic video subscribers............              867,800          870,409
   Basic video penetration............                 94.9%            95.0%
   Avg. mo. service rev. per video
    subscriber........................  (NLG)         17.96            17.95
   Two-way homes passed...............              484,133          600,000
   Internet subscribers
   Residential........................                2,685            5,042
   Business...........................                  --               --
   Telephone subscribers: (1)
   Residential........................               20,500           16,608
   Business...........................                  --             4,152
</TABLE>
 --------
 (1) UTH's 80% subsidiary Uniport offers a carrier select telephony service.


                                      116
<PAGE>

<TABLE>
<CAPTION>


                                                                    Three
                                                                   Months
                                   Year Ended December 31,          Ended
                                  ---------------------------     March 31,
                                   1996      1997      1998         1999
  A2000                           -------  --------  --------  ---------------
                                                                 (unaudited)
                                     (in thousands, except percentages)
  <S>                       <C>   <C>      <C>       <C>       <C>
  Selected Financial Data:
   Revenues...............  (NLG)  89,893   100,677   124,167       35,979
   Net operating income
    (loss)................  (NLG)  (1,942)  (17,671)  (42,774)      (4,083)
   Adjusted EBITDA........  (NLG)  40,546    33,250    30,565       10,874
   Adjusted EBITDA
    margin................           45.1%     33.0%     24.6%        30.2%
   Total capital
    expenditures..........  (NLG)  44,740   118,498   110,524       19,432
   Cash flows from
    operating activities..  (NLG)  35,215    33,304     7,408       (1,367)
   Cash flows from
    investing activities..  (NLG) (83,754) (119,824) (110,640)     (19,432)
   Cash flows from
    financing activities..  (NLG)  72,547    60,000    96,733      (20,679)
<CAPTION>

                                     As of December 31,
                                  ---------------------------  As of March 31,
                                   1996      1997      1998         1999
                                  -------  --------  --------  ---------------
  <S>                       <C>   <C>      <C>       <C>       <C>
  Other Data:
   Homes passed...........        555,459   565,740   572,936      578,306
   Basic video
    subscribers...........        523,940   518,160   529,067      533,722
   Basic video
    penetration...........           94.3%     91.6%     92.3%        92.3%
   Avg. mo. service rev.
    per video subscriber..  (NLG)   12.96     13.29     14.76        14.52
   Two-way homes passed...            --    125,180   386,109      386,109
   Internet subscribers:
   Residential............            --        450     8,128       11,058
   Business...............            --        --        253          493
   Telephone subscribers:
   Residential............            --      3,252    18,111       22,338
   Business...............            --          3         3            3
<CAPTION>


                                                                    Three
                                                                   Months
                                   Year Ended December 31,          Ended
                                  ---------------------------     March 31,
                                   1996      1997      1998         1999
  GelreVision                     -------  --------  --------  ---------------
                                                                 (unaudited)
                                     (in thousands, except percentages)
  <S>                       <C>   <C>      <C>       <C>       <C>
  Selected Financial Data:
   Revenues...............  (NLG)  21,871    23,173    26,574        7,448
   Net operating income
    (loss)................  (NLG)   5,785     6,793      (470)          (2)
   Adjusted EBITDA........  (NLG)  14,276    14,959    11,911        3,766
   Adjusted EBITDA
    margin................           65.3%     64.6%     44.8%        50.6%
   Total capital
    expenditures..........  (NLG)   6,872    18,828    35,970        7,915
   Cash flows from
    operating activities..  (NLG)  14,731     6,806     8,505        5,924
   Cash flows from
    investing activities..  (NLG)  (6,994)  (19,146)  (45,457)      (8,100)
   Cash flows from
    financing activities..  (NLG)  (7,216)   11,435    36,637        2,691
<CAPTION>

                                     As of December 31,
                                  ---------------------------  As of March 31,
                                   1996      1997      1998         1999
                                  -------  --------  --------  ---------------
  <S>                       <C>   <C>      <C>       <C>       <C>
  Other Data:
   Homes passed...........        116,000   131,000   144,000      145,000
   Basic video
    subscribers...........        107,000   120,000   131,000      132,000
   Basic video
    penetration...........           92.2%     91.6%     91.0%        91.0%
   Avg. mo. service rev.
    per video subscriber
    ......................  (NLG)   16.65     16.90     17.15        17.41
   Two-way homes passed...            --     25,000    88,000       88,000
   Internet subscribers...            --        --      1,000        3,000
</TABLE>


    Our Dutch operations are held through UTH, a wholly-owned subsidiary. UTH
holds four principal operating companies: (1) CNBH, which holds the combined
KTE and Combivisie systems, (2) TeleKabel Beheer, (3) 50% of A2000 and, as of
June 1999, (4) GelreVision. Financial and operating information for UTH's
consolidated companies, which are CNBH (KTE and Combivisie) and TeleKabel
Beheer, are

                                      117
<PAGE>

presented separately in this section because of the separate history of each
entity. GelreVision's results are also presented separately. UTH began
consolidating GelreVision's results on June 1, 1999. A2000 is also presented
separately, but following the acquisition of the remaining 50% of A2000 that we
do not own, UTH will begin to consolidate A2000's results.

    A minority ownership interest in KTE was contributed by Philips upon our
formation. Shortly after formation, we acquired 50% of A2000, the system with
operations in Amsterdam and its surrounding areas, and the remaining 96.2% of
the KTE system. Effective January 1, 1998, we acquired the Combivisie cable
system, which we subsequently combined with KTE to form CNBH.

    In August 1998, we formed UTH with NUON. We contributed 100% of CNBH and
our 50% interest in A2000 and NUON contributed 100% of TeleKabel Beheer. In
February 1999, we acquired NUON's interest in UTH. In June 1999, we agreed to
acquire the remaining 50% of A2000 from MediaOne. UTH is in the process of
integrating all of the operations of CNBH and TeleKabel Beheer.

    In June 1999, we acquired 100% of GelreVision. GelreVision operates cable
television systems contiguous with our A2000 and TeleKabel Beheer operations.

    Overview/Growth Strategy. UTH owns and operates systems in the regions of
Brabant, Flevoland, Friesland, Gelderland, Noord Holland and Utrecht. Because
of the large number of current subscribers located in four large clusters in
The Netherlands, UTH has constructed a fiber backbone to interconnect its
region-wide networks. Both KTE and Combivisie introduced an expanded basic tier
in December 1996. CNBH launched impulse pay-per-view services in June 1998. An
expanded basic tier will be launched in UTH's other service areas in the third
quarter of 1999.

    UTH launched chello broadband's Internet/data services in the CNBH systems
in early 1999. The media launch of chello broadband services in the remainder
of UTH's service areas took place on June 4, 1999. In addition, UTH introduced
the initial phase of cable telephone services in the CNBH systems in early 1999
upon completion of an interconnection agreement for all of UTH in January 1999.
TeleKabel Beheer introduced an Internet access service in November 1997 in
parts of its networks and launched chello broadband's service on April 1, 1999.
All existing Internet customers will be migrated to the chello broadband
service. UTH launched Priority Telecom cable telephone service in parts of its
network as of May 1, 1999. UTH also delivers a business telephone service,
including leased line management, on-site services and telephone equipment,
sales and maintenance to its former shareholder, NUON, and several other
companies.

    In September 1998, UTH acquired 80% of Uniport, a carrier select telephone
service with approximately 20,750 subscribers at March 31, 1999.

    In August 1998, CNBH acquired from Nutsbedrijf Regio Eindhoven a 16,700
subscriber cable television system in the Eindhoven region. This acquisition
enabled us to increase our cluster of operations in and around the Eindhoven
area.

    A2000 currently has basic penetration rates of approximately 92% in its two
systems serving Amsterdam and its surrounding communities of Landsmeer,
Purmerend, Zaanstad, Ouder-Amstel, and Hilversum. As a result of this high
penetration and the rate regulation of the basic tier in A2000's franchise
areas, A2000 has focused its efforts on increasing its average revenue per
subscriber through the introduction of new video, telephone and Internet/data
services.

    A2000 launched a nine-channel expanded basic tier in October 1996, impulse
pay-per-view services in April 1997, cable telephone service in July 1997 and
an Internet/data access service in October 1997. A2000 launched its Nedpoint-
branded cable telephone service in August 1998. See "--UPC Telephone Services:
Priority Telecom--The A2000 Experience." As of March 31, 1999, A2000 had
approximately

                                      118
<PAGE>

15,675 subscribers to its expanded basic tier, approximately 22,325 cable
telephone subscribers and approximately 11,050 residential and 475 business
subscribers to its Internet/data access service. Approximately 15% of
subscribers who subscribe for its Internet/data services also subscribe to an
integrated package including one or both of its telephone and expanded basic
tier services. Approximately 30% of the subscribers who subscribe to its
telephone services also subscribe to one or both of the other services. See "--
UPC Telephone Services: Priority Telecom."

    In June 1999, UTH purchased the GelreVision system, which had approximately
132,000 basic cable television subscribers and approximately 3,000
Internet/data subscribers as of March 31, 1999. GelreVision plans to move its
existing Internet/data subscribers to the chello broadband service at the end
of 1999. GelreVision intends to provide cable telephone services beginning in
2000.

    Network. Each of UTH's systems owns or has the right to use the complete
cable television infrastructure from the headend to the home. In 1997,
Combivisie and TeleKabel Beheer began upgrading their networks with high
capacity 860 MHz technology. The upgrade is expected to be 100% completed by
the end of 2000. As of March 31, 1999, approximately 65% of UTH's homes were
passed by the upgraded network.

    A2000 owns or has the right to use its infrastructure from the head end to
the home and is in the process of upgrading its cable television
infrastructure. As of March 31, 1999, approximately 386,100 homes, or 67% of
A2000's systems, were passed by the high capacity 860 MHz upgraded network with
total rebuild expected to be completed by early 2000.

    The GelreVision network uses 860 MHz technology and is being upgraded to
two-way capability. The upgrade is scheduled to be completed by the end of
2000. As of March 31, 1999, approximately 88,000 homes, or 61% of homes passed,
were passed by the upgraded network.

    Programming. UTH currently offers its subscribers an average of 28 channels
of basic programming along with a music channel and 33 FM radio channels. UTH
also distributes two premium channels provided by Canal+. In addition, UTH
offers an impulse pay-per-view service, consisting of four movie channels and
one adult channel. UTH's basic service includes Dutch broadcasting channels, as
well as a variety of German, French and English channels. The eight channels in
UTH's expanded basic tier consist of sports, travel, news, science fiction,
music and general entertainment. UTH is discussing with some of its higher
value programming suppliers the migration of their channels from the basic tier
to the expanded basic tier.

    Historically, A2000 offered 26 channels of cable programming and 39 FM
radio channels to its basic tier subscribers. A2000's expanded basic tier
carried 13 channels. Recent developments will significantly increase A2000's
ability to offer additional programming as well as alter its tiering structure.

    Increases in the price of the basic tier service were restricted by
agreements between A2000 and Amsterdam and the other municipalities in its
franchise areas. Because these prices were kept at a low level, A2000's basic
tier revenues were limited. A2000, therefore, charged programming suppliers
carriage fees for the transmission of their channels in A2000's basic tier. See
"Regulation--The Netherlands--Video Services." Some of A2000's programming
suppliers were unwilling to pay such carriage fees and Discovery, Eurosport,
CNN and MTV withdrew their channels from A2000's basic tier offerings.

    In April 1999, A2000 and the municipality of Amsterdam reached an agreement
on a large scale introduction of digital set-top boxes and a reduction of the
rate regulated basic cable television package to 15 public channels. The
agreement means that A2000 will no longer charge carriage fees to commercial
broadcasters for inclusion of their channels in the basic cable television
package and allows A2000 to migrate a number of popular commercial channels to
its expanded basic tier. During the period preceding the introduction of and
migration of channels to its digital platform, A2000 and the municipality of

                                      119
<PAGE>

Amsterdam have agreed on an interim solution for the basic tier service, namely
increasing A2000's current 26 channel basic package to 32 channels with an
increase in the monthly subscription fee. Once the digital set-top boxes are
introduced, the price for the rate regulated 15 public channel basic service
will be reduced and the price for the expanded basic tier will increase over
time until it becomes unregulated in 2001. The agreement will initially affect
approximately 390,000 customers in the greater Amsterdam area. Negotiations
with the remaining municipalities have begun. The agreement with the
municipality of Amsterdam requires A2000 to provide our integrated digital set-
top box to customers requesting the expanded basic tier. Our set-top boxes will
enable these customers to receive our chello broadband Internet service over a
computer or a television. In addition, we will be able to offer subscribers IP
telephone services through our set-top boxes in the future.

    Introduction of the digital set-top boxes is expected to occur in the first
quarter of 2000. Subsequent to reaching the agreement with the municipality,
CNN and MTV were reintroduced into the A2000 basic tier programming package.

    A2000 also distributes two premium channels provided by Canal+. A2000
offers programming in many languages, including Dutch, English, German,
Italian, French and Turkish.

    A2000 plans to continue to introduce new channels on its tiered services
when such programming is available. A2000's impulse pay-per-view service offers
movies from all major studios on four movie channels. This service also
includes an adult channel and one "barker" channel that provides previews of
upcoming pay-per-view events.

    GelreVision currently offers 29 channels of basic cable programming and 35
FM radio channels. GelreVision is in the process of synchronizing its network
with those of UTH, which will enable it to offer an expanded range of
programming. GelreVision intends to introduce an expanded basic tier in early
2000. See "Risk Factors--Inability to obtain the necessary programming could
reduce demand for our services."

    Results of Operations. For the year ended December 31, 1998, UTH had total
revenues of approximately NLG219.3 million, representing approximately 36.9% of
our consolidated revenues for the same period if we consolidated the results of
UTH and A2000, and Adjusted EBITDA of approximately NLG86.2 million. For the
year ended December 31, 1997, KTE had total revenues of approximately NLG20.7
million, which represented approximately 6.1% of our consolidated revenues for
the year, and Adjusted EBITDA of approximately NLG12.7 million. During the same
period, Combivisie had revenues and Adjusted EBITDA of NLG29.0 million and
NLG21.0 million, respectively, and TeleKabel Beheer had revenues and Adjusted
EBITDA of NLG137.2 million and NLG58.8 million, respectively.

    For the year ended December 31, 1998, A2000 had total revenues of
approximately NLG124.2 million. For the same period, A2000 had Adjusted EBITDA
of approximately NLG30.6 million. For the year ended December 31, 1997, A2000
had total revenues of approximately NLG100.7 million and Adjusted EBITDA of
approximately NLG33.3 million. A2000's Adjusted EBITDA margin declined from
33.0% for the year ended December 31, 1997 to 24.6% for the year ended December
31, 1998. This decline was due primarily to the increased start up and
operating costs associated with A2000's Internet/data and cable telephone
services. The costs associated with these services were approximately NLG15.4
million for the year ended December 31, 1998. The Adjusted EBITDA margin for
A2000's video services business on a stand-alone basis was approximately 42.6%
for the year ended December 31, 1998.

    GelreVision had total revenues of approximately NLG26.6 million and
Adjusted EBITDA of approximately NLG11.9 million for the year ended December
31, 1998.

    Budgeted Capital Expenditures and Capital Resources. UTH has budgeted
approximately NLG235.0 million and NLG216.4 million for capital expenditures in
1999 and 2000, respectively, excluding A2000, primarily to continue its network
upgrade to full two-way capacity, purchase customer premise

                                      120
<PAGE>

equipment for its new services, install telephone switches and implement a
subscriber management system. UTH expects to fund these expenditures through
available cash flow, drawings from CNBH's facility and proceeds from TeleKabel
Beheer's term facility.

    A2000 has budgeted approximately NLG168.4 million and NLG412.8 million for
capital expenditures in 1999 and 2000, respectively, primarily to continue its
network upgrade to full two-way capacity, purchase customer premise equipment,
including digital set-top boxes as required by an agreement reached with the
city of Amsterdam discussed above under "--Programming," and implement a
subscriber management system. A2000 expects to fund these expenditures through
available cash flow and support from us.

    Following the acquisition of GelreVision, UTH has budgeted an additional
NLG35 million and NLG27 million for capital expenditures in 1999 and 2000,
respectively. We did not assume any material debt in connection with our
acquisition of GelreVision.

    Competition. UTH is the only cable system in its franchise areas and has
maintained approximately 95% penetration. Competition from television signals
received by antenna, direct to home satellite services and local private cable
systems has been limited. KPN, the incumbent telecommunications operator, has
been conducting a trial of providing video services over its telephone lines.
In its Internet access business, UTH competes with dial-up Internet service
providers such as KPN's World Access/Planet Internet, NLNet and World Online
and expects to compete with high speed access services from KPN and other
providers. In its cable telephone services, UTH competes primarily with KPN as
well as other new telephony providers.

    A2000 currently has a penetration rate of about 92% in its service area.
Its primary competition is from direct to home satellite service providers. To
date, however, A2000's programming rights, low basic cable fees, restrictive
regulations on the installation of dishes and high installation costs have
limited direct to home satellite services as a meaningful competitor. KPN has
been conducting a trial of providing video services over its telephone lines in
Amsterdam. In its Internet access service, A2000 currently is the only high
speed access provider in its operating area. A2000 expects to compete with KPN,
which is testing a high speed Internet access service, and other providers of
broadband services in the near future. A2000 also competes with traditional
dial-up providers, including KPN's World Access/Planet Internet, NLNet and
Euronet. In its telephone business, A2000 currently competes with KPN, Telfort,
Colt and Worldcom. A2000 competes with these other telephone providers on the
basis of price, quality of service and the ability to integrate certain of its
services.

    Regulatory Issues. The regulatory environment in which UTH, A2000 and
GelreVision operate significantly affects the operations of their business,
including the profitability and the timing of introduction of our new business
lines. See "Regulation--European Union" and "--The Netherlands." As discussed
above under "--Programming," price increases of A2000's basic tier video
services are restricted by agreements with local municipalities, which has led
to some difficulties with programming suppliers. See "Regulation--The
Netherlands."

    Corporate Ownership. We own 100% of UTH, 100% of GelreVision and 50% of
A2000. In June 1999, we agreed to purchase from MediaOne the 50% of A2000 that
we did not own, which will bring our ownership of A2000 to 100%.

                                      121
<PAGE>

  Norway: Janco Multicom


     The following selected financial data have been derived from the
 financial statements of Janco Multicom. These financial statements have been
 prepared in accordance with Dutch GAAP with the Norwegian kroner as the
 functional currency. The following selected financial data for the three
 months ended March 31, 1999 includes a translation using the average exchange
 rate of 0.25567 Dutch guilders per Norwegian kroner.

<TABLE>
<CAPTION>
                                                   Janco Multicom
                                  ---------------------------------------------------
                                     Year Ended                         Translation
                                    December 31,                        to Guilders
                                  ------------------                  ---------------
                                                       Three Months    Three Months
                                                      Ended March 31, Ended March 31,
                                    1997      1998         1999            1999
                                  --------  --------  --------------- ---------------
                                                                (unaudited)
                                      (in thousands, except percentages)
  <S>                       <C>   <C>       <C>       <C>             <C>    <C>
  Selected Financial Data:
  Revenues................  (NKr)  332,192   351,466       94,939      (NLG)   24,273
  Net operating income
   (loss).................  (NKr) (101,216) (122,467)     (54,590)     (NLG)  (13,957)
  Adjusted EBITDA.........  (NKr)  134,660   125,338       17,507      (NLG)    4,476
  Adjusted EBITDA margin..            40.5%     35.7%        18.4%               18.4%
  Total capital
   expenditures...........  (NKr)   74,863   194,156       75,382      (NLG)   19,273
  Cash flows from
   operating activities...  (NKr)   43,859    35,472       17,296      (NLG)    4,422
  Cash flows from
   investing activities...  (NKr)  (75,608) (194,042)    (168,487)     (NLG)  (43,077)
  Cash flows from
   financing activities...  (NKr)  111,445    82,342      154,297      (NLG)   39,449
</TABLE>

<TABLE>
<CAPTION>
                                         As of December 31,
                                         --------------------  As of March 31,
                                           1997       1998          1999
                                         ---------  ---------  ---------------
  <S>                              <C>   <C>        <C>        <C>
  Other Data:
  Homes passed....................         457,551    463,235      464,941
  Basic video subscribers.........         319,654    323,387      322,735
  Basic video penetration.........            69.9%      69.8%        69.4%
  Average mo. service rev. per
   video subscriber............... (NLG)     20.13      21.07        22.44
  Two way homes passed............           5,171     15,803       18,685
  Internet subscribers:
   Residential....................             153        768          884
   Business.......................             --         --             5
  Telephone subscribers:
   Residential....................             --         --           211
   Business.......................             --         --           --
</TABLE>


    Overview/Growth Strategy. In an effort to increase our position in the
Norwegian cable television market, we acquired from Helsinki Media in January
1997, 70.2% of Janco, a cable system providing cable television services in the
Oslo area. In November 1997, we merged Norkabel, a cable system providing
services in southern Norway, into Janco forming Janco Multicom. Following the
merger, we retained 87.3% of Janco Multicom. We acquired the remaining 12.7%
interest in Janco Multicom in November 1998.

    As a result of the merger, Janco Multicom is Norway's largest cable
television operator with approximately 47% of the total Norwegian cable
television market as of March 31, 1999. Janco Multicom owns and operates 16
cable television systems in Norway. Its main network is located in Oslo and its
systems are located primarily in the southeast and along the southwestern
coast. The well-established Norwegian cable television market had 69%
penetration as of March 31, 1999, primarily due to poor over-the-air reception
in much of Norway and a significant demand for television entertainment.

    Our goals for our Norwegian operating systems are to continue to increase
Janco Multicom's homes passed and penetration rate, to improve its average
revenue per subscriber generally by providing additional programming and
services and to increase average revenue per subscriber in the former Janco
systems in particular at least up to the levels in the former Norkabel systems.
During the year ended March 31, 1999, the average revenue per subscriber for
the former Norkabel systems was over twice that for the former Janco systems.
We believe that this is the result of Norkabel's implementation of expanded

                                      122
<PAGE>

basic tiers and its aggressive migration of channels from the basic tier to the
expanded basic tier. Although the former Janco systems also launched an
expanded basic tier, the basic tier continued to carry the most popular
channels. Revenue enhancing techniques, including migration of channels to
expanded basic tiers, are currently being implemented in the former Janco
systems.

   Janco Multicom launched an Internet access service in March 1998 and
introduced chello broadband service in June 1999. We plan to migrate all of our
existing Internet access subscribers to chello broadband by the end of August
1999. We also introduced Priority Telecom's cable telephone service in April
1999 in the upgraded portions of Janco Multicom's network. See "--UPC
Internet/Data Services: High Speed Access and chello broadband," and "--UPC
Telephone Services: Priority Telecom."

   Network. Janco Multicom owns the complete cable television infrastructure
for each of its systems from the headend to the home, except for cable and
plant located on housing association property, which is legally owned by the
housing association. Janco Multicom is currently upgrading its network to full
high capacity 860 MHz two-way capability, with the exception of 75,000 homes in
western rural areas. Its networks vary in capacity from 300 MHz to 550 MHz.
This varying architecture requires us to replace more of the network than in
our other primary markets, thereby increasing the costs associated with this
upgrade. The upgrade, which began in April 1998, is scheduled to be completed
over the next three to four years.

   Programming. Janco Multicom currently offers subscribers 43 channels of
programming in four tiers:

  . a basic tier including "must carry" channels, a limited number of
    broadcast channels required by the government to be carried,
  . expanded basic tiers,
  . a "mini-tier" of certain selected channels, and
  . premium services.

   Because English is widely understood in Norway, Janco Multicom is able to
use English-language programming to supplement the limited, but increasing,
supply of available Scandinavian-language programming.

   Results of Operations. For the year ended December 31, 1998, Janco Multicom
had total revenues of approximately NLG92.7 million, representing approximately
22.7% of our consolidated revenues for the same period, and Adjusted EBITDA of
approximately NLG33.0 million. For the year ended December 31, 1997, Janco
Multicom had total revenues of approximately NLG91.5 million, which represented
approximately 27.1% of UPC's consolidated revenues for the year, and Adjusted
EBITDA of approximately NLG36.9 million. Janco Multicom's Adjusted EBITDA
margin declined from 40.5% for the year ended December 31, 1997 to 35.7% for
the year ended December 31, 1998. This decline was due primarily to the
increased start up costs associated with Janco Multicom's Internet/data
services launched in early 1998 and telephone service launched in the first
quarter of 1999. The Adjusted EBITDA margin for Janco Multicom's video services
business on a stand-alone basis was approximately 39.7% for the year ended
December 31, 1998.

   Budgeted Capital Expenditures and Capital Resources. Janco Multicom has
budgeted approximately NLG112.2 million and NLG124.3 million for capital
expenditures in 1999 and 2000, respectively, primarily to continue its network
upgrade to full two-way capacity, purchase customer premise equipment for its
new services, install a telephone switch and implement a subscriber management
system. Janco Multicom expects to fund these expenditures through available
cash flow and support from us.

   Competition. Janco Multicom experiences limited competition for multi-
channel video services from direct to home satellite service providers and, in
a few areas, other cable television systems. In its Internet access business,
Janco Multicom expects to compete with Telenor, the Norwegian incumbent

                                      123
<PAGE>

telecommunications operator that is expected to launch a broadband Internet
access service this fall; Tele2, a subsidiary of NetCom Systems, which operates
a dial-up Internet access service and has recently launched a high speed
wireless Internet access service; and other new providers. Janco Multicom
competes in the telephone business primarily with Telenor, as well as with
other new providers and in-direct access telephone service providers.

    Regulatory Issues. The regulatory environment in which Janco Multicom
operates significantly affects the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--European Union" and "--Norway."

    Corporate Ownership. We own 100% of Janco Multicom.

 Sweden: Stjarn


     The following selected financial data have been derived from the
 unaudited pro forma consolidated financial statements of NBS Broadband
 Services AB ("NBS") for the twelve months ended December 31, 1996, 1997 and
 1998, and the unaudited consolidated historical financial statements of NBS
 for the three months ended March 31, 1999. These financial statements have
 been prepared in accordance with Swedish GAAP and with the Swedish Kronor as
 the functional currency. NBS acquired Stjarn TV natet AB ("Stjarn") in May
 1998. Prior to the acquisition of Stjarn, NBS had no operations of its own.
 The unaudited pro forma selected financial data for the years ended December
 31, 1996, 1997 and 1998 set forth the financial information as if the
 acquisition of Stjarn had taken place prior to the beginning of these
 periods. The acquisition has been accounted for as a purchase and the
 unaudited pro forma financial information for NBS reflects the financing
 required to effect the acquisition and the creation of goodwill as a result
 of the acquisition. The following selected financial data for the three
 months ended March 31, 1999 includes a translation using the March 31, 1999
 fixed exchange rate of NLG0.2448 per Swedish Kronor.

<TABLE>
<CAPTION>
                                                                          Translation
                                                                          to Guilders
                                                                          ------------
                                                             Three Months Three Months
                               Year Ended December 31,          Ended        Ended
                            -------------------------------   March 31,    March 31,
                                1996        1997     1998        1999         1999
                            -------------  -------  -------  ------------ ------------
                                                  (unaudited)
                                      (in thousands, except percentages)
  <S>                       <C>            <C>      <C>      <C>          <C>
  Selected Financial Data:
  Revenues................  (SEK) 241,972  247,429  252,359     67,613    (NLG) 16,554
  Net operating income
   (loss).................  (SEK)  31,844   35,601  (10,555)     1,821    (NLG)    446
  Adjusted EBITDA.........  (SEK)  87,721   92,280   50,589     18,050    (NLG)  4,419
  Adjusted EBITDA margin..           36.3%    37.3%    20.0%      26.7%           26.7%
  Total capital
   expenditures...........  (SEK)     --       --    61,492     32,081    (NLG)  7,853
  Cash flows from
   operating activities...  (SEK)     --       --    39,111      5,335    (NLG)  1,306
  Cash flows from
   investing activities...  (SEK)     --       --   (61,492)   (38,145)   (NLG) (9,338)
  Cash flows from
   financing activities...  (SEK)     --       --    13,148     80,579    (NLG) 19,725
</TABLE>

<TABLE>
<CAPTION>
                                       As of December 31,
                                   --------------------------- As of March 31,
                                      1996      1997    1998        1999
                                   ----------- ------- ------- ---------------
  <S>                              <C>         <C>     <C>     <C>
  Other Data:
  Homes passed....................         --      --      --      421,600
  Total subscribers...............     220,494 226,892 230,305     239,788
  Video penetration...............         --      --      --         56.9%
  Avg. mo. service rev. per video
   subscriber..................... (NLG) 20.93   18.80   21.31       21.76
  Two-way homes passed............         --      300     300      84,000
</TABLE>


                                      124
<PAGE>

    Overview/Growth Strategy. As of March 31, 1999, Stjarn provided analog
television services across its broadband network to 239,775 paying subscribers
out of a total of approximately 421,600 homes passed in the greater Stockholm
area of Sweden. Stjarn has access to a total of approximately 770,000 homes in
its service area. For the year ended December 31, 1998, Stjarn had cable
television-related revenues of approximately SEK252.5 million (NLG63.2 million)
and EBITDA of approximately SEK50.6 million (NLG12.7 million).

    Stjarn launched Internet services in one area in the City of Stockholm in
April 1999. As of May 6, 1999, high speed Internet services had been offered to
approximately 2,000 connected homes, of which 279 homes had at that date
subscribed. By the end of 1999, Stjarn expects to provide other new interactive
services including digital TV and data transmission across its network.

    In February 1999, Stjarn gained approximately 7,700 subscribers through the
acquisition of Stockholm Kabel TV, a cable network provider in Stockholm.

    Network. Stjarn's main headend is equipped with a total of 11 satellite
dishes to receive incoming anolog television signals. As of March 31, 1999,
Stjarn's network connected approximately 239,775 homes in Greater Stockholm,
extending to a radius of approximately 40 kilometers from the head end.
Approximately 99% of Stjarn's 239,775 connected homes are served by one
connection point or headend.

    Stjarn is currently upgrading its cable access network from 450 MHz to 550
MHz capacity with the potential to upgrade to 860 MHz bandwidth in the future.
The upgrade to 550 MHz is expected to be completed by the end of 1999, enabling
the launch of Internet and digital television services across its network.
Stjarn's upgraded network will have sufficient capacity to support Internet
services for up to 120,000 subscribers, 150 digital television channels and 30
analog television channels.

    Stjarn leases the fiber optic cables it uses to link to its main headend
under agreements with Stokab, a city-controlled entity with exclusive rights to
lay ducts for cables for communications or broadcast services in the City of
Stockholm. The main part of the leased ducting and fiber optic cables is
covered by an agreement which expires in January 2019. Additional fibers are
leased under several short term agreements, ranging from three to ten years in
length. In total, the Stokab network has access to approximately 770,000 homes
and 30,000 businesses. The network owned by Stjarn extends from the fiber node
to the home. Stjarn's systems are critically dependent on these arrangements
with Stokab.

    Stjarn generally does not own internal wiring. However, under distribution
agreements with public housing associations, it has been granted exclusive
rights to use the cable networks and is responsible for maintenance, service
and repair. The three largest of these agreements cover approximately 110,000
connected homes. Some of these agreements are valid through 2017 with the rest
valid through 2018.

    Programming. Stjarn offers four tiers of programming to 92% of homes passed
by its network: a basic tier consisting of 11 channels; an extended basic tier
consisting of six channels; an International tier consisting of nine channels;
and two premium channels, Canal + and TV1000. The remaining 8% of homes passed
are offered limited program packages.

    Results of Operations. For the year ended December 31, 1998, Stjarn had
total revenues of SEK252.4 million (NLG63.2 million) and EBITDA of
approximately SEK50.6 million (NLG12.7 million). For the year ended December
31, 1997, Stjarn had total revenues of SEK247.4 million (NLG63.1 million) and
EBITDA of approximately SEK92.3 million (NLG23.6 million). Stjarn's EBITDA
decreased SEK41.7 million (NLG9.7 million) for the year ended December 31, 1998
as compared to the year ended December 31, 1997, a 45% decrease. This decrease
in EBITDA was primarily related to an increase in operating expenses of SEK42.9
million (NLG10.0 million) from SEK54.4 million (NLG13.9 million) in 1997 to
SEK92.3 million (NLG22.6 million) in 1998. Approximately SEK 17.9 million
(NLG4.2 million) of this operating expense increase related to management
bonuses and other costs related to the acquisition of Stjarn by NBS. The
remaining increase included additional marketing expenses of SEK7.1 million

                                      125
<PAGE>

(NLG1.74 million) and other costs related to preparing for the broadband
services, office moving expenses, consulting fees and Year 2000 compliance.
Unlike our other systems where we own the system and do not pay lease fees, the
lease fees paid by Stjarn are included in Stjarn's operating expense and,
accordingly, negatively impact EBITDA.

    Budgeted Capital Expenditures and Capital Resources. Stjarn has budgeted
approximately SEK216.8 million (NLG53.1 million) for capital expenditure for
1999. Of this amount, SEK102.8 million (NLG25.2 million) has been budgeted for
the network upgrade. SEK43.5 million (NLG10.7 million) has been budgeted for
Internet services related investments. Stjarn expects to fund these investments
through available cash flow and borrowings.

    Competition. Stjarn faces competition from existing cable operators, from
providers of DTH services and from digital terrestrial broadcasters. There are
currently four major cable television operators in Sweden: Telia, Kabelvision,
Sweden On Line and Stjarn. In contrast to Stjarn, many of its competitors have
shorter customer contracts. As with Stjarn, these contracts only cover the
provision of a television signal.

    At present, Stjarn and Telia are the only cable television operators who
have the technological capability to offer interactive digital cable television
services in Sweden. Stjarn may also face competition from providers of digital
terrestrial television. In order to receive digital terrestrial television,
customers will need a set-top box to decode the digital signals received.
Stjarn has chosen to wait for the introduction of a new set-top box that is
currently expected to be available in autumn 1999.

    Internet access services have been available to residential customers in
Sweden since the middle of 1994. Industry sources indicate that at the end of
1998, there were approximately 1.4 million subscribers to Internet services in
Sweden. At present, there are three major Internet service providers, Telia,
which has approximately 40% of the total number of subscribers, Tele2, which
has approximately 28% of the total number of subscribers, and TeleNordia, which
has approximately 14% of the total number of subscribers. The average monthly
fee for an Internet user is between SEK300 (NLG73.4) and SEK350 (NLG85.7).

    Regulatory Issues. Any change in the regulatory environment in which Stjarn
operates could affect the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--European Union" and "--Sweden."

                                      126
<PAGE>

 Israel: Tevel Israel International Communications Ltd.


     The following selected financial data have been derived from the
 financial statements of Tevel Israel International Communications Ltd. In
 April 1998, Tevel acquired the approximately 144,000-subscriber Gvanim cable
 television systems in two areas adjacent to Tevel's existing operations. The
 financial data as of December 31, 1998 includes nine months of Gvanim's
 operating results. These financial statements have been prepared in
 accordance with Israeli GAAP with the New Israeli shekel as the functional
 currency adjusted for changes in the general purchasing power of the New
 Israeli shekel using the consumer price index as of March 31, 1999. The
 following selected financial data for the three months ended March 31, 1999
 includes a translation using the average exchange rate for the period of
 0.48217 Dutch guilders per New Israeli shekel.

<TABLE>
<CAPTION>
                                                                              Translation
                                                                              to Guilders
                                                                             -------------
                                                                Three Months Three Months
                                   Year Ended December 31,         Ended         Ended
                                  ----------------------------   March 31,     March 31,
                                   1996     1997       1998         1999         1999
                                  -------  -------  ----------  ------------ -------------
                                                                       (unaudited)
                                        (in thousands, except percentages)
  <S>                       <C>   <C>      <C>      <C>         <C>          <C>
  Selected Financial Data:
  Revenues................  (NIS) 351,943  383,904     567,241    171,232    (NLG)  82,563
  Net operating income
   (loss).................  (NIS)  85,922  100,436     124,267     36,862    (NLG)  17,774
  Adjusted EBITDA.........  (NIS) 190,693  210,788     313,729     93,436    (NLG)  45,052
  Adjusted EBITDA margin..           54.2%    54.9%       55.3%      54.6%            54.6%
  Total capital
   expenditures...........  (NIS)  51,561   60,686     118,106     33,055    (NLG)  15,938
  Cash flows from
   operating activities...  (NIS) 138,290  139,906     163,159     50,099    (NLG)  24,156
  Cash flows from
   investing activities...  (NIS) (55,108) (62,979) (1,087,158)   (32,701)   (NLG) (15,767)
  Cash flows from
   financing activities...  (NIS) (82,790) (76,933)    927,516    (20,392)   (NLG)  (9,832)
</TABLE>

<TABLE>
<CAPTION>
                                      As of December 31,
                                    -------------------------  As of March 31,
                                     1996     1997     1998         1999
                                    -------  -------  -------  ---------------
  <S>                         <C>   <C>      <C>      <C>      <C>
  Other Data:
  Homes passed...............       334,426  350,392  575,976      583,408
  Basic video subscribers....       231,712  241,874  402,355      406,970
  Basic video penetration....          69.3%    69.0%    69.9%        69.8%
  Avg. mo. service rev. per
   video subscriber.......... (NLG)   57.34    59.00    60.46        64.18
  Two-way homes passed.......       334,426  350,392  363,819      368,940
</TABLE>


    Overview/Growth Strategy. Tevel has exclusive cable television broadcasting
franchises for the entire Tel Aviv metropolitan area, the region of Ashdod-
Ashkelon, which is 30 miles south of Tel Aviv, and the Jezreel Valley, which is
80 miles northeast of Tel Aviv. We currently own 46.6% of Tevel. In April 1998,
Tevel acquired 100% of Gvanim Cable Television Ltd. and has since fully
integrated Gvanim's operations with its own. Gvanim and its 90%-owned
subsidiary Gvanim-Krayot operate cable television systems in the Rishon-
Leziyon, Ramla-Lod, Modiin, Haifa Bay, Karmiel, Maalot and Lower Galilee areas
of Israel. There are approximately 214,450 homes passed in the Gvanim
franchises and, as of March 31, 1999, Gvanim and its subsidiary had
approximately 151,875 subscribers. The Gvanim acquisition increased Tevel's
total subscribers as of March 31, 1999 to approximately 406,950 in franchise
areas representing over 595,000 homes, or approximately 40% of the total homes
in Israel.

                                      127
<PAGE>

    Tevel's growth strategy is to increase its subscriber base by completing
build out within existing franchise areas, particularly in the Gvanim franchise
areas, increase penetration rates by offering a wider variety of programming
and increase sales of enhanced services, such as impulse pay-per-view in the
Gvanim franchise areas. Should liberalization occur, Tevel may consider
launching its own telephone and Internet/data services. See "Regulation--
Israel."

    In addition to its cable operations, Tevel owns 50% of Globcall, a
telecommunications equipment company that designs, installs and maintains
switching systems for businesses. As of March 31, 1999, Globcall served
approximately 60,000 customers. Tevel also owns 33% of Netvision, one of
Israel's leading Internet service providers.

    Network. Tevel owns the complete cable television infrastructure for each
of its cable systems from the headend to the home. The systems' construction
incorporates 550 MHz capability, representing approximately 50 channels, with a
60 MHz return path providing approximately 368,925 homes passed with two-way
capability for impulse pay-per-view services only. Tevel plans to upgrade all
of its systems to 750 MHz hybrid fiber coaxial technology capable of providing
cable telephone and Internet/data services. Currently, Gvanim's network is a
one- way system with a substantial overlay of fiber optic backbone, but it is
being upgraded to full two-way capability with the installation of 860 MHz
hybrid fiber coaxial technology. Tevel expects that the upgrade of all of its
systems will be substantially complete by mid-2000.

    Programming. Tevel offers basic subscribers approximately 40 channels of
programming, including a wide range of entertainment, news, sports, performing
arts and educational channels. Five pay-per-view channels are also available in
all of Tevel's areas. Currently, over 30% of Tevel's subscribers purchase at
least one pay-per-view offering per month. Tevel has applied to extend its
license to provide pay-per-view services in all of its franchise areas. Tevel
has also applied for a license to provide pay-per-view services in Gvanim's
franchise areas. The Communications Ministry has indicated that it intends to
change a number of terms of Tevel's pay-per-view license, and has offered
Gvanim a pay-per-view license on terms incorporating these changes. Tevel is
opposed to these term changes and is negotiating with the Communications
Ministry over the terms of the extension of its pay-per-view license and
Gvanim's pay-per-view license. Tevel's current pay-per-view license has been
extended until September 1999.

    Tevel, Gvanim and the other Israeli cable television operators own a
programming company, ICP Israel Cable Programming Company Limited. See
"Regulation--Israel." ICP purchases programming rights for subsequent sale to
cable television operators in Israel and produces two cable-exclusive channels:
a general entertainment channel and a movie channel. Programming for a
children's channel, a sports channel and a channel showing nature, science and
art documentaries are produced by third parties. ICP is considered a
"restrictive arrangement" under Israeli Restrictive Trade Practices law and is
regulated by an arrangement that was to expire in June 1999. The arrangement
has been extended until the earlier of August 31, 1999 or a decision by the
Tribunal regarding an application filed by the owners of ICP to allow the
distribution of their interests in ICP among themselves. The Restrictive Trade
Practices Tribunal may, however, require the cable television companies to
divest of their interests in ICP. See "Regulation--Israel."

    Results of Operations. For the year ended December 31, 1998, Tevel had
total revenues of approximately NLG273.5 million and Adjusted EBITDA of
approximately NLG151.3 million. These amounts include nine months of revenue
from the Gvanim systems acquired in April 1998. For the year ended December 31,
1997, Tevel had total revenues of approximately NLG185.1 million and Adjusted
EBITDA of approximately NLG101.6 million.

    Budgeted Capital Expenditures and Capital Resources. Tevel has budgeted
approximately NLG42.6 million and NLG 30.7 million for capital expenditures in
1999 and 2000, respectively, primarily to continue to upgrade its network.
Tevel expects to fund these expenditures through available cash flow. To
finance the Gvanim acquisition, Tevel borrowed NIS928.3 million (NLG447.6
million) under a nine-year term loan. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Debt Facilities."

                                      128
<PAGE>

    Competition. Because Tevel and Gvanim have exclusive cable television
licenses, to date they have experienced no competition from other multi-channel
television providers. The Israeli government recently passed legislation,
however, to grant licenses to DTH satellite service operators. To date, such a
license has been granted to a group headed by Bezeq, the Israeli incumbent
telecommunications service provider. An additional license application has been
filed by another group. These operators are expected to begin providing DTH
satellite services by early 2000. ICP may be required to sell to DTH satellite
service operators its channels that are currently offered exclusively to cable
television operators. See "Regulation--Israel."

    Regulatory Issues. The regulatory environment in which Tevel operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--Israel."

    Corporate Ownership. We currently own indirectly 46.6% of Tevel. An Israeli
corporation owned by DIC Communication and Technology Ltd. and PEC Israel
Economic Corporation, which we call the "Discount Group," owns 48.4% of Tevel
and a private Israeli investor holds the remaining 5% of Tevel.

    Tevel is managed by a board of directors. We have the right to designate
one of Tevel's five directors for each 17% of Tevel that we own. Currently, two
Tevel directors are our appointees. Each of Tevel's shareholders has agreed to
grant a right of first refusal to the other shareholders in the event of a
transfer of any Tevel shares. If the other shareholders do not exercise this
right, they are permitted to participate in the sale and may require the
selling shareholder to include in the transferred shares such number of shares
equal to each shareholder's pro rata amount.

    In addition, any shareholder of Tevel that holds more than a 30% interest
may offer its shares to the other shareholders at a price based upon the
appraised fair market value of Tevel. If the other shareholders do not accept
the offer, the offering shareholder may require that all of the shares of Tevel
be sold to a third party at the appraised value. Any such sales would be
conditioned on receipt of appropriate regulatory and other consents. If a third
party has not agreed to purchase the Tevel shares at the appraised value within
six months of the date the appraisal is delivered to Tevel and the
shareholders, the right to exercise the forced buyout option lapses and any
shareholder that thereafter desires to exercise the forced buyout option must
first offer to sell its shares to the other shareholder at fair market value
based on a new appraisal. No shareholder may exercise this forced buyout option
more than once in any 12-month period. Neither party has exercised the forced
buyout option. We and the Discount Group have agreed not to exercise this
forced buyout option while our loan from DIC is outstanding. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Debt Facilities."

    Tevel's shareholders, other than the private Israeli investor, have agreed
not to compete with Tevel in respect of certain cable telecommunications
services and complementary businesses in Israel unless the Tevel board of
directors decides that Tevel will not participate in such systems or
businesses.

    Tevel has entered into two consulting agreements, one with affiliates of
the Discount Group and one with us. Pursuant to these agreements, Tevel is
required to pay to each of us and the Discount Group up to 2.5% of Tevel's
annual gross revenues, excluding customer premise equipment deposits. Tevel is
entitled to terminate the consulting agreement with either us or the Discount
Group if such holder's share ownership in Tevel falls below 20%. The validity
of the consulting agreements has been challenged by Tevel's minority
shareholder, claiming that the consulting fee is not proportionate to the
services rendered. Accordingly, the minority shareholder has claimed that these
agreements constitute an oppression of the minority under Israeli law and has
demanded cancellation of the consulting agreements. Tevel, we and the Discount
Group have rejected these claims. The minority owner filed a claim in the
District Court of Tel Aviv on June 1, 1999.

                                      129
<PAGE>

Central and Eastern Europe

 Czech Republic


     The following selected financial data has been derived from the financial
 statements of the respective companies. The financial statements for KabelNet
 have been prepared in accordance with generally accepted accounting
 principles in The Netherlands with the Czech koruna as the functional
 currency. The financial statements of Kabel Plus, which we have recently
 agreed to acquire, have been prepared in accordance with generally accepted
 accounting principles in the United States of America with the Czech koruna
 as the functional currency. The following selected financial data have been
 converted to Dutch guilders using the average exchange rate for the relevant
 period which corresponds in each case to the average exchange rate used in
 the respective companies' financial statements for the periods indicated.

<TABLE>
<CAPTION>
                                            KabelNet                      Kabel Plus
                                  ------------------------------ ------------------------------
                                                    Three Months
                                    Year Ended         Ended       Year Ended      Three Months
                                   December 31,      March 31,    December 31,        Ended
                                  ----------------  ------------ ----------------   March 31,
                                   1997     1998        1999      1997     1998        1999
                                  -------  -------  ------------ -------  -------  ------------
                                                    (unaudited)                    (unaudited)
                                             (in thousands, except percentages)
  <S>                       <C>   <C>      <C>      <C>          <C>      <C>      <C>
  Selected Financial Data:
   Revenues...............  (NLG)   7,492    8,909      2,240     39,915   47,540     13,204
   Net operating income
    (loss)................  (NLG) (13,116) (10,668)    (1,516)   (25,145) (16,788)    (2,664)
   Adjusted EBITDA........  (NLG)  (6,730)  (1,887)      (481)    (8,781)   3,633      2,376
   Adjusted EBITDA
    margin................            n/a      n/a        n/a        n/a      7.6%      18.0%
   Total capital
    expenditures..........  (NLG)   4,217    1,041        418     32,752    9,026      1,330
   Cash flows from
    operating activities..  (NLG) (13,608)  (5,469)    (3,135)   (16,396) (14,490)    (1,407)
   Cash flows from
    investing activities..  (NLG)  (2,293)  (1,384)      (983)   (33,260)  (9,026)    (1,330)
   Cash flows from
    financing activities..  (NLG)  14,563    7,307      2,688     45,018   13,690      1,782
<CAPTION>
                                       As of                          As of
                                   December 31,        As of      December 31,        As of
                                  ----------------   March 31,   ----------------   March 31,
                                   1997     1998        1999      1997     1998        1999
                                  -------  -------  ------------ -------  -------  ------------
  <S>                       <C>   <C>      <C>      <C>          <C>      <C>      <C>
  Other Data:
   Homes passed...........        145,650  151,716    153,949    609,017  613,000    618,815
   Basic video
    subscribers...........         51,571   54,153     54,691    385,272  368,000    362,962
   Basic video
    penetration...........           35.4%    35.7%      35.5%      63.3%    60.0%      58.7%
   Avg. mo. service rev.
    per video subscriber..  (NLG)   12.30    13.34      13.19       4.47     7.03       8.73
   Telephone Subscribers:
    Residential(1)........            --       --         --         --       800        800
    Business..............            --       --         --         --       --         --
</TABLE>
 --------
 (1) Excludes 3,200 experimental antenna-based telephone subscribers.

    Overview/Growth Strategy. We own 100% of KabelNet, our Czech Republic
subsidiary that provides cable and "wireless" cable television services in the
cities of Prague and Brno, the Czech Republic's second largest city. At March
31, 1999, the wireless cable system served approximately 44,800 subscribers in
both cities and the cable system served approximately 9,875 subscribers in
Prague. KabelNet's penetration rate was 35.5% as of March 31, 1999. There are
no current plans to launch telephone or Internet/data services in KabelNet's
systems.

    In June 1999, we agreed to acquire 94.6% of Kabel Plus, the leading
provider of cable television services in the Czech Republic. At March 31, 1999,
Kabel Plus's cable system served about 320,000 subscribers in the Czech
Republic and about 43,000 subscribers in the Slovak Republic. We intend to
increase Kabel Plus' subscriber revenue by increasing sales of premium cable
packages.

                                      130
<PAGE>

    Network. KabelNet's systems currently offer programming over an MMDS
network and a hybrid fiber coaxial cable network. KabelNet owns the complete
cable system infrastructure for each of its systems from the headend to the
home. KabelNet has no plans to introduce two-way services to its network at
this time.

    Kabel Plus currently provides programming over traditional cable television
coaxial networks to the majority of its customers. It also provides programming
over MMDS networks in two communities in the Czech Republic and two in
Slovakia. Kabel Plus owns the infrastucture of its networks.

    Programming. KabelNet offers subscribers three tiers of programming
comprising approximately 16 channels:

  . five "must carry" channels,
  . a 15-channel basic tier, which includes the "must carry" channels, and
  . one premium channel, HBO Czech.

Approximately eleven channels, including HBO Czech, are available in both the
Czech and Slovak languages. Currently, approximately 12.5% of KabelNet's cable
subscribers take the 15-channel basic tier package.

    The Kabel Plus systems have various programming line ups depending on the
size of the network and the location and availability of off air channels.
Kabel Plus provides three levels of service with the following number of
channels:

  . seven to ten "must carry" channels;
  . 15 to 20 channel satellite level service; and
  . one premium level service, HBO Czech.

    Result of Operations. For the year ended December 31, 1998, KabelNet had
total revenues of approximately NLG8.9 million and Adjusted EBITDA of
approximately negative NLG1.9 million. For the year ended December 31, 1997,
KabelNet had total revenues of approximately NLG7.5 million and Adjusted EBITDA
of approximately negative NLG6.7 million.

    For the year ended December 31, 1998, Kabel Plus had total revenues of
NLG47.5 million and Adjusted EBITDA of NLG3.6 million. For the year ended
December 31, 1997, Kabel Plus had total revenues of approximately NLG39.9
million and Adjusted EBITDA of approximately negative NLG8.8 million.

    Budgeted Capital Expenditures and Capital Resources. KabelNet has budgeted
approximately NLG2.5 million and NLG0.9 million for capital expenditures in
1999 and 2000, respectively, primarily to expand MMDS distribution. KabelNet
expects to fund these expenditures through available cash flow and funding from
us. KabelNet has no bank debt. An additional NLG3.9 million and NLG29.9 million
has been budgeted for Kabel Plus for 1999 and 2000, respectively. We will
consolidate NLG46.2 million of debt as of March 31, 1999 following the Kabel
Plus acquisition.

    Competition. KabelNet faces competition in its service area. Currently,
parts of its service areas have been overbuilt by Kabel Plus and Dattel Kabel
in Prague and Kabel Plus in Brno. In June 1999, we agreed to acquire 94.6% of
Kabel Plus as described above. Overbuilding is when a cable network is
installed where a multi-channel video services provider already existed.

    Regulation. The regulatory environment in which KabelNet and Kabel Plus
operate significantly affects the operations of their businesses, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--Czech Republic."

                                      131
<PAGE>

    Corporate Ownership. We own 100% of KabelNet. In June 1999, we agreed to
acquire 94.6% of Kabel Plus.

 Hungary


     The following selected financial data have been derived from the
 financial statements of the respective companies. Because Telekabel Hungary
 began operations in July 1998, the financial information presented below for
 the year ended December 31, 1998 includes results of Kabelkom and Kabeltel
 for the first six months of 1998 and includes results from Telekabel Hungary
 from formation to December 31, 1998. The financial statements for Kabeltel,
 Kabelkom and Telekabel Hungary have been prepared in accordance with
 generally accepted accounting principles in Hungary, the United States of
 America and The Netherlands, respectively, with the Hungarian forint as the
 functional currency. The following selected financial data have been
 converted to Dutch guilders using the average exchange rate for the relevant
 period which corresponds in each case to the average exchange rate used in
 the respective companies' financial statements for the periods indicated.

<TABLE>
<CAPTION>
                                             Kabelkom            Kabeltel
                                        ------------------- -------------------
                                        Year Ended December Year Ended December
                                             31, 1997            31, 1997
                                        ------------------- -------------------
                                          (in thousands, except percentages)
  <S>                             <C>   <C>                 <C>
  Selected Financial Data:
    Revenues....................  (NLG)        32,717               9,555
    Net operating income
     (loss).....................  (NLG)        11,660                (283)
    Adjusted EBITDA.............  (NLG)        14,857                 778
    Adjusted EBITDA margin......                 45.4%                8.1%
    Total capital expenditures..  (NLG)        11,213               6,759
    Cash flows from operating
     activities.................  (NLG)        10,973              (6,298)
    Cash flows from investing
     activities.................  (NLG)       (11,213)             (6,759)
    Cash flows from financing
     activities.................  (NLG)          (854)             14,409
<CAPTION>
                                        As of December 31,  As of  December 31,
                                               1997                 1997
                                        ------------------- -------------------
  <S>                             <C>   <C>                 <C>
  Other Data:
    Homes passed................              290,690             113,875
    Basic video subscribers.....              266,775             102,405
    Basic video penetration.....                 91.8%               89.9%
    Avg. mo. service rev. per
     video subscriber...........  (NLG)         10.73                7.43
<CAPTION>
                                                   Telekabel Hungary
                                        ---------------------------------------
                                            Year Ended      Three Months Ended
                                         December 31, 1998    March 31, 1999
                                        ------------------- -------------------
                                                      (unaudited)
                                          (in thousands, except percentages)
  <S>                             <C>   <C>                 <C>
  Selected Financial Data:
    Revenues....................  (NLG)        52,697              17,429
    Net operating income
     (loss).....................  (NLG)         8,692               2,259
    Adjusted EBITDA.............  (NLG)        19,569               5,937
    Adjusted EBITDA margin......                 37.1%               34.1%
    Total capital expenditures..  (NLG)        25,070               9,355
    Cash flows from operating
     activities.................  (NLG)         9,088                (385)
    Cash flows from investing
     activities.................  (NLG)       (31,182)             (5,530)
    Cash flows from financing
     activities.................  (NLG)        26,579               8,936
<CAPTION>
                                        As of  December 31,   As of March 31,
                                               1998                1999
                                        ------------------- -------------------
  <S>                             <C>   <C>                 <C>
  Other Data:
    Homes passed................              510,622             528,719
    Basic video subscribers.....              442,567             442,390
    Basic video penetration.....                 86.7%               83.7%
    Avg. mo. service rev. per
     video subscriber...........  (NLG)         10.80               13.03
</TABLE>

                                      132
<PAGE>

    Overview/Growth Strategy. In June 1998, we increased our interest in
Kabelkom, Hungary's largest operator of cable television systems, from 50% to
100%. Shortly thereafter, Kabelkom combined operations with Kabeltel, Hungary's
second largest operator of cable television systems, creating Telekabel
Hungary, in which we retain a 79.25% interest. As of March 31, 1999, Telekabel
Hungary had approximately 442,375 subscribers. We are launching Internet/data
services in certain areas of Telekabel Hungary's systems in 1999.

    When Kabelkom was formed in 1991, its systems had average monthly revenue
per subscriber of less than NLG2.0. Through the addition of local language
programming and other enhanced video services, these systems had average
monthly revenue per subscriber of more than NLG10.80 for the year ended
December 31, 1998.

    Network. Telekabel Hungary owns the complete cable television
infrastructure for each of its systems from the headend to the home. We are
upgrading these networks. In Budapest, the network will be upgraded to 750 MHz
hybrid fiber coaxial technology with 65 MHz return path. As of March 31, 1999,
approximately 114,100 customers were already served by the rebuilt network.

    Programming. Telekabel Hungary offers subscribers four tiers of programming
comprising approximately 35 channels:

  . ""lifeline'' package, the broadcast channels required by the government
    to be carried,
  . basic tier, which includes a limited number of satellite channels and the
    broadcast channels required by the government to be carried,
  . an expanded basic tier, and
  . a premium service, HBO-Hungary.

Approximately 25 channels, including HBO-Hungary, are available in Hungarian.
In the Telekabel Hungary systems, 76.5% of all subscribers passed by our
upgraded network subscribe to the expanded basic tier package.

    Results of Operations. As of December 31, 1998, combined revenues and
Adjusted EBITDA for the year then ended were approximately NLG52.7 million and
NLG19.6 million, respectively. For the year ended December 31, 1997, Kabelkom
had total revenues of approximately NLG32.7 million and Adjusted EBITDA of
approximately NLG14.9 million. For the year ended December 31, 1997, Kabeltel
had total revenues of approximately NLG9.6 million and Adjusted EBITDA of
approximately NLG0.8 million. The relative increase in combined revenue is the
result of acquisitions in January 1998 (20,000 subscribers), May 1998 (18,000
subscribers) and the rebuild of approximately 60,000 homes. This rebuild
permits Telekabel Hungary to offer enhanced services in the former Kabeltel
systems, generating an average additional monthly revenue of approximately
NLG3.0 per subscriber.

    Budgeted Capital Expenditures and Capital Resources. Telekabel Hungary has
budgeted approximately NLG57.1 million and NLG19.1 million for capital
expenditures in 1999 and 2000, respectively, primarily to continue the network
upgrade, line extensions and acquisitions. Telekabel Hungary expects to fund
these expenditures through available cash flow, the Telekabel Hungary Facility
and support from us. See "UPC Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

    Competition. Telekabel Hungary currently averages over 83% penetration in
its service area and faces limited competition in its multi-channel video
services from direct to home satellite services and, in some areas, other cable
television systems and a microwave services provider. In our Internet/data
services, we compete against MATAV, the incumbent telecommunications operator,
and other new providers of such services.

                                      133
<PAGE>

    Regulatory Issues.  The regulatory environment in which Telekabel Hungary
operates significantly affects the operation of its business, including the
profitability and timing of introduction of our new business there. See
"Regulation--Hungary."

    Corporate Ownership. We and The First Hungary Fund Ltd., an investment
fund, indirectly own 79.25% and 20.75%, respectively, of the ordinary share
capital of Telekabel Hungary. Telekabel Hungary owns 100% interests in 10
Kabelkom systems contributed by us and 100% in four Kabeltel systems
contributed by The First Hungary Fund. Our shares of Telekabel Hungary are
pledged in favor of Telekabel Hungary's DEM65.6 million bridge finance lenders.
These pledges are, however, in the process of being released. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Debt Facilities."

    One of our wholly-owned subsidiaries is solely responsible for day-to-day
management of Telekabel Hungary, under the supervision of Telekabel Hungary's
supervisory board. The supervisory board has four members, three of which are
appointed by us and one by The First Hungary Fund. The parties have agreed that
the supervisory director appointed by The First Hungary Fund may block the
required supervisory board approval of any element of the business plans and
budgets of Telekabel Hungary and its subsidiaries that he reasonably determines
would decrease the shareholders' value of Telekabel Hungary to the detriment of
The First Hungary Fund while we would obtain an increase in value other than
through Telekabel Hungary or its subsidiaries. Certain major decisions
concerning Telekabel Hungary and its subsidiaries, such as the merger,
demerger, liquidation and sale of all or substantially all of the assets of
those entities, the amendment of their articles of association, and the
issuance of certain preference shares, require approval of The First Hungary
Fund's representative so long as The First Hungary Fund owns at least 10% of
Telekabel Hungary's share capital.

    Moreover, we and The First Hungary Fund can dispose of our shares in
Telekabel Hungary after December 31, 1999, either to the other at fair market
value, to a third party or through a registration of such shares under the
Securities Act or on a European exchange. The selling shareholder must first
offer its shares to the other and, if the non-selling shareholder declines to
purchase such shares, the shares may be sold to a third party on terms no less
favorable than the terms offered to the non-selling shareholder for a six-month
period after the non-selling shareholder so declines.

 Hungary: Monor

    Monor, one of our Hungarian operating companies, has offered traditional
telephone services since December 1994. As of March 31, 1999, we owned a 44.75%
economic interest in Monor, which increased to 47.54% effective June 1999.
Monor has the exclusive, local-loop telephone concession for the region of
Monor, Hungary. Monor has 85,000 homes in its franchise area, with
approximately 84,000 traditional fixed line telephone homes passed and
approximately 68,325 cable television homes passed. It served approximately
70,200 traditional telephone access lines under an exclusive franchise
extending until 2002, and approximately 31,100 cable television subscribers as
of March 31, 1999. Revenues for the year ended December 31, 1998 of
approximately NLG35.6 million. As of March 31, 1999, Monor had total revenues
of approximately NLG10.1 million and EBITDA of approximately NLG1.9 million for
the three months then ended. Monor had approximately $41.1 million of
outstanding bank debt as of March 31, 1999.

    Corporate Ownership. We and our partner, PenneCom B.V., each own about a
47.54% economic interest and about a 37.5% voting interest in Monor. The
remaining economic and voting interests are owned by several Hungarians.

Recent Developments

  We recently agreed to expand our footprint in Budapest with the acquisition
of Ujpest, a cable system adjacent to our existing systems. This acquisition,
for which we paid $10.0 million (NLG20.5 million), adds approximately 28,000
subscribers to our Hungarian systems, passing some 34,000 homes. This
transaction is expected to close in August 1999. This acquisition has not been
reflected in any of the statistical or pro forma financial or other information
contained in this prospectus.

                                      134
<PAGE>

 Poland: @Entertainment, Inc.


     We have launched a tender offer for the purchase of 100% of the
 outstanding shares of @Entertainment on a fully-diluted basis. The following
 selected financial data have been derived from the financial statements of
 @Entertainment, Inc. These financial statements have been prepared in
 accordance with U.S. GAAP with the U.S. dollar as the reporting currency. The
 following selected financial data for the three months ended March 31, 1999
 includes a translation using the average exchange rate during the period of
 1.97 Dutch guilders per U.S. dollar.

<TABLE>
<CAPTION>
                                                                                 Translation
                                   Year Ended December 31,                       to Guilders
                                  ---------------------------                  ---------------
                                                                Three Months    Three Months
                                                               Ended March 31, Ended March 31,
                                    1996     1997      1998         1999            1999
                                  --------  -------  --------  --------------- ---------------
                                                                         (unaudited)
                                             (in thousands, except percentages)
  <S>                       <C>   <C>       <C>      <C>       <C>             <C>
  Selected Financial Data:
  Revenues................  (USD)   24,923   38,138    61,859       18,799      (NLG)  37,034
  Net operating income
   (loss).................  (USD)   (1,347) (42,670) (100,813)     (24,243)     (NLG) (47,759)
  Adjusted EBITDA.........  (USD)    8,441   (8,274)  (74,509)     (14,838)     (NLG) (29,231)
  Adjusted EBITDA margin..            33.9%     N/A       N/A          N/A                N/A
  Total capital
   expenditures...........  (USD)   26,581   39,643   114,992       15,517      (NLG)  30,568
  Cash flows from
   operating activities...  (USD)    6,112  (18,773)  (70,668)     (21,240)     (NLG) (41,843)
  Cash flows from
   investing activities...  (USD)  (74,861) (64,842) (147,210)     (17,466)     (NLG) (34,408)
  Cash flows from
   financing activities...  (USD)  134,889  120,823   125,242      153,653      (NLG) 302,696
</TABLE>

<TABLE>
<CAPTION>
                                      As of December 31,            As of
                                 -------------------------------   March 31,
                                   1996       1997       1998        1999
                                 ---------  ---------  ---------  ----------
  <S>                      <C>   <C>        <C>        <C>        <C>
  Other Data:
  Homes passed by cable...       1,088,540  1,408,099  1,591,981  1,624,119
  Basic video
   subscribers............         539,342    768,901    935,340    948,223(1)
  Basic video
   penetration............            53.4%      54.6%      58.8%      58.4%
  Avg. mo. service rev.
   per video subscriber... (NLG)      7.37       9.73      11.32      12.21
</TABLE>
 --------------------
 (1) Includes 33,587 and 208,457 subscribers to the intermediate and broadcast
     packages, respectively. Does not include 130,000 DTH subscribers.


    Overview/Growth Strategy. @Entertainment operates the largest cable
television system in Poland with approximately 1,624,100 homes passed and
approximately 948,200 cable and 130,000 DTH total subscribers as of March 31,
1999. @Entertainment's cable subscribers are located in regional clusters
encompassing eight of the ten largest cities in Poland, including those cities
which @Entertainment believes provide the most favorable demographics for cable
television in the country.

    @Entertainment expanded its distribution capacity with the launch of its
DTH broadcasting service for Poland, targeted at homes outside of its cable
network coverage area. DTH subscribers receive Wizja TV (described below under
"Programming"). @Entertainment's multi-channel Polish-language DTH service, the
first such service available in Poland, is broadcast from its transmission
facilities in Maidstone, UK. As of December 31, 1998, @Entertainment had sold
to Philips' authorized retailers approximately 125,000 DTH packages, which
included the rental of the DTH reception system, installation and a one-year
subscription to @Entertainment's DTH service. As of December 31, 1998, Philips
had sold and installed approximately 95,400 of these packages to consumers.

    Network. @Entertainment's fiber-optic cable television networks serve
approximately 67% of its subscribers. All of @Entertainment's cable networks
have bandwidths of at least 550 MHz, with one network as high as 1 GHz. New
portions of the networks that are currently being constructed are being

                                      135
<PAGE>

designed to have minimum bandwidths of 860 MHz and @Entertainment intends to
upgrade any portions of its cable networks that have bandwidths below 550 MHz
(generally acquired from other entities) to at least 860 MHz by the first
quarter of 2000. @Entertainment's cable television networks have been
constructed with the flexibility and capacity to be cost-effectively
reconfigured to offer an array of interactive and integrated entertainment,
telecommunications and information services.

    @Entertainment's equipment used for its cable television business includes
107 headends for cable networks and approximately 4,378 kilometers of cable
plant. @Entertainment has been able to avoid constructing its own underground
conduits in certain areas by entering into a series of agreements with TPSA
(the Polish national telephone company) which permit @Entertainment to use
TPSA's infrastructure for an indefinite period or for fixed periods up to 20
years. As of December 31, 1998, approximately 56.6% of @Entertainment's cable
television plant has been constructed utilizing pre-existing conduits from
TPSA. A substantial portion of @Entertainment's contracts with TPSA for the use
of such conduits permits termination by TPSA without penalty at any time either
immediately upon the occurrence of certain conditions or upon provision of
three to six months' notice without cause. Generally speaking, TPSA may
terminate a conduit agreement immediately (and without penalty) if: (1)
@Entertainment does not have a valid permit from the Polish State Agency of
Radio Communications authorizing the construction and operation of a cable
television network in a specified geographic area covering the subscribers to
which the conduit delivers a signal; (2) @Entertainment's cable network
serviced by the conduit does not meet the technical specifications required by
the Polish Communications Act of 1990; (3) @Entertainment does not have a
contract with the Polish cooperative authority allowing for the installation of
the cable network; or (4) @Entertainment does not pay the rent required under
the conduit agreement. In addition, as of March 31, 1999, TPSA was legally
entitled to terminate conduit agreements covering approximately 4% of
@Entertainment's subscribers as a result of @Entertainment's failure to comply
with certain terms of its conduit agreements with TPSA. Any termination by TPSA
of such contracts could result in @Entertainment losing its permits, the
termination of agreements with co-op authorities and programmers, and an
inability to service customers with respect to the areas where its networks
utilize the conduits that were the subject of such TPSA contracts.

    @Entertainment's DTH service is encoded, processed, compressed, encrypted,
multiplexed (i.e., combined with other channels), modulated (i.e., applied to
the designated carrier frequency for transmission to satellite) and transmitted
from its Maidstone, U.K. facility to geosynchronous satellites ("uplinked")
that receive, convert and amplify the digital signals and retransmit them to
earth in a manner that allows individual subscribers to receive and be billed
for the particular programming services to which they subscribe.

    @Entertainment has a 5-year contract with British Telecommunications plc
("BT") for the provision and maintenance of uplink equipment at Maidstone.
Other than the BT uplink equipment, @Entertainment owns all the required
broadcasting equipment at its facility in Maidstone. @Entertainment's
programming is currently transmitted to the transponders leased by
@Entertainment on Astra satellites 1E and 1F. @Entertainment's DTH signal is
beamed by these satellites back to earth where it may be received in Poland by
@Entertainment's DTH subscribers with the appropriate satellite reception
equipment and by @Entertainment's cable headends for distribution to cable
subscribers.

    Programming. @Entertainment currently offers between 30 and 70 channels to
its cable television basic package subscribers. The basic package generally
includes all Polish terrestrial broadcast channels, most major European
satellite programming legally available in Poland, regional and local
programming and, on most of its cable networks, Wizja TV, including
@Entertainment's proprietary Polish language channel, Atomic T.
@Entertainment's cable television basic package offerings vary by location.

    @Entertainment also offers cable subscribers an intermediate package, which
includes approximately 17 to 24 channels, and a broadcast package, which
includes 6 to 12 broadcast channels. The intermediate package costs
approximately one-half of the amount charged for the basic package and is
designed to

                                      136
<PAGE>

compete with the small cable operators on the basis of price. The broadcast
package costs substantially less than the intermediate package and include the
all Polish terrestrial broadcast channels which often have poor quality when
broadcast over the air.

    @Entertainment's DTH subscribers currently receive @Entertainment's Wizja
TV programming, which currently consists of approximately 24 channels.

    @Entertainment, both directly and through joint ventures, produces
television programming for distribution. @Entertainment has developed a multi-
channel, primarily Polish-language programming platform under the brand name
Wizja TV. Wizja TV's current channel line-up includes four channels, Atomic TV,
Wizja 1, Wizja Pogoda and Twoja Wizja, that are owned and operated by
@Entertainment, and 20 channels that are produced by third parties, 11 of which
are broadcast under exclusive agreements for pay television in Poland.

    @Entertainment currently distributes Atomic TV and intends to distribute
the Wizja TV programming package to third party cable operators in Poland on a
per-subscriber fee basis. @Entertainment exchanged letters and continues
negotiations with two major cable associations in Poland, representing an
aggregate of approximately 2.6 million subscribers (including @Entertainment's
cable subscribers), with the objective of making the Wizja TV programming
package available for distribution within the cable networks of other providers
which are members of the associations.

    Results of Operations. For a complete description of @Entertainment's
Results of Operation for the year ended December 31, 1998 and the three months
ended March 31, 1999, see "@Entertainment Management's Discussion and Analysis
of Financial Condition and Results of Operations."

    Budgeted Capital Expenditures and Capital Resources. We have budgeted
approximately NLG321.1 million and NLG419.5 million for capital expenditures in
1999 and 2000, respectively, primarily to upgrade @Entertainment's network and
make its systems ready for telephone and Internet services. We expect to fund
these expenditures with advances from us. Following our acquisition of
@Entertainment we will consolidate @Entertainment's debt. As of March 31, 1999,
@Entertainment had $373.7 million of debt outstanding.

    Competition. @Entertainment competes with numerous operators of small cable
networks active throughout Poland. The largest competitors of @Entertainment in
Poland include Bresnan Communications and Multimedia Polska S.A. In addition,
@Entertainment understands that a number of cable operators in Poland have
formed, or are in the process of forming, a consortium for the joint creation
and production of Polish-language programming.

    @Entertainment's cable television business also competes with companies
employing other methods of delivering television signals to the subscribers,
such as terrestrial broadcast television signals, analog direct-to-home
television services, multi-channel multi-point distribution system, and DTH
services (including @Entertainment's own DTH service).

    Regulation. The regulatory environment in which @Entertainment operates
significantly affects the operations of its business, including the
profitability and the timing of introduction of our new business lines. See
"Regulation--Poland."

    Corporate Ownership. @Entertainment is a publicly held company whose common
stock is traded on NASDAQ. We have initiated a tender offer for the common
stock of @Entertainment, which is expected to close in August 1999. In July
1999, we and @Entertainment were sued by minority shareholders of an
@Entertainment subsidiary claiming damages in the amount of a percentage of the
amount to be paid by us for @Entertainment's common stock. See "Risk Factors--
If we complete our acquisition of @Entertainment, we will be subject to a
number of risks."

                                      137
<PAGE>

 Romania


     The following selected financial data have been derived from the
 financial statements of the respective companies described below. The
 financial statements for our operating companies in Romania have been
 prepared in accordance with generally accepted accounting principles in The
 Netherlands with the functional currency of the Romanian lei. The following
 selected financial data has been converted to Dutch guilders using the
 average exchange rate for the relevant period which corresponds in each case
 to the average exchange rate used in the respective companies' financial
 statements for the periods indicated. Because Eurosat was acquired in May
 1998, only seven months of its results have been included in the 1998
 financial results for the Romanian systems.

<TABLE>
<CAPTION>
                                         Year Ended December
                                                 31,            Three Months
                                         --------------------  Ended March 31,
                                           1997       1998          1999
                                         ---------  ---------  ---------------
                                                                 (unaudited)
                                         (in thousands, except percentages)
  <S>                              <C>   <C>        <C>        <C>
  Selected Financial Data:
  Revenues(1)..................... (NLG)     2,192      4,161       1,241
  Net operating income (loss)..... (NLG)     1,049      1,454         404
  Adjusted EBITDA................. (NLG)     1,359      1,905         508
  Adjusted EBITDA margin..........            62.0%      45.8%       40.9%
  Total capital expenditures...... (NLG)       857      1,153         124
  Cash flows from operating
   activities..................... (NLG)     1,232        423         751
  Cash flows investing
   activities..................... (NLG)    (1,012)    (1,289)        406
  Cash flows from financing
   activities..................... (NLG)      (192)     1,076      (1,296)
<CAPTION>
                                         As of December 31,
                                         --------------------  As of March 31,
                                           1997       1998          1999
                                         ---------  ---------  ---------------
  <S>                              <C>   <C>        <C>        <C>
  Other Data:
  Homes passed....................          69,620     98,174      98,174
  Basic video subscribers.........          40,188     61,999      62,524
  Basic video penetration.........            57.7%      63.2%       63.7%
  Average mo. service rev. per
   video subscriber............... (NLG)      4.40       6.60        6.50
</TABLE>

    Overview/Growth Strategy. We are currently involved in the development of
three cable companies in Romania:

  . our 100%-owned Control Cable Ventures, with operations in Ploiesti and
    Slobozia,
  . our 100%-owned Multicanal Holdings, located in Bucharest, Romania's
    capital, and
  . our 51%-owned Eurosat in Bacau.

    Since 1993, when we first entered the Romanian market, we have widened our
customer base through acquisition and marketing activities in conjunction with
build out. As of March 31, 1999, our combined Romanian operations passed
approximately 98,150 homes and served approximately 62,500 subscribers,
representing a penetration rate of 63.7%. There are no current plans to launch
telephone or Internet/data services in the Romanian systems.

    Network. In 1994, we initiated an intensive upgrade of our Romanian systems
to rebuild the network from 300 MHz to 550 MHz. In Bacau, it will be 750 MHz.
The rebuild in Ploiesti, which has 24,000 subscribers, is complete. The rebuild
in Slobozia and Bacau, which together have 30,000 subscribers, is expected to
be completed by 2000. The Romanian systems have no plans to introduce two-way
services at this time.

    Programming. The Romanian systems offer subscribers one to three tiers of
programming with approximately 28-34 channels:

  . basic tier,
  . an expanded basic tier, and
  . a premium service, HBO Romania.

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<PAGE>

    HBO Romania was launched in Ploiesti and Bucharest in February and April
1998, respectively. HBO Romania was also launched in Slobozia in November 1998
and in Bacau in February 1999. We also launched an expanded basic tier in
Ploiesti in April 1998. Approximately 12 channels, including HBO Romania, are
available in Romanian. Currently, 33% of the basic tier subscribers subscribe
to the expanded basic tier package in areas where this service is available.

    Results of Operations. For the year ended December 31, 1998, the combined
Romanian systems had total revenues of approximately NLG4.2 million and
Adjusted EBITDA of approximately NLG1.9 million. For the year ended December
31, 1997, our combined Romanian operations had total revenues of approximately
NLG2.2 million and Adjusted EBITDA of approximately NLG1.4 million.

    Budgeted Capital Expenditures and Capital Resources. The combined Romanian
systems have budgeted approximately NLG1.5 million and NLG0.3 million for
capital expenditures in 1999 and 2000, respectively, primarily to finish
upgrading the networks. The Romanian networks are self-funding and have no
third-party debt.

    Competition. Because there are no exclusive franchises awarded in Romania,
we face competition in all four franchise areas in which we operate. While
there is little overbuild within the cities, the homes are divided among a
variety of competitors in each city. Including our systems, there are three
operators in Ploiesti, four operators in Bacau, two operators in Slobozia and
eight major operators in Bucharest.

    Regulation. Exclusive franchises are not awarded in Romania. We have
received non-exclusive licenses to operate cable television systems in all of
our service areas. These renewable licenses are valid for another six years.
The cable television industry is regulated by the Romanian audiovisual law,
which went into effect in June 1996, and is administered by the National
Audiovisual Council.

    Corporate Ownership. We have interests in three Romanian cable companies:
indirect 100% interests in Multicanal Holdings, SRL, located in Bucharest, and
Control Cable Ventures, SRL, with operations in Ploiesti and Slobozia and a 51%
interest in Eurosat, with operations in Bacau. The other shareholders of
Eurosat are local investors.

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<PAGE>

 Slovak Republic

     The following selected financial data has been derived from the financial
 statements of the respective companies. The financial statements for SKT
 spol. s r.o. have been prepared in accordance with generally accepted
 accounting principles in the Slovak Republic with the functional currency of
 Slovakian koruna. The financial statements for the other Slovak Republic
 companies have been prepared in accordance with generally accepted accounting
 principles in The Netherlands with the functional currency of Slovakian
 koruna. The following selected financial data has been converted to Dutch
 guilders using the average exchange rate for the relevant period which
 corresponds in each case to the average exchange rate used in the respective
 companies' financial statements for the periods indicated.

<TABLE>
<CAPTION>
                                         SKT spol. s r.o.            Other Slovak Republic
                                   ------------------------------ -----------------------------
                                     Year Ended      Three Months   Year Ended     Three Months
                                    December 31,        Ended      December 31,       Ended
                                   ----------------   March 31,   ---------------   March 31,
                                    1997     1998        1999      1997    1998        1999
                                   -------  -------  ------------ ------  -------  ------------
                                                     (unaudited)                   (unaudited)
                                          (in thousands,                (in thousands,
                                       except percentages)            except percentages)
  Selected Financial Data:
  <S>                        <C>   <C>      <C>      <C>          <C>     <C>      <C>          <C> <C> <C> <C>
  Revenues................   (NLG)  10,566   10,863      2,590     1,547    1,652        604
  Net operating income
   (loss).................   (NLG)  (3,257)  (2,733)      (134)   (1,826)  (3,068)      (497)
  Adjusted EBITDA.........   (NLG)   5,633    6,958      1,150    (1,011)  (1,736)      (112)
  Adjusted EBITDA margin..            53.3%    64.1%      44.4%      n/a      n/a        n/a
  Total capital
   expenditures...........   (NLG)  18,454    2,833        221     2,799    6,804        525
  Cash flows from
   operating activities...   (NLG)  23,263  (24,457)     2,601    (2,594)    (709)    (1,419)
  Cash flows from
   investing activities...   (NLG) (18,483)  (2,857)      (404)   (3,863) (10,689)      (436)
  Cash flows from
   financing activities...   (NLG)  (4,872)  27,326       (749)    6,396   11,567      2,474
<CAPTION>
                                        As of           As of         As of           As of
                                    December 31,      March 31,    December 31,     March 31,
                                   ----------------  ------------ ---------------  ------------
                                    1997     1998        1999      1997    1998        1999
                                   -------  -------  ------------ ------  -------  ------------
  <S>                        <C>   <C>      <C>      <C>          <C>     <C>      <C>          <C> <C> <C> <C>
  Other Data:
  Homes passed............         160,716  165,622    165,741    22,193   37,641     40,494
  Basic video
   subscribers............         154,653  156,819    156,972    18,476   21,044     25,697
  Basic video
   penetration............            96.2%    94.7%      94.7%     83.3%    55.9%      63.5%
  Average Mo. service rev.
   per video subscriber...   (NLG)    4.99     5.38       6.48      6.77     7.20       8.44
</TABLE>

    Overview/Growth Strategy. We entered the Slovakian market in 1995 and
currently have over 327,000 homes in our franchise areas. With respect to our
existing operations excluding SKT, we are developing, together with a local
partner, projects in the cities of Trnava, Zvolen, Nove Zamky and Levice. We
own 75% of our projects in Trnava and 100% of our projects in Zvolen, Nove
Zamky and Levice. Construction of the network in Trnava has been completed. Our
networks in the cities of Zvolen, Nove Zamky and Levice are all currently under
construction, which is expected to be completed by the end of 1999.

    In June, we completed the acquisition of SKT spol. s.r.o., which operates a
cable system in Bratislava, the capital of the Slovak Republic, and several
other cities in the Slovak Republic. The purchase price was $43.25 million
(NLG88.7 million). The SKT acquisition made us the largest cable operator in
the Slovak Republic. Pro forma for the SKT acquisition, our operations passed
approximately 206,225 homes as of March 31, 1999. We intend to launch
Internet/data services in its Slovak service areas by mid-2000 and telephone
services in all systems by early 2003.

    Network. The Slovakian systems own the hybrid fiber coaxial cable network
from the headend to the home. As part of the SKT acquisition, we acquired an
860 MHz cable system. We plan to introduce internet services in Bratislava in
2000 and in other Slovakian cities by 2003.

    Programming. The Slovakian systems offer subscribers three tiers of
programming on approximately 34 channels. Approximately 12 channels, including
HBO Czech, are available in both the Slovak and Czech languages. Currently,
88.3% of the subscribers subscribe to the expanded basic tier package.

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<PAGE>

    Result of Operations. For the year ended December 31, 1998, our systems
other than SKT had combined total revenues of approximately NLG1.7 million and
Adjusted EBITDA of approximately negative NLG1.7 million. For the year ended
December 31, 1997, the other Slovakian systems had total revenues of
approximately NLG1.5 million and Adjusted EBITDA of approximately negative
NLG1.0 million.

    For the year ended December 31, 1998, SKT had total revenues of
approximately NLG10.9 million and Adjusted EBITDA of approximately NLG7.0
million. For the year ended December 31, 1997, SKT had total revenues of
approximately NLG10.6 million and Adjusted EBITDA of approximately NLG5.6
million.

    Budgeted Capital Expenditures and Capital Resources. The Slovakian systems
have budgeted approximately NLG2.0 million and NLG0.1 million for capital
expenditures in 1999 and 2000, respectively, primarily to complete construction
of the network. The Slovakian systems expect to fund these expenditures through
available cash flow and support from us. The Slovakian systems have no third-
party debt.

    Competition. The Slovakian systems have limited competition from a MMDS
system in Bratislava. In Banska, Bystrica and Zvolen, our systems have one
competitor. In all other cities, our systems face no material competition.

    Regulation. The regulatory environment in which our Slovakian subsidiaries
operate significantly affects the operation of their business, including
profitability and the timing of introduction of our new business lines. See
"Regulation--Slovak Republic."

    Corporate Ownership. We own 100% of SKT and own between 75.0% and 100% of
our other Slovak operations.

Other Systems

Malta: Melita

    Overview/Growth Strategy. Melita operates an exclusive franchise network in
Malta. Currently, we and Melita Cable Holdings each own 50% of Melita. As of
March 31, 1999, Melita passed approximately 164,550 homes and had 71,025 basic
video subscribers representing a 43.2% penetration rate in its service area.
Melita's growth strategy is to continue to market aggressively its service to
homes in its franchise areas, as well as to provide more programming to
increase its appeal to subscribers.

    Network. Melita owns the complete cable television infrastructure from the
headend to the home. The upgrade to high capacity 860 MHz two-way capability,
which has been initiated this year and is expected to be completed by 2000,
will enable Melita to provide Internet access and other enhanced services.

    Programming. Melita currently provides 52 channels of programming, grouped
in three tiers:

  . reception, which includes local and foreign off-air channels that are
    received with an antenna and retransmitted over the cable network,

  . basic, which includes reception service plus nine additional satellite
    services that are received with a satellite dish and retransmitted over
    the cable network, and

  . TV Plus (reception and basic services plus nine additional satellite
    services).

    Because English is spoken in Malta by over 90% of the population, Melita is
able to take advantage of the abundant supply of English language programming
available for licensing. In 1996, Melita created a "live" sports channel
showing English Premier League Football and in 1997, introduced a second "live"

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<PAGE>

sports channel featuring Italian soccer, as well as four other new channels. In
August 1998, Melita combined the features into a full-time sports channel,
which includes other sports events and local productions.

    Results of Operations. For the year ended December 31, 1998, Melita had
revenues of approximately NLG30.0 million and Adjusted EBITDA of approximately
NLG11.1 million. For the same period, Melita had average monthly service
revenue per video subscriber of approximately NLG37.0. For the year ended
December 31, 1997, Melita had total revenues of approximately NLG23.0 million
and Adjusted EBITDA of approximately NLG9.7 million.

    Budgeted Capital Expenditure and Capital Resources. Melita has budgeted
approximately NLG24.4 million and NLG5.1 million for capital expenditures in
1999 and 2000, respectively, primarily to upgrade its network to full two-way
capacity, purchase customer premises equipment, implement a subscriber
management system and purchase its own premises. The network upgrade and the
introduction of new services is expected to be funded through available cash
flow and bank financing. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations--Liquidity and Capital Resources--Debt
Facilities."

    Competition. With the exception of a small number of home satellite
receivers and a few hotel private cable installations, competition in Malta is
limited primarily to approximately 15 Italian broadcast channels.

    Regulatory Issues. In 1991, Melita was awarded an exclusive 15-year
renewable license to deliver cable television services for Malta. Rates for the
basic tiers are subject to regulation and requests for rate increases made to
the government must be accompanied by a cost analysis of the increases in cost.
Premium services, pay-per-view and other additional services are not subject to
rate regulation.

    Corporate Ownership. We currently own 50% of Melita. Melita Cable Holdings
owns the remaining 50%.

 Strategic Programming Investments

    In July 1999, we acquired an initial 4.8% of SBS, which owns and operates
television and radio broadcasting stations in Scandinavia and other European
markets. SBS offers television programming services in Sweden, Denmark, Norway,
Flemish Belgium, The Netherlands and Hungary. We plan to acquire a total of
13.4% of SBS.

    SBS owns and operates television and radio broadcasting stations in
Scandinavia and other European markets. SBS currently owns and operates
television stations which broadcast into Norway, Sweden, Denmark, Flemish
Belgium and the Netherlands, and together with two European partners, operates
the first national private television network in Hungary. Additionally, SBS
owns a minority interest in a national television network in Italy, operates a
television station in Slovenia under the terms of a management and funding
agreement and owns 50% of a Swiss company which in March 1999 was awarded a
national terrestrial broadcasting license to broadcast in Switzerland. SBS also
owns and operates radio stations, which broadcast in Denmark, Sweden and
Finland.

    SBS has called for redemption all $155.0 million of its 7 1/4% Convertible
Subordinated Debentures Due 2005. Holders of the debentures were required to
redeem their debentures for cash or convert them into SBS common shares not
later than July 30, 1999. We have acquired the debentures tendered for
redemption and immediately converted them into 847,680 SBS shares. We have
agreed to purchase newly issued common shares from SBS to bring our interest in
SBS to approximately 13.4%.


                                      142
<PAGE>

Other Business Information

 Employees

    As of March 31, 1999, we, together with our consolidated subsidiaries, had
approximately 2,131 employees. We believe that our relations with our employees
are generally good.

    At December 31, 1995, 1996, 1997 and 1998 we, together with our
consolidated subsidiaries, had approximately 407, 704, 815 and 1,500 employees,
respectively.

    Certain of our operating subsidiaries, including our Austrian, Dutch and
Norwegian systems, are parties to collective bargaining agreements with some of
their respective employees.

 Legal Proceedings

    We and our operating companies are not parties to any material legal
proceedings. From time to time, we and our operating companies may become
involved in litigation relating to claims arising out of its operations in the
normal course of business.

 Properties

    We lease our corporate offices in Amsterdam and London. Our operating
companies and subsidiaries generally lease their offices as well. We own small
parcels of property in various countries that we use for our network equipment.
In other countries, we have been able to obtain easements for this equipment.

                                      143
<PAGE>

                                   REGULATION

    The provision of video, telephone, Internet/data and broadcasting services
in the countries in which we and our new acquisitions operate is regulated. The
scope of regulation varies from country to country, although in some
significant respects regulation in our Western European markets is harmonized
under the regulatory structure of the European Union ("EU"). Set forth below is
a summary of the regulatory environment in the EU and the countries in which we
operate or expect to operate following completion of the new acquisitions.

European Union

    Austria, The Netherlands, Belgium, France, Sweden, Denmark, Finland, the
United Kingdom and Italy are all member states of the EU. As such, these
countries are required to enact national legislation which implements
directives issued by the EU Commission and other EU bodies. In recent years,
the EU has led the liberalization of the telecommunications and video services
sectors, which includes the use of cable networks to provide public voice
telephone and other telecommunications services, in EU member states. Although
not EU member states, Norway and Hungary (and, in relation to SBS, Slovenia)
are members of the European Economic Area and have generally implemented or are
implementing the same principles on the same timetable as EU member states. As
a result, most of the markets in which we operate or have pending acquisitions
have been significantly affected by regulation initiated at the EU level. As it
develops, such EU regulation will continue to have a significant effect on
these markets, including future developments relating to the convergence of
telecommunications, media and information technology.

    The EU Commission has started to review the consequences of this
convergence for the regulatory environment. This review will take place during
1999 and may result in changes of the current regulatory framework, but the
scope of such changes cannot be predicted at this time.

Telephone and Internet/Data Services

    Liberalization of Telecommunications Services and Infrastructure. A central
aim of the liberalization process has been to reduce the monopoly power of the
incumbent telecommunications operators in order to introduce competition in the
European telecommunications market. Liberalization measures have been adopted
under the EU Treaty's competition rules and harmonization measures have been
put in place through the adoption of Open Network Provision directives (the so-
called "ONP framework"). ONP includes the principle that public
telecommunications networks have to be made accessible on the basis of
objective, transparent, public and non-discriminatory conditions. The ONP
framework applies to providers of public telecommunications networks or
services having significant market power in the relevant market. At the moment
the ONP principles do not apply to video networks or services. Any future
application of ONP principles to video networks or services could have a
material effect on our business throughout the EU. Following the EU
Commission's Services Directive (90/388/EC), dated June 28, 1990, as amended,
the exclusive rights of incumbent operators to provide telecommunications
services were gradually removed so that competing operators and service
providers would be entitled to offer all telecommunications services other than
public voice telephone. The incumbent telecommunications operators invariably
owned the national networks, however, and the lack of an alternative
infrastructure to provide such liberalized services operated as a major barrier
to entry into the market by competitors. In an effort to overcome this barrier,
the EU introduced the "Cable Television Networks Directive" (95/51/EC amending
directive 90/388/EC), dated October 18, 1995, which required member states to
remove existing restrictions on the use of cable television networks to provide
telecommunications services other than public voice telephone. As a result,
cable television operators became able to use their networks to provide
telecommunications services except for public voice telephony. In 1996, the EU
Commission issued the "Full Competition Directive" (96/19/EC amending directive
90/388/EC), which required the European Community Member States to remove all
remaining exclusive rights over public voice telephone and public
telecommunications networks of incumbent public voice telephone operators by
January 1,

                                      144
<PAGE>

1998. Certain Member States (Luxembourg, Spain, Greece, Portugal and Ireland)
requested and obtained temporary relief from the Full Competition Directive.
Spain, Portugal and recently Ireland have decided to accelerate the
liberalization process. The establishment and provision of telecommunications
networks was also liberalized under this directive. As a result of this
directive, our Western European operating companies may establish and provide
telecommunications networks and/or services, including public voice telephone
and Internet/data services, through their cable networks, subject to obtaining
the necessary licenses and authorizations.

    Under the Cable Television Networks Directive, telecommunications operators
that have exclusive rights to provide cable television network infrastructure
in a given area and achieve an annual turnover in the relevant
telecommunications market of more than (Euro)50 million must account separately
for their telecommunications services and any cable television services. In The
Netherlands and Belgium, this requirement applies to all telecommunications
operators providing both cable television and other telecommunications services
under national law irrespective of the above-mentioned requirements. Should any
of our operating companies in the EU with exclusive rights to cable television
infrastructure achieve the requisite turnover, they would become subject to
these requirements.

    In June 1999, the EU Commission adopted a directive amending the Services
Directive (90/388/EC) requiring member states to enact legislation directing
certain telecommunications operators to separate their cable television and
telecommunications operations into distinct legal entities. This directive is
intended to aid the development of the cable television sector and to encourage
competition and innovation in local telecommunications and high speed Internet
access. The directive includes competition safeguards to deter anticompetitive
cross-subsidies or discrimination by incumbent telecommunications operators as
they enter into cable television or broadband services.

    Interconnection. Because new telecommunications operators need to
interconnect their networks with the fixed public telephone network, the EC
Council of Ministers and the European Parliament adopted the "Directive on
Interconnection in Telecommunications" (97/33/EC amended by Directive
98/61/EC), which sets forth the general framework for interconnection,
including general obligations for telecommunications operators to interconnect
with their networks. The directive requires member states to impose obligations
on public telecommunications network operators to negotiate interconnection
agreements on a non-discriminatory basis. Public telecommunications network
operators with significant market power (which, although it may vary, is
presumed when an operator has 25% or more of the relevant market) are subject
to additional obligations. They must offer interconnection without
discriminating between operators that offer similar services, and their
interconnection charges must follow the principles of transparency and be based
on the actual cost of providing the interconnection. The directive also
contains provisions on collocation of facilities, number portability with
certain exceptions, supplementary charges to contribute to the costs of
universal service obligations and other interconnection standards. As a result,
if the principles in the directive are fully applied, our operating companies
in the EU and Norway should be able to interconnect with the public fixed
network and other major telecommunications networks on reasonable terms in
order to provide their services. There can be no assurance, however, that we
will be able to obtain from incumbent telecommunications operators
interconnection on terms and conditions or at prices satisfactory to us without
protracted negotiations or involvement in time-consuming regulatory
proceedings.

    Licensing. EU telecommunications policy has also aimed to harmonize the
licensing requirements for the provision of public telecommunications services.
As a result of the "Licensing Directive" (97/13/EC), which became effective on
December 31, 1997, member states are required to adopt national legislation so
that providers of telecommunications services generally require either no
authorization or a general authorization which is conditional upon "essential
requirements," such as the security and integrity of the network's operation.
Licensing conditions and procedures must be objective, transparent and non-
discriminatory. Member states may issue individual licenses in certain
situations. For example, the provision of public voice telephone and the
establishment or provision of public telecommunication

                                      145
<PAGE>

networks may be subject to individual licenses. In addition, telecommunications
operators with significant market power may be required by member states to
hold individual licenses carrying more burdensome conditions than the
authorizations held by other providers. Significant market power is typically
25% of the relevant market. License fees can only include administrative costs
except in the case of scarce resources where additional fees are allowed.

    Regulation of the Internet. Although Internet-specific regulations have not
been issued, EU policy may develop harmonized principles of "responsibility of
content" to apply to Internet access providers analogous to those applicable to
publishing companies. We do not expect such regulations to materially adversely
affect our Internet business plans.

 Video Services

    Video Services through Telecommunications Networks. Most of our operating
companies are the only cable television operators in their franchise areas. As
with the telecommunications sector, the cost of building a network to provide
video services is a considerable disincentive to potential new entrants in the
video services market. Our operating companies may face competition in the long
term in their franchise areas from new entrants providing video services
through the infrastructure of incumbent telecommunications operators and
potential new entrants. In The Netherlands, for example, where there are no
restrictions on the use of telecommunications infrastructure for the provision
of cable television services, the incumbent telecommunications operator is
testing whether it will be able to provide video services through its fixed
networks.

    Conditional Access. In order to enable further competition in pay
television services and accelerated development of advanced television
services, the EU Council and Parliament passed the "Advanced Television
Standards Directive" (95/47/EC), dated October 24, 1995, which requires member
states to regulate the offering of conditional access systems, such as program
decoders used for the expanded basic tier services offered by many of our
operating companies. Providers of such conditional access systems are required
to make them available on a fair, reasonable and non-discriminatory basis to
other video service providers, such as broadcasters.

    Broadcasting. The "Television Without Frontiers Directive" (97/36/EC),
dated June 30, 1997, is intended to introduce freedom of broadcasting in the
EU. Generally, broadcasts emanating from and intended for reception within a
country have to respect the laws of that country. Under the directive, other EC
member states are required to allow broadcast signals to be made into their
territories so long as the broadcaster complies with the law of the originating
member state. The directive also establishes quotas for the transmission of
European-produced programming and programs made by European producers who are
independent of broadcasters. Television advertising and sponsorship in member
states will have to comply with certain minimum rules and standards, although
member states may set more detailed and stricter rules for certain matters.

    We plan to enter into joint venture agreements with programming providers
in order to launch six new channels by the end of 1999 and two channels
thereafter, which we intend to broadcast to our operating companies and other
cable television operators for distribution through their networks. We
understand that the Television Without Frontiers Directive will apply to the
broadcasting of these joint-venture channels to such operating companies so
that one broadcasting license within an EC member state will permit us to
broadcast such channels to cable operators throughout the EU. Where the joint-
venture partner is already a licensed broadcaster within the EU, we believe the
joint venture activities may fall within the scope of our partner's broadcast
license, and that the joint venture could operate under the terms and
conditions of that license. We also plan to apply for a broadcasting license in
an EU country to accommodate joint ventures with those partners that do not
have a broadcast license in a member state of the EU or channels created
without a partner. We are currently in discussions with the regulatory
authorities in The Netherlands and plan to obtain a broadcasting license in The
Netherlands.

                                      146
<PAGE>

    Another major EU Commission Directive for broadcasting, "Directive on
Satellite Transmission and Cable Retransmission" (93/83/EC), dated September
27, 1993, requires member states to permit a satellite broadcaster to obtain
the necessary copyright license for its programs in just one country
(generally, the country in which the broadcaster is established), rather than
obtaining copyright licenses in each country in which the broadcast is
received.

    In addition to national laws which implement the EU directives on
broadcasting described in "Regulation--European Union," various other types of
national broadcasting regulations apply to SBS. Over-the-air, terrestrial
television and radio broadcasters operate pursuant to licenses granted by
national or local regulatory authorities allowing use of certain radio
frequencies in a specified geographic area, generally for a limited duration
which can be renewed. Broadcasters operate subject to various regulatory
conditions such as limitations on advertising, program content and ownership.

Austria

 Relationship with Municipalities

    Each of the five municipalities in which the Telekabel Group offers
services holds, directly or indirectly, 5% of the local operating company. Each
member of the Telekabel Group has entered into an agreement with its
municipality. Under the agreement between Telekabel Wien and the City of
Vienna, decisions regarding the subscriber rates and programming content of
Telekabel Wien's basic subscription package require the unanimous approval of
Telekabel Wien's board of management, of which the city appoints one member.
While the board of management in the past has always unanimously approved these
decisions there can be no assurance that the municipality's director will
continue to approve these decisions in the future and not hinder the
implementation of our strategies for our video, telephone or Internet/data
services. If the managing directors cannot reach agreement, the parties have
agreed to call a shareholders meeting to decide the matter. Under Austrian law,
a majority shareholder such as us may generally take a decision at a
shareholders meeting rather than through the board of management. However, we
as the majority shareholder have never taken this action and do not anticipate
doing so in the future. The agreements between the other Telekabel Group
members and their municipalities require each member to consult with its
municipality prior to making similar business decisions.

 Video Services

    Regulatory Framework. The Cable and Satellite Broadcast Radio Law governs
the provision of video services in Austria. The Regional Radio and Cable
Broadcast Authorities regulate the operation of cable television networks.

    Notifications. The Telekabel Group does not require a license to provide
video services. It need only notify the Regional Radio and Cable Broadcast
Authority of the services it intends to provide. The right to provide such
services is not exclusive, and new entrants could operate without entering into
agreements with municipalities.

    Programming. Under the Cable and Satellite Broadcast Radio Law, the
Telekabel Group is required to carry two "must carry" public Austrian channels
in its basic tier service. In July 1997, previous prohibitions on cable network
operators transmitting programming produced by them were lifted. Pursuant to
the terms of the agreement with the City of Vienna, however, Telekabel Wien is
prohibited from producing programming.

    Price Regulation. In addition to the approval of subscriber rates for the
basic tier services by the City of Vienna described above, pricing of the basic
tier service is subject to price control by the Austrian Wage and Price
Commission. Approval from the Wage and Price Commission generally must be
sought only when the desired increase is greater than 50% of the increase in
the consumer price index, and cost

                                      147
<PAGE>

justification must be shown for such approval. Historically, all of the
Telekabel Group's price increase applications have been approved. Pricing of
services other than the basic tier is not regulated.

 Telephone and Internet/Data Services

    Regulatory Framework. The Telecommunications Act, which came into force
August 1, 1997, liberalized the telecommunications sector in Austria as of
January 1, 1998, in compliance with EU directives. As a result, cable
television networks may be used to provide telecommunications services as
described above under "--European Union--Telephone and Internet/Data Services."

    Licenses. A telecommunications operator or service provider must obtain a
license issued by the Austrian telecommunications regulatory agency, the
Telekom Control Commission, to provide public voice telephone services and for
the public offer of leased lines. Telekabel Wien has received a license to
provide public voice telephone services in the entire Republic of Austria and a
license for the public offer of leased lines through its cable network. The
licenses are granted for an unlimited period of time.

    Interconnection. Austria's Telecommunications Act generally implements the
terms of the EU Directive on Interconnection in Telecommunications. In November
1998, Telekabel Wien entered into an interconnection agreement with PTA, the
incumbent operator. Difficulty and delay in negotiations and agreement led
Telekabel Wien to seek the intervention of the Austrian telecommunications
regulator, which determined the principal terms of the agreement. PTA brought
an action in the Austrian courts against some of the major carriers to revise
the terms of the interconnection arrangement. The Supreme Constitutional Court
ruled in March 1999 that the PTA's constitutionally guaranteed rights were not
infringed. However, the court left open the issue of whether the decree issued
by the telecommunications regulator was otherwise lawfully issued. The case is
now pending before the Austrian Supreme Administrative Court.

    Price Regulation. Although there are no voice-telephone pricing regulations
currently applicable to Telekabel Wien, the Telekom Control Commission must be
notified of the tariff structure and any subsequent rate increases. In
addition, if Telekabel Wien were held to have significant market power (as
defined in Austria's Telecommunications Act) with respect to the services
offered, certain matters including tariffs would become subject to the approval
of the Telekom Control Commission.

    Internet/Data Services. Internet/data services are regulated as
telecommunications services under Austria's Telecommunications Act. Under the
Telecommunications Act, the Telekabel Group does not require licenses to
provide Internet/data services, and such services are not subject to price
regulations. It need only notify the Telekom Control Commission of the services
it intends to provide.

Belgium

 Video Services

    Authorizations. In Belgium, a cable operator needs to obtain a governmental
authorization from the appropriate Community to operate a cable television
system. The Belgium Communities, which are the French Community, the Flemish
Community and the German-speaking Community, have exclusive jurisdiction to
regulate cable television, including programming content, in their respective
language areas. The Flemish and French Communities, as well as the Federal
government, have overlapping jurisdiction in the bilingual area of Brussels
where TVD operates. During 1996, 1997 and 1998, all of TVD's non-exclusive
authorizations were renewed for nine years. Special authorizations are also
required for the distribution of non-EU programs, both in Flanders and in
Brussels, and we have requested a special authorization in Brussels. While this
request has been pending, we have been distributing such programming, which
could (but we believe is unlikely to) expose us to various penalties, including
monetary fines, discontinuance of such programming and impairment of our cable
authorizations.

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    Programming. In all the regions of Belgium, cable television operators are
required to transmit particular local, national and other channels as part of
their basic tier service. There are usually between 11 and 13 of these "must-
carry" channels. We are engaged in litigation with Canal+ over whether we are
required to carry its digital multiplexed programming which could expose us to
monetary penalties and an order to carry such programming. The court of Appeals
in Brussels issued an order (interim decision) for us to distribute Canal+
digital tier on our network with a fine of BEF100,000 for each day of delay.
The court decided among other things that Canal+ should be considered a "must
carry" channel. We have filed an appeal to this decision based on its non-
compliance with EU directives. We are still in the process of discussing with
Canal+ how to distribute their signal over the network in compliance with the
court order.

    Price Regulation. Price increases require the approval of the Ministry of
Economic Affairs and must be justified by an increase in the cost of providing
the service. Cost-justified increases are generally approved as long as the
increase is below the level of inflation. Historically, all of TVD's requested
price increases have been approved. We have filed a complaint pending before
the Belgian competition authority alleging that the competing cable systems in
Leuven is charging prices below its cost in violation of the laws against
unfair competition.

    Franchise Fees. In Etterbeek, TVD pays the municipality an annual amount
for use of the municipality-owned cable system. Since 1995, cable regulations
have come into force that grant cable operators a right of way for the use of
public and private property to install and exploit cable networks. Prior to the
1995 regulations, TVD was a party to concession agreements with the
municipalities in its franchise areas, which obliged it to pay certain
franchise fees. TVD has not paid franchise fees since 1995 when the cable
regulations went into effect. Only one small municipality continues to request
payment of the old franchise fees, which amount to 5% of the operating system's
annual gross revenues, but no litigation has been filed on this issue. TVD does
not believe that it is obliged to pay these fees because it believes that
regulations adopted in 1987 and the 1995 regulations have superseded the
concession agreements.

 Telephone and Internet/Data Services

    Regulatory Framework. The provision of cable telephone is governed by the
law of March 21, 1991, as amended by the law of 1997, together with
regulations. These provisions allow telecommunications services to be provided
through cable television networks as described above under "--European Union--
Telephone and Internet/Data Services." In line with the liberalization process
in the EU, the Belgian Parliament adopted in December 1997 a law amending the
law of 1991 and abolishing the remaining monopoly rights of Belgacom, the
incumbent telecommunications operator. As a result, other telecommunications
operators may begin to offer public voice telephone in Belgium. The other main
telecommunication companies which have begun to offer public voice telephone in
Belgium are Telenet BT, Unisource and Mobistar.

    Licenses. In January 1999, TVD received a permanent license to build and
operate a public telecommunications network. TVD plans to submit an application
for a license to offer voice telephone services and expects to receive a
license during the second half of 1999. Subsequently, TVD plans to enter into
an interconnection agreement with Belgacom. TVD's telephone services will not
be subject to rate regulation, but TVD may be required to contribute to a
universal service fund under regulations which are being developed.

    Internet/Data Services. The provision of Internet/data services in Belgium
is also governed by the law of March 21, 1991, as amended, pursuant to which
TVD must make certain notifications to the Institut Belge des Postes et
Telecommunications regarding the services it intends to provide. TVD has made
these notifications. TVD's permanent license to build and operate a
telecommunications network authorizes it to offer Internet/data services on its
own infrastructure. These services are not subject to rates regulation.


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France

 Video Services

    Regulatory Framework. Cable television operators require licenses granted
by the Conseil Superieur de l'Audiovisuel as well as agreements with local
authorities covering public service delegation and/or public domain occupancy.

    Authorizations. Mediareseaux obtained in September 1997 licenses from the
Conseil Superieur de l' Audiovisuel to operate cable networks for audio-visual
services in the territory of Syndicat Mixte de Videocommunication de l'Est
parisien and the territory of the city of Rosny-sous-Bois, valid until 2026 and
2022, respectively. Mediareseaux's agreements with the local authorities
govern, among other things, its channel line-up and cable subscription rates.
The agreements also give the respective territories the option to purchase
Mediareseaux's network at the expiration of the agreements for a price equal to
its usage value as estimated under the terms and conditions of the agreements.

    Between 1989 and 1992, RCF's subsidiaries obtained licenses from the
Conseil Superieur de l'Audiovisuel to operate cable networks distributing radio
and television broadcasting services in the cities of Lorient, La-Roche-sur-
Yon, Valenciennes, Bruay-sur-Escaut, Antibes-Juan les Pins, Mandelieu, Cholet,
Nevers, Chateauroux, Saint Maur, Deols, Poinconnet, in the territory of
Perigueux and in the territory of the associated cities of Coteau. These
authorizations are valid for a 20 year period.

    Programming. Cable television operators are required to transmit particular
channels as part of their basic tier service. Various other national laws also
restrict the content of programming distributed by cable television operators.

    Price Regulation. Certain of the agreements of Mediareseaux, Time Warner
and RCF with local authorities require the local authorities' approval for
changes in the rates for basic tier service.

    Franchise Fees. Mediareseaux pays local authorities franchise fees of 1% of
their basic revenue. None of Videopole, RCF or Time Warner Cable France is
subject to such fees.

 Telephone and Internet/Data Services

    Regulatory Framework. The Minister of Telecommunications grants licenses
for the establishment and operation of a public telecommunications network and
for the provision of voice telephony services. France Telecom is obligated to
interconnect with other providers of telecommunications services at cost-
oriented rates and on nondiscriminatory terms. Local number portability is
available, which benefits new entrants. New telecommunications providers are
required to make universal service payments to France Telecom.

    Licenses. Mediareseaux holds licenses granted by the Minister of
Telecommunications on June 17, 1998 for a public telecommunications network and
voice telephony services in three French departments in the Paris region. The
licenses were granted for a period of 15 years, are non-transferable and can
only be revoked for a material breach of telecommunications regulations. A
license extension to establish and operate a telecommunication network and to
offer voice telephony services was requested by Mediareseaux in order to obtain
a nationwide license. The application was lodged with the French regulation
authority (Autorite de Regulation des Telecommunications) in July 1999. We
anticipate the authorization being granted within four months of the Autorite
de Regulation des Telecommunications sending confirmation of receipt.

    Mediareseaux was granted temporary licenses in December 1998 and April 1999
to conduct experimental business in the field of wireless local loop.


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    Time Warner Cable France does not hold any telecommunications license in
France at the present date.

    Interconnection. Mediareseaux has entered into interconnection agreements
with France Telecom and two other new telecommunications providers.

    Pricing Regulation. Mediareseaux's telecommunications services are not
subject to price regulation.

    Internet/Data Services. Internet/data services do not require a license and
are not subject to price regulation.

The Netherlands

 Video Services

    Regulatory Framework. The liberalization of the Dutch telecommunications
and cable television sector has generally proceeded at a quicker pace than
required by the EU directives. The new Telecommunications Act took effect, with
the exception of a few provisions, on December 15, 1998 and further liberalizes
these sectors. The Dutch Telecommunications Act governs the installation and
operation of fixed telecommunications infrastructures, which include cable
television networks, and the provision of telecommunications services,
including the provision of telephone and Internet/data services. The provision
of video services through the cable television network, and more specifically
content, is regulated primarily by the Dutch Media Act, as amended, and the
Media Decree. Agreements with municipalities and the competition laws also
impose restrictions on cable television operators.

    Under the new Dutch Telecommunications Act, the Dutch Independent Post and
Telecommunications Authority is charged with regulating the provision of
telecommunications services. Under the media laws, video service providers are
subject to certain content requirements, which are overseen by the
Commissariaat voor de Media.

    Registration. The new Dutch Telecommunications Act does not require a
license for the installation, maintenance or operation of a cable network.
Existing network operators need only register with the Dutch Independent Post
and Telecommunications Authority. The registration of a network does not give
an operator any exclusive right. Any person may install, maintain and operate a
new network alongside an existing one. The new Dutch Telecommunications Act
gives cable network operators and providers of other public telecommunications
networks rights of way to install and maintain cable, which are identical to
those previously exclusively enjoyed by KPN, the incumbent telecommunications
operator in The Netherlands.

    Programming. Pursuant to the Dutch Telecommunications Act and the media
law, cable television network providers must transmit to all its subscribers at
least 15 programs for television and at least 25 programs for radio, including
approximately seven television and nine radio "must carry" channels. The Dutch
Independent Post and Telecommunications Authority may grant a total or partial
exemption from these obligations if the provider does not have significant
market power in its area of coverage.

    Our Dutch operating companies originally purchased their cable television
networks from the local municipalities. Pursuant to the terms of the agreements
with the municipalities, the Dutch operating companies were obligated to
continue to provide basic tier services of between 20 and 30 television
channels, including the 15 required under the media laws.

    In April 1999, A2000 and the municipality of Amsterdam reached an agreement
on a large scale introduction of digital decoders and a reduction of the basic
cable television package to 15 public channels. The agreement means that A2000
will no longer charge carriage fees to commercial broadcasters for inclusion in
the basic cable television package and allows A2000 to migrate a number of

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popular commercial channels to its expanded basic tier. During the period
preceding the migration to its digital platform, A2000 and the municipality of
Amsterdam have agreed on an interim solution for the basic tier service
increasing its current 26 channels to 32 channels with an increase in the
monthly subscription fee. Once the digital decoders are introduced the price
for the rate regulated 15 public channel basic fee will be reduced and the
price for the expanded basic tier will increase over time until it becomes
unregulated in 2001. The agreement will initially affect approximately 390,000
customers in the greater Amsterdam area. Negotiations with the remaining
municipalities have begun.

    Cable television operators are allowed to transmit their own programs
within The Netherlands upon obtaining a broadcast license from the
Commissariaat voor de Media. The licensee must comply with the advertising and
sponsorship rules set forth in the media laws, which are consistent with the EU
Television without Frontiers Directive.

    In July 1999, the Dutch Independent Post and Telecommunication Authority,
OPTA, issued an interim decision in a dispute between Canal+ and A2000. OPTA
has ordered A2000 to offer digital transmission of Canal+'s two premium
television channels commencing on September 15, 1999. OPTA has predicted that
this might reduce the transmission fee that Canal+ pays to us from
approximately NLG4.0 million to approximately NLG2.0 million, as Canal+ would
only require one rather than two 8 MHz channels for the transmission of its
programming. OPTA's decision, however, requires Canal+ to bear the costs
associated with adapting A2000's network to allow digital transmission. OPTA
has ordered A2000 to provide information to OPTA regarding its costs with
respect to setting its rate for carriage of Canal+'s channels. We have asked a
court to suspend OPTA's decision with regard to the date of making digital
transmission available and have requested that OPTA reconsider its decision. In
addition, OPTA sent out a consultation paper inviting comments on their
proposals concerning access to cable networks. One proposal concerns the
application of the "Open Network Provision." These could affect our control
over programming distributed on our networks and the fees we collect.

    Price Regulation. The new agreement between A2000 and the municipality of
Amsterdam described above, provides for interim expansion of the basic tier
service, from 26 channels to 32 channels, with an increase in the monthly
subscription fee. Once the digital decoders are introduced, the price for the
rate regulated 15 public channel basic service will be reduced and the price
for the expanded basic tier will increase over time until it becomes
unregulated in 2001. Negotiations with the remaining municipalities have
started.

 Telephone and Internet/Data Services

    Regulatory Framework. Until recently, the fixed telecommunications
infrastructure was a statutory monopoly of KPN. As described above, the Dutch
telecommunications sector has been liberalized in advance of and in accordance
with European Union telecommunications policy and cable television networks may
now be used for the provision of all telecommunications services. Number
portability was introduced in The Netherlands on April 1, 1999.

    Interconnection. The Dutch Telecommunications Act generally implements EU
telecommunications policy on interconnection. A2000 and UTH have entered into a
total of three interconnection agreements with KPN, WorldCom and Enertel
networks. The pending proceeding before the Dutch Independent Post and
Telecommunications Authority regarding unbundled access could affect the terms
for interconnection with our networks for other telephony and Internet/data
services providers.

    Price Regulation. While A2000's telephone service is not currently subject
to price regulation, the prices of its competitor, KPN, are. The Dutch
Independent Post and Telecommunications Authority has recently indicated that
KPN should during 1999 reduce its end-user tariffs and substantially reduce its
interconnection prices in accordance with principles of cost orientation as set
forth by the Dutch Independent Post and Telecommunications Authority.

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    Internet/Data Services. Under the Dutch Telecommunications Act,
Internet/data services are regulated as telecommunications services. As such,
our Dutch operating systems need only register with the Dutch Independent Post
and Telecommunications Authority as providers of public telecommunications
services and/or networks and our prices for these services are not regulated.

Norway

    As a member state of the European Economic Area, Norway implements EU
directives in the telecommunications sector.

 Video Services

    Regulatory Framework. The provision of video services in Norway is
regulated by the Telecommunications Act of June 23, 1995 and The Broadcast Act
of December 4, 1992.

    Registration. Under Norway's Telecommunications Act, the installation and
operation of the cable infrastructure and equipment must be authorized by and
registered with the Norwegian Post and Telecommunications Authority on the
basis of certain necessary technical qualifications. Cable television system
registrations are non-exclusive.

    In Norway, the simultaneous and unchanged transmission of television
signals over a cable television network is not subject to any licensing or
registration requirements.

    Programming. Cable television providers have "must-carry" obligations
obliging them to include three national channels and typically one local
television channel in their basic tier services. Distribution of any
programming that is not a simultaneous and unchanged retransmission requires a
programming license issued by the Ministry of Cultural Affairs. Because pay-
per-view programming and some other services are not strictly simultaneous
retransmission, Janco Multicom obtained in 1998 a three-year programming
license. The license covers distribution of encrypted pay television channels,
mostly transmitted by satellite, and programming and distribution of
commercials. At the expiration of this license, we expect it to be renewed or
to have authorization to engage in such activities without a license.

    Price Regulation. The provision of the basic tier service is subject to
price control. A cable operator is only allowed to increase the basic package
subscription fee in line with the Official Consumer Price Index, with no cost
justification required. We have implemented such price increases in January of
each year. There are no specific pricing restrictions on expanded basic (non-
basic) tier services.

 Telephone and Internet/Data Services

    Regulatory Framework. Since January 1, 1998, alternative networks in Norway
have been permitted to offer voice telephone services in accordance with the
terms of the applicable EU directives.

    Registration. For telephone operators and service providers without
significant market power, as is currently the case with Janco Multicom, no
license is required to offer voice telephone services. Such providers need only
register with the Norwegian Post and Telecommunications Authority.

    Interconnection. Norway's telecommunications legislation generally
implements EU policy on interconnection. Cable network companies have the right
to interconnect with the public telecommunications network and the national
incumbent operator, TeleNor, has the duty to provide any telecommunications
company with interconnection to its network on a non-discriminatory basis.
Interconnection rates charged by TeleNor must be on a cost-basis. Janco
Multicom has entered into an interconnection agreement with TeleNor. Certain
issues in the interconnection agreement are currently the subject of mediation
before the Norwegian Post and Telecommunications Authority. After June 1, 1999,

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any provider of public telephone service must implement a fixed prefix when
originating telephone calls in their network.

    Pricing. Providers of public telephone without significant market power,
including Janco Multicom, are not subject to any specific pricing regulations.
In addition, they are not obligated to make universal service contributions.

    Internet/Data Services. Cable television networks do not require a license
or notification to provide Internet/data services. Broadband capacity may be
used freely by cable companies for commercial purposes, as long as the network
itself and necessary equipment comply with general technical requirements set
by the PTA. These services are not subject to telecommunications regulation
with respect to pricing and non-discrimination.

Sweden

 Video Services

    Regulatory Framework. Apart from certain limited rules governing program
content, the Swedish cable television industry is fully deregulated.

    Authorizations. No licence is required to operate cable television services
in Sweden.

    Programming. Cable television operators are presently required to transmit
four "must carry" channels, which include all three terrestrial television
channels in Sweden: the two public service channels provided by State owned
Sveriges Television (SVT1 and SVT2) and the commercial channel (TV4)
transmitted by the publicly held television company TV4. In addition, one local
television channel in each municipality should be included among the "must
carry" channels, provided that such channel has been authorised for the
municipality in question by the Radio and TV Authority. If digital television
services are offered, one additional "must carry" channel must be carried. If
Stjarn starts digital cable TV distribution, one additional "must carry"
channel must be distributed.

    Price Regulation. There is no regulation of tariffs.

 Telephone and Internet/Data Services

    Regulatory Framework. The provision of telephony services is governed by
the Swedish Telecommunications Act of 1993. The provision of Internet services
is not governed by any general Swedish legislation.

    Authorization. Within a public telecommunications network, telephony
services to a fixed termination point may only be provided following
notification to the National Post and Telecom Agency. In addition, a licence by
the National Post and Telecom Agency is required in order to be entitled to
provide such services within a public telecommunications network if the
activity is of an extent which is considerable with regard to area covered, the
number of users or other comparable circumstances. Stjarn has obtained such a
licence, which covers the telephony services intended to be launched by Stjarn.
In addition, there are regulations governing the operation of an established
telephony network and providing for the provision of such matters as connection
to the emergency services and interconnection rights between different
operators.

    Internet/Data Services. Under the Swedish Telecommunications Act, the
provision of network capacity for services offered by third party Internet
operators could require notification to the National Post and Telecom Agency.
Further, if such activity is conducted to a considerable extent, a licence from
the National Post and Telecom Agency is required. The Internet/data services
currently provided by Stjarn do not include the provision of network capacity
and therefore are not subject to a licence requirement.

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Israel

 Video Services

    Regulatory Framework. As part of the liberalization policy adopted by the
Israeli Communications Ministry, the telecommunications and cable television
market in Israel is expected to undergo significant reforms beginning in 1999.
We expect that these reforms will include opening the multi-channel television
business to competition by granting licenses to direct to home satellite
operators and opening the local telephone and Internet/data transmission
markets to competition by granting licenses to independent operators, thereby
allowing competition with Bezeq, the Israeli incumbent telecommunications
operator. Upon expiration of the existing cable television licenses, franchise
exclusivity will be eliminated and other operators will be permitted to apply
for cable television licenses to compete in the cable television market.

    The 1987 Bezeq law, which allowed the introduction of cable television,
gave the new cable companies exclusive rights to download and rebroadcast
satellite programming until 2003. The cable television operators therefore
challenged the legal basis of the Communications Ministry policy of introducing
direct to home satellite service before that date. In November 1998, the
Israeli High Court of Justice decided that direct to home satellite service
could be introduced before 2003. The cable television operators are seeking
compensation for the loss of exclusivity prior to 2003. This could come in the
form of some additional right or rights with respect to the content or services
they provide. This issue is currently pending before the Communications
Ministry and may be ruled on by the High Court of Justice.

    Franchise Agreements. Tevel holds exclusive cable television franchise
agreements that were granted for a period of 12 years and expire in 2002. These
franchises include a four-year renewal option at the discretion of the
Communications Ministry. Gvanim, which was recently acquired by Tevel, holds
exclusive franchises which expire in 2005 and 2002. As with the Tevel
franchises, the Communications Ministry is authorized to extend both of these
franchises for an additional four years. Tevel and Gvanim pay the government
royalties of 5% of their gross revenues. Upon the opening of the
telecommunications market to competition, we expect exclusive cable television
franchises to be replaced with long-term renewable, non-exclusive licenses that
will permit cable operators to continue providing cable television services and
to begin to offer additional telecommunications services such as voice
telephone and Internet/data services.

    Programming. Pursuant to its franchise agreements, Tevel must provide
within its basic service five tape-delivered channels subtitled in Hebrew: a
movie channel, a general entertainment channel, a children's channel, a nature
and science channel, and a sports channel. The movie channel and the general
entertainment channel are produced by ICP Israel Cable Programming Company
Limited, a programming company owned by Tevel, Gvanim and the other Israeli
cable television companies. The other three channels are produced by
independent parties. The ownership by the Israeli cable television operators of
ICP is considered a "restrictive arrangement" under Israeli Restrictive Trade
Practices law and is regulated by an arrangement approved by the Restrictive
Trade Practices Tribunal in June 1996, which was to expire in June 1999. The
arrangement has been extended until the earlier of August 31, 1999 or a
decision by the Tribunal regarding an application filed by the owners of ICP to
allow the distribution of their interests in ICP among themselves. Under this
arrangement, ICP is obligated to spend 15% of its programming expenses on
programming from local producers. The Restrictive Trade Practices Tribunal and
the Ministry of Communications are currently considering alternatives to
divesting the cable television operations interests in ICP, including the sale
of ICP's programming interests to third parties or distribution of such
interests in ICP among its shareholders.

    The Restrictive Trade Practices Tribunal and the Ministry of Communications
are currently considering requiring cable network operators, among other
things, to supply the previously cable-exclusive content they produce to the
direct to home satellite service providers once they are operational.

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    In addition, pursuant to the 1987 Bezeq Law, cable operators must obtain
authorization to add or remove channels from their service from the Ministry of
Communications. Further restrictions prohibit cable television operators from
carrying advertisements on their tape-delivered channels. Tevel currently is
required to provide three "must-carry" off-air channels. Its current
arrangement currently prohibits "tiering" of video services. Since its
establishment, Tevel has offered its subscribers the "super-basic package,"
which is currently comprised of 45 channels of programming. The direct to home
satellite service providers will be entitled to provide "tiering" of their
video services. The Communications Ministry made a preliminary determination
approving "tiering" of cable television services upon the earlier of direct-to-
home Satellite service providers achieving 250,000 subscribers or a period of
18-27 months from the first day of commercial broadcast of direct-to-home
service. Tevel and other cable providers have appealed to the High Court of
Justice the determination setting forth the above-described tiering timetable.
On June 26, 1999, the High Court of Justice rejected the appeal. The
implementation of the Communications Ministry's preliminary determination and
tiering timetable mentioned above, may adversely affect Tevel.

    A class action lawsuit was filed against Tevel in April 1998 alleging that
Tevel unlawfully dropped certain programming. We do not believe that this
litigation will have a material adverse effect on Tevel.

    Pricing. Cable television service subscription fees are subject to
regulation through the franchise agreements and through the arrangement
approved by the Restrictive Trade Practices tribunal. Currently, this
arrangement is more restrictive than the franchise agreements and permits basic
service subscription fees to be increased by a maximum of 1.9% per year above
the cost of living index. Two class action lawsuits were filed against Tevel in
April 1998, the first alleging that Tevel engaged in unlawful pricing practices
and the second challenging Tevel's collection of converter deposits. We do not
believe that this litigation will have a material adverse effect on us.

 Telephone and Internet/Data Services

    As part of the proposed liberalization of the telecommunications market,
Tevel and Gvanim expect to be permitted to provide Internet/data and voice
telephone services in their franchise areas, and to interconnect with Bezeq on
non-discriminatory terms with cost-based rates. There may be limits on a cable
television system's ownership, operation or marketing with a provider of
telecommunications services.

Czech Republic

    There is no rate regulation of cable or wireless cable services in the
Czech Republic. Cable operators are, however, subject to consumer pricing
reviews and laws on monopolistic positioning in the market. Rate increase
notifications must be sent out ninety days in advance, however, as conditions
of the franchises awarded by the municipalities. All cable operators must have
a valid establishment and operating permit, which is issued by the Czech
Telecommunications office. Additionally, all cable operators must be registered
with the council for radio and television broadcasting.

Hungary

    Cable operators in Hungary are not granted exclusive franchises; however,
all cable operators must be properly registered with the appropriate government
agency and meet certain technical licensing requirements. Moreover, although
there is no rate regulation in Hungary, rates are subject to consumer pricing
and anti-competition reviews by the government. There are several proceedings
regarding our rates pending at the Economic Competition Office that could
result in monetary fines. Further, a single cable operator may not provide
service to homes exceeding in the aggregate one-sixth of the Hungarian
population. Hungarian regulatory authorities have recently announced an
intention to initiate an investigation as to whether Telekabel Hungary is in
compliance with this rule. MATAV and other local telephony providers, including
Monor, have a monopoly in local voice telephony services in their respective

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service areas until 2002, but there are no restrictions on entry into
Internet/data services or rate regulation of such new providers other than
certain technical licensing requirements. Recent legislation restricts MATAV
and other local telephony providers, including Monor, from acquiring additional
cable assets.

Poland

General

    The operation of cable and digital satellite DTH television systems in
Poland is regulated under the Polish Communications Act of 1990 (the
"Communications Act") and the Polish Radio and Television Act of 1992 (the
"Television Act"). These are regulated by:

   . The Polish Minister of Communications;
   . The Polish State Agency of Radio Communications ("PAR"); and
   . The Polish National Radio and Television Council (the "Council").

    Cable television operators in Poland are required to obtain permits from
PAR to install and operate cable television systems and must register certain
programming that they transmit over their networks with the Council.

    In contrast to cable television regulatory schemes in the U.S. and in
certain other Western nations, neither the Minister of Communications nor PAR
currently has the authority to regulate the rates charged by operators of cable
television and DTH services. However, excessive rates could be challenged by
the Polish Anti-Monopoly Office should they be deemed to constitute
monopolistic or other anti-competitive practices. Cable television and DTH
operators in Poland also are subject to the Law on Copyright and Neighboring
Rights of 1994 (the "Copyright Act") which provides intellectual property
rights protection to authors and producers of programming. Under the terms of
the Television Act, broadcasters in Poland are regulated by, and must obtain a
broadcasting license from, the Council.

    Because the @Entertainment DTH service was the first DTH service available
in Poland, there are likely to be issues of first impression not currently
addressed under Polish law with respect to certain aspects of its DTH business
and related programming arrangements. In addition, the Polish DTH market is
subject to a developing regulatory framework that may change as the market
develops.

Communications Act

    Permits. The Communications Act and the required permits issued by PAR set
forth the terms and conditions for providing cable television services,
including:

   . the terms of the permits;
   . the area covered by the permits;
   . technological requirements for cable television networks; and
   . restrictions on ownership of cable television operators.

    If a cable operator breaches the terms of its permits or the provisions of
the Communications Act, or if such operator fails to acquire permits covering
areas serviced by its networks, PAR or the Polish penal court can impose
penalties on such operator, including:

   . fines or imprisonment;
   . the revocation of all permits covering the cable networks where such
     breach occurred; or
   . the forfeiture of the cable operator's cable networks.

    In addition, the Communications Act provides that PAR may not grant a new
permit to, or renew an expiring permit held by, any applicant that has had, or
that is controlled by an entity that has had, a permit revoked within the
previous five years.

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    Foreign Ownership Restrictions. The Communications Act and applicable
Polish regulatory restrictions provide that permits may only be issued to and
held by Polish citizens, or companies in which foreign persons hold no more
than 49% of the share capital, ownership interests and voting rights. In
addition, a majority of the management and supervisory board of any cable
television operator holding permits must be comprised of Polish citizens
residing in Poland. These restrictions do not apply to any permits issued prior
to July 7, 1995. See "Risk Factors--If we complete our acquisition of
@Entertainment, we will be subject to a number of risks."

Television Act

    The Polish National Radio and Television Council. The Council, an
independent agency of the Polish government, was created under the Television
Act to regulate broadcasting in Poland. The Council has regulatory authority
over both the programming that cable television operators transmit over their
networks and the broadcasting operations of broadcasters.

    Registration of Programming. Under the Television Act, cable television
operators must register each channel and the programming which will be aired on
that channel with the Chairman of the Council prior to transmission. In
general, the Chairman of the Council will refuse registration of programming
if:

  . the applicant is not legally entitled to use the cable network
    over which the programming will be distributed (i.e., does not
    have a PAR permit covering the network);
  . the broadcasting of the programming in Poland violates Polish
    law, including provisions of the Television Act governing
    sponsorship, advertising and minimum Polish and European content
    requirements for programming broadcast by Polish broadcasters; or
  . the transmission of the programming over the cable network would
    violate the Television Act or other provisions of applicable
    Polish law.

    @Entertainment's subsidiaries have registered most of the programming that
they transmit on their cable networks, except programming transmitted on
networks for which they do not have permits. The Chairman of the Council may
revoke the registration of any of @Entertainment's programming, or may not
register all additional programming that @Entertainment desires to transmit
over @Entertainment's networks. In addition, the Council may take action
regarding unregistered programming that @Entertainment's subsidiaries transmit
over cable networks for which @Entertainment's subsidiaries do not yet have PAR
permits. Such actions could include the levying of monetary fines against
@Entertainment's subsidiaries, and the seizure of equipment involved in
transmitting such unregistered programming as well as criminal sanctions
against @Entertainment's subsidiaries' management. These actions could have a
material adverse effect on @Entertainment's business, financial condition and
results of operations.

    Restrictions on Foreign Ownership of Polish Broadcasters. The Television
Act provides that programming may be broadcast in Poland only by Polish
entities in which foreign persons hold no more than 33% of the share capital,
ownership interest and voting rights. In addition, the Television Act and
applicable Polish regulatory restrictions provide that the majority of the
management and supervisory boards of any company holding a broadcasting license
must be comprised of Polish citizens residing in Poland. Companies that engage
in broadcasting in Poland are required to obtain a broadcasting license from
the Chairman of the Council under the Television Act. The Council may revoke a
broadcasting license for, among other things.

  . violations of the Television Act;
  . violations of the terms of the broadcasting license; or
  . violations of restrictions on foreign ownership of broadcasters.

    If the Polish regulatory authorities were to conclude that @Entertainment's
ownership or distribution structure is not in compliance with Poland's
regulatory restrictions on foreign ownership, @Entertainment

                                      158
<PAGE>

could be forced to incur significant costs in order to bring its ownership
structure and distribution system into compliance with the applicable
regulations and @Entertainment may be forced to dispose of its ownership
interests in various entities. These regulatory restrictions may materially
adversely affect our ability to enter into relationships with other entities
that produce, broadcast and distribute programming in Poland, which in turn
would have a material adverse effect on @Entertainment's business, results of
operations and financial condition.

Copyright Protection

    Television operators, including cable and DTH operators, in Poland are
subject to the provisions of the Polish Copyright Act, which governs the
enforcement of intellectual property rights. In general, the holder of a Polish
copyright for a program transmitted over the cable networks of a cable
television operator or the system of a DTH operator has a right to receive
compensation from such operator or to prevent transmission of the program.

    The rights of Polish copyright holders are generally enforced by
organizations for collective copyright administration and protection such as
Zwiazek Autorow i Kompozytorow Scenicznych ("ZAIKS") and Zwiazek Artystow Scen
Polskich ("ZASP"), and can also be enforced by the holders themselves. Most of
@Entertainment's cable subsidiaries operate under a contract with ZASP and all
of @Entertainment's cable subsidiaries operate under a contract with ZAIKS. A
violation of the Copyright Act by a cable television operator also constitutes
a violation of the Communications Act and of the operator's permits. See "--
Television Act" for a discussion of the penalties and consequences associated
with violations of the Television Act and "--Communications Act" for a
discussion of the penalties and consequences associated with violations of a
television operator's permits.

    @Entertainment currently makes copyright payments to foreign programmers
requiring these types of payments, such as CNN, Eurosport and the Cartoon
Network.

Anti-Monopoly Act

    Competition in Poland is governed by the Anti-Monopoly Act. The current
Polish anti-monopoly laws with respect to the cable, DTH and programming
industries are not well established, and the Anti-Monopoly Office has not
articulated comprehensive standards that may be applied in an antitrust review
in such industries. In general, the Anti-Monopoly Act prohibits such anti-
competitive arrangements and practices as:

  . monopolistic agreements;
  . abuse of dominant market position;
  . price-fixing arrangements;
  . division of market arrangements; and
  . creation of market entry barriers.

    The Anti-Monopoly Office may deem agreements which employ such practices as
null and void. A finding by the Anti-Monopoly Office that @Entertainment's
past, present or future operations, agreements or strategic actions constituted
violations of the anti-monopoly laws could adversely impact its business,
strategy, financial condition and results of operations.

    Exclusive Programming Agreements. An important factor in determining the
commercial value of programming which is distributed by a cable or DTH operator
is whether such programming is widely available or if such programming is only
available on a limited or exclusive basis. Many of the programming agreements
that @Entertainment has entered into for its cable networks and its DTH service
contain exclusivity clauses which restrict or prohibit the provider of such
programming from providing such programming to other cable or DTH operators.
Although such exclusivity clauses are not specifically

                                      159
<PAGE>

prohibited under the Anti-Monopoly Act, such agreements may be found unlawful,
and therefore unenforceable, if they restrict or hinder competition or
otherwise involve the abuse of a dominant position. A decision by the Anti-
Monopoly Office to deem one or more of these programming agreements as void due
to the fact that it contains an illegal exclusivity clause could have a
material adverse effect on @Entertainment's business and financial results in
that such a decision would potentially reduce the commercial value of these
contracts and could reduce the consumer appeal of the programming offered on
its cable networks and its DTH system.

    Market Dominance. Although the Anti-Monopoly Act does not preclude an
enterprise from occupying a dominant market position, any activities by such
enterprise are subject to detailed scrutiny by the Anti-Monopoly Office.
Companies that obtain control of 40% or more of the relevant market are usually
deemed to have market dominance, and therefore face greater scrutiny from the
Anti-Monopoly Office.

    Pre-Notification of Transactions. The Anti-Monopoly Act requires parties to
certain types of transactions to notify the Anti-Monopoly Office prior to the
consummation of the proposed transaction. Pursuant to the current
interpretation of the Anti-Monopoly Office, transactions between non-Polish
parties that may affect market conditions in Poland may also require
notification to the Anti-Monopoly Office. Sanctions for failure to notify the
Anti-Monopoly Office include the imposition of fines on parties to the
transaction at issue. We may be required to obtain the Anti-Monopoly Office's
approval for future acquisitions and dispositions, but the Anti-Monopoly Office
might not approve such transactions.

Romania

    Exclusive franchises are not awarded in Romania. We have received non-
exclusive licenses to operate cable television systems in all of its service
areas. These renewable licenses are valid for another six years. The cable
television industry is regulated by the Romanian audiovisual law, which came
into force in June 1996, and is administered by the National Audiovisual
Council.

Slovak Republic

    Each cable network operator must obtain an operating permit from the
relevant telecommunications office and a non-exclusive broadcasting license
from the Council of the Slovak Republic for Radio and Television Broadcasting
in order to operate its network. Most private cable operators also have their
own agreements with each city and/or large co-operative housing associations.
There is no rate regulation on cable activities. Cable operators are, however,
subject to consumer pricing reviews and laws on monopolistic positioning in the
market and must submit channel line-ups as part of the licensing process.
Furthermore, the Ministry of Transportation, Posts and Telecommunications must
approve agreements between cable operators and cable subscribers. Although the
Ministry does not approve specific provisions relating to price in such
agreements, the Ministry attempts to provide some consumer protection.

Malta

    In 1991, Melita was awarded an exclusive 15-year renewable license to
deliver cable television services for Malta. Rates for the basic tiers are
subject to regulation and requests for rate increases made to the government
must be accompanied by a cost analysis of the increases in cost. Premium
services, "pay-per-view" and other additional services are not subject to rate
regulation.

Broadcasting

    In addition to national laws which implement the EU directives on
broadcasting described in "Regulation--European Union," various other types of
national broadcasting regulations apply to SBS. Over-the-air, terrestrial
television and radio broadcasters operatate pursuant to licenses granted by
national or local regulatory authorities allowing use of certain radio
frequencies in a specified geographic

                                      160
<PAGE>

area, generally for a limited duration which can be renewed. Broadcasters
operate subject to various regulatory conditions, such as limitations on
advertising, program content and ownership.

                                 Other Matters

    EU directives and national consumer protection and competition laws in our
Western European markets impose limitations on the pricing and marketing of
integrated packages of services, such as video, telephone and Internet/data
services. These limitations are common in developed market economies and are
designed to protect consumers and ensure a fair competitive market. While we
may offer our services in integrated packages in our Western European markets,
we are generally not permitted to make subscription to one service, such as
cable television, conditional upon subscription to another service, such as
telephone, that a subscriber might not otherwise take. In addition, we must not
abuse or enhance a dominant market position through unfair anti-competitive
behavior. For example, cross-subsidization between our business lines that
would have this effect would be prohibited. We have to be careful, therefore,
in accounting for discounts in services provided in integrated packages. We
believe we can implement our strategy of offering integrated packages of
services without infringing any of these consumer protection and anti-
competition laws. We do not, therefore, expect any of these limitations to
significantly affect our operating strategy.

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<PAGE>

                                   MANAGEMENT

    United currently owns approximately 62.5% of our outstanding A shares and
all of our outstanding priority shares. Because we are a strategic holding of
United, United is likely to continue to control us for the foreseeable future.
Five members of our six-member Supervisory Board are also directors, officers
or employees of United.

                               Supervisory Board

    Our general affairs and business and the board that manages us are
supervised by a Supervisory Board appointed by the general meeting of
shareholders upon proposal of United as the holder of our priority shares. Mr.
Gene Schneider, United's Chairman and Chief Executive Officer and the former
Chairman of the Supervisory Board, resigned from the Supervisory Board in
February 1999. Pursuant to the rules and procedures of the Supervisory Board,
he became a non-voting advisor to the Supervisory Board and has the right to
attend and participate in the meetings of the Supervisory Board.

    The Supervisory Directors are appointed at the general meeting of
shareholders from a list proposed by United as the holder of our priority
shares or through direct appointment by Philips, pursuant to its right to
appoint one director as set forth in our articles of association, or the
Discount Group, pursuant to its contractual right to appoint one director. The
Discount Group, our partner in our Israeli system, has not to date exercised
its contractual right to nominate a Supervisory Director. The Discount Group's
proposal may be set aside by two-thirds of the votes cast at the general
meeting of shareholders representing more than one-half of the issued nominal
capital.

    The Supervisory Directors and Advisor are:

<TABLE>
<CAPTION>
Name                                       Age             Position
- ----                                       ---             --------
<S>                                        <C> <C>
Michael T. Fries..........................  36 Chairman of the Supervisory Board
John P. Cole, Jr..........................  69 Supervisory Director
Richard De Lange..........................  54 Supervisory Director
Antony P. Ressler.........................  38 Supervisory Director
Ellen P. Spangler.........................  50 Supervisory Director
Tina M. Wildes............................  38 Supervisory Director
Gene W. Schneider.........................  72 Advisor
</TABLE>

    Michael T. Fries has been a member of the Supervisory Board since September
1998 and the Chairman since February 1999. He is the Executive Chairman of
Austar United Communications Limited ("Austar United"), United's subsidiary
that recently completed an initial public offering in Australia. He is also
President of United and President of United Latin America, Inc., a wholly-owned
subsidiary of United, positions he has held since September 1998. Mr. Fries
also serves as President and Chief Executive Officer of United Asia/Pacific
Communications, Inc., a majority-owned subsidiary of United, positions he has
held since June 1995 and December 1996, respectively. Prior to becoming
President of United Asia/Pacific Communications, Inc., Mr. Fries served as
United's Senior Vice President, Development, in which capacity he was
responsible for managing United's acquisitions and new business development
activities since March 1990, including United's expansion into the
Asia/Pacific, Latin American and European markets.

    John P. Cole Jr. became a member of the Supervisory Board in February 1999
and has been a director of United since March 1998. Mr. Cole has practiced law
in Washington, D.C. since 1956 and has been counsel over the years in many
landmark proceedings before the U.S. Federal Communications Commission,
reflecting the development of the cable television industry. In 1966, he
founded the law firm of Cole, Raywid & Braverman, a 30-lawyer firm specializing
in all aspects of communications and media law. Mr. Cole is also a director of
Century Communications Corporation.

                                      162
<PAGE>

    Richard De Lange has been a member of the Supervisory Board since April
1996. Since October 1998, Mr. De Lange has been Chairman of the Dutch Philips
organization (Philips Nederland B.V. and Nederlandse Philips Bedrijven B.V.).
He also continues to serve as President and Chief Executive Officer of Philips
Media B.V., which position he assumed in February 1996. From April 1995 until
October 1998, Mr. De Lange was Chairman and Managing Director of Philips
Electronics UK Ltd. Previously, Mr. De Lange served since 1970 in various
capacities with subsidiaries of Philips, including President of Philips
Lighting Europe from December 1990 until April 1995.

    Antony P. Ressler became a member of the Supervisory Board in February 1999
and has been a director of United since October 1993. Mr. Ressler is one of the
founding principals of Apollo Advisors, L.P., Lion Advisors, L.P. and Ares
Management, L.P., which through several funds represent institutional investors
with respect to corporate acquisitions and securities investments. Mr. Ressler
is also a director of Allied Waste Industries, Inc., Berlitz International,
Inc., Communications Corporation of America, Prandium, Inc. and Vail Resorts,
Inc.

    Ellen P. Spangler became a member of the Supervisory Board in February
1999. Ms. Spangler is the Senior Vice President of Business and Legal Affairs
and Secretary of United, positions she has held since December 1996. Prior to
assuming her current positions, since February 1991 she served as a Vice
President of United where her responsibilities included business and legal
affairs, programming and assisting on development projects.

    Tina M. Wildes became a member of the Supervisory Board in February 1999.
Ms. Wildes is the Senior Vice President of Operations and Development Oversight
of United, a position she has held since May 1998. From October 1997 until May
1998, Ms. Wildes served as Senior Vice President of Programming for United.
From 1993 to 1997, she was Regional Vice President of United Latin America,
Inc. From 1988 to 1994, Ms. Wildes served as either a director or vice
president for development, programming and operations for several of United's
European operating companies, including operations in Sweden, Norway, Malta,
Israel, Spain and Portugal.

    Gene W. Schneider served as a member of the Supervisory Board from July
1995 until February 1999, when he became an advisor to the Supervisory Board.
Mr. Schneider is also the Chairman of the Board of Directors of United, a
position he has held since its inception in May 1989. In addition to serving as
United's Chairman, Mr. Schneider has served as United's Chief Executive Officer
since October 1995, and served as United's President from October 1997 until he
relinquished the title in September 1998. Mr. Schneider served as Chairman of
United Artists, then the third largest multiple system operator in the United
States, from May 1989 until its merger with Tele-Communications, Inc. in
November 1991. He was a founder of United Cable in the early 1950s and, as its
Chairman and Chief Executive Officer, helped build United Cable into the
eighth-largest multiple system operator in the United States prior to its
merger with United Artists in 1989. Mr. Schneider has been active in cable
television affairs and has served on the board of the National Cable Television
Association ("NCTA") and on numerous committees and special projects thereof
since the NCTA's inception in the early 1950s. Mr. Schneider is one of the
original inductees into the NCTA's Cable Television Pioneers. As Chairman of
United Cable, he was involved in United Cable's investment in numerous
programming companies such as Discovery and Turner Broadcasting, and served as
a director on the board of Turner Broadcasting and Chairman of C-SPAN. Mr.
Schneider is also Chairman of the Board of Advance Display Technologies, Inc.
and a director of Austar United.

    The Supervisory Board has an Audit Committee and a Compensation Committee.
Both committees are comprised of Mr. Fries, Ms. Spangler and Ms. Wildes.

                                      163
<PAGE>

                              Family Relationships

    Tina M. Wildes, a member of the Supervisory Board, and Mark L. Schneider,
the Chairman of our Board of Management and our Chief Executive Officer, are
sister and brother. Gene W. Schneider is their father. No other family
relationships exist between any other members of our Supervisory Board or Board
of Management.

                  Board of Management and Other Key Employees

    The members of the Board of Management are:

<TABLE>
<CAPTION>
Name                                Age                 Position
<S>                                 <C> <C>
Mark L. Schneider..................  44 Chairman of Board of Management and
                                        Chief Executive Officer
John F. Riordan....................  57 Vice Chairman of Board of Management and
                                        President, Advanced Communications;
                                        Chief Executive Officer, chello
                                        broadband
Charles H. R. Bracken..............  33 Board of Management Member
Anton H. E. v. Voskuijlen..........  42 Board of Management Member, Senior Vice
                                        President
Nimrod J. Kovacs...................  49 Board of Management Member and Managing
                                        Director, Eastern Europe
</TABLE>

    Other key employees include:

<TABLE>
<CAPTION>
Name                                 Age                 Position
<S>                                  <C> <C>
Scott Bachman.......................  44 Managing Director, Technology and
                                         Purchasing
Jeroen Bergman......................  33 Managing Director, Video and Marketing
Steven D. Butler....................  40 Managing Director, UPC Capital and
                                         Treasurer
Sudhir Ispahani.....................  39 Managing Director, Operations and
                                         Technology, chello broadband
Roger Lynch.........................  36 President and Chief Financial Officer,
                                         chello broadband
Simon Oakes.........................  40 Managing Director, Programming
Iain Osborne........................  42 Managing Director, Marketing, Sales and
                                         Portal, chello broadband
Ray D. Samuelson....................  46 Managing Director, Finance and
                                         Accounting
Anton M. Tuijten....................  37 General Counsel
Joseph Webster......................  36 Managing Director, Telephony Services
                                         and Chief Executive Officer, Priority
                                         Telecom
</TABLE>

    Mark L. Schneider has been our Chief Executive Officer and Chairman of our
Board of Management since April 1997. He was our President from April 1997 to
September 1998. Since December 1996, he has served as Executive Vice President
of United and President and Chief Executive Officer of United Europe/Middle
East Communications, Inc. and from May 1996 to December 1996, Mr. Schneider was
Chief of Strategic Planning and Operational Oversight of United. He served as
President of United from July 1992 until March 1995 and was Senior Vice
President of United from May 1989 until July 1992. Mr. Schneider also worked as
a consultant for United from March 1995 to May 1996. Mr. Schneider has been a
member of the board of directors of United since 1993.

    John F. Riordan was appointed our Executive Vice President in March 1998,
and a member of our Board of Management in September 1998. Also in September
1998, Mr. Riordan was appointed Vice

                                      164
<PAGE>

Chairman of the Board of Management and President of our Advanced
Communications division, overseeing implementation of our Internet/data
services and digital distribution platform. In March 1999, Mr. Riordan was also
appointed as Chief Executive Officer of chello broadband. In June 1999, Mr.
Riordan became a director of Austar United. From April 1997 until March 1998,
he was a member of our Supervisory Board. Mr. Riordan also has served as a
director of United since March 1998. From 1992 until November 1998, Mr. Riordan
served as Chief Executive Officer of Princes Holdings Limited, the Irish multi-
channel television operating company of which we owned 20% until its sale in
November 1998. Mr. Riordan is also a director of Austar United.

    Charles H. R. Bracken was appointed Managing Director of Strategy,
Acquisitions and Corporate Development in March 1999. Mr. Bracken became a
member of the Board of Management in July 1997. From 1994, he held a number of
appointments at Goldman Sachs International, in London, most recently as
Executive Director, Communications, Media and Technology. While at Goldman
Sachs, he was responsible for providing merger and corporate finance advice to
a number of communications companies including UPC.

    Anton H.E. v. Voskuijlen has been on our Board of Management since April
1997 and has been Senior Vice President since May 1999. He also served as our
General Counsel from July 1996 until May 1999. Prior to joining us in 1996, he
served as Vice President, Business Affairs and Legal Counsel of Philips Media
in New York, New York.

    Nimrod J. Kovacs was appointed our Managing Director of Eastern Europe in
March 1998 and a member of our Board of Management in September 1998. He has
served in various positions with United, including President of United
Programming, Inc., since December 1996, President, Eastern Europe Electronic
Distribution & Global Programming Group from January to December 1996 and
Senior Vice President, Central/Eastern Europe from March 1991 until December
1995.

    Scott Bachman has served as our Managing Director of Technology and
Purchasing since February 1998. From March 1996 until February 1998, Mr.
Bachman was our Vice President of Engineering and the Chief Technology Officer.
From April 1991 to March 1996, Mr. Bachman was Vice President of Operations &
Technology Projects for Cable Television Laboratories, Inc.

    Jeroen Bergman was appointed Managing Director of Video and Marketing in
July 1999. Prior to his appointment, Mr. Bergman was the Commercial Director at
Casema, the second largest cable television operator in The Netherlands after
us and a subsidiary of France Telecom, a position he had held since 1996. From
1993 to 1996, Mr. Bergman worked for Optus Vision, and its shareholder Optus
Communications, a long distance and mobile communications operator in
Australia, primarily owned by Cable & Wireless.

    Steven D. Butler was appointed Managing Director of UPC Capital and our
Treasurer in February 1998, responsible for all corporate and project
debt/equity financing activities, as well as banking and investor relations.
From July 1995 until February 1998, Mr. Butler served as our Vice President and
Treasurer. Prior to that, Mr. Butler served as Director of Finance at United
since May 1991.

    Sudhir Ispahani has been Managing Director of Operations and Technology for
chello broadband since March 1999 with primary responsibility for developing
and implementing chello's technology architecture. Mr. Ispahani joined chello
broadband as Corporate Technology Officer in July 1998 and has been a member of
chello broadband's Management Board since November 1998. From 1988 until he
joined chello broadband in July 1998, Mr. Ispahani worked as Director of
Service Direct for MCI.

    Roger Lynch was appointed President, Chief Financial Officer and a member
of the Managing Board of chello broadband in June 1999. Prior to his
appointment, Mr. Lynch spent five years at Morgan Stanley Dean Witter where he
had responsibility for the bank's Internet corporate finance activity in
Europe. In

                                      165
<PAGE>

addition, Mr. Lynch was Morgan Stanley's Internet sector specialist and had
advised us and chello broadband during the year preceding his appointment.

    Simon Oakes was appointed our Managing Director of Programming in March
1998, responsible for our programming operations and development activities.
From 1994 until joining us, Mr. Oakes independently developed and produced
feature films including Single Girls' Diary (Granada Films), The Main of
Buttermere (Tribeca and United Artists) and Cave (Working Title and Polygram).
From 1989 until 1994, Mr. Oakes served as Co-chairman of Crossbow Films, a film
production company.

    Iain Osborne has been Managing Director of Marketing, Sales and Portal for
chello broadband since March 1999 and has been a member of the Board of
Management since January 1999. Mr. Osborne joined the company in July 1998 from
Yahoo! Inc. where he was Marketing and Communications Director, Europe.

    Ray D. Samuelson was appointed our Managing Director of Finance and
Accounting in February 1998, responsible for all our accounting, reporting,
budgeting, management information systems and administrative activities. From
our formation in July 1995 until February 1998, Mr. Samuelson served as Vice
President of Finance & Accounting. From 1992 to 1995, he was Vice President of
Finance and Administration of the Cable Operations Division at United. Prior to
Mr. Samuelson's appointment with United, he was seconded as a US WEST employee
from 1990 to 1992 as the Chief Financial Officer of United's and US WEST's
Norwegian, Swedish and Hungarian cable television partnership.

    Anton M. Tuijten joined our company in September 1998 as Vice President of
Legal Services and was appointed our General Counsel in May 1999. Mr. Tuijten
is also a member of the Management Board of chello broadband. From 1992 until
joining us, Mr. Tuijten was General Counsel and Company Secretary of Unisource,
an international telecommunications company.

    Joseph Webster has served as our Managing Director of Telephony Services
since February 1998 and is also the Chief Executive Officer of Priority
Telecom. From February 1997 until his appointment with us, Mr. Webster served
as Regional Vice President & General Manager at Time Warner Communications in
Raleigh, North Carolina. From February 1994 to January 1997, Mr. Webster served
as Vice President & General Manager at Time Warner Communications, where he was
responsible for a start-up provider of competitive telecommunications services.
From May 1993 to February 1994, Mr. Webster served as Vice President of
Teleport Communications Group in Detroit, Michigan.

                                      166
<PAGE>

                             Executive Compensation

    The following table sets forth the 1997 and 1998 compensation for our chief
executive officer, the four other highest compensated executive officers at
fiscal year end 1998 and one other executive officer that was not an executive
officer at fiscal year end 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
                                     Annual Compensation(1)
                                 -------------------------------
Name and Principal                                Other Annual      All Other
Position                    Year Salary   Bonus  Compensation(2) Compensation(3)
- ------------------          ---- ------- ------- --------------- ---------------
                                                (Dutch guilders)
<S>                         <C>  <C>     <C>     <C>             <C>
Mark L. Schneider(4) .....  1997 584,940     --         --               --
 Chief Executive Officer    1998 738,010     --         --             9,557
J. Timothy Bryan(5) ......  1998 597,300 210,260      1,657            9,577
 Former President and
 Chief Financial Officer
Gene Musselman(6).........  1997 131,251     --         --             6,318
 Chief Operating Officer,   1998 499,663 149,325      7,403          142,442
 Telekabel Wien
Margaret M. Houlihan(7)...  1997 335,790     --         --            61,636
 Former Managing Director,  1998 449,637     --      46,310          176,205
 Video Services
Nimrod Kovacs(8)..........  1998 547,525     --       1,657            9,557
 Managing Director,
 Eastern Europe
Michael Simmons(9)........  1998 448,509     --         --            76,208
 Former Managing Director,
 Portugal
</TABLE>
- --------------------
(1) Compensation amounts (except for automobile allowance payments and school
    fees, if applicable, which were paid in Dutch guilders) for the persons
    identified above were converted from U.S. dollars to Dutch guilders using
    the average exchange rate for the respective years.
(2) Consisted of automobile lease, operating and maintenance payments, and
    health and life insurance payments for some of the executive officers
    listed above.
(3) Our executive officers who are United States citizens were employed by
    United and seconded to us during 1997 and 1998. United compensates all
    United States citizens working for us outside the United States for certain
    expenses and adjustments related to non-U.S. assignments and we reimburse
    United for such expenses. These expenses and adjustments include home leave
    payments for trips back to the employee's home country, housing allowance
    and school tuition fees for the employee's children. See "--Agreements with
    Executive Officers." Certain compensation identified in this column also
    consisted of matching employer contributions under United's employee 401(k)
    plan or our pension plan, as applicable.
(4) Mr. Schneider was appointed as our Chief Executive Officer in April 1997
    but continued to serve as a consultant for United until September 1998. The
    salary amount shown consisted of the total salary paid to Mr. Schneider for
    his duties to us and United. Other compensation consisted of matching
    employer contributions under United's employee 401(k) plan and personal use
    of an airplane.
(5) Mr. Bryan was our President and Chief Financial Officer from September 1998
    to June 1999, prior to which time he was the Chief Financial Officer of
    United. At the annual general shareholders meeting on July 23, 1999 Mr.
    Bryan was released from his duties as a member of the Board of Management.
    The salary amount shown consisted of the total salary paid to Mr. Bryan for
    his duties to us and United. Mr. Bryan received a performance-based bonus
    for 1998. Other annual compensation consisted of health and life insurance
    payments and other compensation consisted of matching employer
    contributions under United's employee 401(k) plan and personal use of an
    airplane.

                                      167
<PAGE>

(6) Mr. Musselman received a performance-based bonus for 1998. Other annual
    compensation consisted of health and life insurance payments. Other
    compensation consisted of amounts related to Mr. Musselman's non-U.S.
    assignment and matching employer contributions under United's employee
    401(k) plan.
(7) Ms. Houlihan is no longer our employee. Other annual compensation consisted
    of automobile allowance and health and life insurance payments and other
    compensation consisted of amounts related to Ms. Houlihan's non-U.S.
    assignment and matching employer contributions under United's employee
    401(k) plan.
(8) Mr. Kovacs was appointed as our Managing Director of Eastern Europe in
    March 1998. The salary amount shown consisted of the total salary paid to
    Mr. Kovacs for his duties to us and United. Other annual compensation
    consisted of health and life insurance payments and other compensation
    consisted of matching employer contributions under United's employee 401(k)
    plan.
(9) We sold our interest in our Portuguese system in February 1998. Mr. Simmons
    no longer is our employee. Other annual compensation consisted of health
    and life insurance payments and other compensation related to Mr. Simmons'
    non-U.S. assignment and matching employer contributions under United's
    employee 401(k) plan.

    The following table sets forth information concerning options that were
granted by us to the executive officers listed in the Summary Compensation
Table above during the fiscal year ended December 31, 1998.

                       Option Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                            Individual Grants
                         --------------------------
                                                                             Potential Realizable
                                                                               Value at Assumed
                         Number of    Percentage of                          Annual Rates of Stock
                         Securities   Total Options                           Price Appreciation
                         Underlying    Granted to    Exercise                 for Option Term(1)
                          Options     Employees in     Price    Expiration   ---------------------
                          Granted      Fiscal Year  (NLG/Share)    Date       5% (NLG)  10% (NLG)
                         ----------   ------------- ----------- ----------   ---------- ----------
<S>                      <C>          <C>           <C>         <C>          <C>        <C>
Mark L. Schneider.......  975,000(2)      41.6%      NLG12.00    12/06/03    75,747,750 91,221,000
J. Timothy Bryan........   90,000(3)       2.4%      NLG12.00    09/21/99(4)    679,206  1,721,242
                          397,500(5)      10.6%      NLG13.57    09/21/99(4)  3,392,036  8,596,766
</TABLE>
- --------
(1) The potential realizable value is based on assumed annual rates of stock
    price appreciation from our initial public offering, NLG63.91, to the end
    of the option term.
(2) Vests in 48 equal monthly installments from April 1, 1997.
(3) Shares subject to phantom options, which UPC may at its option pay in cash
    or UPC shares on exercise, and vest in 48 equal monthly installments from
    April 1, 1997. Mr. Bryan is no longer an employee of the Company.
(4) The original expiration date of these options was April 1, 2007 for 90,000
    of the options and September 24, 2008 for 397,500 of the options. The
    vested options now expire on September 21, 1999, the date that is 90 days
    from the date of Mr. Bryan's resignation.
(5) Shares subject to phantom options, which UPC may at its option pay in cash
    or UPC shares on exercise, and vest in 48 equal monthly installments from
    October 1, 1998. Mr. Bryan is no longer an employee of the Company.

                                      168
<PAGE>

    The following table sets forth information with respect to the executive
officers listed in the Summary Compensation Table above holding unexercised
options as of December 31, 1998. The value of unexercised in-the-money options
represents the difference between the price of the Ordinary Shares A in our
initial public offering, NLG63.91, and the exercise price of the options, which
is NLG12.00 for Mr. Schneider's options and NLG10.43 for Ms. Houlihan's
options. See "--Stock Option Plans" and "Security Ownership of Certain
Beneficial Owners and Management."

                    Aggregated Fiscal Year-end Option Values

<TABLE>
<CAPTION>
                                                  Number of Securities
                                                 Underlying Unexercised
                          Number of              Options at Fiscal Year-      Value of Unexercise
                           Shares                          End              In-the-Money Options(1)
                         Acquired on   Values   ------------------------- ---------------------------
Name                      Exercise    Realized  Exercisable Unexercisable  Exercisable  Unexercisable
- ----                     -----------  --------- ----------- ------------- ------------- -------------
<S>                      <C>          <C>       <C>         <C>           <C>           <C>
Mark L. Schneider.......      --            --    406,250      568,750    NLG21,088,438 NLG29,523,812
J. Timothy Bryan........   12,500(2)  US$59,000    62,344      425,156    NLG 3,095,410 NLG21,109,198
</TABLE>
- --------
(1) UPC sold shares in its initial public offering at NLG63.91 per share on
    February 11, 1999. Such share price is the basis for the values determined
    in the above table for UPC.
(2) Represents the number of shares underlying the phantom options, which were
    exercised with respect to an affiliate of UPC. The value was determined by
    the United Board of Directors. Mr. Bryan is no longer our employee.

Agreements with Executive Officers

    We do not have employment agreements with any of the executive officers
listed in the above table. Mr. Simmons had an employment agreement with United
that has been terminated. Mr. Schneider has a consulting agreement with United
and Mr. Musselman has an employment agreement with United. We and United are
parties to a Secondment Agreement, pursuant to which Mr. Schneider, together
with all our other U.S. citizen employees, are seconded to us. See "Certain
Transactions and Relationships--Relationship with United and Related
Transactions." Pursuant to the Secondment Agreement, we reimburse United for
all expenses incurred by United in connection with the seconded employees.

    Mr. Schneider's consulting agreement with United is for a term of five
years and expires May 31, 2000. Mr. Schneider receives a fee of NLG759,000 per
year. If Mr. Schneider's employment is terminated without cause or dies prior
to the end of the term of the agreement, he or his personal representative
shall receive all payments due under the agreement through its term.

    United, UPC and Mr. Bryan entered into an employment agreement in October
1998. Mr. Bryan ceased to be employed by United in June 1999 and the parties
are currently in dispute over the terms of the agreement.

Stock Option Plans

    Equity Stock Option Plan. Under our Equity Stock Option Plan, the
Supervisory Board may grant incentive stock options to our employees. There are
approximately 6.9 million total shares underlying the options granted under our
stock option plan. The Board of Management may from time to time increase the
number of shares available for granting under our stock option plan. Options
under our stock option plan must be granted at fair market value (as determined
by the Supervisory Board) at the time of grant. The A shares available under
our stock option plan are held by Stichting Administratiekantoor UPC, a stock
option foundation, which administers our stock option plan. Each option
represents the right to acquire from the foundation a depositary receipt
representing the economic value of one share. United appoints the board members
of the foundation and thus controls the voting of the foundation's A shares.

                                      169
<PAGE>

Proceeds from the exercise of these options remain in the foundation. Upon
liquidation of the foundation, any remaining assets revert to United.

    All options are exercisable upon grant and for the next five years. In
order to introduce the element of "vesting" of the options, our stock option
plan provides that even though the options are exercisable immediately, the
shares to be issued or options granted in 1996 are deemed to "vest" 1/36th each
month for a three-year period from the date of option grant. The date of option
grant is generally the employee's employment commencement date. For options
granted in 1998 and thereafter, the vesting period has been increased to four
years and the options vest 1/48th each month. No options were granted in 1997.
If the employee's employment terminates other than in the case of death,
disability or the like, all unvested options previously exercised must be
resold to the foundation at the original purchase price, or all vested options
must be exercised, within 30 days of the termination date. The Supervisory
Board may alter these vesting schedules in its discretion.

    Our stock option plan contains limited anti-dilution protection in the case
of stock splits, stock dividends and the like. Our stock option plan also
provides that, in the case of change of control, the acquiring company has the
right to require us to acquire all of the options outstanding at the per share
value determined in the transaction giving rise to the change of control.

    Through December 31, 1998, options to acquire a total of 6,333,000 A shares
have been granted under the Plan. Of these, options representing 375,000 A
shares have been exercised and resold to the foundation and, therefore, are
available for future option grants. Options representing 82,500 A shares have
been canceled. The exercise prices for the options range from NLG10.49 to
NLG13.57.

    In March 1998, we granted Mark Schneider options for 975,000 A shares at an
exercise price of NLG12.00, the price at which shares were acquired by United
and us from Phillips in connection with the purchase in December 1997.

    Phantom Stock Option Plan. Under our phantom stock option plan, the
Supervisory Board has granted certain employees the right to receive an amount
in cash or stock, of the Supervisory Board's option, equal to the difference
between the fair market value of the A shares and the stated grant price for a
specified number of phantom options. Through December 31, 1998, options
representing 2,057,500 phantom shares remained outstanding. The grant prices
for the phantom options range from NLG12.00 to NLG13.57. The phantom options
have a four-year vesting period and vest 1/48th each month. The phantom options
may be exercised during the period specified in the option certificate, but in
no event, later than ten years following the date of grant. 744,100 of the
outstanding phantom options were fully vested on December 31, 1998. Our phantom
stock option plan contains limited anti-dilution protection in the case of
stock splits, stock dividends and the like. Our phantom stock option plan also
provides that, in certain cases of a change of control, all phantom options
outstanding become fully exercisable.

    Our phantom stock option plan also provides that upon the offering, an
employee holding phantom options may convert these into options for A shares
under our stock option plan. If the employee elects not to do so, upon exercise
of the phantom options we may elect to issue such number of A shares equal to
the value of the cash difference in lieu of paying the cash.

Limitation of Liability and Indemnification Matters

    Pursuant to Dutch law, each member of the Supervisory Board and Board of
Management is responsible to us for the proper performance of his or her
assigned duties. Our articles of association provide that the adoption by the
general meeting of shareholders of the annual accounts shall discharge the
Supervisory Board and Board of Management from liability in respect of the
exercise of their duties during the financial year concerned unless an explicit
reservation is made by the general meeting of

                                      170
<PAGE>

shareholders. This discharge of liability applies only in the event that we
hold the member liable and furthermore extends only to actions or omissions not
disclosed in or apparent from the adopted annual accounts. In case of such
actions or omissions, the members of the Supervisory Board or Board of
Management will be jointly and severally liable toward third parties for any
loss sustained by such third parties as a result of such actions or omissions,
unless the Supervisory Board or Board of Management member proves that he or
she is not responsible for the actions or omissions. Generally, under Dutch
law, directors will not be held personally liable for decisions made with
reasonable business judgment.

    Our articles of association provide that we must indemnify any person who:

  .  is or was a member of the Supervisory Board or the Board of Management,
  .  suffers any loss as a result of their position as a member of such
    boards, and
  .  acted in good faith in carrying out their duties.

This indemnification will generally not apply if the person seeking
indemnification is found to have acted with gross negligence or wilful
misconduct in the performance of their duty to us, unless the court in which
the action is brought determines that indemnification is appropriate. Our
articles of association furthermore provide that a majority of the members of
the Supervisory Board (not being parties to the action) must approve any
indemnification unless the entire Supervisory Board is named in the lawsuit, in
which case the indemnification may be approved by independent legal counsel in
a written opinion or by the general meeting of shareholders. The Supervisory
Board may extend the indemnification provisions of our articles of association
to any of our officers, employees or agents.

Compensation of Supervisory Board Members

    All of the members of the Supervisory Board, other than Mr. De Lange, are
directors or employees of United. None of these members receive additional
compensation for serving on the Supervisory Board.

Compensation of Board of Management Members

    The aggregate 1998 salary compensation for the entire Board of Management
is approximately NLG3.1 million. In addition, we provide our executive officers
with automobile allowances and other benefits. Expatriates also receive housing
allowances, foreign tax equalization payments and other compensation relating
to their foreign assignments.

Compensation Committee Interlocks and Insider Participation

    We and United have concluded a secondment arrangement, pursuant to which
certain U.S. citizens employed by United are seconded to us. See "Certain
Transactions and Relationships--Relationship with United and Related
Transactions." Prior to our initial public offering in February 1999,
compensation for all members of our management who are employees of United was
set by the compensation committee of United and compensation for all of our
other employees was determined by the Supervisory Board. In February 1999, our
Supervisory Board established a compensation committee following the completion
of the initial public offering. The compensation committee is composed of Mr.
Fries, Ms. Spangler and Ms. Wildes, each of whom is a member of the Supervisory
Board. The members of our management who are employees of United, however, will
continue to have their compensation set by United's compensation committee.
None of the members of our compensation committee, the United compensation
committee or our Supervisory Board has served as a director or member of a
compensation committee of another company that had any executive officer that
was also one of our Supervisory Directors or a member of the compensation
committee of United.

                                      171
<PAGE>

                         SECURITY OWNERSHIP OF CERTAIN
                        BENEFICIAL OWNERS AND MANAGEMENT

    The following table sets forth certain information concerning the
beneficial ownership of all classes of securities as of June 1, 1999, by (1)
each shareholder who is known by us to own beneficially more than 5% of the
outstanding ordinary shares at such date; (2) each of our Supervisory Directors
and our advisor to the Supervisory Board; (3) each of our executive officers;
and (4) all of our Supervisory Directors, advisors and executive officers as a
group. Because Messrs. G. Schneider, Cole, Ressler, M. Schneider and Riordan
are directors of United, they may be deemed to own beneficially our shares held
by United. They disclaim any beneficial ownership of these shares and this
table does not include those shares.

<TABLE>
<CAPTION>
                                                Prior to      Following the
                                                  the           Offering
                                                Offering       of B Shares
                                               ---------- ---------------------
                                                          Percentage
                                               Percentage   of all   Percentage
                                    Number of     of A     Ordinary   of Total
Beneficial Owner                     A Shares    Shares     Shares      Vote
- ----------------                    ---------- ---------- ---------- ----------
<S>                                 <C>        <C>        <C>        <C>
UnitedGlobalCom, Inc.(1)(2)........ 80,734,292    62.5%         %          %
Microsoft Corporation(3)........... 10,157,750     7.9
Gene W. Schneider(4)...............     31,000     *          *          *
Michael T. Fries(5)................      3,051     *          *          *
John P. Cole, Jr. .................      1,525     *          *          *
Richard De Lange...................        --      --        --         --
Antony P. Ressler..................        --      --        --         --
Ellen P. Spangler..................        305     *          *          *
Tina Wildes........................      3,051     *          *          *
Mark L. Schneider(6)...............    578,438     *          *          *
John F. Riordan(7).................    296,532     *          *          *
Charles H.R. Bracken(8)............     10,545     *          *          *
Nimrod J. Kovacs(9)................     15,000     *          *          *
Anton H.E. v. Voskuijlen(10).......    254,688     *          *          *
All directors, director nominees
 and executive officers as a group
 (11 persons)......................  1,168,590     1.4
</TABLE>
- --------
 *Less than 1%.
(1) The figures for the percent of shares are based on 129,246,123 A shares
    outstanding on June 8, 1999 (after elimination of shares held in treasury
    or by subsidiaries).
(2) Includes 3,646,823 A shares held by the stock option foundation, the board
    members of which are appointed by United. The address of UnitedGlobalCom,
    Inc. is 4643 South Ulster Street, Suite 1300, Denver, Colorado 80237,
    U.S.A.
(3) The address of Microsoft Corporation is One Microsoft Way, Redmond,
    Washington 98052.
(4) Includes 10,000 A shares held by the Gene W. Schneider Family Trust of
    which Mr. Schneider is a co-trustee. Also includes 1,000 A shares owned by
    his spouse.
(5) Represents 3,051 A shares owned by Mr. Fries' spouse.
(6) Mr. M. Schneider holds currently exercisable options for 975,000 A shares
    of which options for 426,562 A shares are subject to our repurchase right,
    which expires April 1, 2001. Includes 10,000 A shares held by the Gene W.
    Schneider Family Trust of which Mr. Schneider is a co-trustee.
(7) Mr. Riordan holds currently exercisable options for 525,000 A shares of
    which options for 229,688 A shares are subject to our repurchase right,
    which expires April 1, 2001. Includes 1,220 A shares owned by Mr. Riordan's
    spouse.
(8) Mr. Bracken currently holds exercisable options for 10,545 A shares.
(9) Includes 5,000 A shares held by Kovacs Communications, Inc.
(10) Represents currently exercisable options for 300,000 A shares of which
     options for 45,312 A shares are subject to our repurchase right, which
     expires January 1, 2002.

                                      172
<PAGE>

                    CERTAIN TRANSACTIONS AND RELATIONSHIPS

Relationship with Philips

    We began operations as a joint venture between United and Philips in July
1995. Both shareholders contributed various assets to us.

    In December 1997, we and United acquired all of Philips' interest in us.
As part of this transaction, we purchased from Philips:

  . 3.17 million shares of United Class A Common Stock for NLG66.8 million,
    the then-current market value of such shares,

  . a portion of the pay-in-kind convertible notes at their fully accreted
    value for NLG170.4 million, and

  . 24.378 million A shares for NLG292.6 million.

    We also converted the remaining pay-in-kind convertible notes purchased by
United into 15.18 million A shares.

    One of the Supervisory Board members, Mr. De Lange, continues to be a
member of the Supervisory Board pursuant to amendments to our articles of
association in connection with the acquisition of UPC. Under our articles of
association, Philips may appoint and remove one of our Supervisory Directors,
so long as Philips has any liability in respect of the agreements relating to
the Telekabel Wien system, which is expected to terminate by 2006. We have
agreed to indemnify Philips against such liability. We and United have agreed
to use our reasonable best efforts to obtain the release of Philips by the
City of Vienna from such liability. Philips' representative on the Supervisory
Board must approve (1) the disposition of assets aggregating more than 30% of
the consolidated assets or generating more than 30% of the consolidated
revenues of the Telekabel Group, or (2) our merger or consolidation into any
other entity that is not wholly owned by United.

Loans to Executive Officers

    In 1996, we loaned Mr. van Voskuijlen NLG106,245 and in 1998, we loaned
him NLG40,500 to enable him to pay the tax on the stock options received in
those years. These recourse loans bear no interest. The loans are due upon
exercise of his options. We made similar loans to other employees for the
purpose of exercising and/or paying tax on options.

The Discount Group's Option

    In November 1998, a subsidiary of Discount Investment Corporation loaned
us $90.0 million (the "DIC Loan") to acquire additional interests in our
Israeli operation. In connection with the DIC Loan, we granted an option to
the Discount Group, our partner in our Israeli system and an affiliate of
Discount Investment Corporation, to acquire A shares at a price per share
equal to the price in the initial public offering, discounted by a factor of
10%. The Discount Group exercised its option and we issued 1,558,654 A shares
to it at the same time as the closing of our initial public offering. The
aggregate purchase price for the shares was equal to the sum of $45 million,
plus interest thereon at the rate of 8% per annum from November 9, 1998
through the closing of the exercise of the option. The Discount Group
currently owns about 1.3% of our outstanding A shares.

    In connection with the exercise of the option, we have agreed to enter
into a registration rights agreement with the Discount Group and a
shareholders' agreement with the Discount Group and United.


                                      173
<PAGE>

    Under the shareholders' agreement, United has agreed to vote in favor of
one supervisory board member nominated by the Discount Group for as long as the
Discount Group and its affiliates retain at least the number of A shares
originally acquired upon the exercise of the option. In addition, the Discount
Group will receive the right to participate on equal terms in connection with
sales of A shares by United, including the right to sell the Discount Group's
entire interest in us in connection with a sale by United of a controlling
interest in us. The Discount Group will also receive the right to negotiate
with United prior to certain sales of A shares by United. United will receive a
right of first refusal with respect to a sale of A shares by the Discount Group
and the right to require that the Discount Group agree to a merger or sale of
all of our shares proposed by United. In addition, there are certain limited
restrictions on the entities or persons to whom the Discount Group may transfer
its A shares.

    Upon the exercise of the option, the Discount Group received an additional
option to acquire A shares from us at a price per share equal to the greater of
(1) the price in our initial public offering or (2) the average sale price of
our A shares on the Amsterdam Stock Exchange for the 30-day period immediately
preceding the exercise date. The aggregate purchase price for the A shares
purchased pursuant to the additional option would be equal to the sum of $45
million, plus interest thereon at the rate of 8% per annum from November 9,
1998 through the closing of the additional option. The transfer rights and
restrictions set forth in the registration rights agreement and the
shareholders' agreement discussed above will be applicable with respect to the
A shares acquired by the Discount Group upon the exercise of the additional
option. The additional option will terminate if it is not exercised on or
before September 30, 2000.

Relationship With United and Related Transactions

    United is a leading provider of video, voice and data services outside the
United States. Together with its strategic and financial partners, United has
ownership interests in multi-channel television systems in operation or under
construction in over 20 countries. United's operations are organized in three
geographic regions: (1) Europe, consisting of United's interest in us; (2)
Asia/Pacific, including investments in operating systems and development
projects in Australia, New Zealand, the Philippines, Tahiti and China; and (3)
Latin America, including multi-channel television systems in Brazil, Chile,
Mexico and Peru.

    Control by United. Immediately prior to our initial public offering, United
held effectively all of the voting control over us and held all of our issued
and outstanding A shares other than approximately 7.7% of such shares that have
been registered in the name of the stock option foundation to support our stock
option plan. As a result of the initial public offering, the shares registered
in the name of the foundation currently represent 4.8% of our issued and
outstanding A shares. United appoints the board members of the foundation and
thus controls the voting of these shares as well. See "Management--Stock Option
Plans." United currently owns approximately 62.5% of our outstanding A shares
and all of our outstanding priority shares. Because we are a strategic holding
of United, United will continue to control us for the foreseeable future. Five
members of our six-member Supervisory Board are directors, officers or
employees of United.

    Transactions with United. As part of the acquisition of UPC, we acquired
approximately 3.17 million shares of United's Class A Common Stock. We
subsequently sold 384,531 of these shares for certain interests in the Irish
system and Tara. We currently hold approximately 2.8 million shares, which
currently represents approximately 7% of United's outstanding common stock. We
have given United the right to acquire these shares of United Class A Common
Stock at their market value, based on a ten-trading day average.

    United has sold to us, in exchange for 6,330,340 of our A shares United's
37.5% voting and 44.75% economic interest in the telephone system operating in
the Monor region of Hungary and its

                                      174
<PAGE>

interest in the Tara programming joint venture. United has also sold to us its
interest in the IPS programming joint venture in exchange for 4,955,264 A
shares.

    Agreements with United. Subject to certain limitations, beginning one year
after the date of our initial public offering, United may require us to file a
registration statement under the Securities Act of 1933 with respect to all or
a portion of United's A shares or ADSs, and we are required to use our best
efforts to effect such registration, subject to certain conditions and
limitations. We are not obligated to effect more than three of these demand
registrations using forms other than Form S-3 or F-3, as the case may be.
United may demand registration of such securities an unlimited number of times
on Form S-3 or F-3, as the case may be, except that we are not required to
register United's A shares on Form S-3 more than once in any six-month period.
United also has the right to have its A shares included in any registration
statement we propose to file under the Act except that, among other conditions,
the underwriters of any such offering may limit the number of shares included
in such registration. We have also granted United rights comparable to those
described above with respect to the listing or qualification of the A shares
held by United on the Amsterdam Stock Exchange or on any other exchange and in
any other jurisdiction where we previously have taken action to permit the
public sale of our securities.

    United incurs certain overhead and other expenses at the corporate level on
behalf of us and its other operating companies. These include expenses not
readily allocable among the operating companies, such as accounting, financial
reporting, investor relations, human resources, information technology,
equipment procurement and testing expenses, corporate offices lease payments
and costs associated with corporate finance activities. United also incurs
direct costs for its operating companies such as travel and salaries for United
employees performing services on behalf of its respective operating companies.
We and United are parties to a management service agreement, with an initial
term through 2009, pursuant to which United will continue to perform these
services for us. Under the management service agreement, we will pay United a
fixed amount each month as its portion of such unallocated expenses. This fixed
amount is initially $300,000 per month. After the first year of the management
services agreement, the fixed amount may be adjusted from time to time by
United to allocate these corporate level expenses among United's operating
companies, including us, taking into account the relative size of the operating
companies and their estimated use of United resources. In addition, we will
continue to reimburse United for costs incurred by United that are directly
attributable to us.

    We and United are also parties to a secondment agreement that specifies the
basis upon which United may second certain of its employees to us. United's
secondment of employees to us helps us attract and retain U.S. citizens and
other employees who want U.S. benefit plans, without creating a separate U.S.
employment subsidiary. We generally are responsible for all costs incurred by
United with respect to any seconded employee's employment and severance. United
may terminate a seconded employee's employment if the employee's conduct
constitutes willful misconduct that is materially injurious to United. During
the year ended December 31, 1998, we incurred approximately NLG10.7 million for
costs associated with the seconded employees, reimbursable to United.

    We have agreed with United that so long as United holds 50% or more of our
outstanding A shares, (1) United will not pursue any video services, telephone
or Internet access or content business opportunities specifically directed to
the Europe or Israel markets, unless it has first presented such business
opportunity to us and we have elected not to pursue such business opportunity,
and (2) we will not pursue any video services, telephone or Internet access or
content business opportunities in Saudi Arabia or in other markets outside of
Europe or the Middle East unless we have first presented such business
opportunity to United and United has elected not to pursue such business
opportunity. Either party may pursue any business in the United States and its
territories and possessions without regard to activities of the other.


                                      175
<PAGE>

    We have agreed to sell to United, upon request, all or any portion of the
United Class A Common Stock held by us at a price based upon the trading price
of such stock during a specified period prior to sale. United and we have also
agreed that we will provide audited financial statements to United in such
form and with respect to such periods as shall be necessary or appropriate to
permit United to comply with its reporting obligations as a publicly traded
company and that we will not change our accounting principles without United's
prior consent. We have consented to the public disclosure by United of all
matters deemed necessary or appropriate by United in its sole discretion to
satisfy the disclosure obligations of United or any affiliate thereof under
the United States federal securities laws or to avoid potential liability
thereunder. We have also agreed to indemnify United against all liabilities
United may incur in connection with United's indemnification obligations under
the underwriting agreement.

    United Indentures. We, as a subsidiary of United, are restricted by the
covenants in United's indentures dated February 5, 1998 and April 29, 1999.
The United indentures contain covenants that, among other things, limit the
ability of United and its subsidiaries, including us, to:

  . incur indebtedness and issue certain preferred stock in amounts
    exceeding that permitted based upon financial ratio and other tests,

  . repurchase equity interests from third parties other than United,

  . make investments in non-controlled entities,

  . enter into agreements that would restrict the ability to make
    distributions, loans or other payments to equity holders,

  . create certain liens,

  . sell assets or issue equity for other than cash or fail to invest the
    cash proceeds of such sales within 360 days of the sale periods, and

  . enter into transactions with affiliates of United.

    We will continue to be controlled by United and restricted by the terms of
its debt securities. We have agreed with United that, for as long as we are
subject to the provisions of United's indentures, as amended or supplemented,
or any other indenture or agreement to which United is a party governing
indebtedness of United that replaces or refinances any indebtedness governed
by United's indentures, as amended or supplemented, we will not take any
action that will result in a breach of United's indentures.

    United's senior secured discount notes were issued pursuant to an
indenture, dated as of February 5, 1998, and its senior discount notes were
issued pursuant to an indenture, dated as of April 29, 1999. The foregoing
description of certain covenants of these indentures is a summary only, does
not purport to be complete and is qualified in its entirety by reference to
all of the provisions of the indentures.

Relationship With Microsoft

    We have signed a letter of intent with Microsoft to establish a technical
services relationship and, as part of this, have agreed to set up a series of
joint projects to deliver Internet, non-traditional telephone and other
interactive video and general services to digital cable set-top devices,
personal computers and other devices within and beyond our service areas. The
particular terms of each joint project will be negotiated by us and Microsoft.
As part of this relationship, we plan to establish a technology board to
review technology issues and develop technology specifications and directions.
This board would be chaired by Scott Bachman, our Managing Director of
Technology, and would include representatives from Microsoft and us. In
addition, we and Microsoft would be preferred

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suppliers to one another, with Microsoft having the first opportunity to
license technologies to us. We would be given the opportunity to present and
offer our products to Microsoft offices in Europe. We and Microsoft would also
cooperate to advocate mutually-agreed standards and regulations to the bodies
in our service territories who set technical standards. We would also have the
right to license Microsoft software for the delivery of Internet content
services over our network.

    As part of this technology relationship, we have agreed that, on the
earlier of three months from the date of the letter of intent and the signing
of the first definitive agreement with Microsoft, we will grant Microsoft
warrants to purchase up to 3,800,000 ADSs representing A shares, which would
currently represent approximately 3.0% of our outstanding share capital.
Microsoft will have the option under these warrants to purchase A shares
instead of ADSs. These warrants can be exercised at a price of $28.00 per A
share or ADS. These warrants will not be exercisable until at least February
16, 2000 and will expire February 16, 2003. In addition, half of the warrants
will not vest until certain performance standards are met. We have agreed to
grant Microsoft certain registration rights to be negotiated with respect to
the ADSs or shares to be issued upon exercise of these warrants. In addition,
we will grant Microsoft a preemptive right to purchase up to an aggregate of
10% of chello broadband n.v. in any public or private equity offering at such
offering's price and the right of first negotiation in any private equity
offering, other than to our or other cable operators in exchange for carriage
of chello broadband n.v.

    Microsoft has agreed not to dispose of the A shares purchased in our
initial public offering for six months following such offering nor will it
acquire more than 15% of our total share capital without the prior written
approval of our Supervisory Board. If we enter into a definitive agreement, as
expected, Microsoft will extend its six-month lock-up period to one year.

                          DESCRIPTION OF SHARE CAPITAL

    Pursuant to our articles of association, as amended on July 26, 1999, our
authorized share capital is (Euro)902,000,000, and includes:

<TABLE>
<CAPTION>
                    Number and                Nominal Value
                   Type of share                Per Share
                   -------------              -------------
       <S>          <C>                       <C>
       200,000,000  ordinary shares A          (Euro) 2.00
       100,000,000  ordinary shares B          (Euro) 0.02
               100  priority shares            (Euro) 2.00
        49,999,900  class A preference shares  (Euro) 2.00
       200,000,000  class B preference shares  (Euro) 2.00
</TABLE>

    Upon completion of the offering 129,246,123 A shares,     B shares and 100
priority shares will be issued and fully paid. No preference shares will be
outstanding. The following description of our share capital is qualified in its
entirety by reference to the full text of the articles of association, which
have been included as an exhibit to the registration statement.

Ordinary Shares

    We have two classes of ordinary shares: A shares and B shares. Our B shares
have similar rights to our A shares, except for the following primary
differences:

  . Holders of B shares are entitled to one vote per share and holders of A
    shares are entitled to 100 votes per share;

  . Our Board of Management must obtain the approval of the meeting of
    holders of the B shares before cooperating with a public offer for our
    shares if the offer is limited to our A shares or the offer is not made
    on equal financial terms for both the A shares and the B shares; and

  . Our articles of association and certain other agreements will include
    provisions relating to the rights of the A shares and the B shares upon
    certain change of control events resulting from the sale of our A shares.


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    Ordinary shares may, at the option of the shareholder, be registered shares
or bearer shares. A shareholder may convert ordinary shares in bearer form into
registered ordinary shares of the same class at any time, and vice versa. We
have applied for listing of the B shares in bearer form on the Amsterdam Stock
Exchange. The A shares in bearer form have already been listed on the Amsterdam
Stock Exchange.

    Ordinary shares in bearer form will be embodied in a single global share
certificate, which we will lodge with Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V., the Dutch clearing house known as NECIGEF, for safe-
keeping on behalf of the parties entitled to such B shares. The ordinary shares
in bearer form can only be transferred through the giro-based securities
transfer system of NECIGEF.

    Holders of registered B shares will be entered in our shareholders register
and share certificates will not be issued. At the request of the registered
shareholder, we will, without fee, issue a non-negotiable extract from the
shareholders register in the name of the holder. A deed of transfer, together
with our acknowledgment in writing, is required to transfer registered shares.

    Issue of Ordinary Shares; Preemptive Rights. Pursuant to our articles of
association, all unissued shares of the authorized capital may be issued by the
Board of Management upon approval of both the Supervisory Board and United as
holder of all outstanding priority shares. The authority of the Board of
Management to issue ordinary shares will end July 23, 2004 unless extended by
the articles of association or by resolution of the general meeting of
shareholders, for a period not exceeding five years in each instance. If no
such extension is given, issues of ordinary shares will require a resolution of
the general meeting of shareholders in addition to approval of the Supervisory
Board and United as holder of all outstanding priority shares. A resolution of
the general meeting of shareholders to extend the authority of the Board of
Management to issue shares requires the approval of both the Supervisory Board
and United as holder of all outstanding priority shares.

    Except for issues of ordinary shares in return for non-cash consideration
and shares issued to our employees or employees of any of our subsidiaries as
defined under Dutch law, holders of ordinary shares will have preemptive rights
to subscribe for their pro-rata amount of all our new ordinary share issuances.
These rights may be restricted or excluded, however, by a resolution of the
Board of Management upon approval of both the Supervisory Board and United.

    Dividends. Each A share and B share is entitled to the same amount of
dividend if one is declared. We may not pay a dividend to holders of A shares
without paying a dividend to holders of B shares.

    Voting Rights. All ordinary shares (A shares and B shares) vote together on
all matters presented at a general meeting of shareholders. Each A share
represents the right to cast 100 votes at a general meeting of shareholders and
each B share represents the right to cast one vote at a general meeting of
shareholders.

    Special Approval Rights for B Shares. The Board of Management must obtain
the approval of the meeting of holders of the B shares prior to cooperating
with a public offer for our shares if the offer is limited to A shares or the
offer is not made on equal financial terms for the shares of both classes (A
and B) of our ordinary shares.

Priority Shares

    All of the priority shares are held by United. Except for the transfer of
priority shares to us, priority shares can only be transferred with the
approval of the Board of Management and the Supervisory Board. In addition to
holding a controlling majority of ordinary shares, United, as the holder of the
priority shares, has some specific rights and powers over us including:

  . the right to approve the issuance by us of our shares,

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<PAGE>

  . the right to approve the exclusion or restriction of the preemptive
    rights of existing shareholders,
  . the right to nominate members for appointment to the Management and
    Supervisory Boards, which nominations may only be set aside by a
    resolution of the general meeting of shareholders adopted by two-thirds
    of the votes cast representing more than one-half of the issued nominal
    capital,
  . the right to approve certain decisions of our Board of Management, and
  . the exclusive right to propose amendments to our articles of association
    and to propose our merger, split up or dissolution.

    Priority shares are issued in the same way as ordinary shares, but carry no
preemptive rights. Priority shares are entitled to a nominal annual dividend of
5% of their nominal value, to the extent of distributable profits.

    At such time as United holds less than 15% of the issued and outstanding A
shares, United will transfer all of the priority shares to a foundation, the
trustees of which will be our Supervisory Directors.

Preference Shares

    Our articles of association provide for the issuance of class A and class B
preference shares.

    Class A preference shares may be issued exclusively for financing purposes.
Holders of class A preference shares do not share in our reserves although they
may be entitled to a share premium reserve if it were so decided at the time of
their first issuance. Class A preference shares are not listed. The class A
preference shares will be registered shares and shares certificates will not be
issued. Class A preference shares can be issued in the same way as ordinary
shares, but carry no preemptive rights. Each class A preference share will
represent the right to cast 100 votes at a general meeting of shareholders.
Class A preference shares will be paid an annual dividend, the amount of which
will be determined at the time of their first issuance by the Board of
Management, to the extent of distributable profits.

    Class B preference shares are designed as a preventive measure against
unfriendly takeover bids. The minimum amount required to be paid on the class B
preference shares upon issuance is 25% of the nominal amount issued. In the
event of a hostile takeover bid, class B preference shares may be issued to a
legal entity charged with caring for our interests and preventing influences
that may threaten our continuity, independence or identity. Holders of class B
preference shares do not share in our reserves and such shares are not listed.
The class B preference shares will be registered shares and share certificates
will not be issued. Class B preference shares can be issued in the same way as
ordinary shares, but carry no preemptive rights. Each class B preference share
will represent the right to cast 100 votes at a general meeting of
shareholders. Class B preference shares will be paid a cumulative annual
dividend calculated on the basis of the deposit interest rate of the European
Central Bank to the paid up part of their nominal value, to the extent of
distributable profits.

    Class B preference shares may be issued by the Board of Management upon
approval of both the Supervisory Board and United, as the holder of our
priority shares, if such power has been granted to the Board of Management by
the general meeting of shareholders or by the articles of association.
Notwithstanding, if class B preference shares are proposed to be issued and
such shares would exceed 100% of all of our other outstanding shares, such
issuance will require the approval of the general meeting of shareholders. In
all instances where class B preference shares are issued, we must explain the
reason for the issuance within four weeks thereof at a general meeting of
shareholders. Within two years after the first issuance of class B preference
shares, a general meeting of shareholders must be held to vote on whether the
class B preference shares should be repurchased or cancelled. If such a
resolution is not adopted, another meeting is held within two years of the
previous meeting and this procedure is repeated until no more class B
preference shares are outstanding.

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<PAGE>

                   SUMMARY OF ADDITIONAL MATERIAL PROVISIONS
               OF THE ARTICLES OF ASSOCIATION AND OTHER MATTERS

General

   We were incorporated under Dutch law on December 21, 1990 as a private
limited liability company ("besloten vennootschap met beperkte
aansprakelijkheid"), and were converted on December 11, 1997 into a public
limited liability company ("naamloze vennootschap"). We have our corporate
seat in Amsterdam, The Netherlands and are registered in the Amsterdam
Commercial Register under number 33-274-976. We are not subject to the rules
for large companies ("structuurvennootschappen").

   Set forth below is a summary of certain additional material provisions of
the articles of association, as amended, and Dutch corporate law. This summary
does not purport to be complete and is qualified in its entirety by reference
to our articles of association and the law of The Netherlands. Copies of our
articles of association and our most recent annual accounts and annual report
may be obtained in both Dutch and English upon written request to us at our
principal office.

Corporate Purpose

   Article 3 of our articles of association provides that our business
activity shall be, among other things:

  . to own, operate, and develop subscription and multi-channel television
    systems, to render related consulting, engineering and programming
    services and to provide other communications services,

  . to incorporate, manage and finance, and to participate in other companies
    and enterprises, and

  . to take up loans, land and make investments and acquire, transfer and
    dispose of claims and assets in general.

Acquisition of Our Own Shares

   We may acquire our own shares subject to certain provisions of Dutch law.
We may only acquire our own shares for consideration if (1) the shareholders'
equity less the payment required to make the acquisition does not fall below
the sum of the paid-up and called portion of the share capital and any
statutory reserves, and (2) we and our subsidiaries would thereafter not hold
or hold in pledge shares with an aggregate nominal value exceeding one-tenth
of our issued share capital. Shares held by us in our own capital may not be
voted or counted for quorum purposes at shareholders' meetings.

   Acquisitions by us of our own shares may be effected by our Board of
Management, subject to the approval of the Supervisory Board and United as the
holder of our priority shares, only if the general meeting of shareholders has
authorized the Board of Management to effect such acquisitions. The general
meeting adopted such a resolution on July 23, 1999. Such resolutions expire
within 18 months and must be renewed. Acquisitions by us of our own shares
that are listed on a stock exchange do not require the above-mentioned
authorization of the general meeting if made for the purpose of transferring
such shares to our employees or employees of a company in our group.

Obligations to Disclose Holdings

   Pursuant to the Dutch Act of Disclosure of Holdings in Listed Companies
1996 ("Wet melding zeggenschap in ter beurze genoteerde vennootschappen
1996"), any holder of five percent or more of our issued capital or voting
control at the time the ordinary shares are listed on the Amsterdam Stock
Exchange must notify both us and the Securities Board of The Netherlands.
Moreover, anyone obtaining or divesting ordinary shares after listing on the
Amsterdam Stock Exchange and thereby causing that holder's percentage of
issued capital or voting control to come under a different range must also
notify us and the Securities Board of The Netherlands. The aforementioned
ranges are: 0 to 5%, 5 to 10%, 10 to 25%, 25 to

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50%, 50 to 66 2/3% and 66 2/3% or more. Failure to disclose one's shareholdings
is a violation of the Dutch Economic Offenses Act, and may result in civil
penalties, including suspension of voting rights.

Shareholders Meeting

    We are required to hold a general shareholders' meeting annually, as well
as if convened by the Supervisory Board, the Board of Management or United, as
the holder of our priority shares. Unless otherwise required by law or our
articles of association, all decisions of the general meeting of shareholders
may be adopted by a majority of the votes cast.

Adoption of Annual Accounts and Discharge

    Within five months following the end of each fiscal year, the Board of
Management must prepare annual accounts accompanied by an annual report. This
period may be extended by the general meeting of shareholders on account of
special circumstances for up to six months. The annual accounts and report must
then be submitted to the Supervisory Board, which will present a report on it
to the general meeting of shareholders. The annual accounts and the annual
report will be available to shareholders from the day of notice convening the
annual general meeting of shareholders.

    The general meeting of shareholders may discharge the members of the Board
of Management and Supervisory Board from liability in respect of the exercise
of their duties during the fiscal year concerned. Such discharge is subject to
mandatory provisions of Dutch law, including those relating to liability of
members of supervisory boards and management boards upon bankruptcy of a
company. Moreover, this discharge does not extend to actions or omissions not
disclosed in or apparent from the adopted annual accounts.

Dividends

    Subject to certain exceptions, dividends are only paid by us on profits as
shown in our annual financial statements. We may not pay dividends if the
payment would reduce shareholders' equity below the sum of the paid-up capital
and any reserves required by Dutch law. Pursuant to our articles of
association, the priority shares and preference shares have preferential
dividend rights. See "Description of Share Capital -- Priority Shares" and "--
 Preference Shares." Thereafter, the Board of Management, upon approval of the
Supervisory Board, shall determine how much of the remaining profit shall be
allocated to our reserves before dividends are paid on the ordinary shares. To
date, we have not paid dividends on our ordinary shares and do not intend to do
so for the foreseeable future. See "Dividend Policy" and "Risk Factors -- We Do
Not Intend to Pay Dividends for the Foreseeable Future." The Board of
Management may declare, upon approval of the Supervisory Board and the general
meeting of the shareholders, that some or all of the dividends will be paid in
our shares rather than in cash. The Board of Management may, with the prior
approval of the Supervisory Board and subject to certain statutory provisions,
distribute one or more interim dividends. Any dividends paid but not claimed by
the recipient within five years revert to us.

Capital Reduction

    Upon the proposal of our Board of Management and after approval by the
Supervisory Board, the general meeting of shareholders may resolve to reduce
the issued share capital by cancellation of shares or by reducing the nominal
value of our shares, subject to certain statutory provisions and the provisions
of our articles of association.

Amendment of the Articles of Association; Dissolution; Legal Merger; Split-up

    Only United, as the holder of our priority shares, may propose amendments
to our articles of association as well as to effect our legal merger, split-up
or dissolution. The general meeting of

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shareholders cannot effect our merger, split-up or dissolution or amend our
articles of association if the proposal is made by any one other than United as
the holder of our priority shares.

Liquidation Rights

    In the event that we are dissolved or liquidated, the assets remaining
after payment of all debts are to be distributed to holders of our share
capital as follows: first, to any issued and outstanding class B preference
shares in an amount equal to any previously declared but unpaid dividend and
the paid-up amount of such class B preference shares; second, to any issued and
outstanding class A preference shares in an amount equal to any previously
declared but unpaid dividend and the paid-up amount of such class A preference
shares including any share premium; third, to the holders of priority shares in
an amount equal to their nominal value; and, fourth any remaining assets shall
be distributed to the holders of ordinary shares in proportion to the number of
shares held by them regardless of the class of ordinary shares.

                   DESCRIPTION OF AMERICAN DEPOSITARY SHARES

    Citibank, N.A. will act as the depositary bank for the American Depositary
Shares. Citibank's depositary offices are located at 111 Wall Street, New York,
New York 10005. American Depositary Shares are frequently referred to as "ADSs"
and represent ownership interests in securities that are on deposit with the
depositary bank. ADSs are normally represented by certificates that are
commonly known as "American Depositary Receipts" or "ADRs." The depositary bank
typically appoints a custodian to safekeep the securities on deposit. In this
case, the custodian is Citibank N.A., Amsterdam located at Europlaza,
Hoogoorddreef 54 B, 1101 BE Amsterdam ZO, The Netherlands.

    We have appointed Citibank as depositary bank pursuant to a deposit
agreement. A copy of the deposit agreement is on file with the SEC under cover
of a Registration Statement on Form F-6. You may obtain a copy of the deposit
agreement from the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please refer to Registration Number 333-[    ] when
retrieving such copy.

    We are providing you with a summary description of the ADSs and your rights
as an owner of ADSs. Please remember that summaries by their nature lack the
precision of the information summarized and that a holder's rights and
obligations as an owner of ADSs will be determined by the deposit agreement and
not by this summary. We urge you to review the deposit agreement in its
entirety as well as the form of ADR attached to the deposit agreement.

    Each ADS represents one B Share. The B shares underlying the ADSs will be
deposited into accounts maintained by the custodian with Nederlandse Centraal
Instituut voor Giraal Effectenverkeer B.V. ("NECIGEF"), the Dutch central
securities depositary. An ADS will also represent any other property received
by the depositary bank or the custodian on behalf of the owner of the ADS but
that has not been distributed to the owners of ADSs because of legal
restrictions or practical considerations.

    If you become an owner of ADSs, you will become a party to the deposit
agreement and therefore will be bound to its terms and to the terms of the ADR
that represents your ADSs. The deposit agreement and the ADR specify our rights
and obligations as well as your rights and obligations as owner of ADSs and
those of the depositary bank. As an ADS holder you appoint the depositary bank
to act on your behalf in certain circumstances. The deposit agreement is
governed by New York law. However, our obligations to the holders of B shares
will continue to be governed by the laws of The Netherlands, which may be
different from the laws in the United States.

    As an owner of ADSs, you may hold your ADSs either by means of an ADR
registered in your name or through a brokerage or safekeeping account. If you
decide to hold your ADSs through your brokerage

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or safekeeping account, you must rely on the procedures of your broker or bank
to assert your rights as ADS owner. Please consult with your broker or bank to
determine what those procedures are. This summary description assumes you have
opted to own the ADSs directly by means of an ADR registered in your name and,
as such, we will refer to you as the "holder."

Dividends and Distributions

    As a holder, you generally have the right to receive the distributions we
make on the securities deposited with the custodian bank. Your receipt of these
distributions may be limited, however, by practical considerations and legal
limitations. Holders will receive such distributions under the terms of the
deposit agreement in proportion to the number of ADSs held as of a specified
record date.

  Distributions of Cash

    Whenever we make a cash distribution for the securities on deposit with the
custodian, we will notify the depositary bank. Upon receipt of such notice the
depositary bank will arrange for the funds to be converted into U.S. dollars
and for the distribution of the U.S. dollars to the holders.

    The conversion into U.S. dollars will take place only if practicable and if
the U.S. dollars are transferable to the United States. The amounts distributed
to holders will be net of the fees, expenses, taxes and governmental charges
payable by holders under the terms of the deposit agreement. The depositary
will apply the same method for distributing the proceeds of the sale of any
property (such as undistributed rights) held by the custodian in respect of
securities on deposit.

  Distributions of Shares

    Whenever we make a free distribution of B shares for the securities on
deposit with the custodian, we will notify the depositary bank. Upon receipt of
such notice, the depositary bank will either distribute to holders new ADSs
representing the B shares deposited or modify the ADS to B shares ratio, in
which case each ADS you hold will represent rights and interests in the
additional B shares so deposited. Only whole new ADSs will be distributed.
Fractional entitlements will be sold and the proceeds of such sale will be
distributed as in the case of a cash distribution.

    The distribution of new ADSs or the modification of the ADS-to-Share ratio
upon a distribution of B shares will be made net of the fees, expenses, taxes
and governmental charges payable by holders under the terms of the deposit
agreement. In order to pay such taxes or governmental charges, the depositary
bank may sell all or a portion of the new B shares so distributed.

    No such distribution of new ADSs will be made if it would violate a law
(i.e., the U.S. securities laws) or if it is not operationally practicable. If
the depositary bank does not distribute new ADSs as described above, it will
use its best efforts to sell the B shares received and will distribute the
proceeds of the sale as in the case of a distribution of cash.

  Distributions of Rights

    Whenever we intend to distribute rights to purchase additional B shares, we
will give prior notice to the depositary bank and we will assist the depositary
bank in determining whether it is lawful and reasonably practicable to
distribute rights to purchase additional ADSs to holders.

    The depositary bank will establish procedures to distribute rights to
purchase additional ADSs to holders and to enable such holders to exercise such
rights if it is lawful and reasonably practicable to make the rights available
to holders of ADSs, and if we provide all of the documentation contemplated in
the deposit agreement (such as opinions to address the lawfulness of the
transaction). You may have to

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<PAGE>

pay fees, expenses, taxes and other governmental charges to subscribe for the
new ADSs upon the exercise of your rights. The depositary bank is not obligated
to establish procedures to facilitate the distribution and exercise by holders
of rights to purchase new B shares directly rather than new ADSs.

    The depositary bank will not distribute the rights to you if:

  . We do not request that the rights be distributed to you or we ask that
    the rights not be distributed to you; or

  . We fail to deliver satisfactory documents to the depositary bank; or

  . It is not reasonably practicable to distribute the rights.

    The depositary bank will sell the rights that are not exercised or not
distributed if such sale is lawful and reasonably practicable. The proceeds of
such sale will be distributed to holders as in the case of a cash distribution.
If the depositary bank is unable to sell the rights, it will allow the rights
to lapse.

  Elective Distributions

    Whenever we intend to distribute a dividend payable at the election of
shareholders either in cash or in additional shares, we will give prior notice
thereof to the depositary bank and will indicate whether we wish the elective
distribution to be made available to you. In such case, we will assist the
depositary bank in determining whether such distribution is lawful and
reasonably practical.

    The depositary bank will make the election available to you only if it is
reasonably practical and if we have provided all of the documentation
contemplated in the deposit agreement. In such case, the depositary bank will
establish procedures to enable you to elect to receive either cash or
additional ADSs, in each case as described in the deposit agreement.

    If the election is not made available to you, you will receive either cash
or additional ADSs, depending on what a shareholder in The Netherlands would
receive for failing to make an election, as more fully described in the deposit
agreement. The depositary bank is not obligated to establish procedures to
facilitate the distribution and exercise by holders of rights to purchase B
shares rather than ADSs.

  Other Distributions

    Whenever we intend to distribute property other than cash, B shares or
rights to purchase additional B shares, we will notify the depositary bank in
advance and will indicate whether we wish such distribution to be made to you.
If so, we will assist the depositary bank in determining whether such
distribution to holders is lawful and reasonably practicable.

    If it is reasonably practicable to distribute such property to you and if
we provide all of the documentation contemplated in the deposit agreement, the
depositary bank will distribute the property to the holders in a manner it
deems practicable.

    The distribution will be made net of fees, expenses, taxes and governmental
charges payable by holders under the terms of the deposit agreement. In order
to pay such taxes and governmental charges, the depositary bank may sell all or
a portion of the property received.

    The depositary bank will not distribute the property to you and will sell
the property if:

  . We do not request that the property be distributed to you or if we ask
    that the property not be distributed to you; or

  . We do not deliver satisfactory documents to the depositary bank; or

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  . The depositary bank determines that all or a portion of the distribution
    to you is not reasonably practicable.

    The proceeds of such a sale will be distributed to holders as in the case
of a cash distribution.

  Redemption

    Whenever we decide to redeem any of the securities on deposit with the
custodian, we will notify the depositary bank. If it is reasonably practicable
and if we provide all of the documentation contemplated in the deposit
agreement, the depositary bank will mail notice of the redemption to the
holders.

    The custodian will be instructed to transfer the shares being redeemed to a
NECIGEF Participant we designate against payment of the applicable redemption
price. The depositary bank will convert the redemption funds received into U.S.
dollars upon the terms of the deposit agreement and will establish procedures
to enable holders to receive the net proceeds from the redemption upon
surrender of their ADSs to the depositary bank. You may have to pay fees,
expenses, taxes and other governmental charges upon the redemption of your
ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be
selected by lot or on a pro rata basis, as the depositary bank may determine.

Changes Affecting B Shares

    The B shares held on deposit for your ADSs may change from time to time.
For example, there may be a change in nominal or par value, a split-up,
cancellation, consolidation or classification of such B shares or a
recapitalization, reorganization, merger, consolidation or sale of assets.

    If any such change were to occur, your ADSs would, to the extent permitted
by law, represent the right to receive the property received or exchanged in
respect of the B shares held on deposit. The depositary bank may in such
circumstances deliver new ADSs to you or call for the exchange of your existing
ADSs for new ADSs. If the depositary bank may not lawfully distribute such
property to you, the depositary bank may sell such property and distribute the
net proceeds to you as in the case of a cash distribution.

Issuance of ADSs upon Deposit of B Shares

    The B shares to be represented by the ADSs will be deposited in bearer form
with the custodian and credited to an account maintained by the custodian at
NECIGEF. The custodian will be the holder of record of all of these B shares.
Once the custodian confirms the deposit of the B shares to its account at
NECIGEF, the depositary bank may create ADSs on your behalf. The depositary
bank will deliver these ADSs to the person you indicate only after you pay any
applicable issuance fees and any charges and taxes payable for the transfer of
the B shares. The records maintained by NECIGEF or institutions with accounts
at NECIGEF, which will be referred to as NECIGEF Participants, will show the
ownership of the deposited B shares and transfers of ownership interests.

    The issuance of ADSs may be delayed until the depositary bank or the
custodian receives confirmation that all required approvals have been given and
that the B shares have been duly credited to the custodian NECIGEF account. The
depositary bank will only issue ADSs in whole numbers.

    When you, through a NECIGEF Participant, make a deposit of B shares, you
will be responsible for transferring good and valid title to the custodian. As
such, you will be deemed to represent and warrant that:

  . The B shares are duly authorized, validly issued, fully paid, non-
    assessable and legally obtained.

  . All preemptive (and similar) rights, if any, with respect to such B
    shares have been validly waived or exercised.

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<PAGE>

  . You are duly authorized to deposit the B shares.

  . The B shares presented for deposit are free and clear of any lien,
    encumbrance, security interest, charge, mortgage or adverse claim, and
    are not, and the ADSs issuable upon such deposit will not be, "restricted
    securities" (as defined in the deposit agreement).

  . The B shares presented for deposit have not been stripped of any rights
    or entitlements.

    If any of the representations or warranties are incorrect in any way, we
and the custodian may, at your cost and expense, take any and all actions
necessary to correct the consequences of the misrepresentations.

Withdrawal of B Shares Upon Cancellation of ADSs

    As a holder, you will be entitled to present your ADSs to the depositary
bank for cancellation in order to withdraw the underlying deposited securities.
In order to withdraw the deposited securities, you will be required to pay to
the depositary the fees for cancellation of ADSs and any charges and taxes
payable upon the transfer of the deposited securities being withdrawn and then
a NECIGEF Participant you designate will be entitled to the delivery of the
deposited securities represented by our ADSs. You assume the risk for delivery
of all funds and securities upon withdrawal. Once canceled, the ADSs will not
have any rights under the deposit agreement.

    If you hold an ADR registered in your name, the depositary bank may ask you
to provide proof of identity and genuineness of any signature and certain other
documents as the depositary bank may deem appropriate before it will cancel
your ADSs. The withdrawal of the deposited securities represented by your ADSs
may be delayed until the depositary bank receives satisfactory evidence of
compliance with all applicable laws and regulations. Please keep in mind that
the depositary bank will only accept ADSs for cancellation that represent a
whole number of securities on deposit.

    You will have the right to withdraw the deposited securities represented by
your ADSs at any time except for:

  . Temporary delays that may arise because (i) the transfer books for the B
    shares or ADSs are closed, or (ii) B shares are immobilized on account of
    a shareholders' meeting or a payment of dividends.

  . Obligations to pay fees, taxes and similar charges.

  . Restrictions imposed because of laws or regulations applicable to ADSs or
    the withdrawal of securities on deposit.

    The deposit agreement may not be modified to impair your right to withdraw
the securities represented by your ADSs except to comply with mandatory
provisions of law.

Voting Rights

    As a holder, you generally have the right under the deposit agreement to
instruct the depositary bank to exercise the voting rights for the B shares
represented by your ADSs. The voting rights of holders of B shares are
described in "Description of Share Capital--Ordinary Shares--Voting Rights."

    At our request, the depositary bank will mail to you any notice of
shareholders' meeting received from us together with information explaining how
to instruct the depositary bank to exercise the voting rights of the securities
represented by ADSs.

    If the depositary bank timely receives voting instructions from a holder of
ADSs, it will endeavor to vote the securities represented by the holder's ADSs
in accordance with such voting instructions.

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<PAGE>

    Please note that the ability of the depositary bank to carry out voting
instructions may be limited by practical and legal limitations and the terms of
the securities on deposit. We cannot assure you that you will receive voting
materials in time to enable you to return voting instructions to the depositary
bank in a timely manner. Securities for which no voting instructions have been
received will not be voted.

Fees and Charges

    As an ADS holder, you will be required to pay the following service fees to
the depositary bank:

<TABLE>
<CAPTION>
Service                                                        Fees
- -------                                                        ----
<S>                                                 <C>
Issuance of ADSs                                    Up to 5c, per ADS issued
Cancellation of ADSs                                Up to 5c, per ADS canceled
Exercise of rights to purchase additional ADSs      Up to 5c, per ADS issued
Distribution of cash upon sale of rights and other
 entitlements                                       Up to 2c, per ADS held
</TABLE>

    As an ADS holder you will also be responsible to pay certain fees and
expenses incurred by the depositary bank and certain taxes and governmental
charges such as:

  Fees for the transfer and registration of B shares (i.e., upon deposit and
  withdrawal of B shares).

  Expenses incurred for converting foreign currency into U.S. dollars.

  Expenses for cable, telex and fax transmissions and for delivery of
  securities.

  Taxes and duties upon the transfer of securities (i.e., when B shares are
  deposited or withdrawn from deposit).

    Note that the fees and charges you may be required to pay may vary over
time and may be changed by us and by the depositary bank. You will receive
prior notice of such changes.

Amendments and Termination

    We may agree with the depositary bank to modify the deposit agreement at
any time without your consent. We undertake to give holders 30 days' prior
notice of any modifications that would prejudice any of their substantial
rights under the deposit agreement (except in very limited circumstances
enumerated in the deposit agreement).

    You will be bound by the modifications to the deposit agreement if you
continue to hold your ADSs after the modifications to the deposit agreement
become effective. The deposit agreement cannot be amended to prevent you from
withdrawing the B shares represented by your ADSs (except as permitted by law).

    We have the right to direct the depositary bank to terminate the deposit
agreement. Similarly, the depositary bank may in certain circumstances on its
own initiative terminate the deposit agreement. In either case, the depositary
bank must give notice to the holders at least 30 days before termination.

    Upon termination, the following will occur under the deposit agreement:

  . for a period of six months after termination, you will be able to request
    the cancellation of your ADSs and the withdrawal of the B shares
    represented by your ADSs and the delivery of all other property held by
    the depositary bank in respect of those deposited securities on the same
    terms as prior to the termination. During such six months' period the
    depositary bank will continue to collect all distributions received on
    the B shares on deposit (i.e., dividends) but will not distribute any
    such property to you until you request the cancellation of your ADSs.

  . After the expiration of such six months' period, the depositary bank may
    sell the securities held on deposit. The depositary bank will hold the
    proceeds from such sale and any other funds then held

                                      187
<PAGE>

   for the holders of ADSs in a non-interest bearing account. At that point,
   the depositary bank will have no further obligations to holders other than
   to account for the funds then held for the holders of ADSs still
   outstanding.

Books of Depositary

    The depositary bank will maintain ADS holder records at its depositary
office. You may inspect such records at such office during regular business
hours but solely for the purpose of communicating with other holders in the
interest of business matters relating to the ADSs and the deposit agreement.

    The depositary bank will maintain in New York facilities to record and
process the issuance, cancellation, combination, split-up and transfer of ADRs.
These facilities may be closed from time to time, to the extent not prohibited
by law.

Limitations on Obligations and Liabilities

    The deposit agreement limits our obligations and the depositary bank's
obligations to you. Please note the following:

  . We and the depositary bank are obligated only to take the actions
    specifically stated in the depositary agreement without negligence or bad
    faith.

  . The depositary bank disclaims any liability for any failure to carry out
    voting instructions, for any manner in which a vote is cast or for the
    effect of any vote, provided it acts in good faith and in accordance with
    the terms of the deposit agreement.

  . The depositary bank disclaims any liability for any failure to determine
    the lawfulness or practicality of any action, for the content of any
    document forwarded to you on our behalf or for the accuracy of any
    translation of such a document, for the investment risks associated with
    investing in B shares, for the validity or worth of the B shares, for any
    tax consequences that result from the ownership of ADSs, for the credit
    worthiness of any third party, for allowing any rights to lapse under the
    terms of the deposit agreement, for the timeliness of any of our notices
    or for our failure to give notice.

  . We and the depositary bank will not be obligated to perform any act that
    is inconsistent with the terms of the deposit agreement.

  . We and the depositary bank disclaim any liability if we are prevented or
    forbidden from acting on account of any law or regulation, any provision
    of our articles of association, any provision of any securities on
    deposit or by reason of any act of God or war or other circumstances
    beyond our control.

  . We and the depositary bank disclaim any liability by reason of any
    exercise of, or failure to exercise, any discretion provided for the
    deposit agreement or in our articles of association or in any provisions
    of securities on deposit.

  . We and the depositary bank further disclaim any liability for any action
    or inaction in reliance on the advice or information received from legal
    counsel, accountants, any person presenting B shares for deposit, any
    holder of ADSs or authorized representative thereof, or any other person
    believed by either of us in good faith to be competent to give such
    advice or information.

  . We and the depositary bank also disclaim liability for the inability by a
    holder to benefit from any distribution, offering, right or other benefit
    which is made available to holders B shares but is not, under the terms
    of the deposit agreement, made available to you.

  . We and the depositary bank may rely without any liability upon any
    written notice, request or other document believed to be genuine and to
    have been signed or presented by the proper parties.

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<PAGE>

Pre-Release Transactions

    The depositary bank may, in certain circumstances, issue ADSs before
receiving a deposit of B shares or release B shares before receiving ADSs.
These transactions are commonly referred to as "pre-release transactions." The
deposit agreement limits the aggregate size of pre-release transactions and
imposes a number of conditions on such transactions (i.e., the need to receive
collateral, the type of collateral required, the representations required from
brokers, etc.). The depositary bank may retain the compensation received from
the pre-release transactions.

Taxes

    You will be responsible for the taxes and other governmental charges
payable on the ADSs and the securities represented by the ADSs. We, the
depositary bank and the custodian may deduct from any distribution the taxes
and governmental charges payable by holders and may sell any and all property
on deposit to pay the taxes and governmental charges payable by holders. You
will be liable for any deficiency if the sale proceeds do not cover the taxes
that are due.

    The depositary bank may refuse to issue ADSs, to deliver transfer, split
and combine ADRs or to release securities on deposit until all taxes and
charges are paid by the applicable holder. The depositary bank and the
custodian may take reasonable administrative actions to obtain tax refunds and
reduced tax withholding for any distributions on your behalf. However, you may
be required to provide to the depositary bank and to the custodian proof of
taxpayer status and residence and such other information as the depositary bank
and the custodian may require to fulfill legal obligations. You are required to
indemnify us, the depositary bank and the custodian for any claims with respect
to taxes based on any tax benefit obtained for you.

Foreign Currency Conversion

    The depositary bank will arrange for the conversion of all foreign currency
received into U.S. dollars if such conversion is practical, and it will
distribute the U.S. dollars in accordance with the terms of the deposit
agreement. You may have to pay fees and expenses incurred in converting foreign
currency, such as fees and expenses incurred in complying with currency
exchange controls and other governmental requirements.

    If the conversion of foreign currency is not practical or lawful, or if any
required approvals are denied or not obtainable at a reasonable cost or within
a reasonable period, the depositary bank may take the following actions in its
discretion:

  . Convert the foreign currency to the extent practical and lawful and
    distribute the U.S. dollars to the holders for whom the conversion and
    distribution is lawful and practical.

  . Distribute the foreign currency to holders for whom the distribution is
    lawful and practical.

  . Hold the foreign currency (without liability for interest) for the
    applicable holders.

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<PAGE>

                                    TAXATION

    The following discussion is the opinion of Holme Roberts & Owen LLP on the
material U.S. federal income tax consequences and of Arthur Andersen
Belastingadviseurs on the material Dutch tax consequences, under current law,
regarding the acquisition, ownership and disposition of the B shares or ADSs.
This opinion does not, however, address the income taxes imposed by any
political subdivision of the United States or The Netherlands or any tax
imposed by any other jurisdiction. This opinion does not discuss every aspect
of taxation that may be relevant to a particular taxpayer under special
circumstances or who is subject to special treatment under applicable law and
is not intended to be applicable in all respects to all categories of
investors. For example, certain types of investors, such as:

  . insurance companies,

  . tax-exempt persons,

  . financial institutions,

  . regulated investment companies,

  . dealers in securities,

  . persons who hold B shares or ADSs as part of a hedging, straddle,
    constructive sale or conversion transaction,

  . persons whose functional currency is not the U.S. dollar, and

  . U.S. persons owning (directly, indirectly, or constructively), 10% or
    more of the B shares or ADSs,

may be subject to different tax rules not discussed below. This opinion assumes
that the deposit agreement and any related agreement will be performed in
accordance with its terms and that we are organized and our business conducted
in the manner outlined in this prospectus. Changes in our organizational
structure or the manner in which we conduct our business may invalidate this
opinion. The laws upon which this opinion is based are subject to change,
perhaps with retroactive effect. A change to such laws may invalidate this
opinion, which will not be updated to reflect changes in laws. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THEIR PARTICULAR PERSONAL
TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE B SHARES OR THE
ADSs.

    In general, for U.S. federal income tax and Dutch tax purposes, holders of
ADSs will be treated as owners of the B shares represented by such ADSs.

                                  Dutch Taxes

    The following is the opinion of Arthur Andersen Belastingadviseurs
regarding the material Dutch tax consequences of investing in the B shares and
ADSs. This opinion represents Arthur Andersen Belastingadviseurs's
interpretation of existing law. No assurance can be given that tax authorities
or courts in The Netherlands will agree with such interpretation.

Substantial Interest

    A shareholder that owns, either via shares or options, directly or
indirectly, five percent or more of any class of shares, or five percent or
more of the total issued share capital of a company resident in The Netherlands
(a "Substantial Interest") is subject to special rules. Profit participation
rights which give the holder rights to five percent or more of the annual
profit or five percent or more of the liquidation proceeds of a company
resident in The Netherlands will also qualify as a Substantial Interest. A
shareholder is deemed to own a Substantial Interest if part of a Substantial
Interest has been disposed of on a non-

                                      190
<PAGE>

recognition basis and the shareholder continues to own shares in The
Netherlands company. With respect to individuals, certain attribution rules
exist in determining the presence of a Substantial Interest. Unless indicated
otherwise, the term "shareholder", as used herein, includes an individual and
entities as defined under Dutch tax law holding B shares or ADSs, but does not
include any such person owning a Substantial Interest in us.

                      Dutch Tax Consequences for Residents
                     or Deemed Residents of the Netherlands

Dutch Dividend Withholding Tax

    Dividends we distribute are subject to withholding tax at a rate of 25%,
unless:

  (1) the participation exemption applies and the B shares or ADSs are
      attributable to the business carried out in The Netherlands, or

  (2) dividends are distributed to a qualifying EU corporate shareholder
      satisfying the conditions of the EU directive, or

  (3) the rate is reduced by treaty.

    Dividends may include:

  .distributions of cash,

  .distributions of property in kind,

  .constructive dividends,

  .hidden dividends,

  .liquidation proceeds in excess of our recognized paid-in capital,

  .proceeds from the redemption of shares in excess of our recognized paid-in
     capital,

  . stock dividends equal to their nominal value (unless distributed out of
    our recognized paid-in share premium), and

  .and the repayment of paid-in capital not recognized as capital.

    The term "recognized paid-in capital" or "share premium" relates to our
paid-in capital or share premium as recognized for Dutch tax purposes.

    Generally, a shareholder that resides, or is deemed to reside, in The
Netherlands will be allowed a credit against Dutch income tax or corporation
tax for the tax withheld on dividends paid on B shares or ADSs. A legal entity
resident in The Netherlands that is not subject to Dutch corporate income tax,
may, under certain conditions, request a refund of the tax withheld.

    Dividends we pay to a corporate shareholder that qualifies for the
"participation exemption", as defined in Article 13 of The Netherlands
Corporation Tax Act 1969 (the "Corporation Tax Act"), will not be subject to
the dividend withholding tax if the B shares or ADSs are attributable to the
shareholder's business carried out in The Netherlands. A resident corporate
shareholder will qualify for the participation exemption if, among other
things, the resident shareholder owns at least five percent of our nominal
paid-up capital.

Dutch Individual Income Tax and Corporation Income Tax

    If the B shares or ADSs are held by an individual who resides, or is deemed
to reside, in The Netherlands, income derived from the B shares or ADSs is
subject to Dutch income tax on a net income

                                      191
<PAGE>

basis at graduated rates. An individual generally is entitled to a dividend
exemption of NLG1,000 a year (NLG2,000 a year for married couples). B shares or
ADSs distributed to individual shareholders from our share premium account (as
recognized for Dutch tax purposes) are also exempt from Dutch income tax. The
dividend exemption is not available to an individual shareholder if the B
shares or ADSs are;

  (1) attributable to a trade or business carried on by the shareholder, or

  (2) form part of a Substantial Interest.

    Dividends accruing to individual shareholders that hold a Substantial
Interest are subject to income tax at a rate of 25% on a net basis.

    Dividends received from B shares or ADSs by an entity that resides, or is
deemed to reside, in The Netherlands will be subject to Dutch corporation tax
on a net basis unless the company's shareholding qualifies for the
participation exemption. Dividends received from B shares or ADSs by a pension
fund as defined in the Corporation Tax Act are not subject to Dutch corporation
tax.

Capital Gains Realized from the Sale or Exchange of B Shares or ADSs

    Capital gains derived from the sale, conversion or disposition of B shares
or ADSs by an individual shareholder who resides, or is deemed to reside, in
The Netherlands are not subject to Dutch income tax provided:

  (1) the B shares or ADSs were not acquired directly or indirectly by us or
      our subsidiaries,

  (2) the shareholder did not have a Substantial Interest in our share
      capital at the time of the sale or exchange, and

  (3) the B shares or ADSs were not assets of a business.

    Capital gains realized by an individual shareholder that is a resident or a
deemed resident of The Netherlands on the disposal of B shares or ADSs forming
part of a Substantial Interest are subject to tax at a rate of 25%. Capital
gains realized by an individual resident shareholder from the sale or exchange
of B shares or ADSs forming part of the assets of a shareholder's business are
subject to tax on a net income basis at the progressive income tax rates.

    If the B shares or ADSs are held by an entity that is a resident or a
deemed resident of The Netherlands, capital gains realized from the sale or
exchange of B shares or ADSs are subject to corporation tax unless the
shareholding qualifies for the participation exemption. If the B shares or ADSs
are held by a qualifying pension fund, gains realized from the sale or exchange
of B shares or ADSs are exempt from Dutch corporation tax.

Dutch Net Wealth Tax

    An individual who resides, or is deemed to reside, in The Netherlands
generally will be subject to a net wealth tax at a rate of 0.7% on the fair
market value of the B shares or ADSs, with certain exceptions.

Dutch Gift Tax and Inheritance Tax

    Dutch gift tax or inheritance tax will be due with respect to a gift or
inheritance of B shares or ADSs from an individual who resided, or was deemed
to have resided, in The Netherlands at the time of the gift or his or her
death. A Dutch national is deemed to have been a resident of The Netherlands if
he or she was a resident in The Netherlands at any time during the 10 years
preceding the date of the gift or the date of his or her death. For gift tax
purposes, each person, regardless of nationality, is deemed to be a Dutch
resident if he or she was a resident in The Netherlands at any time during the
12 months preceding the date of the gift. The 10-year and 12-month residency
rules may be modified by treaty.

                                      192
<PAGE>

    However, in case of a gift by an individual who at the time of the gift was
neither a resident nor deemed to be a resident in The Netherlands and such
individual dies within 180 days after the date of the gift, while being a
resident or deemed to be a resident in The Netherlands, such tax will be due.

    Liability for payment of the gift tax or inheritance tax rests with the
donee or heir, respectively. The rate at which these taxes are levied is
primarily dependent on the fair market value of the gift or inheritance and the
relationship between the donor and donee or the deceased and heir(s).
Exemptions may apply under specific circumstances.

                           Dutch Tax Consequences for
                        Non-Residents of The Netherlands

Dutch Dividend Withholding Tax

    Dividends we distribute are subject to withholding tax at a rate of 25%,
unless:

  (1) the participation exemption applies and the B shares or ADSs are
      attributable to the business carried out in The Netherlands, or

  (2) dividends are distributed to a qualifying EU corporate shareholder
      satisfying the conditions of the EU directive, or

  (3) the rate is reduced by treaty.

    Dividends may include

  . distributions of cash,

  . distributions of property in kind,

  . constructive dividends,

  . hidden dividends,

  . liquidation proceeds in excess of our recognized paid-in capital,

  . proceeds from the redemption of shares in excess of our recognized paid-
    in capital,

  . stock dividends equal to their nominal value, unless distributed out of
    our recognized paid-in share premium, and

  . the repayment of paid-in capital not recognized as capital.

    The term "recognized paid-in capital" or "share premium" relates to our
paid-in capital or share premium as recognized for Dutch tax purposes.

    A non-resident shareholder may benefit from a reduced dividend withholding
tax rate pursuant to an income tax treaty in effect between the shareholder's
country of residence and The Netherlands. Under most Dutch income tax treaties,
the withholding tax rate is reduced to 15% or less provided that:

  (1) the recipient shareholder does not have a permanent establishment in
      The Netherlands to which the B shares and ADSs are attributable, and

  (2) the recipient shareholder is the beneficial owner of the dividends.

    Under the Income Tax Treaty of December 18, 1992, concluded between The
Netherlands and the United States (the "Tax Treaty"), dividends we pay to a
resident of the United States generally will be subject to a dividend
withholding tax rate of 15%. The rate may be reduced to five percent if the
beneficial owner is a United States corporation that directly holds 10% or more
of our voting power. The Tax

                                      193
<PAGE>

Treaty exempts from withholding tax dividends received by exempt pension trusts
and exempt organizations, under conditions defined in the Tax Treaty. Except in
the case of exempt organizations, dividends paid may benefit from the reduced
dividend withholding tax rate (or exemption from dividend withholding tax) by
filing the proper forms in advance of the dividend payment. Exempt
organizations remain subject to the statutory withholding rate of 25% and must
file a return to claim a refund of the tax withheld.

    A shareholder may not claim the Tax Treaty benefits unless:

  (1) the shareholder is a "resident" of the United States, as that term is
      defined in the Tax Treaty, and

  (2) Article 26 (the "treaty shopping rules") does not preclude the
      shareholder's ability to claim Tax Treaty benefits.

    The withholding of tax on B share or ADS dividend distributions to a non-
resident corporate shareholder carrying on a business through a Dutch permanent
establishment is not required as long as:

  (1) the Dutch participation exemption applies, and

  (2) the B shares or ADSs form a part of the permanent establishment's
      business assets.

    To qualify for the participation exemption, this entity should hold at
least five percent of our nominal paid-up capital and the B shares or ADSs must
form a part of the permanent establishment's business assets.

Dutch Individual Income Tax and Corporation Income Tax

    A non-resident shareholder will not be subject to Dutch income tax on
dividends received from us provided such shareholder does not or has not:

  (1) carried on a business in The Netherlands through a permanent
      establishment or a permanent representative that includes in its assets
      the B shares or ADSs,

  (2) held a Substantial Interest in our share capital or, in the event the
      non-resident shareholder has held a Substantial Interest in us, such
      interest was a business asset in the hands of the shareholder,

  (3) shared directly (not through the beneficial ownership of shares or ADSs
      or similar securities) in the profits of an enterprise managed and
      controlled in The Netherlands that owned or was deemed to have owned
      the B shares or ADSs, and

  (4) carried out employment activities in The Netherlands or served as a
      director or board member of any entity resident in The Netherlands, or
      served as a civil servant of a Dutch public entity with which the
      holding of the B shares or ADSs was connected.

Capital Gains Realized from the Sale or Exchange of B Shares or ADSs

    A non-resident shareholder will not be subject to Dutch income tax on
capital gains derived from the sale, conversion or disposition of B shares or
ADSs provided the nonresident shareholder does not or has not:

  (1) carried on a business in The Netherlands through a permanent
      establishment or a permanent representative that included in its assets
      the B shares or ADSs,

  (2) held a Substantial Interest in our share capital or, in the event the
      non-resident shareholder has held a Substantial Interest in us, such
      interest was a business asset in the hands of the shareholder,

                                      194
<PAGE>

  (3) shared directly (not through the beneficial ownership of shares or ADSs
      or similar securities) in the profits of an enterprise managed and
      controlled in The Netherlands which owned or was deemed to have owned B
      shares or ADSs, and

  (4) carried out employment activities in The Netherlands, or served as a
      director or board member of any entity resident in The Netherlands, or
      served as a civil servant of a Dutch public entity, with which the
      holding of the B shares or ADSs was connected.

    Capital gains derived from the sale, conversion or disposition of B shares
or ADSs by a non-resident corporate shareholder carrying on a business through
a permanent establishment in The Netherlands are not subject to Dutch
corporation tax provided:

  (1) the Dutch participation exemption would apply, and

  (2) the B shares or ADSs are attributable to the business carried out in
      The Netherlands.

    To qualify for the participation exemption, the shareholder must hold at
least five percent of our nominal paid-up capital and meet certain other
requirements.

    Under most Dutch tax treaties, the right to tax capital gains realized by a
non-resident shareholder from the sale or exchange of B shares or ADSs is
allocated to the shareholder's country of residence.

Dutch Net Wealth Tax

    A non-resident individual shareholder will not be subject to Dutch net
wealth tax in respect of the B shares or ADSs provided the nonresident
shareholder does not or has not:

  (1) carried on a business in The Netherlands through a permanent
      establishment or a permanent representative that included in its assets
      the B shares or ADSs, and

  (2) shared directly (not through the beneficial ownership of shares or ADSs
      or similar securities) in the profits of an enterprise managed and
      controlled in The Netherlands, which owned or was deemed to have owned
      B shares or ADSs.

Dutch Gift Tax and Inheritance Tax

    A gift or inheritance of B shares or ADSs from a non-resident shareholder
will not be subject to Dutch gift tax or inheritance tax in the hands of the
donee or heir provided the nonresident shareholder was not:

  (1) a Dutch national who has been a resident in The Netherlands at any time
      during the 10 years preceding the date of gift or the date of death or,
      in the event he or she was a resident in The Netherlands during such
      period, the non-resident shareholder was not a Dutch national at the
      time of gift or death,

  (2) solely for the purpose of the gift tax, a resident of The Netherlands
      at any time during the 12 months preceding the time of the gift,

  (3) engaged in a business in The Netherlands through a permanent
      establishment or a permanent representative which included in its
      assets the B shares or ADSs, and

  (4) shared directly (not through the beneficial ownership of shares or ADSs
      or similar securities) in the profits of an enterprise managed and
      controlled in The Netherlands which owned or is deemed to have owned B
      shares or ADSs.

    A Dutch national is deemed to have been a resident of The Netherlands if he
or she was a resident in The Netherlands at any time during the 10 years
preceding the date of the gift or the date of his or her

                                      195
<PAGE>

death. For gift tax purposes, each person (regardless of nationality) is deemed
to be a Dutch resident if he or she was a resident in The Netherlands at any
time during the 12 months preceding the date of the gift. The 10-year and 12-
month residency rules may be modified by treaty.

    However, in case of a gift by an individual who at the time of the gift was
neither a resident nor deemed to be a resident in The Netherlands and such
individual dies within 180 days after the date of the gift, while being a
resident or deemed to be a resident in The Netherlands, such tax will be due.

                        United States Federal Income Tax

    The following is the opinion of Holme Roberts & Owens LLP regarding the
material U.S. federal income tax consequences to U.S. Shareholders of an
investment in the B shares or ADSs. To the extent the following summarizes the
Dutch taxation rules on the reduction of the amount of dividend withholding tax
to be paid over to the Dutch Tax Administration, it is based on the opinion of
Arthur Andersen Belastingadviseurs.

    For purposes of this opinion a "U.S. Shareholder" is a holder of B shares
or ADSs that is an individual citizen or resident of the United States, a
corporation organized under the laws of the United States or any state of the
United States, or any other person subject to U.S. federal income tax on a net
income basis with respect to the B shares or ADSs.

Taxes on Income

    The gross amount of any distribution, including Dutch withholding tax
thereon, actually or constructively received by a U.S. Shareholder with respect
to B shares or ADSs will be a dividend. The dividend will be included in the
gross income of the U.S. Shareholder as ordinary income to the extent of our
current and accumulated earnings and profits as determined under U.S. federal
income tax principles. Dividends paid on B shares or ADSs generally will
constitute income from sources outside the United States and will not be
eligible for the dividends received deduction that may be allowed to United
States corporate shareholders on dividends paid out of income from sources
within the United States.

    A distribution in excess of our current and accumulated earnings and
profits will be treated first as a nontaxable return of capital to the extent
of such U.S. Shareholder's adjusted tax basis in its B shares or ADSs, and any
distribution in excess of such basis will constitute gain, which gain will be
capital gain if the B shares or ADSs are held as capital assets.

    The amount of any distribution paid in Dutch guilders will be the dollar
value of the Dutch guilders on the date of distribution, regardless of whether
the U.S. Shareholder converts the payment into dollars. Gain or loss, if any,
recognized by a U.S. Shareholder on the sale, conversion or disposition of
Dutch guilders will be ordinary income or loss. Such gain or loss will
generally be income or loss from sources within the United States for foreign
tax credit limitation purposes.

    Subject to certain conditions and limitations, tax withheld in The
Netherlands in accordance with the Treaty will be treated as a foreign tax that
U.S. Shareholders may elect to deduct in computing their U.S. federal taxable
income or credit against their U.S. federal income tax liability. Amounts paid
in respect of dividends on B shares or ADSs will generally be treated as
"passive income" or, in the case of certain holders, "financial services
income" for purposes of calculating the amount of the foreign tax credit
available to a U.S. Shareholder. Additional withholding tax, if any, in excess
of the rate applicable under the Treaty generally will not be eligible for
credit against the U.S. Shareholder's U.S. federal income tax liability.

    Dutch withholding tax may not be creditable against the U.S. Shareholder's
federal income tax liability however, to the extent we are allowed to reduce
the amount of dividend withholding tax paid Over

                                      196
<PAGE>

to the Dutch Tax Administration by crediting withholding tax imposed on certain
dividends paid to us. We will endeavor to provide to U.S. Shareholders the
information they will need to calculate their foreign tax credit.

    A distribution of additional B shares to U.S. Shareholders with respect to
their B shares or ADSs that is made as a part of a pro rata distribution to all
of our shareholders generally will not be subject to U.S. federal income tax.
However, a U.S. Shareholder receiving a distribution of additional B shares
must allocate to those additional B shares a portion of his basis in the B
shares or ADSs on which the distribution was made. The U.S. Shareholder's
holding period in the additional B shares will include the holding period of
the B shares or ADSs on which the distribution was made.

Sale or Other Disposition of the B Shares or ADSs

    A U.S. Shareholder will generally recognize gain or loss for U.S. federal
income tax purposes upon the sale or exchange of B shares or ADSs in an amount
equal to the difference between the amount realized from such sale or exchange
and the U.S. Shareholder's tax basis for such B shares or ADSs. Such gain or
loss will be a capital gain or loss if the B shares or ADSs are held as a
capital asset. Any such gain or loss generally would be treated as U.S. source.

Passive Foreign Investment Company

    The tax consequences described above would not apply if the U.S.
Shareholder made a qualified electing fund ("QEF") election for the first tax
year in the U.S. Shareholder's holding period in which we were a PFIC. If a QEF
election is made, a U.S. Shareholder would include in income its pro rata share
of our ordinary income and net capital gain for years in which we are a PFIC
(regardless of whether amounts are distributed to an electing U.S.
shareholder.) In the event that we become a PFIC, we will provide the
information necessary for our U.S. Shareholders to make a QEF election.

    A U.S. Shareholder who owns B shares or ADSs during any year that we are a
PFIC must file Internal Revenue Service Form 8621.

Foreign Personal Holding Company Classification

    We could be classified as a foreign personal holding company ("FPHC") if in
any taxable year:

  (1) five or fewer individuals who are U.S. citizens or residents own
      (directly or constructively through certain attribution rules) more
      than 50% of the total voting power of all classes of our stock entitled
      to vote or the total value of our stock, and

  (2) at least 60% (50% in certain cases) of our gross income consists of
      "foreign personal holding company income", which generally includes
      passive income such as dividends, interest, gains, rent and royalties.

    Classification as an FPHC would in general require each U.S. Shareholder
who held B shares or ADSs on the last day of the taxable year to include in
gross income as a dividend such shareholder's pro rata portion of our
undistributed foreign personal holding company income.

    After giving effect to certain ownership attribution rules, five or fewer
U.S. individuals are presently treated as owning more than 50% of the total
voting power of all classes of UPC stock. However, 60% of our gross income for
1998 is not expected to consist of passive income and we do not expect to meet
the 80% passive income test for 1999. Thus, we do not expect to be a FPHC for
1999 or for the foreseeable future. This is a factual determination that must
be made annually and thus the status of whether we are a FPHC is subject to
change.


                                      197
<PAGE>

Backup Withholding

    A U.S. shareholder of B shares or ADSs may be subject to backup withholding
at a rate of 31% with respect to dividends on, or the proceeds of a sale or
other disposition of, such B shares or ADSs unless such U.S. Shareholder:

  (1) is a corporation or comes within certain other exempt categories and,
      when required, demonstrates this fact, or

  (2) provides a taxpayer identification number, certifies as to no loss of
      exemption from backup withholding and otherwise complies with
      applicable backup withholding rules.

                        SHARES ELIGIBLE FOR FUTURE SALE

    While our A shares are traded on the Amsterdam Stock Exchange and ADSs
representing A shares are traded on the Nasdaq National Market, prior to this
offering, there has been no public market for the B shares or the ADSs. No
prediction can be made of the effect, if any, that the sale or availability for
sale of A shares or B shares or ADSs will have on the market price of the B
shares or the ADSs. Sales of substantial amounts of such securities in the
public market, or the perception that such sales could occur, could adversely
affect the market price of the B shares and the ADSs and could impair our
future ability to raise capital through an offering of its equity securities.

    Upon consummation of this offering, we will have outstanding     A shares,
    B shares and 100 priority shares. The B shares and ADSs sold in this
offering will be freely tradable in the United States by persons other than us
or our "affiliates" as that term is defined in SEC Rule 144, which is discussed
below. All of the issued and outstanding priority shares and A shares held by
United and the Discount Group, are "restricted securities" within the meaning
of Rule 144 and may be sold in the public market only if registered or
(discussed below) sold under an exemption from registration under the
Securities Act, including the exemption provided by Rule 144.

    We have agreed with the underwriters that, without the prior written
consent of the underwriters, we will not directly or indirectly offer, other
than in the offering, sell, contract to sell, announce our intention to sell,
pledge, grant any option to purchase or otherwise dispose of, or file a
registration statement or similar document relating to, any shares or any
security convertible into or exchangeable for shares, or in any manner transfer
all or a portion of the economic consequences associated with, or any security
convertible into or exchangeable for shares, for a period of    days from the
date of this prospectus, subject to certain exceptions. We have also agreed not
to permit any of our subsidiaries to take any such action without the prior
written consent of the underwriters, subject again to certain exceptions.
[Certain of our employees have made a similar agreement with the underwriters
for a period of    days]. Some of our former and current employees have shares
or options to receive shares, together representing approximately     A shares,
that could be sold immediately.

    Because we do not have a history of net profits, Amsterdam Stock Exchange
regulations prohibit members of our Supervisory Board and Board of Management
from disposing of their ordinary shares owned prior to this offering for a
period of four years from the date on which the ordinary shares begin trading
on the Amsterdam Stock Exchange. Because no members of the Supervisory Board or
Board of Management have exercised their options or otherwise own ordinary
shares, however, this provision is not applicable. In addition, under the
Amsterdam Stock Exchange Rules, United and any other holder of 5% or more of
our outstanding share capital collectively may not for three years after our
initial public offering, subject to certain exceptions, sell more than 25% of
the shares then outstanding. This lock-up requirement applies unless we report
a profit, in which case these shareholders collectively are entitled to dispose
of a maximum of (1) 50% of the shares then outstanding if a profit was made
during one year or (2) 75% of the shares then outstanding if a profit was made
during two years. The Amsterdam Stock Exchange has

                                      198
<PAGE>

agreed to grant permission to these shareholders to dispose of their remaining
interest if such disposition is consummated through a public secondary
offering involving a due diligence investigation, the issuance of a prospectus
and compliance with the other listing rules of the Amsterdam Stock Exchange
occurring at least one year after our initial public offering. If we issue and
sell more shares in the future (other than by way of a stock dividend, bonus
shares or conversion or exercise of any securities into our shares) and the
interest of any 5% holder in us falls below 5%, such holder will no longer be
subject to the lock-up requirements of the Amsterdam Stock Exchange.

   In general, under Rule 144 of the Securities Act, any of our affiliates, or
a person or persons whose shares are aggregated who has beneficially owned
restricted securities for at least one year (including the holding period of
any prior owner except an affiliate) is entitled to sell in any three-month
period a number of shares that does not exceed the greater of (1) 1% of the
number of shares then outstanding, or
approximately      shares immediately after this offering; or (2) the average
weekly trading volume of the ADSs on the Nasdaq National Market during the
four calendar weeks immediately preceding. Sales under Rule 144 are also
subject to requirements relating to manner of sale, notice and availability of
current public information about us. Under Rule 144(k), a person or persons
whose shares are aggregated who has not been one of our affiliates at any time
during the 90 days immediately preceding the sale and who has beneficially
owned his or her shares for at least two years is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. In general, under Rule 701 of the
Securities Act, any of our employees, consultants or advisors who purchases
shares from us pursuant to Rule 701 in connection with a compensatory stock or
option plan or other written agreement is eligible to resell, unless
contractually restricted, such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.

                                 LEGAL MATTERS

   Holme Roberts & Owen LLP, London, England, has advised us on certain U.S.
securities law matters in connection with this offering. Certain legal matters
relating to Dutch law will be passed upon for us by Loeff Claeys Verbeke,
Amsterdam, The Netherlands. Skadden, Arps, Slate, Meagher & Flom LLP, London,
England, has passed upon certain matters regarding this offering for the
underwriters. Certain legal matters relating to Dutch law will be passed upon
for underwriters by Nauta Dutilh, Rotterdam, The Netherlands.

                                    EXPERTS

   Our consolidated financial statements for the six months ended December 31,
1995 and as of and for the years ended December 31, 1996, 1997 and 1998
included in this prospectus have been audited by Arthur Andersen, independent
auditors, as indicated in their report with respect thereto, and are included
herein upon the authority of said firm as experts in giving said report.

   The consolidated financial statements of United TeleKabel Holding N.V. for
the period from commencement of operations (August 6, 1998) until December 31,
1998 included in this prospectus have been audited by Arthur Andersen,
independent auditors, as indicated in their report with respect thereto, and
are included herein upon the authority of said firm as experts in giving said
report.

   The consolidated financial statements of N.V. TeleKabel Beheer for the
years ended December 31, 1996 and 1997 included in this prospectus have been
audited by PricewaterhouseCoopers N.V.,

                                      199
<PAGE>

independent accountants as stated in their report appearing herein, and are
included herein upon the authority of said firm as experts in giving said
report.

    The consolidated financial statements of N.V. TeleKabel Beheer for the year
ended December 31, 1998 included in this prospectus have been audited by Arthur
Andersen, independent auditors, and are included herein upon authority of said
firm as experts in giving said report.

    The consolidated financial statements of @Entertainment, Inc. for the years
ended December 31, 1996, 1997 and 1998 included in this prospectus have been
audited by KPMG Polska Sp.zo.o, independent auditors, as indicated in their
report with respect thereto, and are included herein upon the authority of said
firm as experts in giving said report.

    The consolidated financial statements of A2000 Holding N.V. for the years
ended December 31, 1997 and 1998 included in this prospectus have been audited
by Arthur Andersen, independent auditors, as indicated in their report with
respect thereto, and are included herein upon the authority of said firm as
experts in giving said report.

    The consolidated financial statements of Kabel Plus, a.s. for the years
ended December 31, 1997 and 1998 included in this prospectus have been audited
by Arthur Andersen s.r.o, independent auditors, as indicated in their report
with respect thereto, and are included herein upon the authority of said firm
as experts in giving said report.

    The consolidated financial statements of NBS Nordic Broadband Services AB
for the year ended December 31, 1998 included in this prospectus have been
audited by Ernst & Young AB, independent auditors, as indicated in their report
with respect thereto, and are included herein upon the authority of said firm
as experts in giving said report.

    The consolidated financial statements of StjarnTVnatet AB, for the year
ended March 31, 1998 included in this prospectus have been audited by
PriceWaterhouse (now PricewaterhouseCoopers), independent auditors, as
indicated in their report with respect thereto, and are included herein upon
the authority of said firm as experts in giving said report.

    The consolidated financial statements of SBS Broadcasting SA for the years
ended December 31, 1996, 1997 and 1998 included in this prospectus have been
audited by Ernst & Young, independent auditors, as indicated in their report
with respect thereto, and are included herein upon the authority of said firm
as experts in giving said report.

                        ENFORCEMENT OF CIVIL LIABILITIES

    We are incorporated under the laws of The Netherlands and certain members
of our Supervisory Board, our Board of Management and certain of the experts
named herein are residents of The Netherlands or other countries outside the
United States. Substantially all of our assets and the assets of such persons
are located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon us or such
persons, or to enforce against us or such persons in courts in the United
States, judgments of such courts predicated upon the civil liability provisions
of United States securities laws. We have been advised by legal counsel in The
Netherlands, Loeff Claeys Verbeke, that because there is no convention on
reciprocal recognition and enforcement of judgments in civil and commercial
matters between the United States and The Netherlands, a final judgment
rendered by a United States court will not automatically be enforced by the
courts in The Netherlands. In order to obtain a judgment that is enforceable in
The Netherlands, the relevant claim will have to be relitigated before a
competent Dutch court. Under current practice, however, a final judgment
rendered by a United States court will be recognized by a Dutch court if it
finds that (1)  the final judgment

                                      200
<PAGE>

results from proceedings compatible with Dutch concepts of due process and (2)
the final judgment does not contravene public policy of The Netherlands. If the
final judgment is recognized by a Dutch court, that court generally will grant
the same judgment without relitigation on the merits. In addition, Dutch law
does not recognize a shareholder's right to bring a derivative action on behalf
of a corporation.

                             AVAILABLE INFORMATION

    We are subject to the informational reporting requirements of the U.S.
Securities Exchange Act of 1934, as amended, and in accordance therewith, file
reports, proxy statements and other information with the U.S. Securities and
Exchange Commission. Copies of reports, proxy statements and other information
may be inspected at the offices of the National Association of Securities
Dealers, Inc. 1735 K Street, N.W., Washington, D.C. 20006, U.S.A. Copies of
these documents are also filed with the Amsterdam Stock Exchange.

    We also comply with our obligations under Dutch law to prepare annual
financial statements complying with the corporate law of The Netherlands and to
deposit the same at the Commercial Register of the Chamber of Commerce and
Industry in Amsterdam, The Netherlands.

                        AMSTERDAM STOCK EXCHANGE LISTING

    On     , 1999, the Board of Management after obtaining the approval of the
general meeting of shareholders and the Supervisory Board, resolved to file an
application for admission to listing of the B shares on the Official Market of
the Amsterdam Stock Exchange. On     , 1999, the Board of Management authorized
thereto by the general meeting of shareholders by a written resolution dated
    , 1999 and having obtained the approval of the Supervisory Board, resolved
to issue B shares to a nominal amount of (Euro)0.02 per share and to exclude
the pre-emptive rights in this respect.

                                      201
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
<S>                                                                      <C>
UNITED PAN-EUROPE COMMUNICATIONS N.V.
  Independent Auditors' Report..........................................   F-4
  Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
   31, 1999 (unaudited) (Post-Acquisition)..............................   F-5
  Consolidated Statements of Operations for the years ended December 31,
   1996 and 1997 (Pre-Acquisition), for the year ended December 31, 1998
   and for the three months ended March 31, 1998 (unaudited) and 1999
   (unaudited) (Post-Acquisition).......................................   F-6
  Consolidated Statements of Shareholders' Equity (Deficit) for the
   years ended December 31, 1996 and 1997 (Pre-Acquisition), for the
   year ended December 31, 1998 and for the three months ended March 31,
   1999 (unaudited) (Post-Acquisition)..................................   F-7
  Consolidated Statements of Cash Flows for the years ended December 31,
   1996 and 1997 (Pre-Acquisition), for the year ended December 31, 1998
   and for the three months ended March 31, 1998 (unaudited) and 1999
   (unaudited) (Post-Acquisition).......................................   F-9
  Notes to the Consolidated Financial Statements........................  F-11
UNITED TELEKABEL HOLDING N.V.
  Independent Auditors' Report..........................................  F-49
  Consolidated Balance Sheet as of December 31, 1998....................  F-50
  Consolidated Statement of Operations from August 6, 1998 (commencement
   of operations) until December 31, 1998...............................  F-51
  Consolidated Statement of Cash Flows from August 6, 1998 (commencement
   of operations) until December 31, 1998...............................  F-52
  Notes to Consolidated Financial Statements............................  F-53
N.V. TELEKABEL BEHEER
  Report of Independent Accountants.....................................  F-65
  Independent Auditors' Report..........................................  F-66
  Consolidated Balance Sheets as of December 31, 1997 and 1998..........  F-67
  Consolidated Statements of Operations for the years ended December 31,
   1996, 1997 and 1998..................................................  F-68
  Consolidated Statements of Cash Flows for the years ended December 31,
   1996, 1997 and 1998..................................................  F-69
  Consolidated Statement of Changes in Shareholder's Equity for the
   years ended December 31, 1996, 1997 and 1998.........................  F-70
  Notes to Consolidated Financial Statements............................  F-71
@ENTERTAINMENT, INC.
  Independent Auditors' Report..........................................  F-81
  Consolidated Balance Sheets as of December 31, 1997 and 1998 and March
   31, 1999 (unaudited).................................................  F-82
  Consolidated Statements of Operations for the years ended December 31,
   1996, 1997 and 1998 and for the three months ended March 31, 1998 and
   1999 (unaudited).....................................................  F-83
  Consolidated Statements of Comprehensive Loss for the years ended
   December 31, 1996, 1997 and 1998 and for the three months ended March
   31, 1998 and 1999 (unaudited)........................................  F-84
  Consolidated Statements of Changes in Stockholders' Equity for the
   years ended December 31, 1996, 1997 and 1998 ........................  F-85
  Consolidated Statements of Cash Flows for the years ended December 31,
   1996, 1997 and 1998 and the three months ended March 31, 1998 and
   1999 (unaudited).....................................................  F-86
  Notes to Consolidated Financial Statements............................  F-87
</TABLE>

                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
<S>                                                                      <C>
A2000 HOLDING N.V.
  Independent Auditors' Report.......................................... F-117
  Consolidated Balance Sheets at December 31, 1997 and 1998 and March
   31, 1999 (unaudited)................................................. F-118
  Consolidated Statements of Income for the years ended December 31,
   1997 and 1998 and the three months ended March 31, 1998 (unaudited)
   and 1999 (unaudited)................................................. F-119
  Consolidated Statements of Cash Flows for the years ended December 31,
   1997 and 1998 and the three months ended March 31, 1998 (unaudited)
   and 1999 (unaudited)................................................. F-120
  Notes to Consolidated Financial Statements............................ F-121
KABEL PLUS a.s.
  Report of Independent Public Accountants.............................. F-135
  Consolidated Balance Sheets at December 31, 1998 and March 31, 1997
   and 1999 (unaudited)................................................. F-136
  Consolidated Statements of Operations for the years ended December 31,
   1997 and 1998 and the three months ended March 31, 1998 and 1999
   (unaudited).......................................................... F-137
  Consolidated Statements of Cash Flows for the years ended December 31,
   1997 and 1998 and the three months ended March 31, 1998 and 1999
   (unaudited).......................................................... F-138
  Consolidated Statements of Shareholders' Equity for the years ended
   December 31, 1997 and 1998 and the three months ended March 31, 1997
   and 1998 (unaudited)................................................. F-139
  Notes to Consolidated Financial Statements............................ F-140
NBS NORDIC BROADBAND SERVICES AB
  Administration Report................................................. F-151
  Consolidated Income Statement for 1998................................ F-152
  Consolidated Balance Sheet as of December 31, 1998.................... F-153
  Consolidated Cash Flow Statement for 1998............................. F-154
  Notes to Financial Statements......................................... F-155
  Report by the Independent Auditor..................................... F-162
  Consolidated Income Statement for the three months ended March 31,
   1999 (unaudited)..................................................... F-163
  Consolidated Balance Sheet as of March 31, 1999 (unaudited)........... F-164
  Consolidated Cash Flow Statement for the three months ended March 31,
   1999 (unaudited)..................................................... F-166
  Notes for the Financial Statements.................................... F-167
</TABLE>

<TABLE>
<S>                                                                       <C>
STJARNTVNATET AB
  Administration Report and Result and Appropriation..................... F-169
  Consolidated Income Statement for the 12 months ended March 31, 1998... F-170
  Consolidated Balance Sheet as of March 31, 1998........................ F-171
  Consolidated Statement of Cash Flows for the 12 months ended March 31,
   1998.................................................................. F-173
  Income Statement--Parent Company for the 12 months ended March 31,
   1998.................................................................. F-174
  Balance Sheet--Parent Company as of March 31, 1998..................... F-175
  Statements of Cash Flow--Parent Company for the 12 months ended March
   31, 1998.............................................................. F-177
  Accounting Principles and Annual Report Information.................... F-178
  Notes.................................................................. F-180
  Auditors' Report of the Annual General Meeting of the Shareholders..... F-185
  Report of the Independent Auditor on the U.S. GAAP reconciliation ..... F-187
</TABLE>

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                                                                          Page
                                                                         Number
                                                                         ------
<S>                                                                      <C>
SBS BROADCASTING SA
  Report of Independent Auditors ....................................... F-188
  Consolidated Balance Sheets at December 31, 1997 and 1998 and March
   31, 1999 (unaudited)................................................. F-189
  Consolidated Statements of Operations for the years ended December 31,
   1996, 1997 and 1998 and the three months ended March 31, 1998 and
   1999 (unaudited)..................................................... F-190
  Consolidated Statements of Comprehensive Income for the years ended
   December 31, 1996, 1997 and 1998 and the three months ended March 31,
   1997 and 1998 (unaudited)............................................ F-190
  Consolidated Statements of Shareholders' Equity (Deficit) for the
   years ended December 31, 1997 and 1998 and the three months ended
   March 31, 1999 (unaudited)........................................... F-191
  Consolidated Statements of Cash Flows for the years ended December 31,
   1996, 1997 and 1998 and the three months ended March 31, 1998 and
   1999 (unaudited)..................................................... F-192
  Notes to Consolidated Financial Statements............................ F-194
</TABLE>

                                      F-3
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To United Pan-Europe Communications N.V.

    We have audited the accompanying consolidated balance sheets of United Pan-
Europe Communications N.V. (a N.V. registered in The Netherlands) and
subsidiaries as of December 31, 1998 and December 31, 1997 (post-acquisition--
see Note 1), and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the years ended December 31,
1998 (post-acquisition--see Note 1), December 31, 1997 and December 31, 1996
(pre-acquisition--see Note 1). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those
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.

    As discussed in Note 1 to the consolidated financial statements, the
Company's parent company (United International Holdings, Inc.) acquired the
remaining 50% interest in the Company effective December 11, 1997. Accordingly,
the assets, liabilities and shareholders' equity acquired have been adjusted to
reflect its parent's basis in the underlying net assets of the Company as of
December 11, 1997. The proportional assets and liabilities acquired were
recorded based upon their relative fair market values at the date of
acquisition. Accordingly, the pre-acquisition and post-acquisition consolidated
financial statements are not comparable in certain significant respects since
these consolidated financial statements report the financial position, results
of operations and cash flows on two separate accounting bases.

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United Pan-
Europe Communications N.V. as of December 31, 1998 and December 31, 1997 (post-
acquisition--see Note 1), and the results of its operations and its cash flows
for the years ended December 31, 1998 (post-acquisition--see Note 1), December
31, 1997 and December 31, 1996 (pre-acquisition--see Note 1) in conformity with
accounting principles generally accepted in the United States of America.

                                        ARTHUR ANDERSEN

Amstelveen, The Netherlands,
March 29, 1999

                                      F-4
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.
                          CONSOLIDATED BALANCE SHEETS
  (Stated in thousands of Dutch guilders, except share and per share amounts)

As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.

<TABLE>
<CAPTION>
                                             As of December 31
                                            --------------------      As of
                                              1997       1998     March 31, 1999
                                            ---------  ---------  --------------
                                                    (Post-Acquisition)
                                                                   (unaudited)
<S>                                         <C>        <C>        <C>
ASSETS:
Current assets
 Cash and cash equivalents................    100,144     29,571    1,062,002
 Restricted cash..........................     22,220     30,263       84,050
 Subscriber receivables, net of allowance
  for doubtful accounts of 6,445, 9,260
  and 8,362, respectively.................      9,419     12,886       42,140
 Costs to be reimbursed by affiliated
  companies, net of allowance for doubtful
  accounts of 2,209, 0 and 139,
  respectively............................     14,970     27,277       28,703
 Other receivables........................     19,103     25,845       49,045
 Inventory................................     13,040     24,121       40,388
 Prepaid expenses and other current
  assets..................................      6,669     15,654       35,886
                                            ---------  ---------    ---------
   Total current assets...................    185,565    165,617    1,342,214
Marketable equity securities of parent, at
 fair value...............................     66,809    101,097      248,319
Investments in and advances to affiliated
 companies, accounted for under the equity
 method, net..............................    413,649    493,051      390,767
Property, plant and equipment, net of
 accumulated depreciation of 7,312, 87,708
 and 139,881, respectively................    484,982    602,997    1,528,580
Goodwill and other intangible assets, net
 of accumulated amortization of 1,716,
 39,109 and 58,416, respectively..........    690,046    680,032    1,454,742
Deferred financing costs, net of
 accumulated amortization of 217, 9,288
 and 2,376, respectively..................     23,943     21,663       35,681
Non-current restricted cash and other
 assets...................................     50,710      3,322        3,269
                                            ---------  ---------    ---------
   Total assets...........................  1,915,704  2,067,779    5,003,572
                                            =========  =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
 (DEFICIT):
Current liabilities
 Accounts payable, including related party
  payables of 12,223, 15,671 and 20,883,
  respectively............................    126,178    141,917      139,998
 Accrued liabilities......................     34,731     56,840      131,655
 Subscriber prepayments and deposits......     24,533     45,757      149,432
 Short-term debt..........................      1,696     63,322       48,921
 Note payable to shareholder..............        --     175,012       15,881
 Current portion of long-term debt........    255,819    113,519          --
                                            ---------  ---------    ---------
   Total current liabilities..............    442,957    596,367      485,887
Long-term debt............................    966,100  1,174,749    1,279,240
Deferred taxes............................     44,508      8,657       42,361
Deferred compensation.....................      4,818    327,445        2,811
Other long-term liabilities...............      8,801      8,801        9,542
                                            ---------  ---------    ---------
   Total liabilities......................  1,467,184  2,116,019    1,819,841
                                            ---------  ---------    ---------
Commitments and contingencies (Notes 11
 and 12)
Minority interests in subsidiaries........      8,715     25,934       27,239
Shareholders' equity (deficit) (As
 adjusted for the 3:2 stock split. Note
 10)
 Priority stock, 0.661113 par value, 100
  shares authorized and 0, 0 and 100
  shares issued, respectively.............        --         --           --
 Common stock, 0.661113 par value,
  200,000,000 shares authorized and
  92,062,589, 92,285,604 and 129,246,123
  shares issued, respectively.............     61,348     61,497       85,446
 Additional paid-in capital...............    650,864    672,016    3,836,929
 Deferred compensation....................        --         --       (85,445)
 Treasury stock, at cost, 9,198,135,
  9,198,135 and 0 shares of common stock,
  respectively............................   (110,385)  (110,385)         --
 Accumulated deficit......................   (163,829)  (727,050)    (867,589)
 Other cumulative comprehensive income ...      1,807     29,748      187,151
                                            ---------  ---------    ---------
   Total shareholders' equity (deficit)...    439,805    (74,174)   3,156,492
                                            ---------  ---------    ---------
   Total liabilities and shareholders'
    equity (deficit)......................  1,915,704  2,067,779    5,003,572
                                            =========  =========    =========
</TABLE>

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

                                      F-5
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
  (Stated in thousands of Dutch guilders, except share and per share amounts)

As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                                                    ------------------------------------------------------
                                                          1996              1997               1998
                                                    ----------------- ----------------- ------------------
                                                    (Pre-Acquisition) (Pre-Acquisition) (Post-Acquisition)
<S>                                                 <C>               <C>               <C>
Service and other revenue....................             245,179           337,255            408,970
Operating expense............................             (82,439)         (118,508)          (138,459)
Selling, general and administrative expense..             (81,176)         (119,067)          (481,703)
Depreciation and amortization................             (79,832)         (132,888)          (187,646)
                                                       ----------        ----------         ----------
 Net operating (loss) income.................               1,732           (33,208)          (398,838)
Interest income..............................               2,757             6,512              7,397
Interest expense.............................             (14,263)          (41,995)           (92,308)
Interest expense, related party..............             (24,212)          (28,743)           (12,047)
Provision for loss on investment related
 costs.......................................                 --            (18,888)            (6,230)
Gain on sale of assets.......................                 --                --                 --
Foreign exchange (loss) gain and other
 expense.....................................             (21,200)          (41,063)             2,690
                                                       ----------        ----------         ----------
 Net loss before income taxes and other
  items......................................             (55,186)         (157,385)          (499,336)
Share in results of affiliated companies,
 net.........................................             (30,712)          (25,458)           (63,823)
Minority interests in subsidiaries...........              (2,208)              152              1,153
Income tax benefit (expense).................                (509)            1,649             (1,215)
                                                       ----------        ----------         ----------
 Net loss....................................             (88,615)         (181,042)          (563,221)
                                                       ==========        ==========         ==========
Basic and diluted net loss per ordinary
 share(1)....................................               (0.96)            (1.98)             (6.80)
                                                       ==========        ==========         ==========
Weighted-average number of ordinary shares
 outstanding(1)..............................          92,062,589        91,533,381         82,869,342
- --------------------------------------------------
                                                       ==========        ==========         ==========
<CAPTION>
                                                     For the Three Months
                                                        Ended March 31,
                                                    -------------------------
                                                       1998         1999
                                                    ------------ ------------
                                                      (Post-Acquisition)
                                                    (Unaudited)  (Unaudited)
<S>                                                 <C>          <C>
Service and other revenue....................           95,005       148,820
Operating expense............................          (30,899)      (67,067)
Selling, general and administrative expense..          (27,551)     (104,333)
Depreciation and amortization................          (48,457)      (63,198)
                                                    ------------ ------------
 Net operating (loss) income.................          (11,902)      (85,778)
Interest income..............................              814         4,911
Interest expense.............................          (22,387)      (34,152)
Interest expense, related party..............             (347)       (4,093)
Provision for loss on investment related
 costs.......................................              --            --
Gain on sale of assets.......................              --         14,625
Foreign exchange (loss) gain and other
 expense.....................................           (4,894)      (15,335)
                                                    ------------ ------------
 Net loss before income taxes and other
  items......................................          (38,716)     (119,822)
Share in results of affiliated companies,
 net.........................................          (14,139)      (20,272)
Minority interests in subsidiaries...........              241           (77)
Income tax benefit (expense).................              719          (368)
                                                    ------------ ------------
 Net loss....................................          (51,895)     (140,539)
                                                    ============ ============
Basic and diluted net loss per ordinary
 share(1)....................................            (0.56)        (1.31)
                                                    ============ ============
Weighted-average number of ordinary shares
 outstanding(1)..............................       92,062,589   107,395,811
- --------------------------------------------------
                                                    ============ ============
</TABLE>
- --------------------
(1)As adjusted for the 3:2 stock split (Note 10).


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

                                      F-6
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (2)
         (Stated in thousands of Dutch guilders, except share amounts)

As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.

<TABLE>
<CAPTION>
                                                                                                                       Other
                                                                                                                    Cumulative
                  Priority Stock       Ordinary Stock   Additional                 Treasury Stock                  Comprehensive
                  -----------------   -----------------  Paid-In     Deferred   ---------------------  Accumulated    Income
                  Shares    Amount    Shares(2)  Amount  Capital   Compensation  Shares(2)    Amount     Deficit     (Loss)(1)
                  -------   -------   ---------- ------ ---------- ------------ -----------  --------  ----------- -------------
<S>               <C>       <C>       <C>        <C>    <C>        <C>          <C>          <C>       <C>         <C>
Balances,
 December 31,
 1995...........                      92,062,589 61,348   266,447      --               --        --     (48,856)      (2,751)
Contribution by
 UIH of
 additional
 Investment in
 affiliate......       --        --          --     --     21,344      --               --        --         --           --
Change in
 cumulative
 translation
 Adjustments....       --        --          --     --        --       --               --        --         --         5,021
Net loss........                             --     --        --                        --        --     (88,615)         --
Total
 comprehensive
 income (loss)..       --        --          --     --        --       --               --        --         --           --
                   -------   -------  ---------- ------  --------      ---      -----------  --------   --------      -------
Balances,
 December 31,
 1996
 (Pre
 Acquisition)...       --        --   92,062,589 61,348   287,791      --               --        --    (137,471)       2,270
Contribution by
 UIH of
 additional
 investment in
 affiliate......       --        --          --     --     12,002      --               --        --         --           --
Gain on sale of
 stock by
 subsidiary.....       --        --          --     --      3,274      --               --        --         --           --
Change in
 cumulative
 translation
 Adjustments....       --        --          --     --        --       --               --        --         --          (463)
Net loss for the
 period from
 January 1, 1997
 to December 10,
 1997...........       --        --          --     --        --       --               --        --    (171,898)         --
Total
 comprehensive
 income (loss)..       --        --          --     --        --       --               --        --         --           --
                   -------   -------  ---------- ------  --------      ---      -----------  --------   --------      -------
Balances,
 December 10,
 1997
 (Pre
 Acquisition)...       --        --   92,062,589 61,348   303,067      --               --        --    (309,369)       1,807
Buyout of
 shareholder's
 interest.......       --        --          --     --        --       --       (24,378,396) (292,561)       --           --
Reissuance of
 shares upon
 Conversion of
 PIK Notes......       --        --          --     --    (12,277)     --        15,180,261   182,176        --           --
Application of
 push-down
 accounting and
 step up in
 basis..........       --        --          --     --    514,758      --               --        --         --           --
Elimination of
 historical
 accumulated
 Deficit of UPC
 attributable to
 Philips........       --        --          --     --   (154,684)     --               --        --     154,684          --
Net loss for the
 period from
 December 11,
 1997 to
 December 31,
 1997...........       --        --          --     --        --       --               --        --      (9,144)         --
Total
 comprehensive
 income (loss)..       --        --          --     --        --       --               --        --         --           --
                   -------   -------  ---------- ------  --------      ---      -----------  --------   --------      -------
Balances,
 December 31,
 1997
 (Post
 Acquisition)...       --        --   92,062,589 61,348   650,864      --        (9,198,135) (110,385)  (163,829)       1,807
Issuance of
 shares for
 Acquisition of
 receivable.....       --        --      223,015    149     2,439      --               --        --         --           --
Contribution by
 UIH of
 additional
 Investment in
 affiliate......       --        --          --     --      7,778      --               --        --         --           --
Issuance of
 convertible
 debt...........       --        --          --     --     10,935      --               --        --         --           --
Unrealized gain
 on investment..       --        --          --     --        --       --               --        --         --        44,223
Gain on sale of
 investment.....       --        --          --     --        --       --               --        --         --        (1,826)
Change in
 cumulative
 translation
 Adjustments....       --        --          --     --        --       --               --        --         --       (14,456)
Net loss........       --        --          --     --        --       --               --        --    (563,221)         --
Total
 comprehensive
 income (loss)..       --        --          --     --        --       --               --        --         --           --
                   -------   -------  ---------- ------  --------      ---      -----------  --------   --------      -------
Balances,
 December 31,
 1998
 (Post
 Acquisition)...       --        --   92,285,604 61,497   672,016      --        (9,198,135) (110,385)  (727,050)      29,748
                   =======   =======  ========== ======  ========      ===      ===========  ========   ========      =======
<CAPTION>
                   Total
                  ---------
<S>               <C>
Balances,
 December 31,
 1995...........   276,188
Contribution by
 UIH of
 additional
 Investment in
 affiliate......    21,344
Change in
 cumulative
 translation
 Adjustments....     5,021
Net loss........   (88,615)
                  ---------
Total
 comprehensive
 income (loss)..   (83,594)
                  =========
Balances,
 December 31,
 1996
 (Pre
 Acquisition)...   213,938
Contribution by
 UIH of
 additional
 investment in
 affiliate......    12,002
Gain on sale of
 stock by
 subsidiary.....     3,274
Change in
 cumulative
 translation
 Adjustments....      (463)
Net loss for the
 period from
 January 1, 1997
 to December 10,
 1997...........  (171,898)
                  ---------
Total
 comprehensive
 income (loss)..  (172,361)
                  =========
Balances,
 December 10,
 1997
 (Pre
 Acquisition)...    56,853
Buyout of
 shareholder's
 interest.......  (292,561)
Reissuance of
 shares upon
 Conversion of
 PIK Notes......   169,899
Application of
 push-down
 accounting and
 step up in
 basis..........   514,758
Elimination of
 historical
 accumulated
 Deficit of UPC
 attributable to
 Philips........       --
Net loss for the
 period from
 December 11,
 1997 to
 December 31,
 1997...........    (9,144)
                  ---------
Total
 comprehensive
 income (loss)..    (9,144)
                  =========
Balances,
 December 31,
 1997
 (Post
 Acquisition)...   439,805
Issuance of
 shares for
 Acquisition of
 receivable.....     2,588
Contribution by
 UIH of
 additional
 Investment in
 affiliate......     7,778
Issuance of
 convertible
 debt...........    10,935
Unrealized gain
 on investment..    44,223
Gain on sale of
 investment.....    (1,826)
Change in
 cumulative
 translation
 Adjustments....   (14,456)
Net loss........  (563,221)
                  ---------
Total
 comprehensive
 income (loss)..  (535,280)
                  =========
Balances,
 December 31,
 1998
 (Post
 Acquisition)...   (74,174)
                  =========
</TABLE>
- ------------------
(footnotes on following page)

                                      F-7
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (2)--(Continued)
         (Stated in thousands of Dutch guilders, except share amounts)
<TABLE>
<CAPTION>
                      Priority Stock        Ordinary Stock    Additional                Treasury Stock
                      -----------------   ------------------   Paid-In     Deferred   --------------------  Accumulated
                      Shares    Amount     Shares(2)  Amount   Capital   Compensation Shares(2)    Amount     Deficit
                      -------   -------   ----------- ------  ---------- ------------ ----------  --------  -----------
<S>                   <C>       <C>       <C>         <C>     <C>        <C>          <C>         <C>       <C>
Balances,
 December 31,
 1998
 (Post-Acquisition)..      --        --    92,285,604 61,497    672,016        --     (9,198,135) (110,385)  (727,050)
Change in par
 value of
 ordinary shares
 (unaudited)....           --        --           --    (486)       486        --            --        --         --
Issuance of
 priority shares
 (unaudited)....           100       --           --     --         --         --            --        --         --
Issuance of
 ordinary shares
 in public
 offering net of
 offering costs
 (unaudited)....           --        --    35,401,865 23,405  2,535,761        --      9,198,135   110,385        --
Issuance of
 convertible
 debt
 (unaudited)....           --        --           --     --      29,006        --            --        --         --
Issuance of
 ordinary shares
 upon exercise
 of DIC option
 (unaudited)....           --        --     1,558,654  1,030     88,619        --            --        --         --
Issuance of
 warrants
 (unaudited)....           --        --           --     --      64,400        --            --        --         --
Change in stock
 option plan due
 to public
 offering
 (unaudited)....           --        --           --     --     310,099    (31,772)          --        --         --
Deferred
 compensation
 expense related
 to stock
 options
 (unaudited)....           --        --           --     --     136,542    (84,166)          --        --         --
Amortization of
 deferred
 compensation
 (unaudited)....           --        --           --     --         --      30,493           --        --         --
Unrealized gain
 on investment
 (unaudited)....           --        --           --     --         --         --            --        --         --
Change in
 cumulative
 translation
 adjustments
 (unaudited)....           --        --           --     --         --         --            --        --         --
Net loss
 (unaudited)....           --        --           --     --         --         --            --        --    (140,539)
                       -------   -------  ----------- ------  ---------    -------    ----------  --------   --------
Balances, March
 31, 1999
 (unaudited)....           100       --   129,246,123 85,446  3,836,929    (85,445)          --        --    (867,589)
                       =======   =======  =========== ======  =========    =======    ==========  ========   ========
<CAPTION>
                          Other
                       Cumulatime
                      Comprehensive
                         Income
                        (Loss)(1)     Total
                      ------------- ----------
<S>                   <C>           <C>
Balances,
 December 31,
 1998
 (Post-Acquisition)..     29,748      (74,174)
Change in par
 value of
 ordinary shares
 (unaudited)....             --           --
Issuance of
 priority shares
 (unaudited)....             --           --
Issuance of
 ordinary shares
 in public
 offering net of
 offering costs
 (unaudited)....             --     2,669,551
Issuance of
 convertible
 debt
 (unaudited)....             --        29,006
Issuance of
 ordinary shares
 upon exercise
 of DIC option
 (unaudited)....             --        89,649
Issuance of
 warrants
 (unaudited)....             --        64,400
Change in stock
 option plan due
 to public
 offering
 (unaudited)....             --       278,327
Deferred
 compensation
 expense related
 to stock
 options
 (unaudited)....             --        52,376
Amortization of
 deferred
 compensation
 (unaudited)....             --        30,493
Unrealized gain
 on investment
 (unaudited)....         147,222      147,222
Change in
 cumulative
 translation
 adjustments
 (unaudited)....          10,181       10,181
Net loss
 (unaudited)....             --      (140,539)
                      ------------- ----------
Balances, March
 31, 1999
 (unaudited)....         187,151    3,156,492
                      ============= ==========
</TABLE>
- ------------------
(1) As of December 31, 1995, 1996 and 1997 Other Cumulative Comprehensive
    Income (Loss) represents foreign currency translation adjustments. As of
    December 31, 1998, Other Cumulative Comprehensive Income (Loss) represents
    foreign currency translation adjustments of (12,649) and unrealized gain on
    investment of 42,397. As of March 31, 1999, Other Cumulative Comprehensive
    Income (Loss) represents foreign currency translation adjustments of
    (2,468) (unaudited) and unrealized gain on investment of 189,619
    (unaudited).
(2) As adjusted for the 3:2 stock split (Note 10).


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

                                      F-8
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (Stated in thousands of Dutch guilders)

As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.

<TABLE>
<CAPTION>
                                                                    For the Three Months
                             For the Years Ended December 31,          Ended March 31,
                          -------------------------------------- ----------------------------
                              1996         1997         1998        1998        1999
                          ------------ ------------ ------------ ----------- -----------
                             (Pre-        (Pre-        (Post-      (Post-Acquisition)
                          Acquisition) Acquisition) Acquisition) (Unaudited) (Unaudited)
<S>                       <C>          <C>          <C>          <C>         <C>          <C>
Cash flows from
 operating activities:
Net loss................     (88,615)    (181,042)    (563,221)    (51,895)    (140,539)
Adjustments to reconcile
 net loss to net cash
 flows from operating
 activities:
 Depreciation and
  amortization..........      79,832      132,888      187,646      48,457       63,198
 Amortization of
  deferred financing
  costs.................         --           642        9,234       1,030          717
 Accretion of DIC Loan..         --           --           --          --         4,323
 Share in results of
  affiliated companies,
  net...................      30,712       25,458       63,823      14,139       20,272
 Compensation expense
  related to stock
  options...............         --         4,818      322,627         406       36,560
 Minority interests in
  subsidiaries..........       2,208         (152)      (1,153)       (241)          77
 Exchange rate
  differences in loans..      20,544       43,441      (12,653)      1,115        8,655
 Loss on repayment of
  loan..................         --           --           --          --         5,012
 Gain on sale of
  investment............         --           --        (1,826)        --       (14,625)
 Provision for loss on
  investment related
  costs.................         --        18,888        6,230         --           --
 Other..................       1,173          978        1,739       3,341          (31)
 Changes in assets and
  liabilities:
  (Increase) decrease in
   receivables..........     (31,932)      24,102      (19,739)      5,541      (30,443)
  Increase in
   inventories..........      (1,611)      (2,229)      (8,670)     (1,095)     (12,703)
  Increase in other non-
   current Assets.......        (309)      (2,544)      (2,004)       (401)          42
  Increase in other
   current liabilities..      25,553       69,551       77,191      41,299       91,336
  (Decrease) increase in
   deferred taxes and
   other long-term
   liabilities..........       4,975       (2,366)      13,776      (1,914)      12,319
                            --------    ---------     --------    --------   ----------
Net cash flows from
 operating activities...      42,530      132,433       73,000      59,782       44,170
                            --------    ---------     --------    --------   ----------
Cash flows from
 investing activities:
Restricted cash
 (deposited) released,
 net....................         --       (22,220)      (8,043)      5,836      (53,787)
Purchase of parent
 company's stock........         --       (66,809)         --          --           --
(Investments in and
 advances to) repayment
 from affiliated
 companies, net.........     146,726       (3,869)    (200,324)        --        (7,161)
Capital expenditures....    (106,647)    (145,630)    (281,678)    (33,970)    (124,187)
New acquisitions, net of
 cash acquired..........     (46,473)    (127,882)    (210,039)   (180,762)    (491,485)
Release (deposit) to
 acquire minority
 interest in
 subsidiary.............         --       (47,000)      47,000         --           --
Sale of affiliated
 companies..............         --        11,070       39,737         --        36,687
                            --------    ---------     --------    --------   ----------
Net cash flows from
 investing activities...      (6,394)    (402,340)    (613,347)   (208,896)    (639,933)
                            --------    ---------     --------    --------   ----------
Cash flows from
 financing activities:
Proceeds from initial
 public offering, net...         --           --           --          --     2,669,551
Proceeds from exercise
 of option..............         --           --           --          --        89,649
Proceeds from short-term
 borrowings.............     302,959      260,560       29,390         --        16,011
Proceeds from long-term
 borrowings.............      23,113    1,141,539      529,630     190,461      754,899
Deferred financing
 costs..................         --       (24,585)     (10,023)        --       (10,317)
Repayments of long and
 short-term borrowings..    (440,440)    (587,929)    (252,641)   (205,619)  (1,698,123)
Borrowings on note
 payable to
 shareholder............         --           --       176,078     129,925     (157,437)
Dividends paid to
 minority shareholders..      (2,388)        (171)        (521)        --           --
Redemption of
 convertible loans......         --      (170,371)         --          --           --
Purchase shares from
 shareholder............         --      (292,561)         --          --           --
Repayment on short-term
 note...................         --           --           --          --       (36,358)
                            --------    ---------     --------    --------   ----------
Net cash flows from
 financing activities...    (116,756)     326,482      471,913     114,767    1,627,875
                            --------    ---------     --------    --------   ----------
Effect of exchange rates
 on cash................         366          (72)      (2,139)        (20)         319
                            --------    ---------     --------    --------   ----------
Net increase (decrease)
 in cash and cash
 equivalents............     (80,254)      56,503      (70,573)    (34,367)   1,032,431
Cash and cash
 equivalents at
 beginning of period....     123,895       43,641      100,144     100,144       29,571
                            --------    ---------     --------    --------   ----------
Cash and cash
 equivalents at end of
 period.................      43,641      100,144       29,571      65,777    1,062,002
                            ========    =========     ========    ========   ==========
</TABLE>

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

                                      F-9
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                    (Stated in thousands of Dutch guilders)

As a result of the UPC Acquisition in December 1997 (see Note 1), the purchase
method of accounting was used to record assets acquired and liabilities assumed
by the parent company. Such accounting generally results in increased
amortization and depreciation reported in future periods. Accordingly, the
accompanying financial statements of the Company are not comparable in certain
significant respects since these financial statements report financial
position, results of operations, and cash flows on two separate accounting
bases.

<TABLE>
<CAPTION>
                                                                                                      For the Three Months
                                                                   For the Year Ended December           Ended March 31,
                                                              -------------------------------------- -----------------------
                                                                  1996         1997         1998        1998        1999
                                                              ------------ ------------ ------------ ----------- -----------
                                                                 (Pre-        (Pre-        (Post-      (Post-Acquisition)
                                                              Acquisition) Acquisition) Acquisition) (Unaudited) (Unaudited)
<S>                                                           <C>          <C>          <C>          <C>         <C>
Non-cash investing and financing activities:
 Issuance of shares upon conversion of PIK notes.............       --       169,899           --          --          --
                                                                =======      =======      ========    ========    ========
 Contribution of net assets of Dutch cable systems to new
  joint venture..............................................       --           --        259,153         --          --
                                                                =======      =======      ========    ========    ========
 Purchase money notes payable to sellers.....................       --           --         36,720         --          --
                                                                =======      =======      ========    ========    ========
 Acquisition of interest in affilate for UIH stock...........       --           --          9,935         --          --
                                                                =======      =======      ========    ========    ========
 Unrealized gain on investment...............................       --           --         42,397      43,604     147,222
                                                                =======      =======      ========    ========    ========
 Issuance of warrants........................................       --           --            --          --       64,400
                                                                =======      =======      ========    ========    ========
Supplemental cash flow disclosures:
 Cash paid for interest......................................   (32,674)     (80,810)      (69,066)    (21,897)    (57,626)
                                                                =======      =======      ========    ========    ========
 Cash received for interest..................................     2,757        5,077         6,990         814       4,138
                                                                =======      =======      ========    ========    ========
Acquisition of Dutch cable assets:
 Property, plant and equipment and other assets..............       --           --       (106,000)   (106,000)        --
 Goodwill....................................................       --           --        (74,762)    (74,762)        --
                                                                -------      -------      --------    --------    --------
  Total cash paid............................................       --           --       (180,762)   (180,762)        --
                                                                =======      =======      ========    ========    ========
Acquisition of Norway cable systems:
 Working capital.............................................     2,221        3,790           --          --          --
 Property, plant and equipment...............................   (90,413)     (23,541)          --          --          --
 Goodwill and other intangible assets........................   (71,509)     (69,673)          --          --          --
 Other assets................................................       --           (57)          --          --          --
 Short-term debt.............................................   140,619        2,854           --          --          --
 Other liabilities...........................................    10,271        1,557           --          --          --
                                                                -------      -------      --------    --------    --------
  Total cash paid............................................    (8,811)     (85,070)          --          --          --
                                                                =======      =======      ========    ========    ========
Acquisition of remaining interest in UPC:
 Property, plant and equipment...............................       --        18,271           --          --          --
 Investments in and advances to affiliates...................       --       129,742           --          --          --
 Goodwill....................................................       --       366,745           --          --          --
                                                                -------      -------      --------    --------    --------
  Total allocation of purchase accounting Adjustments........       --       514,758           --          --          --
                                                                =======      =======      ========    ========    ========
Acquisition of 49% of UTH:
 Property, plant and equipment...............................       --           --            --          --     (349,306)
 Investments in affiliated companies.........................       --           --            --          --      (91,319)
 Goodwill....................................................       --           --            --          --     (560,880)
 Long-term liabilities.......................................       --           --            --          --      472,945
 Net current liabilities.....................................       --           --            --          --       10,499
                                                                -------      -------      --------    --------    --------
  Total cash paid............................................       --           --            --          --     (518,061)
                                                                -------      -------      --------    --------    --------
  Cash acquired..............................................       --           --            --          --       26,576
                                                                -------      -------      --------    --------    --------
                                                                    --           --            --          --     (491,485)
- --------------------------------------------------
                                                                =======      =======      ========    ========    ========
</TABLE>

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

                                      F-10
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 (Pre-Acquisition),
              AS OF DECEMBER 31, 1997 AND 1998 (Post-Acquisition),
            FOR THE YEAR ENDED DECEMBER 31, 1998 (Post-Acquisition),
   FOR THE THREE MONTHS ENDED MARCH 31, 1998 (Unaudited) (Post-Acquisition),
     AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1999 (Unaudited) (Post-
                                  Acquisition)

 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

1. Organization and Nature of Operations

    United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC" or the "Company"), was formed for the purpose of
acquiring and developing multi-channel television and telecommunications
systems in Europe. On July 13, 1995, United International Holdings, Inc.
("UIH"), a United States of America corporation, and Philips Electronics N.V.
("Philips"), contributed their respective ownership interests in European and
Israeli multi-channel television systems to UPC. Philips contributed to UPC its
95% interest in cable television systems in Austria, its 100% interest in cable
television systems in Belgium, and its minority interests in multi-channel
television systems in Germany, The Netherlands (KTE) and France (Citecable).
UIH contributed its interests in multi-channel television systems in Israel,
Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. UIH also
contributed United States dollars ("$")78.2 million in cash (including accrued
interest of $3.2 million) to UPC and issued to Philips 3,169,151 shares of its
Class A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated pay-
in-kind notes (the "PIK Notes"). As a result of this transaction, UIH and
Philips each owned a 50% economic and voting interest in UPC.

    On December 11, 1997, UIH acquired Philips' 50% interest in UPC (the "UPC
Acquisition"), thereby making it an effectively wholly-owned subsidiary of UIH
(subject to certain employee equity incentive compensation arrangements)
through its wholly-owned subsidiary UIH Europe, Inc. ("UIHE"). The entity's
name was changed to United Pan-Europe Communications N.V., and its legal seat
was transferred from Eindhoven to Amsterdam. Through its cable-based
communications networks in 10 countries in Europe and in Israel, UPC currently
offers cable television services and is further developing and upgrading its
network to provide digital video, voice and Internet/data services in its
Western European markets.

    As part of the UPC Acquisition, (i) UPC purchased the 3,169,151 shares of
Class A Common Stock of UIH held by Philips (66,800), (ii) UIH purchased
169,899 of the accreted amount of UPC's PIK Notes and redeemed them for
15,180,261 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 13,121,604
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (24,378,396 shares). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (305,200) (the "Senior Revolving Credit Facility"), a bridge
bank facility through a subsidiary of UPC $111,200 (224,000) (the "Bridge Bank
Facility") and a cash investment by UIH of 327,400. Approximately 479,000 drawn
on the Senior Revolving Credit Facility was used to repay existing debt of UPC
in conjunction with the UPC Acquisition.

    UIH's acquisition of Philips' interest in UPC was accounted for as a step
acquisition under purchase accounting. As a result of UPC becoming effectively
wholly owned by UIH, such purchase accounting adjustments, along with existing
basis differences, were pushed down to the financial statements of UPC and a
new basis of accounting was established for the UPC net assets acquired by UIH.
As of December 11, 1997, the proportional net assets of UPC acquired by UIH
were recorded at fair market value based on the purchase price paid by UIH,
along with additional basis differences at the UIH level existing as of that
date. The total consideration paid to Philips for their 50% interest in UPC,
the resulting amount paid in excess of Philips' proportionate share of UPC's
net assets at that date plus UIH's existing basis in excess of their
proportionate share of UPC's net assets is summarized below. In addition, the
table below presents how such total excess was allocated to UPC's underlying
assets as of December 11, 1998.

                                      F-11
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
   <S>                                                                 <C>
   UPC's net asset value at December 10, 1997........................    56,853
   Cash paid to Philips by UPC for 24,378,396 shares in UPC..........  (292,561)
   Conversion by UIH of PIK notes acquired from Philips at cost to
    15,180,261 of UPC's shares.......................................   169,899
                                                                       --------
   UPC's net asset value prior to application of push down
    accounting.......................................................   (65,809)
                                                                       --------
   UIH's proportionate share of UPC's net assets at December 10,
    1997.............................................................    28,427
   UIH's existing basis difference related to their original interest
    in UPC dating Back to July 1995 formation of UPC (as adjusted
    through December 10, 1997).......................................    93,184
   Cash paid to Philips by UIH for 13,121,604 shares in UPC..........   157,439
   Conversion by UIH of PIK notes acquired from Philips at cost to
    15,180,261 of UPC's shares.......................................   169,899
                                                                       --------
                                                                        448,494
                                                                       --------
     Total purchase accounting adjustment............................   514,758
                                                                       ========
</TABLE>

    The total purchase accounting adjustments were allocated to UPC's
underlying assets as follows:

<TABLE>
   <S>                                                                  <C>
   Property, plant and equipment.......................................   18,271
   Investment in and advances to affiliates............................  129,742
   Goodwill............................................................  366,745
                                                                        --------
     Total.............................................................  514,758
                                                                        ========
</TABLE>

    As a result of the UPC Acquisition and the associated push-down of UIH
basis on December 11, 1997, the consolidated balance sheets as of December 31,
1998 and 1997 as well as the consolidated statements of operations and cash
flows subsequent to December 31, 1998 are presented on a "post-acquisition"
basis. The primary difference in the consolidated statement of operations
presented on a "post-acquisition" basis compared to a "pre-acquisition" basis
consists of additional depreciation and amortization on the above purchase
accounting adjustments. The consolidated statements of operations and cash
flows for the year ended December 31, 1997 include the post-acquisition results
of the Company for the period from December 11, 1997 through December 31, 1997,
which reflects 1,980 of new basis depreciation and amortization resulting from
push-down accounting as well as approximately 4,034 of interest expense from
purchase related indebtedness. Due to immateriality, the entire fiscal year
ended December 31, 1997 is presented as "pre-acquisition" in the accompanying
consolidated statements of operations and cash flows.

                                      F-12
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    The following pro forma consolidated operating results for the years ended
December 31, 1997 and 1996 give effect to the UPC Acquisition as if it had
occurred at the beginning of the periods presented. This pro forma consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such dates. he pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.

<TABLE>
<CAPTION>
                            For the Year Ended         For the Year Ended
                             December 31, 1997          December 31, 1996
                         -------------------------- --------------------------
                         Historical  Pro Forma(/1/) Historical  Pro Forma(/1/)
                         ----------  -------------- ----------  --------------
<S>                      <C>         <C>            <C>         <C>
Service and other
 revenue................    337,255       337,255      245,179       245,179
Operating expense.......   (118,508)     (118,508)     (82,439)      (82,439)
Selling, general and
 administrative
 expense................   (119,067)     (119,067)     (81,176)      (81,176)
Depreciation and
 amortization...........   (132,888)     (158,920)     (79,832)     (105,195)
                         ----------    ----------   ----------    ----------
  Net operating income
   (loss)...............    (33,208)      (59,240)       1,732       (23,631)
Interest income.........      6,512         6,512        2,757         2,757
Interest expense........    (41,995)      (83,221)     (14,263)      (55,465)
Interest expense,
 related party..........    (28,743)          --       (24,212)          --
Provision for loss on
 investment related
 costs..................    (18,888)      (18,888)         --            --
Foreign exchange loss
 and other expense......    (41,063)      (32,622)     (21,200)      (16,906)
                         ----------    ----------   ----------    ----------
  Net loss before income
   taxes and other
   items................   (157,385)     (187,459)     (55,186)      (93,245)
Share in results of
 affiliated companies,
 net....................    (25,458)      (33,627)     (30,712)      (39,361)
Minority interests in
 subsidiaries...........        152           152       (2,208)       (2,208)
Income tax benefit
 (expense)..............      1,649         1,649         (509)         (509)
                         ----------    ----------   ----------    ----------
  Net loss..............   (181,042)     (219,285)     (88,615)     (135,323)
                         ==========    ==========   ==========    ==========
Basic and diluted net
 loss per ordinary
 share..................      (1.98)        (2.64)       (0.96)        (1.63)
                         ----------    ----------   ----------    ----------
Weighted-average number
 of ordinary shares
 outstanding............ 91,533,381    82,864,454   92,062,589    82,864,454
                         ==========    ==========   ==========    ==========
</TABLE>
- --------------------
(1) Includes additional depreciation and amortization related to the step-up in
    basis in tangible assets, investments in and advances to affiliated
    companies and new goodwill, interest expense from the Senior Revolving
    Credit Facility and the Bridge Bank Facility, net of elimination of
    historical interest expense on the PIK Notes and refinanced credit
    facilities, and foreign exchange loss on the U.S. dollar-denominated Bridge
    Bank Facility, net of elimination of historical foreign exchange loss on
    the PIK Notes.

                                      F-13
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    The following chart presents a summary of the Company's significant
investments in multi-channel television, programming and telephony operations
as of December 31, 1998:

                                      UPC

<TABLE>
<S>                                                                       <C>
Austria:
  Telekabel Group ("Telekabel Group")....................................  95.0%
Belgium:
  Radio Public N.V./S.A. ("TVD")......................................... 100.0%
Czech Republic:
  KabelNet............................................................... 100.0%
  Ceska Programova Spolecnost SRO ("TV Max")............................. 100.0%
France:
  Mediareseaux Marne S.A. ("Mediareseaux")(1)............................  99.6%
Hungary:
  Telekabel Hungary ("Telekabel Hungary")................................  79.3%
  Telekabel Hungary Programming..........................................  50.0%
  Monor Communications Group, Inc. ("Monor")............................. 44.75%
Ireland:
  Tara Television Limited ("Tara").......................................  80.0%
Israel: (through UII)
  Tevel Israel International Communications Ltd. ("Tevel")...............  46.6%
Malta: (through UII)
  Melita Cable TV P.L.C. ("Melita")......................................  50.0%
The Netherlands:
  United Telekabel Holding N.V. ("UTH")(2)...............................  51.0%
Norway:
  Janco Multicom ("Janco Multicom")...................................... 100.0%
Romania:
  Multicanal Holdings.................................................... 100.0%
  Control Cable Ventures................................................. 100.0%
  Eurosat................................................................  51.0%
Slovak Republic:
  Trnavatel..............................................................  75.0%
  Kabeltel............................................................... 100.0%
</TABLE>
- --------------------
(1) The minority shareholder holds warrants giving it the right to purchase for
    a nominal amount new shares corresponding to 4.6% of Mediareseaux's share
    capital. Accordingly, we have a 95% economic interest in Mediareseaux.
(2) On August 6, 1998, UPC merged its Dutch cable television systems consisting
    of its 50% interest in A2000 Holding N.V. ("A2000") and its wholly owned
    subsidiary Cable Network Brabant Holding B.V. ("CNBH") with those of a
    Dutch energy company ("NUON"), forming a new company, UTH. Following the
    merger, UPC held 51% of UTH. In February 1999, UPC exercised its ability to
    increase its interest to 100% (see Note 3).

                                      F-14
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                share amounts)


2. Summary of Significant Accounting Policies

Basis of Presentation

   The accompanying consolidated financial statements of the Company have been
prepared in accordance with United States generally accepted accounting
principles. The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

   In December 1998 and February 1999, UPC acquired telephony and programming
assets from UIH through the issuance of new shares (see Notes 3 and 16). As
the acquisition was between entities under common control, the transaction was
accounted for at historical cost, similar to pooling of interests accounting.
It is generally accepted that, consistent with a pooling-of-interests
accounting, prior period financial statements of the transferee are restated
for all periods in which the transferred operations were part of parent's
consolidated financial statements. Accordingly, we have restated all periods
presented as if UPC had acquired the telephony and programming assets from UIH
as of the date of UIH's initial investment.

Principles of Consolidation

   The accompanying consolidated financial statements include the accounts of
UPC and all subsidiaries where it exercises a controlling financial interest
through the ownership of a majority voting interest, except for UTH, where
because of certain minority shareholders rights the Company accounts for its
investment in UTH using the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

   Cash and cash equivalents include cash and investments with original
maturities of less than three months.

Allowance for Doubtful Accounts

   The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable. Upon disconnection of
the subscriber, the account is fully reserved. The allowance is maintained on
the books until receipt of payment, the account is deemed uncollectable or a
maximum of three years.

Restricted Cash

   Cash held as collateral for letters of credit and other loans is classified
based on the expected expiration of such facilities.

Costs to be Reimbursed by Affiliated Companies

   The Company incurs costs on behalf of affiliated companies, such as
salaries and benefits, travel and professional services. These costs are
reimbursed by the affiliated companies.

Marketable Equity Securities of Parent

   The Company classifies its investments in marketable equity securities of
UIH as available-for-sale and reports such investments at fair market value.
Unrealized gains and losses are charged or credited to equity, realized gains
and losses and other than temporary declines in market value are included in
operations.

                                     F-15
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Investments in and Advances to Affiliated Companies, Accounted for under the
Equity Method

    For those investments in companies in which the Company's ownership
interest is 20% to 50%, its investments are held through a combination of
voting common stock, preferred stock, debentures or convertible debt and/or the
Company exerts significant influence through board representation and
management authority, or in which majority control is deemed to be temporary,
the equity method of accounting is used. Under this method, the investment,
originally recorded at cost, is adjusted to recognize the Company's
proportionate share of net earnings or losses of the affiliates, limited to the
extent of the Company's investment in and advances to the affiliates, including
any debt guarantees or other contractual funding commitments. The Company's
proportionate share of net earnings or losses of affiliates includes the
amortization of the excess of its cost over its proportionate interest in each
affiliate's net tangible assets or the excess of its proportionate interest in
each affiliate's net tangible assets in excess of its cost.

Property, Plant and Equipment

    Property, plant and equipment is stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of property, plant and equipment are charged to expense
as incurred. Assets constructed by subsidiaries of UPC incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value. The economic lives of property, plant and equipment at
acquisition are as follows:

<TABLE>
      <S>                                                            <C>
      Cable distribution networks...................................  7-20 years
      Subscriber installation costs and converters..................     5 years
      MMDS distribution facilities..................................  7-20 years
      Office equipment, furniture and fixtures......................   3-8 years
      Buildings and leasehold improvements.......................... 20-33 years
      Other.........................................................  3-10 years
</TABLE>

Goodwill and Other Intangible Assets

    The excess of investments in consolidated subsidiaries over the net
tangible asset value at acquisition is amortized on a straight line basis over
15 years. Licenses in newly-acquired companies are recognized at the fair
market value of those licenses at the date of acquisition. Licenses in new
franchise areas include the capitalization of direct costs incurred in
obtaining the license. The license value is amortized on a straight-line basis
over the initial license period, up to a maximum of 20 years.

Recoverability of Tangible and Intangible Assets

    The Company evaluates the carrying value of all tangible and intangible
assets whenever events or circumstances indicate the carrying value of assets
may exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on fair value of the asset computed
using discounted cash flows if the asset is expected to be held and used.
Measurement of an impairment loss for an asset held for sale would be based on
fair market value less estimated costs to sell.

Deferred Financing Costs

    Costs to obtain debt financing are capitalized and amortized over the life
of the debt facility using the effective interest method.

                                      F-16
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Other Comprehensive Income

    The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive income by their nature in
a financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.

Revenue Recognition

    Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over
the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs because reconnection fees are
charged at a level equal to or less than related reconnection costs.

Concentration of Credit Risk

    Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the Company's large number of customers and their dispersion across many
different countries in Europe.

Stock-Based Compensation

    Stock-based compensation is recognized using the intrinsic value method for
the Company's stock option plans, which results in compensation expense for the
difference between the grant price and the fair market value at each new
measurement date.

Income Taxes

    The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities and
loss carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are then reduced
by a valuation allowance if management believes it is more likely than not they
will not be realized. Withholding taxes are taken into consideration in
situations where the income of subsidiaries is to be paid out as dividends in
the near future. Such withholding taxes are generally charged to income in the
year in which the dividend income is generated.

Basic and Diluted Loss Per Share

    The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). "Basic loss per share" is determined by
dividing net loss available to ordinary shareholders by the weighted-average
number of ordinary shares outstanding during each period. "Diluted loss per
share" includes the effects of potentially issuable common stock, but only if
dilutive. Therefore, the Company's stock option plans and convertible
securities are excluded from the Company's diluted loss per share for all
periods presented because their effect would be anti-dilutive.

                                      F-17
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Foreign Operations and Foreign Exchange Rate Risk

    The functional currency for the Company's foreign operations is the
applicable local currency for each affiliate company. Assets and liabilities of
foreign subsidiaries for which the functional currency is the local currency
are translated at exchange rates in effect at period-end, and the statements of
operations are translated at the average exchange rates during the period.
Exchange rate fluctuations on translating foreign currency financial statements
into Dutch guilders that result in unrealized gains or losses are referred to
as translation adjustments. Cumulative translation adjustments are recorded as
a separate component of shareholders' equity included in Other Comprehensive
Income (Loss).

    Transactions denominated in currencies other than the local currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translations)
or realized upon settlement of the transactions.

    Cash flows from the Company's operations in foreign countries are
translated based on their functional currencies. As a result, amounts related
to assets and liabilities reported on the consolidated statements of cash flows
will not agree to changes in the corresponding balances on the consolidated
balance sheets. The effects of exchange rate changes on cash balances held in
foreign currencies are reported as a separate line below cash flows from
financing activities.

    The Company and certain of its operating companies have notes payable and
notes receivable that are denominated in a currency other than their own
functional currency. In general, the Company and the operating companies do not
execute hedge transactions to reduce the Company's exposure to foreign currency
exchange rate risks. Accordingly, the Company may experience economic loss and
a negative impact on earnings and equity with respect to its holdings solely as
a result of foreign currency exchange rate fluctuations.

    On January 11, 1999, eleven of the fifteen member countries of the European
Union fixed their conversion rates between their existing sovereign currencies
and the Euro, eliminating the foreign exchange rate fluctuation exposure of UPC
related to its operating subsidiaries in the eleven countries (includes UPC's
subsidiaries in The Netherlands, Austria, Belgium, France and Spain). UPC's
investments in countries outside the eleven countries which have adopted the
Euro include Norway, Hungary, Ireland, Israel and Malta.

New Accounting Principles

    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which requires that a public
business enterprise report certain financial and descriptive information about
its reportable segments. The Company adopted SFAS 131 for the year ended
December 31, 1998.

    In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. Management believes that
the adoption of SOP 98-1 will not have a material effect on the financial
statements.

    The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal

                                      F-18
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
The Company does not expect the adoption of SOP 98-5 to have a material effect
on its financial position or results of operations.

    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company is currently assessing the
effect of this new standard.

3. Acquisitions and Dispositions

Norkabel

    In October 1996, the Company increased its ownership in Norkabelgruppen A/S
("Norkabel") from 8.3% to 100% for a purchase price of Norwegian kroner
("NKr")32.5 million (8,811). Details of the net assets acquired were as follows
(using the exchange rate as of December 31, 1996):

<TABLE>
      <S>                                                              <C>
      Working capital.................................................   (2,221)
      Property, plant and equipment...................................   90,413
      Goodwill and other intangible assets............................   71,509
      Short-term debt................................................. (140,619)
      Other liabilities...............................................  (10,271)
                                                                       --------
        Total cash paid...............................................    8,811
                                                                       ========
</TABLE>

    The following pro forma condensed consolidated operating results for the
period ended December 31, 1996 gives effect to the acquisition of Norkabel as
if it had occurred at the beginning of the period presented. This pro forma
condensed consolidated financial information does not purport to represent what
the Company's results of operations would actually have been if such
transaction had in fact occurred on such date. The pro forma adjustments are
based upon currently available information and upon certain assumptions that
management believes are reasonable.

<TABLE>
<CAPTION>
                                                        For the Year Ended
                                                         December 31, 1996
                                                       ----------------------
                                                       Historical  Pro Forma
                                                       ----------  ----------
   <S>                                                 <C>         <C>
   Service and other revenue..........................    245,179     288,749
                                                       ==========  ==========
   Net loss...........................................    (88,615)   (121,097)
                                                       ==========  ==========
   Basic and diluted net loss per ordinary share......      (0.96)      (1.32)
                                                       ==========  ==========
   Weighted-average number of ordinary shares
    outstanding....................................... 92,062,589  92,062,589
                                                       ==========  ==========
</TABLE>

                                      F-19
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Janco Kabel-TV

    In January 1997, UPC purchased a 70.2% interest in Janco Kabel-TV A/S
("Janco") for NKr313.8 million (85,070). Concurrent with the transaction, UPC
deposited 47,000 with a bank as collateral for an obligation to seller to
purchase the remaining 29.8% interest. Details of the net assets acquired at
70.2% were as follows (using the exchange rate as of December 31, 1996):

<TABLE>
      <S>                                                                <C>
      Working capital................................................... (3,790)
      Property, plant and equipment..................................... 23,541
      Goodwill and other intangible assets.............................. 69,673
      Other assets......................................................     57
      Short-term debt................................................... (2,854)
      Other liabilities................................................. (1,557)
                                                                         ------
        Total cash paid................................................. 85,070
                                                                         ======
</TABLE>

    In November 1997, UPC's wholly-owned subsidiary Norkabel merged with and
into UPC's 70.2%-owned subsidiary, Janco, to give UPC an 87.3% interest in the
new entity Janco Multicom. UPC received a call option and the minority
shareholder received a put option to acquire or respectively sell all the
remaining minority shareholders interest of Janco Multicom AS. In November
1998, UPC exercised its call option and acquired the remaining minority
shareholder interest in Janco Multicom AS for 37,200. The residual restricted
funds held with a bank as collateral were released.

    The following pro forma condensed consolidated operating results for the
year ended December 31, 1996 gives effect to the acquisition of Janco as if it
had occurred at the beginning of 1996. This pro forma condensed consolidated
financial information does not purport to represent what the Company's results
of operations would actually have been if such transaction had in fact occurred
on such date. The pro forma adjustments are based upon currently available
information and upon certain assumptions that management believes are
reasonable.

<TABLE>
<CAPTION>
                                                        For the Year Ended
                                                         December 31, 1996
                                                       ----------------------
                                                       Historical  Pro Forma
                                                       ----------  ----------
   <S>                                                 <C>         <C>
   Service and other revenue..........................    245,179     270,467
                                                       ==========  ==========
   Net loss...........................................    (88,615)   (102,378)
                                                       ==========  ==========
   Basic and diluted net loss per ordinary share......      (0.96)      (1.11)
                                                       ==========  ==========
   Weighted-average number of ordinary shares
    outstanding....................................... 92,062,589  92,062,589
                                                       ==========  ==========
</TABLE>

 Combivisie
    Effective January 1, 1998, UPC acquired certain assets, including The
Netherlands cable systems of Stichting Combivisie Regio ("Combivisie"), for
180,762. The purchase was funded with a 60,000 draw on the Senior Revolving
Credit Facility and 120,762 of bank financing. Details of the net assets
acquired were as follows:

<TABLE>
      <S>                                                                <C>
      Property, plant and equipment and other assets.................... 106,000
      Goodwill..........................................................  74,762
                                                                         -------
        Total cash paid................................................. 180,762
                                                                         =======
</TABLE>

                                      F-20
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    The following pro forma condensed consolidated operating results for the
years ended December 31, 1997 and 1996 give effect to the acquisition of
Combivisie as if it had occurred at the beginning of the periods presented.
This pro forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transaction had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.

<TABLE>
<CAPTION>
                                 For the Year Ended      For the Year Ended
                                  December 31, 1996       December 31, 1997
                                ----------------------  ----------------------
                                Historical  Pro Forma   Historical  Pro Forma
                                ----------  ----------  ----------  ----------
   <S>                          <C>         <C>         <C>         <C>
   Service and other revenue..     245,179     272,322     337,255     366,227
                                ==========  ==========  ==========  ==========
   Net loss...................     (88,615)    (90,919)   (181,042)   (182,330)
                                ==========  ==========  ==========  ==========
   Basic and diluted net loss
    per ordinary share........       (0.96)      (0.99)      (1.98)      (1.99)
                                ==========  ==========  ==========  ==========
   Weighted-average number of
    ordinary shares
    outstanding...............  92,062,589  92,062,589  91,533,381  91,533,381
                                ==========  ==========  ==========  ==========
</TABLE>

Telekabel Hungary

    On June 29, 1998, UPC acquired Time Warner Entertainment Company's ("TWE")
interest in its Hungarian multi-channel television system assets for $9,500
(19,380) in cash and a non-interest bearing promissory note in the amount of
$18,000 (36,720) (the "Time Warner Note"). UPC and TWE retained their
respective percentage interests in the programming assets in Hungary. UPC has
granted TWE an option to acquire UPC's interest in such programming assets as
well as TV Max in consideration for the cancellation of the Time Warner Note.
On June 30, 1998, UPC merged its 100%-owned Hungarian multi-channel television
systems ("Kabelkom") with Hungary's second largest multiple system operator to
form the new joint venture Telekabel Hungary. UPC retains a 79.25% ownership
interest in the new entity. In March 1999, Time Warner exercised their option
to acquire UPC's interest in the programming assets and TV Max (See Note 16.)

A2000

    In July 1995, prior to the formation of UPC, Philips Media and US WEST
formed a 50/50 joint venture ("A2000") for the purpose of acquiring certain
cable television distribution networks in the Amsterdam, Netherlands area. In
connection with this transaction Philips and US WEST borrowed NLG680 million on
a bridge loan basis from a bank. Such funds were used to (i) purchase from
certain municipalities licenses totaling NLG360 million (ii) make initial
capital contributions to A2000 totaling NLG90 million and (iii) fund
intercompany loans to A2000 totaling NLG230 million. Upon UPC's formation,
Philips Media assigned its ownership interest in licenses and its investment
and advances in A2000 to UPC. The following table reflects the amounts recorded
on UPC's books as a result of this transaction:

<TABLE>
      <S>                                                              <C>
      Licenses........................................................  180,000
      Investment and advances.........................................  160,000
      Debt............................................................ (340,000)
</TABLE>

    Subsequently, UPC and US WEST contributed approximately NLG45 million each
to a subsidiary of A2000 in order to increase its statutory equity for
financing purposes. During January 1996, A2000 obtained long-term financing of
NLG320 million and on behalf of UPC and US WEST reduced the bridge loan. UPC
and US WEST repaid the remaining portion of the bridge loan (totaling NLG360
million) through equal contributions of NLG180 million. UPC accounted for its
50% ownership interest in A2000 (until it was contributed into UTH) as an
equity method investment.

                                      F-21
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


UTH

    On August 6, 1998, UPC merged its Dutch cable television systems with those
of NUON, forming a new company, UTH (the "UTH Transaction"), which was
accounted for as the formation of a joint venture with NUON's and UPC's net
assets recorded at their historical carrying values. Following the merger, UPC
holds 51% of UTH. The agreement provides UPC with a call option exercisable
after August 6, 1999 to acquire 50% of NUON's 49% ownership interest in UTH. If
UPC exercises the call option, NUON can exercise the secondary put option,
requiring UPC to purchase its remaining interest in UTH. The agreement provides
NUON with a put option exercisable after August 6, 1999 to require UPC to
purchase 50% of NUON's 49% interest in UTH. If NUON exercises the put option,
UPC can exercise the secondary call option, requiring NUON to sell its
remaining interest in UTH to UPC. The UTH shareholder agreement provides for
essentially joint governance by NUON and UPC on almost all significant
participating and protective type rights until either the call or put option is
exercised. Although UPC retains a majority economic and voting interest in UTH,
because of joint governance on most significant operating decisions, UPC
accounts for its investment in UTH using the equity method of accounting.

    On February 17, 1999, the Company acquired the remaining 49% of UTH from
NUON (the "NUON Transaction") for NLG518.1 million. In addition, UPC repaid
NUON and assumed from NUON a NLG33.3 million subordinated loan, including
accrued interest, dated December 31, 1998, owed by UTH to NUON. The purchase of
NUON's interest and payment of the loan were funded with proceeds from UPC's
initial public offering.

    The following pro forma condensed consolidated operating results for the
years ended December 31, 1997 and 1998 and the three months ended March 31,
1998 and 1999 give effect to the UTH Transaction and the NUON Transaction as if
they both had occurred at the beginning of the periods presented. This pro
forma condensed consolidated financial information does not purport to
represent what the Company's results of operations would actually have been if
such transactions had in fact occurred on such date. The pro forma adjustments
are based upon currently available information and upon certain assumptions
that management believes are reasonable.

<TABLE>
<CAPTION>
                                                                             For the Three             For the Three
                          For the Year Ended      For the Year Ended          Months Ended             Months Ended
                           December 31, 1997       December 31, 1998         March 31, 1998           March 31, 1999
                         ----------------------  ----------------------  -----------------------  ------------------------
                         Historical  Pro Forma   Historical  Pro Forma   Historical   Pro Forma   Historical    Pro Forma
                         ----------  ----------  ----------  ----------  -----------  ----------  -----------  -----------
                                                                         (unaudited)              (unaudited)
<S>                      <C>         <C>         <C>         <C>         <C>          <C>         <C>          <C>
Service and other
 revenue................    337,255     474,488     408,970     595,011      95,005      133,162      148,820      168,664
                         ==========  ==========  ==========  ==========  ==========   ==========  ===========  ===========
Net loss................   (181,042)   (210,417)   (563,221)   (616,491)    (51,895)     (59,894)    (140,539)    (145,711)
                         ==========  ==========  ==========  ==========  ==========   ==========  ===========  ===========
Weighted-average number
 of ordinary shares
 outstanding............      (1.98)      (2.30)      (6.80)      (7.44)      (0.56)       (0.65)       (1.31)       (1.36)
                         ==========  ==========  ==========  ==========  ==========   ==========  ===========  ===========
Basic and diluted net
 loss per ordinary
 share.................. 91,533,381  91,533,381  82,869,342  82,869,342  92,062,589   92,062,589  107,395,811  107,395,811
                         ==========  ==========  ==========  ==========  ==========   ==========  ===========  ===========
</TABLE>

UII

    In November 1998, the Company (i) acquired from TINTA its indirect 23.3%
and 25% interests in the Tevel and Melita systems for $91.5 million, doubling
the Company's respective ownership in these systems to 46.6% and 50%,
respectively, (ii) purchased an additional 5% interest in Princes Holdings and
5% of Tara in consideration for 384,531 shares of UIH held by UPC, and (iii)
sold the 5% interest in Princes Holdings, together with its existing 20%
interest, to TINTA for $20.5 million. The net payment of $71.0 million to TINTA
($68.0 million after closing adjustments) was funded with the proceeds of a
$90.0 million promissory note made by a subsidiary of the Company to its
primary partners in the Tevel system. (see Note 9 -- DIC Loan).

                                      F-22
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Purchase of Certain Telephony and Programming Assets from UIH

    In December 1998, in exchange for 6,330,340 newly-issued ordinary shares of
UPC, UIH sold to us their:

  . 44.75% economic interest in Monor, a traditional telephony and cable
    television system in the Monor region of Hungary;

  . 75% interest in Tara, a company providing Irish programming to the U.K.
    markets.

    Accordingly, because this was an exchange between entities under common
control, we have restated our financial statements for all periods in which the
operations of these companies were part of UIH's consolidated financial
statements (see Note 2 and Note 16).

Other

    The assets of Intercabo, Portugal were sold in January 1998 for 4,000.
During 1997, the Company made a strategic decision to sell its interest in
Intercabo due to competitive factors which had recently emerged in Portugal.
After several offers to purchase Intercabo were received by the Company during
1997, it became apparent that the Company's investment in Intercabo had become
permanently impaired based on its decision to sell its investment. Accordingly,
an impairment loss of 18,888 was recognized during 1997, which included the
writedown of our investment, net of expected proceeds, of 13,436 and the
writeoff of intercompany receivables of 5,452.

    The operating results of Intercabo included in the Company's 1997
consolidated results included revenue of 549, a net operating loss of 4,945 and
a net loss of 5,227.

4. Investments in and Advances to Affiliated Companies, Accounted for Under the
Equity Method

<TABLE>
<CAPTION>
                                               As of March 31, 1999 (Unaudited)
                            -----------------------------------------------------------------------
                               Investments in                   Cumulative      Cumulative
                              and Advances to    Dividends Share in Results of  Translation
                            Affiliated Companies Received  Affiliated Companies Adjustments  Total
                            -------------------- --------- -------------------- ----------- -------
   <S>                      <C>                  <C>       <C>                  <C>         <C>
   A2000...................       171,469             --          (9,981)             --    161,488
   Tevel(2) ...............       191,716         (12,121)        (4,892)           9,953   184,656
   Melita(2) ..............        28,018             --           1,994              598    30,610
   Monor...................         9,890             --          (5,216)         (14,911)  (10,237)
   Xtra Music..............        11,601             --          (1,502)              53    10,152
   IPS.....................        10,419             --              (9)           3,197    13,607
   Other, net..............           288             --             205               (2)      491
                                  -------         -------        -------          -------   -------
     Total.................       423,401         (12,121)       (19,401)          (1,112)  390,767
                                  =======         =======        =======          =======   =======
</TABLE>

                                      F-23
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                                                 As of December 31, 1998
                         -----------------------------------------------------------------------
                            Investments in                   Cumulative      Cumulative
                           and Advances to    Dividends Share in Results of  Translation
                         Affiliated Companies Received  Affiliated Companies Adjustments  Total
                         -------------------- --------- -------------------- ----------- -------
<S>                      <C>                  <C>       <C>                  <C>         <C>
UTH.....................       272,508             --         (22,780)             --    249,728
Tevel(2)................       191,716         (12,121)          (777)          (9,562)  169,256
Melita(2)...............        28,018             --           1,985             (141)   29,862
Telekabel Hungary
 Programming(3).........        24,404             --          (7,723)            (787)   15,894
Monor...................        21,358             --          (4,916)         (14,835)    1,607
Xtra Music..............        10,598             --          (1,067)             --      9,531
IPS.....................        10,419             --            (337)           2,514    12,596
Other, net..............         4,568             --               9              --      4,577
                               -------         -------        -------          -------   -------
  Total.................       563,589         (12,121)       (35,606)         (22,811)  493,051
                               =======         =======        =======          =======   =======
</TABLE>

<TABLE>
<CAPTION>
                                   As of December 31, 1997
              ------------------------------------------------------------------
                 Investments in           Cumulative         Cumulative
                and Advances to       Share in Results of    Translation
              Affiliated Companies Affiliated Companies(/1/) Adjustment   Total
              -------------------- ------------------------- ----------- -------
<S>           <C>                  <C>                       <C>         <C>
A2000.......        220,933                  (571)                --     220,362
UII(2)......        103,029                   (64)                --     102,965
Kabelkom....         57,783                   247                 --      58,030
Monor.......         21,358                  (535)             (5,426)    15,397
IPS.........         10,100                   --                3,212     13,312
Other, net..          3,583                   --                  --       3,583
                    -------                  ----              ------    -------
  Total.....        416,786                  (923)             (2,214)   413,649
                    =======                  ====              ======    =======
</TABLE>

    The Company had the following differences related to the excess of cost
over the net tangible assets acquired for its equity investments. Such
differences are being amortized over 15 years:

<TABLE>
<CAPTION>
                            As of December 31, 1997    As of December 31, 1998
                          ---------------------------- -----------------------
                            Basis       Accumulated      Basis    Accumulated
                          Difference Amortization(/1/) Difference Amortization
                          ---------- ----------------- ---------- ------------
<S>                       <C>        <C>               <C>        <C>
A2000....................  231,041          --              --          --
UTH......................      --           --            2,781         (62)
Tevel(2).................      --           --          152,417      (6,334)
Melita(2)................      --           --           24,377        (852)
UII(2)...................   64,618          --              --          --
Kabelkom.................   38,161          --              --          --
Telekabel Hungary
 Programming(3)..........      --           --           14,419        (570)
Monor....................    5,480          --            1,672        (131)
Xtra Music...............      --           --            6,776        (138)
                           -------          ---         -------      ------
  Total..................  339,300          --          202,442      (8,087)
                           =======          ===         =======      ======
</TABLE>
- --------------------
(1) In connection with the UPC Acquisition, certain purchase accounting
    adjustments were pushed down to the financial statements of UPC, a new
    basis of accounting was established on December 11, 1997, and cumulative
    share in results of affiliated companies and accumulated amortization was
    reset to zero as of that date (see Note 1).
(2) In November 1998 the Company acquired from TINTA its interests in Tevel and
    Melita, and sold its interest in Princes Holdings (see Note 3).
(3) Represents the Company's remaining investment in Telekabel Hungary
    Programming after the transaction with TWE (see Note 3).

                                      F-24
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    Summary financial information for Tevel is as follows:

<TABLE>
<CAPTION>
                                                          As of        As of
                                                       December 31, December 31,
                                                           1997         1998
                                                       ------------ ------------
   <S>                                                 <C>          <C>
   Cash...............................................       117           60
   Tangible fixed assets..............................   133,009      118,451
   Other assets.......................................    35,895      447,057
                                                         -------      -------
     Total assets.....................................   169,021      565,568
                                                         =======      =======
   Current liabilities................................    45,569       42,174
   Notes payable......................................    11,829       20,404
   Long-term debt.....................................     9,794      426,604
   Other long-term liabilities........................    27,884       26,659
   Shareholders' value................................    73,945       49,727
                                                         -------      -------
     Total liabilities and shareholders' value........   169,021      565,568
                                                         =======      =======
</TABLE>

<TABLE>
<CAPTION>
                                                          For the Years
                                                       Ended December 31,
                                                     -------------------------
                                                      1996     1997     1998
                                                     -------  -------  -------
   <S>                                               <C>      <C>      <C>
   Revenue.........................................  154,647  187,099  203,662
   Costs...........................................  (79,221) (91,499) (80,418)
   Depreciation and amortization...................  (26,839) (30,867) (47,977)
                                                     -------  -------  -------
     Net operating income..........................   48,587   64,733   75,267
   Financial charges, including interest expense
    from related
     Parties, and foreign exchange results.........  (11,437)  (7,948) (64,589)
     Net loss before income taxes and other items..    4,671   (5,745)  16,345
   Share in results of affiliated companies........    2,342       51  (12,414)
                                                     -------  -------  -------
     Net income....................................   44,163   51,091   14,609
                                                     =======  =======  =======
</TABLE>

    Summary financial information for A2000 is as follows:

<TABLE>
<CAPTION>
                                                             As of      As of
                                                          December 31, July 31,
                                                              1997     1998(1)
                                                          ------------ --------
   <S>                                                    <C>          <C>
   Liquid assets.........................................     6,868      2,336
   Other current assets..................................    35,557     53,177
   Financial fixed assets................................       543        634
   Tangible fixed assets.................................   309,291    341,186
   Intangible fixed assets...............................   122,189    117,797
                                                            -------    -------
     Total assets........................................   474,448    515,130
                                                            =======    =======
   Current liabilities...................................    67,652     88,372
   Provisions............................................     2,154      1,508
   Long-term debt........................................   426,000    479,000
   Shareholders' value...................................   (21,358)   (53,750)
                                                            -------    -------
     Total liabilities and shareholders' value...........   474,448    515,130
                                                            =======    =======
</TABLE>

                                      F-25
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                                                      For the         For the
                                                    Years Ended     Seven Months
                                                   December 31,        Ended
                                                  ----------------    July 31,
                                                   1996     1997     1998(/1/)
                                                  -------  -------  ------------
   <S>                                            <C>      <C>      <C>
   Revenue.......................................  89,893  101,450     69,668
   Costs......................................... (49,064) (67,687)   (52,329)
   Depreciation and amortization................. (43,789) (50,846)   (36,114)
                                                  -------  -------    -------
     Net operating loss..........................  (2,960) (17,083)   (18,775)
   Financial charges and other................... (12,745) (16,751)   (13,617)
   Income tax (provision) benefit................    (224)   9,826        --
                                                  -------  -------    -------
     Net loss.................................... (15,929) (24,008)   (32,392)
                                                  =======  =======    =======
</TABLE>
- --------------------
(1) Effective August 6, 1998, A2000 was contributed to UTH as part of the UTH
    Transaction.

    Summary financial information for UTH is as follows:

<TABLE>
<CAPTION>
                                                                       For the
                                                                      One Month
                                                                        Ended
                                                                     January 31,
                                                                        1999
                                                                     -----------
                                                                     (unaudited)
      <S>                                                            <C>
      Revenue.......................................................    19,844
      Costs.........................................................   (12,629)
      Depreciation and amortization.................................    (8,246)
                                                                       -------
        Net operating loss..........................................    (1,031)
      Share in result of affiliated companies.......................    (5,022)
      Financial charges and other...................................    (4,768)
      Income tax (provision) benefit................................       242
                                                                       -------
        Net loss....................................................   (10,579)
                                                                       =======
</TABLE>

5. Marketable Equity Securities of Parent

    As a result of the UPC Acquisition, a subsidiary of UPC acquired 3,169,151
UIH Class A Common shares, valued at fair market value of 66,809 as of December
11, 1997. In November 1998, UPC used 384,531 shares to acquire an additional 5%
interest in each of Tara and PHL. Accordingly, unrealized gains recorded in
equity totaling approximately 1,826, were reversed out of equity and recorded
as a realized gain in the consolidated statement of operations. As of December
31, 1998, the fair value of the remaining 2,784,620 shares was 101,097,
resulting in an unrealized gain of 42,397 for the year ended December 31, 1998.
These shares are pledged under the Bridge Bank Facility (see Note 9). As of
March 31, 1999, the fair market value of the shares was 248,319 (unaudited),
resulting in an unrealized gain of 147,222 (unaudited) for the three months
ended March 31, 1999.

                                      F-26
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


6. Property, Plant and Equipment

<TABLE>
<CAPTION>
                                             As of December 31,       As of
                                             --------------------   March 31
                                              1997(1)     1998        1999
                                             ---------- ---------  -----------
                                                                   (unaudited)
   <S>                                       <C>        <C>        <C>
   Cable distribution networks..............   364,655    466,087   1,391,610
   Subscriber premises equipment and
    converters..............................    81,301    134,527     154,825
   MMDS distribution facilities.............    12,958     13,873      12,637
   Office equipment, furniture and
    fixtures................................    13,074     35,294      29,152
   Buildings and leasehold improvements.....     3,713     12,754      21,678
   Other....................................    16,593     28,170      58,559
                                             ---------  ---------   ---------
                                               492,294    690,705   1,668,461
     Accumulated depreciation...............    (7,312)   (87,708)   (139,881)
                                             ---------  ---------   ---------
     Net property, plant and equipment......   484,982    602,997   1,528,580
                                             =========  =========   =========
</TABLE>
- --------------------
(1) In connection with the UPC Acquisition, certain purchase accounting
    adjustments were pushed down to the financial statements of UPC, a new
    basis of accounting was established on December 11, 1997, and accumulated
    depreciation was reset to zero as of that date (see Note 1).

7. Goodwill and Other Intangible Assets

<TABLE>
<CAPTION>
                                             As of December 31,       As of
                                             --------------------   March 31
                                              1997(1)     1998        1999
                                             ---------- ---------  -----------
                                                                   (unaudited)
   <S>                                       <C>        <C>        <C>
   UTH......................................       --         --      729,387
   Telekabel Group..........................   389,513    389,513     389,412
   Janco Multicom...........................   152,226    165,494     169,865
   CNBH(2)..................................    80,491        --          --
   Telekabel Hungary........................       --      97,429      95,549
   TVD......................................    42,223     42,189      42,362
   UPC......................................       --         --       64,400
   Other....................................    27,309     24,516      22,183
                                             ---------  ---------   ---------
                                               691,762    719,141   1,513,158
     Accumulated amortization...............    (1,716)   (39,109)    (58,416)
                                             ---------  ---------   ---------
     Net goodwill and other intangible
      assets................................   690,046    680,032   1,454,742
                                             =========  =========   =========
</TABLE>
- --------------------
(1) In connection with the UPC Acquisition, certain purchase accounting
    adjustments were pushed down to the financial statements of UPC, a new
    basis of accounting was established on December 11, 1997, and accumulated
    amortization was reset to zero as of that date (see Note 1).
(2) Effective August 6, 1998, CNBH was contributed to UTH as part of the UTH
    Transaction.

8. Short-Term Debt

Time Warner Note

    Short-term debt as of December 31, 1998 includes the $18.0 million (34,020)
non-interest bearing Time Warner Note. In December 1998, Time Warner extended
the maturity date of its note for a period of 90 days to the earlier of June
30, 1999 or 90 days after written notice from Time Warner. Subsequent to
December 31, 1998, the Time Warner Note was cancelled as Time Warner exercised
its option to acquire our 50% interest in HBO Hungary and 100% interest in TV
Max (see Note 16).

                                      F-27
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Telekabel Hungary Facility

    In October 1998, Telekabel Hungary entered into a DM65.6 million (NLG74.0
million) six-month secured bridge facility. Availability under this facility
depends on certain financial covenants. The DM49.2 million (NLG55.5 million)
international tranche of the facility and half of the DM16.4 million (NLG18.5
million) local tranche bear interest at LIBOR plus 2.5% per annum plus an
additional cost of funding calculation. The remaining half of the local tranche
must be drawn in Hungarian forints and bears interest at Budapest interbank
offered rates for Hungarian forints, plus 2.5% per annum plus an additional
cost of funding calculation. Telekabel Hungary is using the facility, among
other things, to finance capital expenditures and to acquire minority shares in
our Kabelkom systems. We have pledged our indirect 79.25% interest in Telekabel
Hungary to secure the facility. The facility also is secured by a pledge over
certain assets of the Telekabel Hungary group and a negative pledge. Telekabel
Hungary is currently negotiating a long-term facility with the lenders to
replace this bridge facility. As of December 31, 1998 and March 31, 1999, the
amount outstanding under this facility totaled DM26.0 million (NLG29.3 million)
and DM36.6 million (41.2 million), respectively.

9. Long-Term Debt

<TABLE>
<CAPTION>
                                               As of December 31,       As of
                                               --------------------   March 31,
                                                 1997       1998        1999
                                               ---------  ---------  -----------
                                                                     (unaudited)
   <S>                                         <C>        <C>        <C>
   Senior Revolving Credit Facility...........   883,948    968,018     361,854
   UTH Facility...............................       --         --      539,909
   CNBH Facility..............................       --         --      239,495
   Bridge Bank Facility.......................   252,500    113,519         --
   Mediareseaux Facility......................       --      40,344      59,821
   Bank and other loans.......................    85,471    166,387      78,161
                                               ---------  ---------   ---------
                                               1,221,919  1,288,268   1,279,240
     Less current portion.....................  (255,819)  (113,519)        --
                                               ---------  ---------   ---------
     Total....................................   966,100  1,174,749   1,279,240
                                               =========  =========   =========
</TABLE>

Senior Revolving Credit Facility

    In October 1997, UPC and Norkabel as borrowers entered into a 1,100,000
multi-currency revolving credit facility with a syndicate of banks. Norkabel
was succeeded as a borrower by Janco Multicom after the merger of Janco and
Norkabel. In December 1997, Telekabel Wien and the other members of the
Telekabel Group also became borrowers under the Senior Revolving Credit
Facility. Although not a borrower, TVD is a guarantor under the Senior
Revolving Credit Facility. As of December 31, 1998, the amount outstanding
under the Senior Revolving Credit Facility for UPC, Telekabel Wien and Janco
Multicom was NLG620.0 million, NLG213.5 million and NLG134.5 million,
respectively. Amounts advanced under the Senior Revolving Credit Facility bear
interest at the London interbank offered rate ("LIBOR") plus a margin ranging
from 0.5% to 2.0% per annum. The aggregate amount available for borrowing under
the facility is reduced automatically by 5.0% per quarter beginning December
31, 2001. The borrowings of the Company and its subsidiaries in Austria,
Belgium and Norway are limited by financial covenants under the Senior
Revolving Credit Facility. The principal amount of all borrowings by the
Company and such subsidiaries may not exceed certain multiples of total
annualized net operating cash flow for the Company and such subsidiaries. In
addition, the principal amount of all borrowings of the Company and such
subsidiaries may not exceed certain multiples of their cable television net
operating cash flow. The Senior Revolving Credit Facility generally prohibits
dividends and other distributions to shareholders of the Company unless, among
other things, the Company achieves for at least two consecutive quarters
certain financial ratios. The Senior Revolving Credit Facility

                                      F-28
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

also includes financial covenants relating to interest and debt service
coverage and application of proceeds from asset sales and securities offerings.
Borrowings by UPC and certain of its subsidiaries in Austria, Belgium and
Norway, under the Senior Revolving Credit Facility together with borrowings
under the Bridge Bank Facility may not exceed 1,300,000 before September 30,
2001. The Senior Revolving Credit Facility also generally limits to 80,000
UPC's investments in, loans to and guarantees for, certain of the Company's
subsidiaries and downstream affiliates that are not borrowers or guarantors
under the Senior Revolving Credit Facility. Subsequent to December 31, 1998, we
agreed with our lenders under this facility to reduce this facility amount from
NLG1.1 billion to NLG1.0 billion in February 1999. This amount will be further
reduced by 5% each quarter beginning December 31, 2001 until final maturity.
Subsequent to December 31, 1998 we repaid NLG620.0 million, excluding interest,
of the amount outstanding by us under this facility with the proceeds of the
offering, which we plan subsequently to reborrow under this facility (see Note
16).

Bridge Bank Facility

    In connection with the UPC Acquisition, the Company entered into the
consolidated $125.0 million term Bridge Bank Facility with a syndicate of
banks. The Bridge Bank Facility is a one year bridge originally due December 5,
1998 and bears interest at LIBOR plus a margin ranging from 4.5% to 6.0% per
annum. In November 1998, the lenders granted an extension of the maturity date
to June 5, 1999. The Bridge Bank Facility generally prohibits dividends and
distributions and is secured by various upstream guarantees from, negative
pledges over and, in some cases, share pledges of, certain share holdings or
partnership interests of UPC in operating systems in The Netherlands, France,
Israel and Malta, as well as a first lien over approximately 2,784,620 shares
of UIH's Class A Common Stock which UPC acquired from Philips as part of the
UPC Acquisition. The Bridge Bank Facility prohibits all of the companies whose
interests are pledged from incurring additional indebtedness, subject to
certain exceptions. The Company must apply proceeds from disposals, if any, of
certain share holdings and partnership interests to prepayment of the facility,
which restricts the manner and terms on which the Company may dispose of these
assets. The Company must maintain on deposit with the bank a compensating
balance, restricted for payment of interest, until the facility matures. The
balance in this interest reserve account, including proceeds from the sale of
PHL, was 30,263 as of December 31, 1998. UPC repaid $64.9 million of the Bridge
Bank Facility during the year ended December 31, 1998 resulting in an
outstanding amount of $60.1 million (113,519) as of December 31, 1998.
Subsequent to December 31, 1998, we repaid the Bridge Bank Facility with
proceeds from the offering (see Note 16).

Mediareseaux Facility

    In July 1998, Mediareseaux entered into an 9.5 year term facility with a
bank for an amount of French francs ("FRF")680 million ("Mediareseaux
Facility"). The purpose of the facility is to finance on-going capital
expenditures, working capital and acquisitions with a limit of FRF120 million.
The Mediareseaux Facility bears interest at LIBOR plus a margin ranging from
0.75% to 2.0%. The availability of the facility depends on revenue generated
and debt to equity ratios. The availability period ends at December 31, 2002.
The repayment period starts from January 1, 2003 to final maturity in 2007.
During the repayment period, Mediareseaux must apply 50% of its excess cash
flow in prepaying the facility. The Mediareseaux Facility generally restricts
the payment of dividends and distributions. This facility also restricts
Mediareseaux from incurring additional indebtedness, subject to certain
exceptions. In July 1998, Mediareseaux secured a 9.5 year FRF20.0 million
overdraft facility, subject to the same terms and conditions as the
Mediareseaux Facility except that the availability tests are not applicable. As
of December 31, 1998 an amount of FRF120 million (40,344) was outstanding under
the Mediareseaux Facility.


                                      F-29
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

DIC Loan

    In November 1998, a subsidiary of Discount Investment Corporation ("DIC")
loaned the Company a total of $90.0 million (the "DIC Loan") to acquire the
additional interests in Tevel and Melita. The DIC Loan matures in November 2000
and is secured by the Company's pledge of its ownership interest in Tevel. The
DIC Loan bears interest at 8% and is payable, together with 106% of the
principal amount, on maturity. The DIC Loan may be repaid on quarterly
prepayment dates with three months' prior notice by the Company. In connection
with the DIC Loan, UPC granted to an affiliate of DIC an option to acquire a
total of $90.0 million, plus accrued interest, of ordinary shares of UPC at a
price equal to 90% of the initial public offering price. The exercise price of
this option, which expires upon the initial public offering, is payable in cash
or delivery of the DIC Loan promissory notes. UPC allocated the $90 million in
loan proceeds between the debt instrument and the equity option element on the
basis of relative fair values. Accordingly, the effective interest rate on the
debt instrument exceeds the stated rate as set forth above. Subsequent to
December 31, 1998, the option agreement was amended, resulting in a grant of
two options of $45 million each. DIC exercised its option for $45.0 million
(see Note 16).

Debt Maturities

    The maturities of the Company's long-term debt are as follows:

<TABLE>
   <S>                                                                 <C>
   12 months ended December 31, 1999..................................   113,519
   12 months ended December 31, 2000..................................   160,152
   12 months ended December 31, 2001..................................       --
   12 months ended December 31, 2002..................................    88,018
   12 months ended December 31, 2003..................................   224,034
   Thereafter.........................................................   702,545
                                                                       ---------
     Total............................................................ 1,288,268
                                                                       =========
</TABLE>

Fair Value of Financial Instruments

    Fair value is based on market prices for the same or similar issues.
Carrying value is used when a market price is unavailable.

<TABLE>
<CAPTION>
                                                                        Fair
                                                         Book Value Market Value
                                                         ---------- ------------
   <S>                                                   <C>        <C>
   As of December 31, 1998:
     Senior Revolving Credit Facility...................   968,018     968,018
     Bridge Bank Facility...............................   113,519     113,519
     Mediareseaux Facility..............................    40,344      40,344
     Bank and other loans...............................   166,387     166,387
     Note payable to UIH(1).............................   163,425     163,425
     Time Warner Note...................................    34,020      34,020
     Telekabel Hungary Facility.........................    29,297      29,297
                                                         ---------   ---------
       Total............................................ 1,515,010   1,515,010
                                                         =========   =========
</TABLE>
- --------------------
(1) See Note 15 for terms of the note payable to UIH.


                                      F-30
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

10. Shareholders' Equity

    In February 1999, the Company's shareholders approved an amendment and
restatement of the Company's Articles of Association to effect a 3 for 2 stock
split and an increase in the number of authorized ordinary shares to
200,000,000, which was legally effected before the Company's planned initial
public offering. Therefore, all share and per share amounts in the accompanying
consolidated financial statements and notes thereto have been retroactively
restated to reflect this event.

    The Company's shareholders also approved the issuance of 100 priority
shares, which have special approval and other rights, to UIH.

    In addition, the Company's Articles of Association were amended and
restated to provide for the issuance of 49,999,900 Class A preference shares
and 200,000,000 Class B preference shares.

General

    The equity classifications and amounts as stated in these consolidated
financial statements do not necessarily reflect the statutory equity of the
Company, as the statutory equity is subject to Dutch generally accepted
accounting principles. The statutory equity is the basis for any distributions
to shareholders. As of December 31, 1998, the Company is unable to make
dividend distributions to shareholders because of its accumulated deficit.

UIH Indenture

    As a subsidiary of UIH, the Company's activities are restricted by the
covenants in UIH's indenture dated February 5, 1998 (the "UIH Indenture"). The
UIH Indenture generally limits the additional amount of debt that UPC or its
subsidiaries or controlled affiliates may borrow, or preferred shares that they
may issue. Generally, additional borrowings, when added to existing
indebtedness, must satisfy, among other conditions, at least one of the
following tests: (i) 7.0 times the borrower's consolidated operating cash flow;
(ii) 1.75 times its consolidated interest expense; or (iii) 225% of the
borrower's consolidated invested equity capital. In addition, there must be no
existing default under the UIH Indenture at the time of the borrowing. The UIH
Indenture also restricts UPC's ability to make certain asset sales and certain
payments. In connection with the initial public offering, UPC has agreed with
UIH that it will not take any action during the term of the UIH Indenture that
would result in a breach of the UIH Indenture covenants. The maturity date of
the UIH Indenture is February 2008 and interest becomes payable in cash in
February 2003.

Stock Option Plan

    In June 1996, UPC adopted a stock option plan (the "Plan") for certain of
its employees and those of its subsidiaries. There are 6,000,000 total shares
available for the granting of options under the Plan, which are held by the
Stichting Administratiekantoor UPC (the "Foundation"), which administers the
Plan. Each option represents the right to acquire from the Foundation a
certificate representing the economic value of one share. Following
consummation of the initial public offering, any certificates issued to
employees who have exercised their options will be convertible into UPC common
stock. UIH appoints the board members of the Foundation and thus controls the
voting of the Foundation's common stock. The options are granted at fair market
value determined by the Company's Supervisory Board at the time of the grant.
The maximum term that the options can be exercised is five years from the date
of the grant. In order to introduce the element of "vesting" of the options,
the Plan provides that even though the options are exercisable immediately, the
shares to be issued or options granted in 1996 vest in equal monthly increments
over a three-year period from the effective date set forth in the option grant.
In March 1998, the Plan was revised to increase the vesting period for any new
grants of options to four years, vesting in equal monthly

                                      F-31
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

increments. Upon termination of an employee (except in the case of death,
disability or the like), all unvested options previously exercised must be
resold to the Foundation at the original purchase price, or all vested options
must be exercised, within 30 days of the termination date. The Supervisory
Board may alter these vesting schedules in its discretion. An employee has the
right at any time to put his certificates or shares from exercised vested
options to the Foundation at a price equal to the fair market value. The
Company can also call such certificates or shares for a cash payment upon
termination in order to avoid dilution, except for certain awards, which can
not be called by the Company until expiration of the underlying options. The
Plan also contains anti-dilution protection and provides that, in the case of
change of control, the acquiring company has the right to require UPC to
acquire all of the options outstanding at the per share value determined in the
transaction giving rise to the change of control.

    A summary of stock option activity for the Plan is as follows:

<TABLE>
<CAPTION>
                                               For the Years Ended December 31,
                          ------------------------------------------------------------------------------
                                    1998                      1997                      1996
                          ------------------------- ------------------------- --------------------------
                           Number      Weighted-     Number      Weighted-      Number      Weighted-
                             of         Average        of         Average         of         Average
                           shares    Exercise Price  shares    Exercise Price   shares    Exercise Price
                          ---------  -------------- ---------  -------------- ----------  --------------
<S>                       <C>        <C>            <C>        <C>            <C>         <C>
Outstanding at beginning
 of period..............  2,241,552      10.49      2,300,417      10.49             --         --
Granted during period...  2,343,000      12.10            --         --        3,990,000      10.49
Cancelled during
 period.................    (14,052)     10.49        (58,865)     10.49          (9,583)     10.49
Exercised during
 period.................   (375,000)     10.49            --         --       (1,680,000)       --
                          ---------      -----      ---------      -----      ----------      -----
Outstanding at end of
 period.................  4,195,500      11.39      2,241,552      10.49       2,300,417      10.49
                          =========      =====      =========      =====      ==========      =====
Vested at end of
 period(1)..............  4,340,008      10.79      3,197,331      10.49       1,786,898      10.49
                          =========      =====      =========      =====      ==========      =====
Exercisable at end of
 period(1)..............  4,195,500      11.39      2,241,552      10.49       2,300,417      10.49
                          =========      =====      =========      =====      ==========      =====
</TABLE>
- --------------------
(1)Includes certificate rights as well as options.

    The Company granted no stock options during the year ended December 31,
1997. The combined weighted-average fair values and weighted-average exercise
prices of options granted during the year ended December 31, 1998 and the year
ended December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                               For the Year Ended       For the Year Ended
                               December 31, 1998        December 31, 1996
                            ------------------------ ------------------------
                             Number   Fair  Exercise  Number   Fair  Exercise
                             Options  Value  Price    Options  Value  Price
                            --------- ----- -------- --------- ----- --------
   <S>                      <C>       <C>   <C>      <C>       <C>   <C>
   Exercise price equal to
    market price........... 2,343,000 12.10  12.10   3,990,000 10.49  10.49
</TABLE>

    The following table summarizes information about stock options outstanding,
vested and exercisable as of December 31, 1998:

<TABLE>
<CAPTION>
                                         Weighted-Average
                               Number       Remaining       Number     Number
                             of Options  Contractual Life of Options of Options
   Exercise Price            Outstanding     (Years)        Vested   Exercisable
   --------------            ----------- ---------------- ---------- -----------
   <S>                       <C>         <C>              <C>        <C>
   10.49....................  1,852,500        2.47       3,487,118   1,852,500
   12.00....................  2,195,250        4.63         838,859   2,195,250
   13.57....................    147,750        4.71          14,031     147,750
                              ---------        ----       ---------   ---------
                              4,195,500        3.68       4,340,008   4,195,500
                              =========        ====       =========   =========
</TABLE>


                                      F-32
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

    The Plan is accounted for as a variable plan because, based on the Plan's
provisions, the rights conveyed to employees are the substantive equivalents to
stock appreciation type rights. Accordingly, compensation expense is recognized
at each financial statement date based on the difference between the grant
price and the estimated fair value of the Company's common stock. Compensation
expense of 268,109, 4,818 and 0 was recognized for the years ended December 31,
1998, December 31, 1997 and December 31, 1996, respectively. The Company's
estimate of the fair value of its common stock as of December 31, 1998 utilized
in recording compensation expense under the Plan was NLG63.91, which is the
initial public offering price. Because the Company will account for the Plan as
a variable plan up until the consummation date of its initial public offering,
and thereafter as a fixed plan due to modifications to the Plan which will
occur on that date, the total compensation expense and deferred compensation
expense recognized related to options granted as of December 31, 1998 will not
increase.

Phantom Stock Option Plan

    As of March 1998, the Company adopted a phantom stock option plan (the
"Phantom Plan") which permits the grant of phantom stock rights in up to
2,400,000 shares of the Company's common stock. The rights are granted at fair
market value determined by the Company's Supervisory Board at the time of
grant, and generally vest in equal monthly increments over the four-year period
following the effective date of grant and may be exercised for ten years
following the effective date of grant. The Phantom Plan gives the employee the
right to receive payment equal to the difference between the fair market value
of a share of UPC common stock and the option base price for the portion of the
rights vested. UPC, at its sole discretion, may make payment in (i) cash, (ii)
freely tradable shares of UIH Class A Common Stock or (iii) if the Company's
stock is publicly traded, freely tradable shares of its stock. If the Company
chooses to make a cash payment, even though its stock is publicly traded,
employees have the option to receive an equivalent number of freely tradeable
shares of stock instead. Concurrent with the approval of the Phantom Plan, the
Supervisory Board ratified the grant of 1,232,250 and 825,000 phantom stock
rights at base prices of 12.00 and 13.57, respectively, and specified
retroactive vesting for several of the grants. The Phantom Plan contains anti-
dilution protection and provides that, in certain cases of a change of control,
all phantom options outstanding become fully exercisable.

    A summary of stock option activity for the Phantom Plan is as follows:

<TABLE>
<CAPTION>
                                                           For the Year Ended
                                                           December 31, 1998
                                                        ------------------------
                                                         Number     Weighted-
                                                           of        Average
                                                          Share   Exercise Price
                                                        --------- --------------
   <S>                                                  <C>       <C>
   Outstanding at beginning of period..................       --        --
   Granted during period............................... 2,057,500     12.63
   Cancelled during period.............................       --        --
   Exercised during period.............................       --        --
                                                        ---------     -----
   Outstanding at end of period........................ 2,057,500     12.63
                                                        =========     =====
   Vested and exercisable at end of period.............   470,469     12.15
                                                        =========     =====
</TABLE>

                                      F-33
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    The combined weighted-average fair values and weighted-average exercise
prices of options granted during the year ended December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
                                                         Number   Fair  Exercise
                                                         Options  Value  Price
                                                        --------- ----- --------
   <S>                                                  <C>       <C>   <C>
   Exercise price equal to market price................ 2,057,250 12.63  12.63
</TABLE>

    The following table summarizes information about stock options outstanding,
vested and exercisable as of December 31, 1998:

<TABLE>
<CAPTION>
                                                       Weighted-
                                                        Average       Number of
                                         Number of     Remaining       Options
                                          Options   Contractual Life Vested and
   Exercise Price                       Outstanding     (years)      Exercisable
   --------------                       ----------- ---------------- -----------
   <S>                                  <C>         <C>              <C>
   12.00...............................  1,232,250        8.54         425,469
   13.57...............................    825,000        9.70          45,000
                                         ---------        ----         -------
                                         2,057,250        9.00         470,469
                                         =========        ====         =======
</TABLE>

    The Phantom Plan is accounted for as a variable plan in accordance with its
terms, resulting in compensation expense for the difference between the grant
price and the fair market value at each financial statement date. Compensation
expense of 52,374 was recognized for the year ended December 31, 1998. The
Company's estimate of the fair value of its common stock as of December 31,
1998 utilized in recording compensation expense under the Phantom Plan was
NLG63.91, which is the initial public offering price.

Subsidiary Stock Option Plan

    As of June 1998, the Company adopted a phantom stock option plan (the
"chello Plan"), which permits the grant of phantom stock rights in up to
1,500,000 shares of chello, a wholly owned subsidiary of the Company. The
rights are granted at fair market value determined by chello's Supervisory
Board at the time of grant, and generally vest in equal monthly increments over
the four-year period following the effective date of grant and may be exercised
for ten years following the effective date of grant. The chello Plan gives the
employee the right to receive payment equal to the difference between the fair
market value of a share of chello and the option base price for the portion of
the rights vested. UPC, at its sole discretion, may make payment in (i) cash,
(ii) freely tradable shares of UIH Class A Common Stock or (iii) if the
Company's stock is publicly traded, freely tradable shares of its stock. If the
Company chooses to make a cash payment, even though its stock is publicly
traded, employees have the option to receive an equivalent number of freely
tradable shares of stock instead. Concurrent with the approval of the chello
Plan, the Supervisory Board ratified the grant of 570,000 options at a base
price of 10.00, and specified retroactive vesting for several of the grants. As
of December 31, 1998, the Company had recorded compensation expense of 2,144
for options granted under the chello Plan.

                                      F-34
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    A summary of stock option activity for the chello broadband Plan is as
follows:

<TABLE>
<CAPTION>
                                                            For the Year Ended
                                                            December 31, 1998
                                                          ----------------------
                                                          Number    Weighted-
                                                            of       Average
                                                          Shares  Exercise Price
                                                          ------- --------------
   <S>                                                    <C>     <C>
   Outstanding at beginning of period....................     --        --
   Granted during period................................. 570,000     10.00
   Cancelled during period...............................     --        --
   Exercised during period...............................     --        --
                                                          -------     -----
   Outstanding at end of period.......................... 570,000     10.00
                                                          =======     =====
   Vested and exercisable at end of period...............  70,625     10.00
                                                          =======     =====
</TABLE>

    The weighted-average remaining contractual life for these options is 9.47
as of December 31, 1998.

11. Commitments

    The Company has entered into various operating lease agreements for office
space, office furniture and equipment, and vehicles. Rental expense under these
lease agreements totaled 8,057, 6,863 and 4,989 for the years ended December
31, 1998, December 31, 1997 and December 31, 1996 respectively.

    The Company has operating lease obligations as follows:

<TABLE>
   <S>                                                                    <C>
   12 months ended December 31, 1999..................................... 11,054
   12 months ended December 31, 2000.....................................  8,770
   12 months ended December 31, 2001.....................................  6,848
   12 months ended December 31, 2002.....................................  4,854
   12 months ended December 31, 2003 and thereafter......................  4,346
                                                                          ------
     Total............................................................... 35,872
                                                                          ======
</TABLE>

A2000 Funding

    In September 1998, UTH entered into a subordinated loan agreement to
provide funding up to $30,000 for A2000. UTH's share of the funding is $15,000.
UPC is obligated to fund drawdowns on the loan in proportion to its 51%
ownership in UTH (representing a total funding obligation of $7,650). As of
December 31,1998, UPC had funded $3,750 of its commitment. Subsequent to year
end, the Company provided a letter of support to A2000 stating that it would
continue to provide to A2000 the funding necessary to continue operations
through at least 1999.

12. Contingencies

Legal

    The Company is not a party to any material legal proceedings, nor is it
currently aware of any threatened material legal proceedings. From time to
time, the Company may become involved in litigation relating to claims arising
out of its operations in the normal course of its business.

                                      F-35
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


Foreign Currency Exposure

    The Bridge Bank Facility, the loan payable to UIH and the DIC loan are
denominated in U.S. dollars, totaling US$236.5 million as of December 31, 1998.
The Company has not executed any foreign forward exchange contract, or used any
other financial instrument, to hedge against this foreign currency exposure.
The Bridge Bank Facility and the UIH loan have been repaid subsequent to the
public offering. Of the $90.0 million DIC loan, $45.0 million has been repaid
concurrent with the public offering.

13. Income Taxes

    In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which allows a Dutch company to exempt any dividend income
and capital gains in relation with its participation in subsidiaries which are
legal entities of a foreign country. Capital losses are also exempted, apart
from liquidation losses (under stringent conditions). All costs incurred at the
UPC level which relate to an investment in a foreign subsidiary are not tax
deductible, e.g. interest expense on loans used for the financing of the
investment in the foreign subsidiary. In addition, currency exchange results on
these loans are covered by the participation exemption, e.g. gains are exempted
and losses are not tax deductible. For companies which only act as pure holding
companies, only the capital tax paid is tax deductible. For UPC, the primary
difference between taxable loss and net loss for financial reporting purposes
relates to the non-consolidation of its consolidated foreign subsidiaries for
Dutch tax purposes. The consolidated financial statements have been prepared
assuming partial tax basis for license fees capitalized relating to certain
acquisitions. Deferred taxes have been provided for that portion of the
licenses which management believes no tax basis will be allowed.

    The significant components of the net deferred tax liability are as
follows:

<TABLE>
<CAPTION>
                                                              As of December
                                                                    31,
                                                             ------------------
                                                               1998      1997
                                                             --------  --------
   <S>                                                       <C>       <C>
   Deferred Tax Assets:
   Tax net operating loss carryforward......................  137,033   149,802
   Stock-based compensation.................................   13,636       --
   Other....................................................      805       540
                                                             --------  --------
     Total deferred tax assets..............................  151,474   150,342
   Valuation allowance...................................... (135,545) (136,580)
                                                             --------  --------
     Deferred tax assets, net of valuation allowance........   15,929    13,762
                                                             --------  --------
   Deferred Tax Liabilities:
   Intangible assets........................................  (11,061)  (48,077)
   Property, plant and equipment, net.......................  (13,525)  (10,193)
                                                             --------  --------
     Total deferred tax liabilities.........................  (24,586)  (58,270)
                                                             --------  --------
     Deferred tax liabilities, net..........................   (8,657)  (44,508)
                                                             ========  ========
</TABLE>

                                      F-36
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


    The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:

<TABLE>
<CAPTION>
                                         For the Years Ended December 31,
                                         -----------------------------------
                                            1998         1997        1996
                                         -----------  ----------  ----------
   <S>                                   <C>          <C>         <C>
   Expected income tax benefit at the
    Dutch statutory rate of 35%.........    (174,768)    (55,085)    (19,315)
   Tax effect of permanent and other
    differences:
     Change in valuation allowance......      51,471      27,471      14,555
     Non-deductible expenses............     117,925      19,583       3,829
     International rate differences.....       3,520       3,232       1,105
     Provision on investment............       2,180       6,611         --
     Other..............................      (1,543)       (163)       (683)
                                         -----------  ----------  ----------
       Total income tax benefit.........      (1,215)      1,649        (509)
                                         ===========  ==========  ==========
</TABLE>

    Tax loss carry forwards arise primarily in Norway, The Netherlands, Czech
Republic and Austria. The tax loss carry forwards of Norway, aggregating to
277,929 as of December 31, 1998 will expire during the years 1999-2008. The tax
loss carry forwards of The Netherlands, Belgium and Austria of 117,115 as of
December 31, 1998 have no expiration date. The tax loss carry forwards of the
Czech Republic of 29,677 as of December 31, 1998 will expire in the years 2001-
2005.

    During 1996, the Austrian tax authorities passed legislation which had the
effect of eliminating approximately 256,000 of tax basis associated with
certain amounts of goodwill recorded at Telekabel Group effective January 1,
1997. This change in tax law is expected to be challenged on constitutional
grounds. However, there can be no assurance of a successful repeal of such
legislation. Accordingly, this change caused Telekabel Group's effective tax
rate to increase from the historical effective tax rate through December 31,
1996, due to the non-deductibility of such goodwill amortization subsequent to
January 1, 1997.

14. Segment and Geographic Information Information

    On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 "Disclosure About Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standards for public
companies relating to the reporting of financial information about operating
segments. The adoption of SFAS 131 did not have a material effect on the
Company's consolidated financial statements but did affect the Company's
segment information disclosure.

    The Company's business has historically been derived from our video
entertainment segment. This service has been provided in various European
countries where the Company owns and operates it systems. During 1997, the
Company introduced Internet/data and during 1999 the Company introduced
telephony in several of its systems.

    The Company evaluates performance and allocates resources at the geographic
country level. The key operating performance criteria used in this evaluation
includes revenue growth, operating income before depreciation, amortization and
stock-based compensation expense ("Adjusted EBITDA"), and capital expenditures.
Management generally considers Adjusted EBITDA to be a helpful way to measure
the performance of cable television operations and communications companies. We
believe Adjusted EBITDA helps investors to assess the cash flow from our
operations from period to period and thus to value our business. Adjusted
EBITDA should not, however, be

                                      F-37
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

considered a replacement for net income, cash flows or for any other measure of
performance or liquidity under generally accepted accounting principles, or as
an indicator of a company's operating performance. We are not entirely free to
use the cash represented by our Adjusted EBITDA as we please. Several of our
consolidated operating companies are restricted by the terms of their debt
arrangements. Each company has its own operating expenses and capital
expenditure requirements, which can limit our use of cash. Our presentation of
Adjusted EBITDA may not be comparable to statistics with a similar name
reported by other companies. Not all companies and analysts calculate EBITDA in
the same manner. The Company does not view segment results below Adjusted
EBITDA, therefore, net interest expense, foreign exchange gain (loss), share in
results of affiliated companies, minority interests in subsidiaries and income
tax expense are not broken out by segment below. Historically we did not fully
allocate overhead and general and administrative expenses to the new
businesses. Full allocation began in 1999.

    A summary of the segment information by geographic area is as follows:

<TABLE>
<CAPTION>
                              Revenue for the Year Ended December 31, 1996
                         ------------------------------------------------------
                           Cable                            Programming
                         Television Telephony Internet/Data   & Other    Total
                         ---------- --------- ------------- ----------- -------
<S>                      <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv......      --       --          --          4,433      4,433
  Operating companies...   21,633      --          --            --      21,633
Austria.................  156,964      --          --            --     156,964
Belgium.................   37,704      --          --            --      37,704
Czech Republic..........    7,746      --          --            --       7,746
Norway..................   14,541      --          --            --      14,541
Hungary.................      --       --          --            --         --
France..................      179      --          --            --         179
Other...................    1,979      --          --            --       1,979
                          -------      ---         ---        ------    -------
    Total...............  240,746      --          --          4,433    245,179
                          =======      ===         ===        ======    =======

<CAPTION>
                              Revenue for the Year Ended December 31, 1997
                         ------------------------------------------------------
                           Cable                            Programming
                         Television Telephony Internet/Data   & Other    Total
                         ---------- --------- ------------- ----------- -------
<S>                      <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv......      --       --          --          9,228      9,228
  Operating companies...   20,441      --          228           --      20,669
Austria.................  162,372      --          411           --     162,783
Belgium.................   31,805      --          125         6,808     38,738
Czech Republic..........    7,492      --          --            --       7,492
Norway..................   91,529      --          --            --      91,529
Hungary.................      --       --          --            --         --
France..................    2,526      --          --            --       2,526
Other...................    4,275      --          --             15      4,290
                          -------      ---         ---        ------    -------
    Total...............  320,440      --          764        16,051    337,255
                          =======      ===         ===        ======    =======
</TABLE>

                                      F-38
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                              Revenue for the Year Ended December 31, 1998
                         ------------------------------------------------------
                           Cable                            Programming
                         Television Telephony Internet/Data   & Other    Total
                         ---------- --------- ------------- ----------- -------
<S>                      <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv......      --       --           --        17,267     17,267
  Chello................      --       --           --           --         --
  Priority Telecom......      --       --           --           --         --
  Operating companies...   32,887      386          --           --      33,273
Austria.................  169,478      145        7,528          --     177,151
Belgium.................   32,683      --         1,556        2,543     36,782
Czech Republic..........    8,909      --           --           --       8,909
Norway..................   92,290      --           381          --      92,671
Hungary.................   27,706      --           --           --      27,706
France..................    8,058      --           --           --       8,058
Other...................    5,806      --           --         1,347      7,153
                          -------      ---        -----       ------    -------
    Total...............  377,817      531        9,465       21,157    408,970
                          =======      ===        =====       ======    =======
<CAPTION>
                           Revenue for the Three Months Ended March 31, 1998
                         ------------------------------------------------------
                           Cable                            Programming
                         Television Telephony Internet/Data   & Other    Total
                         ---------- --------- ------------- ----------- -------
<S>                      <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv......      --       --           --         2,577      2,577
  Chello................      --       --           --           --         --
  Priority Telecom......      --       --           --           --         --
  Operating companies...   13,160      120          --           --      13,280
Austria.................   42,327      --           786          --      43,113
Belgium.................    8,931      --           177          --       9,108
Czech Republic..........    1,998      --           --           --       1,998
Norway..................   22,879      --            40          --      22,919
Hungary.................      --       --           --           --         --
France..................    1,311      --           --           --       1,311
Other...................      649      --           --            50        699
                          -------      ---        -----       ------    -------
    Total...............   91,255      120        1,003        2,627     95,005
                          =======      ===        =====       ======    =======
</TABLE>

                                      F-39
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                          Revenue for the Three Months Ended March 31, 1999
                        ------------------------------------------------------
                          Cable                            Programming
                        Television Telephony Internet/Data   & Other    Total
                        ---------- --------- ------------- ----------- -------
<S>                     <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv.....      --        --          --          1,740     1,740
  Chello...............      --        --          --            --        --
  Priority Telecom.....      --        --          --            --        --
  Operating companies..   32,735     7,034         663           --     40,432
Austria................   43,625       245       4,647           --     48,517
Belgium................    7,895       --          896           --      8,791
Czech Republic.........    2,240       --          --            --      2,240
Norway.................   24,080         6         187           --     24,273
Hungary................   17,367       --           62           --     17,429
France.................    3,126        18          18           --      3,162
Other..................    1,845       --          --            391     2,236
                         -------     -----       -----       -------   -------
    Total..............  132,913     7,303       6,473         2,131   148,820
                         =======     =====       =====       =======   =======
<CAPTION>
                         Adjusted EBITDA for the Year Ended December 31, 1996
                        ------------------------------------------------------
                          Cable                            Programming
                        Television Telephony Internet/Data   & Other    Total
                        ---------- --------- ------------- ----------- -------
<S>                     <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv.....      --        --          --        (13,528)  (13,528)
  Operating companies..   11,298       --          --            --     11,298
Austria................   81,618       --          --            --     81,618
Belgium................   14,592       --          --            --     14,592
Czech Republic.........   (7,477)      --          --            --     (7,477)
Norway.................    6,347       --          --            --      6,347
Hungary................      --        --          --            --        --
France.................   (4,421)      --          --            --     (4,421)
Other..................   (2,552)      --          --         (4,313)   (6,865)
                         -------     -----       -----       -------   -------
    Total..............   99,405       --          --        (17,841)   81,564
                         =======     =====       =====       =======   =======
</TABLE>

                                      F-40
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                         Adjusted EBITDA for the Year Ended December 31, 1997
                        ------------------------------------------------------
                          Cable                            Programming
                        Television Telephony Internet/Data   & Other    Total
                        ---------- --------- ------------- ----------- -------
<S>                     <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv.....      --         --          --       (12,205)  (12,205)
  Operating companies..   12,491        --          228          --     12,719
Austria................   80,475        --           33          --     80,508
Belgium................   13,033        --          124        1,892    15,049
Czech Republic.........   (6,730)       --          --           --     (6,730)
Norway.................   36,927        --          --           --     36,927
Hungary................      --         --          --           --        --
France.................   (4,634)       --          --           --     (4,634)
Other..................    1,003        --          --       (18,139)  (17,136)
                         -------    -------     -------      -------   -------
    Total..............  132,565        --          385      (28,452)  104,498
                         =======    =======     =======      =======   =======
<CAPTION>
                         Adjusted EBITDA for the Year Ended December 31, 1998
                        ------------------------------------------------------
                          Cable                            Programming
                        Television Telephony Internet/Data   & Other    Total
                        ---------- --------- ------------- ----------- -------
<S>                     <C>        <C>       <C>           <C>         <C>
The Netherlands:
  Corporate, UPCtv.....      --         --          --       (12,286)  (12,286)
  Chello...............      --         --      (15,854)         --    (15,854)
  Priority Telecom.....      --      (3,516)        --           --     (3,516)
  Operating companies..   22,089        108        (109)         --     22,088
Austria................   89,839     (4,278)     (4,549)         --     81,012
Belgium................   15,051        --       (2,087)         299    13,263
Czech Republic.........   (1,887)       --          --           --     (1,887)
Norway.................   36,655     (1,499)     (2,108)         --     33,048
Hungary................    9,989        --          --           --      9,989
France.................   (2,494)    (2,383)       (200)         --     (5,077)
Other..................     (437)       --           48       (8,956)   (9,345)
                         -------    -------     -------      -------   -------
    Total..............  168,805    (11,568)    (24,859)     (20,943)  111,435
                         =======    =======     =======      =======   =======
</TABLE>

                                      F-41
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                          Adjusted EBITDA for the Three Months Ended March 31, 1998
                         ----------------------------------------------------------------------
                            Cable                                    Programming
                         Television    Telephony     Internet/Data     & Other       Total
                         -----------   -----------   --------------  ------------   -----------
<S>                      <C>           <C>           <C>             <C>            <C>
The Netherlands:
  Corporate, UPCtv......          --            --              --          (4,139)      (4,139)
  Chello................          --            --             (226)           --          (226)
  Priority Telecom......          --            --              --             --           --
  Operating companies...        8,710            38             --             --         8,748
Austria.................       24,245          (235)         (1,263)           --        22,747
Belgium.................        3,721           --             (965)           --         2,756
Czech Republic..........         (918)          --              --             --          (918)
Norway..................        9,414           (65)           (186)           --         9,163
Hungary.................          --            --              --             --           --
France..................         (821)          --              --             --          (821)
Other...................          462           --              --            (811)        (349)
                           ----------   -----------     -----------    -----------  -----------
    Total...............       44,813          (262)         (2,640)        (4,950)      36,961
                           ==========   ===========     ===========    ===========  ===========
<CAPTION>
                          Adjusted EBITDA for the Three Months Ended March 31, 1999
                         ----------------------------------------------------------------------
                            Cable                                    Programming
                         Television    Telephony     Internet/Data     & Other       Total
                         -----------   -----------   --------------  ------------   -----------
<S>                      <C>           <C>           <C>             <C>            <C>
The Netherlands:
  Corporate, UPCtv......          --            --              --         (11,429)     (11,429)
  Chello................          --            --          (12,054)           --       (12,054)
  Priority Telecom......          --           (328)            --             --          (328)
  Operating companies...       16,923        (2,030)         (1,078)           --        13,815
Austria.................       24,836        (4,451)           (349)           --        20,036
Belgium.................        2,176           --           (1,356)           --           820
Czech Republic..........         (481)          --              --             --          (481)
Norway..................       10,125        (3,194)         (2,455)           --         4,476
Hungary.................        5,942           --               (5)           --         5,937
France..................          (12)       (2,114)         (1,006)           --        (3,132)
Other...................          415           --              --          (4,095)      (3,680)
                           ----------   -----------     -----------    -----------  -----------
    Total...............       59,924       (12,117)        (18,303)       (15,524)      13,980
                           ==========   ===========     ===========    ===========  ===========
</TABLE>

                                      F-42
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


The following table reconciles Adjusted EBITDA to UPC's consolidated net loss
before taxes:

<TABLE>
<CAPTION>
                              For the Year Ended         For the Three Months
                                 December 31,               Ended March 31,
                           ---------------------------  -----------------------
                            1996      1997      1998       1998        1999
                           -------  --------  --------  ----------- -----------
                                                        (Unaudited) (Unaudited)
<S>                        <C>      <C>       <C>       <C>         <C>
Adjusted EBITDA..........   81,564   104,498   111,435     36,961      13,980
Depreciation and amorti-
 zation..................  (79,832) (132,888) (187,646)   (48,457)    (63,198)
Stock-based compensa-
 tion....................      --     (4,818) (322,627)      (406)    (36,560)
                           -------  --------  --------    -------    --------
  Net operating (loss)
   income................    1,732   (33,208) (398,838)   (11,902)    (85,778)
Interest income..........    2,757     6,512     7,397        814       4,911
Interest expense.........  (38,475)  (70,738) (104,355)   (22,734)    (38,245)
Provision for loss on in-
 vestment related costs..      --    (18,888)   (6,230)       --          --
Gain on sale of assets...      --        --        --         --       14,625
Foreign exchange (loss)
 gain and other expense..  (21,200)  (41,063)    2,690     (4,894)    (15,335)
                           -------  --------  --------    -------    --------
  Net loss before income
   taxes and other
   items.................  (55,186) (157,385) (499,336)   (38,716)   (119,822)
Share in results of af-
 filiated companies,
 net.....................  (30,712)  (25,458)  (63,823)   (14,139)    (20,272)
Minority interests in
 subsidiaries............   (2,208)      152     1,153        241         (77)
                           -------  --------  --------    -------    --------
  Net loss before income
   tax benefit (ex-
   pense)................  (88,106) (182,691) (562,006)   (52,614)   (140,171)
                           =======  ========  ========    =======    ========
</TABLE>

<TABLE>
<CAPTION>
                                                        Depreciation and
                                                          Amortization
                                                    ---------------------------
                                                       For the Years Ended
                                                          December 31,
                                                    ---------------------------
                                                     1996      1997      1998
                                                    -------  --------  --------
<S>                                                 <C>      <C>       <C>
The Netherlands:
 Corporate, UPCtv..................................  (2,873)   (3,271)   (9,478)
 Chello............................................     --        --        --
 Priority Telecom..................................     --        --        (22)
 Operating companies...............................  (7,267)   (8,372)  (13,794)
Austria............................................ (42,762)  (50,187)  (77,281)
Belgium............................................ (13,206)  (14,252)  (20,486)
Czech Republic.....................................  (5,574)   (5,471)   (7,702)
Norway.............................................  (6,969)  (47,703)  (45,316)
Hungary............................................     --        --     (6,725)
France.............................................    (281)   (1,416)   (4,129)
Other..............................................    (900)   (2,216)   (2,713)
                                                    -------  --------  --------
  Total............................................ (79,832) (132,888) (187,646)
                                                    =======  ========  ========
</TABLE>

                                      F-43
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)


<TABLE>
<CAPTION>
                                 Investments in    Long-Lived
                                   Affiliates        Assets           Capex
                                 --------------- --------------- ---------------
                                  December 31,    December 31,    December 31,
                                 --------------- --------------- ---------------
                                  1997    1998    1997    1998    1997    1998
                                 ------- ------- ------- ------- ------- -------
<S>                              <C>     <C>     <C>     <C>     <C>     <C>
The Netherlands:
 Corporate, UPCtv............... 413,649 493,051   1,787   5,171   6,534   2,423
 Chello.........................     --      --      --    4,581     --    4,588
 Priority Telecom...............     --      --      --       31     --       31
 Operating companies............     --      --   40,174     --    7,953  18,578
Austria.........................     --      --  233,887 265,640  59,913  82,501
Belgium.........................     --      --   49,542  52,085  11,584  19,760
Czech Republic..................     --      --   17,956  16,512   4,214   1,041
Norway..........................     --      --  103,765 119,704  20,647  51,193
Hungary.........................     --      --      --   50,629     --   13,386
France..........................     --      --   28,159  76,220  22,809  52,394
Other...........................     --      --    9,712  12,424   3,656   6,816
                                 ------- ------- ------- ------- ------- -------
  Total......................... 413,649 493,051 484,982 602,997 137,310 252,711
                                 ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
                                                       Total Assets
                                           -------------------------------------
                                              As of        As of        As of
                                           December 31, December 31,  March 31,
                                               1997         1998        1999
                                           ------------ ------------ -----------
                                                                     (Unaudited)
<S>                                        <C>          <C>          <C>
The Netherlands:
 Corporate, UPCtv.........................    508,695      567,264    1,568,187
 Chello...................................        --         6,617       13,841
 Priority Telecom.........................        --           174          264
 Operating companies......................    128,609          --     1,861,417
Austria...................................    653,062      644,791      657,506
Belgium...................................     99,392      109,331      112,430
Czech Republic............................     30,089       21,730       19,741
Norway....................................    435,345      414,038      455,049
Hungary...................................        --       164,280      171,974
France....................................     36,769       96,563      119,045
Other.....................................     23,743       42,991       24,118
                                            ---------    ---------    ---------
  Total...................................  1,915,704    2,067,779    5,003,572
                                            =========    =========    =========
</TABLE>

15. Related Party

Agreement with UIH

    In February 1999, UIH and the Company became parties to a Management
Service Agreement (the "UIH Service Agreement"), with an initial term through
2009, pursuant to which UIH will provide services such as accounting, financial
reporting, investor relations, human resources, information technology,
equipment procurement and testing expenses, corporate offices lease payments
and costs associated with corporate finance activities. Under

                                      F-44
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

the UIH Service Agreement, the Company will pay UIH a fixed amount each month
(initially $0.3 million). After the first year of the UIH Service Agreement,
the fixed amount may be adjusted from time to time by UIH to allocate corporate
level expenses among UIH's operating companies, including UPC, taking into
account the relative size of the operating companies and their estimated use of
UIH resources. In addition, UPC will continue to reimburse UIH for costs
incurred by UIH which are directly attributable to UPC. The UIH Service
Agreement also specifies the basis upon which UIH may second certain of its
employees to UPC. The Company generally is responsible for all costs incurred
by UIH with respect to any seconded employee's employment and severance.

    Historically, UPC has been self sufficient from a corporate operations
perspective and required nominal assistance from its shareholders, Philips and
UIH, and solely from UIH subsequent to December 11, 1997. UIH and Philips did
not allocate any indirect overhead type costs to the Company from inception
through December 11, 1997 and UIH did not allocate any such costs subsequent to
December 11, 1997 through December 31, 1998. The only costs historically
charged to UPC were direct costs incurred by Philips and UIH on UPC's behalf.
Such costs were charged at cost. In connection with the Company's initial
public offering, UIH and the Company executed the UIH Service Agreement which
will provide for a fixed allocation in addition to direct out-of-pocket
reimbursements.

Related Party Payables

    The Company classifies any unpaid invoices related to seconded employee
expenses or other expenses incurred by UIH on the Company's behalf as related
party payables on the balance sheet.

Loans to Employees

    In 1996, UPC loaned certain employees of the Company amounts for the
exercise of the employees' stock options, taxes on options exercised, or both.
These recourse loans bear interest at 5.0% per annum. The employees' liability
to the Company is presented in the consolidated financial statements net of the
Company's obligation to the employees under the plan. As of December 31, 1998
and 1997, the receivable from employees, including accrued interest totaled
19,177 and 18,561, respectively.

Note Payable to Shareholder

    UPC has entered into two promissory notes with UIH of $100.0 million (March
1998) and $20.0 million (July 1998). UPC has borrowed $70.0 million and $16.0
million, respectively, under these two notes (together, this "UIH Loan" totals
163,425 as of December 31, 1998). The UIH Loan bears interest at 10.75% per
annum, is due in 2001, and is convertible at UIH's option into ordinary shares
of UPC at 12.00 per share (March 1998) and 13.57 per share (July 1998). Total
accrued interest as of December 31, 1998 was $6.1 million (11,587). Subsequent
to December 31, 1998, UPC repaid $60.0 million (NLG120 million) of the
indebtedness outstanding under the $100.0 million note and all of the
indebtedness outstanding under the $20.0 million note with proceeds form the
initial public offering (see Note 16).

Acquisitions of Interest in PHL and TARA

    In November 1998, we purchased from RCL, an entity owned by a discretionary
trust for the benefit of the members of the family of John Riordan, a member of
the Board of Management, (1) a 5% interest in Tara and (2) a 5% interest in our
Irish operating system. The price for these interests was 384,531 shares of UIH
Class A Common Stock that we acquired as part of the UPC Acquisition.


                                      F-45
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

PIK Notes

    In conjunction with the formation of UPC in July 1995, UPC issued to
Philips $133.6 million of convertible subordinated pay-in-kind notes due
January 1, 2005. The PIK Notes had an interest rate of 10.0% and were
convertible ordinary shares of UPC at $5.55 per share prior to the repayment
date. In conjunction with the UPC Acquisition on December 11, 1997, 170,371 of
the outstanding PIK Notes balance was paid by UPC, and UIH acquired the
remaining outstanding balance of 169,899. UIH then converted such PIK Notes
into 15,180,261 ordinary shares of UPC at a conversion rate of 11.19 per share
(see Note 1).

16. Subsequent Events

Initial Public Offering

    During February 1999, the Company successfully completed an initial public
offering selling 44.6 million shares on the Amsterdam Stock Exchange and Nasdaq
National Market System and raising gross and net proceeds from the offering of
approximately NLG2,852.9 million and NLG2,669.6 million, respectively.
Concurrent with the offering, DIC exercised one of its two option agreements
acquiring approximately 1.6 million shares for NLG89.6 million. Proceeds from
the sale of the shares to DIC were used to replay $45.0 million of the DIC Loan
and related interest. Also concurrent with the offering, proceeds were used to
reduce the Senior Revolving Credit Facility (NLG635.8 million, including
accrued interest of NLG15.8 million), repay in its entirety the Bridge Bank
Facility (NLG110.0 million, net of the interest reserve account), acquire
NUON's 49% interest in UTH (NLG518.1 million), and the purchase from NUON of a
NLG33.0 million subordinated loan from UTH, including accrued interest (NLG33.3
million). Subsequent to the offering, we also repaid $80.0 million (NLG157.4
million) of the note payable to UIH.

Refinancing UTH

    Subsequent to December 31, 1998, UTH replaced their existing NLG690.0
million facility with a senior facility and additional shareholder loans. The
senior facility consists of a Euro 340 million (NLG750 million) revolving
facility to N.V. Telekabel that will convert to a term facility on December 31,
2001. Euro 5 million of this facility will be in the form of an overdraft
facility that will be available until December 31, 2007. This facility was used
to repay a portion of the UTH facility and for capital expenditures. The new
facility will bear interest at the Euro Interbank Offered Rate plus a margin
between 0.75% and 2.00% based on leverage multiples tied to N.V. Telekabel's
net operating income. The new facility is secured, among other things, by a
pledge over shares held by the borrower and will restrict N.V. Telekabel's
ability to incur additional debt.

Relationship with Microsoft

    On January 25, 1999, UPC and Microsoft Corporation signed a letter of
intent providing for the establishment of a technical services relationship. In
connection with this letter of intent, we have agreed to grant Microsoft
warrants to purchase up to 3,800,000 shares or ADSs at Microsoft's option, at
an exercise price of $28.00. Half of these warrants will be issued at the
earlier of April 25, 1999 and the signing of the first definitive agreement.
These warrants will be exercisable after one year from issuance for a period of
three years. The other half of the warrants will be issued upon the signing of
the first definitive agreement. This half of the warrants will vest and become
exercisable based on performance criteria to be established in the definitive
agreements, although they also will not be exercisable until at least one year
after the date of the closing of UPC's initial public offering. The first half
of the warrants are for the right to negotiate to license technology from
Microsoft under definitive agreements to be negotiated in the future. UPC
expects to record as contract acquisition rights approximately NLG64.4 million
associated with the first half of the warrants. Such costs are expected to be
amortized on a straight-line basis over the

                                      F-46
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

expected contract life, which is yet to be determined. The accounting for the
cost associated with the second half of the warrants will depend on the
ultimate nature of the performance criteria giving rise to the earn-out of
these warrants. These warrants will be recorded as such at fair value when it
is probable the performance criteria will be met in accordance with EITF Issue
No. 96-18.

DIC Loan

    In connection with the loan from DIC, we granted the Discount Group, our
partner in the Israeli system, an option to $90.0 million, plus accrued
interest, ordinary shares at a price equal to 90% of the initial public
offering price. Subsequent to December 31, 1998, we negotiated an amendment to
this option, resulting in an option to acquire $45.0 million, plus accrued
interest, of ordinary shares at a price equal to 90.0% of the initial public
offering price, and, if this option is exercised, another option to acquire
$45.0 million, plus accrued interest, of ordinary shares at a price equal to
the 30 day average closing price of our shares on the Amsterdam Stock Exchange,
or the initial public offering price, whichever is higher. At the IPO, DIC
exercised the first option and thus acquired 1,558,654 ordinary shares of UPC.
The other option is exercisable until September 30, 2000.

Acquisition of Bratislavia Cable TV System

    In March 1999, UPC reached final agreement with Siemens Austria ("Siemens")
to purchase Siemens' 95.63% interest in SKT s.r.o., the company that owns and
operates the cable TV system in Bratislava, Slovak Republic. The completion of
the purchase is subject to obtaining the approval of regulatory authorities.
The purchase price for the 95.63% interest is approximately NLG77.5 million
($41 million).

Purchase of IPS from UIH

    In February 1999, UIH sold to us, in exchange for 4,955,264 of our ordinary
shares, UIH's approximately 33.5% interest in IPS, a group of programming
entities focusing on the Spanish- and Portuguese-speaking markets. IPS had
revenues of approximately NLG34.0 million for the year ended December 1998.

Exercise of Time Warner Option

    Subsequent to December 31, 1998, the Time Warner Note was cancelled as Time
Warner exercised its option to acquire our 50% interest in HBO Hungary and 100%
interest in TV Max.

Agreement for the Purchase of Time Warner Cable France

    In March 1999, UPC and Time Warner Entertainment reached a definitive
agreement for the purchase by UPC of 100% of Time Warner Cable France, a
company which controls and operates three cable TV systems in the suburbs of
Paris and Lyon and the city of Limoges. Completion of the purchase, which is
subject to regulatory approval, is expected to take place in the third quarter
of 1999.

17. Unaudited Events Subsequent to Date of Auditors' Report

Agreement to Acquire GelreVision

    In April 1999, UTH and Gamog reached in principal an agreement for the
acquisition of Gamog's cable company, GelreVision, for approximately 243.0
million. The acquisition will increase UTH's existing subscriber base by
131,000. The acquisition is expected to close in the third quarter of 1999.


                                      F-47
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 (Monetary amounts stated in thousands of Dutch guilders, except share and per
                                 share amounts)

Acquisition of Additional Interest in IPS

    In April 1999, a subsidiary of UPC and Disney/ABC International Television,
Inc. ("Disney") entered into an agreement with the 33.0% shareholder of IPS
whereby UPC and Disney each agreed to acquire 16.5% of the other shareholder's
33.0% interest. After the acquisition, UPC and Disney each hold a 50.0%
interest in IPS. UPC's portion of the purchase price is USD7.6 million.

                                      F-48
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Introduction

    We have audited the consolidated financial statements of UNITED TELEKABEL
HOLDING N.V., Amsterdam, The Netherlands, for the year 1998 for purpose of
inclusion in the Form 10-K of one of its shareholders. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

Scope

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

Opinion

    In our opinion, the consolidated financial statements give a true and fair
view of the financial position of the company as at December 31, 1998 and of
the result for the period from commencement of operations at August 6, 1998
then ended in accordance with accounting principles generally accepted in The
Netherlands.

    Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States of America would have affected total assets,
statement of operations and shareholders' equity as at and for the period from
commencement of operations at August 6, 1998 ended December 31, 1998, to the
extent summarized in Note 18. to the consolidated financial statements.

                                        Arthur Andersen

Amstelveen, The Netherlands,
March 19, 1999

                                      F-49
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

                           CONSOLIDATED BALANCE SHEET

                            As of December 31, 1998
                    (stated in thousands of Dutch Guilders)

<TABLE>
<S>                                                                    <C>
ASSETS
Fixed assets:
  Intangible fixed assets.............................................   564,438
  Tangible fixed assets...............................................   847,056
  Affiliated companies................................................   206,332
                                                                       ---------
    Total fixed assets................................................ 1,617,826
                                                                       ---------
Current assets:
  Inventories.........................................................     3,091
  Receivables.........................................................    40,638
  Cash and cash equivalents...........................................    10,475
                                                                       ---------
    Total current assets..............................................    54,204
                                                                       ---------
Total assets.......................................................... 1,672,030
                                                                       =========
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' Equity..................................................   635,521
Minority interest.....................................................     1,104
                                                                       ---------
                                                                         636,625
Provisions............................................................    42,054
Long-term liabilities.................................................   232,727
Current liabilities...................................................   760,624
                                                                       ---------
    Total shareholders' equity and liabilities........................ 1,672,030
                                                                       =========
</TABLE>

                                      F-50
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

                      CONSOLIDATED STATEMENT OF OPERATIONS

                 For the Period From Commencement of Operations
                     (August 6, 1998) to December 31, 1998
                    (stated in thousands of Dutch Guilders)

<TABLE>
<S>                                                                    <C>
Total revenues........................................................   99,122
  Direct operating expenses...........................................  (33,172)
  Selling, general and administrative expenses........................  (36,096)
  Depreciation and amortization.......................................  (39,490)
                                                                       --------
Total operating expenses.............................................. (108,758)
                                                                       --------
  Operating loss......................................................   (9,636)
  Financial income and expense........................................  (16,699)
                                                                       --------
Loss before income taxes..............................................  (26,335)
  Income taxes........................................................    1,212
                                                                       --------
Loss after taxes......................................................  (25,123)
  Share in results of affiliated companies............................  (24,486)
                                                                       --------
Group loss............................................................  (49,609)
  Minority interest...................................................      235
                                                                       --------
Net loss..............................................................  (49,374)
                                                                       ========
</TABLE>

                                      F-51
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                 For the Period From Commencement of Operations
                     (August 6, 1998) to December 31, 1998
                    (stated in thousands of Dutch Guilders)

<TABLE>
<S>                                                                  <C>
Cash flows from operating activities:
Net loss............................................................  (49,374)
Adjustments to reconcile net loss to net cash flows from operating
 activities:
  Depreciation and amortization.....................................   39,490
  Share in results of affiliated companies, net.....................   24,486
  Minority interest in subsidiaries.................................     (235)
Changes in assets and liabilities:
  Decrease in current assets........................................   40,098
  (Decrease) in current liabilities.................................  (55,186)
  (Decrease) in deferred taxes and other provisions.................   (1,132)
                                                                     --------
Net cash flows from operating activities............................   (1,853)
                                                                     --------
Cash flows from investing activities:
Capital expenditures................................................ (121,384)
Loan to affiliated companies........................................   (7,120)
Acquisitions, net of cash acquired..................................  (12,588)
                                                                     --------
Net cash flows from investing activities............................ (141,092)
                                                                     --------
Cash flows from financing activities:
Proceeds from short-term borrowings.................................  120,705
Proceeds from long-term borrowings..................................    9,621
                                                                     --------
Net cash flows from financing activities............................  130,326
                                                                     --------
Net decrease in cash and cash equivalents...........................  (12,619)
Cash and cash equivalents at beginning of period....................      100
Cash and cash equivalents contributed...............................   22,994
                                                                     --------
Cash and cash equivalents at end of period..........................   10,475
                                                                     ========
Supplemental cash-flow disclosures:
Cash paid for interest..............................................  (19,470)
                                                                     ========
Non-cash investing activities:
Contribution of Dutch cable systems
  Working capital...................................................  (73,850)
  Affiliated companies..............................................  223,698
  Tangible fixed assets.............................................  764,762
  Intangible fixed assets...........................................  550,911
  Short-term debt................................................... (544,918)
  Long-term liabilities............................................. (223,106)
  Provisions........................................................  (35,696)
  Cash and cash equivalents.........................................   22,994
                                                                     --------
Equity contributed..................................................  684,795
                                                                     ========
</TABLE>

                                      F-52
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                 For the Period From Commencement of Operations
                     (August 6, 1998) to December 31, 1998
            (Monetary amounts stated in thousands of Dutch Guilders)

1. Organization and Nature of Operations

    United Telekabel Holding N.V. ("UTH" or the "Company"), legally seated in
Almere, The Netherlands, was legally formed in May 1998 and commenced
operations on August 6, 1998. UTH was formed as a joint venture between United
Pan-Europe Communications N.V. ("UPC") and N.V. NUON Energie-Onderneming voor
Gelderland, Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and
NUON a 49% shareholder. UTH was formed for the purpose of offering cable-based
communications through its networks in The Netherlands. UTH currently offers
cable television services and is further developing and upgrading its network
to provide digital video, voice and Internet/data services in its Dutch
markets.

    UTH commenced operations on August 6, 1998 when both shareholders
contributed their interests in Dutch cable television operating companies to
UTH. NUON contributed its interest in N.V. Telekabel Beheer ("Telekabel") and
UPC contributed its interest in Cable Network Brabant Holding B.V. ("CNBH") and
50% of the shares in A2000 Holding N.V. ("A2000"). UTH recorded the assets
contributed at their fair market value. The table below summarizes the opening
balance sheet of UTH, based on the net assets contributed at their fair market
values by NUON and UPC as of August 6, 1998.

<TABLE>
   <S>                                                                 <C>
   Cash and cash equivalents contributed..............................    23,094
   Other current assets...............................................    83,827
   Affiliated companies...............................................   223,698
   Tangible fixed assets..............................................   764,762
   Intangible fixed assets............................................   550,911
                                                                       ---------
     Total assets..................................................... 1,646,292
                                                                       =========
   Short-term debt....................................................   544,918
   Other current liabilities..........................................   157,677
   Provisions.........................................................    35,696
   Long-term liabilities..............................................   223,106
   Shareholders' equity and liabilities...............................   684,895
                                                                       ---------
     Total shareholders' equity and liabilities....................... 1,646,292
                                                                       =========
</TABLE>

    Due to the fact that operations commenced at August 6, 1998, no comparative
financial statements have been presented. Proforma information (unaudited) is
presented in note 19.

2. Summary of Significant Accounting Policies

Basis of Presentation

    The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in The Netherlands for
financial statements. The accounting policies followed in the preparation for
the consolidated financial statements, differ in some respects to those
generally accepted in the United States of America (US GAAP). See note 18.

    The preparation of financial statements in conformity with Dutch generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of

                                      F-53
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)

revenues and expenses during the reporting period. Actual results could differ
from those estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) have been made which are necessary to present
fairly the financial position of the Company as of December 31, 1998 and the
results of its operations for the period from commencement of operations
(August 6, 1998) to December 31, 1998.

Principles of Consolidation

    The accompanying consolidated financial statements include the accounts of
UTH and its group companies (the "UTH Group"). Group companies are companies or
other legal entities in which UTH has an ownership interest of more than 50% of
the issued share capital or that UTH otherwise controls. All significant
intercompany accounts and transactions have been eliminated in consolidation.

    The following chart presents a summary of UTH's significant investments in
multi-channel television, programming and telephony operations as of December
31, 1998:

<TABLE>
<CAPTION>
        Name                                        City    Percentage Ownership
        ----                                      --------- --------------------
   <S>                                            <C>       <C>
   Cable Network Brabant Holding BV.............. Eindhoven         100
   N.V. Telekabel Beheer......................... Arnhem            100
   A2000 Holding N.V............................. Amsterdam          50(1)
   Uniport Communications B.V....................                    80
</TABLE>
  --------
  (1)Not consolidated

Foreign Currencies

    Assets and liabilities denominated in foreign currencies are translated
into Dutch guilders at the yearend exchange rate. Transactions in foreign
currencies are translated at the exchange rate in effect at the time of the
transaction. The exchange results are recorded under financial income and
expense in the statement of income.

Balance Sheet

(a) General

    Assets and liabilities are stated at face value unless indicated otherwise.

(b) Fixed assets

  Intangible fixed assets

    The excess of investments in consolidated subsidiaries over the net
tangible asset value at acquisition is amortized on a straight-line basis over
15 years. Licenses in newly acquired companies are recognized at the fair
market value of those licenses at the date of acquisition and include the
development costs incurred prior to the date a new license was acquired. The
license value is amortized on a straight-line basis over the initial license
period, up to a maximum of 20 years. Deferred financing costs are amounts spent
in connection with financing the UTH Group. The amortization period is the
period relating to the term of the financing. When assets are fully amortized,
the costs and accumulated amortization are removed from the accounts.

  Tangible fixed assets

    Tangible fixed assets are stated at cost. Additions, replacements,
installation costs and major improvements are capitalized, and costs for normal
repair and maintenance of tangible fixed assets are charged to expense as
incurred. Assets constructed by subsidiaries of UTH incorporate overhead
expense and interest charges incurred during the period of construction;
investment subsidies are deducted. Depreciation is calculated using the
straight-line method

                                      F-54
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                       (in thousands of Dutch Guilders)

over the economic life of the asset, taking into account the residual value.
The economic lives of tangible fixed assets at acquisition are as follows:

<TABLE>
   <S>                                                               <C>
   Networks.........................................................  7-20 years
   Buildings and leasehold improvements............................. 20-33 years
   Machinery & Other................................................  3-10 years
</TABLE>

  Affiliated Companies

   For those investments in companies in which UTH's ownership interest is 20%
to 50%, its investments are held through a combination of voting common stock,
preferred stock, debentures or convertible debt and/or UTH exerts significant
influence through board representation and management authority, or in which
majority control is deemed to be temporary, the equity method of accounting is
used. Under this method, the investment, originally recorded at fair market
value, is adjusted to recognize UTH's proportionate share of net earnings or
losses of the affiliates, limited to the extent of UTH's investment in and
advances to the affiliates, including any debt guarantees or other contractual
funding commitments. UTH's proportionate share of net earnings or losses of
affiliates includes the amortization of the excess of its cost over its
proportionate interest in each affiliate's net tangible assets or the excess
of its proportionate interest in each affiliate's net tangible assets in
excess of its cost.

(c) Receivables

   Receivables are stated at face value, less an allowance for doubtfull
accounts. The allowance for doubtful accounts is based upon specific
identification of overdue accounts receivable. An allowance for a percentage
of the account is established once the receivable is overdue. Upon
disconnection of the subscriber, the account is fully reserved. The allowance
is maintained on the books until receipt of payment or for a maximum of three
years.

(d) Cash and Cash Equivalents

   Cash and cash equivalents include cash and investments with original
maturities of less than three months.

(e) Provisions

   Deferred tax liabilities arising from temporary differences between the
financial and tax bases of assets and liabilities are included in the
provisions. The principal differences arise in connection with valuation
differences of intangible fixed assets. In calculating the provision, current
tax rates are applied.

   UTH accounts for income taxes under the asset and liability method, which
requires recognition of, deferred tax assets and liabilities for the expected
future income tax consequences of transactions, which have been included in
the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statement and income tax basis of assets, liabilities and loss carry
forwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are then reduced
by a valuation allowance if management believes it is more likely than not
they will not be realized.

(f) Fair value of financial instruments

   SFAS Statement No. 107, "Disclosures about Fair Values of Financial
Instruments" requires the disclosure of estimated fair values for all
financial instruments, both on- and off-balance sheet, for which it is
practicable to estimate fair value. For certain instruments, including cash
and cash equivalents, receivables, current liabilities and certain provisions,
it was assumed that the carrying amount approximated fair value due to the
short maturity of those instruments. For short and long term debt, the
carrying value approximates the fair value since all debt instruments carry a
variable interest rate component except for the convertible loans which
carried a fixed interest rate. For investments in affiliated companies carried
at cost, quoted market prices for the same or similar financial instruments

                                     F-55
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)

were used to estimate the fair values. UTH has adopted the principles of this
statement in its financial statements. UTH did not have any material off-
balance-sheet financial instruments as of December 31, 1998.

(g) Recoverability of Tangible and Intangible fixed assets

    UTH evaluates the carrying value of all tangible and intangible assets
whenever events or circumstances indicate the carrying value of assets may
exceed their recoverable amounts. An impairment loss is recognized when the
estimated future cash flows (undiscounted and without interest) expected to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on the fair value of the asset
computed using discounted cash flows if the asset is expected to be held and
used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.

(h) Concentration of Credit Risk

    Financial instruments which potentially subject UTH to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to UTH's large number of
customers.

(i) Other Comprehensive Income

    UTH has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which requires that an
enterprise (i) classify items of other comprehensive income by their nature in
a financial statement and (ii) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. As of
December 31, 1998, UTH had no other comprehensive income items.

  Income Statement

    Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, which are expensed. To the extent installation fees
exceed direct selling costs, the excess fees are deferred and amortized over
the average contract period. All installation fees and related costs with
respect to reconnections and disconnections are recognized in the period in
which the reconnection or disconnection occurs.

  New Accounting Principles

    In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting For the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. Management believes that
the adoption of SOP 98-1 will not have a material effect on the financial
statements.

    The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs, which must be expensed as incurred. In addition, all
deferred start-up and organization costs existing as of January 1, 1999 must be
written-off and accounted for as a cumulative effect of an accounting change.
Management believes that the adoption of SOP 98-1 will not have a material
effect on the financial statements.

                                      F-56
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. Management is currently assessing the
effect of this new standard.

3. Intangible fixed assets

<TABLE>
<CAPTION>
                                                   Licenses and    Deferred
                                           Total     Goodwill   Financing Costs
                                          -------  ------------ ---------------
   <S>                                    <C>      <C>          <C>
   Value upon contribution............... 550,911    547,869         3,042
   Investments...........................  30,996     29,745         1,251
   Amortization.......................... (17,469)   (17,149)         (320)
                                          -------    -------         -----
   Book value as of December 31, 1998.... 564,438    560,465         3,973
                                          =======    =======         =====
</TABLE>

<TABLE>
<CAPTION>
                                            Balance as of December 31, 1998
                                          -------------------------------------
                                                   Licenses and    Deferred
                                           Total     Goodwill   Financing Costs
                                          -------  ------------ ---------------
   <S>                                    <C>      <C>          <C>
   Gross Value........................... 581,907    577,614         4,293
   Amortization.......................... (17,469)   (17,149)         (320)
                                          -------    -------         -----
   Book value as of December 31, 1998.... 564,438    560,465         3,973
                                          =======    =======         =====
</TABLE>

4. Tangible fixed assets

<TABLE>
<CAPTION>
                                                   Land and           Machinery
                                           Total   Buildings Network   & Other
                                          -------  --------- -------  ---------
   <S>                                    <C>      <C>       <C>      <C>
   Value upon contribution............... 764,762    6,025   745,503   13,234
   Additions............................. 104,315      130   102,023    2,162
   Depreciation.......................... (22,021)    (182)  (20,005)  (1,834)
                                          -------    -----   -------   ------
   Book value as of December 31, 1998.... 847,056    5,973   827,521   13,562
                                          =======    =====   =======   ======
</TABLE>

<TABLE>
<CAPTION>
                                            Balance as of December 31, 1998
                                          -------------------------------------
                                                   Land and           Machinery
                                           Total   Buildings Network   & Other
                                          -------  --------- -------  ---------
   <S>                                    <C>      <C>       <C>      <C>
   Cost.................................. 869,077    6,155   847,526   15,396
   Depreciation.......................... (22,021)    (182)  (20,005)  (1,834)
                                          -------    -----   -------   ------
   Book value as of December 31, 1998.... 847,056    5,973   827,521   13,562
                                          =======    =====   =======   ======
</TABLE>

5. Affiliated companies

<TABLE>
<CAPTION>
                                                    Total   Investments Advances
                                                   -------  ----------- --------
   <S>                                             <C>      <C>         <C>
   Balance upon contribution...................... 223,698    223,698      --
   Additions......................................   7,120        --     7,120
   Share in result................................ (24,486)   (24,486)     --
                                                   -------    -------    -----
   Balance as of December 31, 1998................ 206,332    199,212    7,120
                                                   =======    =======    =====
</TABLE>

                                      F-57
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


    The investments in affiliated companies as of December 31, 1998 are:

<TABLE>
<CAPTION>
                               Investments in and    Cumulative Share
                        %         Advances to         In Results of
                    Ownership Affiliated Companies Affiliated Companies  Total
                    --------- -------------------- -------------------- -------
   <S>              <C>       <C>                  <C>                  <C>
   A2000...........     50          229,481              (24,449)       205,032
   Interway........     33            1,337                  (37)         1,300
                                    -------              -------        -------
   Total...........                 230,818              (24,486)       206,332
                                    =======              =======        =======
</TABLE>

    UTH had the following differences related to the excess of cost over the
net tangible assets acquired for its equity investments. Such differences are
being amortized over 12 to 15 years:

<TABLE>
<CAPTION>
                                                           Basis    Accumulated
                                                         Difference Amortization
                                                         ---------- ------------
   <S>                                                   <C>        <C>
   A2000................................................  249,236      (8,200)
                                                          =======      ======
</TABLE>

    These differences have been presented as affiliated companies and share in
result of affiliated companies respectively.

    Subsequent to year end, UPC provided a letter of support to A2000 stating
that it would continue to provide to A2000 the funding necessary to continue
operations through at least 1999.

    Summary financial information for A2000 based on Dutch generally accepted
accounting principles is as follows:

<TABLE>
<CAPTION>
                                                              As of December 31,
                                                                     1998
                                                              ------------------
   <S>                                                        <C>
   Balance sheet
   Intangible fixed assets...................................      113,361
   Tangible fixed assets.....................................      356,623
   Financial fixed assets....................................          770
   Liquid assets.............................................          369
   Other current assets......................................       37,482
                                                                   -------
     Total assets............................................      508,605
                                                                   =======
   Provisions................................................        1,610
   Long-term debt............................................      467,430
   Current liabilities.......................................      125,813
                                                                   -------
     Total liabilities.......................................      594,853
                                                                   -------
   Total shareholders' value.................................      (86,248)
                                                                   =======
</TABLE>

<TABLE>
<CAPTION>
                                                             For the Five Months
                                                             Ended December 31,
                                                                    1998
                                                             -------------------
   <S>                                                       <C>
   Statement of income
   Revenue..................................................        53,954
   Costs....................................................       (39,271)
   Depreciation and amortization............................       (35,888)
   Financial income/charges.................................       (11,293)
                                                                   -------
     Net loss...............................................       (32,498)
                                                                   =======
</TABLE>

                                      F-58
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                       (in thousands of Dutch Guilders)


6. Receivables

   Receivables as presented under current assets mature within one year and
are specified as follows:

<TABLE>
   <S>                                                                    <C>
   Trade accounts receivable............................................. 22,519
   Receivables from affiliated companies.................................  1,654
   Prepaid expenses and accrued income...................................  1,447
   Other receivables..................................................... 15,018
                                                                          ------
     Total............................................................... 40,638
                                                                          ======
</TABLE>

   A major item under "other receivables" is current reclaimable VAT 3,676. As
of December 31, 1998 the valuation allowance on trade receivables amounted to
538.

7. Cash and cash equivalents

   Cash and cash equivalents include demand accounts held in a bank with a
maturity of less than three months.

8. Shareholders' Equity

   UTH's issued share capital consists of 100,000 shares with a par value of
NLG 1 each. All issued shares are fully paid-in.

<TABLE>
<CAPTION>
                                  Ordinary   Additional    Accumulated
                                  Capital  Paid-in Capital   Deficit    Total
                                  -------- --------------- ----------- -------
   <S>                            <C>      <C>             <C>         <C>
   Balance at inception.........    100            --            --        100
   Balances upon contribution of
    properties to joint venture,
    August 6, 1998..............    --         684,795           --    684,795
   Net loss.....................    --             --        (49,374)  (49,374)
                                    ---        -------       -------   -------
                                    100        684,795       (49,374)  635,521
                                    ===        =======       =======   =======
</TABLE>

9. Provisions

   Provisions relate mainly to deferred taxation.

10. Long-term liabilities

<TABLE>
<CAPTION>
                                                      Average       Amount
                                             Range of Rate of     Outstanding
                                             Interest Interest December 31, 1998
                                             -------- -------- -----------------
   <S>                                       <C>      <C>      <C>
   Bank loans............................... 5-7.625%   5.2         235,947
</TABLE>

   Long-term liabilities at December 31, 1998 will be payable as follows:

<TABLE>
<CAPTION>
                                                              Bank Loans
                                                              ----------
       <S>                                                    <C>
       1999..................................................    3,220
       2000..................................................    2,353
       2001..................................................    8,404
       2002..................................................   16,948
       2003..................................................   30,104
       Thereafter............................................  174,918
                                                               -------
         Total...............................................  235,947
                                                               =======
</TABLE>

                                     F-59
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


    On February 20, 1998 CNBH secured a 250,000 nine-year term facility, which
was amended in August 1998 to 266,000. The CNBH facility bears interest at the
applicable Amsterdam Interbank Offered Rate ("AIBOR") plus a margin ranging
from 0.60% to 1.60% per annum, and is secured by, among other things, an
encumbrance over CNBH's assets and a pledge of the shares of CNBH. The facility
is used to refinance several acquisitions and will furthermore be used for the
development and exploitation of enhanced cable TV services, data services and
telephony services. As of December 31, 1998, 219,000 was outstanding on the
facility.

    The shares of UTH held by UPC are pledged for a certain loan of UPC.

11. Current Liabilities

    The current liabilities relate to short-term debt and other liabilities
which are specified below:

<TABLE>
   <S>                                                                   <C>
   (a)Short-term debt
     Long-term debt repayable within one year...........................   3,220
     Short-term debt to shareholders.................................... 662,403
                                                                         -------
       Total............................................................ 665,623
                                                                         =======
</TABLE>

Short term debt to shareholders as of December 31, 1998

    NUON's contribution to UTH included an existing 690,000-debt facility with
an outstanding balance of approximately 543,000 (as of August 6, 1998). This
facility bears an interest rate of 6.65% over the reporting period up to
November 30, 1998. As of November 30, 1998 this rate was increased with 1.5%.
As of December 31, 1998, approximately 614,000 was outstanding on the facility.
The debt facility is due March 15, 1999, with an extension period of 15 days.
As security for repayment of the debt facility, NUON received a pledge over the
shares of N.V. Telekabel Beheer (the assets contributed by NUON). UTH has
negotiated with the lenders to refinance the debt facility (see Note 20.).

Subordinated loans

    UTH entered into a subordinated loan agreement with NUON in December 1998
for an amount of NLG 33.0 million. The interest payable is 5.5% on an annually
basis.This subordinated loan was entered into for purposes of continuing
funding of incurred losses and capital expenditures.UTH entered into a
subordinated loan agreement with UPC in December 1998 for an amount of NLG 15.2
million. The interest payable is 5.5% on an annually basis. This subordinated
loan was entered into for purposes of continuing funding of incurred losses and
capital expenditures.

<TABLE>
   <S>                                                                   <C>
   (b)Other Liabilities
     Accounts payable to trade creditors................................  47,459
     Deposits by customers..............................................     197
     Other short-term liabilities.......................................  39,855
     Deferred income and accrued expenses...............................   7,490
                                                                         -------
       Total............................................................  95,001
                                                                         -------
       Total current liabilities........................................ 760,624
                                                                         =======
</TABLE>

12. Information per geographical area

    All operations of UTH are in The Netherlands. In addition, substantially
all operations relate to cable television services.

                                      F-60
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


13. Personnel

    Labour cost is specified as follows:

<TABLE>
   <S>                                                                    <C>
   Salaries and wages....................................................  9,173
   Pension costs.........................................................    538
   Social securities.....................................................  1,911
                                                                          ------
     Total............................................................... 11,622
                                                                          ======
</TABLE>

    The information about employees by category is as follows:

<TABLE>
   <S>                                                                       <C>
   Operating................................................................ 160
   Other.................................................................... 184
                                                                             ---
     Total.................................................................. 344
                                                                             ===
</TABLE>

14. Financial income and expenses

<TABLE>
   <S>                                                                  <C>
   Interest income.....................................................      14
   Interest expense.................................................... (16,713)
                                                                        -------
     Total............................................................. (16,699)
                                                                        =======
</TABLE>

    Under interest expense an amount of 11,348 was accounted for as interest
related parties.

15. Income taxes

    In general, a Dutch holding company may benefit from the so-called
participation exemption. The participation exemption is a facility in Dutch
corporate tax law which under certain conditions allows a Dutch company to
exempt any dividend income and capital gains in relation with its participation
in subsidiaries. Capital losses are also exempted, apart from liquidation
losses (under stringent conditions).

    For UTH the primary difference between taxable loss and net loss for
financial reporting purposes relates to the amortization of goodwill. The
consolidated financial statements have been prepared assuming partial tax basis
for license fees capitalized relating to certain acquisitions. Deferred taxes
have been provided for that portion of the licenses which management believes
no tax basis will be allowed.

    The difference between income tax expense provided in the financial
statements and the expected income tax benefit at statutory rates is reconciled
as follows:

<TABLE>
   <S>                                                                   <C>
   Expected income tax benefit at the Dutch statutory rate of 35%....... (9,217)
   Tax effect of permanent and other differences:
     Change in valuation allowance......................................  6,541
     Non-deductible expenses............................................  1,464
                                                                         ------
       Total income tax benefit......................................... (1,212)
                                                                         ======
</TABLE>

                                      F-61
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


    The significant components of the net deferred tax liability are as
follows:

<TABLE>
   <S>                                                                  <C>
   Deferred Tax Assets:
     Tax net operating loss carries forward............................  20,112
     Valuation allowance............................................... (20,112)
                                                                        -------
       Deferred tax assets, net of valuation allowance.................       0
                                                                        -------
   Deferred Tax Liabilities:
     Intangible assets.................................................  33,438
     Tangible fixed assets, net........................................     962
                                                                        -------
     Total deferred tax liabilities....................................  34,400
                                                                        -------
       Deferred tax liabilities, net...................................  34,000
                                                                        =======
</TABLE>

    The tax loss carry forwards have no expiration date.

16. Related parties transactions

    UTH signed management services agreements with both of its shareholders. In
the reporting period an amount of NLG 4,255 has been taken into account as
expenses. In addition UTH delivers service to NUON. These services are rendered
at arms' length prices and made up 8% of the revenues over the reporting
period. As mentioned under Note 11 UTH has a short-term debt payable to NUON as
well as subordinated loans to both NUON and UPC. UPC charged an amount of 988
for salaries and related costs for employees seconded to UTH Group.

17. Commitments and Guarantees

    The UTH Group has entered into various rent and lease agreements for office
space, cars etc. The terms of the agreements call for future minimum payments
as follows:

<TABLE>
   <S>                                                                     <C>
   1999................................................................... 4,000
   2000................................................................... 3,200
   2001................................................................... 2,100
   2002................................................................... 1,600
   2003................................................................... 1,400
</TABLE>

    Subsequent to December 31, 1998, UTH provided additional funding to A2000.
In total UTH's share of the funding commitment is $15,000. As of December 31,
1998, UTH had funded $3,750 of its commitment.

18. US GAAP Reconciliation

General

    The accounting policies followed in the preparation for the consolidated
financial statements differ in some respects to those generally accepted in the
United States of America (US GAAP).

    The differences which have a material effect on net loss and/or
shareholders' equity and/or total assets are as follows:

  --  The fair market value of licences, goodwill, land and buildings and
      networks for US GAAP purposes should be set at historical cost of the
      contributor. Consequently, no step-up in asset value is allowed for

                                      F-62
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                       (in thousands of Dutch Guilders)

     the difference between historical cost and the fair market value of the
     assets contributed by both UPC and NUON.

  -- Deferred taxes have been established for the difference between book and
     tax basis of contributed assets, if applicable.

Income Taxes

   The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
requires recognition of deferred tax assets and liabilities for the expected
future income tax consequences of transactions which have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based upon the difference between the financial
and tax bases of assets and liabilities and carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
UTH has adopted the principles of this statement in its financial statements.

US GAAP information

   The calculation of net loss, shareholders' equity and total assets,
substantially in accordance with US GAAP, is as follows:

<TABLE>
   <S>                                                             <C>
   Net loss as per Consolidated Statements of income..........     (49,374)
   Adjustments to reported income (loss):
     Amortisation of goodwill.................................       4,082
     Share in results of affiliated companies.................         747
                                                                 ---------
       Approximate net loss in accordance with US GAAP........     (44,545)
                                                                 =========
   Shareholders' equity as per Consolidated balance sheets....     635,521
   Adjustments to reported equity:
     Goodwill.................................................    (152,105)
     Affiliated Companies.....................................     (27,893)
                                                                 ---------
       Approximate shareholders' equity in accordance with US
        GAAP..................................................     455,523
                                                                 =========
   Total assets as per Consolidated Balance sheets............   1,672,030
   Adjustments to reported assets:
     Goodwill.................................................    (152,105)
     Affiliated Companies.....................................     (27,893)
                                                                 ---------
       Approximate total assets in accordance with US GAAP....   1,492,032
                                                                 =========
</TABLE>

                                     F-63
<PAGE>

                         UNITED TELEKABEL HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


19. Proforma information (unaudited)

    On August 6, 1998 both shareholders contributed their interests in the
Dutch cable market into UTH. The following pro forma condensed consolidated
information for the year ended December 31, 1997 and 1998 give effect to the
UTH Transaction as if it had occurred at the beginning of the periods
presented. This pro forma condensed consolidated information does not purport
to represent what UTH's result of operations would actually have been if such
transaction had in fact occurred on such date. The pro forma adjustments are
based upon currently available information and upon certain assumptions that
management believes are reasonable.

<TABLE>
<CAPTION>
                                           For the Year Ended For the Year Ended
                                           December 31, 1997  December 31, 1998
                                           ------------------ ------------------
   <S>                                     <C>                <C>
   Total revenues.........................      157,836            219,314
   Net loss...............................      (47,194)           (90,600)
</TABLE>

20. Subsequent events

Subordinated loan

    UTH entered into a subordinated loan agreement with UPC in March, 1999 for
an amount of 119,000 million. The interest is payable on an annually basis.
This subordinated loan was entered into for purposes of continuing funding of
incurred losses and capital expenditures.

NUON Share Purchase Agreement

    On February 17, 1999, UPC acquired the remaining 49% of UTH. This
transaction completed the purchase by UPC of 100% of UTH. UPC purchased the
interest from NUON for 518,100. In addition, UPC repaid NUON and assumed from
NUON a 33,300 subordinated loan, including accrued interest dated December 31,
1998, owed by UTH to NUON.

Refinancing

    Subsequent to December 31, 1998, UTH replaced their existing 690,000
facility with a senior facility and additional shareholder loans. The senior
facility consists of a Euro 340 million (750,000) revolving facility to N.V.
Telekabel Beheer that will convert to a term facility on December 31, 2001.
Euro 5 million of this facility will be in the form of an overdraft facility
that will be available until December 31, 2007. This existing facility will be
used to repay a portion of the UTH facility and for capital expenditures. The
new facility will bear interest at the Euro Interbank Offered Rate plus a
margin between 0.75% and 2.00% based on the leverage multiples tied to N.V.
Telekabel Beheer's net operating income. The new facility will be secured by,
among other things, a pledge over shares held by the borrower and will restrict
N.V. Telekabel Beheer's ability to incur additional debt.

                                      F-64
<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of N.V. TeleKabel Beheer

    We have audited the accompanying consolidated balance sheet of N.V.
TeleKabel Beheer, ("TeleKabel" or the "Company"), as of December 31, 1997 and
the related consolidated statements of operations, shareholder's equity and
cash flows for the years ended December 31, 1996 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which are substantially the same as those
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 financial position of N.V. TeleKabel Beheer as of
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1997 in conformity with accounting principles
generally accepted in The Netherlands. We have not audited the consolidated
financial statements of N.V. Telekabel Beheer for any period subsequent to
December 31, 1997.

    Accounting principles generally accepted in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. The application of the latter would have affected the
determination of consolidated results for each of the two years in the period
ended December 31, 1997 and shareholders' equity as of December 31, 1996 and
1997 to the extent summarized in note 15 to the consolidated financial
statements.

                                        PricewaterhouseCoopers N.V.

Arnhem, The Netherlands,
September 11, 1998

                                      F-65
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Shareholder of N.V. TeleKabel Beheer

    We have audited the accompanying consolidated balance sheet of N.V.
TeleKabel Beheer ("TeleKabel" or the "Company"), as of December 31, 1998 and
the related consolidated statement of operations, shareholders' equity and cash
flows for the year ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of N.V. TeleKabel Beheer as of
December 31, 1998 and the results of its operations and its cash flows for the
year ended December 31, 1998 in conformity with accounting principles generally
accepted in The Netherlands.

    Accounting principles generally accepted in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States of America. The application of the latter would have affected the
determination of consolidated results for the year in the period ended December
31, 1998 and shareholders' equity as of December 31, 1998 to the extent
summarized in note 15 to the consolidated financial statements.

                                        Arthur Andersen

Amstelveen, The Netherlands,
February 26, 1999

                                      F-66
<PAGE>

                             N.V. TELEKABEL BEHEER

                          CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1998
            (in thousands of Dutch Guilders, except per share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                             ----------------
                                                        Note  1997     1998
                                                        ---- -------  -------
<S>                                                     <C>  <C>      <C>
ASSETS
Current assets:
Cash and cash equivalents..............................       17,465   23,533
Subscriber receivables, net............................   4    9,608   14,463
Related party receivables..............................        6,949    4,604
Other receivables......................................   5   13,521    4,219
Inventory..............................................        3,830    3,274
Investments............................................   6   16,413      --
                                                             -------  -------
Total current assets...................................       67,786   50,093
Tangible fixed assets, net.............................   7  553,499  650,401
Intangible assets, net.................................   8  194,562  261,671
Long term investments..................................   6    1,222    1,304
                                                             -------  -------
  Total assets.........................................      817,069  963,469
                                                             =======  =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................       28,989   34,157
Payable to banks.......................................       18,884   11,896
Deferred income........................................   9    6,341    7,488
Short-term debt payable to group companies.............  10  500,691  667,879
Other payables and accrued expenses....................       11,901   20,880
                                                             -------  -------
Total current liabilities..............................      566,806  742,300
                                                             =======  =======
Minority interest in subsidiaries......................  11    2,321      --
Commitments and contingencies..........................  12      --       --
Shareholder's equity:
Common stock, NLG 10 par value, 100,000 shares
 authorized and issued.................................        1,000    1,000
Additional paid-in capital.............................      251,354  251,354
Accumulated deficit....................................       (4,412) (31,185)
                                                             -------  -------
  Total shareholder's equity...........................      247,942  221,169
                                                             -------  -------
  Total liabilities and shareholder's equity...........      817,069  963,469
                                                             =======  =======
</TABLE>

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

                                      F-67
<PAGE>

                             N.V. TELEKABEL BEHEER

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              for the years ended December 31, 1996, 1997 and 1998
                        (in thousands of Dutch Guilders)

<TABLE>
<CAPTION>
                                                       Years ended December
                                                                31,
                                                      -------------------------
                                                       1996     1997     1998
                                                      -------  -------  -------
<S>                                                   <C>      <C>      <C>
Service and other revenue............................ 113,917  137,167  153,662
Operating expenses:
Purchases relating to sales.......................... (14,515) (18,615) (23,449)
Personnel expenses................................... (14,366) (18,034) (22,373)
Depreciation and amortization........................ (22,195) (31,418) (56,109)
Other operating expenses............................. (39,995) (41,705) (45,816)
                                                      -------  -------  -------
Net operating (loss) income..........................  22,846   27,395    5,915
Equity results in associates.........................  (1,033)   1,022      (90)
Interest expense, related party...................... (14,134) (26,210) (32,598)
Other income/(expense), net.......................... (12,875)     --       --
                                                      -------  -------  -------
Income/(loss) before and after income taxes..........  (5,196)   2,207  (26,773)
Minority interests in subsidiaries...................     279      683      --
                                                      -------  -------  -------
Net income/(loss)....................................  (4,917)   2,890  (26,773)
                                                      =======  =======  =======
</TABLE>



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

                                      F-68
<PAGE>

                             N.V. TELEKABEL BEHEER

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              for the years ended December 31, 1996, 1997 and 1998
                        (in thousands of Dutch Guilders)

<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                                  ----------------------------
                                                    1996      1997      1998
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Cash flows from operating activities:
Net income/(loss)...............................    (4,917)    2,890   (26,773)
Adjustments to reconcile net loss to net cash
 flows from operating activities:
Depreciation and amortization...................    22,195    31,418    56,109
Share in results of affiliated companies........     1,033    (1,022)       90
Provision for doubtfull accounts receivable.....       458       559       263
Write off of investment in unlisted securities..     8,915       --        --
Minority interests in subsidiaries..............      (279)     (683)      --
Changes in operating assets and liabilities:
(Increase)/decrease in receivables..............   (43,840)   15,990     6,529
(Increase)/decrease in inventories..............    (2,635)   (1,195)      556
Increase/(decrease) in other current
 liabilities....................................    10,536    (9,583)    8,306
                                                  --------  --------  --------
Net cash flows from operating activities........    (8,534)   38,374    45,080
                                                  --------  --------  --------
Cash flows from investing activities:
(Purchase)/sale of unlisted securities..........    (9,592)      (49)   16,250
Investment in affiliated companies..............    (5,233)     (787)      --
Capital expenditures............................  (215,767) (266,118) (222,450)
New acquisitions, net of cash acquired..........       --        --        --
                                                  --------  --------  --------
Net cash flows from investing activities........  (230,592) (266,954) (206,200)
                                                  --------  --------  --------
Cash flows from financing activities:
Proceeds from short-term debt to group company..   238,148   246,045   167,188
Capital contribution............................       --        --        --
                                                  --------  --------  --------
Net cash flows from financing activities........   238,148   246,045   167,188
Net increase (decrease) in cash and cash
 equivalents....................................      (978)   17,465     6,068
Cash and cash equivalents at beginning of
 period.........................................       978       --     17,465
                                                  --------  --------  --------
Cash and cash equivalents at end of period......       --     17,465    23,533
                                                  ========  ========  ========
Significant non-cash investment and financing
 activities:
Contribution in kind of cable networks by parent
 company........................................   252,154       --        --
Deferral of payment for acquisition of CAI
 Zoetermeer.....................................    62,800       --        --
</TABLE>

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

                                      F-69
<PAGE>

                             N.V. TELEKABEL BEHEER

           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              for the years ended December 31, 1996, 1997 and 1998
                        (in thousands of Dutch Guilders)

<TABLE>
<CAPTION>
                                           Issued and
                                           fully paid  Share   Other
                                            capital   premium Reserves   Total
                                           ---------- ------- --------  -------
<S>                                        <C>        <C>     <C>       <C>
Balance as of December 31, 1995...........     200        --   (2,385)   (2,185)
Capital contribution......................     800    251,354     --    252,154
Net loss..................................     --         --   (4,917)   (4,917)
                                             -----    ------- -------   -------
Balance as of December 31, 1996...........   1,000    251,354  (7,302)  245,052
Net income................................     --         --    2,890     2,890
                                             -----    ------- -------   -------
Balance as of December 31, 1997...........   1,000    251,354  (4,412)  247,942
Net loss..................................     --         --  (26,773)  (26,773)
                                             -----    ------- -------   -------
Balance as of December 31, 1998...........   1,000    251,354 (31,185)  221,169
                                             =====    ======= =======   =======
</TABLE>


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

                                      F-70
<PAGE>

                             N.V. TELEKABEL BEHEER

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        (in thousands of Dutch Guilders)

1. Organization and Nature of Operations

    In 1998 N.V. Telekabel Beheer was contributed to United Telekabel Holding
N.V. ("UTH'), a legally formed company in May 1998. UTH commenced operations on
August 6, 1998. UTH was formed as a joint-venture between United Pan-Europe
Communications NV ("UPC") and N.V. NUON Energie-Onderneming voor Gelderland,
Friesland en Flevoland ("NUON"). UPC became a 51% shareholder and NUON a 49%
shareholder. UTH was formed for the purpose of offering cable-based
communications through its networks in The Netherlands. UTH currently offers
cable television services and is further developing and upgrading its network
to provide digital video, voice and Internet/data services in its Dutch
markets.

    UTH commenced operations on August 6, 1998 when both shareholders
contributed their interests in Dutch cable television operating companies to
UTH. NUON contributed its interest in Telekabel and UPC contributed its
interest in Cable Network Brabant Holding B.V. ("CNBH") and 50% of A2000
Holding N.V. ("A2000"). N.V. Telekabel Beheer and its subsidiaries (Telekabel
or the Company) of Arnhem was a wholly owned subsidiary of the NUON, a local
government owned company, before the contribution to UTH. NUON's main activity
is the provision of energy to the provinces of Gelderland, Friesland en
Flevoland.

    Telekabel was incorporated in The Netherlands by NUON on August 22, 1995.
Effective January 1, 1996, NUON contributed all of its cable television
networks to the Company in exchange for its equity interest in the Company.
TeleKabel and its subsidiaries main activities comprise investments in and
management of cable television network and related infrastructures, as well as
developing and rendering information, communication and transaction services.

2. Summary of Significant Accounting Policies

Basis of Presentation

    The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in The Netherlands
("Dutch GAAP"). The consolidated financial statements are prepared under the
historical cost convention. The preparation of financial statements in
conformity with Dutch GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Principles of Consolidation

    Subsidiary undertakings, which are those companies in which the Company,
directly or indirectly, has an interest of more than one half of the voting
rights or otherwise has power to exercise control over the operations, have
been consolidated. Subsidiaries are consolidated from the date on which
effective interest is transferred to the Company and are no longer consolidated
from the date of disposal. All intercompany transactions, balances and
unrealised surpluses and deficits on transactions between group companies have
been eliminated. Where necessary, accounting policies for subsidiaries have
been changed to ensure consistency with the policies adopted by the Company.
Separate disclosure is made of minority interests.

                                      F-71
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


    The following subsidiaries are included in the consolidation as of December
31, 1998. The subsidiaries are wholly-owned, unless indicated otherwise.

<TABLE>
<S>                                                                   <C>
N.V. TeleKabel (1)................................................... Arnhem
TeleKabel Omroep Facilitair Bedrijf B.V.............................. Arnhem
Maxinetwerken B.V. .................................................. Ede
CAI Buren B.V. (2)................................................... Veenendaal
CAI Druten B.V. (2).................................................. Druten
CAI Geldermalsen B.V. (2)............................................ Veenendaal
CAI Lingewaal B.V. (2)............................................... Lingewaal
CAI Neerijnen-West B.V. (2).......................................... Neerijnen
CAI Tiel B.V. (2).................................................... Tiel
CAI Wychen B.V. (2).................................................. Wychen
CAI Dodewaard B.V. (2)............................................... Dodewaard
CAI Almere B.V. (2).................................................. Almere
CAI Dronten B.V. (2)................................................. Dronten
CAI Lelystad B.V. (2)................................................ Lelystad
CAI Over-Betuwe B.V. (1)(2).......................................... Utrecht
CAI Heteren B.V. (1)(2).............................................. Heteren
CAI Gendt B.V. (1)(2)................................................ Gendt
CAI Elst B.V. (1)(2)................................................. Elst
CAI Bemmel B.V. (1)(2)............................................... Bemmel
CAI Valburg B.V. (1)(2).............................................. Andelst
CAI Wageningen B.V. (1)(2)........................................... Wageningen
Kabelexploitatiemaatschappij CAI Renkum B.V. (1)(2).................. Utrecht
CAI-NKM Nijmegen B.V. (1)(2)......................................... Nijmegen
CAI Midden-Betuwe B.V. (1)(2)........................................ Veenendaal
</TABLE>
- --------------------
(1)Statements of joint and several liability pursuant to Article 403, Book 2 of
  the Dutch Civil Code were issued for these companies.
(2)Cable Networks were acquired through an exchange transaction with Casema as
  described in note 3.

Cash and cash equivalents

    For the purposes of the cash flow statement, cash and cash equivalents
comprise cash in hand, deposits held at call with banks, and investments in
money market instruments.

Investments in affiliated companies

    Investments in affiliated companies are accounted for by the equity method
of accounting. These are investments in which the Company has between 20% and
50% of the voting rights, and over which the Company exercises significant
influence, unless such influence is temporary, in which case the investment is
recorded at cost. Provisions are recorded for long-term impairment in value.

    Equity accounting involves recognizing in the income statement the
Company's share of the affiliate's profit or loss for the year. The Company's
interest in the affiliate is carried in the balance sheet at an amount that
reflects its share of the fair value of the net assets of the affiliate. The
excess of the consideration over the Company's share of fair value of the
affiliate's net assets is recorded as goodwill and amortized over its expected
useful life.

                                      F-72
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


Property, plant and equipment

    Property, plant and equipment are recorded at cost. Additions, replacements
and major improvements are capitalized, and costs for normal repair and
maintenance of property, plant and equipment are charged to expense as
incurred. Assets constructed by the Company incorporate interest charges
incurred during the period of construction, and investment subsidies are
deducted. Starting in 1998, Telekabel's depreciation is calculated using the
straight-line method over the economic life of the asset, taking into account
the residual value, to come in line with the depreciation method used in the
Group. Before 1998, Telekabel used the annuity method which is a compounded
interest method whereby the depreciation is calculated based on the assumption
that depreciation plus the normal cost of capital to finance the assets are
constant over the life of the assets. This resulted in lower depreciation
charges in the earlier years of the assets life and higher charges in the later
years. Would Telekabel have kept the annuity method in place the depreciation
costs in 1998 would have been some NLG 12 million less. Upon disconnection of a
subscriber, the remaining book value of the subscriber equipment, excluding
converters which are recovered upon disconnection, and the capitalized labor
are written off and accounted for as an operating cost.

Goodwill and other intangible assets

    Goodwill is the excess of investments in consolidated subsidiaries and
affiliated companies over the fair value of the net tangible fixed asset value
at acquisition and is amortized on a straight line basis over its expected
usefull life.

Recoverability of tangible and intangible assets

    The Company evaluates the carrying value of all tangible and intangible
fixed assets whenever events or circumstances indicate the carrying value of
assets may exceed their recoverable amounts. An impairment loss is recognized
when the estimated future cash flows (undiscounted and without interest)
expected to result from the use of an asset are less than the carrying amount
of the asset. Measurement of an impairment loss is based on fair value of the
asset computed using discounted cash flows if the asset is expected to be held
and used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.

Revenue recognition

    Revenue is primarily derived from the sale of cable television services to
subscribers and is recognized in the period the related services are provided.
Initial installation fees are recognized as revenue in the period in which the
installation occurs, to the extent installation fees are equal to or less than
direct selling costs, with any excess costs deferred and amortized over the
average subscriber period. To the extent installation fees exceed direct
selling costs, the excess fees would be deferred and amortized over the average
contract period. All installation fees and related costs with respect to
reconnections are recognized in the period in which the reconnection occurs.

Income taxes

    The Company accounts for income taxes under the asset and liability method
which requires recognition of deferred tax assets and liabilities for the
expected future income tax consequences of transactions which have been
included in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and income tax basis of assets, liabilities and
loss carryforwards using enacted tax rates in effect for the year in which the
differences are expected to reverse. Net deferred tax assets are only recorded
if management believes it is more likely than not they will be realized.

                                      F-73
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


3. Significant acquisitions and divestitures


    In April of 1997 the Company entered into an agreement with Casema to
exchange its cable network interest in TeleKabel Oosterhout B.V., TeleKabel De
Bilt-Bilthoven B.V., TeleKabel Zoetermeer B.V. and Kabelexploitatie
Maatschappij Rijnland B.V. for 100% of the shares of CAI-OverBetuwe B.V., CAI-
Bemmel B.V., CAI-Elst B.V., CAI-Gendt B.V., CAI-Heteren B.V., CAI-Valburg B.V.,
CAI-Midden-Betuwe B.V., Kabelexploitatie Maatschappij CAI-Renkum B.V., CAI-
Buren B.V., CAI-Druten B.V., CAI-Geldermalsen B.V., CAI-Lingewaal B.V., CAI-
NKM-Nijmegen B.V., CAI-Neerijnen-West B.V., CAI-Tiel B.V., CAI-Wageningen B.V.,
CAI-Wychen B.V., CAI-Dodewaard B.V and cable network assets in the cities of
Dronten and Lelystad.

    The exchange of cable networks was based on the number of subscriber
connections exchanged, measured as of January 1, 1997. Casema and TeleKabel
agreed that a compensation of 1,200 Guilders per subscriber would be paid for
any differences in the number of subscribers exchanged.

    Additionally the agreement specified that TeleKabel was to acquire CAI-
Almere B.V. for a consideration of 1,500 Guilders per subscriber, based on the
number of subscribers at the date of the share transfer.

    The transaction with Casema was originally scheduled to be completed as of
December 31, 1997. As of December 31, 1997, TeleKabel transferred its interest
in TeleKabel Oosterhout B.V., TeleKabel De Bilt-Bilthoven B.V. and 47.5% of its
interest in Kabelexploitatie Maatschappij Rijnland B.V. to Casema and received
the interest in the cable networks specified in note 2.

    During 1998 the Company surrendered its interests in TeleKabel Zoetermeer
B.V. and the remaining 52.5% share in Kabelexploitatie Maatschappij Rijnland
B.V. in exchange for shares in CAI-Buren B.V., CAI-Druten B.V., CAI-
Geldermalsen B.V., CAI-Lingewaal B.V., CAI-Neerijnen-West B.V., CAI-Tiel B.V.,
CAI-Wychen B.V., CAI-Dodewaard B.V., CAI-Dronten B.V., and CAI-Lelystad B.V. as
part of the Casema transaction, and bought shares in CAI-Almere B.V.

    The acquired cable networks were recorded in the books of the Company at
fair value of the cable networks at the date of the exchange.

    Effective September 1997 the Company acquired the cable network from the
city of Arnhem and Casema for a total consideration of approximately NLG84,000,
the difference between the consideration and the fair value of the assets,
which approximated NLG46,000, was recorded as goodwill.

4. Subscriber receivables

    Subscriber receivables are stated net of an allowance for doubtful accounts
of NLG1,280, NLG1,017 and NLG458 as of December 31, 1998, 1997 and 1996,
respectively.

                                      F-74
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


5. Other receivables

    Other receivables can be specified as follows:

<TABLE>
<CAPTION>
                                                                       As of
                                                                    December 31,
                                                                    ------------
                                                                     1997  1998
                                                                    ------ -----
   <S>                                                              <C>    <C>
   Prepayments and accrued income..................................    877   333
   Taxes and social security premiums..............................    --    580
   Other receivables............................................... 12,644 3,306
                                                                    ------ -----
                                                                    13,521 4,219
                                                                    ====== =====
</TABLE>

    Other receivables as of December 31, 1997 include an amount of NLG 10,560,
relating to the Casema transaction.

6. Investments in affiliated companies and unlisted securities

    Movements in investments in and advances to affiliated companies can be
summarized as follows:

<TABLE>
<CAPTION>
                                                 Affiliated  Unlisted
                                                 companies  securities  Total
                                                 ---------- ---------- -------
   <S>                                           <C>        <C>        <C>
   Book value as of January 1, 1997.............    4,200      1,577     5,777
     Additions..................................      --          49        49
     Share in income affiliated companies.......    1,022        --      1,022
     Other......................................      --         787       787
     Reclassification...........................   (4,000)    14,000    10,000
                                                   ------    -------   -------
   Book value as of December 31, 1997...........    1,222     16,413    17,635
                                                   ------    -------   -------
     Additions..................................        9        --          9
     Sale.......................................      --     (16,250)  (16,250)
     Share in income of affiliated companies....      (90)       --        (90)
                                                   ------    -------   -------
   Book value as of December 31, 1998...........    1,141        163     1,304
                                                   ======    =======   =======
</TABLE>

    As of January 1, 1997 investment in affiliated companies relate to a 33.3%
interest in Interway Holding B.V. and a 30% interest in Euronet Internet B.V.
During 1997 the investment in Euronet Internet B.V. was reclassified to
unlisted securities, because this investment was considered as temporary. The
reclassification in 1997 includes the net book value of Euronet Internet B.V.
of NLG 4,000 and the unamortized goodwill of NLG 10,000. (see note 8). As of
December 31, 1998 investment in affiliated companies relates to a 33.3%
interest in Interway Holding B.V.


                                      F-75
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


7. Property, plant and equipment

    Tangible fixed assets can be summarized as follows:

<TABLE>
<CAPTION>
                                                Other      Assets
                             Land &    Cable    fixed      under
                            buildings Networks  assets  construction  Total
                            --------- --------  ------  ------------ --------
   <S>                      <C>       <C>       <C>     <C>          <C>
   Year ended December 31,
    1997
   Net book value as of
    January 1, 1997........   2,188   378,703    2,976     13,130     396,997
   Additions...............   4,438   159,601   12,768     36,748     213,555
   Disposals...............     --    (26,157)     --     (13,130)    (39,287)
   Depreciation............    (389)  (15,359)  (2,018)       --      (17,766)
                              -----   -------   ------    -------    --------
   Net book value as of
    December 31, 1997......   6,237   496,788   13,726     36,748     553,499
                              =====   =======   ======    =======    ========
   Balance as of December
    31, 1997
   Historical cost.........   6,905   525,454   16,437     36,748     585,544
   Accumulated
    depreciation...........    (668)  (28,666)  (2,711)       --      (32,045)
                              -----   -------   ------    -------    --------
   Net book value..........   6,237   496,788   13,726     36,748     553,499
                              =====   =======   ======    =======    ========
   Year ended December 31,
    1998
   Net book value as of
    January 1, 1998........   6,237   496,788   13,726     36,748     553,499
   Additions...............     184   185,285      716     83,038     269,223
   Disposals...............     (44)  (96,872)  (3,081)   (36,748)   (136,745)
   Depreciation............    (341)  (32,908)  (2,327)       --      (35,576)
                              -----   -------   ------    -------    --------
   Net book value as of
    December 31,1998.......   6,036   552,293    9,034     83,038     650,401
                              =====   =======   ======    =======    ========
   Balance as of December
    31, 1998
   Historical cost.........   7,017   608,889   13,632     83,038     712,576
   Accumulated
    depreciation...........    (981)  (56,596)  (4,598)       --      (62,175)
                              -----   -------   ------    -------    --------
   Net book value..........   6,036   552,293    9,034     83,038     650,401
                              =====   =======   ======    =======    ========
</TABLE>

    Estimated useful lives and the depreciation method used for tangible fixed
assets as of January 1, 1998 are as follows:

<TABLE>
<CAPTION>
                                                           Useful
                                                            life   Depreciation
                                                           (years)  Methodology
                                                           ------- -------------
   <S>                                                     <C>     <C>
   Land and buildings.....................................    40   Straight line
   Cable networks:
     Active parts (25%)...................................     7   Straight line
     Passive parts (75%)..................................    20   Straight line
   Other fixed assets.....................................   3-5   Straight line
</TABLE>

    During 1995, 1996 and 1997, TeleKabel acquired, exchanged and received
cable networks as a capital contribution from NUON (see notes 1 and 3). The
Company analyzed the value of its complete network in order to record its cable
networks on a consistent basis under fixed assets. All cable network
connections were analysed on a cost per connection basis and compared to the
current cost of a technologically up to date connection. All connections were
valued at the cost of establishing a new and technologically up to date
connection, minus the cost to upgrade the existing connection to the most
current technology, referred to the "current replacement value". The net
difference between the book value and the current replacement value was
reclassified to intangible fixed assets, with similar useful lives.

                                      F-76
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


8. Intangible fixed assets

    Intangible fixed assets movements and balances can be summarized as
follows:

<TABLE>
   <S>                                                                 <C>
   Year ended December 31, 1997
   Net book value as of January 1, 1997...............................  187,980
   Additions..........................................................   49,057
   Reclassification...................................................  (10,000)
   Disposals..........................................................  (18,823)
   Amortization.......................................................  (13,652)
                                                                       --------
   Net book value as of December 31, 1997.............................  194,562
                                                                       ========
   Balance as of December 31, 1997
   Historical cost....................................................  216,444
   Accumulated amortization...........................................  (21,882)
                                                                       --------
   Net book value.....................................................  194,562
                                                                       ========
   Year ended December 31, 1998
   Net book value as of January 1, 1998...............................  194,562
   Additions..........................................................  130,327
   Disposals.......................................................... (42,685)
   Amortization....................................................... (20,533)
                                                                       --------
   Net book value as of December 31, 1998.............................  261,671
                                                                       ========
   Balances as of December 31, 1998
   Historical cost....................................................  300,001
   Accumulated amortization........................................... (38,330)
                                                                       --------
   Net book value.....................................................  261,671
                                                                       ========
</TABLE>

    As described in Note 2 TeleKabel has recorded any differences between the
"current replacement value" of the tangible fixed assets and the book value of
the cable networks on the date of acquisition, contribution or exchange as
goodwill. Such goodwill is amortized on a straight line basis over the
estimated useful life of the cable network (15 years). Goodwill paid on the
acquisition of other types of businesses is amortized over 5-10 years depending
on the nature of the business. The reclassification of goodwill in 1997 relates
to the reclassification of Euronet Internet B.V. from an equity investment to
investment recorded at cost (see note 6).

                                      F-77
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                       (in thousands of Dutch Guilders)


9. Deferred income

   Deferred income relates to connection fees charged to customers in excess
of the normal cost of creating a connection. Deferred income is released to
income over the expected life of the cable connection.

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  --------------
                                                                   1997    1998
                                                                  ------  ------
   <S>                                                            <C>     <C>
   Balance as of January 1.......................................  4,220   6,341
   Addition: connection charges received from clients............  2,445   1,559
   Less: release to income statement.............................   (324)  (412)
                                                                  ------  ------
   Balance end of period.........................................  6,341   7,488
                                                                  ======  ======
</TABLE>

10. Short term debt payable to Group Companies

   As of December 31, 1998, short term debt payable to Group Companies relates
to loans provided by both NUON and UPC for financing fixed assets. As of
December 31, 1997, short term debt payable to Group Companies relates to loans
provided by NUON. The interest rate charged by NUON in 1998 was 6.65% through
November 1998 and 8.15% in December 1998. The interest rate charged by UPC was
6.65%. The interest rate charged by NUON in 1997 was 6.5%. In December 1998
TeleKabel entered into a subordinated loan agreement with UTH for an amount of
NLG33.0 million. The interest is 5.5% on an annual basis. This subordinated
loan was entered into for purposes of continuing funding of incurred losses
and capital expenditures.

11. Minority interest

   The movements in the minority interest can be summarized as follows:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                                  -------------
                                                                  1997    1998
                                                                  -----  ------
      <S>                                                         <C>    <C>
      Balance as of January 1.................................... 1,820   2,321
      Changes of minority interest held by third party........... 1,184  (2,321)
      Less: share third parties in income........................  (683)    --
                                                                  -----  ------
      Balance end of period...................................... 2,321     --
                                                                  =====  ======
</TABLE>

   Due to the sale/swap of the related shares in the Casema transaction there
is no longer a minority interest.

12. Commitments and contingent liabilities

Leases

   TeleKabel has commitments for leasing of company cars amounting to NLG 938
yearly as per December 31, 1998. Maximum maturity period of the lease
agreements is four years.

Rental agreements

   TeleKabel entered into rental agreements for an amount of NLG950 in 1999.

Other commitments

   In 1997 TeleKabel had other commitments on account of acquisitions. These
commitments were not material.

                                     F-78
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                       (in thousands of Dutch Guilders)


Statement of liability

   TeleKabel and some subsidiaries can be held liable to a number of group
companies included in the consolidation, as meant by Article 403, Part 9, Book
2 of the Dutch Civil Code. As partner in a partnership firm, one of the group
companies can be held liable for the commitments of this firm. The maximum
risk amounts to NLG 100.

Fiscal unity

   Until December 31, 1997, TeleKabel and NUON were included in the same
entity for value added tax and income tax purposes. TeleKabel is severally
liable for the material tax debts of the fiscal entity.

Legal

   The Company is not a party to any material legal proceedings, nor is it
currently aware of any material legal proceedings. From time to time, the
Company may become involved in litigation relating to claims arising out of
its operations in the normal course of its business.

13. Income Taxes

   Until October of 1996 the Company did not have an obligation to pay income
taxes, as it was a wholly owned subsidiary of a Dutch local government
institution. As a result of changed shareholders of TeleKabel's parent
company, in Dutch tax laws the Company is subject to Dutch income taxes since
October 10, of 1996. The Company is in discussion with the Dutch tax
authorities regarding the tax basis of its assets and liabilities. Based on
current best estimates of the outcome of these discussions the Company
believes that the tax basis of the Company's assets and liabilities will not
differ significantly from their bookvalues.

14. Subsequent Events

Subordinated Loan

   Telekabel entered into a subordinated loan with UTH in March 1999 for an
amount of NLG 119 million. The interest is payable on an annual basis. This
subordinated loan was entered into for purposes of continuing funding of
incurred losses and capital expenditures.

NUON Share Purchase Agreement

   On February 17, 1999, UPC acquired the remaining 49% of UTH, increasing its
ownership in UTH to 100%.

Refinancing

   Subsequent to December 31, 1998, Telekabel replaced their existing NLG 690
million facility (through NUON) with a senior facility and additional
shareholder loans. The senior facility consists of a Euro 340 million [NLG 750
million] revolving facility that will convert to a term facility on December
31, 2001. Euro 5 million of this facility will be in the form of an overdraft
facility that will be available until December 31, 2007. This existing
facility will be used to repay a portion of the UTH facility and for capital
expenditures. The new facility will bear interest at the Euro Interbank
Offered Race plus a margin between 0.75% and 2.00% based on the leverage
multiples tied to Telekabel's net operating income. The new facility will be
secured by, among other things, a pledge over shares held by the borrower and
will restrict Telekabel's ability to incur additional debt.

                                     F-79
<PAGE>

                             N.V. TELEKABEL BEHEER

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                        (in thousands of Dutch Guilders)


15. Differences between Generally Accepted Accounting Principles in The
Netherlands and the United States

    The Company's consolidated financial statements are prepared in accordance
with Dutch GAAP, which differs in certain respects from accounting principles
generally accepted in the United States ("US GAAP"). The material differences
as they apply to the Company are summarized below:

(a) Depreciation of fixed assets

    Until 1998, under Dutch GAAP the Company depreciated its cable network
assets using the annuity method of depreciation. Starting in 1998, the Company
changed the depreciation method into straight-line depreciation. Under US GAAP
cable network assets are depreciated on a straight-line basis.

(b) Accounting for investments in affiliates

    Under Dutch GAAP the Company records certain of its investments in
affiliates in which it holds an interest of 20% to 50% at the historical cost
of the investment (see Note 2). Under US GAAP these investments are accounted
for using the equity method of accounting.

(c) Accrued subscriber fees

    Under Dutch GAAP the Company created an accrual for subscriber fees on the
acquisition balance sheet of the cable network in Leiderdorp. Monthly
subscription fees for subscribers in this area were lower than fees charged to
customers in other areas. The Company created an accrual, to be released over
the useful life of the cable network, which results in the equalization of
cable revenues. Under US GAAP this accrual was not recorded resulting in a
decrease of the amount of goodwill paid for the cable network.

    Reconciliation of net (loss)/profit (in thousands of Dutch guilders):

<TABLE>
<CAPTION>
                                                     Years Ended December 31,
                                                     --------------------------
                                                      1996     1997      1998
                                                     -------- -------- --------
   <S>                                               <C>      <C>      <C>
   Net income/(loss) under Dutch GAAP...............  (4,917)   2,890   (26,773)
   US GAAP adjustment:
   Depreciation on a straight line basis............  (6,477)  (8,631)    1,385
   Equity accounting for affiliates.................     250   (6,540)    6,290
   Accrued subscriber fees:
   Goodwill amortization............................      86       86      (172)
   Release of subscriber accrual....................    (258)    (258)      516
   Income tax effect of US GAAP adjustments.........   2,327    3,081      (605)
                                                     -------  -------  --------
   Net income/(loss) under US GAAP..................  (8,989)  (9,372)  (19,359)
                                                     =======  =======  ========
</TABLE>

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1997     1998
                                                               -------  -------
   <S>                                                         <C>      <C>
   Reconciliation of shareholder's equity:
   Total shareholders' equity under Dutch GAAP................ 247,942  221,169
   US GAAP adjustment:
   Depreciation on a straight line basis...................... (15,108) (13,723)
   Equity accounting for affiliates...........................  (6,290)     --
   Accrued subscriber fees:
   Goodwill...................................................     172      --
   Accrued subscriber fees....................................    (516)     --
   Income tax effect of US GAAP adjustments...................   5,408    4,803
                                                               -------  -------
   Total shareholder's equity under US GAAP................... 231,608  212,249
                                                               =======  =======
</TABLE>

                                      F-80
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
@Entertainment, Inc.:

    We have audited the accompanying consolidated balance sheets of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
related consolidated statements of operations, comprehensive loss, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

    We conducted our audits in accordance with generally accepted auditing
standards 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
@Entertainment, Inc. and subsidiaries as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles in the United States of America.

                                        KPMG

Warsaw, Poland
March 29, 1999

                                      F-81
<PAGE>

                              @ENTERTAINMENT, INC.

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                   December 31,
                                                -------------------   March 31,
                                                  1997      1998        1999
                                                --------  ---------  -----------
                                                                     (unaudited)
                                                        (in thousands)
<S>                                             <C>       <C>        <C>
ASSETS
Current assets:
 Cash and cash equivalents....................  $105,691  $  13,055   $ 128,002
 Accounts receivable, net of allowance for
  doubtful accounts of $766,000 in 1997,
  $1,095,000 in 1998 and $1,193,000 in 1999
  (unaudited) (note 4)........................     4,544      7,408       6,396
 Programming and broadcast rights (note 6)....       894      9,030      12,095
 Other current assets (note 7)................    13,104     21,063      22,250
                                                --------  ---------   ---------
 Total current assets.........................   124,233     50,556     168,743
                                                --------  ---------   ---------
Property, plant and equipment:
 Cable television systems assets..............   134,469    175,053     152,924
 DTH equipment................................       --      68,419      71,977
 Construction in progress.....................     6,276      2,739       4,394
 Vehicles.....................................     2,047      2,792       2,323
 Other........................................     7,940     16,119      17,637
                                                --------  ---------   ---------
                                                 150,732    265,122     249,255
 Less accumulated depreciation................   (33,153)   (52,068)    (53,472)
                                                --------  ---------   ---------
 Net property, plant and equipment............   117,579    213,054     195,783
Inventories for construction..................     8,153      8,869       7,906
Intangible assets, net (note 8)...............    26,318     43,652      36,745
Notes receivable from affiliates..............       691        --          --
Investment in affiliated companies (note 9)...    21,628     19,956      21,879
Other assets, net (note 7)....................     8,494     12,287      16,484
                                                --------  ---------   ---------
Total assets..................................  $307,096  $ 348,374   $ 447,540
                                                ========  =========   =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable and accrued expenses........  $ 14,721  $  40,464   $  33,925
 Accrued interest (note 11)...................     2,175      2,140       5,349
 Deferred revenue.............................     1,257      4,366       5,011
 Income taxes payable.........................     1,765      3,794       3,794
 Current portion of notes payable (note 11)...       --       6,500       6,500
                                                --------  ---------   ---------
 Total current liabilities....................    19,918     57,264      54,579
                                                --------  ---------   ---------
Notes payable, less current portion (note
 11)..........................................   130,110    257,454     367,169
                                                --------  ---------   ---------
 Total liabilities............................   150,028    314,718     421,748
                                                --------  ---------   ---------
12% cumulative redeemable preferred stock
 (liquidation value $50,000,000 plus accrued
 and unpaid dividends; 20,002,500 preferred
 shares authorized; 45,000 Series A and 5,000
 Series B outstanding)........................       --         --       29,603
Minority interest.............................     4,713        --          --
Commitments and contingencies (notes 18 and
 19)
Stockholders' equity (note 1):
 Preferred stock, $.01 par value; Authorized
  20,000,000 shares; none issued and
  outstanding.................................       --         --          --
 Common stock, $.01 par value; Authorized
  70,000,000 shares in 1998 and 1997; issued
  and outstanding 33,310,000 shares in 1997
  and 1998 and 33,406,000 in 1999
  (unaudited).................................       333        333         334
 Paid-in capital..............................   230,339    237,954     264,291
 Accumulated other comprehensive income.......      (218)      (467)    (29,646)
 Accumulated deficit..........................   (78,099)  (204,164)   (238,790)
                                                --------  ---------   ---------
 Total stockholders' equity...................   152,355     33,656      (3,811)
                                                --------  ---------   ---------
 Total liabilities and stockholders' equity...  $307,096  $ 348,374   $ 447,540
                                                ========  =========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-82
<PAGE>

                              @ENTERTAINMENT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          Three months ended
                           Year ended December 31,             March 31,
                          ----------------------------  -----------------------
                           1996      1997      1998        1998        1999
                          -------  --------  ---------  ----------- -----------
                                                        (unaudited) (unaudited)
                                (in thousands, except per share data)
<S>                       <C>      <C>       <C>        <C>         <C>
Revenues................  $24,923  $ 38,138  $  61,859   $ 12,686    $ 18,799
Operating expenses:
  Direct operating
   expenses (note 13)...    7,193    14,621     61,874      8,648      18,017
  Selling, general and
   administrative
   expenses (note 15)...    9,289    49,893     74,494     13,447      15,620
  Depreciation and
   amortization.........    9,788    16,294     26,304      4,949       9,405
                          -------  --------  ---------   --------    --------
Total operating
 expenses...............   26,270    80,808    162,672     27,044      43,042
                          -------  --------  ---------   --------    --------
  Operating loss........   (1,347)  (42,670)  (100,813)   (14,358)    (24,243)
Interest and investment
 income.................    1,274     5,754      3,355        850       1,494
Interest expense (note
 11)....................   (4,687)  (13,902)   (21,957)    (3,649)    (11,845)
Equity in losses of
 affiliated companies...      --       (368)    (6,310)       270       1,025
Foreign exchange loss,
 net....................     (761)   (1,027)      (130)        73      (1,038)
                          -------  --------  ---------   --------    --------
Loss before income
 taxes, minority
 interest and
 extraordinary item.....   (5,521)  (52,213)  (125,855)   (16,814)    (34,607)
Income tax
 (expense)/benefit (note
 10)....................   (1,273)      975       (210)      (333)        (19)
Minority interest.......    1,890    (3,586)       --        (149)        --
                          -------  --------  ---------   --------    --------
Loss before
 extraordinary item.....   (4,904)  (54,824)  (126,065)   (17,296)    (34,626)
Extraordinary item-loss
 on early extinguishment
 of debt (note 11)......   (1,713)      --         --         --          --
                          -------  --------  ---------   --------    --------
  Net loss..............   (6,617)  (54,824)  (126,065)   (17,296)    (34,626)
Accretion of redeemable
 preferred stock........   (2,870)   (2,436)       --         --         (791)
Preferred stock
 dividends (note 1).....   (1,738)      --         --         --          --
Deficit/(excess) of
 consideration paid for
 preferred stock
 under/(over) carrying
 amount (note 1)........    3,549   (33,806)       --         --          --
                          -------  --------  ---------   --------    --------
Net loss applicable to
 holders of common
 stock..................  $(7,676) $(91,066) $(126,065)  $(17,296)   $(35,417)
Basic and diluted loss
 per common share:
  Loss before
   extraordinary item...  $ (0.34) $  (3.68) $   (3.78)  $  (0.52)   $  (1.06)
  Extraordinary item....    (0.10)      --         --         --          --
                          -------  --------  ---------   --------    --------
  Net loss (note 14)....  $ (0.44) $  (3.68) $   (3.78)  $  (0.52)   $  (1.06)
                          =======  ========  =========   ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-83
<PAGE>

                              @ENTERTAINMENT, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                         Three months ended
                          Year ended December 31,             March 31,
                         ----------------------------  -----------------------
                          1996      1997      1998        1998        1999
                         -------  --------  ---------  ----------- -----------
                                                       (unaudited) (unaudited)
                                           (in thousands)
<S>                      <C>      <C>       <C>        <C>         <C>
Net loss................ $(6,617) $(54,824) $(126,065)  $(17,296)   $(34,626)
Other comprehensive
 income:
  Translation
   adjustment...........     --       (218)      (249)     2,549     (19,279)
                         -------  --------  ---------   --------    --------
Comprehensive loss...... $(6,617) $(55,042) $(126,314)  $(14,747)   $(63,805)
                         =======  ========  =========   ========    ========
</TABLE>




          See accompanying notes to consolidated financial statements.

                                      F-84
<PAGE>

                              @ENTERTAINMENT, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                          Accumulated
                         Preferred Stock      Common Stock                   Other
                         ----------------  ------------------  Paid-In   Comprehensive Accumulated
                         Shares   Amount     Shares   Amount   Capital      Income       Deficit     Total
                         ------  --------  ---------- -------  --------  ------------- ----------- ---------
                                              (in thousands, except share amounts)
<S>                      <C>     <C>       <C>        <C>      <C>       <C>           <C>         <C>
Balance January 1,
 1996...................    985  $ 10,311      11,037 $ 4,993  $  1,544      $ --       $ (16,658) $     190
 Net loss...............    --        --          --      --        --                     (6,617)    (6,617)
 Stock dividend.........    166     1,738         --      --     (1,738)       --             --         --
 Proceeds from issuance
  of common and
  preferred stock (note
  1)....................    --        --        7,911  (4,992)   87,021        --             --      82,029
 Cost of issuance (note
  1)....................    --        --          --      --     (1,028)       --             --      (1,028)
 Allocation of proceeds
  to preferred (note
  1)....................    --        --          --      --    (32,156)       --             --     (32,156)
 Preferred stock
  redemption (note 1)... (1,151)  (12,049)        --      --      3,549        --             --      (8,500)
 Accretion of redeemable
  preferred stock (note
  1)....................    --        --          --      --     (2,870)       --             --      (2,870)
 Reorganization (note
  1)....................    --        --   18,929,052     188      (188)                      --         --
                         ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance December 31,
 1996...................    --        --   18,948,000     189    54,134        --         (23,275)    31,048
 Translation
  adjustment............    --        --          --      --        --        (218)           --        (218)
 Net loss...............    --        --          --      --        --         --         (54,824)   (54,824)
 Net proceeds from
  initial public
  offering (note 1).....    --        --    9,500,000      95   183,197        --             --     183,292
 Purchase of PCI series
  A and C redeemable
  preferred stock
  (note 1)..............    --        --          --      --    (33,806)       --             --     (33,806)
 Accretion of redeemable
  preferred stock (note
  1)....................    --        --          --      --     (2,436)       --             --      (2,436)
 Conversion of series B
  redeemable preferred
  stock (note 1)........    --        --    4,862,000      49    11,148        --             --      11,197
 Stock option
  compensation expense
  (note 15).............    --        --          --      --     18,102        --             --      18,102
                         ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance December 31,
 1997...................    --        --   33,310,000     333   230,339       (218)       (78,099)   152,355
 Translation
  adjustment............    --        --          --      --        --        (249)           --        (249)
 Net loss...............    --        --          --      --        --         --        (126,065)  (126,065)
 Warrants attached to
  Senior Discount Notes
  (note 11).............    --        --          --      --      7,615        --             --       7,615
                         ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance December 31,
 1998...................    --   $    --   33,310,000 $   333  $237,954      $(467)     $(204,164) $  33,656
                         ======  ========  ========== =======  ========      =====      =========  =========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-85
<PAGE>

                              @ENTERTAINMENT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                          Three months ended
                           Year ended December 31,             March 31,
                          ----------------------------  -----------------------
                           1996      1997      1998        1998        1999
                          -------  --------  ---------  ----------- -----------
                                                        (unaudited) (unaudited)
                                            (in thousands)
<S>                       <C>      <C>       <C>        <C>         <C>
Cash flows from
 operating activities:
 Net loss...............  $(6,617) $(54,824) $(126,065)  $(17,296)   $(34,626)
 Adjustments to
  reconcile net loss to
  net cash provided
  by/(used in) operating
  activities:
 Minority interest......   (1,890)    3,586        --         149         --
 Depreciation and
  amortization..........    9,788    16,294     26,304      4,949       9,405
 Amortization of notes
  payable discount and
  issue costs...........      166     1,040      9,182        --        8,128
 Non-cash portion of
  extraordinary item....    1,566       --         --         --          --
 Gain on sale of
  investment
  securities............      --       (358)       --         --          --
 Non-cash stock option
  compensation expense..      --     18,102        --         --          --
 Equity in profits of
  affiliated companies..      --        368      6,310        --       (1,025)
 Other..................      --        --       2,196      1,338       1,006
 Changes in operating
  assets and
  liabilities:
  Accounts receivable...     (796)   (3,191)    (2,780)      (911)      1,012
  Other current assets..   (1,862)   (2,101)    (7,959)    (5,006)     (1,187)
  Programming and
   broadcast rights.....      --       (894)    (8,136)       --       (3,065)
  Other assets..........      --        --         --      (2,937)        --
  Accounts payable and
   accrued expenses.....    3,379     5,757     25,185      5,856      (5,292)
  Income taxes payable..      334    (2,707)     2,026       (377)        --
  Accrued interest......    2,175       --         (35)     3,317       3,209
  Deferred revenue......     (131)      155      3,104        (88)      1,195
  Other current
   liabilities..........      --        --         --        (826)        --
                          -------  --------  ---------   --------    --------
   Net cash provided
    by/(used in)
    operating
    activities..........    6,112   (18,773)   (70,668)   (11,832)    (21,240)
                          -------  --------  ---------   --------    --------
Cash flows from
 investing activities:
 Construction and
  purchase of property,
  plant and equipment...  (26,581)  (39,643)  (114,992)   (23,085)    (15,517)
 Repayment of notes
  receivable from
  affiliates............      --      2,521        --         --          --
 Issuance of notes
  receivable from
  affiliates............   (2,491)     (721)       --         779         --
 Purchase of investment
  securities............  (25,940)      --         --         --          --
 Proceeds from maturity
  of investment
  securities............      --     25,473        --         --          --
 Purchase of other
  assets................   (6,000)  (10,200)       --         --          --
 Purchase of
  intangibles...........      --        --         --        (230)       (196)
 Investments in
  affiliated companies..     (580)  (21,420)    (5,228)       --          --
 Purchase of
  subsidiaries, net of
  cash received
  (note 5)..............  (13,269)  (20,852)   (26,990)   (10,523)        --
 Purchase of other
  investments...........      --        --         --      (2,248)     (1,753)
                          -------  --------  ---------   --------    --------
   Net cash used in
    investing
    activities..........  (74,861)  (64,842)  (147,210)   (35,307)    (17,466)
                          -------  --------  ---------   --------    --------
Cash flows from
 financing activities:
 Net proceeds from
  issuance of stock.....   81,001   183,292        --         --          --
 Redemption of preferred
  stock.................   (8,500)  (60,000)       --         --          --
 Costs to obtain loans..   (6,513)   (1,749)    (5,960)       --       (4,397)
 Proceeds from issuance
  of notes payable......  136,074       --     123,985        --      109,755
 Repayment of notes
  payable...............  (27,893)     (720)      (398)       --          --
 Proceeds from issuance
  of warrants...........      --        --       7,615        --       48,295
 Repayments to
  affiliates............  (39,280)      --         --          37         --
                          -------  --------  ---------   --------    --------
   Net cash provided by
    financing
    activities..........  134,889   120,823    125,242         37     153,653
                          -------  --------  ---------   --------    --------
   Net
    increase/(decrease)
    in cash and cash
    equivalents.........   66,140    37,208    (92,636)   (47,102)    114,947
Cash and cash
 equivalents at
 beginning of year......    2,343    68,483    105,691    105,691      13,055
                          -------  --------  ---------   --------    --------
Cash and cash
 equivalents at end of
 year...................  $68,483  $105,691  $  13,055   $ 58,589    $128,002
                          =======  ========  =========   ========    ========
Supplemental cash flow
 information:
 Cash paid for
  interest..............  $ 2,338  $ 12,873  $  13,014   $     25    $    142
                          =======  ========  =========   ========    ========
 Cash paid for income
  taxes.................  $ 1,184  $  1,732  $     589   $    176    $     37
                          =======  ========  =========   ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-86
<PAGE>

                              @ENTERTAINMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1996, 1997 and 1998

1. Organization and Formation of Holding Company

    @Entertainment, Inc. ("@Entertainment") was established as a Delaware
corporation in May 1997. @Entertainment succeeded Poland Communications, Inc.
("PCI") as the group holding company to facilitate an initial public offering
of stock in the United States and internationally. PCI was founded in 1990 by
David T. Chase, a Polish-born investor.

    @Entertainment, Inc. and its subsidiaries (the "Company") offer pay
television services to business and residential customers in Poland. Its
revenues are derived primarily from monthly basic and premium service fees for
cable and digital satellite direct-to-home ("DTH") television services provided
primarily to residential, rather than business, customers. In September 1998,
the Company launched its DTH broadcasting service throughout Poland. In
addition to developing and acquiring programming for distribution on its cable
and DTH television networks, the Company commenced distribution of a branded
digital encrypted package of Polish-language programming under the brand name,
Wizja TV in June and September 1998 on its cable and DTH television networks,
respectively.

    At December 31, 1998, @Entertainment wholly owned PCI, @Entertainment
Programming, Inc. ("@EPI")--United States corporations, @Entertainment Limited
("@EL"), @Entertainment Services Limited ("@ES") --United Kingdom corporations,
Sereke Holding B.V. ("Sereke")--a Netherlands corporation and Wizja TV Sp. z
o.o., Gound Zero Media Sp. z o.o. ("GZM") and Wizja TV Spoka Produkcyjna Sp. z
o.o., which are Polish corporations. PCI owns 92.3% of the capital stock of
Poland Cablevision (Netherlands) B.V. ("PCBV"), a Netherlands corporation and
first-tier subsidiary of PCI. @Entertainment, PCI and PCBV are holding
companies that directly or indirectly hold controlling interests in a number of
Polish cable television companies, collectively referred to as the "PTK
Companies". As of December 31, 1998, substantially all of the assets and
operating activities of the Company were located in Poland and the United
Kingdom.

    The following is a description of the events leading up to the formation of
@Entertainment.

    PCI had outstanding at December 31, 1995, 985 shares of preferred stock,
which were convertible into 812 shares of Class A common stock. PCI had the
option of redeeming the preferred stock in whole or in part from January 1,
1996 through December 31, 2002. However, as discussed below, the preferred
stock was exchanged for new series D preferred stock during March 1996.

    During February 1996, PCI issued to certain stockholders an additional
2,437 shares of Class A common stock in accordance with the provisions of the
Shareholder Agreement dated June 27, 1991. The shares were issued at a nominal
value of $.01 each. Also during February 1996, PCI issued a stock dividend of
166 shares of series A preferred stock to the preferred stock stockholder.

    During March 1996, PCI completed several transactions including restating
its certificate of incorporation, issuing new shares of stock, redeeming
preferred stock, and the repayment of affiliate debt. The restated certificate
of incorporation of PCI authorized a new class of $.01 par common stock, $1 par
series A preferred stock, $.01 par series B preferred stock, $.01 par series C
preferred stock, and $.01 par series D preferred stock. All shares of Class A
and Class B common stock previously issued and outstanding were exchanged for
new common stock. All issued and outstanding shares of preferred stock were
exchanged for new series D preferred stock, which were subsequently redeemed
for $8,500,000. Only common stock and series B preferred stock retained voting
rights and only holders of common stock were entitled to receive dividends.
Each series of preferred stock had redemption provisions; the series B
preferred stock were also convertible into common stock.

    During March 1996, PCI issued 4,662 shares of common stock, 4,000 shares of
series A preferred stock, and 2,500 shares of series B preferred stock to ECO
Holdings III Limited Partnership ("ECO") in exchange for

                                      F-87
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

$65,000,000; and 2,000 shares of series C preferred stock and 812 shares of
common stock were issued to Polish Investments Holding Limited Partnership
("PIHLP") in exchange for $17,029,000.

    The PCI series A, series B and series C preferred stock have a mandatory
redemption date of October 31, 2004. At the option of the Company, the PCI
series A, series B and series C preferred stock may be redeemed at any time in
whole or in part at a redemption price per share of $10,000. Prior to the
mandatory redemption of the PCI series B preferred stock, the holders of any
shares of PCI series B preferred stock had the option to convert their shares
to 4,862 shares of PCI common stock. The preferred stock was recorded at its
mandatory redemption value on October 31, 2004, discounted at 12%, of
$32,156,000.

    On June 22, 1997, all the holders of shares of PCI's common stock and
@Entertainment entered into a Contribution Agreement. Pursuant to the
Contribution Agreement, each holder of shares of PCI's common stock transferred
all shares of PCI common stock owned by it to @Entertainment. In addition, ECO
transferred all of the outstanding shares of PCI's series B preferred stock to
@Entertainment. All of these transfers (the "Share Exchange") were designed to
qualify as a tax-free exchange under section 351 of the Internal Revenue Code
of 1986, as amended. Each holder of PCI's common stock received 1,000 shares of
common stock of @Entertainment in exchange for each share of PCI's common stock
transferred by it (the "Capital Adjustment"). ECO also received an equivalent
number of shares of @Entertainment's series B preferred stock in exchange for
its shares of PCI's series B preferred stock. @Entertainment's series B
preferred stock has identical rights and preferences to those of PCI's series B
preferred stock, except that the ratio for conversion of such shares into
common stock increased from 1:1.9448 to 1:1,944.80 in order to reflect the
Capital Adjustment. The 2,500 outstanding shares of @Entertainment's series B
preferred stock automatically converted into 4,862,000 shares of common stock
of @Entertainment upon the closing of the initial public offering. The
formation of @Entertainment has been accounted for at historical cost in a
manner similar to pooling of interest accounting.

    On June 20, 1997, PIHLP transferred all of the outstanding shares of PCI's
series C preferred stock to an entity owned by certain of the beneficial owners
of PIHLP and members of their families (the "Chase Entity"). The Chase Entity,
ECO and @Entertainment entered into a Purchase Agreement dated June 22, 1997
(the "Purchase Agreement"). Among other matters, the Purchase Agreement
obligated @Entertainment to purchase all of the outstanding shares of PCI's
series A preferred stock and series C preferred stock for cash from ECO and the
Chase Entity, respectively, at the closing of the IPO. The aggregate purchase
price of $60,000,000 for PCI's series A preferred stock and series C preferred
stock equaled the aggregate redemption price of such shares as set forth in
PCI's certificate of incorporation. The purchase resulted in a loss applicable
to common stockholders of $33,806,000 representing the excess of the
consideration paid for the preferred stock over the carrying amount of those
shares as of the date of the Reorganization (as defined hereinafter). The
aforementioned purchase was funded with a portion of the net proceeds of the
IPO.

    The Company periodically accreted, until the date of the purchases
described above, from paid-in capital an amount that would provide for the
redemption value of the PCI series A, B and C preferred shares at October 31,
2004. The total amounts recorded for accretion for the years ended December 31,
1996 and 1997 were $2,870,000 and $2,436,000, respectively.

    In June 1997, @Entertainment acquired all of the outstanding stock of @EL,
a new corporation organized under the laws of England and Wales (the "@EL
Incorporation").

    In June 1997, certain employment agreements for the executive officers of
@Entertainment who were employed by PCI and their employee stock option
agreements were assigned to @Entertainment by PCI (the "Assignment"). As part
of the Assignment and the Capital Adjustment, the employment agreements were
amended to provide that each option to purchase a share of PCI's common stock
was exchanged for an option to purchase 1,000 shares of @Entertainment's common
stock with a proportionate reduction in the per share exercise price.

                                      F-88
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    The Share Exchange, Capital Adjustment, @EL Incorporation and the
Assignment are collectively referred to as the "Reorganization". As a result of
the Reorganization, @Entertainment owns 100% of the outstanding shares of
common stock and preferred stock of PCI and 100% of @EL.

    On August 5, 1997, the Company consummated an initial public offering of
9,500,000 shares of common stock at a price of $21 per share. Net proceeds to
the Company were approximately $183,292,000 after deduction of the underwriting
discount and other expenses of the offering.

2. Financial Position and Basis of Accounting

    The Company generated an operating loss of $100,813,000 and negative cash
flows from operations of $70,668,000 for the year ended December 31, 1998,
primarily due to the significant costs associated with the development and
launch of the Company's DTH and programming businesses, promotion of those
businesses, and the development, production and acquisition of programming for
Wizja TV. Furthermore, the Company expects to experience substantial operating
losses and negative cash flows for at least the next two years in association
with the expansion of the DTH and programming businesses, and the continued
development of the cable business. As at December 31, 1998, the Company was
committed to pay at least $550,100,000 in guaranteed payments over the next
nine years of which at least approximately $254,200,000 million was committed
through the end of 2000. As at December 31, 1998 the Company had cash of
$13,055,000.

    Given the above noted factors at December 31, 1998, management planned and
successfully completed debt and equity offerings in January, 1999 which
generated net proceeds to the Company of approximately $154,000,000 (see note
20). The Company believes that the net proceeds of these three recent offerings
and cash on hand will provide the Company with sufficient capital to fulfill
its current business plan and to fund guaranteed payments until it achieves
positive cash flow from operations. The Company's current business plan include
the following key assumptions:

  (a) achieve rapid penetration of the Polish market by distributing DTH
      Reception Units to 380,000 initial subscribers at prices significantly
      decreased by promotional incentives. The Company continues to review
      its business plan with respect to the level of promotional incentives
      it will provide. During 1998 the Company reduced its plans with respect
      to the initial subscribers receiving significant promotional incentives
      from 500,000 to 380,000.

  (b) the requirement to purchase 500,000 DTH Reception Units from Philips
      prior to June 30, 2000. The Company continues to re-negotiate the terms
      of their agreement with Philips, and during 1998 negotiated an
      extension of the date by which the 500,000 Reception Units must be
      purchased, from December 31, 1999 to June 30, 2000.

  (c) a change in the cable strategy focus from acquisition and build-out of
      cable networks to increased subscriber penetration in existing
      networks. While the Company still plans build-out of the cable network
      in strategic areas, the Company believes the most profitable means of
      expanding its cable television business is to leverage its investment
      in its cable networks by increasing the percentage of homes passed
      which subscribe in its regional clusters.

    Should management decide to change their business plan, including changes
in the above noted assumptions, they are confident that they can raise
additional financing. Future sources of financing for the Company could include
public or private debt or equity offerings or bank financing or any combination
thereof, subject to the restrictions contained in the indentures governing the
Company's senior outstanding indebtedness. However, there can be no assurance
that the Company will be able to do so on satisfactory terms, if at all.


                                      F-89
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

    Based on the above noted financial position and business plans, management
is confident that they will be able to continue as a going concern through June
30, 2000. Accordingly, these consolidated financial statements have been
prepared on a going concern basis which contemplates the continuation and
expansion of trading activities as well as the realization of assets and
liquidation of liabilities in the ordinary course of business.

3. Summary of Significant Accounting Policies

Basis of presentation

    The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
of America ("U.S. GAAP").

    The consolidated financial statements include the financial statements of
@Entertainment, Inc. and its wholly owned and majority owned subsidiaries. Also
consolidated is a 49% owned subsidiary for which the Company maintains control
of operating activities and has the ability to influence the appointment of
members to the Managing Board. All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash and cash equivalents

    Cash and cash equivalents consist of cash and other short-term investments
with original maturates of less than three months.

Use of estimates

    Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with U.S. GAAP. Actual results could differ from those estimates.

Revenue recognition

Cable television revenues:

    Revenue from subscription fees is recognized on a monthly basis as the
service is provided. Installation fee revenue for connection to the Company's
cable television system, is recognized to the extent of direct selling costs
and the balance is deferred and amortized to income over the estimated average
period that new subscribers are expected to remain connected to the systems.

DTH subscription revenues:

    During 1998, the Company commenced sale of its Wizja TV Package (consisting
of a one-year rental of a DTH reception system, installation and a one-year
subscription to the Company's DTH service) to retail customers for one up-front
payment at the time of installation. The Company recognizes subscription
revenues at the time of installation to the extent of direct selling costs
incurred, and the balance is deferred and amortized to income over the
remaining term of the subscription.

Other revenues:

    Advertising revenues are recognized when advertisements are aired under
broadcast contracts.

                                      F-90
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


Taxation

    Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.

U.S. taxation:

    The Company and PCI are subject to U.S. federal income taxation on their
worldwide income. The Polish, United Kingdom and Netherlands corporations are
foreign corporations which are not expected to be engaged in a trade or
business within the U.S. or to derive income from U.S. sources and accordingly,
are not subject to U.S. income tax.

Foreign taxation:

    The Polish companies are subject to corporate income taxes, value added tax
(VAT) and various local taxes within Poland, as well as import duties on
materials imported by them into Poland. Under Polish law, the Polish companies
are exempt from import duties on certain in-kind capital contributions.

    The Polish companies' income tax is calculated in accordance with Polish
tax regulations. Due to differences between accounting practices under Polish
tax regulations and those required by U.S. GAAP, certain income and expense
items are recognized in different periods for financial reporting purposes and
income tax reporting purposes which may result in deferred income tax assets
and liabilities.

Property, plant and equipment

    Property, plant and equipment includes assets used in the development and
operation of the Company's DTH and cable television systems and set-top boxes.
During the period of construction, plant costs and a portion of design,
development and related overhead costs are capitalized as a component of the
Company's investment in DTH and cable television systems. When material, the
Company capitalizes interest costs incurred during the period of construction
in accordance with SFAS No. 34, "Capitalization of Interest Cost". During 1998,
the Company capitalized approximately $664,000 in interest. During 1996 and
1997, no interest costs were capitalized.

    Cable and DTH subscriber related costs and general and administrative
expenses are charged to operations when incurred.

    Depreciation is computed for financial reporting purposes using the
straight-line method over the following estimated useful lives:

<TABLE>
     <S>                                                              <C>
     Cable television system assets..................................   10 years
     DTH system assets...............................................    5 years
     Settop boxes....................................................    5 years
     Vehicles........................................................    5 years
     Other property, plant and equipment............................. 5-10 years
</TABLE>

Inventories for construction

    Inventories for construction are stated at the lower of cost, determined by
the average cost method, or net realizable value. Inventories are principally
related to construction in the various cable television systems.


                                      F-91
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

Goodwill and other intangibles

    Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally ten years, with the exception of amounts
paid relating to non-compete agreements. The portion of the purchase price
relating to the non-compete agreements is amortized over the term of the
underlying agreements, generally five years.

    Through its subsidiaries, the Company has entered into lease agreements
with the Polish national telephone company ("TPSA"), for the use of underground
telephone conduits for cable wiring. Costs related to obtaining conduit and
franchise agreements with housing cooperatives and governmental authorities are
capitalized and amortized generally over a period of ten years. In the event
the Company does not proceed to develop cable systems within designated cities,
costs previously capitalized will be charged to expense.

Programming and broadcast rights

    During 1997 and 1998, the Company entered into contracts for the purchase
of certain exhibition or broadcast rights. Broadcast or exhibition rights
consist principally of rights to broadcast syndicated programs, sports and
feature films and are accounted for as a purchase of rights by the licensee.
The asset and liability for the rights acquired and obligations incurred under
a license agreement are reported by the Company, at the gross amount of the
liability, when the license period begins and certain specified conditions have
been met, in accordance with the guidelines established within SFAS No. 63,
"Financial Reporting by Broadcasters".

Deferred financing costs

    Costs incurred to obtain financing have been deferred and amortized over
the life of the loan using the effective interest method. The amortization of
deferred financing costs is included in interest expense.

Investments in affiliated companies

    Investments in affiliated companies are accounted for using the equity
method. Where the purchase price exceeds the fair value of the Company's
percentage of net assets acquired, the difference is amortized over the
expected period to be benefited as a charge to equity in profits of affiliated
companies. Where the expected period to be benefited is limited by licensing
agreements, the difference is amortized over the term of the licensing
agreement.

Minority interest

    Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.

Stock-based compensation

    The Company has adopted SFAS No. 123, "Accounting For Stock-Based
Compensation", which gives companies the option to adopt the fair value based
method for expense recognition of employee stock options and other stock-based
awards or to account for such items using the intrinsic value method as
outlined under APB Opinion No. 25, "Accounting For Stock Issued To Employees",
with pro forma disclosure of net loss and loss per share as if the fair value
method had been applied. The Company has elected to apply APB Opinion No. 25
and related interpretations for stock options and other stock-based awards.


                                      F-92
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

Foreign currencies

    Foreign currency transactions are recorded at the exchange rate prevailing
at the date of the transactions. Assets and liabilities denominated in foreign
currencies are remeasured at the rates of exchange at balance sheet date. Gains
and losses on foreign currency transactions are included in the consolidated
statement of operations.

    The financial statements of foreign subsidiaries are translated to U.S.
dollars using (i) exchange rates in effect at period end for assets and
liabilities, and (ii) average exchange rates during the period for results of
operations. Adjustments resulting from translation of financial statements are
reflected in accumulated other comprehensive income as a separate component of
stockholders' equity.

    Effective January 1, 1998, Poland is no longer deemed to be a highly
inflationary economy. In accordance with this change, the Company established a
new functional currency basis for non-monetary items of its Polish subsidiaries
in accordance with guidelines established within EITF Issue 92-4, "Accounting
For A Change In Functional Currency When An Economy Ceases To Be Considered
Highly Inflationary". That basis is computed by translating the historical
reporting currency amounts of non-monetary items into the local currency at
current exchange rates. As a result of this change, the Company's functional
currency bases exceeded the local currency tax bases of nonmonetary items. The
difference between the new functional currency and the tax bases have been
recognized as temporary differences.

    Prior to January 1, 1998 the financial statements of foreign subsidiaries
were translated into U.S. dollars using (i) exchange rates in effect at period
end for monetary assets and liabilities, (ii) exchange rates in effect at
transaction dates (historical rates) for non monetary assets and liabilities,
and (iii) average exchange rates during the period for revenues and expenses,
other than those revenues and expenses that relate to non monetary assets and
liabilities (primarily amortization of fixed assets and intangibles) which are
translated using the historical exchange rates applicable to those non monetary
assets and liabilities. Adjustments resulting from translation of financial
statements were reflected as foreign exchange gains or losses in the
consolidated statements of operations.

Fair value of financial instruments

    SFAS No. 107, "Disclosures about Fair Value Of Financial Instruments"
requires the Company to make disclosures of fair value information of all
financial instruments, whether or not recognized on the consolidated balance
sheets, for which it is practicable to estimate fair value.

    The Company's financial instruments include cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses and Notes payable.

    At December 31, 1997 and 1998, the carrying value of cash and cash
equivalents, accounts receivable, and accounts payable and accrued expenses on
the accompanying consolidated balance sheets approximates fair value due to the
short maturity of these instruments.

    At December 31, 1997, the fair value of the Company's notes payable
approximated $128,420,000 based on the last trading price of the Notes payable
in 1997.

    At December 31, 1998, the fair value of the Company's notes payable balance
approximates $230,194,000 based on the last trading price of the Notes payable
in 1998.

Impairment of long-lived assets

    The Company assesses the recoverability of long-lived assets (mainly
property, plant and equipment, intangibles and certain other assets) on a
regular basis by determining whether the carrying value of the assets can be

                                      F-93
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

recovered over the remaining lives through projected undiscounted future
operating cash flows, expected to be generated by such assets. If an impairment
in value is estimated to have occurred, the assets carrying value is reduced to
its estimated fair value. The assessment of the recoverability of long-lived
assets will be impacted if estimated future operating cash flows are not
achieved.

Commitments and contingencies

    Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the assessment
can be reasonably estimated.

Advertising costs

    All advertising costs of the Company are expensed as incurred.

Reclassifications

    Certain amounts have been reclassified in the prior year consolidated
financial statements to conform to the 1998 consolidated financial statement
presentation.

4. Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                            Additions
                                 Balance at Charged to   Amounts   Balance at
                                 January 1   Expense   Written Off December 31
                                 ---------- ---------- ----------- -----------
                                                (in thousands)
   <S>                           <C>        <C>        <C>         <C>
   1996
   Allowance for Doubtful
    Accounts....................    $510      $  358     $  323      $  545
   1997
   Allowance for Doubtful
    Accounts....................    $545      $  494     $  273      $  766
   1998
   Allowance for Doubtful
    Accounts....................    $766      $1,383     $1,054      $1,095
</TABLE>

5. Acquisitions

    During 1998, the Company made several acquisitions of which details follow.
In each case, the acquisition was accounted for using the purchase method,
whereby the purchase price was allocated to the underlying assets and
liabilities based on their proportionate share of fair values on the date of
acquisition and any excess to goodwill. The results of operations of each of
the businesses acquired are included in the Company's consolidated financial
statements since the date of acquisition.

    In February 1998, PCI acquired a cable television business for an aggregate
consideration of approximately $1,574,000. The purchase price exceeded the fair
value of the net liabilities acquired by approximately $2,041,000. In
association with this acquisition, the Company assumed a $2,150,000 loan from
Bank Rozwoju Exportu S.A. (refer to note 11).

    In February and March 1998, the Company acquired the remaining 55% equity
interest in an affiliated company for approximately $9,389,000. The purchase
price exceeded the fair value of the net liabilities acquired by approximately
$9,945,000.

    On July 16, 1998, the Company purchased the remaining 45.25% interest in a
subsidiary of the Company which was held by unaffiliated third parties for an
aggregate purchase price of approximately $10,655,000, of which

                                      F-94
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

approximately $9,490,000 relates to non-compete agreements. The purchase price,
excluding the amount paid relating to the non-compete agreements, exceeded the
fair value of the assets acquired by $604,000. The portion of the purchase
price relating to the non-compete agreements will be amortized over the five-
year term of the agreements.

    On August 15, 1998, PCI purchased the remaining approximately 50% minority
interest in a subsidiary of the Company which was held by unaffiliated third
parties for aggregate consideration of approximately $5,372,000. The purchase
price exceeded the fair value of the assets acquired by $1,104,000.

    Additionally, during 1998 the Company acquired certain cable television
system assets and subscriber lists for aggregate consideration of approximately
$2,000,000. The purchase price did not materially exceed the fair value of the
assets acquired.

    Had these acquisitions occurred on January 1, 1997, the Company's pro-forma
consolidated results for the years ended December 31, 1997 and 1998, would not
be materially different from those presented in the consolidated statements of
operations.

    Effective January 1, 1997, PCI acquired the remaining 51% of a subsidiary
company for aggregate consideration of approximately $9,927,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess to goodwill. The purchase
price exceeded the fair value of the net assets acquired by approximately
$5,556,000.

    In May 1997, PCI acquired a 54.75% ownership interest in a cable television
company for aggregate consideration of approximately $10,925,000. The
acquisition has been accounted for as a purchase with the purchase price
allocated among the assets acquired and liabilities assumed based upon the fair
values at the date of acquisition and any excess as goodwill. The results of
the acquired company have been included with the Company's results since the
date of acquisition. The purchase price exceeded the fair value of the net
assets acquired by approximately $9,910,000. Included in minority interest at
December 31, 1997 is approximately $450,000 relating to the acquisition of this
subsidiary.

    During 1997, the Company acquired certain cable television system assets
and subscriber lists for aggregate consideration of approximately $3,200,000.
The acquisitions have been accounted for as fixed asset purchases with the
purchase price allocated among the fixed assets acquired based upon their fair
values at the dates of acquisition and any excess to goodwill. The purchase
prices exceeded the fair value of the assets acquired by approximately
$548,000.

    During 1996, the Company acquired substantially all of the cable television
system assets of twenty-six cable television companies for aggregate
consideration of approximately $15,600,000. The acquisitions have been
accounted for as purchases with the purchase price allocated among the assets
acquired and liabilities assumed based upon their fair values at the date of
acquisition and any excess as goodwill. The results of the acquired companies
have been included with the Company's results since their dates of acquisition.
The purchase prices exceeded the fair value of the net assets acquired by
approximately $5,800,000.

6. Programming and Broadcast Rights

    Programming and broadcast rights include approximately $894,000 and
$9,030,000 related to certain broadcast rights purchased as of December 31,
1997 and 1998, respectively, but not yet available for viewing.

                                      F-95
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


7. Other Current and Non-Current Assets

    Included in other current assets are $1,322,000 and $8,785,000 of VAT
receivables as of December 31, 1997 and 1998, respectively.

    Also included in other current assets at December 31, 1997 and 1998 are
prepayments of $9,000,000 and $8,300,000, respectively, to Philips Business
Electronics B.V. ("Philips") toward the supply of decoders, satellite dishes
and services used in the Company's DTH satellite transmission system
("Reception Systems").

    Included in other non-current assets at December 31, 1997 and 1998 are
deferred financing costs of $7,122,000 and $12,146,000, respectively relating
to the Company's notes payable (refer to note 11).

    Included in other non-current assets at December 31, 1997 is a prepayment
of approximately $1,200,000 toward the formation of a programming related joint
venture with World Shopping Network Plc. As a final agreement was never
consummated, the amount was expensed in 1998.

8. Intangible assets

    Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1997     1998
                                                               -------  -------
                                                               (in thousands)
      <S>                                                      <C>      <C>
      Conduit and franchise agreements........................ $ 5,391  $ 5,409
      Goodwill................................................  13,338   27,510
      Non-compete agreements..................................   9,406   19,006
      Other...................................................   1,543    1,336
                                                               -------  -------
                                                                29,678   53,261
      Less accumulated amortization...........................  (3,360)  (9,609)
                                                               -------  -------
      Net intangible assets................................... $26,318  $43,652
                                                               =======  =======
</TABLE>

9. Investments in Affiliated Companies


    Investment in affiliated companies at December 31, 1998 consist of 20% of
the common stock of Fox Kids Poland Ltd. ("FKP") and 50% of the common stock of
Twoj Styl Sp. z o.o. ("Twoj Styl"). At December 31, 1997 investments in
affiliated companies also included 45% of the common stock of GZM. During 1998,
the Company acquired the remaining interest in GZM (refer to note 5).

    In December 1997, the Company acquired a 20% interest in FKP, a joint
venture formed to provide programming to the Company for an aggregate purchase
price of approximately $10,000,000. The purchase price exceeded the fair value
of the Company's ownership percentage of net assets by approximately
$10,000,000. This difference is being amortized over five years as a charge to
equity in profits of affiliated companies. During 1998, the Company contributed
an additional $4,926,000 to the joint venture which was accounted for as an
additional investment in affiliated companies. For the years ended December 31,
1997 and 1998, the Company recorded losses related to this investment of $0 and
$6,343,000, respectively.

    In December 1997, the Company acquired a 50% interest in Twoj Styl, a
magazine publishing company for an aggregate purchase price of approximately
$11,100,000. In 1998, the Company paid approximately $302,000 for stamp duty
and professional fees, which was added to the cost of the investment. The
purchase price exceeded the

                                      F-96
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

fair value of the Company's ownership percentage of net assets by approximately
$9,600,000. This difference is being amortized over ten years as a charge to
equity in profits of affiliated companies. For the years ended December 31,
1997 and 1998, the Company recorded a profit/(loss) related to this investment
of $152,000 and $(181,000), respectively. In addition, the Company agreed to
provide additional future financing to Twoj Styl, either debt or equity, of up
to $7,700,000 to develop Polish-language programming and ancillary services. As
of December 31, 1998, no additional financing had been provided.

    It was not practicable to estimate the market value of the investments in
affiliated companies due to the nature of these investments, the relatively
short existence of the affiliated companies and the absence of quoted market
price for the affiliated companies.

10. Income Taxes

    Income tax (expense)/benefit consists of:

<TABLE>
<CAPTION>
                                                  Current  Deferred    Total
                                                  -------  --------  ---------
                                                        (in thousands)
   <S>                                            <C>      <C>       <C>
                                                  =======  ========  =========
   Year ended December 31, 1996:
     U.S. Federal................................ $  (714) $    --   $    (714)
     State and local.............................    (531)      --        (531)
     Foreign.....................................     (28)      --         (28)
                                                  -------  --------  ---------
                                                  $(1,273) $    --   $  (1,273)
                                                  =======  ========  =========
   Year ended December 31, 1997:
     U.S. Federal................................ $ 1,438  $    --   $   1,438
     State and local.............................     --        --         --
     Foreign.....................................    (463)      --        (463)
                                                  -------  --------  ---------
                                                  $   975  $    --   $     975
   Year ended December 31, 1998:
     U.S. Federal................................ $   --   $    --   $     --
     State and local.............................     --        --         --
     Foreign.....................................    (210)      --        (210)
                                                  -------  --------  ---------
                                                  $  (210) $    --   $    (210)
                                                  =======  ========  =========

    Sources of loss before income taxes and minority interest are presented as
follows:

<CAPTION>
                                                   Year ended December 31,
                                                  ----------------------------
                                                   1996      1997      1998
                                                  -------  --------  ---------
                                                        (in thousands)
   <S>                                            <C>      <C>       <C>
   Domestic loss................................. $(2,602) $(20,628) $ (52,341)
   Foreign loss..................................  (4,632)  (31,585)   (73,154)
                                                  -------  --------  ---------
                                                  $(7,234) $(52,213) $(125,855)
                                                  =======  ========  =========
</TABLE>

                                      F-97
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    Income tax (expense)/benefit for the years ended December 31, 1996, 1997,
and 1998 differed from the amounts computed by applying the U.S. federal income
tax rate of 34 percent to pretax loss as a result of the following:

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                  ---------------------------
                                                   1996      1997      1998
                                                  -------  --------  --------
                                                       (in thousands)
   <S>                                            <C>      <C>       <C>
   Computed "expected" tax benefit............... $ 2,460  $ 17,752  $ 43,061
   Non-deductible expenses.......................     (17)     (101)   (1,635)
   Change in valuation allowance.................  (3,504)  (15,424)  (30,299)
   Adjustment for change in functional currency
    bases........................................     --        --    (11,311)
   Adjustment to deferred tax asset for enacted
    changes in tax rates.........................     --       (789)     (695)
   Foreign tax rate differences..................    (184)     (463)      606
   Other.........................................     (28)      --         63
                                                  -------  --------  --------
                                                  $(1,273) $    975  $   (210)
                                                  =======  ========  ========
</TABLE>

    The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>
                                                              December 31,
                                                            ------------------
                                                              1997      1998
                                                            --------  --------
                                                             (in thousands)
   <S>                                                      <C>       <C>
   Deferred tax assets:
     Foreign net operating loss carryforward............... $  6,471  $ 27,930
     Domestic net operating loss carryforward..............      --      7,459
     Interest income.......................................    1,946     2,650
     Service revenue.......................................    1,948     2,101
     Accrued liabilities...................................    2,964     4,061
     Deferred costs........................................    2,001     6,447
     Stock options.........................................    2,950     2,950
     Deferred interest.....................................      --      2,183
     Unrealized foreign exchange losses....................    5,614     9,066
     Other.................................................      139     1,393
                                                            --------  --------
   Total gross deferred tax assets.........................   24,033    66,240
   Less valuation allowance................................  (24,033)  (54,332)
                                                            --------  --------
   Net deferred tax assets................................. $    --   $ 11,908
                                                            ========  ========
   Deferred tax liabilities:
     Fixed assets depreciation............................. $    --   $(11,786)
     Other.................................................      --       (122)
     Total gross deferred tax liabilities.................. $    --   $(11,908)
                                                            --------  --------
     Net deferred tax liability............................ $    --   $    --
                                                            ========  ========
</TABLE>

    The net increase in the valuation allowance for the years ended December
31, 1996, 1997 and 1998 was $667,000, $3,504,000 and $30,299,000 respectively.
In assessing the realiability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers
projected future

                                      F-98
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

taxable income and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing valuation
allowances at December 31, 1998.

    Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1998 will be reported in the
consolidated statement of operations.

    Foreign loss carryforwards can be offset against the PTK Companies' taxable
income and utilized at a rate of one-third per year in each of the three years
subsequent to the year of the loss. If there is no taxable income in a given
year during the carryforward period, the portion of the loss carryforward to be
utilized is permanently forfeited. For losses incurred in U.S. taxable years
prior to 1998, loss carryforwards can be applied against taxable income three
years retroactively and fifteen years into the future. For losses incurred in
U.S. taxable years from 1998, loss carryforwards can be applied against taxable
income two years retroactively and twenty years into the future.

    At December 31, 1998, the Company has foreign net operating loss
carryforwards of approximately $104,087,000, which will expire as follows:

<TABLE>
<CAPTION>
      Year ending December 31,                                   (in thousands)
      ------------------------                                   --------------
      <S>                                                        <C>
       1999.....................................................    $ 28,066
       2000.....................................................      26,814
       2001 and thereafter......................................      49,207
                                                                    --------
                                                                    $104,087
                                                                    ========
</TABLE>

11. Notes payable

    Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                             -----------------
                                                               1997     1998
                                                             -------- --------
                                                              (in thousands)
   <S>                                                       <C>      <C>
   @Entertainment Notes, net of discount.................... $    --  $125,513
   PCI Notes, net of discount...............................  129,578  129,627
   American Bank in Poland S.A. ("AmerBank") revolving
    credit loan.............................................      --     6,500
   Bank Rozwoju Exportu S.A. Deutsche Mark facility.........      --     1,912
   Other....................................................      532      402
                                                             -------- --------
                                                              130,110  263,954
   less: current portion....................................      --     6,500
                                                             -------- --------
   Notes payable, net of current portion.................... $130,110 $257,454
                                                             ======== ========
</TABLE>

@Entertainment Notes

    On July 14, 1998, the Company sold 252,000 units (collectively, the
"Units") to two initial purchasers pursuant to a purchase agreement, each Unit
consisting of $1,000 principal amount at maturity of 14 1/2% Senior Discount
Notes (the "Notes") due 2008 and four warrants (each a "Warrant"), each
initially entitling the holder thereof to purchase 1.81 shares of common stock,
par value $0.01 per share (the "Common Stock") at an exercise price of $13.20
per share, subject to adjustment.

                                      F-99
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    The Notes were issued at a discount to their aggregate principal amount at
maturity and, together with the Warrants generated gross proceeds to the
Company of approximately $125,100,000 of which $117,485,000 has been allocated
to the initial accreted value of the Notes and approximately $7,615,000 has
been allocated to the Warrants. The portion of the proceeds that is allocable
to the Warrants was accounted for as part of paid-in capital. The allocation
was made based on the relative fair values of the two securities at the time of
issuance. Net proceeds to the Company after deducting initial purchasers'
discount and offering expenses were approximately $118,972,000.

    The Notes are unsubordinated and unsecured obligations. Cash interest on
the Notes will not accrue prior to July 15, 2003. Thereafter cash interest will
accrue at a rate of 14.5% per annum and will be payable semiannually in arrears
on January 15 and July 15 of each year, commencing January 15, 2004. The Notes
will mature on July 15, 2008. At any time prior to July 15, 2001, the Company
may redeem up to a maximum of 25% of the originally issued aggregate principal
amount at maturity of the notes at a redemption price equal to 114.5% of the
accreted value thereof at the redemption date, plus accrued and unpaid
interest, if any, to the date of redemption with some or all of the net cash
proceeds of one or more public equity offerings; provided, however, that not
less than 75% of the originally issued aggregate principal amount at maturity
of the notes remains outstanding immediately after giving effect to such
redemption. The effective interest rate of the notes is approximately 16.5%.

    The Warrants initially entitle the holders thereof to purchase an aggregate
of 1,824,514 shares of Common Stock, representing, in the aggregate,
approximately 5% of the outstanding Common Stock on a fully-diluted basis
immediately after giving effect to the sale of the Units. The Warrants are
exercisable at any time and will expire on July 15, 2008.

    Pursuant to the Indenture governing the Notes (the "Indenture"), the
Company is subject to certain restrictions and covenants, including, without
limitation, covenants with respect to the following matters: (i) limitation on
additional indebtedness; (ii) limitation on restricted payments; (iii)
limitation on issuance and sales of capital stock of restricted subsidiaries;
(iv) limitation on transactions with affiliates; (v) limitation on liens; (vi)
limitation on guarantees of indebtedness by restricted subsidiaries; (vii)
purchase of notes upon a change of control; (viii) limitation on sale of
assets; (ix) limitation on dividends and other payment restrictions affecting
restricted subsidiaries; (x) limitation on investments in unrestricted
subsidiaries; (xi) limitation on lines of business; and (xii) consolidations,
mergers and sales of assets. The Company is in compliance with these covenants.

PCI Notes

    On October 31, 1996, PCI sold $130,000,000 aggregate principal amount of
Senior Notes ("PCI Notes") to an initial purchaser pursuant to a purchase
agreement. The initial purchaser subsequently completed a private placement of
the PCI Notes. In June 1997, substantially all of the outstanding PCI Notes
were exchanged for an equal aggregate principal amount of publicly-registered
PCI Notes.

    The PCI Notes have an interest rate of 9 7/8% and a maturity date of
November 1, 2003. Interest is paid on the PCI Notes on May 1 and November 1 of
each year. As of December 31, 1997 and 1998 the Company accrued interest
expense of $2,175,000 and $2,140,000, respectively.

    Prior to November 1, 1999, PCI may redeem up to a maximum of 33% of the
initially outstanding aggregate principal amount of the PCI Notes with some or
all of the net proceeds of one or more public equity offerings at a redemption
price equal to 109.875% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption; provided that immediately
after giving effect to such redemption, at least $87 million aggregate
principal amount of the PCI Notes remains outstanding.

                                     F-100
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    The PCI Notes are net of unamortized discount of $422,000 and $373,000 at
December 31, 1997 and 1998, respectively. The effective interest rate of the
PCI Notes is approximately 11.3%.

    PCI has pledged to State Street Bank and Trust Company, the trustee for the
PCI Notes (for the benefit of the holders of the PCI Notes) intercompany notes
issued by PCBV, of a minimum aggregate principal amount (together with cash and
cash equivalents of PCI), equal to at least 110% of the outstanding principal
amount of the PCI Notes, and that, in the aggregate, provide cash collateral or
bear interest and provide for principal repayments, as the case may be, in
amounts sufficient to pay interest on the PCI Notes. Notes payable from PCBV to
PCI were $134,509,000 and $160,450,000 at December 31, 1997 and 1998,
respectively.

    Pursuant to the PCI Indenture, PCI is subject to certain restrictions and
covenants, including, without limitation, covenants with respect to the
following matters: (i) limitation on additional indebtedness; (ii) limitation
on restricted payments; (iii) limitation on issuances and sales of capital
stock of subsidiaries; (iv) limitation on transactions with affiliates; (v)
limitation on liens; (vi) limitation on guarantees of indebtedness by
subsidiaries; (vii) purchase of PCI Notes upon a change of control; (viii)
limitation on sale of assets; (ix) limitation on dividends and other payment
restrictions affecting restricted subsidiaries; (x) limitation on investments
in unrestricted subsidiaries; (xi) limitation on lines of business; and (xii)
consolidations, mergers and sales of assets. The Company is in compliance with
these covenants.

    Condensed parent only financial statements of @ Entertainment, Inc. are
provided in Note 12 in compliance with the requirements of Rules 5-04 and 12-04
of the Securities and Exchange Commission's Regulation S-X.

American Bank in Poland S.A. revolving credit loan

    The revolving credit loan allowing the Company to borrow up to a maximum
principal amount of $6,500,000 on or before December 31, 1998, was fully drawn
as of December 31, 1998. The facility bears interest at LIBOR plus 3.0% (8.0%
as at December 31, 1998), is repayable in full on August 20, 1999, and is
secured by promissory notes en blanc from certain of the Company's
subsidiaries, and pledges of the shares of certain of the Company's
subsidiaries.

Bank Rozwoju Eksportu S.A. Deutsche-Mark facility

    The Deutsche-Mark facility represents a credit facility of DM 3,948,615 of
which approximately DM 3,204,000 was outstanding at December 31, 1998. The
facility bears interest at LIBOR plus 2.0% (5.3% as at December 31, 1998), is
repayable in full on December 27, 2002, and is ultimately secured by a pledge
of the common shares of one of the Company's subsidiaries.

    Interest expense relating to notes payable was in the aggregate
approximately $4,687,000, $13,902,000 and $21,535,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.

    During 1996, the Company recorded an extraordinary loss related to the
early retirement of debt. The extraordinary loss was comprised of a $147,000
prepayment penalty and a $1,566,000 write-off of deferred financing costs.

                                     F-101
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


12. Condensed Parent Only Financial Information of @Entertainment

    The following parent only condensed financial statements were prepared in
accordance with generally accepted accounting principles in the United States
of America in a manner consistent with the consolidated financial statements
except that all subsidiaries have been accounted for under the equity method.
The parent only condensed financial statements as of and for periods prior to
the Reorganization represent those of PCI.

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                                 ----------------------------
                                                  1996      1997      1998
                                                 -------  --------  ---------
                                                       (in thousands)
   <S>                                           <C>      <C>       <C>
   Operating costs and expenses:
   Selling, general and administrative
    expenses.................................... $ 1,061  $ 14,662  $   8,700
                                                 -------  --------  ---------
   Operating loss...............................  (1,061)  (14,662)    (8,700)
   Interest and investment income...............   1,076     2,489      8,458
   Interest expense.............................  (2,612)      --      (8,608)
   Foreign exchange gain, net...................     --        --          36
   Equity in losses of affiliated companies.....  (2,775)  (42,651)  (117,251)
                                                 -------  --------  ---------
   Loss before income taxes.....................  (5,372)  (54,824)  (126,065)
   Income tax expense...........................  (1,245)      --         --
                                                 -------  --------  ---------
   Net loss.....................................  (6,617)  (54,824)  (126,065)
   Accretion of redeemable preferred stock......  (2,870)   (2,436)       --
   Preferred stock dividend.....................  (1,738)      --         --
   Deficit/(excess) of carrying value of
    preferred stock under/(over) consideration
    paid........................................   3,549   (33,806)       --
                                                 -------  --------  ---------
   Net loss applicable to holders of common
    stock....................................... $(7,676) $(91,066) $(126,065)
                                                 =======  ========  =========
</TABLE>

                   CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                   Year ended December 31,
                                                  ----------------------------
                                                   1996      1997      1998
                                                  -------  --------  ---------
   <S>                                            <C>      <C>       <C>
   Net loss...................................... $(6,617) $(54,824) $(126,065)
   Other comprehensive income:
     Translation adjustment......................     --       (218)      (249)
                                                  -------  --------  ---------
                                                  $(6,617) $(55,042) $(126,314)
                                                  =======  ========  =========
</TABLE>

                                     F-102
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                               December 31,
                                                            -------------------
                                                              1997      1998
                                                            --------  ---------
                                                              (in thousands)
   <S>                                                      <C>       <C>
   Assets
   Cash and cash equivalents..............................  $ 71,565  $   3,070
   Accounts receivable, net...............................       290        168
   Other current assets...................................        74      1,123
                                                            --------  ---------
     Total current assets.................................    71,929      4,361
   Other assets...........................................    11,252     17,230
   Net investment in restricted net assets of wholly-owned
    subsidiaries..........................................   121,977    102,344
   Net investment in unrestricted net assets of wholly-
    owned subsidiaries....................................   (51,822)    37,312
                                                            --------  ---------
     Total assets.........................................  $153,336  $ 161,247
                                                            ========  =========
   Liabilities and Stockholders' Equity
   Accounts payable and accrued expenses..................  $    981  $   2,078
   Notes payable..........................................       --     125,513
                                                            --------  ---------
     Total liabilities....................................       981    127,591
   Stockholders' equity:
   Preferred stock, $0.01 par value; Authorized 20,000,000
    shares; none issued and outstanding...................       --         --
   Common stock, $.01 par value; Authorized 70,000,000
    shares in 1997 and 1998; issued and outstanding
    33,310,000 shares in 1997 and 1998....................       333        333
   Paid-in capital........................................   230,339    237,954
   Accumulated other comprehensive income.................      (218)      (467)
   Accumulated deficit....................................   (78,099)  (204,164)
                                                            --------  ---------
     Total stockholders' equity...........................   152,355     33,656
                                                            --------  ---------
     Total liabilities and stockholders' equity...........  $153,336  $ 161,247
                                                            ========  =========
</TABLE>

                                     F-103
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

            CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           Accumulated
                          Preferred stock      Common Stock                   Other
                          ----------------  ------------------  Paid-in   Comprehensive Accumulated
                          Shares   Amount     Shares   Amount   Capital      Income       Deficit     Total
                          ------  --------  ---------- -------  --------  ------------- ----------- ---------
                                               (in thousands, except share amounts)
<S>                       <C>     <C>       <C>        <C>      <C>       <C>           <C>         <C>
Balance January 1,
 1996...................     985  $ 10,311      11,037 $ 4,993  $  1,544      $ --       $ (16,658) $     190
Net loss................     --        --          --      --        --         --          (6,617)    (6,617)
Stock dividend..........     166     1,738         --      --     (1,738)       --             --         --
Issuance of stock.......     --        --        7,911  (4,992)   53,837        --             --      48,845
Preferred stock
 redemption.............  (1,151)  (12,049)        --      --      3,549        --             --      (8,500)
Accretion of redeemable
 preferred stock........     --        --          --      --     (2,870)       --             --      (2,870)
Reorganization..........     --        --   18,929,052     188      (188)       --             --         --
                          ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance January 1,
 1997...................     --   $    --   18,948,000 $   189  $ 54,134      $ --       $ (23,275) $  31,048
Net loss................     --        --          --      --        --         --         (54,824)   (54,824)
Translation adjustment..     --        --          --      --        --        (218)           --        (218)
Net proceeds from
 initial
 public offering........     --        --    9,500,000      95   183,197        --             --     183,292
Purchase of PCI series A
 and C redeemable
 preferred stock........     --        --          --      --    (33,806)       --             --     (33,806)
Accretion of redeemable
 preferred stock........     --        --          --      --     (2,436)       --             --      (2,436)
Conversion of series B
 redeemable preferred
 stock..................     --        --    4,862,000      49    11,148        --             --      11,197
Stock option
 compensation expense...     --        --          --      --     18,102        --             --      18,102
                          ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance December 31,
 1997...................     --   $    --   33,310,000 $   333  $230,339      $(218)     $ (78,099) $ 152,573
Net loss................     --        --          --      --        --         --        (126,065)  (126,065)
Translation adjustment..     --        --          --      --        --        (249)           --        (249)
Warrants attached to
 Senior Discount Notes..     --        --          --      --      7,615        --             --       7,615
                          ------  --------  ---------- -------  --------      -----      ---------  ---------
Balance December 31,
 1998...................     --   $    --   33,310,000 $   333  $237,954      $(467)     $(204,164) $  34,123
                          ======  ========  ========== =======  ========      =====      =========  =========
</TABLE>

                                     F-104
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                                ------------------------------
                                                  1996       1997      1998
                                                ---------  --------  ---------
                                                       (in thousands)
<S>                                             <C>        <C>       <C>
Cash flows from operating activities:
  Net loss..................................... $  (6,617) $(54,824) $(126,065)
  Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities:
    Amortization of notes payable discount and
     issue costs...............................       164     1,040      8,301
    Loss of subsidiaries.......................    12,862    42,651    117,070
    Gain on sale of investment securities......       --       (358)       --
    Non-cash stock option compensation
     expense...................................       --      8,677        --
    Equity in losses of affiliated companies...       --        --        (181)
  Changes in operating assets and liabilities:
    Accounts receivable........................       (35)     (142)       122
    Other current assets.......................    (1,300)      114     (1,049)
    Other assets...............................       --        --        (121)
    Accounts payable and accrued expenses......     2,855    (2,008)     1,097
    Income taxes payable.......................     4,472    (4,472)       --
                                                ---------  --------  ---------
      Net cash provided by/(used in) operating
       activities..............................    12,401    (9,322)      (826)
                                                ---------  --------  ---------
Cash flows from investing activities:
    Proceeds from maturity of investment
     securities................................   (25,115)   25,473        --
    Investment in, and loans and advances to
     affiliated companies......................  (122,337) (111,670)  (186,809)
    Purchase of other assets...................    (8,200)  (11,252)       --
                                                ---------  --------  ---------
      Net cash used in investing activities....  (155,652)  (97,449)  (186,809)
                                                ---------  --------  ---------
Cash flows from financing activities:
    Net proceeds from issuance of stock........    81,001   183,292        --
    Redemption of preferred stock..............    (8,500)  (60,000)       --
    Costs to obtain loans......................    (6,513)      --      (5,960)
    Proceeds from issuance of Notes payable....   136,074       --     117,485
    Proceeds from issuance of warrants.........       --        --       7,615
    Repayment of notes payable.................   (10,000)      --         --
      Net cash provided by financing
       activities..............................   192,062   123,292    119,140
                                                ---------  --------  ---------
      Net increase/(decrease) in cash and cash
       equivalents.............................    48,811    16,521    (68,495)
                                                ---------  --------  ---------
Cash and cash equivalents at beginning of
 year..........................................     6,233    55,044     71,565
                                                ---------  --------  ---------
Cash and cash equivalents at end of period..... $  55,044  $ 71,565  $   3,070
                                                =========  ========  =========
Supplemental cash flow information:
  Cash paid for interest....................... $   2,338  $    --   $     --
                                                =========  ========  =========
  Cash paid for income taxes................... $   1,184  $    --   $     --
                                                =========  ========  =========
</TABLE>


                                     F-105
<PAGE>

                             @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                       December 31, 1996, 1997 and 1998

13. Related Party Transactions

   During the ordinary course of business, the Company enters into
transactions with affiliated parties. The principal related party transactions
are described below.

Programming

   Programming is provided to the Company by certain of its affiliates. The
Company incurred programming fees from these affiliates of $412,000, $559,000
and $418,000 for the years ended December 31, 1996, 1997 and 1998.

Print media services

   An affiliate of the Company provides print media services to the Company.
The Company incurred operating costs related to these services of $4,355,000
for the year ended December 31, 1998. The Company did not incur any costs from
this affiliate prior to 1998.

14. Per Share Information

   Basic loss per share has been computed by dividing net loss attributable to
common stockholders by the weighted average number of common shares
outstanding during the year. The effect of potential common shares (stock
options and warrants outstanding) is antidilutive, accordingly, dilutive loss
per share is the same as basic loss per share.

   The Company has presented historical loss per common share information
assuming the common stock exchange of 1 to 1,000 shares occurred on January 1,
1995.

   The following table provides a reconciliation of the numerator and
denominator in the loss per share calculation:

<TABLE>
<CAPTION>
                                                             Three months ended
                              Year ended December 31,             March 31,
                             ----------------------------  -----------------------
                              1996      1997      1998        1998        1999
                             -------  --------  ---------  ----------- -----------
                                                           (unaudited) (unaudited)
   <S>                       <C>      <C>       <C>        <C>         <C>
   Net loss attributable to
    common stockholders
    (in thousands).........  $(7,676) $(91,066) $(126,065)  $(17,296)   $(35,417)
   Weighted average number
    of common shares
    outstanding (in
    thousands).............   17,271    24,771     33,310        --          --
   Nominal issuance (in
    thousands).............      346       --         --         --          --
   Basic weighted average
    number of common shares
    outstanding (in
    thousands).............   17,617    24,771     33,310     33,310      33,361
   Loss per share-basic and
    diluted................  $ (0.44) $  (3.68) $   (3.78)  $  (0.52)   $  (1.06)
</TABLE>

15. Stock Option Plan

   On June 22, 1997, the Company adopted a stock option plan (the "1997 Plan")
pursuant to which the Company's Board of Directors may grant stock options to
officers, key employees and consultants of the Company. The 1997 Plan
authorizes grants of options to purchase up to 4,436,000 shares, subject to
adjustment in accordance with the 1997 Plan. At December 31, 1998, options for
3,924,000 shares had been granted. Of this amount, 1,671,000 options became
exercisable upon the IPO but cannot be sold for a period of two years from
July 30, 1997.

   The Company granted 1,671,000 stock options in January 1997 at a price
substantially below the IPO price of $21.00 per share. Such options vested in
full upon the completion of the IPO. In accordance with generally accepted
accounting principles, the Company recognized approximately $18,102,000 of
compensation expense included in selling, general, and administrative expenses
for these options in 1997 representing the difference between the

                                     F-106
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

exercise price of the options and the fair market value of the shares on the
date of grant. All other stock options were granted with exercise prices at or
below the fair market value of the shares on the date of grant.

    Future stock options are granted with an exercise price that must be at
least equal to the stock's fair market value at the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value on the
grant date and the maximum term of an incentive stock option must not exceed
five years. The term of all other options granted under the 1997 Plan may not
exceed ten years. Options become exercisable at such times as determined by the
Board of Directors and as set forth in the individual stock option agreements.
Generally, all stock options vest ratably over 2 to 5 years commencing one year
after the date of grant.

    Stock option activity during the periods indicated is as follows:

<TABLE>
<CAPTION>
                                                                   Weighted
                                                      Number of    Average
                                                       shares   Exercise Price
                                                      --------- --------------
   <S>                                                <C>       <C>
   Balance at January 1, 1996........................       --      $  --
   Granted...........................................   241,000     $ 1.99
   Balance at December 31, 1996 (none exercisable)...   241,000     $ 1.99
   Granted........................................... 2,083,000     $ 5.98
   Balance at December 31, 1997 (none exercisable)... 2,324,000     $ 5.57
   Granted........................................... 1,600,000     $12.31
   Balance at December 31, 1998 (2,643,000 exercis-
    able)............................................ 3,924,000     $ 8.32
</TABLE>

    No options were exercised or forfeited during 1998.

    At December 31, 1998 the range of exercise prices, weighted-average
remaining contractual life and number exercisable of outstanding options was as
follows:

<TABLE>
<CAPTION>
                                                       Weighted-Average
                                                         Contractual
           Range of         Number of Weighted-Average  Remaining Life    Number    Weighted-Average
       Exercise Prices       Shares    Exercise Price      (Years)      Exercisable  Exercise Price
       ---------------      --------- ---------------- ---------------- ----------- ----------------
   <S>                      <C>       <C>              <C>              <C>         <C>
   1.99-3.79............... 1,912,000       3.51             5.44        1,912,000        3.51
   12.00-15.24............. 2,012,000      12.89             8.98          731,900       12.46
                            ---------                                    ---------
                            3,924,000       8.32                         2,643,900        5.98
</TABLE>

    The per share weighted-average fair value of stock options granted during
1998 was $4.22 on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: expected volatility
43.0%, expected dividend yield 0.0%, risk-free interest rate of 5.72%, and an
expected life of 4 years.

    Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss and
net loss per share would have increased to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                                 ----------------------------
                                                  1996      1997      1998
                                                 -------  --------  ---------
                                                   (in thousands, except
                                                      per share data)
<S>                                              <C>      <C>       <C>
Net loss-as reported............................ $(6,617) $(54,824) $(126,065)
Net loss-pro forma.............................. $(6,617) $(56,607) $(131,511)
Basic and diluted net loss per share--as
 reported....................................... $ (0.44) $  (3.68) $   (3.78)
Basic and diluted loss per share-pro forma...... $ (0.44) $  (3.75) $   (3.95)
</TABLE>


                                     F-107
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

16. Leases

Building Leases

    The Company leases several offices and warehouses within Poland under
cancelable operating leases. The Company has a noncancelable operating lease
for a building in the United Kingdom which houses the majority of its technical
equipment relating to the DTH network. The noncancelable lease expires in 2002,
and contains a renewal option for an additional five years. Future minimum
lease payments as of December 31, 1998 are $2,725,000 in 1999, $2,806,000 in
2000, $2,890,000 in 2001 and $2,977,000 in 2002.

DTH Technical Equipment Lease

    The Company has an eight year agreement with British Telecommunications plc
("BT") for the lease and maintenance of certain satellite uplink equipment. The
agreement requires the payment of equal monthly installments of $50,000
approximating future minimum commitments of $600,000 in 1999, $576,000 in 2000,
$576,000 in 2001, $576,000 in 2002 and $1,728,000 in 2003 and thereafter. Other
than the BT uplink equipment, the Company owns all of the required broadcasting
equipment at its transmission facility in the United Kingdom.

Conduit Leases

    The Company also leases space within various telephone duct systems from
TPSA under cancelable operating leases. The TPSA leases expire at various
times, and a substantial portion of the Company's contracts with TPSA permit
termination by TPSA without penalty at any time either immediately upon the
occurrence of certain conditions or upon provision of three to six months
notice without cause. Refer to note 19 for further detail.

    All of the agreements provide that TPSA is the manager of the telephone
duct system and will lease space within the ducts to the Company for
installation of cable and equipment for the cable television systems. The lease
agreements provide for monthly lease payments that are adjusted quarterly or
annually, except for the Gdansk lease agreement which provides for an annual
adjustment after the sixth year and then remains fixed through the tenth year
of the lease.

    Minimum future lease commitments for the aforementioned conduit leases
relate to 1999 only, as all leases are cancelable in accordance with the
aforementioned terms. The future minimum lease commitments related to these
conduit leases approximates $622,000 for the six months ending June 30, 1999.

Transponder Leases

    During 1997, the Company entered into certain operating leases pursuant to
which the Company is liable for charges associated with each of its three
transponders on the Astra satellites, which can amount to a maximum of
$6,750,000 per year for each transponder and up to $182 million for all three
transponders for the term of their leases. The future minimum lease payments
applicable to the transponders approximate $20,250,000 in 1999, $20,250,000 in
2000, $20,250,000 in 2001, $20,250,000 in 2002 and $101,250,000 in 2003 and
thereafter. The leases for the two transponders on the Astra 1F satellite and
the transponder on the Astra 1G satellite will expire in 2007. The Company's
transponder leases provide that the Company's rights are subject to termination
in the event that the lessor's franchise is withdrawn by the Luxembourg
Government.

    Total rental expense associated with the aforementioned operating leases
for the years ended December 31, 1996, 1997 and 1998 was $892,000, $3,696,000
and $10,521,000, respectively.


                                     F-108
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

17. Segment Information

    @Entertainment and its subsidiaries operate in three business segments: (1)
cable television, (2) digital direct-to-home television and programming, and
(3) corporate functions. The accounting policies of the segments are the same
as those described in the summary of significant accounting policies. The
Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices. In addition
to other operating statistics, the Company measures its financial performance
by EBITDA, an acronym for earnings before interest, taxes depreciation and
amortization. The Company defines EBITDA to be net loss adjusted for interest
and investment income, depreciation and amortization, interest expense, foreign
currency gains and losses, equity in losses of affiliated companies, income
taxes, extraordinary items, non-recurring items (e.g., compensation expense
related to stock options), gains and losses from the sale of assets other than
in a normal course of business and minority interest. The items excluded from
EBITDA are significant components in understanding and assessing the Company's
financial performance. The Company believes that EBITDA and related measures of
cash flow from operating activities serve as important financial indicators in
measuring and comparing the operating performance of media companies. EBITDA is
not a U.S. GAAP measure of loss or cash flow from operations and should not be
considered as an alternative to cash flows from operations as a measure of
liquidity.

<TABLE>
<CAPTION>
                                                DTH and
                                     Cable    Programming Corporate    Total
                                    --------  ----------- ---------  ---------
                                                 (in thousands)
   <S>                              <C>       <C>         <C>        <C>
   1998
   .Revenues from external
    customers.....................  $ 52,971   $  8,888   $    --    $  61,859
   Intersegment revenues..........       --      13,432        --       13,432
   Operating loss.................   (23,066)   (69,047)    (8,700)   (100,813)
   EBITDA.........................    (1,431)   (64,378)    (8,700)    (74,509)
   Depreciation and amortization..   (21,635)    (4,669)       --      (26,304)
   Investment in equity method
    investees.....................       --       8,533     11,373      19,956
   Segment total assets...........   193,785    132,998     21,591     348,374
   Expenditures for segment
    assets........................    42,639     72,353        --      114,992
   1997
   Revenues from external
    customers.....................  $ 38,138   $    --    $    --    $  38,138
   Intersegment revenues..........       --         --         --          --
   Operating loss.................   (20,308)   (10,210)   (12,152)    (42,670)
   EBITDA.........................     5,387    (10,186)    (3,475)     (8,274)
   Net loss.......................   (35,087)    (7,668)   (12,069)    (54,824)
   Significant non-cash items:
   Stock option compensation
    expense.......................     9,425        --       8,677      18,102
   Investment in equity method
    investees.....................       --      10,876     11,252      21,628
   Segment total assets...........   187,449     36,466     83,181     307,096
   Expenditures for segment
    assets........................    33,786      5,857        --       39,643
   Three months ended March 31,
    1999 (unaudited)
   Revenues from external
    customers.....................  $ 14,783   $  4,016   $    --    $  18,799
   Intersegment revenues..........       --       5,132        --        5,132
   Operating loss.................    (4,264)   (18,318)    (1,661)    (24,243)
   EBITDA.........................     1,685    (14,865)    (1,658)    (14,838)
   Segment total assets...........   169,711    139,389    138,440     447,540
   Three months ended March 31,
    1998 (unaudited)
   Revenues from external
    customers.....................  $ 12,093   $    593   $    --    $  12,686
   Intersegment revenues..........       --         --         --          --
   Operating loss.................      (936)   (10,634)    (2,788)    (14,358)
   EBITDA.........................     3,899    (10,520)    (2,788)     (9,409)
   Segment total assets...........   196,789     60,607     46,401     303,797
</TABLE>


                                     F-109
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

    In 1997, the cable segment includes the activities of Mozaic Entertainment,
Inc., a subsidiary which provided programming content for the cable business.
In 1998, the Company's programming activity related solely to the development
of the Wizja TV platform and has been included in the DTH and programming
segment. For the year ended December 31, 1997, Mozaic Entertainment, Inc.
revenues and operating loss were $563,000 and $2,071,000, respectively. For the
year ended December 31, 1998, Mozaic Entertainment, Inc. was dormant. During
1996 the Company operated in one business segment (cable).

    Total revenues and long-lived assets for the Company analyzed by
geographical location is as follows:

<TABLE>
<CAPTION>
                                           Total Revenues      Long-lived Assets
                                       ----------------------- -----------------
                                       Year ended December 31,   December 31,
                                        1996    1997    1998     1997     1998
                                       ------- ------- ------- -------- --------
                                           (in thousands)       (in thousands)
   <S>                                 <C>     <C>     <C>     <C>      <C>
   Poland............................. $24,923 $38,138 $61,859 $152,614 $257,625
   United Kingdom.....................     --      --      --     7,930   20,208
   Other..............................     --      --      --       --        29
                                       ------- ------- ------- -------- --------
   Total.............................. $24,923 $38,138 $61,859 $160,544 $277,862
                                       ======= ======= ======= ======== ========
</TABLE>

    All of the Company's revenue is derived from activities carried out in
Poland. Long-lived assets consist of property, plant, and equipment,
inventories for construction, intangible assets, and other assets.

18. Commitments and Contingencies

Purchase Commitments

    The Company has concluded an agreement with Philips, whereby Philips will
supply reception systems, as well as retail, installation and support services
in connection with the launch of the Company's DTH business in Poland. Philips
will be the exclusive supplier to the Company of the first 500,000 DTH
reception systems and will not distribute any other digital integrated receiver
decoders under the Philips trademark in Poland until December 31, 1999 or any
earlier date on which the Company has secured 500,000 initial subscribers to
its DTH service in Poland. Philips has granted the Company an exclusive license
of its CryptoWorks(R) technology in Poland for the term of the agreement, which
will terminate when the Company has purchased 500,000 DTH reception systems
from Philips, unless terminated earlier in accordance with the terms of the
agreement or extended by mutual consent of Philips and the Company. As of
December 31, 1998, the Company had an aggregate minimum commitment toward the
purchase of the Reception Systems of approximately $129,213,000 up to June 30,
2000.

Programming, Broadcast and Exhibition Right Commitments

    The Company has entered into long-term programming agreements and
agreements for the purchase of certain exhibition or broadcast rights with a
number of third party content providers for its DTH and cable systems. The
agreements have terms which range from one to seven years and require that the
license fees be paid either at a fixed amount payable at the time of execution
or based upon a guaranteed minimum number of subscribers connected to the
system each month. At December 31, 1998, the Company had an aggregate minimum
commitment in relation to these agreements of approximately $214,299,000 over
the next seven years, approximating $37,198,000 in 1999, $38,428,000 in 2000,
$40,627,000 in 2001, $44,837,000 in 2002 and $53,209,000 in 2003 and
thereafter.

Consulting Agreements

    The Company has entered into a two-year consultancy arrangement with Samuel
Chisholm and David Chance (each individually a "Consultant"), pursuant to which
the Company will pay to a Consultant a fee of $10,000 per

                                     F-110
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

consultancy day, based on a minimum, on average over each 12 month period, of a
total of 4 Consultancy Days per month, and the Company will pay an additional
fee of $10,000 to a Consultant for any additional days in any month on which a
Consultant provides consulting services to the Company. The consultancy
agreement is not subject to cancellation by either party except as a result of
a breach of the consultancy agreement.

Regulatory Approvals

    The Company is in the process of permits from the Polish State Agency for
Radiocommunications ("PAR") for several of its cable television systems. If
these permits are not obtained, PAR could impose penalties such as fines or in
severe cases, revocation of all permits held by an operator or the forfeiture
of the operator's cable networks. Management of the Company does not believe
that these pending approvals result in a significant risk to the Company.

Litigation and Claims

    On April 17, 1998, the Company signed a letter of intent with Telewizyjna
Korporacja Partycypacyjna S.A. ("TKP") and the shareholders of TKP, namely,
Canal+ S.A., Agora S.A., and PolCom Invest S.A. which provided for bringing
together the Company's Wizja TV programming platform and the Canal+ Polska
premium pay television channel and for the joint development and operation of a
DTH service in Poland. The letter of intent called for the Company to invest
approximately $112 million in TKP, and to sell substantially all of the
Company's DTH and programming assets to TKP for approximately $42 million. The
TKP joint venture was to be owned 40% by the Company, 40% by Canal+ S.A., 10%
by Agora S.A. and 10% by PolCom Invest S.A, The letter of intend contained a
standstill provision whereby neither the Company nor TKP could, for a period of
45 days after the execution of the letter of intent, launch any digital pay
television service. As a result, the Company postponed its launch of the Wizja
TV programming package and its DTH service which was originally scheduled for
April 18, 1998. The establishment of the joint venture was subject to the
execution of definitive agreements, regulatory approvals and certain other
closing conditions.

    The definitive agreements were not agreed and executed by the parties by
the date set forth in the letter of intent (the "Signature Date"). Therefore,
the Company terminated the letter of intent on June 1, 1998. TKP and its
shareholders have informed the Company that they believe the Company did not
have the right to terminate the letter of intent.

    Under the terms of the letter of intent, TKP is obligated to pay the
Company a $5 million break-up fee within 10 days of the signature date if the
definitive agreements were not executed by the signature date, unless the
failure to obtain such execution was caused by the Company's breach of any of
its obligations under the letter of intent. If there was any such breach by the
Company, the Company would be obligated to pay TKP $10 million. However, if any
breach of the letter of intent by TKP caused the definitive agreements not to
be executed, TKP would be obligated to pay the Company a total of $10 million
(including the $5 million break-up fee). In the event that TKP fails to pay the
Company any of the above-referenced amounts owed to the Company, TKP's
shareholders are responsible for the payment of such amounts.

    The Company has demanded TKP to pay the Company the $5 million break-up fee
as a result of the failure to execute the definitive agreements by the
signature date. While the Company was waiting for the expiration of the 10-day
period for payment of the break-up fee, TKP initiated arbitration proceedings
before a three-member arbitration panel in Geneva, Switzerland. In the
arbitration proceedings TKP and its shareholders contend that the Company
breached the letter of intent, that such breach was the cause of the parties'
failure to agree and execute the definitive agreements, and that the Company is
therefore liable for $10 million in damages under the letter of intent. In its
response the Company denies these allegations and claims that TKP is liable for
at least $15 million in damages pursuant to the letter of intent.

                                     F-111
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    This $15 million figure is composed of a claim for a $5 million break-up
fee, $5 million in damages due to the claim that TKP and its shareholders
breached the letter of intent, thereby causing the parties' failure to agree
and execute the definitive agreements, and at least $5 million as an
indemnification for liabilities incurred by the Company as a result of certain
actions taken with respect to assets to be acquired or contracts to be assumed
by TKP. The Company does not believe that the arbitration proceedings will have
a material adverse effect on its business, financial condition or results of
operations.

    Two of the Company's cable television subsidiaries and four other unrelated
Polish cable operators and HBO Polska Sp. z o.o., have been made defendants in
a lawsuit instituted by Polska Korporacja Telewizyjna Sp. z o.o., a subsidiary
of Canal+. The primary defendant in the proceedings is HBO Polska Sp. z o.o.
which is accused of broadcasting the HBO television program in Poland without a
license from the Council as required by the Radio and Television Act of 1992,
as amended, and thereby undertaking an activity constituting an act of unfair
competition. The Company does not believe that the final disposition of the
lawsuit will have a material adverse effect on its consolidated financial
position or results of operations.

    From time to time, the Company is subject to various claims and suits
arising out of the ordinary course of business. While the ultimate result of
all such matters is not presently determinable, based upon current knowledge
and facts, management does not expect that their resolution will have a
material adverse effect on the Company's consolidated financial position or
results of operations.

19. Concentrations of Business and Credit Risk

DTH Business

    The Company expects to experience substantial operating losses and negative
free cash flows for at least the next two years due to (i) the large
investments required for the acquisition of equipment and facilities for its
DTH business, including providing DTH reception systems to 380,000 initial
subscribers at a price significantly decreased by promotional incentives
pursuant to the Company's business strategy, and the administrative costs
required in connection with commencing its DTH business operations and (ii) the
large investments required to develop, produce and acquire the programming for
Wizja TV. There can be no assurance that the Company will be able to generate
operating income or positive cash flows in the future or that its operating
losses and negative cash flows will not increase.

Supplier Agreement

    Certain critical components and services used in the Company's DTH
satellite transmission system, including the DTH reception system, as well as
retail, installation and support services, are initially to be provided
exclusively by Philips. The Company has concluded an agreement with Philips
providing for Philips to be the exclusive supplier to the Company of the first
500,000 DTH reception systems in connection with the launch of the Company's
DTH business in Poland. Philips has granted the Company an exclusive license of
its CryptoWorks7 technology in Poland for the term of the agreement, which will
terminate when the Company has purchased 500,000 DTH reception systems from
Philips, unless terminated earlier in accordance with the terms of the
agreement or extended by mutual consent of Philips and the Company. Philips has
agreed not to distribute any other IRDs under the Philips' trademark in Poland
until December 31, 1999 or any earlier date on which the Company has secured
500,000 initial subscribers to its DTH service in Poland. The Company's
agreement with Philips provides that after such period the Company may license
one or two suppliers of IRDs in addition to Philips and Philips shall license
its CryptoWorks7 technology to such additional suppliers for the Polish market.
Although the agreement with Philips provides a means by which the Company could
obtain a second and third supplier for all or part of its future requirements
for DTH reception systems, there can be no assurance that the Company will be
able to secure such additional suppliers.

                                     F-112
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998


    The failure of Philips to deliver DTH reception systems on schedule, or at
all, would delay or interrupt the development and operation of the Company's
DTH service and thereby could have a material adverse effect on the Company's
business, financial condition and results of operations.

    The Company's agreement with Philips provides for full distribution,
installation and servicing through more than 1,200 Philips authorized
electronics retailers located throughout Poland. Philips has agreed to
distribute a complete subscription package, comprising the DTH reception
system, as well as the necessary installation and support services through
Philips' retail network in Poland, and will therefore be the primary point of
contact for subscribers to the Company's DTH service. Failure by Philips'
retail network to provide the desired levels of service, quality and expertise
(which are outside the control of the Company) could have a material adverse
impact on the Company's operations and financial condition.

Piracy

    The delivery of subscription programming requires the use of encryption
technology to prevent signal theft or "piracy." Historically, piracy in the
cable television and European A-DTH industries has been widely reported. The
Company's IRDs incorporate Philips' CryptoWorks(R) proprietary encryption
technology as part of its conditional access system. These IRDs use smartcard
technology, making it possible to change the conditional access system in the
event of a security breach either through over-the-air methods such as issuing
new electronic decryption "keys" over-the-air as part of the Company's regular
DTH broadcasts or by issuing new smartcards. To the Company's knowledge, there
has not been a breach of CryptoWorks(R) since its introduction in Malaysia in
1996. To the extent a breach occurs, the Company will take countermeasures,
including over-the-air measures and, if necessary, the replacement of
smartcards. Although the Company expects its conditional access system,
subscriber management system and smartcard system to adequately prevent
unauthorized access to programming, there can be no assurance that the
encryption technology to be utilized in connection with the Company's DTH
system will remain effective. If the encryption technology is compromised in a
manner which is not promptly corrected, the Company's revenue and its ability
to contract or maintain contracts for programming services from unrelated third
parties would be adversely affected.

Use of TPSA Conduits

    The Company's ability to build out its existing cable television networks
and to integrate acquired systems into its cable television networks depends
on, among other things, the Company's continued ability to design and obtain
access to network routes, and to secure other construction resources, all at
reasonable costs and on satisfactory terms and conditions. Many of such factors
are beyond the control of the Company. In addition, at December 31, 1998,
approximately 56.5% of the Company's cable plant had been constructed utilizing
pre-existing conduits of TPSA. A substantial portion of the Company's contracts
with TPSA for the use of such conduits permits termination by TPSA without
penalty at any time either immediately upon the occurrence of certain
conditions or upon provision of three to six months' notice without cause.

Limited Insurance Coverage

    While the Company carries general liability insurance on its properties,
like many other operators of cable television systems it does not insure the
underground portion of its cable television networks. Due to the high cost of
insurance policies relating to satellite operations, the Company does not
insure against possible interruption of access to the transponders leased by it
for satellite transmission of its broadcasting. Accordingly, any catastrophe
affecting a significant portion of the Company's cable television networks or
disrupting its access to its leased satellite transponders could result in
substantial uninsured losses and could have a material adverse effect on the
Company.


                                     F-113
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

Year 2000

    The Company's cable television, DTH and programming operations are
dependent upon computer systems and other technological devices with imbedded
microprocessor chips that are intended to utilize dates and process data beyond
December 31, 1999. In January 1997, the Company developed a plan to address the
impact that potential year 2000 problems may have on Company operations and to
implement necessary changes to address such problems (the "Y2K Plan"). During
the course of the development of its Y2K Plan, the Company has identified
certain critical operations, which need to be year 2000 compliant for the
Company to operate effectively. These critical operations include accounting
and billing systems, customer service and service delivery systems, and field
and headend devices.

    Largely as a result of its high rate of growth over the past few years, the
Company has entered into an agreement to purchase a new system to replace its
current accounting system and an agreement to purchase specialized billing
software for the Company's new customer service and billing center. The vendors
of the new accounting system and of the billing software have confirmed to the
Company that these products are year 2000 compliant. The Company has completed
the testing phase of the new accounting system, and the implementation phase
was substantially completed at the end of 1998. The Company has implemented the
new billing software for DTH subscribers and expects implementation of the
billing software to be completed for the majority of its cable subscribers by
the end of 1999.

    The Company believes that its most significant year 2000 risk is its
dependency upon third party programming, software, services and equipment,
because the Company does not have the ability to control third parties in their
assessment and remediation procedures for potential year 2000 problems. Should
these parties not be prepared for year 2000 conversion, their products or
services may fail and may cause interruptions in, or limitations upon, the
Company's provision of the full range of its DTH and/or cable service to its
customers. In an effort to prevent any such interruptions or limitations, the
Company is in the process of communicating with each of its material third
party suppliers of programming, software, services and equipment to determine
the status of their year 2000 compliance programs. The Company expects to
complete this process by September 30, 1999, and it anticipates that all phases
of its Y2K Plan will be completed by December 31, 1999.

    The Company has not yet developed a contingency plan to address the
situation that may result if the Company or its third party suppliers are
unable to achieve year 2000 compliance with regard to any products or services
utilized in the Company's operations. The Company does not intend to decide on
the development of such a contingency until it has gathered all of the relevant
Year 2000 compliance data from its third party suppliers.

    The Company has not yet determined the full cost of its Y2K Plan and its
related impact on the financial condition of the Company. The Company has to
date not incurred any replacement or remediation costs for equipment or systems
as a result of year 2000 non-compliance. Rather, due to the rapid growth and
development of its cable system and its DTH service, the Company had made
substantial capital investments in equipment and systems for reasons other than
year 2000 concerns. The total cost of the Company's new accounting system and
billing software package is estimated to be approximately $2,400,000.

    The Company believes that any year 2000 compliance issues it may face can
be remedied without a material financial impact on the Company, but no
assurance can be made in this regard until all of the data has been gathered
from the Company's third party suppliers. At this date the Company cannot
predict the financial impact on its operations if year 2000 problems are caused
by products or services supplied to the Company by such third parties.

Credit Worthiness

    All of the Company's customers are located in Poland. As is typical in this
industry, no single customer accounted for more than five percent of the
Company's sales in 1997 or 1998. The Company estimates an allowance

                                     F-114
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

for doubtful accounts based on the credit worthiness of its customers as well
as general economic conditions. Consequently, an adverse change in those
factors could effect the Company's estimate of its bad debts.

20. Subsequent Events

Units Offering

    On January 22, 1999, the Company sold 256,800 Units to two initial
purchasers pursuant to a purchase agreement, each Unit consisting of $1,000
principal amount at maturity of 14 1/2% Senior Discount Notes due 2009 and four
warrants, each initially entitling the holder thereof to purchase 1.7656 shares
of common stock, par value $0.01 per share at an exercise price of $9.125 per
share, subject to adjustment.

    The Notes were issued at a discount to their aggregate principal amount at
maturity and, together with the Warrants generated gross proceeds to the
Company of approximately $100,003,000 of which $92,551,000 has been allocated
to the initial accreted value of the notes and approximately $7,452,000 has
been allocated to the Warrants. The portion of the proceeds that is allocable
to the Warrants will be accounted for as part of paid-in capital. The
allocation was made based on the relative fair values of the two securities at
the time of issuance. Net proceeds to the Company after deducting initial
purchasers' discount and offering expenses were approximately $96,000,000.

    The Notes are unsubordinated and unsecured obligations. Cash interest on
the Notes will not accrue prior to February 1, 2004. Thereafter cash interest
will accrue at a rate of 14.5% per annum and will be payable semiannually in
arrears on August 1 of each year and February 1 of each year, commencing August
1, 2004. The notes will mature on February 1, 2009. At any time prior to
February 1, 2002, the Company may redeem up to a maximum of 35% of the
originally issued aggregate principal amount at maturity of the notes at a
redemption price equal to 117.5% of the accreted value thereof at the
redemption date, plus accrued and unpaid interest, if any, to the date of
redemption with some or all of the net cash proceeds of one or more public
equity offerings; provided, however, that not less than 65% of the originally
issued aggregate principal amount at maturity of the notes remains outstanding
immediately after giving effect to such redemption.

    The Warrants initially entitle the holders thereof to purchase 1,813,665
shares of Common Stock, representing, in the aggregate, approximately 5% of the
outstanding Common Stock on a fully-diluted basis (using the treasury stock
method) immediately after giving effect to the offering and Preference
Offering. The Warrants are exercisable at any time and will expire on February
1, 2009.

    Pursuant to the Indenture governing the Notes, the Company is subject to
certain restrictions and covenants, including, without limitation, covenants
with respect to the following matters: (i) limitation on additional
indebtedness; (ii) limitation on restricted payments; (iii) limitation on
issuance and sales of capital stock of restricted subsidiaries; (iv) limitation
on transactions with affiliates; (v) limitation on liens; (vi) limitation on
issuance of guarantees of indebtedness by restricted subsidiaries; (vii)
purchase of Notes upon a change of control; (viii) limitation on sale of
assets; (ix) limitation on dividends and other payment restrictions affecting
restricted subsidiaries; (x) limitation on investments in unrestricted
subsidiaries; (xi) limitation on lines of business; and (xii) consolidations,
mergers and sales of assets. The Company is in compliance with these covenants.

    Costs associated with the notes offering of approximately $3,875,000,
including the initial purchasers' discount will be capitalized and amortized
over the term of the Notes.

    Also on January 22, 1999 @Entertainment sold Series A 12% Cumulative
Preference Shares and Series B 12% Cumulative Preference Shares (collectively,
the "Cumulative Preference Shares") and warrants (each a "Preference Warrant")
for total gross proceeds of $50 million (before deducting commissions and
offering costs of approximately $1.8 million). Dividends (whether or not earned
or declared) will cumulate on a daily basis from the original issue

                                     F-115
<PAGE>

                              @ENTERTAINMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                        December 31, 1996, 1997 and 1998

date and will be payable semi-annually in arrears on March 31, and September 30
of each year, commencing on March 31, 1999 (each a "Dividend Payment Date") to
holders of record on the fifteenth day immediately preceding the relevant
Dividend Payment Date. The Company at its option may, but shall not be required
to, redeem in US Dollars for cash the Cumulative Preference Shares, including
any Series B Cumulative Preference Shares, at any time on or after March 31,
2000, in whole or in part, at the redemption price of 112% of the sum of (i)
the Initial Liquidation Preference ($50 million in the aggregate) and (ii)
accumulated and unpaid dividends, if any, to the date of redemption. On January
30, 2010, the Company will be required (subject to contractual and other
restrictions on the ability to redeem capital stock) to redeem all outstanding
Cumulative Preference Shares, including any Series B Cumulative Preference
Shares, at a price in US Dollars equal to the Initial Liquidation Preference
thereof plus all accumulated and unpaid dividends thereon (if any) to the date
of redemption. The Company will not be required to make sinking fund payments
with respect to the Cumulative Preference Shares. The Preference Warrants
initially entitle the holders thereof to purchase an aggregate of 5.5 million
shares of Common Stock at an exercise price of $10.00 per share. The preferred
shares will be classified outside of stockholders' equity.

Series C Notes Offering

    On January 20, 1999, the Company sold $36,001,321 aggregate principal
amount at maturity of its Series C Notes due 2008. The Series C Notes are
senior unsecured obligations of the Company ranking pari passu in right of
payment with all other existing and future unsubordinated obligations of the
Company. The Series C Notes were issued at a discount to their aggregate
principal amount at maturity and generated gross proceeds to the Company of
approximately $9.8 million. Net proceeds to the Company after deducting the
initial purchaser's discount and offering expenses were approximately $9.4
million. The original issue discount will accrete from January 20, 1999 until
the stated maturity of the Series C Notes on July 15, 2008. In addition, cash
interest on the Series C Notes will accrue from July 15, 2004 at a rate of 7.0%
per annum on the principal amount at maturity, and will be payable semiannually
in arrears on July 15 and January 15 of each year commencing January 15, 2005.
Prior to July 15, 2004 there will be no accrual of cash interest on the Series
C Notes. The Series C Notes will mature on July 15, 2008.

    Pursuant to the Series C Indenture, the Company is subject to certain
restrictions and covenants, including, without limitation, covenants with
respect to the following matters: (i) limitation on additional indebtedness;
(ii) limitation on restricted payments; (iii) limitation on issuance and sales
of capital stock of restricted subsidiaries; (iv) limitation on transactions
with affiliates; (v) limitation on liens; (vi) limitation on guarantees of
indebtedness by restricted subsidiaries; (vii) purchase of Notes upon a change
of control; (viii) limitation on sale of assets; (ix) limitation on dividends
and other payment restrictions affecting restricted subsidiaries; (x)
limitation on investments in unrestricted subsidiaries; (xi) limitation on
lines of business; and (xii) consolidations, mergers and sales of assets. The
Company is in compliance with these covenents.

21. Subsequent Events (unaudited)

    On February 25, 1999, @Entertainment purchased for approximately $1.8
million a 30% interest in Mozowiecki Klub Sporting Sportowa S.A., a joint stock
company which owns Hoop Pekoes Pruszkow, a Polish basketball team. In
connection with this acquisition @Entertainment has agreed to act as a sponser
for Hoop Pekaes Pruskow.

    On March 31, 1999 a subsidiary of PCI purchased certain cable television
system assets for an aggregate consideration of approximately $509,000. The
acquisition was accounted for using the purchase method. Whereby the purchase
price was allocated among the fixed assets acquired based on their fair value
on the date of acquisition and any access to goodwill. The purchase price
exceeded fair value of the assets acquired by approximately $108,000.

    In June 1999, United Pan-Europe Communications N.V. ("UPC") agreed to
acquire @Entertainment. The purchase price is approximately $1,254.7 million,
including UPC's assumption of $373.7 million of our debt as of March 31, 1999.
UPC commenced a tender offer for all of our outstanding shares on a fully-
diluted basis on June 8, 1999.

                                     F-116
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Introduction

    We have audited the consolidated balance sheets of A2000 Holding N.V.,
Eindhoven, The Netherlands, as of December 31, 1997 and 1998 and the related
consolidated statements of income and shareholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

Scope

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

Opinion

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of A2000 Holding N.V. as of
December 31, 1997 and 1998 and of the results of its operations and its cash
flows for the years then ended in accordance with accounting principles
generally accepted in The Netherlands.

    Generally accepted accounting principles in The Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States. Application of generally accepted accounting principles in the
United States would have affected total assets, results of operations and
shareholders' equity as at and for the years ended December 31, 1997 and 1998
to the extent summarized in Note 21 to the consolidated financial statements.

                                  ARTHUR ANDERSEN

Amstelveen, The Netherlands,
March 9, 1999

                                     F-117
<PAGE>

                               A2000 HOLDING N.V.

                        (Before allocation of net loss)
                   (Currency -- Thousands of Dutch guilders)

<TABLE>
<CAPTION>
                                March 31,
                                  1999      1998     1997
                               ----------- -------  -------
                               (unaudited)
<S>                            <C>         <C>      <C>
ASSETS
Fixed Assets:
  Intangible fixed assets.....   110,568   113,362  123,307
  Tangible fixed assets.......   364,394   356,623  309,292
  Financial fixed assets......       325       325      325
                                --------   -------  -------
      Total fixed assets......   475,287   470,310  432,924
                                --------   -------  -------
Current Assets:
  Inventory...................    14,460    15,932    9,496
  Prepaid on inventory........       --        --     2,980
                                --------   -------  -------
                                  14,460    15,932   12,476
                                --------   -------  -------
  Accounts receivable:
    Trade.....................    26,202    19,484   20,194
    Other receivables and
     prepaid expenses.........     1,862     2,075    2,818
                                --------   -------  -------
                                  28,064    21,559   23,012
                                --------   -------  -------
  Securities..................       218       218      218
  Cash........................       249       369    6,868
                                --------   -------  -------
      Total current assets....    42,991    38,078   42,574
                                --------   -------  -------
      Total assets............   518,278   508,388  475,498
                                ========   =======  =======
SHAREHOLDERS' EQUITY AND
 LIABILITIES
Shareholders' equity..........  (100,338)  (86,248) (20,240)
                                --------   -------  -------
Provisions....................     1,581     1,610      319
                                --------   -------  -------
Long-term loans...............   458,000   458,000  426,000
                                --------   -------  -------
Short-term liabilities:
  Bank........................    44,318    48,183      --
  Suppliers...................    25,013    30,098   41,541
  Shareholders................    47,231    23,248    4,792
  Affiliated companies........       675       886      466
  Taxes and social security
   contributions..............     7,454     5,907    2,436
  Other debts and accrued
   liabilities................    34,344    26,704   20,184
                                --------   -------  -------
      Total short-term
       liabilities............   159,035   135,026   69,419
                                --------   -------  -------
      Total shareholders'
       equity and
       liabilities............   518,278   508,388  475,498
                                ========   =======  =======
</TABLE>

                                     F-118
<PAGE>

                               A2000 HOLDING N.V.

                        CONSOLIDATED STATEMENT OF INCOME
                    (Currency--Thousands of Dutch guilders)

<TABLE>
<CAPTION>
                                        March 31,   March 31,
                                          1999        1998      1998     1997
                                       ----------- ----------- -------  -------
                                       (Unaudited) (Unaudited)
<S>                                    <C>         <C>         <C>      <C>
Revenues..............................    35,979      29,428   124,167  100,677
                                         -------     -------   -------  -------
Cost of operating expenses:
  Wages and salaries..................     7,760       5,460    29,290   21,205
  Depreciation/amortization of
   (in)tangible fixed assets..........    14,455      16,064    73,254   49,478
  Loss (gain) on disposal of assets...       502         (12)       85    1,443
  Other operating expenses............    17,345      17,818    64,312   46,222
                                         -------     -------   -------  -------
                                          40,062      39,330   166,941  118,348
                                         -------     -------   -------  -------
    Operating result..................    (4,083)     (9,902)  (42,774) (17,671)
                                         -------     -------   -------  -------
Financial income and expense:
  Currency exchange gain/(loss).......    (2,982)       (473)    1,100     (364)
  Interest income.....................       103         355       674      523
  Interest expense....................    (7,128)     (5,221)  (25,021) (16,444)
                                         -------     -------   -------  -------
                                         (10,007)     (5,339)  (23,247) (16,285)
                                         -------     -------   -------  -------
    Result before credit from income
     taxes............................   (14,090)    (15,241)  (66,021) (33,956)
                                         -------     -------   -------  -------
Credit from income taxes..............         0           0        13    9,826
                                         -------     -------   -------  -------
    Net loss..........................   (14,090)    (15,241)  (66,008) (24,130)
                                         =======     =======   =======  =======
</TABLE>

                                     F-119
<PAGE>

                               A2000 HOLDING N.V.

                        CONSOLIDATED CASH FLOW STATEMENT
                   (Currency -- Thousands of Dutch Guilders)

<TABLE>
<CAPTION>
                                        March 31, March 31,
                                          1999      1998      1998      1997
                                        --------- --------- --------  --------
                                        Unaudited Unaudited
<S>                                     <C>       <C>       <C>       <C>
Cash flows from operating activities:
  Net loss.............................  (14,090)  (15,241)  (66,008)  (24,130)
                                         -------   -------  --------  --------
  Depreciation of tangible fixed
   assets..............................   11,661    13,660    63,193    39,739
  Amortization of intangible fixed
   assets..............................    2,794     2,404    10,061     9,739
  In (decrease) provisions.............      (29)    1,384     1,291   (10,425)
                                         -------   -------  --------  --------
                                          14,426    17,448    74,545    39,053
                                         -------   -------  --------  --------
  Increase inventory...................    1,472   (16,182)   (3,456)   (3,772)
  Decrease/(increase) in receivables...   (6,505)    3,729     1,453    (5,744
  Increase in short-term liabilities
   other than loans....................    3,330     8,482       874    27,897
                                         -------   -------  --------  --------
    Change in working capital..........   (1,703)   (3,971)   (1,129)   18,381
                                         -------   -------  --------  --------
    Net cash from operating
     activities........................   (1,367)   (1,764)    7,408    33,304
                                         -------   -------  --------  --------
Cash flows from investing activities:
  Additions to tangible fixed assets,
   net.................................  (19,432)  (17,778) (110,524) (118,498)
  Additions to intangible fixed
   assets..............................      --        --       (116)   (1,326)
                                         -------   -------  --------  --------
    Net cash used in investing
     activities........................  (19,432)  (17,778) (110,640) (119,824)
                                         -------   -------  --------  --------
Cash flows from financing activities:
  Proceeds from long-term loans........      --     12,000    32,000    60,000
  Proceeds from short-term loans.......  (20,679)      --     64,733       --
                                         -------   -------  --------  --------
    Net cash from financing
     activities........................  (20,679)   12,000    96,733    60,000
                                         -------   -------  --------  --------
    Net decrease in cash...............     (120)   (7,542)   (6,499)  (26,520)
                                         =======   =======  ========  ========
Supplemental cash flow disclosures:
  Cash paid for interest...............   (6,281)   (2,235)  (23,635)  (18,701)
  Cash received for interest...........      --        --        --        --
</TABLE>

                                     F-120
<PAGE>

                               A2000 HOLDING N.V.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   (Currency -- Thousands of Dutch Guilders)

1.General

(a)Activities

    A2000 Holding N.V. ("the company"), having its legal seat in Eindhoven, is
engaged in the holding of subsidiaries. The subsidiaries are engaged in the
construction, maintenance and exploitation of cable related infrastructure with
the purpose of passing on radio-and television signals and to provide data and
telecommunication services.

(b)Shareholders

    The company is equally owned by the following shareholders (50%:)

  .MediaOne International B.V. ("MediaOne"), formerly US West International
      B.V., legally seated in Eindhoven

  .United Telekabel Holding N.V. ("UTH"), legally seated in Amsterdam

    During 1998, the former direct shareholder United Pan-European
Communications B.V. ("UPC"), contributed its share in the company into UTH,
which is held for 51% by UPC at December 31, 1998.

(c)Parent companies related transactions

    The company is charged by the parent companies for services supplied and
interest. In 1998 UPC charged an amount of 2,187 for interest, salaries and
related costs for employees seconded to A2000. The charges from MediaOne in
1998 relate to interest and salaries of 2,206.

(d)Comparative financial statements

    Certain reclassifications have been made to the December 31, 1997 financial
statements for comparative purposes.

(e)Interim Financial Statements

    The interim financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 are unaudited. In management's opinion,
the unaudited financial statements as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 include all adjustments necessary for fair
presentation. Such adjustments were of a normal recurring nature.

(f)Use of estimates

    The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that effect amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results may differ from the estimates.

                                     F-121
<PAGE>

                              A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


2.Principles of Consolidation

   All significant intercompany balances and transactions are eliminated in
consolidation. The consolidated financial statements include the financial
statements of the company and the following wholly owned subsidiaries, all
having their legal seat in Amsterdam:

  .  Kabeltelevisie Amsterdam B.V. ("KTA")

  .  A2000 Hilversum B.V.

3.Accounting Principles

(a)General

   Assets and liabilities are stated at face value unless indicated otherwise.

   Assets and liabilities denominated in foreign currencies are translated
into Dutch guilders at the yearend exchange rate. Transactions in foreign
currencies are translated at the exchange rate in effect at the time of the
transaction. The exchange results are recorded under financial income and
expense in the statement of income.

(b)Intangible fixed assets

   Costs in connection with the financing are capitalized and amortized over
the duration of the underlying loan.

   Costs in connection with the launch of new services are capitalized and
amortized on a straight-line basis over a period of 5 years.
   The intangible fixed assets originating from the acquisition of the
Purmerend, Ouderkerk aan de Amstel and Hilversum networks represent the
difference of the acquisition cost and the purchase price of the tangible
fixed assets at the time of the acquisition.

   The intangible fixed assets originating from the acquisition of KTA and the
cable networks of Zaanstaad and Landsmeer represent the difference of the net
asset value and the acquisition cost of the investment at the time of the
acquisition. The net asset value is determined taking the fair value of the
tangible fixed assets on the acquisition date into account.

   The intangible fixed assets are amortized on a straight-line basis over a
period of 15 years.

(c) Tangible fixed assets

   Tangible fixed assets are stated at the acquisition cost, less straight-
line depreciation. The depreciation is calculated on the basis of acquisition
cost less residual value and the estimated useful life of the related asset.
The estimated useful lives are:

<TABLE>
        <S>                                               <C>
        Buildings........................................   25 years
        Networks......................................... 8-15 years
        Other tangible fixed assets...................... 3-10 years
</TABLE>

   The acquisition cost of the tangible fixed assets of newly acquired
subsidiaries is based on the fair value of these tangible fixed assets at the
time of acquisition.


                                     F-122
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)

(d) Financial Fixed Assets

    The investments in other subsidiaries are stated at acquisition cost or, in
case of permanent impairment of the value of the subsidiaries, at lower equity
value as determined on the basis of the financial statements of the subsidiary.

    Receivables are stated at face value, unless indicated otherwise.

(e) Inventory

    Inventory is stated at the lower of (first-in, first-out) cost or market
value.

(f) Accounts receivable

    Accounts receivable are stated at face value, less an allowance for
possible uncollectable accounts.

(g) Securities

    Securities are stated at the lower of purchase price or market value.

(h)Provisions

    Provisions represent the present value of personnel reorganization
commitments (calculated at an interest rate of 7%) and a provision for
voluntary early retirement of certain employees of the company. The voluntary
early retirement provision is calculated by an independent actuary, using an
interest rate of 4%.

(i)Recognition of income

    Net sales are determined on the basis of the value (excluding taxes) of the
subscriptions, usage, signal deliveries and program suppliers invoiced.

    Other revenues and expenses are recorded in the period in which they
originate.

(j)Recoverability of Tangible and Intangible Assets

    The company evaluates the carrying value of all tangible and intangible
fixed assets whenever events or circumstances indicate the carrying value of
assets may exceed their recoverable amounts. An impairment loss is recognized
when the estimated future cash flows (undiscounted and without interest)
expected to result from the use of an asset are less than the carrying amount
of the asset. Measurement of an impairment loss is based on fair value of the
asset computed using discounted cash flows if the asset is expected to be held
and used. Measurement of an impairment loss for an asset held for sale would be
based on fair market value less estimated costs to sell.

(k)Concentration of credit risk

    Financial instruments which potentially subject the company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited due
to the company's large number of customers and their dispersion across many
different countries in Europe.

(l)New United States Accounting Principles

    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which requires that a

                                     F-123
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)

public business enterprise report certain financial and descriptive information
about its reportable segments. The Company adopted SFAS 131 for the year ended
December 31, 1998 and March 31, 1999.

    In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for the Costs of Computer
Software Developed of Obtained for Internal Use" ("SOP 98-1"), which provides
guidance on accounting for the costs of computer software developed or obtained
for internal use. SOP 98-1 identifies the characteristics of internal-use
software and provides examples to assist in determining when computer software
is for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998, for projects in progress and
prospectively, with earlier application encouraged. The company has adopted the
principles of this statement in the accompanying financial statements.

    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The company is currently assessing the
effect of this new standard.

4. Intangible Fixed Assets

    The movement in intangible fixed assets is as follows:

<TABLE>
<CAPTION>
                            Book Value                                 Book Value
                          January 1, 1998   Additions  Amortization December 31, 1998
                         ----------------- ----------- ------------ -----------------
<S>                      <C>               <C>         <C>          <C>
Goodwill and licenses...      118,380          --         (9,284)        109,096
Financing Cost..........        3,764           65          (462)          3,367
Start-up Cost...........        1,163           51          (315)            899
                              -------          ---       -------         -------
                              123,307          116       (10,061)        113,362
                              =======          ===       =======         =======
<CAPTION>
                            Book Value                                 Book Value
                         December 31, 1998  Additions  Amortization  March 31, 1999
                         ----------------- ----------- ------------ -----------------
                                           (unaudited) (unaudited)     (unaudited)
<S>                      <C>               <C>         <C>          <C>
Goodwill and licenses...      109,096          --         (2,321)        106,775
Financing Cost..........        3,367          --           (132)          3,235
Start-up Cost...........          899          --           (341)            558
                              -------          ---       -------         -------
                              113,362          --         (2,794)        110,568
                              =======          ===       =======         =======
</TABLE>

    The composition of intangible fixed assets as of December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
                                       Historical Accumulated     Book Value
                                          Cost    Amortization December 31, 1997
                                       ---------- ------------ -----------------
<S>                                    <C>        <C>          <C>
Goodwill..............................  139,245     (20,865)        118,380
Financing Cost........................    4,588        (824)          3,764
Start-up Cost.........................    1,163         --            1,163
                                        -------     -------         -------
                                        144,996     (21,689)        123,307
                                        =======     =======         =======
</TABLE>

                                     F-124
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


    The composition of intangible fixed assets as of December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                     Book Value
                                            Historical Accumulated  December 31,
                                               Cost    Amortization     1998
                                            ---------- ------------ ------------
<S>                                         <C>        <C>          <C>
Goodwill...................................  139,245     (30,149)     109,096
Financing Cost.............................    4,653      (1,286)       3,367
Start-up Cost..............................    1,214        (315)         899
                                             -------     -------      -------
                                             145,112     (31,750)     113,362
                                             =======     =======      =======
</TABLE>

    The composition of intangible fixed assets as of March 31, 1999 is as
follows:

<TABLE>
<CAPTION>
                                         Historical  Accumulated    Book Value
                                            Cost     Amortization March 31, 1999
                                         ----------- ------------ --------------
                                         (unaudited) (unaudited)   (unaudited)
<S>                                      <C>         <C>          <C>
Goodwill................................   139,245     (32,470)      106,775
Financing Cost..........................     4,653      (1,418)        3,235
Start-up Cost...........................     1,214        (656)          558
                                           -------     -------       -------
                                           145,112     (34,544)      110,568
                                           =======     =======       =======
</TABLE>

5. Tangible Fixed Assets

    The movement in tangible fixed assets is as follows:

<TABLE>
<CAPTION>
                                  Book Value
                                  January 1, Reclassifi-            Movement
                                     1998      cations   Additions in projects
                                  ---------- ----------- --------- -----------
<S>                               <C>        <C>         <C>       <C>
Land and buildings...............   29,614      1,020       8,918       --
Networks.........................  253,451        622      99,710       --
Other tangible fixed assets......    9,397     (1,642)      4,290       --
Tangible fixed assets under
 construction....................   16,830        --          --      1,328
                                   -------     ------     -------     -----
                                   309,292        --      112,918     1,328
                                   =======     ======     =======     =====
</TABLE>

<TABLE>
<CAPTION>
                                                                   Book Value
                                                                  December 31,
                                         Retirements Depreciation     1998
                                         ----------- ------------ ------------
<S>                                      <C>         <C>          <C>
Land and buildings......................   (3,653)      (2,220)      33,679
Networks................................      --       (57,099)     296,684
Other tangible fixed assets.............      (69)      (3,874)       8,102
Tangible fixed assets under
 construction...........................      --           --        18,158
                                           ------      -------      -------
                                           (3,722)     (63,193)     356,623
                                           ======      =======      =======
</TABLE>
<TABLE>
<CAPTION>
                         Book Value
                         January 1,                                Movement
                            1999    Reclassifications  Additions  in projects
                         ---------- ----------------- ----------- -----------
                                       (unaudited)    (unaudited) (unaudited)
<S>                      <C>        <C>               <C>         <C>         <C>
Land and buildings......   33,679          --            2,023         --
Networks................  296,684          --           12,236         --
Other tangible fixed
 assets.................    8,102          --            1,657         --
Tangible fixed assets
 under construction.....   18,158          --              --        4,018
                          -------         ----          ------       -----
                          356,623          --           15,916       4,018
                          =======         ====          ======       =====    ===
</TABLE>

                                     F-125
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


<TABLE>
<CAPTION>
                                                                  Book Value
                                       Retirements Depreciation March 31, 1999
                                       ----------- ------------ --------------
                                       (Unaudited) (Unaudited)   (Unaudited)
<S>                                    <C>         <C>          <C>
Land and buildings....................    (502)         (391)       34,809
Networks..............................     --         (9,955)      298,965
Other tangible fixed assets...........     --         (1,315)        8,444
Tangible fixed assets under
 construction.........................     --            --         22,176
                                          ----       -------       -------
                                          (502)      (11,661)      364,394
                                          ====       =======       =======
</TABLE>

    The composition of tangible fixed assets as of December 31, 1997 is as
follows:

<TABLE>
<CAPTION>
                                     Historical Accumulated     Book Value
                                        Cost    Depreciation December 31, 1997
                                     ---------- ------------ -----------------
<S>                                  <C>        <C>          <C>
Land and buildings..................   33,095      (3,481)         29,614
Networks............................  325,296     (71,845)        253,451
Other tangible fixed assets.........   18,118      (8,721)          9,397
Tangible fixed assets under
 construction.......................   16,830         --           16,830
                                      -------     -------         -------
                                      393,339     (84,047)        309,292
                                      =======     =======         =======
</TABLE>

    The composition of tangible fixed assets as of December 31, 1998 is as
follows:

<TABLE>
<CAPTION>
                                                                   Book Value
                                         Historical  Accumulated  December 31,
                                            Cost     Depreciation     1998
                                         ----------- ------------ ------------
<S>                                      <C>         <C>          <C>
Land and buildings......................    37,504       (3,825)     33,679
Networks................................   423,853     (127,169)    296,684
Other tangible fixed assets.............    21,866      (13,764)      8,102
Tangible fixed assets under
 construction...........................    18,158          --       18,158
                                           -------     --------     -------
                                           501,381     (144,758)    356,623
                                           =======     ========     =======

    The composition of tangible fixed assets as of March 31, 1999 is as
follows:

<CAPTION>
                                                                   Book Value
                                         Historical  Accumulated   March 31,
                                            Cost     Depreciation     1999
                                         ----------- ------------ ------------
                                         (unaudited) (unaudited)  (unaudited)
<S>                                      <C>         <C>          <C>
Land and buildings......................    38,123       (3,314)     34,809
Networks................................   436,089     (137,124)    298,965
Other tangible fixed assets.............    23,523      (15,079)      8,444
Tangible fixed assets under
 construction...........................    22,176          --       22,176
                                           -------     --------     -------
                                           519,911      155,517     364,394
                                           =======     ========     =======
</TABLE>

6. Financial Fixed Assets

    The composition of financial fixed assets is as follows:

<TABLE>
<CAPTION>
                                                        December 31,  March 31,
                                                            1998        1999
                                                        ------------ -----------
                                                                     (unaudited)
<S>                                                     <C>          <C>
Investment in affiliated company.......................      65           65
Subordinated loan to affiliated company................     260          260
                                                            ---          ---
                                                            325          325
                                                            ===          ===
</TABLE>

                                     F-126
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


    On August 15, 1996 the company acquired 25% in the share capital of Media
Groep West B.V., having its legal seat in Amsterdam, for an amount of 65.

    At December 31, 1998 the equity value of the company's interest in Media
Groep West B.V. is lower than its acquisition cost. However, in the opinion of
management the value of the investment is not permanently impaired and
therefore the carrying value of the company's interest in Media Groep West B.V.
has not been written down to the lower equity value.

    According to the provisions of the Dutch Civil Code the equity value and
net result for the year of Media Groep West B.V. are not disclosed.

    The subordinated loan granted bears an interest of 7% per year and is
redeemable on August 15, 2006.

7. Accounts Receivable

    Accounts receivable as presented under current assets mature within one
year. As of December 31, 1998 the amount trade receivable is after deduction of
an allowance for doubtful amounts of 11,081 (1997 -- 10,042).

    The movement in the allowance for doubtful accounts is as follows:

<TABLE>
<CAPTION>
                                                                   1998    1997
                                                                  ------  ------
<S>                                                               <C>     <C>
Balance January 1................................................ 10,042   4,566
Charged to expense...............................................  3,962   5,476
Uncollectible balances written off............................... (2,923)    --
                                                                  ------  ------
Balance December 31.............................................. 11,081  10,042
                                                                  ======  ======
</TABLE>

8. Securities

    This relates to certificates in Stichting Vecaitex, having its legal seat
in Dordrecht and to certificates in the Amsterdam Arena in Amsterdam, The
Netherlands.

9. Cash

    No restrictions on usage of cash exist. Cash has original maturities of
less than three months.

                                     F-127
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


10. Shareholders' Equity

    The movement in shareholders' equity is as follows:

<TABLE>
<CAPTION>
                                                           Issued and Additional
                                                            Paid-in    Paid-in
                                                            Capital    Capital
                                                           ---------- ----------
<S>                                                        <C>        <C>
Balance January 1, 1997...................................    200       26,000
Allocation of 1996 net loss...............................    --           --
Net loss..................................................    --           --
                                                              ---       ------
Balance January 1, 1998...................................    200       26,000
Allocation of 1997 net loss...............................    --           --
Net loss..................................................    --           --
                                                              ---       ------
Balance December 31, 1998.................................    200       26,000
Allocation of 1998 net loss (Unaudited)...................    --           --
Net loss (Unaudited)......................................    --           --
                                                              ---       ------
Balance March 31, 1999 (Unaudited)........................    200       26,000
                                                              ===       ======
</TABLE>

<TABLE>
<CAPTION>
                                                     Other
                                                   reserves     Net
                                                   (deficit)   Loss     Total
                                                   ---------  -------  --------
<S>                                                <C>        <C>      <C>
Balance January 1, 1997...........................   (7,623)  (14,687)    3,890
Allocation of 1996 net loss.......................  (14,687)   14,687       --
Net loss..........................................      --    (24,130)  (24,130)
                                                   --------   -------  --------
Balance January 1, 1998...........................  (22,310)  (24,130)  (20,240)
Allocation of 1997 net loss.......................  (24,130)   24,130       --
Net loss..........................................      --    (66,008)  (66,008)
                                                   --------   -------  --------
Balance December 31, 1998.........................  (46,440)  (66,008)  (86,248)
Allocation of 1998 loss (Unaudited)...............  (66,008)   66,008       --
Net loss (Unaudited)..............................      --    (14,090)  (14,090)
                                                   --------   -------  --------
Balance March 31, 1999 (Unaudited)................ (112,448)  (14,090) (100,338)
                                                   ========   =======  ========
</TABLE>

11. Provisions

    The movement in provisions is as follows:

<TABLE>
<CAPTION>
                                                         March 31,
                                                           1999     1998   1997
                                                        ----------- -----  ----
                                                        (Unaudited)
<S>                                                     <C>         <C>    <C>
Balance January 1......................................    1,610      319   943
Addition...............................................      --     1,414   --
Release................................................      (29)    (123) (624)
                                                           -----    -----  ----
Balance................................................    1,581    1,610   319
                                                           =====    =====  ====
</TABLE>

                                     F-128
<PAGE>

                              A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


12. Long-Term Loans

   The company and its subsidiary KTA entered into a long-term loan agreement
with ABN AMRO BANK N.V. on February 16, 1996. The total facility amounts to
465,000. KTA's facility amounts to 375,000, consisting of 250,000 long-term
debt, 75,000 "construction loan facility' and 50,000 "working capital
facility'. The company's facility amounts to 90,000. The interest rate is
variable and based on Aibor + 0.75%.

   A2000 Hilversum B.V. entered into a long-term loan agreement with ABN AMRO
BANK N.V. on October 16, 1996. The total facility amounts to 45,000,
consisting of 26,000 long-term loan, 17,000 "construction loan facility' and
2,000 "working capital facility'. The interest is variable and based on Aibor
+ 0.7%.

   At March 31, 1999 these facilities have been used for an amount of
approximately 502,318 (1998 -- 506,183).
   Long term liabilities at December 31, 1998 will be payable as follows:

<TABLE>
<CAPTION>
            Year                                   Loans
            ----                                  -------
            <S>                                   <C>
            1999.................................     --
            2000.................................  27,000
            2001.................................  52,500
            2002.................................  54,500
            2003................................. 100,000
            thereafter........................... 224,000
                                                  -------
                                                  458,000
                                                  =======
</TABLE>

   The company's facilities are secured by mortgages and pledges, including
pledges on KTA's and A2000 Hilversum's shares and their assets. The loan
agreement restricts the borrowers from incurring additional indebtedness,
subject to certain exceptions.

13. Short-term liabilities to shareholders

   The shareholders granted to the company subordinated loans amounting to a
maximum of USD30,000. At December 31, 1998, the facility has been used for an
amount of USD8,750. The loans will be repaid to the shareholders after
completion of the refinancing. The interest rate is variable and based on
Libor +1%.

14. Income taxes

   The company and its Dutch fully owned subsidiaries constitute a fiscal
entity as of January 1, 1996. The tax loss carry-forwards of the fiscal entity
are available for an unlimited period of time to reduce future tax
liabilities.

   The company and its Dutch fully owned subsidiaries have a pre fiscal unity
tax loss carry-forwards available for an unlimited period of time to reduce
future tax liabilities. Currently, the actual tax loss carry-forward is not
known, given certain discussions with the tax authorities. Management is
convinced that the outcome will be favorable for the company. Given the
companys tax loss carry-forward position the provision for deferred taxes has
been released in 1997 to the statement of income.

                                     F-129
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


    The difference between the income tax benefit and the actual income tax
benefit are as follows:

<TABLE>
<CAPTION>
                                                                1998     1997
                                                               -------  -------
      <S>                                                      <C>      <C>
      "Expected" income tax benefit at the Dutch
       statutory rate of 35%.................................. (23,103) (11,885)
      Tax effect of permanent and other differences:
        Change in valuation allowance.........................  18,038    6,925
        Non-deductible expenses...............................   5,065    4,960
      Release deferred tax....................................     --    (9,500)
      Other...................................................     (13)    (326)
                                                               -------  -------
        Total income tax benefit..............................     (13)  (9,826)
                                                               =======  =======
</TABLE>

    The net deferred tax liability of A2000 consists of the following:

<TABLE>
<CAPTION>
                                                                1998     1997
                                                               -------  -------
   <S>                                                         <C>      <C>
   Deferred tax assets:
   Tax net operating loss carryforward........................  37,810   19,772
   Valuation allowance........................................ (29,498) (10,272)
                                                               -------  -------
     Deferred tax assets, net of valuation Allowance..........   8,312    9,500
                                                               -------  -------
   Deferred tax liabilities:..................................
   Property, plant and equipment..............................  (8,312)  (9,500)
                                                               -------  -------
   Deferred tax liabilities, net..............................     --       --
                                                               =======  =======
</TABLE>

15. Commitments

(a) Rent and operating leases

    Long-term commitments in connection with rent and lease agreements amount
to approximately 4,360 and terminate in 2007. The terms of the agreements call
for future minimum payments as of December 31, 1998 as follows:

<TABLE>
            <S>                                     <C>
            1999................................... 1,546
            2000................................... 1,352
            2001...................................   621
            2002...................................   178
            thereafter.............................   661
                                                    -----
                                                    4,360
                                                    =====
</TABLE>

(b) Purchase commitments

    Purchase commitments outstanding as of December 31, 1998 amount to
approximately 3,200.

(c) Commitments to broadcasting companies

    At the sale of the shares of KTA, the Municipality of Amsterdam stipulated
a yearly compensation of 3,700 payable by KTA to certain television-and radio
broadcasters. This amount is subject to yearly indexation based on the price
index of consumption. This commitment will expire in 2005.

                                     F-130
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


(d) Interest hedges

    In April 1997, A2000 bought an interest cap at 5,68% which matures in May
2002. The principal amount is 90,000. In April 1997, A2000 bought an interest
floor at 5,68% which matures in May 2002. The principal amount is 45,000.
    As per May 18, 1998, company retains an interest swap which fixes a
principal amount of 250,000 at 5,72% interest per annum till February 18, 2002.
Since June 18, 1998, A2000 holds an interest swap, fixing a principal amount of
43,000 at 5,50% per annum till December 31, 2003.

    The fair values of the financial instruments is based on market prices for
the same and similar issues. Carrying value is used when a market price is
unavailable. The fair value of the financial instruments approximates the
bookvalue.

16. Segment and Geographic Information

    On December 31, 1998 the Company adopted Statement of Financial Accounting
Standards No. 131 "Disclosure about Segments of an Enterprise and Related
Information" ("SFAS 131"). The new rules establish revised standard for public
companies relating to the reporting of financial information about operating
segments. The adoption of SFAS 131 did not have a material effect on the
Company's consolidated financial statements but did affect the Company's
segment information disclosure.

    Revenues are generated in The Netherlands. During 1997, the Company
introduced internet/data and telephony in several of its systems.

    The key operating performance criteria used in this evaluation includes
revenue growth, operating income before depreciation and amortization
("Adjusted EBITDA"), and capital expenditures. The Company does not view
segment results below Adjusted EBITDA, therefore net interest expense, foreign
exchange gain (loss), share in results of affiliated companies, minority
interests in subsidiaries and income tax expense are not broken out by segment
below.

    A summary of the segment information is as follows:

<TABLE>
<CAPTION>
                                                      Revenues
                                       ----------------------------------------
                                        March 31,   March 31,
                                          1999        1998      1998     1997
                                       ----------- ----------- -------  -------
                                       (unaudited) (unaudited)
<S>                                    <C>         <C>         <C>      <C>
Cable.................................   26,742      27,769    106,160   96,406
Telephony.............................    6,269       1,245     12,898    1,115
Internet..............................    2,790         277      4,393       33
Other.................................      178         137        716    3,123
                                         ------      ------    -------  -------
  Total...............................   35,979      29,428    124,167  100,677
                                         ======      ======    =======  =======
<CAPTION>
                                                   Adjusted EBITDA
                                       ----------------------------------------
                                        March 31,   March 31,
                                          1999        1998      1998     1997
                                       ----------- ----------- -------  -------
                                       (unaudited) (unaudited)
<S>                                    <C>         <C>         <C>      <C>
Cable.................................   14,614      10,832     45,213   28,180
Telephony.............................   (2,850)     (3,505)   (12,137)     583
Internet..............................   (1,570)     (1,302)    (3,312)     (79)
Other.................................      178         137        716    3,123
                                         ------      ------    -------  -------
  Total...............................   10,372       6,162     30,480   31,807
                                         ======      ======    =======  =======
</TABLE>

                                     F-131
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


    Following is a reconciliation of Adjusted EBITDA to A2000's net loss before
income taxes:
<TABLE>
<CAPTION>
                                      March 31,   March 31,
                                        1999        1998      1998     1997
                                     ----------- ----------- -------  -------
                                     (unaudited) (unaudited)
<S>                                  <C>         <C>         <C>      <C>
Adjusted EBITDA.....................    10,372       6,162    30,480   31,807
Depreciation and amortization.......   (14,455)    (16,064)  (73,254) (49,478)
                                       -------     -------   -------  -------
  Operating result..................    (4,083)     (9,902)  (42,774) (17,671)
Interest income.....................       103         355       674      523
Interest expense....................    (7,128)     (5,221)  (25,021) (16,444)
Foreign exchange (loss) gain and
 other expense......................    (2,982)       (473)    1,100     (364)
                                       -------     -------   -------  -------
  Net loss before income taxes......   (14,090)    (15,241)  (66,021) (33,956)
                                       =======     =======   =======  =======
</TABLE>

17. Personnel

    Labor cost is specified as follows:

<TABLE>
<CAPTION>
                                                                   1998   1997
                                                                  ------ ------
<S>                                                               <C>    <C>
Salaries and wages............................................... 23,900 19,561
Pension cost and early retirement................................  2,308    691
Other social security contributions..............................  3,082    953
                                                                  ------ ------
                                                                  29,290 21,205
                                                                  ====== ======
</TABLE>

    The average number of (full-time) personnel during the year was 286
(1997 -- 247) employed in the following functional areas:

<TABLE>
<CAPTION>
                                                                 Average Average
                                                                  1998    1997
                                                                 ------- -------
<S>                                                              <C>     <C>
Management......................................................     2       2
Technical personnel.............................................   103      89
Supportive and administrative personnel.........................    95      99
Commercial personnel............................................    86      57
                                                                   ---     ---
                                                                   286     247
                                                                   ===     ===
</TABLE>

18. Depreciation/amortization of (in)tangible fixed assets:

    The depreciation/amortization of (in)tangible fixed assets is specified as
follows:

<TABLE>
<CAPTION>
                                                                   1998   1997
                                                                  ------ ------
<S>                                                               <C>    <C>
Depreciation tangible fixed assets............................... 63,193 39,739
Amortization intangible fixed assets............................. 10,061  9,739
                                                                  ------ ------
                                                                  73,254 49,478
                                                                  ====== ======
</TABLE>

                                     F-132
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


19. Financial Income and Expense

    The financial income and expense are specified as follows:

<TABLE>
<CAPTION>
                                        March 31,   March 31,
                                          1999        1998      1998     1997
                                       ----------- ----------- -------  -------
                                       (unaudited) (unaudited)
<S>                                    <C>         <C>         <C>      <C>
Interest income:
  Affiliated company..................       14         --          18       27
  Other...............................       89         355        656      496
                                         ------      ------    -------  -------
                                            103         355        674      523
                                         ======      ======    =======  =======
Interest expense:
  Shareholders........................     (487)        --         (73)     --
  Other...............................   (6,642)     (5,221)   (24,948) (16,444)
                                         ------      ------    -------  -------
                                         (7,129)     (5,221)   (25,021) (16,444)
                                         ======      ======    =======  =======
</TABLE>

20. Financial situation

    As a result of the investments in the new infrastructure and the start up
of new services the company has a negative cash flow and a negative equity. The
shareholders provided the company an USD30,000 loan facility of which USD8.750
was drawn on December 31, 1998. Based on the outcome of the negotiations of the
contract with the municipality of Amsterdam and others and the launch, on a
large scale, of digital set top boxes the company has further reassessed its
finance needs for the long term. Accordingly, the company has requested several
banks to put in a bridge loan before July 1, 1999, in order to allow the
company time to create a definite finance structure while maintaining normal
activities and finishing the upgrade of the network.

    One of the shareholders has confirmed that they will provide adequate
funding to the company and its subsidiaries. When required they will contribute
the necessary equity and/or funding and intend to continue operating the
company and its subsidiaries as a going concern, for the 18 months period
subsequent to December 31, 1998.

21. US GAAP

    The accounting policies followed in preparation for the consolidated
financial statements differ in some respect to the generally accepted
accounting principles in the United States.

    The difference which has a material effect on net loss, shareholders'
equity and total assets results from the following:

    The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Costs of start-up Activities
("SOP 98-5"), which is required to be adopted by affected companies for fiscal
years beginning after December 15, 1998. SOP 98-5 defines start-up and
organization costs existing as of January 1, 1999 must be written-off and
accounted for as a cumulative effect of an accounting change.

                                     F-133
<PAGE>

                               A2000 HOLDING N.V.

         NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
                   (Currency -- Thousands of Dutch Guilders)


    The calculation of net loss, shareholders equity and total assets
substantially in accordance with US GAAP, is as follows:

<TABLE>
<CAPTION>
                                                                    Unaudited
                                                                    3 months
                                                                      ended
                                                                    March 31,
                                                                      1999
                                                                    ---------
<S>                                                                 <C>
Net loss under Dutch GAAP..........................................   (14,090)
US GAAP adjustment:
(Retroactive) expensing of start-up cost and relating amortization
 effect............................................................      (558)
                                                                    ---------
  Net loss under US GAAP...........................................   (14,648)
                                                                    =========
<CAPTION>
                                                                    Unaudited
                                                                    3 months
                                                                      ended
                                                                    March 31,
                                                                      1999
                                                                    ---------
<S>                                                                 <C>
Total shareholders equity under Dutch GAAP.........................  (100,338)
US GAAP adjustment:
(Retroactive) expensing of start-up cost and relating amortization
 effect............................................................      (558)
                                                                    ---------
  Total shareholders equity under US GAAP..........................  (100,896)
                                                                    =========
Total assets under Dutch GAAP......................................   518,278
US GAAP adjustment:
(Retroactive) expensing of start-up cost and relating amortization
 effect............................................................      (558)
                                                                    ---------
  Total assets under US GAAP.......................................   517,720
                                                                    =========
</TABLE>

                                     F-134
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Kabel Plus, a. s. and subsidiaries:

    We have audited the accompanying consolidated balance sheets of Kabel Plus,
a. s. (a Czech joint stock company) and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, cash flows and
shareholders' equity for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

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

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kabel Plus, a. s. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles in the United States.

                              ARTHUR ANDERSEN, s.r.o.

Prague, Czech Republic
June 18, 1999
Except for Note 15, as to which the date is
June 22, 1999

                                     F-135
<PAGE>

                       KABEL PLUS, a. s. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                 AS OF DECEMBER 31, 1998 AND DECEMBER 31, 1997

                       (Czech Crowns -- Kc in Thousands)

<TABLE>
<CAPTION>
                               March 31,                March 31,
                                 1999         1998        1998         1997
                              -----------  ----------  -----------  ----------
                              (unaudited)              (unaudited)
ASSETS
<S>                           <C>          <C>         <C>          <C>
Current assets
  Cash and cash
   equivalents..............      75,406       84,139     135,091      258,428
  Restricted cash...........      19,716       27,334      18,524       12,302
  Accounts receivable, net
   of allowances for
   doubtful accounts of
   239,563; 231,787; 233,142
   and 225,976,
   respectively.............     101,009       95,537     106,353       89,723
  Inventory.................     120,275      115,912     120,254      115,503
  Prepaid expenses..........      19,859       20,896      26,643       22,145
  Other current assets......       5,500        7,414       1,893        4,410
                              ----------   ----------  ----------   ----------
    Total current assets....     341,765      351,232     408,758      502,511
                              ----------   ----------  ----------   ----------
Intangible assets, net of
 accumulated amortization of
 47,358; 44,253; 34,936 and
 33,999, respectively.......      17,487       18,407      15,493        9,591
Property, plant and
 equipment, net of
 accumulated depreciation of
 1,211,009; 1,127,078;
 897,961 and 826,997,
 respectively...............   2,943,525    3,005,067   3,174,336    3,197,853
Investments in affiliates...      25,264       25,264      75,415       78,446
                              ----------   ----------  ----------   ----------
    Total assets............   3,328,041    3,399,970   3,674,002    3,788,401
                              ==========   ==========  ==========   ==========
Current liabilities
  Accounts payable..........     166,695      174,733     287,842      346,558
  Accrued liabilities.......      46,719       71,719      78,101       55,092
  Short term bank debt......         --           --      564,534      562,811
                              ----------   ----------  ----------   ----------
    Total current
     liabilities............     213,414      246,452     930,477      964,461
                              ----------   ----------  ----------   ----------
Long term bank debt.........     804,841      784,686         --           --
Due to parent...............     909,159      879,153   3,087,604    2,977,222
                              ----------   ----------  ----------   ----------
    Total liabilities.......   1,927,414    1,910,291   4,018,081    3,941,683
                              ----------   ----------  ----------   ----------
Share capital consisting as
 of March 31, 1999 and
 December 31, 1998 of 15,052
 shares per Kc 100 and 1,792
 shares per Kc 1,000 and as
 of March 31, 1998 and
 December 31, 1997 of 15,052
 shares per Kc 100 and 435
 shares per Kc 1,000........   3,297,200    3,297,200   1,940,200    1,940,200
Less: Receivables for
 subscriptions..............      (3,700)      (3,700)     (3,700)      (3,700)
Share premium and reserve
 fund.......................   3,045,439    3,045,439   1,894,371    1,894,371
Other cumulative
 comprehensive income
 (loss).....................      (5,525)     (12,200)        850       (1,988)
Accumulated deficit.........  (4,932,787)  (4,837,060) (4,175,800)  (3,982,165)
                              ----------   ----------  ----------   ----------
    Total liabilities and
     shareholders' equity...   3,328,041    3,399,970   3,674,002    3,788,401
                              ==========   ==========  ==========   ==========
</TABLE>

LIABILITIES AND SHAREHOLDERS' EQUITY

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

                                     F-136
<PAGE>

                       KABEL PLUS, a. s. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                       (Czech Crowns -- Kc in Thousands)

<TABLE>
<CAPTION>
                                   March 31,              March 31,
                                     1999       1998        1998       1997
                                  ----------- ---------  ----------- ---------
                                  (unaudited)            (unaudited)
<S>                               <C>         <C>        <C>         <C>
Revenues........................    222,296     770,382    196,745     641,721
                                    -------   ---------   --------   ---------
Operating costs and expenses:
  Operating.....................     62,380     243,069     58,974     485,787
  Services from MediaOne........     19,154      69,505      9,209      34,645
  General and administrative....    100,756     398,939    125,702     262,457
  Depreciation and
   amortization.................     84,851     330,959     73,886     263,091
                                    -------   ---------   --------   ---------
                                    267,141   1,042,472    267,771   1,045,980
                                    -------   ---------   --------   ---------
Loss from operations............    (44,845)   (272,090)   (71,026)   (404,259)
                                    -------   ---------   --------   ---------
Other (income) expense:
  Interest expense on
   loan from parent.............     30,006     429,998    106,568     404,738
  Other interest expense, net...     19,446      55,324     19,030      67,528
  Foreign exchange (gains)
   losses, net..................     (2,449)      2,975     (6,216)    (63,418)
  Other.........................      3,879      95,040      4,267      66,896
                                    -------   ---------   --------   ---------
Net loss before equity in net
 income from affiliates.........    (95,727)   (855,427)  (194,675)   (880,003)
Equity in net income (loss) from
 affiliates.....................        --        2,000      1,040      (1,383)
                                    -------   ---------   --------   ---------
Net loss........................    (95,727)   (853,427)  (193,635)   (881,386)
                                    =======   =========   ========   =========
</TABLE>


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

                                     F-137
<PAGE>

                       KABEL PLUS, a. s. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                       (Czech Crowns -- Kc in thousands)

<TABLE>
<CAPTION>
                                   March 31,             March 31,
                                     1999       1998       1998        1997
                                  ----------- --------  ----------- ----------
                                  (unaudited)           (unaudited)
<S>                               <C>         <C>       <C>         <C>
Cash flows from operating
 activities:
  Net loss.......................   (95,727)  (853,427)  (193,635)    (881,386)
  Adjustments to reconcile net
   loss to net cash used in
   operating activities:
    Depreciation and
     amortization................    84,851    330,959     73,886      263,091
    Provision for doubtful
     accounts....................     7,776      5,811      7,166       67,044
    Provision against financial
     investments.................       --      51,182        --           --
    Accrued interest and currency
     differences.................    36,681    398,319    113,220      429,099
    (Income) loss from sales of
     fixed assets................       --        (698)       --           973
    Equity in net income of
     affiliates..................       --       2,000        --         1,382
    Changes in working capital:
      Increase in receivables,
       prepaid expenses and other
       assets, net...............   (14,660)   (13,789)   (30,528)   (100,325)
      Decrease in accounts
       payable and accrued
       liabilities, net..........   (42,883)  (155,198)   (35,707)    (43,474)
                                    -------   --------   --------   ----------
        Net cash (used in)
         operating activities....   (23,962)  (234,841)   (65,598)   (263,596)
Cash flows from investing
 activities:
  Increase (decrease) in
   investments in affiliates.....       --         --       3,031      (8,172)
  Purchases of property, plant
   and equipment.................   (22,389)  (148,480)   (56,271)   (576,490)
  Proceeds from sales of fixed
   assets........................       --       2,189        --        49,931
                                    -------   --------   --------   ----------
        Net cash (used in)
         investing activities....   (22,389)  (146,291)   (53,240)   (534,731)
Cash flows from financing
 activities:
  Proceeds from parent...........       --         --         --       160,953
  Amounts drawn down from banks..    30,000    221,875      1,723      562,811
  Payments of long term debt.....       --         --         --    (2,159,844)
  Increase in share capital......       --         --         --       417,000
  Increase in share premium and
   legal reserve fund............       --         --         --     1,742,844
                                    -------   --------   --------   ----------
        Net cash provided by
         financing activities....    30,000    221,875      1,723      723,764
                                    -------   --------   --------   ----------
Net increase in cash.............   (16,351)  (159,257)  (117,115)     (74,563)
Cash at beginning of year........   111,473    270,730    270,730      345,293
                                    -------   --------   --------   ----------
Cash at end of year..............    95,122    111,473    153,615      270,730
                                    =======   ========   ========   ==========
</TABLE>

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

                                     F-138
<PAGE>

                       KABEL PLUS, a. s. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997

                       (Czech Crowns -- Kc in Thousands)

<TABLE>
<CAPTION>
                                                       Share
                                                      Premium                    Other         Total
                            Share   Receivables for and Reserve Accumulated  Comprehensive Comprehensive
                           Capital   Subscriptions     Fund       Deficit       Income        Income
                          --------- --------------- ----------- -----------  ------------- -------------
<S>                       <C>       <C>             <C>         <C>          <C>           <C>
Balances, December 31,
 1996...................  1,523,200     (3,700)        156,301  (3,100,779)         --            --
Net loss................        --         --              --     (881,386)         --       (881,386)
Cumulative translation
 adjustment.............        --         --              --          --        (1,988)       (1,988)
                                                                                             --------
Total Comprehensive
 income (loss)..........        --         --              --          --           --       (883,374)
                                                                                             ========
Increase in share
 capital................    417,000        --        1,742,844         --           --
Other...................        --         --           (4,774)        --           --
                          ---------     ------       ---------  ----------      -------
Balances, December 31,
 1997...................  1,940,200     (3,700)      1,894,371  (3,982,165)      (1,988)
                          =========     ======       =========  ==========      =======
Net loss................        --         --              --     (853,427)         --       (853,427)
Cumulative translation
 adjustment.............        --         --              --          --       (10,212)      (10,212)
                                                                                             --------
Total Comprehensive
 income (loss)..........        --         --              --          --           --       (863,639)
                                                                                             ========
Increase in share
 capital................  1,357,000        --        1,149,600         --           --
Other...................        --         --            1,468      (1,468)         --
                          ---------     ------       ---------  ----------      -------
Balances, December 31,
 1998...................  3,297,200     (3,700)      3,045,439  (4,837,060)     (12,200)
                          =========     ======       =========  ==========      =======
Balances, December 31,
 1997...................  1,940,200     (3,700)      1,894,371  (3,982,165)      (1,988)
                          =========     ======       =========  ==========      =======
Net loss (unaudited)....        --         --              --     (193,635)         --       (193,635)
Cumulative translation
 adjustment
 (unaudited)............        --         --              --          --           850           850
                                                                                             --------
Total comprehensive
 income (loss)
 (unaudited)............        --         --              --          --           --       (192,785)
                          ---------     ------       ---------  ----------      -------      ========
Balances, March 31, 1998
 (unaudited)............  1,940,200     (3,700)      1,894,371  (4,175,800)      (1,138)
                          =========     ======       =========  ==========      =======
Balances, December 31,
 1998...................  3,297,200     (3,700)      3,045,439  (4,837,060)     (12,200)
                          =========     ======       =========  ==========      =======
Net loss (unaudited)....        --         --              --      (95,727)         --        (95,727)
Cumulative translation
 adjustment
 (unaudited)............        --         --              --          --         6,675         6,675
                                                                                             --------
Total comprehensive
 income (loss)
 (unaudited)............        --         --              --          --           --        (89,052)
                          ---------     ------       ---------  ----------      -------      ========
Balances, March 31, 1999
 (unaudited)............  3,297,200     (3,700)      3,045,439  (4,932,787)      (5,525)
                          =========     ======       =========  ==========      =======
</TABLE>

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

                                     F-139
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)

1. Organization and Operations

    Kabel Plus, a. s. (the Company) is a joint stock company incorporated in
1990 under the laws of the Czech Republic. The Company was formed for the
purpose of establishing, constructing and operating cable television and
telephony networks, developing programming for, and broadcasting of, Kabel Plus
film channel in the territory of the Czech and Slovak Republics.

    The shareholders of the Company as of March 31, 1999 and December 31, 1998
are as follows:

<TABLE>
            <S>                                  <C>
            MediaOne Czech Cable Company
             (MCCC)............................    97.09%
            JUDr. Petr Siroky..................     2.88%
            Other..............................     0.03%

    The following table summarizes the subsidiaries which make up the
consolidated group. The financial statements as of and for the three months
ended, March, 31, 1999 and as of and for the year ended, December 31, 1998 of
each subsidiary have been used in the preparation of these consolidated
financial statements. The structure of the consolidated group has not changed
since December 31, 1997.

<CAPTION>
                   Foreign subsidiaries          Ownership
                   --------------------          ---------
            <S>                                  <C>
            Kabel Plus Banska Bystrica, a. s...      100%
            Kabel Plus Bratislava, a. s........      100%
<CAPTION>
                    Czech subsidiaries
                    ------------------
            <S>                                  <C>
            Kabel Plus Praha, a. s.............      100%
            Kabel Plus Jizni Morava, a. s......      100%
            Kabel Plus Severni Morava, a. s....      100%
            Kabel Plus Stredni Morava, a. s....      100%
            Kabel Plus Vychodni Cechy, a. s....      100%
            Kabel Plus Severni Cechy, a. s.....      100%
            Kabel Plus Ceske Budejovice, a.
             s.................................      100%
            Kabel Plus Tel, a. s...............      100%
            Trade & Technology, a. s...........      100%
            Czech Link, s. r. o................       50%
            Sat Net, s. r. o...................      100%
</TABLE>

                                     F-140
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                 NOTES TO FINANCIAL STATEMENTS -- (Continued)
                       as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


2. Summary of Significant Accounting Policies

General Accounting Principles

   The consolidated financial statements have been prepared from records
originating and maintained in the Czech and Slovak Republics, the countries in
which the Company and its subsidiaries are incorporated. The accounting
principles followed in these records are those required by Czech and Slovak
law. The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
of America (U.S. GAAP). They have been prepared by restating the Company's
local consolidated financial statements, as of and for the three months ended,
March, 31, 1999 (unaudited) and 1998 (unaudited) and as of and for the years
ended, December 31, 1998 and 1997.

Principles of Consolidation

   The consolidated financial statements include the accounts of the Company
and all of its wholly and majority owned subsidiaries except for Kabel Plus
Rodina, Triton and BESY Praha (see Note 4). These companies are not included
in the consolidation due to the fact that their financial statements, taken
individually and/or in total, are not material to the consolidated group.

   Companies owned more than 20% but less than 50% with the exception of Kabel
Plus Vychodni Slovensko a. s. (See Note 4) are accounted for using the equity
method.

   All significant intercompany accounts and transactions have been
eliminated.

Estimates

   The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the year.
Actual results could differ from those estimates.

Fair Value of Financial Instruments

   Management believes that the carrying value of the Company's financial
instruments approximates fair value.

Concentration of Credit Risk

   Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risks with respect to trade receivables are limited
due to the Company's large number of customers and their dispersion across the
Czech and Slovak Republics.

Statement of Cash Flows

   The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Income taxes and
interest paid during the three months ended March 31, 1999 and 1998 and during
1998 and 1997 year are as follows:
<TABLE>
<CAPTION>
                                           March 31,           March 31,
                                             1999      1998      1998      1997
                                          ----------- ------- ----------- ------
                                          (unaudited)         (unaudited)
<S>                                       <C>         <C>     <C>         <C>
Income taxes.............................      --         --       --        --
Interest.................................   20,638    112,823   21,875    18,547
</TABLE>

                                     F-141
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


Restricted Cash

    Amounts of cash pledged as customs guarantees were classified as restricted
cash on the balance sheet.

Revenue Recognition

    Subscription revenue is recognized monthly in accordance with contracts
signed with the cable TV and telephony subscribers. Installation revenue is
recognized in the period when the installation occurs. Telephony subscribers
are billed monthly in arrears based on usage.

Allowance for Doubtful Accounts

    The allowance for doubtful accounts is based upon the Company's assessment
of probable loss related to overdue accounts receivable.

Intangible Assets, net

    Intangible assets are primarily composed of licenses and are carried at
acquisition and related costs and amortized over five years.

Property, Plant and Equipment

    Property, plant and equipment is stated at cost less accumulated
depreciation. Betterments and improvements on property, plant and equipment are
capitalized at cost. Repairs and maintenance are expensed as incurred. Upon
sale or retirement of property, plant and equipment, the cost and related
accumulated depreciation are eliminated from the accounts.

    Depreciation is calculated using the straight-line method over the
following estimated useful lives:

<TABLE>
<CAPTION>
                                                    Years
                                                    -----
            <S>                                     <C>
            Buildings..............................  45
            Machinery and equipment................ 8-15
            Vehicles and furniture and fixtures....  4-8
            Cable Networks:
              Stations including serial systems....   8
              Cable network equipment.............. 18-20
              Primary and secondary network
               equipment...........................   8
              Tercial networks.....................  20
            Software and other.....................   4
</TABLE>

Inventory

    Inventory is stated at the lower of costs and market. Inventory costs have
been determined by the weighted average method. Costs of purchased inventory
include external costs and internal transit costs.

Taxes

    Corporate income tax is calculated in accordance with the Czech and Slovak
tax regulations at a rate of 35% and 40%, respectively. Certain items of income
and expense are recognized in different periods for tax and financial
accounting purposes. The differences relate primarily to depreciation, bad debt
provision and obsolete inventory provision.


                                     F-142
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)

    See Note 9 for further discussion of taxes. Net tax operating losses can be
carried forward for seven and five years to offset taxable income in the Czech
and Slovak Republics, respectively.

Translation of Foreign Currency Transactions

    Foreign currency transactions are recorded at the exchange rate in effect
on the date of the transaction. Assets and liabilities denominated in foreign
currencies at December 31, 1998 and 1997 are translated to Czech crowns at the
exchange rate in effect on that date. At March 31, 1999 and 1998 the assets and
liabilities denominated in foreign currencies are not restated at the exchange
rate in effect on that date, however, the impact on the financial statements of
not translating is immaterial.

    Exchange rate differences arising on settlement of transactions or on
reporting foreign currency transactions at rates different from those at which
they were originally recorded are included in the statement of operations as
they occur.

Comprehensive Income

    In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (SFAS No. 130), which requires
companies to report all changes in equity during a period, except those
resulting from investment by owners and distribution to owners, in the
financial statement for the period in which they are recognized. The Company
has chosen to disclose Comprehensive Income, which encompasses net income
(loss) and foreign currency translation adjustments, in the Consolidated
Statement of Changes in Equity. Prior years have been restated to conform to
the SFAS No. 130 requirements.

New Accounting Principle

    The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133)," which requires that companies recognize
all derivatives as either assets or liabilities in the balance sheet at fair
value. Under SFAS 133, accounting for changes in fair value of a derivative
depends on its intended use and designation. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company does not expect that the
adoption of SFAS 133 will have a material impact on the consolidated financial
statements of the Company since it does not hold derivative instruments.

                                     F-143
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


3. Property, Plant and Equipment

    The composition of property, plant and equipment at March 31, 1999,
December 31, 1998, March 31, 1998 and December 31, 1997 is as follows:

<TABLE>
<CAPTION>
          Name             March 31, 1999    1998     March 31, 1998   1997
          ----             -------------- ----------  -------------- ---------
                            (unaudited)                (unaudited)
<S>                        <C>            <C>         <C>            <C>
Land.....................        13,650       13,643       13,665       13,670
Buildings and cable
 networks................     2,509,859    2,501,419    2,465,541    2,415,584
Machinery and equipment..     1,353,646    1,315,363    1,271,671    1,158,934
Other tangible assets....        89,620      109,798      126,047      126,913
Construction in
 progress................       187,759      191,922      195,373      309,749
                             ----------   ----------    ---------    ---------
  Total..................     4,154,534    4,132,145    4,072,297    4,024,850
Accumulated
 depreciation............    (1,211,009)  (1,127,078)    (897,961)    (826,997)
                             ----------   ----------    ---------    ---------
Property, plant and
 equipment, net..........     2,943,525    3,005,067    3,174,336    3,197,853
                             ==========   ==========    =========    =========
</TABLE>

    Amortization and depreciation expense for the three months ended March 31,
1999 and 1998 was Kc 84,851 (unaudited) and Kc 64,740 (unaudited),
respectively, and for 1998 and 1997 was Kc 330,959 and Kc 263,091,
respectively.

4. Investments

    Investments by the Company, net, in other companies not included in the
consolidation as of March 31, 1999, December 31, 1998, March 31, 1998 and
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
          Name            Ownership March 31, 1999  1998    March 31, 1998  1997
          ----            --------- -------------- -------  -------------- ------
                                     (unaudited)             (unaudited)
<S>                       <C>       <C>            <C>      <C>            <C>
Kabel Plus Vychodne
 Slovensko a. s. .......    48.00%      63,252      63,252      64,903     67,934
Kabel Plus Sport a. s...    40.00%       8,451       8,451       6,451      6,451
Genus TV, a. s..........    40.75%       4,011       4,011       4,011      4,011
Other...................                    50          50          50         50
Provision for diminution
 in value...............               (50,500)    (50,500)        --         --
                                       -------     -------      ------     ------
  Total.................                25,264      25,264      75,415     78,446
                                       =======     =======      ======     ======
</TABLE>

    The above is a list of companies where the Company holds more than, or
equal to a 20%
share of their basic capital. Kabel Plus Sport a. s. has been accounted for
using the equity method, as explained in Note 2. The remaining companies are
accounted for at cost for financial reporting purposes as their financial
statements, taken individually and/or in total, are not material to the
consolidated group.

    Kabel Plus Vychodne Slovensko a. s. constructs and operates cable
television networks in Eastern Slovakia. In 1998 Kabel Plus recognized a 80%
provision for permanent diminution of its investment in Kabel Plus
Vychodne Slovensko a. s. due to lack of control over the company and resulting
low value of the investment.

    Kabel Plus Sport, a. s. produces TV game show programs and sporting events.
Genus TV, a. s. was organized for the purpose of operating local studios.

                                     F-144
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


    The major components (unaudited) of the equity method investee, Kabel Plus
Sport a. s., financial position and results of operations as of March 31, 1999,
December 31, 1998, March 31, 1998 and December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                  March 31, 1999  1998  March 31, 1998  1997
                                  -------------- ------ -------------- ------
                                   (unaudited)           (unaudited)
<S>                               <C>            <C>    <C>            <C>
Property, plant and equipment....      5,411      6,901      7,567      9,234
Total assets.....................     33,055     31,329     28,302     27,063
Total liabilities................      9,913      9,913     11,336     11,336
Equity...........................     23,142     21,194     16,766     15,587
Revenues.........................     12,372     52,274     12,090     48,344
Depreciation and amortization....      1,490      5,927      1,667      8,415
Earnings before interest, taxes,
 depreciation & amortization.....      3,245     12,656      2,895      4,365
Net income.......................      1,726      5,609      1,039     (3,214)
</TABLE>

5. Debt

    On December 18, 1996, the Company entered into a revolving credit facility
in the amount of Kc 1,345,350 and an overdraft facility in the amount of Kc
134,535 with a group of banks. This arrangement was designed to subordinate the
existing loans with USWCC (see Note 6 for further information). The interest
rate on the revolving credit facility was PRIBOR (Prague Interbank Offer Rate)
plus 1% per annum. The interest rate on the overdraft facility was the rate as
advised by the bank or alternatively the average daily PRIBOR rate plus 1% per
annum. The due date on both facilities was December 1, 1998.

    On November 30, 1998, the Company extended the above revolving credit
facility and overdraft facility for the same amounts as indicated above but at
different interest rates. The interest rate on the revolving credit facility is
PRIBOR plus 1.25% per annum. The interest rate on the overdraft facility is the
rate as advised by the bank or alternatively the average daily PRIBOR plus
1.25% per annum. As of the date of this report, the interest rate on the
overdraft facility was 10% per annum. The due date on both facilities is June
30, 2000.

    These loan agreements include various covenants and restrictions with which
the Company must comply. Some of the major covenants pertain to the average
number of subscribers and earnings before interest, taxes, depreciation and
amortization. At March 31, 1999 (unaudited) and 1998 (unaudited) and December
31, 1998 and 1997, the Company was in compliance with all such covenants.

    As of March 31, 1999 and December 31, 1998, the Company had drawn Kc
804,841 (unaudited) and Kc 774,840, respectively, of the revolving credit
facility. Interest accrued through March 31, 1999 and December 31, 1998
amounted to Kc 6,809 (unaudited) and Kc 5,869, respectively. As of March 31,
1999 (unaudited) and December 31, 1998, there was no balance on the overdraft
facility.

                                     F-145
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


6. Due to Parent

    At March 31, 1999, December 31, 1998, March 31, 1998 and December 31, 1997,
the Company had the following outstanding debt with its parent, MediaOne Czech
Cable Company (MCCC), formerly US West Czech Cable Company (USWCCC):

<TABLE>
<CAPTION>
                                       Amount in  Amount in  Amount in  Amount in
                   Date of   Interest    Kc at      Kc at      Kc at      Kc at
       Facility    Maturity    Rate     3/31/99   12/31/98    3/31/98   12/31/97
     ------------ ---------- -------- ----------- --------- ----------- ---------
                                      (unaudited)           (unaudited)
<S>  <C>          <C>        <C>      <C>         <C>       <C>         <C>
     Kc 2,708,961 12/31/2011   13.5%    909,159    879,153   3,087,604  2,977,222
                                        =======    =======   =========  =========
</TABLE>

    In December 1998, MCCC capitalized Kc 2,506,600 of its loan into equity
(see Note 7 for further information). The balance outstanding as of March 31,
1999 (unaudited) and December 31, 1998 consists of the interest accrued on the
original loan. These amounts of interest remain to be subject to further
interest charges at the same rate as the original loan of 13.5%. The
outstanding balance as of March 31, 1998 and December 31, 1997 of the facility
of 3,087,604 (unaudited) and Kc 2,977,222, respectively, included accrued
interest of Kc 581,004 (unaudited) and Kc 477,633, respectively.

7. Share Capital

    At March 31, 1999 (unaudited) and December 31, 1998, the Company's share
capital consisted of 15,052 shares at Kc 100 per share and 1,792 shares at Kc
1,000 per share, totaling Kc 3,297,200. Share capital of Kc 3,700 remains
unpaid at March 31, 1999 (unaudited), December 31, 1998, March 31, 1998
(unaudited) and December 31, 1997 (37 shares at Kc 100 per share).

    On December 30, 1998, MCCC increased the share capital of Kabel Plus, a. s.
by issuing 1,357 shares at Kc 1,000 per share. These shares were acquired by
MCCC through the conversion of its loan outstanding of Kc 2,506,600 (see Note
6). Out of this amount, Kc 1,357,000 was recorded to share capital and
1,149,600 was recorded to share premium.

    At March 31, 1998 (unaudited) and at December 31, 1997, the Company's share
capital consisted of 15,052 shares at Kc 100 per share and 435 shares at Kc
1,000 per share, totaling Kc 1,940,200.

8. Reserve Fund

    Czech regulations require joint stock companies to establish a reserve fund
for contingencies against future losses and other events. Contributions must be
a minimum of 20% of after-tax profit in the first year in which profits are
made and 5% of profit each year thereafter, until the fund reaches at least 20%
of capital. Approximately Kc 126,485 (unaudited), Kc 126,485, Kc 83,400
(unaudited) and Kc 83,400, respectively, in the statutory reserve fund is
included in share premium and reserve fund in the accompanying consolidated
balance sheet as of March 31, 1999, December 31, 1998, March 31, 1998 and
December 31, 1997.

9. Income Taxes

    Czech and Slovak laws do not permit consolidated tax returns, therefore
income taxes are calculated on an individual company basis. The primary
differences between taxable loss and net accounting loss relate to the
recognition of depreciation, bad debt provision and provision for obsolete
inventory. In 1998 and 1999, the corporate income tax rate for the Czech and
Slovak Republics was 35% and 40%, respectively.

                                     F-146
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                 NOTES TO FINANCIAL STATEMENTS -- (Continued)
                       as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


   Taxable losses in the Czech and Slovak Republics may be carried forward up
to seven and five years, respectively, to reduce taxable income in future
years. At December 31, 1998, the Company had net operating loss carryforwards
for income tax purposes aggregating approximately Kc 2,625,419, which expire
in varying amounts through 2005. There is a plan for merger of the Czech
wholly owned subsidiaries into Kabel Plus, a. s. Under this plan,
approximately Kc 537,000 of net operating loss carryforwards would be lost
during the merger process.

   As the Company has incurred losses since inception, the Company has not
formally adopted the accounting for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109) "Accounting for
Income Taxes". SFAS 109 requires recognition of deferred tax assets and
liabilities for the expected future income tax consequences of events which
have been included in the financial statements or tax returns. The
determination of deferred tax assets and liabilities under SFAS 109 is based
on the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

   Had the Company adopted SFAS 109, deferred tax assets (before valuation
allowances) would have been approximately Kc 1,307,513 (unaudited), Kc
1,250,456, Kc 996,791 (unaudited) and Kc 910,426, respectively, as of March
31, 1999, December 31, 1998, March 31, 1998 and December 31, 1997. As
realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that temporary differences and carryforwards are
expected to be available to reduce taxable income, Management would have
elected to record a valuation allowance for the entire amount of deferred tax
assets. As a result, Management believes net deferred tax assets would have
been nil as of March 31, 1999 and 1998 and December 31, 1998 and 1997. The
most significant deferred tax asset results from the Company's net operating
loss carryforwards for income tax purposes.

10. Transactions with Related Parties

   The Company has a secondment agreement with MediaOne, in which MediaOne
provides certain personnel and other services to the Company. The agreement
requires the Company to reimburse MediaOne for one hundred percent of these
costs. For the three months ended March 31, 1999 and 1998 these costs were Kc
19,154 (unaudited) and Kc 9,209 (unaudited), respectively, and in 1998 and
1997, they were Kc 72,557 and Kc 87,128, respectively.

   The Company also has certain loan agreements with MediaOne Czech Cable
Company as explained in Note 6.

11. Commitments and Contingencies

Property Swap

   In 1996, Kabel Plus, a.s. entered into a letter of intent with United and
Philips Communications ("UPC") to swap certain of their cable properties in
the Czech and Slovak Republics in 1997. This transaction was terminated in the
first half of 1998 and there are currently no plans for a similar transaction.

Licenses

   The Company has been granted three telephony licenses in the Czech Republic
and numerous cable television licenses throughout the Czech and Slovak
Republics. Some of the cable television licenses have provisions that require
the Company to provide cable service to the residents of the licensed areas
within certain time frames. To date, the Company has been able to meet its
obligations resulting from these transactions.

                                     F-147
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


Land and Building Dispute

    During 1998, the former owners of the land and building located in Prague
filed a lawsuit contesting ownership of the building and land by the Company.
In case that Kabel Plus, a. s. should lose this lawsuit it would have to pay
rent for the land retroactively since 1993.

Nortel Equipment

    The Company purchased telephone equipment in 1995 designed to operate on a
certain frequency. The Czech Telecommunication Office changed in 1999 its
frequency plan, which does not allow the existing equipment to be used after
December 31, 1999. This would cause a loss to the Company of approximately Kc
25 million. Management is currently in negotiations with the Czech
Telecommunication Office to obtain an exception to the frequency plan for
another three years. Management believes that these negotiations will be
successful and as a result no adjustments to the accompanying financial
statements have been made.

Tax Legislation

    The Czech and Slovak Republics currently have a number of laws related to
various taxes imposed by both federal and regional governmental authorities.
Applicable taxes include value added tax, corporate tax, and payroll (social)
taxes, together with others. In addition, laws related to these taxes have not
been in force for significant periods, in contrast to more developed market
economies; therefore, implementing regulations are often unclear or
nonexistent. Accordingly, few precedents with regard to issues have been
established. Often, differing opinions regarding legal interpretations exist
both among and within government ministries and organizations; thus, creating
uncertainties and areas of conflict. Tax declarations, together with other
legal compliance areas (as examples, customs and currency control matters) are
subject to review and investigation by a number of authorities, who are enabled
by law to impose extremely severe fines, penalties and interest charges. These
facts create tax risks in the Czech and Slovak Republics substantially more
significant than typically found in countries with more developed tax systems.
Management believes that it has adequately provided for tax liabilities in the
accompanying financial statements; however, the risk remains that relevant
authorities could take differing positions with regard to interpretive issues
and the effect could be significant.

Operating Leases

    The Company has entered into leases for a variety of items, including
office space, automobiles, cable networks and various types of equipment.

    As of December 31, 1998 the Company has future operating lease commitments
as follows:

<TABLE>
<CAPTION>
            Year                                   Amount
            ----                                   ------
            <S>                                    <C>
            1999.................................. 9,742
            2000.................................. 9,239
            2001.................................. 9,077
            2002.................................. 8,635
            2003.................................. 8,363
            2004.................................. 7,346
</TABLE>

                                     F-148
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)

Year 2000 (unaudited)

    The operations of the Company could be adversely affected by the Year 2000
problem as the Company significantly relies on information systems in its
business. As a result, management established and charged a project team with
the task of identifying potential problems arising from systems and products
unable to function as a result of the inability of many computer systems to
recognize dates for the year 2000 and afterward. Systems that use only two
digits to record a year (e.g., 2000 is entered as 00), can malfunction when
dates are used in processing. The systems potentially affected include, but are
not limited to, accounting, subscriber, inventory and vendor management
systems. The Company is currently testing these systems to determine whether
they will be "Year 2000" compliant. The Company is replacing or upgrading
systems that are not year 2000 compliant. In addition, the Company has
completed its contingency plans for the systems identified as critical to the
Company's operations.

    The Company estimated a cost of Kc 10 million that will need to be spent
during 1999 to remediate its Year 2000 problem. The failure to adapt the
Company's systems to year 2000 compliance and uncertainty as to the compliance
of systems used by its suppliers and customers may have a significant negative
impact on the Company's financial performance and its intended level of
operations. However, due to the nature of the problem, the level of potential
loss cannot be quantified with certainty.

12. Revenues

    For the three months ended March 31, 1999 and 1998 and for the years ended
December 31, 1998 and December 31, 1997, revenues of the Company consisted of
the following:

<TABLE>
<CAPTION>
                                        March 31,           March 31,
                                          1999      1998      1998      1997
                                       ----------- ------- ----------- -------
                                       (unaudited)         (unaudited)
<S>                                    <C>         <C>     <C>         <C>
Average number of subscribers.........   379,500   373,533   382,745   375,631
                                         -------   -------   -------   -------
Subscriber revenue
  Mini................................    84,825   281,397    66,697   195,191
  Klasik..............................    48,064   144,193    36,364   130,021
  Premium.............................    26,122    78,605    20,089     9,852
                                         -------   -------   -------   -------
Subtotal..............................   159,011   504,195   123,150   335,064
Installation revenue..................     9,197    22,341     7,271    40,746
Non-cable revenue (inventory sales,
 telephony)...........................    54,088   243,846    66,324   265,911
                                         -------   -------   -------   -------
Total revenue.........................   222,296   770,382   196,745   641,721
                                         =======   =======   =======   =======
</TABLE>

13. Management's Plan for Company

    The Company has incurred losses since inception, including losses of Kc
95,727 (unaudited) and Kc 193,635 (unaudited), respectively, for the three
months ended March 31, 1999 and 1998 and Kc 853,427 and Kc 881,386,
respectively, for the years ended December 31, 1998 and December 31, 1997.

    In 1996, management prepared, and the shareholders approved, a
restructuring plan for the Company. Under this plan, the Company increased its
share capital by Kc 417,000 by subscribing for 4,170 shares with a nominal
value of Kc 100 at a price of Kc 498 per share. The difference between the
nominal value (Kc 417,000) and the subscription value (Kc 2,076,643) amounting
to Kc 1,659,643 was recorded as share premium. The proceeds from issuance of
share capital were used to repay the USD 30,000 and USD 40,000 loans due to
parent. The difference between the Kc equivalent of the amount at which these
loans were repaid, Kc 2,159,844 and the subscription value of the share
capital, Kc 2,076,643, amounting to Kc 83,201, was recorded as share premium.

                                     F-149
<PAGE>

                       KABEL PLUS, a.s. AND SUBSIDIARIES
                  NOTES TO FINANCIAL STATEMENTS -- (Continued)
                        as of December 31, 1998 and 1997
                       (Czech Crowns -- Kc in Thousands)


    In December 1998 the shareholders approved a further restructuring plan by
converting the principal amount of the loan from MCCC to equity. This resulted
in an increase in share capital of Kc 1,357,000 and in share premium of Kc
1,149,600 (See Note 7).

    Since MCCC acquired a controlling interest in the Company, several steps
have been taken to improve its financial stability. As discussed in Note 5, the
Company extended a revolving credit facility that will provide the Company with
adequate funds to meet its operating and capital expenditure needs through June
2000. In addition, MediaOne has increased its management presence in the
Company and is in the process of restructuring the Company and its subsidiaries
in order to make the Company more profitable. Thus far, the Company and its
subsidiaries have increased the rates charged to subscribers and taken steps to
reduce operating costs, specifically in the areas of programming and personnel,
and improve the security of its plant in order to reduce theft of service and
bad debt. In addition, The Company has taken, and continues to take, steps to
improve the programming it provides to customers, as well as centralize systems
and processes to maximize efficiencies and control.

    The Company reached a milestone in 1998 when the subsidiaries reached
positive EBITDA for the first time (EBITDA is defined as net loss plus
depreciation and amortization, net interest, net other financial and income tax
expenses less equity in net income from affiliates). The operating strategies
the Company has put in place are yielding positive financial results which is
expected to continue into the future.

14. Reconciliation of Accumulated Deficit and Current Year Net Loss

    The following table summarizes the differences in accumulated deficit and
net loss between Company's statutory accounts and U.S. GAAP:

<TABLE>
<CAPTION>
                               March 31,                March 31,
                                 1999         1998        1998         1997
                              -----------  ----------  -----------  ----------
                              (unaudited)              (unaudited)
<S>                           <C>          <C>         <C>          <C>
Accumulated deficit per
 statutory accounts.........  (4,849,533)  (4,753,806) (4,092,546)  (3,898,911)
Adjustments required by U.S.
 GAAP:
Foreign exchange losses.....     (83,254)     (83,254)    (83,254)     (83,254)
                              ----------   ----------  ----------   ----------
U.S. GAAP accumulated
 deficit....................  (4,932,787)  (4,837,060) (4,175,800)  (3,982,165)
                              ==========   ==========  ==========   ==========
Net loss per statutory
 accounts...................     (95,727)    (853,427)   (193,635)    (853,893)
Adjustment required by U.S.
 GAAP:
Foreign exchange losses.....         --           --          --       (27,493)
                              ----------   ----------  ----------   ----------
U.S. GAAP net loss..........     (95,727)    (853,427)   (193,635)    (881,386)
                              ==========   ==========  ==========   ==========
</TABLE>

15. Subsequent Event

    During a general meeting of the shareholders on June 22, 1999, the
shareholders approved the conversion of outstanding accrued interest due to the
Company's parent (MCCC) totaling Kc 938,000 (as of June 22, 1999). Out of this
amount, Kc 508,000 will be recorded as share capital and the remaining 430,000
will be recorded as share premium. The change has not been registered with the
Czech courts to date.

                                     F-150
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                             ADMINISTRATION REPORT

Ownership

    NBS Nordic Broadband Services AB ("NBS") is the parent company of the
Stjarnan Multimedia group. NBS is among others owned by Scandinavian Equity
Partners Ltd. On May 6, 1998 all the shares of the subsidiary Stjarnan
Multimedia Invest AB (last year called Singapore Telecom International Svenska
AB) were acquired. The purchase price was kSEK 730,000 paid in cash.

Information concerning the operations

    NBS shall, by itself or through wholly- or partially-owned subsidiaries,
operate within telecommunications and cable television and other similar
businesses. The operations have taken place in Greater Stockholm.

Significant events during the year

    The subsidiary StjarnTVnatet AB (556497-8210), previously Stjarnan
Multimedia Invest, merged on November 13, 1998 with the former subsidiary
StjarnTVnatet AB (556000-4391). The accounting for this merger has been
performed in accordance with the draft recommendation of "Accounting of merger
regarding a wholly-owned subsidiary" from the Swedish Accounting Standards
Board.

    Stjarnan Multimedia AB has during the year issued shares, warrants and
convertible loans.

Significant events subsequent to year end

    The subsidiary StjarnTVnatet AB acquired on February 1, 1998 Stockholms
Kabel TV AB, a cable television operator in Stockholm. Stockholms Kabel TV has
approximately 7,000 connected households.


                                     F-151
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

               CONSOLIDATED INCOME STATEMENT FOR 1998 (SEK 000's)

<TABLE>
<S>                                                                    <C>
Net sales.............................................................  189,148
                                                                       --------
                                                                        189,148
Operating expenses
Program and distribution costs........................................  (77,324)
Other external costs..................................................  (46,459)
Personnel costs (Note 1)..............................................  (29,265)
                                                                       --------
Total operating expenses excluding depreciation....................... (153,048)
Operating profit before depreciation..................................   36,100
Depreciation of tangible and intangible fixed assets (Note 2).........  (45,597)
Operating loss........................................................   (9,497)
Result from financial investments
Other interest income and similar items (Note 3)......................    5,415
Interest expense and similar items (Note 3)...........................  (19,676)
Loss after financial items............................................  (23,758)
Deduction acquired profit (Note 9)....................................   (1,027)
Tax on current year result (Note 4)...................................   (2,924)
                                                                       --------
NET LOSS FOR THE YEAR.................................................  (27,709)
                                                                       ========
</TABLE>


                                     F-152
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

         CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 (SEK 000's)

<TABLE>
<S>                                                                    <C>
ASSETS
Fixed assets
Intangible assets (Note 2)
Goodwill.............................................................. 503,679
Improvement expenses on others property...............................     915
                                                                       -------
                                                                       504,594
Tangible assets (Note 2)
Equipment, tools fixtures and fittings................................ 103,877
Construction in progress and advance payments for tangible assets.....  43,586
                                                                       -------
                                                                       147,463
  Total fixed assets.................................................. 652,057
Current assets
Current receivables
Accounts receivable--trade............................................  15,404
Other receivables.....................................................   2,313
Prepaid expenses and accrued income (Note 5)..........................   3,158
                                                                       -------
                                                                        20,875
Current investments
Other current investments.............................................  80,000
Cash and bank balances................................................  84,499
  Total current assets................................................ 185,374
                                                                       -------
  TOTAL ASSETS........................................................ 837,431
                                                                       =======
EQUITY AND LIABILITIES
Equity (Note 6)
Restricted equity
Share capital (22,700,000 shares at a par value of SEK 1 each)........  22,700
Other restricted capital..............................................   3,788
                                                                       -------
                                                                        26,488
Non-restricted equity
Non-restricted reserves............................................... 202,500
Loss for the year..................................................... (27,709)
                                                                       -------
                                                                       174,791
  Total equity........................................................ 201,279
Provision
Deferred tax liability................................................  25,071
                                                                       -------
  Total provisions....................................................  25,071
Long-term liabilities
Interest-bearing
Liabilities to credit institutions (Note 10).......................... 297,500
Other liabilities (Note 11)...........................................   4,264
                                                                       -------
  Total long-term liabilities......................................... 301,764
Current liabilities
Interest-bearing
Liabilities to credit institutions (Note 10).......................... 223,500
Non-interest-bearing
Accounts payable--trade...............................................  23,696
Income tax liabilities................................................   5,983
Other liabilities.....................................................   4,266
Accrued expenses and deferred income (Note 7).........................  51,872
                                                                       -------
  Total current liabilities........................................... 309,317
                                                                       -------
  TOTAL EQUITY AND LIABILITIES........................................ 837,431
                                                                       =======
Memorandum items
PLEDGED ASSETS AND CONTINGENT LIABILITIES
Pledged assets (Note 8)............................................... 480,164
Contingent liabilities (Note 8).......................................  11,994
</TABLE>


                                     F-153
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

             CONSOLIDATED CASH FLOW STATEMENT FOR 1998 (SEK 000's)

<TABLE>
<S>                                                                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net sales.............................................................  189,148
Operating expenses.................................................... (153,048)
                                                                       --------
Net cash flow before changes in working capital.......................   36,100
Increase (-) decrease (+) of operating receivables....................   (6,714)
Increase (+) decrease (-) of operating liabilities....................   99,212
                                                                       --------
Net cash flow from operations.........................................  128,598
Received interest and result from current investments.................    5,415
Paid interest.........................................................  (19,676)
Paid income-taxes.....................................................   (1,790)
                                                                       --------
Net cash flow provided by operating activities........................  112,547
CASH FLOW FROM INVESTING ACTIVITIES
Deduction of investments..............................................   75,000
Investments in fixed assets...........................................  (55,829)
Investments in shares................................................. (752,037)
                                                                       --------
Net cash flow from investing activities............................... (732,866)
CASH FLOW FROM FINANCING ACTIVITIES
Payments regarding options............................................    1,988
Shareholder's contribution............................................  202,500
New share issue.......................................................   24,400
Raised loans..........................................................  472,264
Amortisation of loan..................................................   (9,000)
                                                                       --------
Net cash flow from financing activities...............................  692,152
CHANGE IN CASH AND BANK...............................................   71,833
Cash and bank at beginning of year....................................   12,666
Cash and bank at end of year..........................................   84,499
</TABLE>


                                     F-154
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                       NOTES TO THE FINANCIAL STATEMENTS

Principles Used in Preparing the Consolidated Financial Statements

    These consolidated financial statements represent a financial year that
deviate from NBS statutory financial year. Audited statutory accounts for NBS
in 1998 have been filed for the period January 3, 1997 to June 30, 1998 and
July 1, 1998 to December 31, 1998.

    NBS acquired StjarnTVnatet AB on May 6, 1998. StjarnTVnatet AB is included
in the statutory accounts from April 1, 1998. The following information and
principles have been used to prepare these financial statements:

Income statement

    i) Income statements for the two statutory financial periods ended in 1998
have been added together to show operations during 1998.

    ii) StjarnTVnatet AB is included in the statutory accounts as of April 1,
1998 and its revenues and costs are included in the accounts as of that date.
In order to include StjarnTVnatet AB as of May 6, 1998, the net profit relating
to StjarnTVnatet AB for the period April 1, 1998 to May 5, 1998 has been
eliminated (see also Note 9).

Balance sheet

    ii) The balance sheet as presented is the audited balance sheet as of
December 31, 1998. The presented balance sheet differs in one respect from the
statutory accounts. Correction has been made in the balance sheet for the loss
brought forward referring to the loss reported for the period January to June
1998 which has been included in the loss for 1998.

    The following notes and comments to the financial statements are
translations from the audited statutory accounts. Certain information relating
to the parent company has been included even though its statutory financial
statements has been left out.

Accounting Principles and Annual Report Information

Consolidated accounts

    The group accounts have been consolidated in accordance with acquisition
accounting. In addition to the parent company's equity, the group equity
includes the subsidiaries' results generated after the acquisition date.
Goodwill is calculated as the difference between the group acquisition value of
the subsidiaries', shares and the actual value of acquired identifiable assets
and liabilities, at the time of acquisition. Goodwill is depreciated according
to plan.

    The consolidated accounts consist of the annual accounts for all
subsidiaries. A subsidiary is a company in which the parent company, directly
or indirectly, owns shares representing more than 50% of the votes.

    There are no appropriations or untaxed reserves recorded in the
consolidated accounts. Instead, deferred taxes related to untaxed reserves are
shown in the consolidated income statement as part of the group tax expense.
The proportion of equity in appropriations and untaxed reserves is shown in the
income statement as part of the profit for the year and in the balance sheet as
restricted equity. A revaluation of the deferred tax liability is made every
year at the prevailing tax rate, currently 28 percent, and is recorded in the
consolidated income statement as part of the tax expense for the year.

Other principles

    Assets and liabilities are valued at acquisition value unless otherwise
stated.

    Trade receivables are valued at amounts deemed collectable.

                                     F-155
<PAGE>

                       NBS NORDIC BROADBAND SERVICES AB

               NOTES TO THE FINANCIAL STATEMENTS -- (Continued)


   Receivables and liabilities in foreign currency are valued at closing day
rates.

   Premiums received from sales of warrants are accounted for in restricted
equity as Share premium reserve.

   Depreciation according to plan on intangible and tangible fixed assets is
based on the acquisition value and expected economic life of each asset.

Equipment

   Machinery and equipment have been depreciated according to plan, which is
based on an economic life of 3 and 5 years respectively.

Distribution plants

   Plants have been depreciated according to plan, which is based on an
economic life of 3, 7 or 10 years.

Improvement expenses on others property

   Improvement expenses have been depreciated according to plan, which is
based on an economic life of 20 years.

Goodwill

   Goodwill related to the acquisition of the StjarnTVnatet Group, formerly
Stjarnan Multimedia Invest Group, is depreciated on a straight-line basis over
a 20 year period. The length of the depreciation period is due to the long-
term strategic nature of the acquisition and the duration of the essential
underlying contracts with the real estate owners concerning cable
installations. Furthermore, the name StjarnTV is well established on the
market.

Notes (SEK 000's)

Note 1 Average number of employees, salaries, other remuneration and payroll
overhead

   Number of employees:

<TABLE>
   <S>                                                                       <C>
   Men......................................................................  34
   Women....................................................................  27
                                                                             ---
     Total..................................................................  61
</TABLE>

   Salaries, other remuneration and payroll overhead:

<TABLE>
   <S>                                                                   <C>
   Board of Directors and Managing Director
   Salaries and other remuneration......................................  4,655
   (of which is bonus).................................................. (2,561)
   Pension costs........................................................    446
   Other employees
   Salaries and other remuneration...................................... 14,120
                                                                         ------
   Total
   Salaries and other remuneration...................................... 18,775
   Payroll overhead.....................................................  7,845
   (of which are pension costs)......................................... (1,153)
</TABLE>


                                     F-156
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                NOTES TO THE FINANCIAL STATEMENTS -- (Continued)

    The Managing Director is covered by an employment contract according to
which the notice period is 6 months. In addition to this, severance pay equal
to a remuneration for a 12 month is payable, if the notice is served by the
Group. There are no other pension commitments than those stated above.

Note 2 Intangible and tangible fixed assets

<TABLE>
<S>                                                                     <C>
Intangible assets
Improvement expenses on others property
Opening cost value.....................................................     --
Purchases..............................................................     927
Closing cost value.....................................................     927
Opening accumulated depreciation.......................................     --
Depreciation for the year..............................................     (12)
                                                                        -------
Closing accumulated depreciation.......................................     (12)
Residual value according to plan.......................................     915
Goodwill
Opening cost value..................................................... 522,226
                                                                        -------
Closing cost value..................................................... 522,226
Depreciation for the year.............................................. (18,547)
                                                                        -------
Closing accumulated depreciation....................................... (18,547)
Residual value according to plan....................................... 503,679
</TABLE>

<TABLE>
<S>                                                                    <C>
Equipment, tools fixtures and fittings of which;

1. Distribution plants
Cost value
Opening cost value....................................................  231,732
Purchases.............................................................    2,399
Completed projects....................................................    6,451
                                                                       --------
Closing cost value....................................................  240,582
Depreciation according to plan
Opening accumulated depreciation...................................... (121,363)
Depreciation for the year.............................................  (25,590)
                                                                       --------
Closing accumulated depreciation...................................... (146,953)
Residual value according to plan......................................   93,629

</TABLE>

                                     F-157
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                NOTES TO THE FINANCIAL STATEMENTS -- (Continued)


<TABLE>
<S>                                                                     <C>
2. Equipment
Cost value
Opening cost value.....................................................  10,519
Purchases..............................................................   8,737
Disposals..............................................................  (2,822)
                                                                        -------
Closing cost value.....................................................  16,434
Depreciation according to plan
Opening accumulated depreciation.......................................  (7,561)
Disposals..............................................................   2,822
Depreciation for the year..............................................  (1,447)
                                                                        -------
Closing accumulated depreciation.......................................  (6,186)
Residual value according to plan.......................................  10,248
Total residual value according to plan................................. 103,877
Construction in progress and advanced payments for tangible assets
Opening cost value.....................................................   6,273
Purchases..............................................................  45,998
Completed projects.....................................................  (6,451)
Reclassification.......................................................  (2,234)
                                                                        -------
Closing cost value.....................................................  43,586
</TABLE>

Leasing

    The Group has entered into the following operating lease agreements related
to premises:

<TABLE>
   <S>                                                                     <C>
   Future minimum lease payments in:
   1999................................................................... 3,400
   2000................................................................... 3,400
   2001................................................................... 3,400
   After 2001:............................................................ 5,950
</TABLE>

    The rent for 1998 has amounted to 2,958.

    The Group leases ducts and the use of fibre optical cable. The duration of
the contract is 20 years and it follows generally accepted market terms.

    The Group has also to a lesser extent leasing agreements regarding cars,
office equipment and small offices. All contracts follow generally accepted
market terms.

Note 3 Other interest income and interest expense

<TABLE>
   <S>                                                                    <C>
   Interest income.......................................................  5,415
   Interest expense...................................................... 19,676
</TABLE>

    There are no intra-group interest income or expense included above.

Note 4 Tax on current year result

<TABLE>
   <S>                                                                     <C>
   Current tax paid on the profit for this and earlier years.............. 1,790
   Deferred taxes......................................................... 1,134
                                                                           -----
     Total................................................................ 2,924
</TABLE>

                                     F-158
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                NOTES TO THE FINANCIAL STATEMENTS -- (Continued)


Note 5 Current receivables

<TABLE>
<CAPTION>
Prepaid expenses and accrued income
<S>                                                                        <C>
Prepaid rent..............................................................   997
Accrued interest income...................................................   106
Other..................................................................... 2,055
                                                                           -----
Total..................................................................... 3,158
</TABLE>

Note 6 Equity

<TABLE>
<CAPTION>
                                                          Non-
                                            Restricted restricted Profit/loss
                              Share capital  reserves   reserves  for the year
                              ------------- ---------- ---------- ------------
<S>                           <C>           <C>        <C>        <C>
Opening balance..............       100
Unconditional shareholder's
 contribution................                           202,500
Options granted..............                 1,988
New share issue..............    22,600       1,800
Loss for the year............                                       (27,709)
                                 ------       -----     -------     -------
Closing balance..............    22,700       3,788     202,500     (27,709)
</TABLE>

    Each share corresponds to one vote.

    NBS has during the year issued two subordinated loans with detachable
warrants. The subordinated loans and the warrants were subscribed by
StjarnTVnatet AB. The subordinated loans and the warrants have been sold on
their due date.

    The warrants Series I allows the subscription of 1,820,000 new shares in
NBS at an issue price of SEK 16. The period of application for the subscription
of shares is between the October 20, 1998 and October 20, 2004.

    The warrants Series II allows the subscription of 2,040,000 new shares in
NBS at an issue price of SEK 25. The period of application for the subscription
of shares is between the October 20, 1998 and the October 20, 2004.

Note 7 Accrued expenses and deferred income


<TABLE>
<S>                                                                       <C>
Accrued costs of personnel...............................................  3,069
Accrued program costs....................................................  4,111
Deferred income.......................................................... 27,867
Other.................................................................... 16,825
                                                                          ------
Total.................................................................... 51,872
</TABLE>

Note 8 Pledged assets and contingent liabilities

<TABLE>
<CAPTION>
Pledged assets
<S>                                                                      <C>
Shares in subsidiary.................................................... 480,164
                                                                         -------
Total................................................................... 480,164
<CAPTION>
Contingent liabilities
<S>                                                                      <C>
Guarantees..............................................................     321
Royalty commitment......................................................  11,673
                                                                         -------
Total...................................................................  11,994
</TABLE>

                                     F-159
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                NOTES TO THE FINANCIAL STATEMENTS -- (Continued)


    The indirectly owned subsidiary SpaceNet AB has in a prior year entered
into a royalty agreement with NUTEK and with Industrifonden, according to which
NBS is obliged to pay royalty on certain sales until the end of the contract
period in 2000 and 2005, respectively. The royalty commitment including an
annual interest is limited to 11,673, of which 9,673 refers to Industrifonden.

Note 9 Acquired profit

    All shares in Stjarnan Multimedia Invest AB were acquired on May 6, 1998.
Acquired profit relate to the period April 1, 1998 to May 5, 1998.

Note 10 Liabilities to credit institutions

<TABLE>
<CAPTION>
Liabilities to credit institutions
Current liabilities
<S>                                                                      <C>
Due within 1 year....................................................... 223,500
<CAPTION>
Long-term liabilities
<S>                                                                      <C>
Due between 1 and 5 years............................................... 297,500
Due after 5 years.......................................................     --
Total liabilities to credit institutions................................ 521,000
</TABLE>

Note 11 Convertible loan

<TABLE>
<S>                                                                        <C>
Outstanding loan amount................................................... 4,264
</TABLE>

    The loan is due on October 20, 2006, unless conversion has been made before
that date. The loan bears an annual interest equivalent to twelve months STIBOR
plus 1.7 %. The conversion rate is set at SEK 16 per share. The outstanding
loan entitles to conversion to 404,000 new shares in NBS.

Note 12 Participation in group companies


<TABLE>
<CAPTION>
                           Corporate                         Portion of Net book
                           identity     Regist-   Number of    equity   value Dec
                            number    ered office   shares       %      31, 1998
Directly owned:           ----------- ----------- ---------- ---------- ---------
<S>                       <C>         <C>         <C>        <C>        <C>
StjarnTVnatet AB........  556497-8210    Sthlm    50,000,000    100      752,037
<CAPTION>
Indirectly owned:
<S>                       <C>         <C>         <C>        <C>        <C>
SpaceNet AB.............  556226-4589    Sthlm           --     100          --
Stockholms Stads Televi-
 sions AB...............  556070-3547    Sthlm           --     100          --
StjarnTV AB.............  556308-7534    Sthlm           --     100          --
</TABLE>

Note 13 US GAAP reconciliation

    The accounting policies followed in preparation for the consolidated
financial statements differ in some respect to the generally accepted
accounting principles in the United States.

                                     F-160
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                NOTES TO THE FINANCIAL STATEMENTS -- (Continued)


    The principle differences between Swedish GAAP and US GAAP are presented
below together with explanations of the adjustments that affect consolidated
net loss, total equity and total assets as of the year ended December 31, 1998.

<TABLE>
   <S>                                                                <C>
   Reconciliation of Net Loss
     Swedish GAAP Net Loss...........................................   (27,709)
     Leases..........................................................    (3,664)
     Goodwill amortization...........................................    (1,177)
     Deferred tax effect on US GAAP adjustment.......................     1,026
                                                                      ---------
     US GAAP Net Loss................................................   (31,524)
   Reconciliation of Equity
     Swedish GAAP Equity.............................................   201,279
     Leases..........................................................    (4,841)
     Deferred tax effect on US GAAP adjustment.......................     1,026
                                                                      ---------
     US GAAP Equity..................................................   197,464
   Reconciliation of Assets
     Swedish GAAP Assets.............................................   837,431
     Leases..........................................................   176,080
     Goodwill........................................................    35,053
                                                                      ---------
     US GAAP Assets.................................................. 1,048,564
                                                                      =========
</TABLE>

Leases

    The Group leases certain equipment which in accordance with Swedish GAAP is
treated as operating leases. For US GAAP purposes these leases fall under the
criteria for capitalization in accordance with FAS 13 and should thus be
capitalized. The reclassified leases have been recorded as assets and
obligations at their estimated fair value in the above reconciliation. At the
acquisition by EQT, lease obligations exceeded leased assets by SEK36.2 million
and this amount has been accounted for as goodwill. Depreciation has been
computed principally using the straight-line method over the estimated useful
lives of assets, 20 years.


                                     F-161
<PAGE>

                       REPORT BY THE INDEPENDENT AUDITOR

    I have audited the consolidated balance sheet of NBS Nordic Broadband
Services AB (publ) ("NBS"), Sweden, for the year ended December 31, 1998 and
the related consolidated statements of income and cash flows for the year then
ended. The consolidated financial statements are derived from audited accounts
for the period January 3, 1997 to June 30, 1998 and July 1, 1998 to December
31, 1998 prepared in accordance with Swedish GAAP as described in Principles
Used in Preparing the Consolidated Financial Statements in the Notes to the
attached financial statements. The significant differences between accounting
principles generally accepted in Sweden and those generally accepted in the
United States of America so far as concerns the financial statements referred
to are summarized in Note 13 on which we have performed an examination
including such procedures as we considered necessary in the circumstances.
These financial statements are the responsibility of the company's management.
My responsibility is to express an opinion on these financial statements based
on my audit.

    I conducted my audit in accordance with auditing standards generally
accepted in Sweden which are substantially the same as those generally accepted
in the United States of America. Those standards require that I plan and
perform the audit to obtain reasonable assurance that the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
presentation of the financial statement. I believe that my audit provides a
reasonable basis for my opinion.

    NBS is registered in Sweden and maintains accounting records and prepare
its financial statements in accordance with generally accepted accounting
principles in Sweden and in the currency of SEK. The accompanying financial
statements have solely been prepared on the request of NBS and are intended
solely for a fair presentation of the legal entity operations for 1998 and to
describe substantial differences between Swedish and US GAAP as described in
Note 13.

    In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NBS Nordic Broadband
Services AB (publ) as of December 31, 1998, and of the results of its
operations and its cash flows for the year then ended in accordance with
accounting principles generally accepted in Sweden.

    Generally accepted accounting principles in Sweden vary in certain
significant respects from generally accepted accounting principles in the
United States of America. Application of generally accepted accounting
principles in the United States would have affected total assets, results of
the operations and shareholder's equity for the year ended on December 31, 1998
to the extent summarised in Note 13 to the consolidated financial statements.

                                Stockholm Sweden
                                  May 4, 1999

                              Jan-Erik Soderhielm
                          Authorised Public Accountant
                                Ernst & Young AB


                                     F-162
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

 CONSOLIDATED INCOME STATEMENT FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999
                            (Unaudited) (SEK 000's)

<TABLE>
<S>                                                                     <C>
Net sales..............................................................  67,613
                                                                        -------
                                                                         67,613
Operating expenses
Program and distribution costs......................................... (28,331)
Other external costs................................................... (10,211)
Personnel costs........................................................ (11,021)
                                                                        -------
Total operating expenses excluding depreciation........................ (49,563)
Operating profit before depreciation...................................  18,050
Depreciation of tangible and intangible fixed assets................... (16,229)
                                                                        -------
Operating profit.......................................................   1,821
Result from financial investments
Other interest income and similar items................................   1,026
Interest expense and similar items.....................................  (6,484)
                                                                        -------
Loss after financial items.............................................  (3,637)
Tax on current year result.............................................    (801)
                                                                        -------
NET LOSS FOR THE YEAR..................................................  (4,438)
                                                                        =======
</TABLE>

                                     F-163
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

    CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 (Unaudited) (SEK 000's)

<TABLE>
<S>                                                                     <C>
ASSETS
Fixed Assets
Intangible assets
Goodwill............................................................... 499,851
Improvement expenses on other property.................................   2,032
                                                                        -------
                                                                        501,883
Tangible assets
Equipment, tolls fixtures and fittings................................. 139,934
Construction in progress and advance payments for tangible assets......  35,863
                                                                        -------
                                                                        175,797
Total fixed assets..................................................... 677,680
Current assets
Current receivables
Accounts receivable--trade.............................................  15,123
Other receivables......................................................   2,576
Prepaid expenses and accrued income....................................   4,171
                                                                        -------
                                                                         21,870
Cash and bank balances                                                  132,268
Total current assets................................................... 154,138
                                                                        -------
TOTAL ASSETS........................................................... 831,818
                                                                        =======
</TABLE>

                                     F-164
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

    CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 (Unaudited) (SEK 000's)

<TABLE>
<S>                                                                     <C>
EQUITY AND LIABILITIES
Equity
Restricted equity
Share capital (22,700,000 shares at a par value of SEK 1 each).........  22,700
Other restricted capital...............................................   4,011
                                                                        -------
                                                                         26,711
Non-restricted equity
Non-restricted reserves................................................ 174,790
Loss for the year                                                        (4,438)
                                                                        -------
                                                                        170,352
Total equity........................................................... 197,063
Provisions
Deferred tax liability.................................................  25,071
                                                                        -------
Total provisions.......................................................  25,071
Long-term liabilities
Interest-bearing
Liabilities to credit institutions..................................... 297,500
Other liabilities......................................................   4,720
                                                                        -------
Total long-term liabilities............................................ 302,220
Current liabilities
Interest-bearing
Liabilities to credit institutions..................................... 225,900
Non-interest-bearing
Accounts payable - trade...............................................  30,038
Income tax liabilities.................................................   1,107
Other liabilities......................................................   6,487
Accrued expenses and deferred income...................................  43,932
                                                                        -------
Total current liabilities.............................................. 307,464
                                                                        -------
TOTAL EQUITY AND LIABILITIES........................................... 831,818
                                                                        =======
</TABLE>

                                     F-165
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

  CONSOLIDATED CASH FLOW STATEMENT FOR THE THREE MONTH PERIOD ENDED MARCH 31,
                          1999 (Unaudited) (SEK 000's)

<TABLE>
<S>                                                                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net sales.............................................................   67,613
Operating expenses....................................................  (49,563)
                                                                       --------
Net cash flow before changes in working capital.......................   18,050
Increase (-) decrease (+) of operating receivables....................     (371)
Increase (-) decrease (+) of operating liabilities....................   (6,085)
                                                                       --------
Net cash flow from operations.........................................   11,594
Received interest and result from current investments.................    1,026
Paid interest.........................................................   (6,484)
Paid income taxes.....................................................     (801)
                                                                       --------
Net cash flow provided by operating activities........................    5,335
                                                                       ========
CASH FLOW FROM INVESTING ACTIVITIES
Investment in fixed assets............................................ (32,081)
investment in shares..................................................   (6,064)
                                                                       --------
Net cash flow from investing activities...............................  (38,145)
                                                                       ========
CASH FLOW FROM FINANCING ACTIVITIES
Decrease in other current investments.................................   80,000
New share issue.......................................................      223
Raised loans..........................................................      456
Amortisation of loan..................................................     (100)
                                                                       --------
Net cash flow from financing activities...............................   80,579
                                                                       ========
CHANGE IN CASH AND BANK...............................................   47,769
Cash and bank at beginning of year....................................   84,499
Cash and bank at end of year..........................................  132,268
</TABLE>

                                     F-166
<PAGE>

                        NBS NORDIC BROADBAND SERVICES AB

                 NOTES FOR THE FINANCIAL STATEMENTS (Unaudited)

U.S. GAAP reconciliation (SEK 000's)
    The accounting policies followed in preparation for the consolidated
financial statements differ in some respect to the generally accepted
accounting principles in the United States.

    The principle differences between Swedish GAAP and U.S. GAAP are presented
below together with explanations of the adjustments that affect consolidated
net loss, total equity and total assets as of the period ended March 31, 1999.

<TABLE>
<S>                                                                   <C>
Reconciliation of Net Loss
Swedish GAAP Net Loss................................................    (4,438)
Leases...............................................................    (1,211)
Goodwill amortization................................................      (453)
Deferred tax effect on U.S. GAAP adjustment..........................       339
                                                                      ---------
U.S. GAAP Net Loss...................................................    (5,763)
Reconciliation of Equity
Swedish GAAP Equity..................................................   197,063
Leases...............................................................    (6,506)
Deferred tax effect on U.S. GAAP adjustment..........................     1,365
                                                                      ---------
U.S. GAAP Equity.....................................................   191,922
Reconciliation of Assets
Swedish GAAP Assets..................................................   831,818
Leases...............................................................   172,936
Goodwill.............................................................    34,600
                                                                      ---------
U.S. GAAP Assets..................................................... 1,039,354
</TABLE>
Leases
    The Group leases certain equipment which in accordance with Swedish GAAP is
treated as operating leases. For U.S. GAAP purposes these leases fall under the
criteria for capitalization in accordance with the FAS 13 and should thus be
capitalized. The reclassified leases have been recorded as assets and
obligations at their estimated fair value in the above reconciliation. At the
acquisition by EQT, lease obligations exceeded leased assets by SEK36.2 million
and this amount has been accounted for as goodwill. Depreciation has been
computed principally using the straight-line method over the estimated useful
lives of assets, 20 years.

                                     F-167
<PAGE>


                    (Translation from the Swedish original)

                                STJARNTVNATET AB

              Annual Report and Audit Report 1997.04.01 -- 1998.03.31

                                     F-168
<PAGE>

ANNUAL REPORT FOR THE FINANCIAL YEAR 1997-04-01 - 1998-03-31

    The Board of Directors and the Managing Director of StjarnTVnatet AB (Org.
no. 556000-4391) hereby present the Annual Report for the financial year April
1, 1997 to March 31, 1998.

ADMINISTRATION REPORT

 Ownership
    The Company is a subsidiary of Singapore Telecom International Svenska AB,
which during the financial year became a part of a group whose parent company
is Singapore Telecom Ltd. (STI Svenska AB is owned since May 6, 1998 via
Stjarnan Multimedia AB by Scandinavian Equity Partners Ltd which in its turn is
owned by, among others, Investor and S-E Banken.)

    The Company is engaged in the operation of a cable network for television,
radio transmission, and computer- and telecommunication.

    StjarnTVnatet has during the year, in Vallingby and Sodermalm in Stockholm,
launched a high speed Internet direct via the television aerial socket. This
service is more than 20 times faster than Internet through a regular phone
modem. The intention is to offer this service to a majority of the connected
households within a year.

    Subsidiaries, inactive during the financial year:
    - SpaceNet AB
    - StjarnTV AB
    - Stockholms Stads Televisions AB

RESULT AND APPROPRIATION

    The Group result for the year is MSEK 27.8 (25.2).

    The Group non-restricted equity amounts 1998-03-31 to (SEK 000's):

<TABLE>
   <S>                        <C>
     Non-restricted reserves   6,164
     Profit for the year      27,761
                              ------
                              33,925
</TABLE>

            Proposed appropriation of profits in the Parent Company

    At the disposal of the Annual General Meeting are the following
unappropriated earnings:

<TABLE>
   <S>                       <C> <C>
     Profit brought forward  SEK 16,105,268
     Profit for the year     SEK 17,574,992
                                 ----------
                             SEK 33,680,260
</TABLE>

    The Board of Directors and the Managing Directors propose that SEK
4,020,000 be transferred to the statutory reserve, and that SEK 29,660,260 be
carried forward. Regarding the Company's operations reference is made to the
following balance sheets, income statements, statements of cash flows, and
related notes.

                                     F-169
<PAGE>

                                STJARNTVNATET AB

                   CONSOLIDATED INCOME STATEMENT (SEK 000's)

<TABLE>
<CAPTION>
                                                               For 12 Months
                                                                   Ended
                                                               March 31, 1998
                                                               --------------
<S>                                                            <C>
Net sales (Note 1 and 2)......................................        248,998
                                                                     --------
                                                                      248,998
Operating expenses
Program and distribution costs................................       (102,505)
Other external costs..........................................        (33,760)
Personnel costs (Note 3)......................................        (26,216)
Depreciation and write-downs of tangible fixed assets (Note
 4)...........................................................        (31,487)
                                                                     --------
Total operating expenses......................................       (193,968)
Operating profit..............................................         55,030
Result from financial investments (Note 5)
Interest income and similar items.............................          6,272
Interest expense and similar items............................            (18)
Profit after financial items..................................         61,284
Group contribution............................................        (22,626)
Tax on current year result (Note 6)...........................        (10,897)
                                                                     --------
NET PROFIT FOR THE YEAR.......................................         27,761
                                                                     ========
</TABLE>

                                     F-170
<PAGE>

                                STJARNTVNATET AB

                     CONSOLIDATED BALANCE SHEET (SEK 000's)

<TABLE>
<CAPTION>
                                                                      March 31,
                                                                        1998
                                                                      ---------
<S>                                                                   <C>
ASSETS
Fixed assets
Tangible fixed assets (Note 4)
Equipment, tools, fixtures and fittings..............................  113,327
Construction in progress and advance payments for tangible assets....    6,273
                                                                       -------
Total fixed assets...................................................  119,600
Current assets
Current receivables
Accounts receivable -- trade.........................................   25,940
Other receivables....................................................    2,966
Prepaid expenses and accrued income (Note 7).........................    1,682
                                                                       -------
                                                                        30,588
Current investments
Other current investments............................................  155,000
Cash and bank balances...............................................   12,410
Total current assets.................................................  197,998
                                                                       -------
TOTAL ASSETS.........................................................  317,598
                                                                       =======
</TABLE>

                                     F-171
<PAGE>

                                STJARNTVNATET AB

                     CONSOLIDATED BALANCE SHEET (SEK 000's)

<TABLE>
<CAPTION>
                                                                       March 31,
                                                                         1998
                                                                       ---------
<S>                                                                    <C>
EQUITY AND LIABILITIES
Equity (Note 8)
Restricted equity
Share capital (1,036,500 shares at a par value of SEK100 each)........  103,650
Other restricted capital..............................................   76,330
                                                                        -------
                                                                        179,980
Non-restricted equity
Profit/loss brought forward...........................................    6,164
Net profit for the year...............................................   27,761
                                                                        -------
                                                                         33,925
Total equity..........................................................  213,905
Provisions
Deferred tax liability................................................   23,937
                                                                        -------
Total provisions......................................................   23,937
Current liabilities
Accounts payable -- trade.............................................   12,026
Liabilities to Group Companies........................................   14,747
Income tax liabilities................................................    6,387
Other liabilities.....................................................    9,099
Accrued expenses and deferred income (Note 9).........................   37,497
                                                                        -------
Total current liabilities.............................................   79,756
                                                                        -------
TOTAL EQUITY AND LIABILITIES..........................................  317,598
                                                                        =======
Memorandum items
PLEDGED ASSETS AND CONTINGENT LIABILITIES
Pledged assets........................................................     None
Contingent liabilities (Note 10)......................................  109,993
</TABLE>

                                     F-172
<PAGE>

                                STJARNTVNATET AB

                CONSOLIDATED STATEMENT OF CASH FLOWS (SEK 000's)

<TABLE>
<CAPTION>
                                                                12 Months Ended
                                                                March 31, 1998
                                                                ---------------
<S>                                                             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net sales......................................................         248,998
Operating expenses.............................................        (162,481)
                                                                       --------
Net cash fiow before changes in working capital................          86,517
Increase (-)/decrease (+) of operating receivables.............           1,357
Increase (+)/decrease (-) of operating liabilities.............          (2,265)
Group contribution.............................................         (22,626)
                                                                       --------
Net cash flow from operations..................................          62,983
Received interest..............................................           6,272
Paid interest..................................................             (18)
Paid income taxes..............................................          (6,936)
                                                                       --------
Net cash flow provided by operating activities.................          62,301
CASH FLOW FROM INVESTING ACTIVITIES
Increase of current investments................................         (45,000)
Investments in fixed assets....................................         (22,198)
Sale of fixed assets...........................................             --
Dividends paid.................................................             --
                                                                       --------
Net cash flow from investing activities........................         (67,198)
CHANGE IN CASH AND BANK........................................          (4,897)
Cash and bank at beginning of year.............................          17,307
Cash and bank at end of year...................................          12,410
CHANGE IN LIQUID ASSETS
Liquid assets at beginning of year.............................         127,307
Liquid assets at end of year...................................         167,410
</TABLE>

                                     F-173
<PAGE>

                                STJARNTVNATET AB

                 INCOME STATEMENT -- PARENT COMPANY (SEK 000's)

<TABLE>
<CAPTION>
                                                              12 Months Ended
                                                              March 31, 1998
                                                              ---------------
<S>                                                           <C>
Net sales (Note 1 and 2).....................................         248,998
                                                                     --------
                                                                      248,998
Operating expenses
Program and distribution costs...............................        (102,505)
Other external costs.........................................         (33,760)
Personnel costs (Note 3).....................................         (26,216)
Depreciation and write-downs of tangible fixed assets (Note
 4)..........................................................         (31,487)
                                                                     --------
Total operating expenses.....................................        (193,968)
Operating profit.............................................          55,030
Result from financial investments
Interest income and similar items (Note 5)...................           6,272
Interest expense and similar items...........................             (18)
Profit after financial items.................................          61,284
Appropriations (Note 11).....................................         (36,773)
Tax on current year result (Note 6)..........................          (6,936)
                                                                     --------
NET PROFIT FOR THE YEAR......................................          17,575
                                                                     ========
</TABLE>

                                     F-174
<PAGE>

                                STJARNTVNATET AB

                  BALANCE SHEET -- PARENT COMPANY (SEK 000's)

<TABLE>
<CAPTION>
                                                                     March 31,
                                                                       1998
                                                                     ---------
<S>                                                                  <C>
ASSETS
Fixed assets
Tangible fixed assets (Note 4)
Equipment, tools, fixtures and fittings.............................  113,327
Fixed assets under construction and advance payments for tangible
 assets.............................................................    6,273
                                                                      -------
                                                                      119,600
Financial fixed assets
Participations in Group companies (Note 12).........................      214
                                                                      -------
                                                                          214
Total fixed assets..................................................  119,814
Current assets
Current receivables
Accounts receivable -- trade........................................   25,940
Other receivables...................................................    2,966
Prepaid expenses and accrued income (Note 7)........................    1,682
                                                                      -------
                                                                       30,588
Current investments
Other current investments...........................................  155,000
Cash and bank balances..............................................   12,409
Total current assets................................................  197,997
                                                                      -------
TOTAL ASSETS........................................................  317,811
                                                                      =======
</TABLE>

                                     F-175
<PAGE>

                                STJARNTVNATET AB

                  BALANCE SHEET -- PARENT COMPANY (SEK 000's)

<TABLE>
<CAPTION>
                          March 31, 1998
                          --------------
<S>                       <C>
EQUITY AND LIABILITIES
Equity (Note 8)
Restricted equity
Share capital (1,036,500 shares at a par value of SEK100 each).......   103,650
Statutory reserve....................................................    14,781
                                                                        -------
                                                                        118,431
Non-restricted equity
Profit brought forward...............................................    16,105
Net profit for the year..............................................    17,575
                                                                        -------
                                                                         33,680
Total equity.........................................................   152,111
Untaxed reserves(Note 11)............................................    85,486
Current liabilities
Accounts payable -- trade............................................    12,026
Liabilities to subsidiary............................................       458
Liabilities to other Group companies.................................    14,747
Income tax liabilities...............................................     6,387
Other liabilities....................................................     9,099
Accrued expenses and deferred income (Note 9)........................    37,497
                                                                        -------
Total current
 liabilities.........................................................    80,214
                                                                        -------
TOTAL EQUITY AND LIABILITIES.........................................   317,811
                                                                        =======
Memorandum items
PLEDGED ASSETS AND CONTINGENT LIABILITIES
Pledged assets.......................................................      None
Contingent liabilities (Note 10).....................................    98,886
</TABLE>

                                     F-176
<PAGE>

                                STJARNTVNATET AB

             STATEMENTS OF CASH FLOW -- PARENT COMPANY (SEK 000's)

<TABLE>
<CAPTION>
                                                                      12 Months
                                                                        Ended
                                                                      March 31,
                                                                        1998
                                                                      ---------
<S>                                                                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net sales ...........................................................  248,998
Operating expenses................................................... (162,481)
                                                                      --------
Net cash flow before changes in working capital......................   86,517
Increase (-) decrease (+) of operating receivables...................    1,357
Increase (+) decrease (-) of operating liabilities...................   (2,225)
Group contribution...................................................  (22,626)
                                                                      --------
Net cash flow from operations........................................   63,023
Received interest....................................................    6,272
Paid interest........................................................      (18)
Paid income taxes....................................................   (6,936)
                                                                      --------
Net cash flow provided by operating activities.......................   62,341
CASH FLOW FROM INVESTING ACTIVITIES
Increase of current investments......................................  (45,000)
Investments in fixed assets..........................................  (22,198)
Investments in shares................................................      (40)
Sale of fixed assets.................................................      --
Dividends paid.......................................................      --
                                                                      --------
Net cash flow from investing activities..............................  (67,238)
CHANGE IN CASH AND BANK..............................................   (4,897)
Cash and bank at beginning of year...................................   17,306
Cash and bank at end of year.........................................   12,409
CHANGE IN LIQUID ASSETS
Liquid assets at beginning of year...................................  127,306
Liquid assets at end of year.........................................  167,409
</TABLE>

                                     F-177
<PAGE>

                                STJARNTVNATET AB

              ACCOUNTING PRINCIPLES AND ANNUAL REPORT INFORMATION

Description of Business

    The company operates a cable network for television and radio transmission,
computer- and telecommunication.

Financial year

    The financial statements at March 31, 1998 have been prepared in accordance
with the Swedish Annual Accounts Act and Generally Accepted Accounting
Standards in Sweden.

Swedish Annual Accounts Act

    The Swedish Annual Accounts Act is effective for financial years beginning
after December 31, 1996. This pronouncement requires certain information to be
provided in the financial statements and the accompanying notes in addition to
that which was previously required. The Company adopted these new provisions
effective for the financial year April 1, 1997 to March 31, 1998. The income
statements and the balance sheets have been reclassified in accordance with the
format of the Annual Accounts Act.

Consolidated accounts

    The Group accounts have been consolidated in accordance with acquisition
accounting. In addition to the Parent Company's equity the Group equity
includes the subsidiaries' results generated after the acquisition date.
Goodwill is calculated as the difference between the Group acquisition value of
the subsidiaries' shares and the actual value of acquired identifiable assets
and liabilities, at the time of acquisition. Goodwill is depreciated according
to plan and negative goodwill is recorded as a provision.

    The consolidated accounts consist of the annual accounts for all
subsidiaries. A subsidiary is a company in which the parent company, directly
or indirectly owns shares representing more than 50% of the votes.

    All intra-Group transactions have been eliminated.

    There are no appropriations nor untaxed reserves recorded in the
consolidated accounts. Instead, the deferred taxes related to untaxed reserves
are shown in the consolidated income statement as part of the Group tax
expense. The proportion of equity in appropriations and untaxed reserves is
shown in the income statement as part of the profit for the year and in the
balance sheet as restricted equity. A revaluation of the deferred tax liability
is made every year at the prevailing tax rate, currently 28%, and is recorded
in the consolidated income statement as part of the tax expense for the year.

The Group and the Parent Company

    Assets and liabilities of the Group and the Parent Company are valued at
acquisition value unless otherwise stated.

    Trade receivables are valued at amounts deemed collectable.

    Receivables and liabilities in foreign currency are valued at closing day
rates.

    The lease of fixed assets is normally written off during the leasing
period. When a rental agreement implies an obligation to take over the leased
subject after a certain time and with agreed terms of ownership, the agreement
is accounted for as a fixed asset. The remaining liability for payment is
included in liabilities.

                                     F-178
<PAGE>

                               STJARNTVNATET AB

              ACCOUNTING PRINCIPLES AND ANNUAL REPORT INFORMATION

The Group and the Parent Company

   Depreciation according to plan on intangible and tangible fixed assets is
based on the acquisition value and expected economic life of each asset.

Equipment

   Machinery and equipment have been depreciated according to plan, which is
based on an economic life of three and five years respectively. (Depreciation
based on an expected economic life of three years is used for IT-equipment
purchased after April 1, 1997. IT-equipment purchased before April 1, 1997 is
depreciated over five years.)

Network equipment

   Network equipment has been depreciated according to plan, which is based on
economic lives of three, seven or 10 years. (Depreciation based on an expected
economic life of three years is used for IT-equipment purchased after April 1,
1997. IT-equipment purchased before April 1, 1997 is depreciated over five
years.)

   Group companies are all companies included in the same group of companies
where the Parent Company is a Swedish limited company, a partnership or a
foreign company, i.e. not only Parent Company and a subsidiary but a fellow
subsidiary as well.

   Booked depreciation is the same as the maximum depreciation allowed by the
Swedish taxation legislation.

   With exception for the above mentioned changes referring to depreciation on
IT-equipment and IT-plants, the same accounting principles as in the previous
year have been applied.

Reclassifications

   Certain prior year amounts have been reclassified to conform to the current
year presentation.

                                     F-179
<PAGE>

                                STJARNTVNATET AB

                               NOTES (SEK 000's)

Note 1.Distribution of Net Sales

    Net Sales and Operating Profits are distributed by business lines as
follows:

<TABLE>
<CAPTION>
                                                   Net Sales    Operating Profit
                                                --------------- ----------------
                                                   12 Months       12 Months
                                                     Ended            Ended
                                                 March 31, 1998  March 31, 1998
                                                --------------- ----------------
<S>                                             <C>             <C>
Group
Cable TV activities............................         248,998           55,030
Parent Company
Cable TV activities............................         248,998           55,030
</TABLE>

Note 2.Purchases and sales within the Group

 The Group and the Parent Company

    Out of the total purchases and sales, 0% (last year less than 1%) of the
purchases and 0% (last year less than 1%) of the sales concern other Group
companies.

Note 3.Average number of employees, salaries, other remunerations and social
costs

    Average number of employees:

<TABLE>
<CAPTION>
                                                       Group      Parent Company
                                                  --------------- --------------
                                                     12 Months      12 Months
                                                       Ended           Ended
                                                   March 31, 1998 March 31, 1998
                                                  --------------- --------------
<S>                                               <C>             <C>
Men..............................................              35             35
Women............................................              22             22
Total............................................              57             57
</TABLE>

    Salaries, other remunerations and social costs:

<TABLE>
<CAPTION>
                                                     Group      Parent Company
                                                --------------- --------------
                                                   12 Months      12 Months
                                                     Ended           Ended
                                                 March 31, 1998 March 31, 1998
                                                --------------- --------------
<S>                                             <C>             <C>
Board of Directors and Managing Director
Salaries and other remunerations (incl. bo-
 nuses)........................................           1,202          1,202
Bonuses........................................             196            196
Pension costs..................................             536            536
Other employees
Salaries and other remunerations...............          15,275         15,275
Total
Salaries and other remunerations...............          16,477         16,477
Social costs (incl. pension costs).............           7,649          7,649
Pension costs..................................           1,576          1,576
</TABLE>

 Group

    The Managing Director is covered by an employment contract according to
which the notice period is six months. In addition to this, severance pay
equaling remuneration for a 12 month period is payable if the notice is served
by the Group.

                                     F-180
<PAGE>

                                STJARNTVNATET AB

                        NOTES (SEK 000's) -- (Continued)

Note 4.Tangible fixed assets

<TABLE>
<CAPTION>
                                                  Group       Parent Company
                                             ---------------  ---------------
                                             12 Months Ended  12 Months Ended
                                             March 31, 1998   March 31, 1998
                                             ---------------  ---------------
<S>                                          <C>              <C>
Equipment, tools, fixtures and fittings of
 which:
1.Network equipment
Cost value
Opening cost value..........................         207,728          207,728
Purchases...................................          24,577           24,577
Disposals...................................             --               --
Reclassifications...........................            (573)            (573)
                                                    --------         --------
Closing cost value..........................         231,732          231,732
Depreciation according to plan
Opening accumulated depreciation............         (91,181)         (91,181)
Disposals...................................             --               --
Depreciation for the year...................         (30,182)         (30,182)
                                                    --------         --------
Closing accumulated depreciation............        (121,363)        (121,363)
Residual value according to plan............         110,369          110,369
2.Equipment
Cost value
Opening cost value..........................           9,988            9,988
Purchases...................................             541              541
Disposals...................................             (10)             (10)
                                                    --------         --------
Closing cost value..........................          10,519           10,519
Depreciation according to plan
Opening accumulated depreciation............          (6,264)          (6,264)
Disposals...................................               8                8
Depreciation for the year...................          (1,305)          (1,305)
                                                    --------         --------
Closing accumulated depreciation............          (7,561)          (7,561)
Residual value according to plan............           2,958            2,958
Construction in progress and advanced pay-
 ments for tangible assets
Opening cost value..........................           8,618            8,618
Purchases...................................          21,839           21,839
Reclassification............................         (24,184)         (24,184)
                                                    --------         --------
Closing cost value..........................           6,273            6,273
</TABLE>

                                     F-181
<PAGE>

                                STJARNTVNATET AB

                        NOTES (SEK 000's) -- (Continued)

Note 5.Interest income and interest expense

<TABLE>
<CAPTION>
                                                  Group       Parent Company
                                             ---------------  ---------------
                                             12 Months Ended  12 Months Ended
                                             March 31, 1998   March 31, 1998
                                             ---------------  ---------------
<S>                                          <C>              <C>
Interest income.............................           6,272            6,272
Interest expense............................             (18)             (18)

    There is no intra-Group interest income or expense included in the figures
above.

Note 6.Tax on current year result

<CAPTION>
                                                  Group       Parent Company
                                             ---------------  ---------------
                                             12 Months Ended  12 Months Ended
                                             March 31, 1998   March 31, 1998
                                             ---------------  ---------------
<S>                                          <C>              <C>
Tax paid on the profit for this and earlier
 years......................................           6,936            6,936
Deferred taxes..............................           3,961              --
                                                      ------            -----
Total.......................................          10,897            6,936
                                                      ======            =====

Note 7.Current receivables

 Prepaid expenses and accrued income

<CAPTION>
                                                  Group       Parent Company
                                             ---------------  ---------------
                                             March 31, 1998   March 31, 1998
                                             ---------------  ---------------
<S>                                          <C>              <C>
Prepaid rent................................             427              427
Accrued interest income.....................             450              450
Other.......................................             805              805
                                                      ------            -----
Total.......................................           1,682            1,682
                                                      ======            =====
</TABLE>

Note 8.Equity

<TABLE>
<CAPTION>
                                                           Non-
                                      Share  Restricted restricted  Net profit
Group                                capital  reserves   reserves  for the year
- -----                                ------- ---------- ---------- ------------
<S>                                  <C>     <C>        <C>        <C>
Opening balance at March 31, 1997..  103,650   62,221     (4,923)     25,196
Allocation of profit ..............      --     3,923     21,273     (25,196)
Change between restricted and non-
 restricted reserves...............      --    10,186    (10,186)        --
Profit for the financial year April
 1, 1997 to March 31, 1998.........      --       --         --       27,761
                                     -------   ------    -------     -------
Closing balance at March 31, 1998..  103,650   76,330      6,164      27,761
<CAPTION>
                                                          Profit
                                      Share  Statutory   brought    Net profit
Parent company                       capital  reserve    forward   for the year
- --------------                       ------- ---------- ---------- ------------
<S>                                  <C>     <C>        <C>        <C>
Opening balance at March 31, 1997..  103,650   10,858        --       20,028
Allocation according to decision at
 Annual General Meeting............      --     3,923     16,105     (20,028)
Profit for the year................      --       --         --       17,575
                                     -------   ------    -------     -------
Closing balance....................  103,650   14,781     16,105      17,575
</TABLE>

    Each share represents one vote.


                                     F-182
<PAGE>

                                STJARNTVNATET AB

                        NOTES (SEK 000's) -- (Continued)

Note 9.Accrued expenses and deferred income

<TABLE>
<CAPTION>
                                                       Group      Parent Company
                                                   -------------- --------------
                                                   March 31, 1998 March 31, 1998
                                                   -------------- --------------
<S>                                                <C>            <C>
Accrued costs of personnel........................          2,420          2,420
Accrued program costs.............................          4,382          4,382
Deferred income...................................         23,371         23,371
Other.............................................          7,324          7,324
                                                           ------         ------
Total.............................................         37,497         37,497
                                                           ======         ======
</TABLE>

Note 10. Pledged assets and contingent liabilities

<TABLE>
<CAPTION>
                                                       Group      Parent Company
                                                   -------------- --------------
                                                   March 31, 1998 March 31, 1998
                                                   -------------- --------------
<S>                                                <C>            <C>
Conditional shareholders' contribution............         98,550         98,550
Guarantees........................................            336            336
Royalty commitment................................         11,107            --
                                                          -------         ------
Total.............................................        109,993         98,886
                                                          =======         ======
</TABLE>

    The subsidiary SpaceNet AB entered into a royalty agreement with NUTEK and
with Industrifonden, according to which, the Company is obliged to pay
royalties on certain sales until the end of the contract period in the year
2000 for NUTEK and 2005 for Industrifonden. The royalty commitment including an
annual interest estimate is limited to SEK11,107 million.

Note 11. Appropriations/Untaxed Reserves

<TABLE>
<CAPTION>
                                                                 Parent Company
                                                                 ---------------
                                                                 12 Months Ended
                                                                 March 31, 1998
                                                                 ---------------
<S>                                                              <C>
Accumulated depreciation in excess of plan
Opening balance.................................................          50,236
Change..........................................................           7,955
                                                                          ------
Closing balance.................................................          58,191
Tax allocation reserve
Opening balance.................................................          21,103
of which;
  Tax 1995......................................................          11,044
  Tax 1997......................................................           3,003
  Tax 1998......................................................           7,056
Change, tax 1999 to tax 1998....................................           6,192
                                                                          ------
Closing balance.................................................          27,295
Group contribution
To STI Svenska..................................................          22,626
</TABLE>

                                     F-183
<PAGE>

                               STJARNTVNATET AB

                       NOTES (SEK 000's) -- (Continued)

Note 12. Participations in Group companies

<TABLE>
<CAPTION>
                           Corporate                        Portion     Net book
                           identity   Registered  Number   of equity     value
                            number      office   of shares     %     March 31, 1998
                          ----------- ---------- --------- --------- --------------
<S>                       <C>         <C>        <C>       <C>       <C>
SpaceNet AB.............  556226-4589  Stockholm     2,500       100              1
Stockholms Stads Televi-
 sions AB...............  556070-3547  Stockholm     1,000       100            101
StjarnTV AB.............  556308-7534  Stockholm     1,000       100            112
                                                                                ---
Total...................                                                        214
                                                                                ===
</TABLE>

   In order to comply with the demands for a minimum share capital of
SEK100,000, a new share issue has been made in StjarnTV AB. (ABL 1 chapter
3(S)).

Note 13. Annual accounts

   Annual accounts regarding the above subsidaries and Singapore Telecom
International Svenska AB (556497-8210), with registered office in Stockholm
may be requested from:

   Patent och registeringsverket
   851 81 Sundsvall

   Annual accounts regarding Singapore Telecom Ltd, with registered office in
Singapore may be requested from:

   Singapore Telecommunications Limited
   31 Exeter Road, Comcentre, Singapore
   239732 Singapore

   Stockholm May 29, 1998

   Bjorn Svedberg          Bengt Halse              Conni Jonsson
   Chairman

   Thomas von Koch         Kjell Hellberg
                           Managing Director

   Jane Norlander          Anders Sandberg
   Employee                Employee
representative          representative

   My auditor's report was submitted on May 29, 1998

   Ulla Nordin Buisman
   Authorised Public Accountant
   PricewaterhouseCoopers

                                     F-184
<PAGE>

                                AUDITOR'S REPORT

              To the annual general meeting of the shareholders of

                                STJARNTVNATET AB
                              (Reg no 556000-4391)

I have audited the annual report, the consolidated financial statements, the
accounting records and the administration by the board of directors and the
managing director of Stjarntvnatet AB for the financial year April 1, 1997 to
March 31, 1998. These accounts and the administration of the Company are the
responsibility of the board of directors and the managing director. My
responsibility is to express an opinion on the annual report, the consolidated
financial statements and the administration based on my audit.

I conducted my audit in accordance with generally accepted auditing standards
in Sweden. Those standards require that I plan and perform the audit to obtain
reasonable assurance that the annual report and the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the annual
report and the consolidated financial statements. An audit also includes
assessing the accounting principles used and their application by the board of
directors and the managing director, as well as evaluating the overall
presentation of information in the annual report and the consolidated financial
statements. I examined significant decisions, actions taken and circumstances
of the Company in order to be able to determine the liability, if any, to the
Company of any board member or the managing director or whether they have in
any way acted in contravention of the Companies Act, the Annual Accounts Act or
the Articles of Association. I believe that my audit provides a reasonable
basis for my opinion set out below.

In my opinion, the annual report and the consolidated financial statements have
been prepared in accordance with the Annual Accounts Act.

I recommend that the income statements and the balance sheets of the parent
company and the Group be adopted, and that the unappropriated earnings of the
parent company be dealt with in accordance with the proposal in the
administration report.

In my opinion, the members of the board of directors and the managing director
have not committed any act or been guilty of any omission, which could give
rise to any liability to the Company.

I recommend that the members of the board of directors and the managing director
be discharged from liability for the financial year.

                            Stockholm, May 29, 1998

                              Ulla Nordin Buisman
                          Authorised Public Accountant


                                     F-185
<PAGE>

                                STJARNTVNATET AB

US GAAP Reconciliation (SEK 000's)

The accounting policies followed in the preparation of the consolidated
financial statements differ in some respects to the generally accepted
accounting principles in the United States.

The principle differences between Swedish GAAP and US GAAP are presented below
together with explanations of the adjustments that affect consolidated net
earnings, total equity and total assets as of the year ended March 31, 1998.

<TABLE>
<S>                                                                     <C>
Reconciliation of Net Earnings
  Swedish GAAP Net Earnings...........................................   27,761
  Group contribution..................................................   22,626
  Leases..............................................................   (5,753)
  Deferred tax effect on US GAAP adjustments..........................   (4,725)
                                                                        -------
  US GAAP Net Earnings................................................   39,909
Reconciliation of Equity
  Swedish GAAP Equity.................................................  213,905
  Leases..............................................................  (36,230)
  Deferred tax effect on US GAAP adjustment...........................   10,144
                                                                        -------
  US GAAP Equity......................................................  187,819
Reconciliation of Assets
  Swedish GAAP Assets.................................................  317,598
  Leases..............................................................  185,513
                                                                        -------
  US GAAP Assets......................................................  503,111
</TABLE>

Group contribution

In order to minimize tax on a group level the Swedish tax law gives companies
within a group the right to give and receive group contributions between each
other. For US GAAP reporting these group contributions, less their estimated
tax effect, are treated as dividends. The tax on the dividends is calculated at
nominal tax rate and have been included in the income tax expense for the year
in the above reconciliation. This tax expense has a corresponding entry in the
company's equity.

Leases

The Group leases certain equipment which in accordance with Swedish GAAP is
treated as operating leases. For US GAAP purposes these leases fall under the
criteria for capitalization in accordance with FAS 13 and should thus be
capitalized. The reclassified leases have been recorded as assets and
obligations at their estimated fair value in the above reconciliation.
Depreciation has been computed principally using the straight-line method over
the estimated useful lives of assets, 20 years.


                                     F-186
<PAGE>

                       REPORT OF THE INDEPENDENT AUDITOR

The Statutory financial statements of StjarnTVnatet AB for the financial year
ended March 31, 1998 have been audited by Ulla Nordin Buisman,
PricewaterhouseCoopers, Sweden, whose audit report was issued on May 29, 1998.
For these financial statements generally accepted accounting principles in
Sweden have been applied which vary in certain significant respects from
generally accepted accounting principles in the United States. Application of
generally accepted accounting principles in the United States would have
affected total assets, results of operations and shareholders' equity as at and
for the year ended March 31, 1998 to the extent summarized in the US GAAP
Reconciliation attached to the consolidated financial statements.

Stockholm Sweden
July 2, 1999

Jan-Erik Soderhielm
Authorized Public Accountant
Ernst & Young AB


                                     F-187
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
SBS Broadcasting SA

    We have audited the accompanying consolidated balance sheets of SBS
Broadcasting SA (formerly Scandinavian Broadcasting System SA) as of December
31, 1997 and 1998 and the related consolidated statements of operations,
comprehensive income, shareholders' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with 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 SBS
Broadcasting SA at December 31, 1997 and 1998 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with accounting principles generally
accepted in the United States of America.

                                        ERNST & YOUNG
                                        Statsautoriseret Revisionsaktieselskab

Copenhagen, Denmark
February 26, 1999


                                     F-188
<PAGE>

                              SBS BROADCASTING SA

                          CONSOLIDATED BALANCE SHEETS
                         (in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                  December 31,
                                               --------------------   March 31,
                                                 1997       1998        1999
                                               ---------  ---------  -----------
                                                                     (Unaudited)
<S>                                            <C>        <C>        <C>
ASSETS
Current assets:
  Cash and short-term cash investments.......  $  91,596  $  63,381   $  59,742
  Short-term investments, at market value....     46,134     45,525      16,779
  Accrued interest receivable................        216        109          49
  Accounts receivable trade, net of allowance
   for doubtful accounts of $1,550 in 1998
   ($1,046 in 1997)..........................     50,799     59,760      63,529
  Accounts receivable, associated companies..      1,766        639       2,582
  Restricted cash and cash in escrow.........      1,710      1,291       1,237
  Program rights inventory, current..........     66,934     74,443      66,884
  Other current assets.......................     11,753      8,833      14,072
                                               ---------  ---------   ---------
    Total current assets.....................    270,908    253,981     224,874
Buildings, equipment and improvements, net of
 accumulated depreciation....................     25,457     24,180      22,249
Program rights inventory, noncurrent.........     29,500     45,244      62,435
Intangible assets, net of accumulated
 amortization................................     63,448     59,712      55,595
Deferred financing cost, net of accumulated
 amortization................................      7,699      6,872       6,632
Investments in unconsolidated subsidiaries...     10,191     11,553      12,750
Notes receivable.............................      8,749      8,112       8,132
Other assets.................................     11,608     18,167      21,955
                                               ---------  ---------   ---------
    Total assets.............................  $ 427,560  $ 427,821   $ 414,622
                                               =========  =========   =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
  Accounts payable...........................  $  26,831  $  15,805   $  21,701
  Accrued expenses...........................     37,419     42,006      37,848
  Program rights payable, current............     44,141     45,370      58,881
  Notes payable, current.....................     11,918      9,463       4,832
  Current portion of long-term debt..........      3,317      2,627       2,436
  Deferred income............................        622      2,599       3,665
                                               ---------  ---------   ---------
    Total current liabilities................    124,248    117,870     129,363
Program rights payable, noncurrent...........     12,766     25,550      21,937
Convertible subordinated debentures and
 notes.......................................    230,250    230,250     230,250
Other long-term debt.........................     53,116     51,014      50,421
Other noncurrent liabilities.................     10,211     15,756      18,291
Minority interests...........................      9,832      5,356       1,323
Shareholders' equity:
  Common shares (authorized 75,000, issued
   13,829 (1997) and 14,933 (1998) at par
   value $1.50)..............................     20,744     22,400      22,400
  Additional paid-in capital.................    171,679    197,135     197,135
  Accumulated deficit........................   (196,258)  (229,977)   (245,050)
  Unearned compensation......................       (318)       (22)        (22)
  Treasury Stock at cost (48 Common Shares)..        --      (1,154)     (1,154)
  Other comprehensive income.................     (8,710)    (6,357)    (10,272)
                                               ---------  ---------   ---------
    Total shareholders' deficit..............    (12,863)   (17,975)    (36,963)
                                               ---------  ---------   ---------
    Total liabilities and shareholders'
     deficit.................................  $ 427,560  $ 427,821   $ 414,622
                                               =========  =========   =========
</TABLE>

                                     F-189
<PAGE>

                              SBS BROADCASTING SA

                     CONSOLIDATED STATEMENTS OF OPERATIONS
        (in thousands of U.S. Dollars, except share and per share data)

<TABLE>
<CAPTION>
                                                          Three months ended
                           Years Ended December 31,            March 31,
                          ----------------------------  -----------------------
                            1996      1997      1998       1998        1999
                          --------  --------  --------  ----------- -----------
                                                        (unaudited) (unaudited)
<S>                       <C>       <C>       <C>       <C>         <C>
Net revenue.............  $182,434  $242,838  $350,535   $ 69,640    $ 87,033
Operating expenses:
  Station operating
   expenses.............   179,563   204,316   263,484     60,906      70,077
  Selling, general and
   administrative
   expenses.............    50,266    55,190    68,779     14,871      19,971
  Corporate expenses....     7,822     9,177     9,576      1,962       2,377
  Non-cash
   compensation.........       --      2,676     1,142        139         --
  Depreciation..........     8,045     9,839     9,484      2,450       2,376
  Amortization..........     3,652     5,060     9,790      2,253       2,544
                          --------  --------  --------   --------    --------
    Total operating
     expenses...........   249,348   286,258   362,255     82,581      97,345
                          --------  --------  --------   --------    --------
Operating loss..........   (66,914)  (43,420)  (11,720)   (12,941)    (10,312)
Equity in loss of
 unconsolidated
 subsidiaries...........    (1,301)   (3,150)   (3,536)      (671)     (1,089)
Interest income.........     7,368     3,469     6,318      1,475       1,070
Interest expense........   (13,221)  (14,333)  (24,708)    (5,781)     (5,907)
Foreign exchange losses,
 net....................      (193)   (4,665)   (3,202)    (1,971)     (3,520)
Investment losses, net..       --       (801)      376         14         388
Other income (expense),
 net:
  Sale of shares in
   TVNorge..............       615     6,262       --         --          --
  Sale of shares in MTV
   Oy...................       --      2,814       --         --          --
  Other.................    (1,202)   (1,863)   (2,638)      (165)        653
                          --------  --------  --------   --------    --------
  Loss before income
   taxes and minority
   interest.............   (74,848)  (55,687)  (39,110)   (20,040)    (18,717)
    Income taxes and
     income tax benefit,
     net................      (250)      (29)     (636)       (94)       (128)
                          --------  --------  --------   --------    --------
  Loss before minority
   interest.............   (75,098)  (55,716)  (39,746)   (20,134)    (18,845)
Minority interest in
 losses, net............     7,559    11,866     6,027      4,792       3,772
                          --------  --------  --------   --------    --------
Net loss................  $(67,539) $(43,850) $(33,719)  $(15,342)   $(15,073)
                          ========  ========  ========   ========    ========
Net loss per common
 share, basic and
 diluted................  $  (4.96) $  (3.18) $  (2.30)  $  (1.10)   $  (1.01)
                          ========  ========  ========   ========    ========
Average common shares
 outstanding (in
 thousands).............    13,605    13,780    14,677     13,890      14,886
                          ========  ========  ========   ========    ========
</TABLE>

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                         (in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                          Three months ended
                           Years ended December 31,            March 31,
                          ----------------------------  -----------------------
                            1996      1997      1998       1998        1999
                          --------  --------  --------  ----------- -----------
                                                        (unaudited) (unaudited)
<S>                       <C>       <C>       <C>       <C>         <C>
Net income (loss)........ $(67,539) $(43,850) $(33,719)  $(15,342)   $(15,073)
  Currency translation
   adjustment............   (4,922)  (12,089)    3,223     (2,360)     (4,747)
  Unrealized holding
   gains during period...    1,994     2,534     1,472         57       1,220
  Less: reclassification
   adjustment for gains
   included in net
   income................   (1,422)   (1,896)   (2,342)       (85)       (388)
                          --------  --------  --------   --------    --------
Comprehensive net income
 (loss).................. $(71,889) $(55,301) $(31,366)  $(17,730)   $(18,988)
                          ========  ========  ========   ========    ========
</TABLE>

                                     F-190
<PAGE>

                              SBS BROADCASTING SA

           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                         (in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                  Additional                                        Other
                          Common   Paid-In   Accumulated   Unearned   Treasury  Comprehensive
                          Shares   Capital     Deficit   Compensation  Stock       Income      Total
                          ------- ---------- ----------- ------------ --------  ------------- --------
<S>                       <C>     <C>        <C>         <C>          <C>       <C>           <C>
Balance at December 31,
 1995...................  $20,364  $139,930   $ (84,869)    $  --     $   --      $  7,091    $ 82,516
 Unrecognized gain on
  sale of 30.0% of
  SBS6..................      --     22,150         --         --         --           --       22,150
 Issuance of 95,000
  common shares in
  connection with the
  acquisition of a
  convertible note in
  Kanal A...............      142     2,206         --         --         --           --        2,348
 Currency translation
  adjustment............      --        --          --         --         --        (4,922)     (4,922)
 Change in unrecognized
  loss on short-term
  investments...........      --        --          --         --         --           572         572
 Net loss...............      --        --      (67,539)       --         --           --      (67,539)
                          -------  --------   ---------     ------    -------     --------    --------
Balance at December 31,
 1996...................  $20,506  $164,286   $(152,408)    $  --     $   --      $  2,741    $ 35,125
 Grant of options for
  175,000 common
  shares................      --        188         --        (188)       --           --          --
 Exchange of options for
  91,462 common shares
  (Note 9)..............      --      2,195         --      (2,195)       --           --          --
 Option and share
  compensation..........      --        --          --       2,065        --           --        2,065
 Issuance of 158,028
  common shares in
  exchange for cash in
  connection with the
  Rete Mia acquisition..      238     2,230         --         --         --           --        2,468
 Reduction of exercise
  price of the 1,000,000
  Paramount warrants
  issued in 1995........      --      2,780         --         --         --           --        2,780
 Currency translation
  adjustment............      --        --          --         --         --       (12,089)    (12,089)
 Change in unrecognized
  gain (loss) on short-
  term investments......      --        --          --         --         --           638         638
 Net loss...............      --        --      (43,850)       --         --           --      (43,850)
                          -------  --------   ---------     ------    -------     --------    --------
Balance at December 31,
 1997...................  $20,744  $171,679   $(196,258)    $ (318)   $   --      $ (8,710)   $(12,863)
 Exchange of options for
  91,462 common shares..      137      (137)        --         --         --           --          --
 Issuance of 30,150
  common shares in
  connection with option
  and share
  compensation..........       46       693         --         --         --           --          739
 Amortization of
  unearned
  compensation..........      --        --          --         296        --           --          296
 Exercise of warrants
  for 500,000 common
  shares................      750    11,433         --         --         --           --       12,183
 Issuance of 482,285
  common shares in
  public offering.......      723    13,467         --         --         --           --       14,190
 Purchase of treasury
  stock 47,500 common
  shares................      --        --          --         --      (1,154)         --       (1,154)
 Currency translation
  adjustment............      --        --          --         --         --         3,223       3,223
 Change in unrecognized
  gain (loss) on short-
  term investments......      --        --          --         --         --          (870)       (870)
 Net loss...............      --        --      (33,719)       --         --           --      (33,719)
                          -------  --------   ---------     ------    -------     --------    --------
Balance at December 31,
 1998...................  $22,400  $197,135   $(229,977)    $  (22)   $(1,154)    $ (6,357)   $(17,975)
 Unaudited:
 Currency translation
  adjustment............      --        --          --         --         --        (4,747)     (4,747)
 Change in unrecognized
  gain on short-term
  investments...........      --        --          --         --         --           832         832
 Net loss...............      --        --      (15,073)       --         --           --      (15,073)
                          -------  --------   ---------     ------    -------     --------    --------
Balance at March 31,
 1999...................  $22,400  $197,135   $(245,050)    $  (22)   $(1,154)    $(10,272)   $(36,963)
                          =======  ========   =========     ======    =======     ========    ========
</TABLE>

                                     F-191
<PAGE>

                              SBS BROADCASTING SA

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (in thousands of U.S. Dollars)

<TABLE>
<CAPTION>
                                                           Three months ended
                            Years Ended December 31,            March 31,
                           ----------------------------  -----------------------
                             1996      1997      1998       1998        1999
                           --------  --------  --------  ----------- -----------
                                                         (unaudited) (unaudited)
<S>                        <C>       <C>       <C>       <C>         <C>
Cash flows from operating
 activities:
 Net loss................  $(67,539) $(43,850) $(33,719)  $(15,342)   $(15,073)
 Adjustments to reconcile
  net loss to net cash
  provided by (used in)
  operating activities:
 Depreciation and
  amortization...........    11,697    14,899    19,274      4,703       4,920
 Equity in (income) loss
  of unconsolidated
  subsidiaries, net of
  distributions
  received...............       962    (1,880)   (1,678)    (1,371)         78
 Non-cash interest
  expense................       525       612     2,011        142         255
 Unrealized exchange
  loss on long-term
  debt...................       --        --      2,847        --        1,205
 Non-cash other income,
  net....................    (1,513)   (9,076)      --         --          --
 Non-cash compensation...       --      2,676     1,142        --          --
 Net loss on sale of
  short-term
  investments............       --        801      (376)       (14)       (388)
 Minority interest in
  loss...................    (7,559)  (11,866)   (6,027)    (4,792)     (3,772)
 Changes in operating
  assets and
  liabilities, net of
  amounts acquired:
  Accounts receivable....   (10,463)  (25,409)   (7,708)     1,746     (10,016)
  Program rights
   inventory, net........    (8,435)  (11,137)   (8,597)    (7,270)     (2,144)
  Other current assets...    (2,211)    1,762     4,645     (3,915)     (5,545)
  Other noncurrent
   assets................        81    (4,591)   (5,976)      (824)     (5,755)
  Accounts payable and
   accrued expenses......    17,116    19,989    (5,487)    (7,397)      4,941
  Deferred income........      (256)     (462)    1,966      1,223       1,228
  Other liabilities......       --      5,402     7,150        408       3,782
                           --------  --------  --------   --------    --------
   Cash provided by (used
    in) operating
    activities...........   (67,595)  (62,130)  (30,533)   (32,703)    (26,284)
                           --------  --------  --------   --------    --------
Cash flows from investing
 activities:
 Purchases of short-term
  investments............       --    (61,858) (139,632)   (40,381)        --
 Sales and maturities of
  short-term
  investments............       --     28,626   139,748     27,062      29,964
 Cash capital
  expenditures...........    (6,274)  (15,516)  (11,616)    (3,237)     (2,050)
 Net proceeds from sale
  of unconsolidated
  companies..............       --      3,968       --         --          --
 Net proceeds from sale
  of minority interests..    42,686     8,599       --         --          --
 Payment to purchase
  notes receivable.......    (7,846)   (1,740)      --         --          --
 Payment for purchase of
  acquired businesses,
  net of cash acquired...    (5,933)  (31,549)   (7,848)    (2,737)        --
                           --------  --------  --------   --------    --------
   Cash provided by (used
    in) in investing
    activities...........    22,633   (69,470)  (19,348)   (19,293)     27,914
                           --------  --------  --------   --------    --------
Cash flows from financing
 activities:
 Net change in short-term
  borrowings.............    13,532       180    (3,043)     2,154      (4,112)
 Proceeds from issuance
  of convertible
  subordinated debentures
  and notes..............       --     75,000       --         --          --
 Deferred financing
  costs..................       --     (2,733)      --         --          --
 Proceeds from issuance
  of common shares in
  subsidiaries...........       --      8,841     1,259     26,507         --
 Proceeds from issuance
  of long-term debt......    11,820    44,516       --         --          --
 Proceeds from exercise
  of warrant.............       --        --     12,183        --          --
 Proceeds from issuance
  of common shares.......       --      2,468    14,190        --          --
 Purchase of treasury
  stock..................       --        --     (1,154)       --          --
 Net change in restricted
  cash and cash in
  escrow.................        25    (1,280)      419         83          54
 Payment of long-term
  debt...................    (1,205)      --     (1,815)       354         430
 Payment of capital lease
  obligations............      (973)     (966)   (1,012)      (216)       (144)
                           --------  --------  --------   --------    --------
   Cash provided by
    financing
    activities...........    23,199   126,026    21,027     28,882      (3,772)
                           --------  --------  --------   --------    --------
Effect of exchange rate
 changes on short-term
 cash investments........    (1,922)   (4,900)      639       (164)     (1,497)
Net change in short-term
 cash investments........   (23,685)  (10,474)  (28,215)   (23,278)     (3,639)
Cash and short-term cash
 investments, beginning
 of period...............   125,755   102,070    91,596     91,596      63,381
                           --------  --------  --------   --------    --------
Cash and short-term cash
 investments, end of
 period..................  $102,070  $ 91,596  $ 63,381   $ 68,318    $ 59,742
                           ========  ========  ========   ========    ========
Cash paid for interest...  $ 12,636  $ 13,118  $ 23,928        --          --
                           ========  ========  ========   ========    ========
Cash paid for taxes......  $    --   $    251  $    675        --          --
                           ========  ========  ========   ========    ========
</TABLE>

                                     F-192
<PAGE>

                              SBS BROADCASTING SA

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                        (in thousands of U.S. Dollars)

Noncash investing and financing activities:

1996

     The Company issued 95,000 Common Shares in exchange for a subordinated
note convertible into 33.0% of the share capital of Kanal A in Slovenia.

     The Company entered into a capital lease for studio equipment recorded at
NLG 5,680,000 ($3,421,000).

                                     F-193
<PAGE>

                              SBS BROADCASTING SA

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization and basis of presentation

    SBS Broadcasting SA (the "Company" or "SBS") was formed in Luxembourg in
1989 and commenced operations in 1990. The Company was organized to acquire and
operate commercial television stations in Scandinavia and other areas in
Europe, and has expanded its operations to include commercial radio stations.
The consolidated financial statements include the accounts of the Company and
its subsidiaries in which the Company has management control in Sweden,
Denmark, Norway, Finland, Flemish Belgium, the Netherlands, Hungary and
Luxembourg. The Company accounts for its other investments in 20%-50% owned
subsidiaries under the equity method.

    All intercompany transactions and balances have been eliminated.

Reporting currency

    The Company prepares its financial statements in United States dollars.
Under Luxembourg law, the Company has elected to file its statutory financial
statements and to pay dividends in United States dollars.

Currency translation

    The functional currency of the Company's subsidiaries and its equity
investees is the local currency of the country in which the subsidiaries and
investees conduct their operations. Balance sheet accounts are translated from
the local currencies into United States dollars at the year-end exchange rate
and items in the statements of operations are translated at the average
exchange rate. Resulting translation adjustments are charged or credited to
other comprehensive income. Translation adjustments arising from intercompany
financing of a long-term investment nature are accounted for similarly. Some
transactions of the Company and its subsidiaries are made in currencies
different from their functional currency. Gains and losses from these
transactions are included in operations.

Forward exchange contracts

    From time to time the Company enters into forward exchange contracts to
minimize the short-term impact of foreign currency fluctuations on assets,
liabilities and firm commitments denominated in currencies other than the
functional currency of the reporting entity. The Company's foreign exchange
contracts amounted to $23,102,000 and $19,351,000 at December 31, 1997 and
1998, respectively. Gains and losses on assets and liabilities are recognised
in net income in the period in which exchange rate changes occur, in accordance
with the requirements of Statement of Financial Accounting Standards No. 52
"Foreign Currency Translation". Gains and losses on hedge contracts on firm
commitments are deferred and recognized in net income in the period in which
the commitments are expensed.

Start-up Expenses

    Start up expenses are expensed as incurred.

Risks and uncertainties

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

    The Company provides advertising air-time to national, regional and local
advertisers within the geographic areas in which the Company operates. Credit
is extended based on an evaluation of the customer's financial condition, and
generally advance payment is not required. Anticipated credit losses are
provided for in the consolidated financial statements and consistently have
been within management's expectations.

                                     F-194
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    The Company's broadcasting operations generate revenues primarily in
Norwegian kroner, Swedish kronor, Danish kroner, Finnish mark, Belgian franc,
Dutch guilder and Hungarian forint and incur substantial operating expenses in
these and other foreign currencies. The Company also incurs substantial
operating expenses for programming in United States dollars and other foreign
currencies. Fluctuations in the value of foreign currencies may cause United
States dollar translated amounts to change in comparison with previous periods.

Cash and short-term cash investments

    Cash and short-term cash investments represent cash and short-term deposits
with maturities of less than three months at the time of purchase.

Short-term investments

    At December 31, 1997 and 1998, the Company had short-term investments of
$46,134,000 and $45,525,000, respectively, which were classified as available-
for-sale. The short-term investments are comprised of equity securities and US
Floating Rate Notes with maturities ranging from one to 32 years. The Company
has applied the provisions of Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities" in all
periods presented.

    The following is a summary of available-for-sale securities:

<TABLE>
<CAPTION>
                                                Currency      Gross    Estimated
                                               Translation Unrealized    Fair
                                        Cost   Adjustment  Gain/(Loss)   Value
                                       ------- ----------- ----------- ---------
   <S>                                 <C>     <C>         <C>         <C>
   December 31, 1997:
     US Floating Rate Notes........... $39,953    $--         $ (14)    $39,939
     US Treasury Notes................   3,080     --             9       3,089
     German Government Bonds..........   3,082      14           10       3,106
                                       -------    ----        -----     -------
                                       $46,115    $ 14        $   5     $46,134
                                       =======    ====        =====     =======
   December 31, 1998:
     US Floating Rate Notes........... $44,469    $--         $(467)    $44,002
     Equity securities................   1,907     --          (384)      1,523
                                       -------    ----        -----     -------
                                       $46,376    $--         $(851)    $45,525
                                       =======    ====        =====     =======
</TABLE>

Program rights

    Program rights and the related liabilities are recorded at their gross
value when the license period begins and the programs are available for use.
These rights are either expensed when the program is aired or amortized on an
accelerated basis when the Company is entitled to more than one airing. Program
rights are classified as current or noncurrent based on anticipated usage in
the following year. The related program rights liability is classified as
current or noncurrent based on the payment terms of the related license
agreements.

Buildings, equipment and improvements

    Buildings, equipment and improvements are carried at cost. Buildings are
depreciated on a straight-line basis over a period of up to 50 years. Equipment
is depreciated on a straight-line basis over its expected useful life at rates
varying between 20% and 33% per annum. Leasehold improvements are amortized
over the shorter of their expected lives or the noncancelable term of the
lease.

Intangible assets

    Goodwill, representing the excess of the cost of acquired businesses over
the fair values assigned to assets and liabilities acquired, is amortized over
a 20-year period. Broadcasting licenses and other intangible assets are carried
at cost and amortized on a straight-line basis over the terms of the licenses.
The carrying values of goodwill and other

                                     F-195
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

long-lived assets are reviewed periodically to determine whether they may have
become impaired. If this review indicates that goodwill and other long-lived
assets will not be recoverable, as determined based on the undiscounted cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value of the goodwill and other long-lived assets is reduced
by the difference between the carrying amount and the estimated fair value. All
of the Company's goodwill and other long-lived assets have been ascribed to its
operating entities.

Revenue recognition

    The Company recognizes revenue for advertising time sold in the period in
which the advertisement airs and for the sale of air-time (use of transmission
capability) in the period in which it is provided.

Barter transactions

    Barter transactions represent the exchange of commercial air time for
programming, merchandise or services. The transactions are recorded at the fair
market value of the asset received or service rendered. Barter revenues for the
years ended December 1996, 1997 and 1998 were $8,024,000, $7,199,000 and
$12,330,000, respectively.

    Comparable amounts are recorded as expenses, subject to timing differences.

Advertising

    Advertising costs are expensed as incurred. Advertising expense totaled
$16,349,000, $19,684,000 and $23,211,000 in 1996, 1997 and 1998, respectively.

Income taxes

    The Company accounts for income taxes using the liability method. Deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the financial statements or
tax returns.

Earnings per share

    In 1998, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been restated to conform to
the Statement 128 requirements.

Stock Options

    The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock issued to Employees" (ABP 25) and related
Interpretations in accounting for its employee stock options.

Other post-retirement and post-employment benefits

    The Company does not provide its employees with post-retirement and post-
employment benefits.

Impact of recently issued accounting standards

    In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. Management does
not anticipate that the adoption of the new Statement will have a significant
effect on earnings or the financial position of the Company.

                                     F-196
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


2. Acquisitions, Dispositions and Start-up Operations

Norway

    Effective March 1, 1996, the Company sold 33.3% of TVNorge to Schibsted for
NOK 133,000,000 ($20,525,000). In connection with this transaction, the Company
agreed to pay a distribution fee to Schibsted and A-Pressen of up to NOK
72,000,000 for providing assistance in getting affiliated stations to sign up
with TVNorge in order for TVNorge to increase its distribution. The
distribution fee paid or to be paid is based on TVNorge's increase in
distribution, and the Company expensed NOK 40,000,000 ($6,192,000),
NOK 20,828,000 ($2,946,000) and NOK 7,447,000 ($986,000) in 1996, 1997 and
1998, respectively. Also, in 1996 the Company expensed NOK 20,078,000
($3,108,000) for defined costs, which the Company agreed to absorb, relating to
TV Pluss, at that time, a subsidiary of Schibsted. The net gain of NOK
3,971,000 ($615,000) on the sale of 33.3% of TVNorge was recorded in 1996 as
other income.

    In April 1996, the Company granted A-Pressen an option to purchase 16% of
TVNorge from the Company which was exercised in March 1997. The cash purchase
price was NOK 81,624,000 ($11,500,000) including interest of 6% per year for
the period March 1, 1996 until the payment of the purchase price. A net gain of
NOK 44,271,000 ($6,262,000) was recorded in 1997 as other income.

    In May 1997, TVNorge entered into a definitive cooperation agreement with
TV2, a national television station in Norway. Under the agreement, TV2 assumed
primary responsibility for programming of TVNorge with the objective of
creating two distinct and complementarily branded national stations. TV2 has
guaranteed TVNorge specific audience levels for the calendar years 1998-2001
and contributed NOK 40,000,000 ($5,657,000) towards TVNorge's local station
costs in 1997. The NOK 40,000,000 was recorded as revenue in TVNorge's results
of operations in 1997.

    In June 1997, TV2 acquired 49.3% of the shares in TVNorge from Schibsted
and A-Pressen, as a consequence of which SBS owns 50.7% and TV2 owns 49.3% of
TVNorge.

Sweden

    Kanal 5. In September 1995, SBS acquired the remaining 25% of Kanal 5 not
previously owned by the Company for SEK 47,500,000 ($6,819,000), of which SEK
35,000,000 ($5,000,000) was paid in 1995 and the remaining SEK 12,500,000
($1,617,000) was paid in April 1998. The Company's obligation to pay contingent
purchase price based on earnings did not become payable.

    GE Program Group. On August 1, 1993, the Company acquired 30% of the Common
Shares of GE Program Group. The 70% shareholder of GE Program Group has the
right to exercise a call option over a five year period ending December 31,
1999, to acquire the Company's 30% shareholding in GE Program Group at a fixed
price of SEK 53,125,000, plus a compounded annual interest of 25% based on the
Company's original acquisition price of SEK 42,500,000 calculated from August
15, 1993.

    The Company provides management services to GE Program Group. The charge
for such services was $671,000, $577,000, and $569,000 for 1996, 1997 and 1998,
respectively.

    Radio Operations. In March 1998 the Company finalized its acquisition of
the operating entities Radio City in Malmoe and Gothenburg for an approximate
amount of SEK 14,500,000 ($1,795,000) bringing its ownership to 100% of both
stations, and in November 1998, the Company acquired the remaining 51% of Radio
Klassiska Hits in Stockholm for SEK 24,781,000 ($3,073,612) bringing its
ownership of this operating entity to 100%. The Company also owns 100% of Radio
City in Stockholm.

                                     F-197
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


Finland

    In the period from 1994 to 1997, the Company acquired interests in five
radio operations in Finland for an aggregate amount FIM 53,829,000
($10,939,000). Hereafter, the Company owns 100% of: Radio Sata in Turku, Radio
Mega in Oulu and Radio 957 in Tampere and owns 90.3% of Radio City FM in
Helsinki and 92.7% of Radio KISS FM.

    In March 1997, the Company sold its 3% interest in MTV Oy, Finland, for FIM
20,059,800 ($3,968,000) realizing a net gain of ($2,814,000) recorded as other
income.

    All of the above acquisitions were accounted for under the purchase method.
The acquired entities were included in the financial statements of the Company
from the dates of their acquisitions.

Flemish Belgium

    In the second half of 1994, the Company formed VT4 Limited ("VT4"), a
Dutch-language television channel, which is transmitted by satellite from the
UK and is carried by all the cable systems in Flemish Belgium. VT4 began
broadcasting in February 1995.

The Netherlands

    In August 1995, the Company launched SBS6, a 100% owned satellite-to-cable
television channel. In May 1996, De Telegraaf acquired a 30% interest in SBS6
for NLG 55,000,000 ($32,164,000). The gain of $22,150,000 on this transaction
was recorded as a capital contribution as prescribed under Staff Accounting
Bulletin No. 84 with respect to sales of stock of subsidiaries when the
subsidiary is newly-formed.

Italy

    In January 1997, the Company acquired 10.1% of Rete Mia, a national over-
the- air television network in Italy. The purchase price was $7,617,000, of
which $5,117,000 was paid in cash and approximately $2,500,000 was paid in
exchange for 158,028 Common Shares. The Company has been granted options to
acquire the remaining 89.9% of Rete Mia, in whole or in part, for a total price
of $75,000,000, which is payable, at the Company's option, in Italian lira at a
fixed exchange rate.

    The Company has entered into a loan and option agreement with the owners of
FINELCO, which owns and operates RETE 105, a national radio network in Italy.
As of December 31, 1998, the Company had advanced $7,336,000 to the owners of
FINELCO and incurred an additional $759,000 of capitalized expenses relating to
such agreements. The prospective sellers under such agreements have refused to
consummate the transactions contemplated thereby. The Company has therefore
commenced proceedings in Italy seeking to enforce such agreements and has
obtained certain prejudgment remedies.

Hungary

    In June 1997, TV2, a company established by the Company and MTM, was
awarded a broadcast license. TV2, the first commercial station in Hungary was
launched in October 1997. The Company projects the aggregate capital
requirement for TV2 will be approximately $40,000,000 during the start-up phase
of which $12,500,000 has been funded through equity contributions or interim
loans by SBS, MTM and Tele-Munchen ($8,500,000 by the Company) and $27,500,000
has been financed by three institutions, lead by the EBRD. The financing is
secured by liens on the assets of TV2 and by a pledge of all the outstanding
shares in TV2. The financing is also supported by standby equity commitments
from the shareholders of TV2 of up to $16,000,000. The Company owns 49% of TV2,
with MTM owning 38.5% and Tele-Munchen owning 12.5%. The Company is responsible
for 67.5% of the standby equity funding requirements of TV2, based on its 61.5%
economic interest and agreements made in conjunction with obtaining an option
to increase its economic interest to 67.5%. In addition, the Company, together
with Tele-

                                     F-198
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Munchen, may be required to provide all or part of the standby equity funding
requirements relative to MTM's equity interest. As a result, the Company may be
required to provide approximately 83.1% of the $16,000,000 of standby equity
commitments from the shareholders of TV2. The Company, along with MTM and Tele-
Munchen, also has given a limited guarantee of all outstanding amounts under
the financing. Payment under the guarantee will be required only in the event
TV2 loses its broadcast rights or is rendered insolvent because of a final
judgment or order issued against TV2 in connection with certain pending
litigation involving TV2, the Hungarian National Radio and Television Board and
Magyar RTL.

Other

    The Company is involved in other development opportunities, including
television projects in Slovenia and Switzerland. In 1996 the Company has
acquired a note in the principal amount of $2,375,000, which, by its terms is
convertible into 33% of the share capital of Kanal A in Slovenia, in exchange
for 95,000 Common Shares of the Company. The Company has invested $23,770,000
($21,395,000 in cash) in the Slovenia project as of December 31, 1998, of which
$10,592,000 has been capitalized, and an aggregate loss of $13,178,000 has been
recorded as equity in loss in unconsolidated subsidiaries in 1996, 1997 and
1998. In July 1998, the Company and TA-Media Group, a leading publisher in
Switzerland, formed a 50/50 joint venture, which in March 1999 was awarded a
national broadcasting license in Switzerland. The joint venture intends to
launch, in September 1999, a national channel targeted at the German speaking
community of Switzerland, and featuring a mix of general entertainment and news
programming. The Company projects the aggregate capital required to be
approximately $40,000,000 during the start-up phase, of which 50% will be
funded by the Company.

    In December 1998, the Company signed an agreement with the EBRD to
establish and fund EBS, which intends to make equity investments in television
and radio operations in Central and Eastern Europe. The capital commitments of
the EBS shareholders at initial closing were contemplated to be $80,000,000, of
which the Company has agreed to fund, on a project by project basis,
$50,000,000. The initial closing is subject to various conditions having been
satisfied and has not yet taken place. The EBS agreement contemplates a maximum
aggregate funding commitment of all shareholders of $150,000,000, of which the
Company's commitment will be reduced to $40,000,000.

3. Program Libraries

Paramount

    In March 1995, the Company formalized a ten-year agreement with Viacom
Enterprises and Paramount Television to broadcast the film and television
library of Paramount Television, including Viacom's off-network syndication
titles, for Norway, Sweden, Denmark, Finland, Flemish Belgium and the
Netherlands. The Paramount Television Group program library includes 14,500
series episodes and 2,000 movies.

    The program library under the agreement includes free television rights
owned by Paramount and/or Viacom not currently licensed to a third party and
access to any series, feature films or movies of the week in the aforementioned
territories which either (a) have previously been licensed for free television
exhibition in the territories, or (b) have been available for free television
exhibition in the territories for at least 18 months and not licensed. The 18-
month period for feature films is measured from the end of the pay television
exhibition period and the 18-month period for series is determined on a season
by season basis.

    In consideration, the Company agreed to pay $20,000,000 to Paramount of
which $14,000,000 was paid in March 1995, $2,500,000 will be paid in 2000 and
$3,500,000 in 2002. Simultaneously, Paramount purchased a warrant to purchase
1,000,000 Common Shares expiring in 2000 with an exercise price of $35 per
share for $4,000,000.

                                     F-199
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    In April 1997, the Company reached an agreement to amend its existing
program license agreement with Paramount to add Hungary and Slovenia and to
remove Finland from the licensed territories, and to give the Company the right
to two runs of licensed library product. In consideration for the extension,
the Company has agreed to reduce the exercise price of the warrant to $25 per
share and to extend its term until June 30, 2002. The fair value of the change
in the terms of the warrant as of the date of the amendment to the agreement of
$2,780,000 was capitalized as program rights inventory in 1997, which are being
amortized over the remaining term of the amended license agreement, and a like
amount was recorded as additional paid in capital.

    The Company amortizes the Paramount library agreement on a straight-line
basis commencing upon the initial broadcast date in each territory.

DreamWorks

    In November 1996, the Company entered into a long-term exclusive
programming agreement with DreamWorks. The agreement is for five years and
covers Norway, Sweden, Denmark, Flemish Belgium, the Netherlands and Slovenia.
Under the agreement, the Company has the exclusive rights to all first-run
television series, provided that such series have been broadcast by one of the
six largest networks in the United States. The agreement limits DreamWorks'
obligation to provide one-hour television series to five such series each year
of the agreement and limits DreamWorks' obligations to provide television mini-
series to ten such mini-series over the five-year term of the agreement. In
addition to the television series, the agreement grants the Company the right
to the first 50 theatrical movies produced, with a delay in the release of such
movies by the Company of approximately three years from the release in the
United States. The Company estimates the arrangement with DreamWorks will lead
to a total acquisition amounting to $38,500,000, payable over the availability
period, which due to the movies is more than five years. Amounts paid for
programming under the DreamWorks agreement are based on contractual terms.

    The related programming expense charged to operations amounted to $19,000,
$878,000 and $863,000 for 1996, 1997 and 1998, respectively. The Company had
DreamWorks program rights of $1,172,000 and $1,592,000, and program rights
payable to DreamWorks of $1,373,000 and $245,000 at December 31, 1997 and 1998,
respectively.

4. Buildings, Equipment and Improvements

    Buildings, Equipment and Improvements consisted of the following:

<TABLE>
<CAPTION>
                                                           December 31,
                                                      -----------------------
                                                         1997        1998
                                                      ----------- -----------
   <S>                                                <C>         <C>
   Technical, other equipment, furniture and
    fixtures......................................... $48,765,000 $57,009,000
   Buildings and leasehold improvements..............   5,328,000   6,339,000
                                                      ----------- -----------
                                                       54,093,000  63,348,000
   Less accumulated depreciation.....................  28,636,000  39,168,000
                                                      ----------- -----------
   Net buildings, equipment and improvements......... $25,457,000 $24,180,000
                                                      =========== ===========
</TABLE>

    Included in technical and other equipment are $5,259,000 and $5,399,000 of
assets held under various capital leases as of December 31, 1997 and 1998,
respectively. Depreciation of these assets for the years ended December 31,
1996, 1997 and 1998 amounted to $1,200,000, $1,233,000 and $1,101,000,
respectively.

                                     F-200
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


5. Intangible Assets

   Intangible Assets consisted of the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           1997        1998
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   Goodwill............................................ $60,020,000 $63,420,000
   Broadcasting licenses...............................  16,529,000  16,593,000
   Other intangible assets.............................         --    2,618,000
                                                        ----------- -----------
                                                         76,549,000  82,631,000
   Less accumulated amortization.......................  13,101,000  22,919,000
                                                        ----------- -----------
   Net intangible assets............................... $63,448,000 $59,712,000
                                                        =========== ===========
</TABLE>

6. Notes Payable, Current

   Notes Payable, Current are all due on demand and consisted of the
following:

<TABLE>
<CAPTION>
                                                              December 31,
                                                         ----------------------
                                                            1997        1998
                                                         ----------- ----------
   <S>                                                   <C>         <C>
   Kredietbank.......................................... $ 6,500,000 $2,892,000
   Generale Bank........................................   5,418,000  5,784,000
   Christiania Bank og Kreditkasse......................         --     787,000
                                                         ----------- ----------
                                                         $11,918,000 $9,463,000
                                                         =========== ==========
</TABLE>

     The weighted average interest rates were 3.82% and 4.65% at December 31,
1997 and 1998, respectively.

   SBS Broadcasting SA has guaranteed the loans of subsidiaries from
Kredietbank and Generale Bank and the loan from Kredietbank is also
collateralized by certain receivables having a book value of $10,394,000 at
December 31, 1998.

   Based upon prevailing interest rates on similar debt instruments, the
Company believes that the carrying value of its notes payable approximates
fair value.

7. Convertible Subordinated Debentures and Notes

   During the third quarter of 1995, the Company sold an aggregate of
$155,250,000 in principal amount of 7.25% Convertible Subordinated Debentures
Due 2005 (the "Convertible Subordinated Debentures"), raising net proceeds to
the Company of $149,644,000. Interest is payable semi-annually on February 1
and August 1 of each year. The Convertible Subordinated Debentures are
convertible, at the option of the holder, at any time prior to maturity, into
shares of the Company's Common Stock at a conversion price of $28.67 per
Common Share. The Convertible Subordinated Debentures are redeemable, in part
or in whole, at the option of the Company, including accrued and unpaid
interest to the date of redemption and a redemption premium.

   In November 1997, the Company sold an aggregate of $75,000,000 in principal
amount of 7% Convertible Subordinated Notes Due 2004 (the "Notes"), raising
net proceeds to the Company of approximately $72,300,000 after the deduction
of fees and expenses of the offering paid by the Company. Interest on the
Notes is payable semi-annually in June and December each year. Holders of the
Notes are entitled to convert the Notes into Common Shares at a conversion
price of $29.13 per share. After December 5, 2000, the Notes are redeemable,
in whole or in

                                     F-201
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

part at the option of the Company, including accrued and unpaid interest to the
date of redemption and a redemption premium.

    The Convertible Subordinated Debentures and Notes are subordinated to all
existing and future Senior Debt of the Company, as defined in the indentures.
The indentures under which the Convertible Subordinated Debentures and Notes
were issued do not restrict the incurrence of additional senior or other
indebtedness by the Company.

    Upon a change of control, each holder of the Convertible Subordinated
Debentures and Notes has the right to cause the Company to repurchase all of
such holder's Convertible Subordinated Debentures and Notes at a price in each
case equal to 100% of the principal amount of the Convertible Subordinated
Debentures and Notes plus any accrued and unpaid interest to the date of
repurchase. In addition, in the event of certain changes in tax laws and
certain other limited circumstances requiring additional payments by the
Company, the Convertible Subordinated Debentures and Notes are redeemable in
whole, but not in part, at the option of the Company at any time. The
redemption price under these circumstances is equal to the principal amount of
the Convertible Subordinated Debentures and Notes plus any accrued and unpaid
interest to the date of redemption.

    The fair value of the Convertible Subordinated Debentures at December 31,
1998 was $160,839,000 based on public market trading.

    The fair value of the Convertible Subordinated Notes at December 31, 1998
was $80,715,000 based on public market trading.

8. Other Long-term Debt

    Other Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           1997        1998
                                                        ----------- -----------
   <S>                                                  <C>         <C>
   EBRD Loan........................................... $27,508,000 $28,444,000
   Christiania Bank og Kreditkassen....................  10,246,000   9,868,000
   Skandinaviska Enskilda Banken.......................  10,000,000   8,300,000
   Advertising Service Agreement.......................   4,914,000   4,423,000
   Coutts & Co.........................................   2,050,000   1,948,000
   Obligations under capital leases....................   1,522,000     422,000
   Other...............................................     193,000     236,000
                                                        ----------- -----------
                                                         56,433,000  53,641,000
   Less current portion................................   3,317,000   2,627,000
                                                        ----------- -----------
                                                        $53,116,000 $51,014,000
                                                        =========== ===========
</TABLE>

    Of the principal amount of the EBRD loan, $14,300,000 is denominated in US
Dollar and the balance is denominated in Deutsche Mark ("DM"). The loan is
repayable in escalating semi-annual installments commencing in June 2000 and
has a final maturity in December 2005. The loan is secured by all tangible and
intangible assets of TV2 and a pledge of all outstanding shares of TV2.
Interest is payable at a floating rate of libor +1.5% for $6,700,000 and
DM11,530,700 and libor +1.4% for $7,000,000 and DM12,047,000. The remaining
$600,000 bears interest at an annual rate of 15%. Interest is payable semi-
annually from the inception of the loan. The Company is committed to provide
standby equity contributions to TV2 of up to $13,300,000 and has also granted a
limited guarantee in connection with the loan.

                                     F-202
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    The Christiania Bank loan was obtained by TVNorge to finance operations and
is repayable in annual installments commencing in June 2000 and has a final
maturity in 2002. Interest at an average floating rate of nibor +0.6% is
payable quarterly from the inception of the loan. The shareholders of TVNorge
have guaranteed the loan proportionate to their shareholding.

    The loan from Skandinaviska Enskilda Banken ("SE Banken") is repayable in
annual installments commencing in 1998 and has a final maturity in 2000. The
loan is secured by a pledge of the shares in Kanal 5 AB and Kanal 5 Ltd.
Interest is payable at an average floating rate of libor +0.9%.

    Under an Advertising Service Agreement concluded simultaneously with the
Loan Agreement with Postabank, Budapest, the principal and interest on the loan
of HUF 1 billion will be repaid primarily by providing advertising services. If
not repaid by way of advertising services the loan becomes repayable in cash in
October 2002. Interest accrues at an annual rate of 22%.

    The Coutts & Co. loan of (Pounds)1,250,000 is repayable in annual
installments commencing 1998 and has a final maturity in 2005 and is secured by
a mortgage over the corporate office in London. Interest at a floating rate of
approximately 7.75% and 9.25% for the first (Pounds)600,000 and
(Pounds)650,000, respectively, is payable with the installments of the loan.

    In December 1998 the Company entered into a $35,000,000 multi-currency
revolving and term facility with Chase Manhattan Bank. The borrower group is
currently comprised of the Company, Kanal 5, VT4 and the Radio Division. There
are cross-guarantees between these companies and their subsidiaries and Kanal 5
Limited has also entered into a fixed and floating charge. The Company has
pledged its shares in all 100% (indirectly) owned subsidiaries within the
borrower group and its interest in Broadcast Danmark/Nordisk, which is 80%
owned, except for the shares in Kanal 5 AB and Kanal 5 Ltd., which are
currently pledged in connection with the SE Banken facility. The pledge will be
transferred to Chase Manhattan Bank when SE Banken is repaid (see below). In
addition, an assignment was made over certain intercompany loans made by the
Company to its subsidiaries. The Company has not yet made a drawdown under the
facility but can do so until December 31, 2000. A condition to drawdown is the
repayment of the SE Banken $10,000,000 facility (Balance December 31, 1998--
$8,300,000). The interest rate will be at libor plus a margin ranging from 1%
to 1.75% depending upon the leverage ratio. The Company will repay the facility
in installments over three years beginning in December 2000.

    The aggregate amount of scheduled principal maturities on long-term debt
for each of the remaining years subsequent to December 31, 1998 are as follows:

<TABLE>
   <S>                                                               <C>
   1999............................................................. $ 2,627,000
   2000.............................................................  11,205,000
   2001.............................................................   6,001,000
   2002.............................................................  13,638,000
   2003.............................................................   8,569,000
   Thereafter.......................................................  11,601,000
                                                                     -----------
                                                                     $53,641,000
                                                                     ===========
</TABLE>

    Based upon prevailing interest rates on similar debt instruments, the
Company believes that the carrying value of its long-term debt approximates
fair value. As of December 31, 1998, the Company had credit lines available
amounting to $33,540,000 including the Chase Manhattan Bank, and repayment of
the SE Banken loan.

                                     F-203
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


9. Stock Options

    The Company adopted a 1992 Share Incentive Plan and a 1994 Share Incentive
Plan (collectively, the "Plans") under which 1,800,000 Common Shares are
reserved for issuance upon the exercise of options granted thereunder. In 1996
and 1998, the shareholders approved an increase of an aggregate of 3,000,000
Common Shares available for issuance under the Plans. In October, 1995, the
Company formalized the Company's Long-Term Employees' Stock Ownership Plan
("ESOP"), reserving 60,000 shares of the Company's Common Stock for awards to
employees, vesting over three years. As of December 31, 1998, no shares had
been awarded under the ESOP.

    In April, 1997, holders of then vested in-the-money options were offered
unrestricted Common Shares and holders of unvested options or vested out-of-
the-money options were offered restricted Common Shares to vest over periods of
up to three years depending upon the remaining terms of their employment
arrangements. Holders of options to purchase an aggregate of 338,500 Common
Shares elected to exchange their options for 91,462 Common Shares of which 916
were restricted shares at December 31, 1998. Holders of options to purchase
105,000 Common Shares elected not to exchange their options. Also, in April,
1997 the exercise price of all outstanding out-of-the-money options held by
members of senior management of the Company were reset with reference to the
then prevailing market price for the Company's Common Shares. All of these
option became unvested as of April, 1997 and new vesting periods for each
option was recommenced.

    Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a BlackScholes option pricing model with the following assumptions:
riskfree interest rates of 6.5%; dividend yield of 0%; volatility factor of the
expected market price of the Company's Common Stock of 0.41; and a weighted-
average expected life of the options of ten years as of the date of grant.

    For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows (in thousands, except for per share
information):

<TABLE>
<CAPTION>
                                                    1996      1997      1998
                                                  --------  --------  --------
   <S>                                            <C>       <C>       <C>
   Pro forma net loss............................ $(68,475) $(50,550) $(44,157)
   Pro forma basic and diluted loss per share.... $  (5.03) $  (3.67) $  (3.01)
</TABLE>

    A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:

<TABLE>
<CAPTION>
                                    1996                     1997                     1998
                          ------------------------ ------------------------ ------------------------
                          Options Weighted-average Options Weighted-average Options Weighted-average
                           (000)   Exercise Price   (000)   Exercise Price   (000)   Exercise Price
                          ------- ---------------- ------- ---------------- ------- ----------------
<S>                       <C>     <C>              <C>     <C>              <C>     <C>
Outstanding-beginning of
 year...................   2,007       $18.72       2,270       $19.08       2,711       $17.42
Granted.................     275       $22.56         780       $19.56         598       $27.19
Exercised...............     --           --          --           --          --           --
Forfeited...............     (12)      $21.90         --           --          --           --
Exchanged for Common
 Shares.................     --           --         (339)      $20.14         --           --
Outstanding at end of
 year...................   2,270       $19.08       2,711       $17.42       3,309       $19.19
Exercisable at end of
 year...................   1,739       $18.03       1,791       $16.26       2,861       $18.01
Weighted-average fair
 value of options
 granted during the
 year...................               $13.24                   $ 9.80                   $15.34
</TABLE>

                                     F-204
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    Below is additional information related to stock options at December 31,
1998

<TABLE>
<CAPTION>
                                              Weighted Average
                                      Options    Remaining     Weighted Average
   Range of Exercise Price             (000)  Contractual Life  Exercise Price
   -----------------------            ------- ---------------- ----------------
   <S>                                <C>     <C>              <C>
   $00.00-10.00......................    235        3.35            $ 1.50
   $10.01-20.00......................  1,703        6.27            $16.89
   $20.01-30.00......................  1,196        7.22            $23.79
   $30.01-40.00......................    175        8.63            $33.87
                                       -----
                                       3,309        6.53            $19.19
</TABLE>

10. Luxembourg Capital Requirements

    Luxembourg company law requires that an appropriation be made to legal
reserve of a minimum of 5% of the parent company's annual net income until this
reserve equals 10% of subscribed capital. Through December 31, 1998, no amount
has been required to be allocated to the legal reserve. The legal reserve may
not be distributed in the form of cash dividends or otherwise during the life
of the Company. The appropriation to legal reserve becomes effective upon
approval at the general meeting of shareholders. As of December 31, 1998, the
Company is not permitted to make any dividend distributions under Luxembourg
law.

11. Income Taxes

    The Company and each of its subsidiaries file separate tax returns in their
country of incorporation. The Company's provision for (benefit from) income
taxes in each period reflects various taxes in certain jurisdictions in which
the Company does business. No benefit has been recorded in the financial
statements for net operating losses, as the entire carryforward has been offset
by a valuation allowance. The tax benefit associated with the pretax losses in
each period has been offset by increases in the valuation allowance. Management
believes that sufficient uncertainty exists regarding the realizability of the
deferred tax assets that a valuation allowance is required. Deferred income
taxes represent the tax effect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company's
deferred tax assets as of December 31, 1997 and 1998 (there are no significant
deferred tax liabilities) are as follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                           -------------------
                                                             1997      1998
                                                           --------  ---------
                                                             (in thousands)
   <S>                                                     <C>       <C>
   Net operating loss carryforwards....................... $ 96,257  $  94,103
   Excess book over tax depreciation......................    2,285        632
   Development costs capitalized for tax purposes.........       86        --
   Other..................................................   (3,703)     7,667
   Less: Valuation allowance.............................. $(94,925) $(102,402)
                                                           --------  ---------
   Net deferred tax assets................................ $    --   $     --
                                                           ========  =========
</TABLE>

                                     F-205
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


    The tax loss carryforwards available at December 31, 1998 and their
expiration years are as follows:

<TABLE>
<CAPTION>
   Expiration year                              Denmark Norway  Finland  Total
   ---------------                              ------- ------- ------- --------
                                                         (in thousands)
   <S>                                          <C>     <C>     <C>     <C>
   1999........................................ $ 2,473 $   --     --   $  2,473
   2000........................................   3,490     --     --      3,490
   2001........................................   3,086     --     --      3,086
   2002........................................  10,188     --     --     10,188
   2003........................................  12,469     --     --     12,469
   2004........................................     --      --      57        57
   2005........................................     --    1,640    879     2,519
   2006........................................     --   35,086  1,470    36,556
   2007........................................     --   17,850  1,678    19,528
   2008........................................     --   10,962    849    11,811
                                                ------- ------- ------  --------
   Total....................................... $31,706 $65,538 $4,933  $102,177
                                                ======= ======= ======  ========
</TABLE>

    Tax losses may be carried forward indefinitely in the following
territories:

<TABLE>
   <S>                                                                  <C>
   Luxembourg.......................................................... $101,776
   Belgium.............................................................    7,118
   Netherlands.........................................................   31,021
   Sweden..............................................................   12,222
   UK..................................................................   43,039
   Hungary.............................................................   20,236
                                                                        --------
     Total............................................................. $215,412
                                                                        ========
</TABLE>

12. Fair value of financial instruments

    The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 and 1998 are as follows:

<TABLE>
<CAPTION>
                                            1997                1998
                                      ------------------  ------------------
                                      Carrying    Fair    Carrying    Fair
                                       amount    value     amount    value
                                      --------  --------  --------  --------
                                                (In thousands)
   <S>                                <C>       <C>       <C>       <C>
   Cash and short-term cash
    investments...................... $ 91,596  $ 91,596  $ 63,381  $ 63,381
   Short-term investments............   46,134    46,134    45,525    45,525
   Notes payable, current............  (11,918)  (11,918)   (9,463)   (9,463)
   Convertible subordinated
    debentures....................... (155,250) (156,803) (155,250) (160,839)
   Convertible subordinated notes....  (75,000)  (74,063)  (75,000)  (80,715)
   Other long term debt..............  (56,433)  (56,433)  (53,641)  (53,641)
   Foreign currency exchange
    contract.........................      --       (546)      --       (147)
</TABLE>

                                     F-206
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


13. Segment Reporting

    The Company divides its operations into three categories: (i) "Scandinavian
Television operations" which includes TVNorge (in Norway), Kanal 5 (in Sweden)
and TvDanmark (in Denmark), (ii) "European Television operations" which
includes VT4 (in Flemish Belgium), SBS6 (in the Netherlands) and TV2 (in
Hungary), and (iii) "Radio operations" which includes Voice Radio (in Denmark),
Radio City in Stockholm, Radio City in Malmoe, Radio City in Gothenburg and
Radio Klassiska Hits in Stockholm (in Sweden) and Radio Sata, Radio Mega, Radio
KISS FM, Radio City and Radio 957 ("Radio Finland"). There are no material
product transfers between segments of the Company. The segment data is as
follows:

<TABLE>
<CAPTION>
                                                         Three months ended
                          Years Ended December 31,            March 31,
                         ----------------------------  -----------------------
                           1996      1997      1998       1998        1999
                         --------  --------  --------  ----------- -----------
                               (in thousands)          (unaudited) (unaudited)
<S>                      <C>       <C>       <C>       <C>         <C>
Scandinavian Television
 Operations
Net revenues:
  TVNorge (in Norway)... $ 28,223  $ 35,291  $ 42,068    $ 9,424     $10,323
  Kanal 5 (in Sweden)...   30,294    48,065    55,577     13,095      13,795
  TvDanmark (in
   Denmark).............   17,236    20,108    32,370      6,481       8,335
  Other.................       24       --        107        --          625
                         --------  --------  --------    -------     -------
Total net revenues......   75,777   103,464   130,122     29,000      33,078
                         --------  --------  --------    -------     -------
  Station operating
   expenses.............   70,404    83,632   106,706     23,640      27,566
  Selling, general and
   administrative
   expenses.............   26,240    28,573    29,049      6,939       7,094
  Depreciation..........    3,380     4,711     4,045        886       1,118
  Amortization..........    2,790     2,625     3,205        727         803
                         --------  --------  --------    -------     -------
Total operating
 expense................  102,814   119,541   143,005     32,192      36,581
                         --------  --------  --------    -------     -------
Loss from operations.... $(27,037) $(16,077) $(12,883)   $(3,192)    $(3,503)
                         ========  ========  ========    =======     =======
Assets at year-end...... $106,195  $110,876  $133,522
                         ========  ========  ========
European Television
 Operations
Net revenues:
  VT4 (in Belgium)...... $ 46,468  $ 43,267  $ 50,562    $10,820     $13,809
  SBS6 (in the
   Netherlands).........   50,087    72,585    96,780     17,051      24,640
  TV2 (in Hungary)......      --      8,787    48,566      8,639       9,936
  Other.................     (529)     (976)     (213)      (192)        --
                         --------  --------  --------    -------     -------
Total net revenues......   96,026   123,663   195,695     36,318      48,385
                         --------  --------  --------    -------     -------
  Station operating
   expenses.............  104,664   115,277   147,964     35,486      40,020
  Selling, general and
   administrative
   expenses.............   17,791    18,140    27,623      5,404       9,621
  Depreciation..........    4,249     4,331     4,568      1,373       1,044
  Amortization..........      --      1,237     4,735      1,160       1,141
                         --------  --------  --------    -------     -------
Total operating
 expense................  126,704   138,985   184,890     43,423      51,826
                         --------  --------  --------    -------     -------
Income (loss) from
 operations............. $(30,678) $(15,322) $ 10,805    $(7,105)    $(3,441)
                         ========  ========  ========    =======     =======
Income (loss) from
 operations excluding
 TV2 (in Hungary)....... $(30,678) $ (9,459) $ 15,733
                         ========  ========  ========
Assets at year-end...... $105,219  $167,520  $172,443
                         ========  ========  ========
</TABLE>

                                     F-207
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

<TABLE>
<CAPTION>
                                                          Three months ended
                           Years Ended December 31,            March 31,
                          ----------------------------  -----------------------
                            1996      1997      1998       1998        1999
                          --------  --------  --------  ----------- -----------
                                (in thousands)          (unaudited) (unaudited)
<S>                       <C>       <C>       <C>       <C>         <C>
Radio Operations
Net revenues:
  Denmark...............  $  3,333  $  4,300  $  5,444   $  1,025    $  1,177
  Sweden................     3,213     3,453     8,560      1,161       1,872
  Finland...............     4,085     7,958    10,714      2,136       2,521
                          --------  --------  --------   --------    --------
Total net revenues......    10,631    15,711    24,718      4,322       5,570
                          --------  --------  --------   --------    --------
  Station operating
   expenses.............     4,495     5,407     8,814      1,780       2,491
  Selling, general and
   administrative
   expenses.............     6,235     8,477    12,107      2,528       3,256
  Depreciation..........       416       797       871        191         214
  Amortization..........       394       744     1,294        239         550
                          --------  --------  --------   --------    --------
Total operating
 expense................    11,540    15,425    23,086      4,738       6,511
                          --------  --------  --------   --------    --------
Income (loss) from
 operations.............  $   (909) $    286  $  1,632   $   (416)   $   (941)
                          ========  ========  ========   ========    ========
Assets at year-end......  $ 22,746  $ 30,045  $ 35,476
                          ========  ========  ========
Consolidated
Net revenue.............  $182,434  $242,838  $350,535   $ 69,640    $ 87,033
                          --------  --------  --------   --------    --------
Loss from operating
 segments...............   (58,624)  (31,113)     (446)   (10,713)     (7,885)
Corporate expenses......    (7,822)   (9,177)   (9,576)    (1,962)     (2,377)
Non-cash compensation...       --     (2,676)   (1,142)      (139)        --
Amortization related to
 unconsolidated
 subsidiaries...........      (468)     (454)     (556)      (127)        (50)
                          --------  --------  --------   --------    --------
Loss from operations....   (66,914)  (43,420)  (11,720)   (12,941)    (10,312)
                                                         ========    ========
Equity in loss of
 unconsolidated
 subsidiaries...........    (1,301)   (3,150)   (3,536)
Interest income.........     7,368     3,469     6,318
Interest expense........   (13,221)  (14,333)  (24,708)
Foreign exchange losses,
 net....................      (193)   (4,665)   (3,202)
Investment gains
 (losses)...............       --       (801)      376
Other income
 (expenses).............      (587)    7,213    (2,638)
Income tax and tax
 benefits...............      (250)      (29)     (636)
Minority interest in
 losses, net............     7,559    11,866     6,027
                          --------  --------  --------
Net loss................  $(67,539) $(43,850) $(33,719)
                          --------  --------  --------
Assets employed by
 segments...............  $234,160  $308,441  $341,441
Short-term cash
 investments and other
 corporate assets.......   105,595   119,119    86,380
                          --------  --------  --------
Total assets at year-
 end....................  $339,755  $427,560  $427,821
                          ========  ========  ========
</TABLE>

14. Pension Plans

    The Company contributes to defined contribution plans for the management
level personnel at its subsidiaries and to a multi-employer defined
contribution pension plan for essentially all of its Swedish employees, which
plans are maintained by third party insurance companies. Contributions are
determined as a percentage of salaries with increases in relation to years of
employment. During the years ended December 31, 1996, 1997 and 1998, expenses
under these plans were $248,000, $452,000 and $551,000, respectively.

                                     F-208
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


15. Commitments

    As of December 31, 1998, the Company was committed to purchase broadcast
rights for programming under various agreements (excluding DreamWorks)
amounting to approximately $112,836,000. The commitment period for the
Company's purchase of programming generally ranges from twelve months to five
years.

    The Company was committed at December 31, 1998 to subscribe (through
December 31, 2003) to viewer rating services with aggregate payments of
$4,136,000.

    Expense under operating leases, principally for transponder and uplink,
amounted to $20,569,000, $24,279,000 and $42,686,000 in the years ended
December 31, 1996, 1997 and 1998, respectively. Future minimum annual rental
payments under noncancelable leases during each of the five years subsequent to
December 31, 1998 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                               Capital Operating
   Years Ended December 31,                                    leases   leases
   ------------------------                                    ------- ---------
   <S>                                                         <C>     <C>
   1999.......................................................  $439   $ 44,084
   2000.......................................................    42     39,836
   2001.......................................................   --      37,616
   2002.......................................................   --      26,309
   2003.......................................................   --      23,568
   Thereafter.................................................   --      33,232
                                                                ----   --------
   Minimum lease payments.....................................   481   $204,645
                                                                ----   --------
   Less executory costs.......................................    (2)
                                                                ----
   Net minimum payments.......................................   479
   Imputed interest...........................................   (57)
                                                                ----
   Present value of minimum lease payments....................  $422
                                                                ----
</TABLE>

    In February 1995, the Company issued a Guarantee and Indemnity under which
the Company guarantees the repayment to Morgan Grenfell Limited of the sum of
(Pounds)300,000 ($498,000) relating to a loan made to one of the Company's
officers as a condition of his employment.

16. Subsequent Events

CME Transaction

    On March 29, 1999 the Company entered into a Reorganization Agreement with
Central European Media Enterprises, Ltd. ("CME"), which provides, among other
things, for (i) the acquisition by the Company of all the assets, business,
properties and rights of CME; (ii) the assumption by the Company of, and
indemnification of CME with respect to, all liabilities, obligations and
commitments of CME; (iii) the issuance, and the reservation for future
issuance, by the Company to CME of a number of SBS Common Shares, par value
$1.50 per share ("Common Shares"), equal to 0.5 times the total number of
shares of CME's Class A Common Stock and Class B Common Stock outstanding, and
issuable pursuant to the exercise of options and warrants outstanding,
immediately prior to the closing of such transaction; and (iv) the immediate
commencement of the winding up of CME and distribution of the Company's Common
Shares so received by CME to CME's shareholders. The combined company will
retain the name SBS Broadcasting SA.

    SBS shareholders will be asked to approve the Reorganization Agreement and
the transactions described therein and to confirm the issuance of up to
approximately 14.3 million shares of the Company's Common Shares in

                                     F-209
<PAGE>

                              SBS BROADCASTING SA

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

conjunction with the transaction (such number of Common shares being computed
on the basis of the treasury stock method with respect to currently outstanding
CME options). Certain SBS directors, who together own approximately 6.5% of the
Company's issued and outstanding Common Shares, entered into an agreement with
CME whereby they each agreed, among other things, to vote their shares in favor
of the transaction. Ronald S. Lauder, who controls approximately 69% of the
vote of CME, has entered into an agreement with the Company whereby he commits
to vote his CME shares in favor of the transaction. The completion of the
transactions contemplated by the Reorganization Agreement is subject to
shareholder approvals and to the satisfaction of certain additional conditions
precedent. In the event that the transaction is not consummated, the
Reorganization Agreement provides various rights to the Company and to CME,
depending upon the circumstances.

    CME owns interests in television broadcasting properties in six Central and
Eastern European countries, including NOVA TV in the Czech Republic, PRO TV in
Romania, POP TV in Slovenia, Markiza TV in the Slovak Republic, Studio 1+1 in
the Ukraine and TV3 in Hungary. CME is listed on the Nasdaq Stock Market and
trades under the symbol CETV.

                                     F-210
<PAGE>

                                 UNDERWRITING

    Goldman Sachs International and Morgan Stanley Dean Witter are the Joint
Global Coordinators and Joint Bookrunners of this offering and the concurrent
international offering.

    UPC, United and the underwriters for the U.S. offering (the "U.S.
Underwriters") named below have entered into an underwriting agreement with
respect to the B shares and ADSs being offered in the United States. Subject
to certain conditions, each U.S. Underwriter has severally agreed to purchase
the number of ordinary shares indicated in the following table. Goldman, Sachs
& Co. and Morgan Stanley & Co. Incorporated are the representatives of the
U.S. Underwriters.

<TABLE>
<CAPTION>
                             Underwriters                     Number of B Shares
                             ------------                     ------------------
      <S>                                                     <C>
      Goldman, Sachs & Co. .................................
      Morgan Stanley & Co. Incorporated.....................
                                                                  ----------
        Total...............................................
                                                                  ==========
</TABLE>

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

    The U.S. Underwriters may choose to take some or all of their B shares in
the form of ADSs.

    If the U.S. Underwriters sell more B shares than the total number set
forth in the table above, the U.S. Underwriters have an option to buy up to an
additional      B shares from UPC to cover such sales. They may exercise the
option for 30 days after the date of this prospectus. If any B shares are
purchased pursuant to the option, the U.S. Underwriters will severally
purchase B shares in approximately the same proportion as set forth in the
table above. The U.S. Underwriters may choose to take some or all of their
additional B shares in the form of ADSs.

    The following table shows the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by UPC. Such amounts are
shown assuming both no exercise and full exercise of the U.S. Underwriters'
option to purchase additional shares.

                                  Paid by UPC

<TABLE>
<CAPTION>
                                No Exercise   Full Exercise
                               -------------- -------------
               <S>             <C>            <C>
               Per B share...  (Euro)         (Euro)
               Total.........  (Euro)         (Euro)
</TABLE>

    Shares sold by the underwriters to the public will initially be offered at
the offering price set forth on the cover of this prospectus. Any B shares
sold by the underwriters to securities dealers may be sold at a discount of up
to (Euro)     (NLG    ) per B share or $      per ADS from the initial public
offering price. Any such securities dealers may resell any shares purchased
from the underwriters to certain other brokers or dealers at a discount of up
to (Euro)     (NLG    ) per B share or $     per ADS from the offering price.
If all the shares are not sold at the offering price, the representatives may
change the offering price and the other selling terms. In accordance with
customary practice in public offerings on the Amsterdam Stock Exchange,
seatholders of the Amsterdam Stock Exchange who are not underwriters may, in
the offering outside the United States, be allowed a concession not in excess
of (Euro)         (NLG     ) per B share.

    UPC and United have entered into an underwriting agreement with the
underwriters for the sale by UPC of            B shares (in the form of B
shares or ADSs) outside the United States. The terms and conditions of both
offerings are the same and the sale of shares in both offerings are
conditioned on each other. Goldman Sachs International and Morgan Stanley &
Co. International Limited are representatives of the underwriters for the
offering outside the United States (the "International Underwriters"). UPC has
granted the International Underwriters an option to purchase up to an
aggregate of an additional           B shares (in the form of B shares or
ADSs) similar to the option granted to the U.S. Underwriters.


                                      U-1
<PAGE>

    The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters also have agreed that they may sell shares between
each of the underwriting groups.

    UPC and United have agreed with the underwriters that they will not
directly or indirectly offer, other than in the offering, sell, contract to
sell, announce its intention to sell, pledge, grant any option to purchase or
otherwise dispose of, or file a registration statement or similar document
relating to, any shares or any security convertible into or exchangeable for
shares, or in any manner transfer all or a portion of the economic consequences
associated with, or any security convertible into or exchangeable for shares,
during the period from the date of this prospectus continuing through the date
that is     days after the date of this prospectus, except with the prior
written consent of the representatives. This agreement does not apply to any
existing employee benefit plans. Certain of UPC's employees have made a similar
agreement with the underwriters for a period of     days. At the date of this
prospectus, these employees hold     A shares and options under UPC's stock
option plan which represent the right to acquire about      A shares. See
"Management -- Stock Option Plans". See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.

    The representatives do not expect sales to discretionary accounts to exceed
5% of the total number of B shares (including B shares in the form of ADSs)
offered.

    While UPC's A shares are publicly traded, prior to the offerings, there has
been no public market for the B shares or ADSs. The offering price was
negotiated among UPC and the Joint Global Coordinators. Among the factors
considered in determining the offering price of the shares, in addition to
prevailing market conditions, were the price of UPC's A shares, UPC's
historical performance, estimates of UPC's business potential and earnings
prospects, an assessment of UPC's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.

    UPC has applied for the B shares to be listed on the Official Market of the
Amsterdam Stock Exchange under the symbol ["UPCB"] and the ADSs to be quoted on
the Nasdaq National Market under the symbol "UPCBY."      is acting as listing
and paying agent in connection with the listing of the ordinary shares on the
Amsterdam Stock Exchange.

    In connection with the offerings, the underwriters may purchase and sell A
shares, B shares or ADSs in the open market. These transactions may include
short sales, stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the shares
while the offerings are in progress.

    The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.

    These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the A shares, B shares or ADSs. As a result, the
prices of the A shares, the B shares or ADSs may be higher than the prices that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time. These transactions
may be effected on the Amsterdam Stock Exchange, on Nasdaq, in the over-the-
counter market or otherwise.

    UPC and United have agreed to indemnify the several underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
UPC has also agreed to pay the representatives an amount in reimbursement of
some of their expenses.

                                      U-2
<PAGE>

    This prospectus may be used by the underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the underwriters in the offering being made outside the
United States, to persons located in the United States.

    The expected payment and closing date is     , 1999. Delivery of the ADRs
evidencing the ADSs will be made in New York, New York, through the book-entry
facilities of The Depository Trust Company, against payment in U.S. dollars in
immediately available funds. Delivery of B shares will be made in book-entry
form through the facilities of NECIGEF, Morgan Guaranty Trust Company of New
York, Brussels office, as operator of the Euroclear System, and Cedelbank,
against payment in euros in immediately available funds.

                                      U-3
<PAGE>

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

  No dealer, salesman or other person has been authorized to give any informa-
tion or to represent anything not contained in this prospectus. You must not
rely on any unauthorized information or representations. This prospectus is an
offer to sell or to buy only the shares offered hereby, but only under circum-
stances and in jurisdictions where it is lawful to do so. The information con-
tained in this prospectus is only current as of its date.

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

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Prospectus Summary.......................................................   1
Risk Factors.............................................................  13
Disclosure Regarding Forward-Looking Statements..........................  23
Use of Proceeds..........................................................  24
Dividend Policy..........................................................  24
Exchange Rate Data.......................................................  25
Capitalization...........................................................  26
Market Prices of our A Shares............................................  27
Unaudited Pro Forma Condensed
 Consolidated Financial Data.............................................  28
Selected Consolidated Financial Data.....................................  41
UPC Management's Discussion and Analysis of Financial Condition and
 Results of Operations...................................................  43
@Entertainment Management's Discussion and Analysis of Financial
 Condition and Results of Operations.....................................  75
Business.................................................................  92
Regulation............................................................... 144
Management............................................................... 162
Security Ownership of Certain Beneficial Owners and Management........... 172
Certain Transactions and Relationships................................... 173
Description of Share Capital............................................. 177
Summary of Additional Material Provisions of the Articles of Association
 and Other Matters....................................................... 180
Description of American Depositary Shares................................ 182
Taxation................................................................. 190
Shares Eligible for Future Sales......................................... 198
Legal Matters............................................................ 199
Experts.................................................................. 199
Enforcement of Civil Liabilities......................................... 200
Available Information.................................................... 201
Amsterdam Stock Exchange Listing......................................... 201
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>

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

                               United Pan-Europe
                              Communications N.V.

                               Ordinary Shares B
                                 in the form of
                           American Depositary Shares
                              or Ordinary Shares B

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


[United Pan-Europe Communications Logo]

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

                         Joint Global Coordinators and
                               Joint Bookrunners

                              Goldman, Sachs & Co.
                           Morgan Stanley Dean Witter

                      Representatives of the Underwriters

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

    Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.

Item 13. Other Expenses of Issuance and Distribution

    The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the Commission registration fee, are estimated:

<TABLE>
      <S>                                                                <C>
      Securities and Exchange Commission registration fee............... $2,780
      NASD and blue sky fees............................................      *
      Depositary fees and expenses......................................      *
      Legal fees and expenses...........................................      *
      Accounting fees...................................................      *
      Printing and engraving expenses...................................      *
      Miscellaneous.....................................................      *
                                                                         ------
        Total........................................................... $    *
                                                                         ======
</TABLE>
- --------
* To be completed by amendment

    The above expenses will be borne by the Company.

Item 14. Indemnification of Directors and Officers

    The Company has entered into indemnification agreements with its directors
and executive officers, providing for indemnification by the Company against
any liability to which a director or executive officer may be subject for
judgments, settlements, penalties, fines and expenses of defense (including
attorneys' fees, bonds and costs of investigation), arising out of or in any
way related to acts or omissions as a member of the Management or Supervisory
Board, or an executive officer, or in any other capacity in which services are
rendered to the Company or its subsidiaries. The Company believes that the
indemnification agreements will assist the Company in attracting and retaining
qualified individuals to serve as directors and executive officers. The
agreements provide that a director or officer is not entitled to
indemnification under such agreements (i) if indemnification is expressly
prohibited under applicable law, (ii) for certain violations of securities laws
or (iii) for certain claims initiated by the officer or director. Generally,
under Dutch law, a director will not be held personally liable for decisions
made with reasonable business judgment, absent self dealing. In addition,
indemnification may not be available to directors or officers under Dutch law
if any act or omission by a director or officer would qualify as willful
misconduct or gross negligence. Due to the lack of applicable case law, it is
not clear whether indemnification is available in case of breach of securities
laws of the United States.

Item 15. Previous Unregistered Sales

    On July 13, 1995, United and Philips contributed their respective ownership
interests in European and Israeli multi-channel television systems to UPC.
United also contributed $78.2 million of cash to UPC and issued directly to
Philips approximately 3.17 million shares (with a market value at issuance of
approximately $50.0 million) of United's Class A Common Stock as additional
consideration for the transaction. In consideration for United's contributions,
the Company issued 100,000 A shares of UPC, to United. In consideration for
Philips' contribution, the Company

                                      II-1
<PAGE>

issued to Philips 60,000 A shares of UPC and approximately $133.8 million of
convertible subordinated, pay-in-kind notes in two series due January 1, 2005
(the "UPC PIK Notes"). On December 11, 1997, the accreted amount of the UPC PIK
Notes was approximately $154.1 million, which the Company redeemed in cash and
converted into shares in connection with the UPC Acquisition. Philips also held
40,000 A shares of UPC which were issued in connection with the Company's
formation in 1990. The nominal value of all of the above UPC shares was
NLG1,000 each.

    On July 26, 1996, the Company effected a change in the nominal value of its
shares from NLG1,000 each to NLG1 each resulting in 1000-to-1 stock split.
Subsequently, the Company issued 26.9 million A shares, nominal value NLG1
each, to United and Philips, respectively, against conversion of UPC's capital
reserves. On June 18, 1996, UPC adopted a stock option plan for certain
employees of UPC and its subsidiaries. Each of United and Philips transferred
2.0 million A shares to the Stichting Administratiekantoor UPC, which
administers the UPC Stock Option Plan. See "Management--Stock Options Plans."

    On December 11, 1997, United acquired Philips' entire interest in UPC. As
part of the UPC Acquisition, (i) UPC purchased from Philips the 3.17 million
shares of Class A Common Stock of United owned by Philips; (ii) United
purchased from Philips 8,747,736 A shares of UPC; (iii) UPC purchased
indirectly from Philips 16,252,264 A shares of UPC; (iv) United purchased from
Philips approximately $77.0 million of the UPC PIK Notes, which the Company
converted into 10,120,174 A shares of UPC; (v) UPC redeemed in cash the
approximate $77.0 million remaining accreted amount of the UPC PIK Notes held
by Philips; and (vi) United paid UPC an amount, which UPC in turn paid to
Philips in lieu of the issuance of a stock appreciation right by UPC.

    On December 31, 1998, the Company purchased from United, in exchange for
4,220,227 A shares, United's 50% voting and 46.3% economic interest in Monor
and its interest in the Tara programming venture.

    On February 17, 1999, the Discount Group closed the acquisition of
1,558,654 A shares issued upon the exercise of the option granted in connection
with a loan made to us in November 1998.

    The foregoing sales by the Company of its securities were made in reliance
one or more exemptions from registration under the Securities Act pursuant to
Section 4(2) thereof as transaction not involving a public offering.

Item 16. Exhibits and Financial Statement Schedules

    (a) Exhibits

<TABLE>
 <C>  <S>
  1.1 Form of Underwriting Agreement*
  3.1 Amended and Restated Articles of Association of UPC*
  4.1 Form of B Share Depositary Agreement*
  4.2 The Articles of Association of UPC is included as Exhibit 3.1.*
  5.1 Opinion of Loeff Claeys Verbeke as to validity of B shares*
  8.1 Opinion of Holme Roberts & Owen LLP as to certain tax matters*
  8.2 Opinion of Arthur Andersen as to certain tax matters*
 10.1 Amended and Restated Securities Purchase and Conversion Agreement dated
      as of December 1,1997, by and among Philip Media B.V. ("Philips Media"),
      Philips Media Network B.V. ("Phillips Networks"), Joint Venture, Inc.
      ("JVI") and UPC(1)
 10.2 Indenture dated as of July 30, 1999, between UPC and Citibank N.A, as
      Trustee.*
 10.3 Indenture dated as of February 5, 1998, between United International
      Holdings, Inc. ("United") and Firstar Bank of Minnesota, N.A.
      ("Firstar")(2)
</TABLE>

                                      II-2
<PAGE>

<TABLE>
 <C>   <S>
 10.4  Indenture dated as of April 29, 1999, between United and Firstar(3)
 10.5  Option Agreement dated November 5, 1998, among UPC, DIC and PEC(4)
 10.6  Amendment to Option Agreement dated February 4, 1999, between UPC, DIC
       and PEC(5)
 10.7  Form of Registration Rights Agreement among UPC, DIC and PEC(4)
 10.8  Form of Shareholders Agreement among UPC, DIC and PEC(4)
 10.9  Sales Agreement dated December 17, 1997, between Stichting Combivisie
       Regio, Setelco B.V. and UPC(6)
 10.10 Purchase Agreement dated November 6, 1998, between Binan Investments
       B.V., UA-UII, Inc. and UA-UII Management Inc.(4)
 10.11 Shareholders Agreement dated July 6, 1995, between The Municipality of
       Amsterdam, A2000 Holding N.V., and Kabeltelevisie Amsterdam B.V.(6)
 10.12 Consent Agreement dated September 27, 1997, between United and Philips
       Communications B.V., US West International, B.V., Philips Media, United
       and JVI(4)
 10.13 Syndicate Agreement dated June 26, 1995, concluded between the
       Osterreichische Philips Industrie Ges.m.b.H. Cable-Networks Austria
       Holding B.V. and Kabel-TV-Wien Ges.m.b.H.(7)
 10.14 Articles of Association of Telekabel Wien Gesellschaft m.b.H.(7)
 10.15 Agreement dated November 30, 1993, between Kabel-TV Wien Gesellschaft
       m.b.H. and Telekabel Wien Gesellschaft m.b.H.(7)
 10.16 Rules of Procedure of Telekabel Wien Gesellschaft m.b.H., as amended on
       April 10, 1995(8)
 10.17 Agreement dated November 30, 1977, between Kabel-TV Wien and Telekabel
       Fernsehnetz-Betriebsgesellschaft m.b.H.(8)
 10.18 Policy Agreement dated November 30, 1977, between Kabel-TV Wien and
       Osterreichishe Philips Industrie Gesellschaft m.b.H.(8)
 10.19 Tax Liability Agreement dated October 7, 1997, between UPC, Philips
       Media, Philips Coordination Center, Philips Networks, United, and JVI(4)
 10.20 Agreement dated April 2, 1998, for the contribution of the Dutch Cable
       Assets of UPC and NUON to UTH(6)
 10.21 United Pan-Europe Communications N.V. Phantom Stock Option Plan, March
       20, 1998(4)
 10.22 Amended Stock Option Plan dated February 8, 1999, between UPC and
       Stichting Administratie Kantoor UPC(9)
 10.23 Form of Master Seconded Employee Services Agreement(5)
 10.24 Form of United Registration Rights Agreement(10)
 10.25 Form of United Management Services Agreement(5)
 10.26 Consulting Agreement dated June 1, 1995, between United and Mark L.
       Schneider(10)
 10.27 Agreement dated as of February 11, 1999 between United and UPC(9)
 10.28 Promissory Note dated January 25, 1999, with UPC as borrower, and UIH
       Europe, Inc. as holder, in the principal amount of US$100,000,000(6)
 10.29 Share Purchase Agreement dated January 19, 1999, by and between UPC,
       Belmarken Holding B.V., NUON, N.V. Kraton and UTH, as amended(5)
 10.30 Final Amendment to Share Purchase Agreement dated as of February 17,
       1999(11)
 21.1  Subsidiaries of UPC*
 23.1  Consent of Arthur Andersen (UPC)
 23.2  Consent of Arthur Andersen (United TeleKabel Holding N.V.)
 23.3  Consent of PricewaterhouseCoopers N.V. (N.V. TeleKabel Beheer)
 23.4  Consent of Arthur Andersen (N.V. TeleKabel Beheer)
 23.5  Consent of KPMG Polska Sp.zo.o (@Entertainment)
 23.6  Consent of Arthur Andersen (A2000 Holding N.V.)
 23.7  Consent of Arthur Andersen (Kabel Plus, a.s.)
 23.8  Consent of Ernst & Young AB (NBS Nordic Broadband Services AB)
 23.9  Consent of PriceWaterhouse (StjarnTVnatet AB)
</TABLE>

                                      II-3
<PAGE>

<TABLE>
 <C>   <S>
 23.10 Consent of Ernst & Young AB (StjarnTVnatet AB)
 23.11 Consent of Ernst & Young (SBS Broadcasting SA)
 24.1  Powers of Attorney
</TABLE>
- --------
*   To be filed by amendment.
 (1) Incorporated by reference from Form 8-K filed by United, dated December
     11, 1997 (File No. 0-21974).
 (2) Incorporated by reference from Form S-4 Registration Statement filed by
     United; dated March 3, 1998 (File No. 333-47).
 (3) Incorporated by reference from Form 8-K filed by United, dated April 29,
     1999 (File No. 0-21974).
 (4) Incorporated by reference from Form S-1 Registration Statement filed by
     UPC, dated November 24, 1998 (File No. 333-67895).
 (5) Incorporated by reference from Amendment No. 8 to Form S-1/A Registration
     Statement filed by UPC, dated February 10, 1999 (File No. 333-67895).
 (6) Incorporated by reference from Amendment No. 4 to Form S-1/A Registration
     Statement filed by UPC, dated January 25, 1999 (File No. 333-67895).
 (7) Incorporated by reference from Amendment No. 2 to Form S-1/A Registration
     Statement filed by UPC, dated January 13, 1999 (File No. 333-67895).
 (8) Incorporated by reference from Amendment No. 9 to Form S-1/A Registration
     Statement filed by UPC, dated February 11, 1999 (File No. 333-67895).
 (9) Incorporated by reference from Form 10-K filed by UPC for the year ended
     December 31, 1999 (File No. 000-25365).
(10) Incorporated by reference from Amendment No. 6 to Form S-1/A Registration
     Statement filed by UPC, dated February 4, 1999 (File No. 333-67895).
(11) Incorporated by reference from Form 8-K filed by UPC, dated March 4, 1999
     (File No. 000-25365).

                                      II-4
<PAGE>

    (b) Financial Statement Schedules

<TABLE>
<S>                                                                         <C>
FINANCIAL STATEMENT SCHEDULE I

  Independent Auditors' Report on Schedules................................ S-1

  Condensed Financial Information of United Pan-Europe Communications N.V.

  Condensed Information as to the Financial Condition of United Pan-Europe
   Communications N.V...................................................... S-2

  Condensed Information as to the Operations of United Pan-Europe
   Communications N.V...................................................... S-3

  Condensed Information as to the Cash Flows of United Pan-Europe
   Communications N.V...................................................... S-4

  Note to Schedule......................................................... S-5

FINANCIAL STATEMENT SCHEDULE II

  Valuation and Qualifying Accounts........................................ S-7
</TABLE>

Item 17. Undertakings

    Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment of the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by a controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by a
final adjudication of such issue.

    The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

   The undersigned registrant hereby undertakes that:

  (i) For purposes of determining any liability under the Securities Act of
      1933, the information omitted from the form of prospectus filed as part
      of this registration statement in reliance upon Rule 430A and contained
      in the form of prospectus filed by the registrant pursuant to Rule
      424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
      be a part of this registration statement as of the time it was declared
      effective.

  (ii) For the purpose of determining any liability under the Securities Act
       of 1933, each post-effective amendment that contains a form of
       prospectus shall be deemed to be a new registration statement relating
       to the securities offered therein, and the offering of such securities
       at that time shall be deemed to be the initial bona fide offering
       thereof.

                                      II-5
<PAGE>

                                   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.

                                      United Pan-Europe Communications N.V.
                                      a Dutch Public limited liability company


                                      By:     /s/ Mark L. Schneider
                                         --------------------------------------
                                         Mark L. Schneider, Chief Executive
                                          Officer
   August 2, 1999

   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.

            Signature                    Title                    Date

   /s/ Mark L. Schneider          Chairman of Board of      August 2, 1999
- --------------------------------   Management and Chief
       Mark L. Schneider           Executive Officer

               *                  Vice-Chairman of the      August 2, 1999
- --------------------------------   Board of Management
        John F. Riordan

               *                  Senior Vice President,    August 2, 1999
- --------------------------------   Legal and General
    Anton H.E. v. Voskuijlen       Counsel

               *                  Managing Director,        August 2, 1999
- --------------------------------   Eastern Europe
        Nimrod J. Kovacs

               *                  Managing Director,        August 2, 1999
- --------------------------------   Strategy, Acquisitions
     Charles H. R. Bracken         and Corporate
                                   Development

               *                  Managing Director,        August 2, 1999
- --------------------------------   Finance and Accounting
        Ray D. Samuelson           (Chief Accounting
                                   Officer)

               *                  Chairman of Supervisory   August 2, 1999
- --------------------------------   Board and Authorized
        Michael T. Fries           U.S. Representative

                                  Supervisory Board         August  , 1999
- --------------------------------   Member
        Richard De Lange

               *                  Supervisory Board         August 2, 1999
- --------------------------------   Member
         Tina M. Wildes

               *                  Supervisory Board         August 2, 1999
- --------------------------------   Member
       Ellen P. Spangler

                                  Supervisory Board         August  , 1999
- --------------------------------   Member
       Antony P. Ressler

               *                  Supervisory Board         August 2, 1999
- --------------------------------   Member
          John P. Cole



*By: /s/ Mark L. Schneider
    ----------------------------
       Mark L. Schneider,
        attorney-in-fact

                                      II-6
<PAGE>

                   INDEPENDENT AUDITORS' REPORT ON SCHEDULES

To United Pan-Europe Communications N.V.

    We have audited, in accordance with auditing standards generally accepted
in The Netherlands, which are substantially the same as those generally
accepted in the United States of America, the consolidated financial statements
of United Pan-Europe Communications N.V. included in this Prospectus and have
issued our report thereon dated March 29, 1999. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The following schedules are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements as indicated in our report with respect thereto and, in our opinion,
based on our audit, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.

                                        Arthur Andersen

Amstelveen, The Netherlands,
March 29, 1999

                                      S-1
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                                  PARENT ONLY

                                   SCHEDULE I
     Condensed Information as to the Financial Condition of the Registrant
  (Stated in thousands of Dutch guilders, except share and per share amounts)

<TABLE>
<CAPTION>
                                                   As of December 31,
                                          -------------------------------------
                                                 1997               1998
                                          ------------------ ------------------
                                          (Post-Acquisition) (Post-Acquisition)
<S>                                       <C>                <C>
ASSETS:
Current assets
  Cash and cash equivalents.............         43,306              7,048
  Related party receivables.............         36,364            115,633
  Other receivables, net................         18,690              2,330
  Other current assets..................          2,761              7,938
                                              ---------          ---------
    Total current assets................        101,121            132,949
Investments in, loans and other advances
 to affiliated companies, accounted for
 under the equity method, net...........      1,110,080            978,905
Property, plant and equipment, net of
 accumulated depreciation of 23 and 460,
 respectively...........................          1,022                982
Deferred financing costs, net of
 accumulated amortization of 110 and
 625, respectively......................         16,813             15,617
Non-current restricted cash and other
 assets.................................         48,541                650
                                              ---------          ---------
    Total assets........................      1,277,577          1,129,103
                                              =========          =========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
  Related party accounts payable........         34,402              8,719
  Accrued liabilities...................         12,776             56,901
  Note payable to shareholder...........            --             119,070
  Short-term debt.......................            --              34,020
  Short-term debt, related party........        228,097             39,125
                                              ---------          ---------
    Total current liabilities...........        275,275            257,835
Long-term debt..........................        490,468            620,000
Long-term Notes payable to shareholder..            --                 --
Other related party debt................         29,609             26,349
Deferred compensation...................          4,818            325,302
Deferred taxes and other................         37,602                140
                                              ---------          ---------
    Total liabilities...................        837,772          1,203,277
                                              ---------          ---------
  Shareholders' equity
  Common stock, 0.667 par value,
   200,000,000 shares authorized,
   81,000,000 shares issued.............         61,348             61,497
  Additional paid-in capital............        650,864            672,016
  Deferred compensation.................            --                 --
  Other cumulative comprehensive income
   (loss)...............................          1,807             29,748
  Accumulated deficit...................       (163,829)          (727,050)
  Treasury stock, at cost, 9,198,135
   shares of common stock...............       (110,385)          (110,385)
                                              ---------          ---------
    Total shareholders' equity..........        439,805            (74,174)
                                              ---------          ---------
    Total liabilities and shareholders'
     equity.............................      1,277,577          1,129,103
                                              =========          =========
</TABLE>

                                      S-2
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                                  PARENT ONLY

                                   SCHEDULE I

          Condensed Information as to the Operations of the Registrant
  (Stated in thousands of Dutch guilders, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                   For the Years Ended December 31,
                                                                        ------------------------------------------------------
                                                                              1996              1997               1998
                                                                        ----------------- ----------------- ------------------
                                                                        (Pre-Acquisition) (Pre-Acquisition) (Post-Acquisition)
<S>                                                                     <C>               <C>               <C>
Management fee income from related parties.............................         4,433             3,088             10,648
Corporate general and administrative expense...........................        (1,679)          (11,605)          (323,309)
Depreciation and amortization..........................................          (335)             (736)              (437)
                                                                           ----------        ----------         ----------
  Net operating loss...................................................         2,419            (9,253)          (313,098)
Interest income........................................................         1,898             2,830              1,919
Interest income, related party.........................................        27,353            44,867             62,359
Interest expense.......................................................        (8,418)          (15,143)            (1,187)
Interest expense, related party........................................       (27,511)          (33,362)           (58,326)
Foreign exchange loss, net.............................................       (20,236)          (12,864)           (14,535)
                                                                           ----------        ----------         ----------
  Net loss before income taxes and other items.........................       (24,495)          (22,925)          (322,868)
Share in results of affiliated companies, net..........................       (64,120)         (159,571)          (240,353)
Income taxes...........................................................           --              1,454                --
                                                                           ----------        ----------         ----------
  Net loss.............................................................       (88,615)         (181,042)          (563,221)
                                                                           ==========        ==========         ==========
Basic and diluted net loss per common share............................         (0.96)            (1.98)             (6.80)
                                                                           ==========        ==========         ==========
Weighted-average number of common shares outstanding...................    92,062,589        91,533,381         82,869,342
- --------------------------------------------------
                                                                           ==========        ==========         ==========
</TABLE>

                                      S-3
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                                  PARENT ONLY

                                   SCHEDULE I

          Condensed Information as to the Cash Flows of the Registrant
                    (Stated in thousands of Dutch guilders)

<TABLE>
<CAPTION>
                                     For the Years Ended December 31,
                          ------------------------------------------------------
                                1996              1997               1998
                          ----------------- ----------------- ------------------
                          (Pre-Acquisition) (Pre-Acquisition) (Post-Acquisition)
<S>                       <C>               <C>               <C>
Cash flows from
 operating activities:
Net loss................       (88,615)         (181,042)          (563,221)
Adjustments to reconcile
 net loss to net cash
 flows from operating
 activities:
 Depreciation and
  amortization..........           335               736                437
 Share in results of
  affiliated companies,
  net...................        67,154           169,961            240,353
 Foreign exchange loss,
  net...................        20,236            12,864             14,535
 Compensation expense
  related to stock
  options...............           --              4,818            320,484
 Other..................        (1,545)           (5,444)            (7,877)
Changes in assets and
 liabilities:
 (Increase) decrease in
  receivables...........        86,309            (6,359)           (12,308)
 Increase in other non-
  current assets........           (27)           (1,457)            (1,538)
 Increase (decrease) in
  other current
  liabilities...........        22,022            46,600             20,677
 Increase (decrease) in
  deferred taxes and
  other.................           --              2,303              1,117
                              --------          --------           --------
Net cash flows from
 operating activities...       105,869            42,980             12,659
                              --------          --------           --------
Cash flows from
 investing activities:
Investments in, loans to
 and advances to
 affiliated companies,
 net....................       (44,805)         (294,532)          (498,641)
Capital expenditures....        (2,249)           (1,308)            (5,192)
Deposit to acquire
 minority interest in
 subsidiary.............           --            (47,000)            47,000
Sale of affiliated
 companies..............           --             11,070                --
Dividends received......           --                --               8,977
Loans repaid by
 subsidiaries...........           --            350,250            175,692
                              --------          --------           --------
Net cash flows from
 investing activities...       (47,054)           18,480           (272,164)
                              --------          --------           --------
Cash flows from
 financing activities:
Proceeds from short-term
 borrowings.............           --             91,415                --
Proceeds from short-term
 borrowings, related
 party..................           --            228,097            129,925
Proceeds from long-term
 borrowings.............           --            498,699            131,020
Deferred financing
 costs..................           --            (17,139)              (515)
Repayments long and
 short-term borrowings..      (150,158)         (377,443)           (37,183)
Redemption of
 convertible loans......           --           (170,171)               --
Purchase shares from
 shareholder............           --           (292,561)               --
                              --------          --------           --------
Net cash flows from fi-
 nancing activities.....      (150,158)          (39,103)           223,247
                              --------          --------           --------
Net (decrease) increase
 in cash and cash equiv-
 alents.................       (91,343)           22,357            (36,258)
Cash and cash equiva-
 lents at beginning of
 period.................       112,292            20,949             43,306
Cash contributed upon
 formation..............           --                --                 --
                              --------          --------           --------
Cash and cash equiva-
 lents at end of peri-
 od.....................        20,949            43,306              7,048
                              ========          ========           ========
Non-cash investing and
 financing activities:
Issuance of shares upon
 conversion of PIK
 Notes..................           --            169,899                --
                              --------          --------           --------
Supplemental cash flow
 disclosures:
Cash paid for interest..        (9,271)          (52,447)           (16,561)
                              ========          ========           ========
Cash received for inter-
 est....................        26,277            25,091             27,529
                              ========          ========           ========
</TABLE>

                                      S-4
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                              NOTE TO PARENT ONLY

                                   SCHEDULE I

                        AS OF DECEMBER 31, 1997 AND 1998
            (Monetary amounts stated in thousands of Dutch guilders,
                      except share and per share amounts)

1. Organization and Nature of Operations

    United Pan-Europe Communications N.V., formerly known as United and Philips
Communications B.V. ("UPC" or the "Company") was formed for the purpose of
acquiring and developing multi-channel television and telecommunications
systems in Europe. On July 13, 1995, United International Holdings, Inc.
("UIH"), a United States of America corporation, and Philips Electronics N.V.
("Philips"), contributed their respective ownership interests in European and
Israeli multi-channel television systems to UPC. Philips contributed to UPC its
95% interest in cable television systems in Austria, its 100% interest in cable
television systems in Belgium, and its minority interests in multi-channel
television systems in Germany, The Netherlands (KTE) and France (Citecable).
UIH contributed its interests in multi-channel television systems in Israel,
Ireland, the Czech Republic, Malta, Norway, Hungary, Sweden and Spain. UIH also
contributed United States dollars ("$")78.2 million in cash (including accrued
interest of $3.2 million) to UPC and issued to Philips 3,169,151 shares of its
Class A Common Stock having a value of $50.0 million (at date of closing). In
addition, UPC issued to Philips $133.6 million of convertible subordinated pay-
in-kind notes (the "PIK Notes"). As a result of this transaction, UIH and
Philips each owned a 50% economic and voting interest in UPC.

    On December 11, 1997, UIH acquired Philips' 50% interest in UPC (the "UPC
Acquisition"), thereby making it an effectively wholly-owned subsidiary of UIH
(subject to certain employee equity incentive compensation arrangements)
through its wholly-owned subsidiary UIH Europe, Inc. ("UIHE"). The entity's
name was changed to United Pan-Europe Communications N.V., and its legal seat
was transferred from Eindhoven to Amsterdam. Through its cable-based
communications networks in 10 countries in Europe and in Israel, UPC currently
offers cable television services and is further developing and upgrading its
network to provide digital video, voice and Internet/data services in Western
European markets.

    As part of the UPC Acquisition, (i) UPC purchased the 3,169,151 shares of
Class A Common Stock of UIH held by Philips (66,800), (ii) UIH purchased
169,899 of the accreted amount of UPC's PIK Notes and redeemed them for
15,180,261 shares of UPC, (iii) UPC repaid to Philips the remaining 170,371
accreted amount of the PIK Notes (339,800), (iv) UIH purchased 13,121,604
shares of UPC directly from Philips, and (v) UPC repurchased Philips' remaining
equity interest in UPC (24,378,396 shares). The UPC Acquisition was financed
with proceeds from a long-term revolving credit facility through UPC with a
syndicate of banks (305,200) (the "Senior Revolving Credit Facility"), a bridge
bank facility through a subsidiary of UPC $111,200 (224,000) and a cash
investment by UIH of 327,400. Approximately 479,000 drawn on the Senior
Revolving Credit Facility was used to repay existing debt of UPC in conjunction
with the UPC Acquisition.

    UIH's acquisition of Philips' interest in UPC was accounted for as a step
acquisition under purchase accounting. As a result of UPC becoming effectively
wholly owned by UIH, such purchase accounting adjustments, along with existing
basis differences, were pushed down to the financial statements of UPC and a
new basis of accounting was established for the UPC net assets acquired by UIH.
As of December 11, 1997, the proportional net assets of UPC acquired by UIH
were recorded at fair market value based on the purchase price paid by UIH,
along with additional basis differences at the UIH level existing as of that
date. The total purchase accounting adjustments of 514,758 were allocated to
UPC's underlying net assets.


                                      S-5
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                              NOTE TO PARENT ONLY

                             SCHEDULE I (Continued)

    As a result of the UPC Acquisition and the associated push-down of UIH
basis on December 11, 1997, the condensed information as to financial position
of registrant as of December 31, 1997 and December 31, 1998 is presented on a
"post-acquisition" basis. The condensed information as to the operations and
the cash flows of the registrant for the year ended December 31, 1997 include
the post-acquisition results of the Company for the period from December 11,
1997 through December 31, 1997, which reflects 1,980 of new basis depreciation
and amortization resulting from push-down accounting as well as approximately
4,034 of interest expense from purchase related indebtedness which is included
in the Parent's share in result of affiliated companies, net. Due to
immateriality, the entire fiscal year ended December 31, 1997 is presented as
"pre-acquisition" in the accompanying condensed information as to the
operations and cash flows of registrant.

                                      S-6
<PAGE>

                     UNITED PAN-EUROPE COMMUNICATIONS N.V.

                       VALUATION AND QUALIFYING ACCOUNTS

                                  SCHEDULE II
                        (In thousands of Dutch Guilders)

<TABLE>
<CAPTION>
Column A                 Column B  Column C   Column D     Column E    Column F
- --------                 --------- -------- ------------ ------------- ---------
                                         Additions
                                   ---------------------
                          Balance
                            at     Charged                              Balance
                         Beginning    to                               at End of
Description              of Period Expense  Acquisitions Deductions(1)  Period
- -----------              --------- -------- ------------ ------------- ---------
<S>                      <C>       <C>      <C>          <C>           <C>
Allowance for doubtful
 accounts receivable:
  Year ended December
   31, 1998.............   6,445    2,021      1,128          (334)      9,260
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1997.............   5,835    2,093        543        (2,026)      6,445
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1996.............   5,342      907        835        (1,249)      5,835
                           =====    =====      =====        ======       =====
  Six months ended
   December 31, 1995....     --       --       5,342           --        5,342
                           =====    =====      =====        ======       =====
Allowance for costs to
 be reimbursed:
  Year ended December
   31, 1998.............   2,209      109        --         (2,318)        --
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1997.............   4,620    1,221        --         (3,632)      2,209
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1996.............   5,303      794        --         (1,477)      4,620
                           =====    =====      =====        ======       =====
  Six months ended
   December 31, 1995....   4,137    1,166        --            --        5,303
                           =====    =====      =====        ======       =====
Allowance for
 Investments in
 Affiliated Companies:
  Year ended December
   31, 1998.............     --       --         --            --          --
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1997.............   4,186      --         --         (4,186)        --
                           =====    =====      =====        ======       =====
  Year ended December
   31, 1996.............   4,946      --         --           (760)      4,186
                           =====    =====      =====        ======       =====
  Six months ended
   December 31, 1995....     --     4,946        --            --        4,946
                           =====    =====      =====        ======       =====
</TABLE>
- --------
(1) Represents uncollectible balances written off to the allowance account and
    the effect of currency translation adjustments.

                                      S-7

<PAGE>

                                                                    Exhibit 23.1

As independent public auditors, we hereby consent to the use in this
Registration Statement of our reports dated March 29, 1999, on United
Pan-Europe Communications N.V. as of December 31, 1998 and 1997 and for the
years ended December 31, 1998, 1997 and 1996, included in this Registration
Statement, and to all references to our Firm included in this Registration
Statement.

                                 Arthur Andersen


Amstelveen, The Netherlands
August 2, 1999

<PAGE>

                                                                    Exhibit 23.2


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report dated March 19, 1999, on United Telekabel
Holding N.V. as of December 31, 1998, and for the period from August 6, 1998,
(commencement of operations) until December 31, 1998, included in this
Registration Statement, and to all references to our Firm included in this
Registration Statement.

                                 Arthur Andersen


Amstelveen, The Netherlands
August 2, 1999

<PAGE>

                                                                    Exhibit 23.3


We hereby consent to the use in the Registration Statement of United Pan-Europe
Communications N.V. on Form S-1 of our report dated September 11, 1998, relating
to the financial statements of N.V. Te1ekabel Beheer, which appear in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.

Arnhem, The Netherlands
August 2, 1999
PricewaterhouseCoopers N.V.

<PAGE>

                                                                    Exhibit 23.4


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report dated February 26, 1999, on N.V. Te1ekabel
Beheer as of December 31, 1998, and for the year then ended, included in this
Registration Statement, and to all references to our Firm included in this
Registration Statement.

                                 Arthur Andersen


Amstelveen, The Netherlands
August 2, 1999

<PAGE>

                                                                    Exhibit 23.5

The Board of Directors
@Entertainment,Inc.:

We hereby consent to the use in this Registration Statement of our reports,
dated March 29, 1999, on @Entertainment, Inc.'s financial statements as of
December 31, 1998 and 1997 and for the years ended December 31, 1998, 1997 and
1996, included in this Registration Statement, and to the reference to our Firm
under the heading "Experts" in the prospectus.

                                            KPMG


Warsaw, Poland
August 2, 1999

<PAGE>

                                                                    Exhibit 23.6


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report dated March 9, 1999, on A2000 Holding N.V.
as of December 31, 1998 and 1997, and for the years then ended, included in this
Registration Statement, and to all references to our Firm included in this
Registration Statement.

                                            Arthur Andersen


Amstelveen, The Netherlands
August 2, 1999

<PAGE>

                                                                    Exhibit 23.7

As independent public auditors, we hereby consent to the use in this
Registration Statement of our report dated June 18 1999 except for Note 15, as
to which the date is June 22, 1999, on Kabel Plus a.s. as of December 31, 1998
and 1997 and for the years then ended, included in this Registration Statement,
and to all references to our Firm included in this Registration Statement.

                                            Arthur Andersen, s.r.o.


Prague, Czech Republic
August 2, 1999

<PAGE>

                                                                    Exhibit 23.8


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report, dated May 4, 1999, on NBS Nordic Broadband
Services AB for the year ended December 31, 1998, included in this Registration
Statement, and to all references to our Firm included in this Registration
Statement.

                                            Ernst & Young AB

Stockholm, Sweden
July 30, 1999

<PAGE>

                                                                    Exhibit 23.9

The Board of Directors
StjarnTVnatet AB:

We consent to the inclusion in this Registration Statement on Form S-1 for the
offering of ordinary shares B of United Pan-Europe Communications N.V. of our
report dated 29 May 1998, on our audit of the financial statements of
StjarnTVnatet AB as of 31 March 1998, and for the year ended 31 March 1998. We
also consent to the reference to our firm under the caption "Experts".

Stockholm, Sweden
2 August 1999
PricewaterhouseCoopers

<PAGE>

                                                                   Exhibit 23.10


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report, dated July 2, 1999, on the US GAAP
reconciliation for StjarnTVnatet AB for the year ended March 31, 1998, included
in this Registration Statement, and to all references to our Firm included in
this Registration Statement.

                                            Ernst & Young AB

Stockholm, Sweden
July 30, 1999

<PAGE>

                                                                   Exhibit 23.11


As independent public auditors, we hereby consent to the use in this
Registration Statement of our report, dated February 26, 1999, on SBS
Broadcasting SA (formerly Scandinavian Broadcasting System SA) as of December
31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998,
included in this Registration Statement, and to all references to our Firm
included in this Registration Statement.

                                       Ernst & Young
                                       Statsautoriseret Revlsionsaktiesclskab

Copenhagen, Denmark
July 30, 1999

<PAGE>

                                                                    Exhibit 24.1

                               POWER OF ATTORNEY

    KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark L. Schneider, Anton H.E. v. Voskuijlen,
John F. Riordan, and Ray D. Samuelson, and each of them, his or her attorneys-
in-fact, with full power of substitution, for him or her in any and all
capacities, to sign a registration statement to be filed with the Securities
and Exchange Commission (the "Commission") on Form S-1 in connection with the
registration by United Pan-Europe Communications N.V., a Dutch Public limited
liability company (the "Company"), of Ordinary Shares B that are to be offered
and sold in the form of Ordinary Shares B or American Depository Shares, and
all amendments (including post-effective amendments) thereto, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Commission; and to sign all documents in connection with the
qualification and issuance of such shares with Blue Sky authorities; granting
unto said attorneys-in-fact full power and authority to perform any other act
on behalf of the undersigned required to be done in the premises, hereby
ratifying and confirming all that said attorneys-in-fact may lawfully do or
cause to be done by virtue hereof.

<TABLE>
<CAPTION>
         Date                                         Signature
         ----                                         ---------
<S>                                     <C>
  Date: July 29, 1999                       /s/ Charles H. R. Bracken
                                        --------------------------------------
                                                Charles H. R. Bracken

  Date: July 30, 1999                            /s/ John P. Cole
                                        --------------------------------------
                                                     John P. Cole
  Date: July  , 1999
                                        --------------------------------------
                                                   Richard De Lange

  Date: July 30, 1999                          /s/ Michael T. Fries
                                        --------------------------------------
                                                   Michael T. Fries

  Date: July 29, 1999                          /s/ Nimrod J. Kovacs
                                        --------------------------------------
                                                   Nimrod J. Kovacs
  Date: July  , 1999
                                        --------------------------------------
                                                  Antony P. Ressler

  Date: July 29, 1999                          /s/ John F. Riordan
                                        --------------------------------------
                                                   John F. Riordan

  Date: July 29, 1999                          /s/ Ray D. Samuelson
                                        --------------------------------------
                                                   Ray D. Samuelson

  Date: July 29, 1999                         /s/ Mark L. Schneider
                                        --------------------------------------
                                                  Mark L. Schneider

  Date: July 30, 1999                         /s/ Ellen P. Spangler
                                        --------------------------------------
                                                  Ellen P. Spangler

  Date: July 30, 1999                           /s/ Tina M. Wildes
                                        --------------------------------------
                                                    Tina M. Wildes

  Date: July 29, 1999                      /s/ Anton H.E. v. Voskuijlen
                                        --------------------------------------
                                               Anton H.E. v. Voskuijlen
</TABLE>


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