##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  FORM 20-F (Mark One) o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934ORþ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2003


ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For such transition period from __________ to ____________ Commission file number: 000-30004 PRIMACOM AG  Federal Republic of Germany
(Jurisdiction of incorporation or organization) An der Ochsenwiese 3
55124 Mainz
011 49 6131 944.0
(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: Title of each
class
    
    Name of each exchange on which registeredNone
    
    Not Applicable Securities registered or to be registered pursuant to Section 12(g) of the Act. Bearer Ordinary Shares, with no nominal value (Title of Class) American Depositary Shares, each representing one-half of one Ordinary Share (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None (Title of Class) Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: 19,798,552 Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report) and (2) has been subject to such
filing requirements for the past 90 days. Yes
    
    þ
    
    No
    
    o
 Indicate by check mark which financial statement item the registrant has elected to follow: Item 17
    
    o
    
    Item 18
    
    þ




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##### Table of Contents



TABLE OF CONTENTS PART I
    
    
    
    
    1ITEM
1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    1ITEM
2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM
3.
    
    KEY INFORMATION
    
    
    1ITEM
4.
    
    INFORMATION ON THE COMPANY
    
    
    15ITEM
5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    50ITEM
6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    67ITEM
7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    73ITEM
8.
    
    FINANCIAL INFORMATION
    
    
    76ITEM
9.
    
    THE OFFER AND LISTING
    
    
    76ITEM
10.
    
    ADDITIONAL INFORMATION
    
    
    78ITEM
11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    86ITEM
12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    87PART II
    
    
    
    
    87ITEM
13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    87ITEM
14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF PROCEEDS
    
    
    87ITEM
15.
    
    CONTROLS AND PROCEDURES
    
    
    87ITEM
16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    88ITEM
16B.
    
    CODE OF ETHICS
    
    
    88ITEM
16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    88PART III
    
    
    
    
    89ITEM
17.
    
    FINANCIAL STATEMENTS
    
    
    89ITEM
18.
    
    FINANCIAL STATEMENTS
    
    
    90ITEM
19.
    
    EXHIBITS
    
    
    91Exhibit 12.1Exhibit 12.2Exhibit 13.1




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##### Table of Contents



PART I 
 ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 ITEM 3.    KEY INFORMATION In addition to historical information, this annual report includes
forward-looking statements. These statements relate to our future prospects,
developments and business strategies and are based on analyses of forecasts of
future results and estimates of amounts not yet determinable. These
forward-looking statements are made only as of the date of this annual report,
and we do not undertake to publicly update or revise these statements, whether
as a result of new information, future events or otherwise. These forward-looking statements are identified by their use of terms and
phrases such as anticipate, believe, could, estimate, expect,
intend, may, plan, predict, project, will and similar terms and
phrases, including references to assumptions. Most of these statements are
contained in sections entitled Item 3.D Risk Factors, Item 3.A Selected
Financial Data, Item 4.B Business Overview and Item 5. Operating and
Financial Review and Prospects and other sections of this annual report. These forward-looking statements involve risks, uncertainties and other
factors that may cause our actual future results, performance and achievements
to be materially different from those suggested or described in this annual
report. Many of the factors that will determine these results, performance and
achievements are beyond our control. Such factors, among others, include:  
    
    our ability to negotiate with our existing lenders and to
secure adequate financing,
    
    the speed and cost at which we are able to implement our
cable television network upgrades and build broadband networks,
    
    the response from our subscribers to the new services and
products offered to them on our existing networks and our upgraded
broadband networks,
    
    our ability to extend our contracts with housing associations
in Germany under commercially acceptable terms,
    
    changes in technology,
    
    changes in the competitive environment for cable television
network and broadband network operators,
    
    changes in governmental regulation of the German, Dutch and
European Union telecommunications markets. The risks described above and in the other sections of this annual report
are not exhaustive. We operate in a very competitive and rapidly changing
environment. New risks, uncertainties and other factors emerge from time to
time and it is not possible for us to predict all such risks, nor can we assess
the impact of all such risks on our business or the extent to which any risk,
or combination of risks, may cause actual results to differ materially from
those contained in any forward-looking statements as a prediction or guarantee
of actual results. 1




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##### Table of Contents



A.     Selected Financial Data The selected consolidated statements of operations and cash flow data set
forth below for the years ended December 31 2001, 2002 and 2003 and the
selected consolidated balance sheet data set forth below as of December 31,
2001, 2002 and 2003 have been derived from our consolidated financial
statements, included elsewhere in this annual report, which have been prepared
in accordance with accounting principles generally accepted in the United
States (U.S. GAAP) and audited by Ernst & Young, independent auditors. The
selected consolidated data presented below should be read in conjunction with
our consolidated financial statements and notes thereto included elsewhere in
this annual report. The Deutsche Mark and the Euro had legal tender status through a
transition period which ended February 28, 2002. Our consolidated financial
statements for 1999 through 2003 were originally prepared in Euro. The
selected consolidated financial data is not comparable to financial data of
other companies that report in Euros and that restate amounts from currencies
other than the Deutsche Mark. Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(000 except per share and operations data)Statement of Operations DataRevenues
    
    
    105,949
    
    
    
    124,343
    
    
    
    165,496
    
    
    
    182,042
    
    
    
    197,948Operating costs and expenses:Operations
    
    
    24,543
    
    
    
    30,794
    
    
    
    43,669
    
    
    
    47,900
    
    
    
    47,039Selling, general and administrative
    
    
    18,590
    
    
    
    27,981
    
    
    
    34,878
    
    
    
    36,172
    
    
    
    32,755Corporate overhead
    
    
    12,413
    
    
    
    17,219
    
    
    
    18,207
    
    
    
    16,465
    
    
    
    11,173Debt refinancing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,432
    
    
    
    Depreciation and amortization
    
    
    61,277
    
    
    
    75,530
    
    
    
    118,360
    
    
    
    95,943
    
    
    
    87,587Total
    
    
    116,823
    
    
    
    151,524
    
    
    
    215,114
    
    
    
    198,912
    
    
    
    178,554Operating profit (loss)
    
    
    (10,874
    )
    
    
    (27,181
    )
    
    
    (49,618
    )
    
    
    (16,870
    )
    
    
    19,394Interest expense:Convertible Second Secured Loan
non-cash interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,079
    
    
    
    42,060Other bank interest and other interest
    
    
    15,874
    
    
    
    26,173
    
    
    
    62,768
    
    
    
    78,342
    
    
    
    71,039Total
    
    
    15,874
    
    
    
    26,173
    
    
    
    62,768
    
    
    
    109,421
    
    
    
    113,099Other (income) expense
    
    
    767
    
    
    
    (1,690
    )
    
    
    5,649
    
    
    
    993
    
    
    
    42Income (loss) from continuing operations
before income taxes and other items
    
    
    (27,515
    )
    
    
    (51,664
    )
    
    
    (118,035
    )
    
    
    (127,284
    )
    
    
    (93,747
    )Income tax (expense) benefit
    
    
    (1,667
    )
    
    
    (4,258
    )
    
    
    15,381
    
    
    
    (10,980
    )
    
    
    (24,291
    )Income (loss) from continuing operations
before minority interest and equity
earning
    
    
    (29,182
    )
    
    
    (55,922
    )
    
    
    (102,654
    )
    
    
    (138,264
    )
    
    
    (118,038
    )Minority interest in net income of
subsidiaries
    
    
    (70
    )
    
    
    (94
    )
    
    
    (88
    )
    
    
    (63
    )
    
    
    (61
    )Equity loss in affiliate
    
    
    
    
    
    
    (128
    )
    
    
    (420
    )
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    (29,252
    )
    
    
    (56,144
    )
    
    
    (103,162
    )
    
    
    (138,327
    )
    
    
    (118,099
    )Loss from discontinued operations, net
of income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extraordinary loss, net of income tax
    
    
    
    
    
    
    (8,180
    )
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of change in accounting
Principle, net of income tax
    
    
    
    
    
    
    
    
    
    
    (946
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (29,252
    )
    
    
    (64,324
    )
    
    
    (104,108
    )
    
    
    (138,327
    )
    
    
    (118,099
    )Net income (loss) per shareBasic and diluted:Continuing operations
    
    
    (1.53
    )
    
    
    (2.85
    )
    
    
    (5.21
    )
    
    
    (6.99
    )
 2




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##### Table of Contents



Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(000 except per share and operations data)Net income (loss)
    
    
    (1.53
    )
    
    
    (3.26
    )
    
    
    (5.26
    )
    
    
    (6.99
    )
    
    
    (5.97
    )Balance Sheet Data (at period end)Total assets
    
    
    586,636
    
    
    
    1,108,376
    
    
    
    1,125,006
    
    
    
    1,085,718
    
    
    
    1,005,762Total debt
    
    
    224,762
    
    
    
    754,333
    
    
    
    852,660
    
    
    
    909,255
    
    
    
    946,381Total liabilities
    
    
    257,961
    
    
    
    838,994
    
    
    
    954,814
    
    
    
    1,052,403
    
    
    
    1,090,341Shareholders equity/deficit
    
    
    328,590
    
    
    
    269,184
    
    
    
    169,992
    
    
    
    33,042
    
    
    
    (84,930
    )Cash Flow DataNet cash provided by operating
activities
    
    
    44,214
    
    
    
    11,685
    
    
    
    15,321
    
    
    
    31,091
    
    
    
    42,233Net cash provided by (used in) investing
activities
    
    
    (47,858
    )
    
    
    (387,759
    )
    
    
    (80,552
    )
    
    
    (37,012
    )
    
    
    (32,470
    )Net cash provided by (used in) financing
activities
    
    
    4,164
    
    
    
    372,350
    
    
    
    63,521
    
    
    
    3,790
    
    
    
    (5,313
    )Capital expenditures (excluding
acquisitions)
    
    
    31,704
    
    
    
    99,817
    
    
    
    68,636
    
    
    
    36,861
    
    
    
    32,701Operations DataHomes
passed(1)
    
    
    1,422,826
    
    
    
    1,916,870
    
    
    
    1,964,868
    
    
    
    1,977,958
    
    
    
    1,956,871Ready for
service homes(2)
    
    
    30,456
    
    
    
    412,538
    
    
    
    440,883
    
    
    
    448,088
    
    
    
    463,153Number of television subscribers
    
    
    919,641
    
    
    
    1,299,926
    
    
    
    1,304,494
    
    
    
    1,305,769
    
    
    
    1,302,303Number of
Internet subscribers(3)
    
    
    150
    
    
    
    20,489
    
    
    
    34,078
    
    
    
    53,545
    
    
    
    86,338Number of digital television subscribers
    
    
    
    
    
    
    4,570
    
    
    
    11,875
    
    
    
    11,628
    
    
    
    12,183Total revenue generating units
    
    
    919,791
    
    
    
    1,325,185
    
    
    
    1,351,235
    
    
    
    1,371,774
    
    
    
    1,405,862Analog Video
penetration(4)
    
    
    64.6
    %
    
    
    67.8
    %
    
    
    66.4
    %
    
    
    66.0
    %
    
    
    66.6
    %Internet
penetration(5)
    
    
    0.5
    %
    
    
    3.9
    %
    
    
    7.0
    %
    
    
    11.9
    %
    
    
    18.6
    %Digital
penetration(6)
    
    
    
    
    
    
    1.1
    %
    
    
    2.7
    %
    
    
    2.6
    %
    
    
    2.6
    %EBITDA
(000)(7)
    
    
    50,403
    
    
    
    48,349
    
    
    
    68,742
    
    
    
    79,073
    
    
    
    106,981EBITDA
margin(8)
    
    
    47.6
    %
    
    
    38.9
    %
    
    
    41.5
    %
    
    
    43.4
    %
    
    
    54.0
    %
   (1)
    
    At end of the period in 2003, 1,373,863 homes were passed by coaxial
cable networks and approximately 583,008 were homes passed by fiber optic
cable networks.(2)
    
    Upgraded from the fiber node to the home (862 MHz and two-way capable).(3)
    
    Includes 3,203 dial-up customers at December 31, 2001. We have not had
dial-up customers at or after December 31, 2002.(4)
    
    Analog television subscribers as a percentage of homes passed.(5)
    
    High-speed Internet subscribers as a percentage of ready for service
homes.(6)
    
    Number of digital subscribers as a percentage of ready for service homes.(7)
    
    We define EBITDA as earnings (loss) before discontinued operations,
equity earnings (loss) in affiliates, extraordinary items, cumulative
effect of change in accounting principle, minority interests, gain (loss)
on disposal of fixed assets, net interest expense, income taxes and
depreciation and amortization. Other participants in the cable television
and broadband industries also use EBITDA, defined in a similar but often
not exactly comparable manner, as a measure of performance. We believe
that EBITDA is a useful supplement to net income and other income
statement data in understanding cash flows generated from operations that
are available for taxes, debt service and capital expenditures and because
it is the most commonly used measure to analyze and compare cable
television and broadband companies on the basis of operating performance,
leverage and liquidity. EBITDA is not a U.S. GAAP measure of income
(loss) or cash flow from operations and should not be considered as an
alternative to net income as an indication of our financial performance or
as an alternative to cash flow from operating activities as a measure of
our liquidity.(8)
    
    EBITDA margin is EBITDA divided by revenues. The following schedule reconciles EBITDA to our U.S. GAAP financial
statements: 3




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Year ended December 31,( in thousands)1999
    
    2000
    
    2001
    
    2002
    
    2003Operating profit (loss)
    
    
    (10,874
    )
    
    
    (27,181
    )
    
    
    (49,618
    )
    
    
    (16,870
    )
    
    
    19,394Depreciation and amortization
    
    
    61,277
    
    
    
    75,530
    
    
    
    118,360
    
    
    
    95,943
    
    
    
    87,587EBITDA
    
    
    50,403
    
    
    
    48,349
    
    
    
    68,742
    
    
    
    79,073
    
    
    
    106,981
  Exchange rate information Effective January 1, 1999, Germany and ten other members of the European
Union introduced the Euro as their official currency and established fixed
conversion rates between their existing sovereign currencies and the Euro.
Currency exchanges traded the Euro beginning January 4, 1999. Beginning on
January 1, 2002, the Euro became the official currency of all member countries.
There was a transition period, which ended February 28, 2002 during which the
Deutsche Mark was used alongside the Euro. The table below sets forth, for the periods and dates indicated,
information concerning the exchange rate for the U.S. dollar against the Euro,
based on the noon buying rate and expressed in U.S. dollar per Euro. U.S. dollar per EuroPeriod-end
    
    AverageCalendar Year
    
    Rate
    
    Rate(1)
    
    High
    
    Low1999
    
    
    0.9930
    
    
    
    0.9445
    
    
    
    0.9984
    
    
    
    0.84662000
    
    
    1.0652
    
    
    
    1.0881
    
    
    
    1.2092
    
    
    
    0.96762001
    
    
    0.8901
    
    
    
    0.8993
    
    
    
    0.9535
    
    
    
    0.83702002
    
    
    1.0485
    
    
    
    0.9495
    
    
    
    1.0485
    
    
    
    0.85942003
    
    
    1.2597
    
    
    
    1.1411
    
    
    
    1.2597
    
    
    
    1.0361
   (1)
    
    The average of the noon buying rate on the last business day of each
month during the year. The following table sets forth, for the period indicated, information
concerning the noon buying rate of U.S. dollar per Euro. U.S. dollar per EuroPeriod-endMonth
    
    Rate
    
    High
    
    LowSeptember 2003
    
    
    1.1650
    
    
    
    1.1650
    
    
    
    1.0845October 2003
    
    
    1.1609
    
    
    
    1.1833
    
    
    
    1.1596November 2003
    
    
    1.1995
    
    
    
    1.1995
    
    
    
    1.1417December 2003
    
    
    1.2597
    
    
    
    1.2597
    
    
    
    1.1956January 2004
    
    
    1.2452
    
    
    
    1.2935
    
    
    
    1.2389February 2004
    
    
    1.2441
    
    
    
    1.2848
    
    
    
    1.2426March 2004
    
    
    1.2292
    
    
    
    1.2431
    
    
    
    1.2088
 On March 31, 2004, the noon buying rate of U.S. dollar per Euro was 1 =
$1.2292. 4




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The rates stated above are provided solely for the convenience of the
reader and are not necessarily the exchange rates, if any, we used in the
preparation of our consolidated financial statements included elsewhere in this
annual report. No representation is made that Deutsche Mark or Euro could have
been, or could be, converted into U.S. dollars at these rates or at any other
rates, or at all. B. Capitalization and Indebtedness Not applicable. C. Reasons for Offer and Use of Proceeds Not applicable. D. Risk Factors Risks associated with our business On April 16, 2004 we have signed a financing transaction (the Proposed
Asset Sale and Purchase Transaction) whereby we will, if the financing
transaction is successful, (i) transfer substantially all of our assets to a
special purpose vehicle, BK Breitband Kabelnetz Holding GmbH (BBKH), which is
an investment vehicle established by certain of our creditors, (ii) transfer,
or receive funding for, substantially all of our known liabilities to BBKH,
(iii) receive a cash consideration of 5 million that we intend, if it or any
part of it is available for such a purpose, to distribute to our shareholders
at the end of the liquidation of the Company and (iv) resolve on the
liquidation of the Company. There can be no assurance that the Proposed Asset
Sale and Purchase Transaction will be approved by the required majority of our
shareholders, that the conditions precedent for closing the transaction will be
met or that any part of the cash consideration received will be available for
distribution to our shareholders. If we are unable to implement the Proposed
Asset Sale and Purchase Transaction on terms substantially similar to those we
have described, we would be likely to default on several of our existing credit
facilities, which could lead to the commencement of insolvency proceedings.
Insolvency proceedings would be likely to result in the total loss of value of the
investment of our shareholders. You should read the following risk factors in
light of the possibility that the Proposed Asset Sale and Purchase Transaction
may not be implemented on terms substantially as disclosed in this annual
report on Form 20-F. Our substantial debt creates financial risk, including the risk of
insolvency We are highly leveraged and the ratio of our indebtedness to our equity
has increased as we have incurred additional indebtedness and, as a result of
our continued net losses, we have incurred a shareholders deficit for the
first time in the Companys history. In addition to provisions pursuant to
which the filing of insolvency proceedings can occur when a debtor cannot pay
its obligations as they become due, which are common to most jurisdictions,
German law requires a company to commence insolvency proceedings if it becomes
over-indebted. We would be treated as being over-indebted if we have negative
equity based on accounting principles generally accepted in Germany (German
GAAP), due to our total liabilities exceeding our total assets.
Over-indebtedness is evaluated on an individual entity basis for the PrimaCom
group. These evaluations are performed first on the basis of the respective
German GAAP balance sheets of the relevant companies and if the relevant test
is not passed, in a second step on the basis of a German GAAP adjusted balance
sheet. This adjusted balance sheet would substitute going-concern values for
the book values reflected in the German GAAP balance sheet included in our
financial statements. The difference between these two balance sheets relates
to hidden reserves that have to be taken into account and various assets that
have to be valued differently. If we or any of our subsidiaries were
over-indebted on this second basis, the affected entity would be required to
file insolvency proceedings without undue delay, but in no event later than
three weeks after the determination is made. The test for over-indebtedness is
performed with reference to our year-end balance sheet, unless there are
reasons, including increased operating costs, which trigger a requirement to
perform the analysis during a fiscal year. We cannot assure you that we, or any
of our subsidiaries, will not at any time in the future become over-indebted
and required to file insolvency proceedings as a result of our
over-indebtedness or for other reasons. If we or PrimaCom Management GmbH, or
one of our other subsidiaries which is 5




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an obligor under our credit facilities
were to file insolvency proceedings, the filing would constitute an event of
default under our credit facilities and could lead to the acceleration of the
date of the required payment of those facilities, which would have a material
adverse effect on our financial position and our ability to continue our
business operations. Our substantial leverage limits our ability to obtain additional financing
and makes us more vulnerable to an economic downturn In the second quarter 2003, our shareholders equity on a consolidated
basis became negative. Prior to that our debt to equity ratio had increased
permanently. As of December 2001, we had a debt to equity ratio of 5.0:1
whereas this ratio increased as per December 2002 to 27.5:1. In addition to
the insolvency risk described above, our degree of leverage also has other
important consequences. For example, the current degree of leverage limits our
ability to obtain additional financing for working capital, capital
expenditures, product development or other general
corporate purposes, and acquisitions. It also makes us more vulnerable to
a downturn in business or the economy generally. The dramatic and continued
reduction in the market values of the securities of companies in the
telecommunications and media sectors has, in all but a few instances, limited
access of participants in these sectors from accessing the capital markets and
significantly reduced both the number of financial institutions willing to
provide credit facilities to participants in those sectors and the amount of
credit the remaining institutions are willing to extend. These developments
have directly affected us and substantially increased the risks associated with
our substantial leverage. We may not be able to generate sufficient cash from operations to fund our
operating expenses, debt service obligations and capital expenditures As of December 31, 2003, we had approximately 946,381,000 in bank and
other debt outstanding and approximately 84,930,000 in shareholders deficit
as compared to 909,255,000 in bank and other debt and 33,042,000 in
shareholders equity as of December 31, 2002. Significantly all of our cash
flow from operations is dedicated to servicing this debt. This limits the
amount of cash flow that may be used for selective planned capital expenditures
and possible acquisitions. If our cash flow from operations is less than what
we budgeted in our business plan, we may be forced to:  
    
    restructure or refinance our debt (including on terms that
may be even less favorable to us than our current debt) and seek new
investors to increase shareholders equity;
    
    further reduce or delay capital expenditures;
    
    sell assets on terms that would otherwise be unacceptable to us; or
    
    forgo business opportunities. Any of these actions could prevent us from obtaining some or all of the
benefits expected from our business strategy. In addition, we may not have sufficient cash from our operations to make
future payments to meet the scheduled amortization on our senior facility that
are required. The facility reduction schedule reduces the available commitment
at quarterly intervals starting on March 31, 2003. If this and other future
principal payments cannot be refinanced, extended or paid with proceeds of
other transactions such as new raising of equity or debt capital, we could be
declared in default of our loan obligations, in which case our debts under
these instruments could become immediately payable. Currently, we own 100% of PrimaCom Management GmbH which, in turn, owns,
directly or indirectly, all our other operating subsidiaries and partnerships.
However, our convertible second secured term loan facility gives the lenders
the right to convert the outstanding debt under this facility into up to 65% of
the shares of PrimaCom Management on December 31, 2004 and thereafter. These
lenders have advised us that they do not intend to exercise 6




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their option. We cannot assure you that we will be able to refinance this facility on terms that
are acceptable to us, or at all. For a description of our debt instruments see
Item 5. Operating and Financial Review and Prospectus-Liquidity and Capital
Resources. We expect to incur net losses in the near term, and the value of our
business and our securities will likely decline if we are unable to generate
net profits in the future We incurred net losses of approximately 118,099,000 in the year ended
December 31, 2003 and 138,327,000 in the year ended December 31, 2002. Unless
we can significantly reduce our indebtedness, we expect to continue to incur
net losses. As part of our strategy to attempt to generate net profits, we
intend to continue to upgrade our networks on a very selective basis and
develop new products including broadband services, which will give rise to
additional capital expenditure and increase our already substantial interest
expense. This planned selective upgrading and our product development efforts
will allow us to provide value-added services, which we believe will permit us
to selectively increase our revenues per subscriber in the future. At the same
time, we will seek to reduce operating expenses, including by installing our
own head-ends to receive programming directly from satellites instead of through the network of Kabel Deutschland, especially
in those instances where our delivery fees from Kabel Deutschland have
increased. A more detailed description of our signal delivery agreements with
Kabel Deutschland is provided in Item 5. Operating and Financial Review and
Prospects and Item 4. Information on the CompanyBusinessStrategy. We
cannot assure you that this strategy will be successful or that we will be able
to generate net profits in the future. Our inability to generate net profits
in the future may have a significant negative impact on the value of our
business and the securities you own. Our debt instruments contain restrictive covenants which may be breached
and which may pose potential financial and operating problems Our operating and financial flexibility and liquidity is limited by
restrictions imposed by our existing debt instruments. These contain financial
and operating covenants including, among other things, maintenance of
identified financial ratios, as well as limitations on our ability to sell all
or substantially all of our assets and engage in mergers, consolidations and
other acquisitions. If we fail to comply with the covenants and other
provisions of these debt instruments, our debts under these instruments could
become payable prior to their scheduled payment date. We have no governmental franchises and primarily serve our subscribers
through concession agreements with housing associations in Germany, and if we
are unable to successfully extend these agreements on commercially reasonable
terms, this failure may negatively impact our business Unlike the cable market in the United States, German governmental bodies
do not grant franchise areas to cable operators. Instead, we serve our German
subscribers primarily under concession contracts with housing associations that
administer large housing blocks. We will face strong competition for these
concessions, which must be periodically renewed. If we are unable to renew our
concessions, or if housing associations are successful in terminating these
contracts either upon or before their expiration, the decrease in subscribers
could have a material negative impact on our operating results. For more
information about these contracts with housing associations, see Item 4.
Information on the Company. Our Multikabel subsidiary in The Netherlands has been granted franchise
areas under the former telecommunications regulations. However, the current
regulations do not provide for exclusive franchise areas, and multiple parties
may be authorized to build cable networks in the same area. Although this has
not happened, we cannot assure you that multiple authorizations will not be
granted in the future, pursuant to which competitive services may be offered in
the areas in which we operate our network. 7




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Our debt is at variable rates of interest or at rates of cash interest
which increase over time, so that rising interest rates could adversely affect
our cash flow Our borrowings under our senior credit facility is at variable rates of
interest. We currently have approximately 494,500,000 in indebtedness with
floating interest rates. We may also borrow additional money with variable
interest rates in the future. Increases in interest rates would increase our
interest expenses under these loans and the costs of refinancing existing
indebtedness and of issuing new debt. Accordingly, higher interest rates would
adversely affect cash flow and our ability to service our debt. Additionally,
the cash coupon of interest under our convertible second secured term loan
facility increases over time, which will also adversely affect cash flow and
our ability to service our debt. Because we depend on third parties for some of the broadband services we
offer, we may not be able to obtain or replace these services on reasonable
terms and we may have problems with these third parties. We do not produce or own all of the broadband services we offer to our
subscribers in The Netherlands and Germany. In addition to not being able to
obtain or replace a sufficient number of those services on favorable terms, we
face a number of other risks. In Germany, our competitors hold exclusive rights to programming that we
may wish to offer to our subscribers in the future, and may limit the
availability of programming to us or may charge us fixed fees regardless of how
many subscribers sign up to receive this programming. In addition, regulatory
constraints may affect our ability to select programming we may want to
provide. If we do not succeed in obtaining a sufficient number of these new
services, either independently or with partners, on commercially reasonable
terms, demand for our services would be reduced and our revenues would
decrease. In The Netherlands, we migrated in 2002 all our broadband Internet
subscribers to our own Internet service platform, which relies to a large
extent on third party suppliers to assure continued service to our subscribers.
We expect significant future increases in the number of our broadband Internet
subscribers, which carries the risk that this service may incur technical
difficulties as a result of our reliance on third parties, which are not under
our control. These technical problems could result in a loss of subscription
fees for broadband Internet access and have a material adverse effect on the
financial results of our Dutch operations. Also in The Netherlands, we are currently dependent on Mediakabel for the
provision of our branded digital television product. Mediakabel is a
consortium of cable companies in which we have a minority interest and in which
United Pan-Europe Communications NV (UPC), an indirect subsidiary of, our
largest shareholder, has a significant interest. In the event one or more
owners of Mediakabel fails to pay their operating and service contributions, we
may be required to increase our contributions in order to ensure the
continuation of the operations of Mediakabel. Alternatively, the current
Mediakabel digital television product may be reduced to a smaller product
offering, or we may be required to find an alternative source for our digital
television product, potentially on short notice. In addition, if one or more
of the owners fails to cooperate in the operation of Mediakabel or Mediakabel
is otherwise unable to continue to provide us with our digital television
product, we will also be required to find an alternative source for that
product in The Netherlands. The current Mediakabel operating agreement expires
in July 2004. We are examining the availability of alternative means of
delivering digital television signal in The Netherlands in the event that we or
any other owner in Mediakabel were to decide not to continue that consortium.
There can be no assurance that, if required, any such alternative source could
be identified in a timely fashion or at all. Accordingly, any loss of our
digital television product may result in loss of revenue and subscribers in The
Netherlands. 8




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Lastly, in The Netherlands, we currently depend on Priority Telecom B.V, a
subsidiary of UPC for the provision of our telephony offerings. In the event
Priority and its interconnection partners, for example KPN, fail to deliver
services to us, the quality of service expected by our subscribers could be
materially impacted. This would result in subscriber dissatisfaction and the
loss of subscribers and revenue from the sale of this product, which might
force us to find an alternative source to support these offerings in the
Netherlands. We cannot assure you that, if required, any of such alternative
sources could be identified on time or at all and on terms acceptable to us. Our business plan assumes increasing demand for bandwidth-intensive
applications, and if the demand for these services does not increase as
expected it would negatively impact our financial performance Our business plan assumes that the use of Internet, data services, cable
or Internet-based telephony services and other bandwidth-intensive applications
will increase substantially in Germany and in The Netherlands in the next few
years. We also believe that there will be increasing demand for telephony
services in the future. Based on this assumption, we have invested heavily in
the past, but due to the financing constraints, which we are subject to, we
intend in the future to invest only selectively in Germany in upgrading our
networks to enable them to support broadband services. However, if the use of
bandwidth-intensive applications in those countries does not increase as
anticipated, or develops more slowly than anticipated, the demand for many of
our services will be lower than we currently anticipate, which would have a
negative impact on our pricing flexibility, results of operations and financial
condition. In addition, we have limited experience in the market for telephony
services. Although difficulties arise when entering any new market, we believe
that the market for cable telephony services and Internet protocol-based
telephony services, also known as voice-over IP, may be particularly difficult
because of the high degree of competition, pricing pressures and the existence
of incumbent telephony operators. In addition, we expect to face competition
from wireless telephone carriers and new entrants to the European telephone
market. If we are unable to respond to competitive pressures on a timely basis,
implement new technologies or penetrate new markets in response to changing
subscriber requirements, or if new or enhanced services offered by us do not
receive an acceptable level of market acceptance, we may not be able to compete
effectively. We face increasing competition from satellite television and other
alternative methods of television signal delivery, which may limit our growth
and cause us to lose subscribers As a result of competition for subscribers from other signal delivery
methods, we may be unable to increase our subscriber base or we may lose
subscribers. Our ability to obtain additional cable television subscribers in
areas where our networks have already been installed is limited by the
availability of traditional public over-the-air television signal from
land-based or terrestrial antennae. We also face increasing competition from
other methods of television signal delivery to the home, including:  
    
    digital terrestrial;
    
    analog and digital satellite-delivered direct-to-home systems; and
    
    satellite master antenna television systems, particularly in areas of low cable penetration. Various companies in Germany and The Netherlands offer satellite digital
direct-to-home television operations. These companies may be able to use their
substantial financial resources and exclusive entertainment and sports
programming contracts to further penetrate the market and compete with us for
subscribers. In The Netherlands, licenses have been awarded for digital
terrestrial television, which will compete with our digital television
offering. In addition, we believe that we will face additional competition
from digital terrestrial television, which was commercially launched in Berlin
area in Germany in January 2003. In The Netherlands the Digitenne digital
terrestrial service was launched in the third quarter of 2003. 9




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We may not be able to keep up with the rapid technological changes in the
cable television and broadband industries and may incur significant costs of
implementing new technologies To remain competitive, we must continue to introduce new services and
enhance and improve the functionality, accessibility and features of our
networks. The cable television and broadband industries are subject to:  
    
    rapid and significant changes in technology;
    
    changes in use and customer requirements and preferences;
    
    frequent product and service introductions embodying new technologies; and
    
    the emergence of new industry standards and practices
that could render existing proprietary technology and systems
obsolete. We cannot predict the effect of technological changes on our business. In
addition, we cannot offer any assurance that we will be able to successfully
implement new technologies or adapt technologies to customer requirements in a
timely manner. Furthermore, the cost of implementing emerging technologies or
to change from one technology to another once implementation has started, is
significant when compared to the cash we have available after we make payments
on our indebtedness and our ability to fund implementation or change will most
likely be dependent upon our ability to obtain additional financing. Our program suppliers may offer programming to our competitors exclusively
or on more favorable terms, and may require minimum payments for some
programming events, all of which could negatively impact our business Program suppliers may offer programming exclusively or on more favorable
terms (both as to price and availability) to our competitors. We will continue
to face this competitive risk even if we succeed in increasing the number of
subscribers served by our own head-ends to reduce signal delivery fees payable
to Kabel Deutschland, the formerly wholly owned subsidiary of Deutsche Telekom, that was sold to a
group of investors lead by Goldman Sachs, Apax and Providence in 2003. This
risk may intensify as satellite broadcasters continue to become more
established in Germany. The operating margins and cash flows of our German operations may decline
as a result of increases in signal delivery expenses or customer
dissatisfaction due to inadequate network maintenance by private operators on
whom we rely At December 31, 2003, approximately 51% of our subscribers in Germany were
served by networks that received programming under signal delivery contracts we
have with regional subsidiaries of Kabel Deutschland (and successor private
operators) as compared to 50% at December 31, 2002. Under some of the
contracts we pay a fixed fee, which is not dependent on the number of actual
subscribers and connection points. We and Kabel Deutschland have a difference
of opinion on the basis of computation of fees due by us under some of our
signal delivery contracts with Kabel Deutschland relating to the amount of
signal delivery fees we owe. Kabel Deutschland interprets theses contracts as
permitting it to increase our signal delivery fees before the expiration of
certain current signal delivery contracts. We disagree with that
interpretation. If Kabel Deutschland is successful in enforcing its position,
our signal delivery fees could increase significantly. We may also have to pay
more fees under variable rate contracts, a number of which were subject to rate
increases in November 2002 when Kabel Deutschland revised its published fee
charts and increased our fees significantly. We expect that these increases
will continue in the near term. Any fee increases under programming signal
delivery contracts which cannot be captured by increased rates for our
subscribers may have an adverse effect on our operating margins and may lead to
a loss in subscribers who abandon cable television and instead rely on direct
television reception or other reception technologies. 10




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If payments are assessed on our transmission of analog television
programming in Germany, our operating margins and cash flows will suffer unless
we can pass these additional costs on to subscribers Historically, we have been in the business of providing analog television
programming to subscribers over our cable television networks in Germany. Like
other cable network operators in Germany, we have generally not had to pay
program providers for this analog programming. However, some or all of our
program providers could require us to pay for analog programming in the future.
If this occurs and we are unable to pass these charges on to subscribers, our
operating margins and cash flows would suffer. We may have to pay copyright royalties for retransmitting programming to
our subscribers in Germany, which would reduce our German operating margins and
cash flows to the extent that they exceed the amounts we have accrued for these
royalties Like other German cable network operators, we have not paid copyright
royalties for retransmission of programming we received from sources other than
Kabel Deutschland and successor private operators in the past. However, GEMA,
one of the German copyright collection agencies, has stated that it wants to
start collecting royalties from cable network operators and that it may collect
these royalties retroactively from July 1, 1997. Although our strategy of
building our own head-ends will reduce retransmission of the amount of
programming we receive from Kabel Deutschland and successor private operators,
it may not reduce our royalty payments if we are required to pay copyright
royalties on the transmission of programming we receive through our own
head-ends. We may also have to pay royalties in connection with our digital
programming and other products we offer to subscribers over our broadband
network. If these royalties exceed the amounts we have accrued or will accrue
for this purpose, our net income and cash flows will decrease. If royalties
were collected retroactively in amounts in excess of the accruals we have been
making since January 1, 2000, our net losses for the periods for which this
retroactive payment has to be made would increase. Extensive government regulation of the broadband industry could restrict
the way we operate our business and could hinder our business plans We will be subject to extensive regulatory controls and may, from time to
time, not be in compliance with all administrative and licensing requirements
of the regulatory authorities. In addition, we may have to comply with amended
or additional regulations in the future. Problems related to all of these
regulatory matters may restrict our ability to compete effectively. Changes in German federal or state, or
Dutch regulation of the licensing, construction and operation of cable
television or broadband networks, including the regulations relating to
licensing requirements, the operations of Kabel Deutschland and KPN and
interconnection arrangements, could restrict our business operations and hinder
our business plans. Under the recent allocation of frequency bands in Germany we may be
prevented from transmitting over some of the frequency bands we currently use,
in which case our transition to new frequencies could prove to be difficult and
more costly than we currently estimate In May 2002, three new ordinances governing the allocation, use and
assignment of frequencies took effect in Germany. The ordinance on the
allocation of frequencies addresses the free use of frequencies without an
individual permit, approval or other regulatory resolution. It allows the free
use of frequencies between 9 KHz and 30 MHz in and along conductors in our
cable networks under certain conditions. These conditions require that (1) the
disturbing radiation emitted by the conductors does not exceed identified
limits and (2) the frequencies are not used for security purposes, identified
by the German regulatory authority. If the above conditions are not met, then
the German regulatory authority will decide on a case-by-case basis whether we
may use the given frequency. The authority may also impose on us restrictions
or conditions prior to granting permission to use frequencies. In addition,
these same conditions apply to frequencies between 30 MHz and 3 GHz since July
1, 2003. These regulations may prevent us from using some or all of the
relevant frequency bands to retransmit programming on our cable networks.
Should this occur, we may need to make investments in our German networks in
order to continue providing our current services. 11




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If we are deemed to be market-dominating by the competition authorities
in Germany and The Netherlands, we will be subject to heightened regulation
that could restrict the fees we charge subscribers and restrict our operating
flexibility Under German and Dutch telecommunications and competition law, we are
likely to be considered market-dominating in those regions in which we are
the only cable or broadband operator or, potentially, in which we provide a
high percentage of the available cable or broadband products and services. If
this occurs, the regulatory authority in those countries may have the right to
review our subscriber fees and object to any proposed increases. The authority
could also review and object to other terms of our subscriber agreements. If
approvals for fee increases or for the introduction of fee packages for new
services are delayed or refused, our operating margins, cash flow and
competitive position could suffer. In addition, if we are found to be
market-dominating, the regulatory authority could require that we provide third
parties with access to our networks on a large scale or change other aspects of
our operations. This may also negatively impact our business and financial
results. German media authorities may require us to offer popular channels in
analog mode rather than exclusively in digital mode, which could negatively
affect the growth and development of our digital cable television service The success of our digital service will depend in large part upon our
ability to offer high quality digital programming. For instance, we may seek
to broaden our digital subscriber base by offering popular programming
exclusively through our digital service. However, we may be prevented from
implementing this strategy if German media authorities require us to offer this
programming in analog mode in addition to digital format. The availability of
the same programs in analog format may limit our ability to attract digital
subscribers and to increase cable subscription revenues. We may become subject to Internet regulation in Germany and The
Netherlands, which could increase our costs or limit the services we provide to
subscribers The provision of Internet services has, to date, not been materially
restricted by regulation in Germany and The Netherlands. However, in Germany a
number of Internet services are subject to regulation with respect to licensing
and notification requirements and content. If this does occur, it could result
in a loss of cable and broadband subscribers. 12




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In addition, the legal and regulatory framework applicable to the Internet
is uncertain and may change. In particular, new laws and regulations may be
enacted and existing laws and regulations may be applied to the Internet and
e-commerce. For example, existing pressure to liberalize high-speed Internet
access in The Netherlands may become stronger in the future. New and existing
laws may cover issues like:  
    
    value-added sales or other taxes;
    
    user privacy;
    
    pricing controls;
    
    characteristics and quality of products and services;
    
    consumer protection;
    
    cross-border commerce;
    
    libel and defamation;
    
    electronic signatures;
    
    transmission security;
    
    copyright, trademark and patent infringement; and
    
    other claims based on the nature and content of Internet materials. Any new laws and regulations or the uncertainty associated with their
enactment could increase our costs and hinder the development of our business
and limit the growth of our revenues. Because we do not insure a substantial portion of our underground cable
networks, we may have to bear the full costs of any damage to those uninsured
networks, which may have a negative effect on our financial performance Any catastrophe affecting a significant portion of our underground cable
networks could result in substantial uninsured losses and could have a material
adverse effect on our business and financial results. While we carry general
liability insurance on our properties, we do not insure a substantial portion
of our underground cable networks in Germany and we carry only minimal
insurance on the underground portion of our cable networks in The Netherlands.
We intend to continue to carry only general liability insurance on our
properties. United States shareholders may have difficulties in making claims for any
breach of their rights because neither we nor most of the members of our
management or supervisory boards are in the United States It may not be possible for investors to effect service of process within
the United States upon us or on the members of our management and supervisory
boards or to enforce in United States courts against us and them judgments
obtained in United States courts based upon civil liability provisions of the
federal securities laws of the United States. We have been advised by counsel
that enforceability in Germany of civil liabilities based on the laws of the
United States, including the federal securities laws, is subject to
restrictions or may not be obtained in original actions or in actions for
enforcement of judgments of United States courts. Accordingly, civil judgments
obtained in the United States may be unenforceable in Germany. These
difficulties are significant because we are organized as a joint stock
corporation under the laws of Germany and a majority of the members of our
management and supervisory board reside outside of the United States. In
addition, all of our assets and all or a substantial portion of the assets of
many of the members of our management and supervisory board are also located
outside of the United States. 13




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Risks relating to Libertys ownership in us The interests of Liberty, our largest shareholder, may differ
significantly from your interests and the interests of our other shareholders As of December 31, 2003, Liberty Media Corporation (Liberty) owned
directly and indirectly through subsidiaries approximately 26.7% of our shares.
As long as Liberty continues to have a significant portion of our shares, and
depending on the number of shares represented by other shareholders at our
shareholders meetings, Liberty and its affiliates UnitedGlobalCom, Inc.
(UGC) and UPC could exercise substantial influence over decisions taken at
our shareholders meetings. Other future shareholder decisions may relate to:  
    
    mergers or other business combinations;
    
    material acquisitions or dispositions of assets;
    
    future issuances of shares or other securities;
    
    payment of dividends on our shares; and
    
    significant amendments to our articles of association The interests of Liberty in deciding matters and the factors each considers in
exercising their influence could be different from your interests and the
interests of our other shareholders. Libertys ownership and the resulting interests of UGC and UPC in us may
deter third parties from seeking to acquire control of us, including
transactions that may be economically beneficial to us and our shareholders and
any perception that Libertys shareholding in us is available for sale may
cause a reduction in the market price of our shares Libertys ownership and the interests of its affiliates UGC and UPC in us
reduce the likelihood that a third party would be able to obtain majority
control over us unless Liberty sells its shares. As a result, Libertys
interest may have the effect of discouraging a third party from initiating a
takeover bid for our shares or otherwise attempting to gain control over us,
including transactions that may be economically beneficial to us and our
shareholders. The member nominated by UPC to our supervisory board may also be a
director or officer of UPC or UGC, which may result in conflicts of interest
that could be resolved in a manner adverse to us Currently, two of the nine members of our supervisory board are nominees
of UPC who are also directors or officers of UPC and/or UGC. These persons
have fiduciary duties, including duties of loyalty, to both companies, which
may result in conflicts of interest with respect to matters including
acquisitions, financings or other corporate opportunities that may be suitable
for both UPC and for us. In addition, these UPC nominees may own substantial
amounts of UPC or UGC capital stock and/or options to purchase shares of UPC or
UGC capital stock. There could be potential conflicts of interest when these
representatives are faced with decisions that could have different implications
for us and UPC or UGC. There are no specific policies in place with respect to
any conflicts that may arise. We expect conflicts to be resolved on a
case-by-case basis, and in a manner consistent with applicable law. However,
conflicts could be resolved in a manner adverse to us, which could harm our
business. 14




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ITEM 4. INFORMATION ON THE COMPANY A.
History and Development of the Company Our legal and commercial name is PrimaCom AG and we were incorporated on
December 30, 1998 upon the completion of the merger of our predecessor
companies, KabelMedia and Süweda. We are a stock corporation organized under
the laws of the Federal Republic of Germany. Our principal executive offices
are located at An der Ochsenwiese 3, Mainz 55124, Germany. Our telephone
number is +49 6131-9440. We maintain a website at www.primacom.de. Information contained in
our website does not constitute a part of this annual report. A description of our principal capital expenditures during the year 2003
and information concerning the principal capital expenditures currently in
progress and the method of financing is included in Item 5. B. Liquidity and
Capital Resources. B.
Business Overview Who we are Since KabelMedias inception in 1992, we have primarily owned, operated
and acquired cable television networks in Germany. On September 18, 2000, with
the acquisition of Multikabel, we expanded our operations from Germany to The
Netherlands. As of December 31, 2003 we owned and operated cable television
and broadband networks passing 1,956,871 homes and available to approximately
1,405,862 revenue-generating customers as follows: Germany
    
    The NetherlandsCable networks (up to 450 MHz)Cable television homes passed
    
    
    1,373,863
    
    
    
    Analog television subscribers
    
    
    891,570
    
    
    
    Broadband network (862 MHz)Homes passed by fiber
    
    
    246,117
    
    
    
    336,891Ready for service homes
    
    
    135,262
    
    
    
    327,891Analog television subscribers
    
    
    96,053
    
    
    
    314,680Digital television subscribers
    
    
    6,220
    
    
    
    5,963Internet subscribers
    
    
    6,845
    
    
    
    79,493Telephony subscribers
    
    
    
    
    
    
    4,106Data
communications subscribers(1)
    
    
    
    
    
    
    932Total revenue generating subscribers
    
    
    1,000,688
    
    
    
    405,174
   (1)
    
    Includes 617 schools served by our Kennisnet product. We believe that we are the fifth largest private cable network operator in
Germany in terms of the number of direct subscribers and the first and one of
the largest private operators of broadband networks in Germany. In Germany, we are currently offering our broadband subscribers digital
television, pay-per-view and high-speed Internet services to complement our
basic cable television offering. We currently offer our Dutch subscribers
digital television and high-speed Internet access, in addition to our basic
cable television offering and launched a telephony product in the first half of
2003. We also currently offer business subscribers in The Netherlands leased
lines data communications services. 15




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Our strategy Our objective is to enhance the value of our business by expanding and
promoting our broadband service offering, capitalizing on more efficient usage
of our existing networks in the German and Dutch cable television markets and,
to a lesser extent, selectively continuing to upgrade our cable television
networks in Germany. Our business strategy focuses on the following specific
goals:  
        
        Generate net profits by deferring capital expenditure while
enhancing internal revenue growth.As part of our strategy to
generate profits in the future, we have deferred significant
upgrades of our existing networks in Germany while seeking to
generate increased revenues by selectively increasing subscription
rates for our basic cable television services, primarily in
conjunction with the introduction of new programs and through the
continued use of marketing programs designed to increase subscriber
penetration of both our basic cable services and of our broadband
services to those customers already passed by our broadband
networks. In particular, we intend over time to increase monthly
service rates for basic cable television in the new German states
(the former East Germany) to levels similar to those in the old
German states (the former West Germany). Our ability to do so,
however, will strongly depend on our competitors pricing. In The
Netherlands, we now have greater pricing flexibility because on
January 31, 2003 we became exempt from pricing regulations imposed
by local municipalities on our basic level of cable television
services. We intend to add programs in order to generate higher
monthly subscription fees for our basic cable television product.
We will also focus on increasing the efficiency of our existing
operations. In the Netherlands, where broadband services have been
offered for a longer period of time and have achieved greater
customer acceptance, we intend to continue to build-out our networks
to new areas and to enhance our network to permit us to deliver more
products and services.
        
        Expand and promote our broadband service offering.We intend
to generate increased revenue by aggressively marketing our
broadband Internet access products and our digital television
products in both Germany and in The Netherlands. We will seek to
identify opportunities to enhance and re-price our broadband
products in order to reach a larger customer base. We will examine
the possibility of bundling video, data and voice products into one
offering as a means of increasing sales. We are aggressively
pursuing opportunities to supply our digital services to other cable
operators.
        
        Launch new services over existing cable infrastructure.In
September 2002, our Dutch operations finalized its technical pilot
and started rolling out a hybrid IP/PSTN (Internet Protocol/Public
Switched Telephone Network) based telephony product. Starting in
2003, this service was rolled out city-by-city, primarily bundled
with our broadband Internet access product.
        
        Strengthen customer orientation.We believe that customer
orientation is important to our business in two ways: maintaining or
developing direct customer service, billing and marketing
relationships with the subscribers of our cable and broadband
services will enhance our ability to sell additional products and
services and generate incremental revenue. On the other hand, a
good and trustful relation with the housing associations is
important to establish basic services and to implement new models
for the distribution of new products, such as Internet or
video-on-demand. We will continue to use a regional operating
structure designed to generate a subscriber-focused business
orientation. Each of our operating regions is managed by a regional
manager who is responsible for both subscriber and technical
services and local ongoing relationships with housing associations.
We believe that this regional operating structure enables us to be
more responsive to subscriber needs and to maintain strong
relationships with the housing associations and our subscribers.
This structure is complemented by a corporate sales office which
addresses the needs of our national accounts and which frequently
benchmarks sales results in all regions.
        
        Increase revenues by increasing programming available to our
subscribers over our cable networks.We plan to generate additional
carriage fee revenues by entering into agreements with certain
programming providers who will pay us carriage fees for making their
programming available to our subscribers. 16




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##### Table of Contents





| |  |  | Improve efficiency and margins by streamlining operations.
We believe clustering strategy has produced and will continue to
produce efficiencies and synergies between our existing networks and
acquired cable networks. In accordance with our past practice, upon
completion of future acquisitions or asset swaps we will generally
implement extensive operational and organizational changes designed
to enhance operating cash flow and operating margins.                                                                                                                                                                             
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Increase network ownership and reduce signal delivery fees.
In Germany, we continue to rely on Kabel Deutschland and successor
private operators to deliver programming signal to our cable
networks serving approximately 50% of our subscribers. We intend to
continue to reduce our dependence on Kabel Deutschland and successor
private operators by continuing to construct our own head-ends and
infrastructure where appropriate. We believe that selectively
installing our own head-ends and related infrastructure will reduce
our signal delivery fees and have a positive effect on our operating
results and quality of service.
|
| |  |  | Focus on attracting new subscribers.We have selectively
passed new homes and interconnected our various systems in and
around cities in Germany. The passing of these new homes may
provide us with opportunities to market our products and services
and then to connect new subscribers to our broadband network. We
also believe that this build-out and marketing strategy complements
our consolidation activities because smaller cable operators may not
have the technical or financial resources to compete in the
broadband market and, as a result, may be more inclined to cooperate
with us.                                     
|
| |  |  | Extend the customer basis for new services.While we intend
to very selectively upgrade a portion of our German networks over
the next five years, we plan to bring our services to non-upgraded
homes. This may involve the implementation of a cable-independent
back channel (such as a telephone line), but in return will allow us
to capitalize on our experience regarding new services in areas
where the networks are fragmented.                                                                                                                                                                                                     

17



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##### Table of Contents



Our subscribers We have subscribers in four primary operating regions in Germany and in
one operating region in The Netherlands. At December 31, 2003, we served our
subscribers in Germany from networks operated at level 2, level 3, level 4 (non
B-1), and level 4 (B-1) as well as from broadband networks. We served our
subscribers in The Netherlands almost exclusively from broadband networks. A
description of the levels referred to in the table below is set forth in the
section captioned Our NetworksGermany. Sachsen/Osnabrück/
    
    Wiesbaden
    
    Sachsen-Anhalt/Berlin
    
    Aachen
    
    Mainz
    
    Thüringen
    
    Multikabel
    
    TotalCable networks (up to 450 MHz)Cable Television homes passed.
    
    
    234,188
    
    
    
    264,739
    
    
    
    335,652
    
    
    
    539,284
    
    
    
    
    
    
    
    1,373,863Analog subscribersLevel 2 subscribers
    
    
    72,589
    
    
    
    20,809
    
    
    
    59,439
    
    
    
    231,916
    
    
    
    
    
    
    
    384,753Level 3 subscribers
    
    
    32,861
    
    
    
    20,226
    
    
    
    9,256
    
    
    
    124,829
    
    
    
    
    
    
    
    187,172Level 4 subscribers (non B-1)
    
    
    88,679
    
    
    
    16,307
    
    
    
    10,276
    
    
    
    20,747
    
    
    
    
    
    
    
    136.009Level 4 subscribers (B-1)
    
    
    
    
    
    
    91,816
    
    
    
    91,820
    
    
    
    
    
    
    
    
    
    
    
    183.636Broadband networks (862 MHz)Homes passed by fiber
    
    
    
    
    
    
    
    
    
    
    3,494
    
    
    
    242,623
    
    
    
    336,891
    
    
    
    583,008Ready for service homes
    
    
    
    
    
    
    
    
    
    
    3,494
    
    
    
    131,768
    
    
    
    327,891
    
    
    
    463,153Analog television subscribers.
    
    
    
    
    
    
    
    
    
    
    989
    
    
    
    95,064
    
    
    
    314,680
    
    
    
    410,733Digital television subscribers
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    6,118
    
    
    
    5,963
    
    
    
    12,183Internet subscribers
    
    
    
    
    
    
    
    
    
    
    135
    
    
    
    6,710
    
    
    
    79,493
    
    
    
    86,338Data communication subscribers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    932
    
    
    
    932Telephony subscribers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,106
    
    
    
    4,106Total revenue generating
subscribers
    
    
    194,129
    
    
    
    149,158
    
    
    
    172,017
    
    
    
    485,384
    
    
    
    405,174
    
    
    
    1,405,862
 Germany. We serve our subscribers primarily under long-term public
concession agreements with local governmental authorities and under private
concession agreements with housing associations that administer large housing
blocks. Many of our private concession agreements with housing associations
provide that we are the exclusive provider of cable services in the concession
area. We have direct billing and servicing relationships with approximately
80%, of our subscribers. We have indirect billing and servicing relationships
with approximately 20%, of our subscribers, whereby governmental authorities
and housing associations receive broadcasting signal from us and are
responsible for billing and collecting subscription fees. Most of our indirect
billing relationships are with recently acquired subscribers and we intend to
establish direct relationships with these subscribers in the future. The Netherlands. Our Dutch subscribers reside in approximately 40
municipalities across the province of Noord-Holland, which is located in the
northwest region of The Netherlands and north of Amsterdam. We provide our
services under operating agreements with local municipalities. In accordance
with Dutch regulation, these contracts may not designate us as the exclusive
provider of cable services in these regions. We believe, however, that we are
the sole cable operator in each of the local neighborhoods in which we conduct
business. We maintain direct servicing relationships with all of our cable
subscribers in The Netherlands. The billing of our analog cable services had
been outsourced to local energy companies until the end of 2003. Since 2004 the
billing is handled directly by us. The billing of our digital and Internet
services is handled directly by us. We also manage the billing 18




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##### Table of Contents



internally for our business product offerings like data communications (leased lines),
Kennisnet and Broadband Office (Internet for B2B). The billing for telephony
services is outsourced. Our networks Germany As described below, we operate a combination of level 2, level 3, level 4
(non B-1) and level 4 (B-1) cable networks, as well as broadband networks in
Germany. We intend to upgrade a portion of our cable networks to broadband
networks over the next five years. Cable Television networks. Deutsche Telekoms historic monopoly position
in the German cable industry and the fact they only constructed networks to the
outside of a subscribers home or apartment building most of the time, has
resulted in the development of a dual ownership network structure serving cable
subscribers, whereby Kabel Deutschland typically owns the network from the
head-end to the subscriber connection point and private operators typically own
the in-house cabling. This dual ownership structure is distinct from the
single ownership cable structure prevalent in the United States and in most
European Union countries, in which private operators own the network in its
entirety, from the head-end to the in-house cabling. Cable networks in Germany
are therefore divided into categories, referred to as levels, depending on the
function the cable network has in the delivery of cable services to
subscribers. (CABLE NETWORK GRAPHIC) Level 4 networks. A network where the cable operators role is limited to
extending the cable network from the end of Deutsche Telekoms principal
transmission line (or that of a private cable operator who has purchased a
Deutsche Telekom operating company) at the front door of the home to the
subscriber is known as a level 4 network. In a level 4 network, the operators
role is limited to concluding and renewing subscription agreements, installing
the wiring in the home, billing, collecting and servicing subscribers. Level 4
networks are the result of the exercise by Deutsche Telekom of its historical
right of first refusal with respect to a coverage area. In these coverage
areas, Kabel Deutschland and successor private operators continue to own and
operate the head-end and the principal transmission lines. Cable network
operators are required to pay Kabel Deutschland a signal delivery fee pursuant
to agreements known as signal delivery contracts. A variation in operating a level 4 network, which developed in the old
German states while Deutsche Telekom enjoyed its network monopoly prior to
August 1, 1996, is the so-called B-1 co-operation model. Because of its
monopoly position, Deutsche Telekom was able to grant exclusive licenses to
cable television operators in discrete geographic areas, which enabled those
operators to operate a level 4 network. Under the terms of these exclusive
licenses and based on the size of the geographic area covered by the license,
the cable operator committed itself to enrolling a pre-determined number of
subscribers. Licensing fees owed to Deutsche Telekom were typically calculated
on the basis of this pre-determined number of subscribers, whether or not the
cable operator actually succeeded in enrolling the subscribers. 19




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Level 3 networks. A network where the cable network operator has entered
into a signal delivery contract with Kabel Deutschland and successor private
operators in lieu of owning and operating its own head-end is known as a level
3 network. In addition to performing the tasks of an operator under a level 4
agreement, the operator is responsible for delivering a signal from the
connection point of Kabel Deutschlands or successor private operators
networks to the front-door of the subscriber. In a level 3 network, cable
network operators are required to pay Kabel Deutschland and successor private
operators a fee for access to its network or for signal delivery. Level 2 networks. A network where the cable network operator owns and
operates the entire cable network, from the head-end to the in-house
connection, is known as a level 2 network. Level 2 networks are like the
networks operated by cable network operators in the United States and the
United Kingdom. Under a level 2 network, cable network operators do not pay
signal delivery fees to Kabel Deutschland and successor private operators, but
receive programming using terrestrial antennas and satellite dishes in their
own head-ends. Substantially all of our cable television networks are capable of
distributing more than 40 channels and are constructed using star architecture.
Our cable television networks in Germany have the following technical
characteristics:  
        
        television signal is received by a Deutsche Telekom
connection point or the connection point of a private cable operator
(level 3 and 4 networks) or by terrestrial antennae or satellite
receivers at one of our head-ends (level 2 networks);
        
        received signal is delivered to the home through coaxial
cable using bandwidths of up to 450 MHz; and
        
        transmitting of signal is one-way for our analog cable
subscribers. Broadband networks. We believe we were the first operator in Germany to
begin upgrading its cable television networks to broadband networks and we are
one of the largest cable operators of broadband networks in Germany. We pass
approximately 1,620,000 homes and have upgraded approximately 135,000 homes in
the city of Mainz and the Sachsen/Sachsen-Anhalt/Thüringen region. We intend
to continue to upgrade selected portions of our German networks over the next
five years and to focus our upgrading activity on regions with higher
subscriber density. Our broadband networks are 862 MHz two-way, high-speed networks capable of
delivering analog and digital cable television, telecommunications and
high-speed Internet and data services, including interactive services. The
following diagram summarizes the technical characteristics of our broadband
network. 20




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##### Table of Contents



(CABLE NETWORK GRAPHIC) Our upgraded network in the city of Leipzig and other portions of the
Sachsen/Sachsen-Anhalt/Thüringen region are the model for our continuing
network upgrades with the exception of the digital playout facilities. We
intend to use the existing digital playout facilities and Internet servers
located at the Leipzig head-end to support Internet services, the tiering of
digital channels and pay-per-view services not only in the city of Mainz and
the Sachsen/Sachsen-Anhalt/Thüringen region but also in other regions in which
we upgrade our networks. Ultimately, we intend to install the necessary
equipment at the Leipzig head-end to support our future telephone offering.
Our fiber backbone consists of a main ring that connects the upgraded cities
and larger city-parts to the master headend, and of smaller fiber structures
that bring fiber from the main ring to the fiber node areas that typically
serve between 500 and 1000 homes. As we continue to add more of these fiber
structures, the fiber optic matrix will cover increasingly more portions of the
city inside the main fiber loop. Fiber nodes are located at various points within this fiber optic matrix.
Each fiber node contains an optical receiver and transmitter where the optical
signal received from the head-end is converted to an electrical signal which is
transmitted over coaxial cable to the home and where electrical signal received
by coaxial cable from the home is converted to an optic signal and sent to the
head-end. Coaxial cables run from the nodes to the wall outlets of homes.
Each fiber node serves between 500 and 1,000 subscribers. Our digital set-top
boxes, provided by Galaxis Technology AG, enable subscribers to receive digital
television and high-speed Internet services. Subscribers who do not have a
digital set-top box but purchase high-speed Internet services will use a
stand-alone cable modem. The network provides a 65 MHz return path. In those portions of a city where we do not have existing coaxial cable,
we lay coaxial cable from the fiber nodes to the homes of new subscribers.
Within the coaxial network, we have either replaced (in those cases where we
had existing coaxial networks) or installed (in those cases where we built new
coaxial networks) new electronic equipment that increases the total bandwidth
of the network to 862 MHz and allows for signals to be sent in from the
subscriber to the head-end in the return path that uses the bandwidth up to 65
MHz. As we continue our network upgrade, we intend to use the architecture
described above. As a result, there may be instances where our fiber optic
matrix covers portions of a city which are served by other cable operators and
where, prior to the upgrade, we did not pass any homes and did not have any
subscribers. We believe that passing these new homes will allow us to attract
new subscribers. We believe that the clustering strategy which we have been pursuing will
also be beneficial in the context of our network upgrade as it will enable us
to achieve economies of scale. By focusing our upgrade on our most densely
populated clusters of network subscribers, we expect to minimize upgrade costs
per home. For example, we expect 21




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##### Table of Contents



that the digital playout facilities and
Internet servers in Leipzig will serve the other regions we are planning to
upgrade, thereby reducing capital expenditure requirements in those regions.
We further believe our upgrade plans in Germany will reduce our dependence on
Kabel Deutschland or successor private network operators who have purchased
cable assets from Deutsche Telekom, for signal delivery. We believe that
reducing our signal delivery fees will have a positive effect on our operating
results and that greater control of our network will have a positive effect on
our programming flexibility, our quality of service, and our penetration among
broadband subscribers The Netherlands The vast majority of our network in the Netherlands is a fully upgraded,
two-way broadband network with a 60 MegaHertz (MHz) return path capable of
delivering a full range of broadband services including interactive digital
television, high-speed Internet access and telecommunications services.
Approximately 9,000 of the our 337,000 homes are not connected and
approximately 7,500 subscribers are located in two small cities in the south
eastern part of our Dutch service area that are not contiguous to the rest of
our network and have not been upgraded. These homes receive a programming
signal from a third-party head-end and we intend either to sell these
non-upgraded network homes or swap them for homes in contiguous areas. Our networks in The Netherlands serve communities in the province of
Noord-Holland in the northwestern part of the country, including the business
areas surrounding Schiphol airport but not the main cities in this region, i.e.
Amsterdam, Zaanstad, Hilversum, Alkmaar and Haarlem. Unlike in Germany, where
the ownership of cable networks is frequently divided between Deutsche Telekom
and private operators, networks in The Netherlands are typically owned in their
entirety by network operators. We own substantially all of our distribution
system from the head-end to the subscribers home connection point, except for
approximately 100 kilometers of fiber optic cabling which we lease. Our network in The Netherlands has the following characteristics:  
        
        A regional head-end located in Alkmaar receives television
and radio signal, converts this signal to optical signal and
transmits it to the fiber optic backbone. The ISP platform and other
central systems are also located in this head-end.
        
        A fiber optic backbone, which passes the network region with
1,400 km of 862 MHz fiber optic cabling and transmits optical signal
to 34 fiber hubs and 610 fiber nodes.
        
        Fiber nodes convert optical signal to electrical signal of up
to 862 MHz and distribute this signal via coaxial cable to
subscriber homes. Some of the hubs receive additional local radio
and television channels, supplementing signal received from the
head-end.
        
        Amplifiers maintain the signal on its way from a node to a
multitap, from which it goes to individual homes. In most cases two
amplifiers are sufficient, but in some cases as many as six may be
needed.
        
        Almost 75% of the multitaps are equipped with Citycom modems,
which make it possible to remotely switch on and off the signal to
individual subscribers.
        
        Modems or media terminal adaptors and set-top boxes are
located on the premises of customers who receive high-speed Internet
access, telephony or digital programming.
        
        Telecommunications services are provided to business
customers using our Synchronous Digital Hierarchy (SDH) technology
and Ethernet-protocol network. Netcool is implemented as the central fault management platform. Netcool
collects fault information from various element managers and network nodes.
Multikabel also uses applications like Rosa, mostly for analog ITM-SC (SDH
management system created by Lucent), DMS (DOCSIS management system developed
by Multikabel) and Alarmpoint. We completed the replacement of the provisioning
system CPS 2000 with OSS in 2003. The installation of an uninterruptible power
supply (UPS) system to reliably support all services is in the process of
implementation in the first half of 2004. In order to prevent outsiders
hacking into the Multikabel network, new routers resistant to hacking and a new
routering design are currently being installed. 22




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##### Table of Contents



Programming and product offerings Germany Basic cable television. We offer two primary packages of basic cable
television programming services: a ground package and a standard package. The
ground package consists generally of network and public terrestrial television
signal available over the air in the concession area, and typically includes
between three and eight channels, depending on the service area. The standard
package consists primarily of satellite-delivered programming, and includes an
average of 32 television channels and 29 radio channels and a digital offer of
ARD/ZDF/Premiere, depending on the service area. Additionally, in some
markets, we offer either one or two additional packages of basic cable
television programming service. Approximately 95% of our subscribers subscribe
to at least the standard package of service. The following sets forth the programming of nationwide channels typically
offered in our standard analog package. Not all programs are available in
certain service areas. 23




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##### Table of Contents



Channel
    
    Description
    
    Channel
    
    Description3Sat
    
    ARD/ZDF, ORF and SRG news and
sports
    
    Onyx-tv
    
    Music and entertainmentARD
    
    General interest
    
    ORB
    
    Regional news, sports
and entertainmentARD/ZDF digital
    
    General interest and entertainment
    
    Phoenix
    
    Documentary and
political eventsARTE
    
    Cultural arts
    
    Premiere Digital
    
    Pay TVBayern 3
    
    Regional news, sports and
entertainment
    
    Pro Sieben
    
    News and entertainmentBR-Alpha
    
    Cultural and educational
programming
    
    QVC German
    
    TeleshoppingDSF
    
    German sports
    
    Regional B1
    
    Regional newsTV Travel Shop
    
    Travelchannel
    
    RTL
    
    24-hour entertainmentEurosport
    
    European sports
    
    RTL 2
    
    Entertainment for young
peopleHome Shopping Europe
    
    Teleshopping
    
    SAT 1
    
    24-hour entertainmentHR 3
    
    Regional news, sports and
entertainment
    
    Super RTL
    
    EntertainmentKabel 1
    
    Entertainment and movies
    
    SWR
    
    Regional news, sports
and entertainmentKika
    
    Programming for children
    
    Tele 5
    
    EntertainmentMDR 3
    
    Regional news, sports and
entertainment
    
    Viva
    
    24-hour music televisionMTV
    
    Music videos
    
    Viva 2
    
    24-hour music televisionMTV2
    
    Music videos
    
    Vox
    
    News and entertainmentn-tv
    
    News and information
    
    WDR
    
    Regional news, sports
and entertainmentNord 3
    
    Regional news, sport and
entertainment
    
    ZDF
    
    General interestNews and information
    
    News and information
 We receive approximately 50% our programming directly from broadcasters
via our own head-end and the remaining 50% indirectly from broadcasters
through signal delivery contracts with Kabel Deutschland and successor private
operators. Current broadband product offering. We currently offer the following
broadband services to subscribers in Leipzig and in those areas of the
Sachsen/Sachsen-Anhalt/Thüringen region that are connected to our upgraded
networks: 24




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##### Table of Contents



Current broadband product offeringDigital television. We believe that
we were the first German cable operator to offer digital services to our
subscribers. We launched our digital television services in the city of Leipzig
between October and November 2000. As of December 31, 2003, our digital
offering was available to approximately 135,000 homes which serve approximately
96,000 analog television subscribers, and approximately 6,220 digital set-top
boxes had been installed in subscriber homes and were paying customers. We
intend to continually expand and improve the range of channels included in our
digital television offering. Our primatv digital product offers channels in digital format and eight
different packages with additional digital channels as follows: primatv Basis
    
    ARD Digital
    
    ZDF vision
    
    Zusätzliche SenderDas Erste
    
    ZDF
    
    CNNBayerisches FS
    
    ZDFdokukanal
    
    Deutsche WelleBR-alpha
    
    ZDFinfokanal
    
    Home Shopping-EuropeEinsExtra
    
    ZDFtheaterkanal
    
    Sachsen FernsehenEinsFestival
    
    EuroNews
    
    MTVEinsMuXx
    
    Eurosport
    
    MTV2 POPHessen Fernsehen
    
    CNBC
    
    n-tvMDR Fernsehen
    
    
    
    OnyxNDR Fernsehen
    
    
    
    QVCRBB Berlin
    
    Zu ARD Digital
    
    Tele 5RBB Brandenburg
    
    & ZDF Vision
    
    TV5SR Fernsehen
    
    3sat
    
    TW1Südwest BW
    
    arte
    
    VivaSüdwest RP
    
    Kinderkanal
    
    Viva plusWDR Fernsehen
    
    Phoenixprimatv Maxi*:
    
    primatv Family*
    Silverline, SciFi,
13TH STREET, BBC Prime, BBC Learningprimatv Life*
    Club, Extreme Sports, Fashion TV, Trace by MCM, ESPN Classic Sportprimatv Wissen*
    BBC World, Bahn TV, PLANET, einstein.tvprimatv Erotik
    The Adult Channeladditional offers:
    
    MTV-Paket
    MTV 2, MTV base, MTVhits!, VH-1, VH-1 ClassicGoldStar Extra
    GoldStar TV, HeimatkanalBibel TV
    Bibel TVForeign Language
    
    
    EDtv* (arab.)NTV Mir* (russ.)VTV4 for Europe*Turkish Programm
    Lig TV*, Sinema Turk*
   *
    
    Subscribers can subscribe to these four packages for a combined price
which is generally lower than the cumulative individual prices of each package. The basic offering primatv Basis is currently priced at a promotional
monthly subscription rate. The set-top box rental is included in the monthly
subscription fee and a one-time installation fee is charged if our service team
installs the set-top box. primatv Basis contains non-crypted digital channels.
Access to these channels is available on all compatible set-top-boxes. We rent
a set-top box to our customers for a monthly fee. 25




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##### Table of Contents



Customers can also subscribe to primatv Maxi (which includes primatv
Wissen, primatv Life, primatv Family and primatv Erotik) for a package
discount, two packages as offered by MTV and GoldStar Extra; and several
stand-alone-channels (e.g BibelTV, ORT International, VTV4). As we introduce
further and improved programming and as use of our digital package service
increases, we expect to target selective rate increases for our digital
offering. Customers using a set-top box also have access to our electronic
program guide. Current broadband product offering-Pay-per-view. Digital subscribers also
have access to up to 15 pay-per-view channels. The movies can be ordered by
subscribers using their remote control. Current broadband product offering-primaspeed Internet access. We launched
high-speed Internet services to both residential and business subscribers in
the fourth quarter of 1999. At December 31, 2003, we provided high-speed
Internet service to 6,845 subscribers. Under the name primaspeed Free an
additional tariff was launched, which offers subscribers a broadband Internet
tariff without fixed monthly costs. In this tariff, billing is based
exclusively upon usage and targets customers who prefer to pay for the broadband
performance on a call-by-call basis.  
    
    primaspeed Free. This package offers subscribers 24-hour
high-speed Internet access at up to sixteen times the speed of
Integrated Services Digital Network (ISDN) or up to 1024 kilobits
per second (Kbps) (256 Kbps upstream) with no fix monthly fee. The
billing of this service is based exclusively upon the volume of data
used. The rental cost for the modem is included in the price for the
data volume and no deposit is paid. The subscriber commits solely to
return the modem if he does not use it for longer than three months.
Subscribers can also use broadband services, a game server and
other value-added services.
    
    primaspeed Start.This package offers subscribers 24-hour
high-speed Internet access at up to twice the speed of ISDN, or
128Kbps (64 Kbps upstream). The monthly fee includes a data volume
of 500 Mbyte and e-mail account services with full support from our
customer service team. The customer can either purchase or rent (for
a monthly fee) the cable modem from us. Subscribers may also access
our Internet portal for broadband services, such as a game server
and additional value-added services. The customer is charged for
additional data volume.
    
    primaspeed Easy. This package offers subscribers 24-hour
high-speed Internet access at up to four times the speed of ISDN, or
256 Kbps (128 Kbps upstream). The monthly fee includes a data volume
of 1,500 Mbyte, 10 MB web space and e-mail account services with
full support from our customer service team. The customer can either
purchase or rent (for a monthly fee) the cable modem from us.
Subscribers may also access our Internet portal for broadband
services, such as a game server and additional value-added services.
The customer is charged for additional data volume.
    
    primaspeed Pro. This package offers subscribers 24-hour
high-speed Internet access at up to 16 times the speed of ISDN, or
1,024 Kbps (256 Kbps upstream), for a fixed monthly fee. The monthly
fee includes a data volume of 10,000 Mbyte, 10 MB web space and
e-mail account services with full support from our customer service
team. The customer can either purchase rent (for a monthly fee) the
cable modem from us. Subscribers may also access our Internet portal
for broadband services, such as a game server and additional
value-added services.
    
    Unified messaging service. All packages include our Unified
Messaging Service. With this service, subscribers have access via
the Internet to their e-mail account. Via the Internet subscribers
will also be able to send SMS text messages to German mobile phones.
Subscribers are also able to store contacts in the online
contact-database and use the personal calendar. Current
broadband product offeringData communications.We currently offer
and intend to further promote fixed data communications products to business
subscribers. These products take advantage of the fiber-rich, upgraded portions
of our network to offer leased lines and wholesale carrier services. 26




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Interactive pay-per-view.We plan to offer email services on our
set-top-boxes in the future. Future broadband product offerings.We intend to expand our existing
broadband product offering to include a range of additional broadband services.
Our planned offering of additional broadband products includes the following
primary services:  
    
    Video-on-demand.We intend to develop and introduce a range
of video-on-demand services to complement our existing Near Video on
Demand (pay-per-view offering). We expect to develop this offering
in cooperation with third-party providers of programming and
technology, and we intend to introduce these services to our
subscribers over the next two years. The Netherlands Current
broadband product offeringAnalog Television.Our analog
television offer includes two packages of television programming: basic and
standard. The basic package consists of 15 television and 40 radio channels.
The standard package includes 42 television and 40 radio channels. Both
packages carry a on-off time installation fee. The majority of our analog
subscribers purchase the standard package. The standard packages include the following channels (with variances in
certain municipalities). Channel
    
    Description
    
    Channel
    
    DescriptionAnimal Planet
    
    Documentary
    
    Nickelodeon/Kindernet
    
    ChildrenARD
    
    General Interest (Germany)
    
    Phoenix/CNE
    
    Chinese channelArte
    
    Culture (Germany)
    
    R.O.B. TV/Lokale omroep
    
    Local programmingBBC 1
    
    General Interest (UK)
    
    RAI Uno
    
    General Interest (Italy)BBC 2
    
    General Interest (UK)
    
    Regionet/lJmond TV
    
    General Interest (Regional)BBC World
    
    International news
    
    RTL Television
    
    General InterestCNBC/Nat. Geographic
    
    News/Documentary
    
    RTL4
    
    General InterestCNN
    
    International news
    
    RTL5
    
    General InterestDiscovery Channel
    
    Documentary
    
    SBS 6
    
    General InterestEuronews
    
    International news
    
    Tel Sell
    
    Home shoppingEurosport
    
    Sports
    
    The Box
    
    Music VideosFrance 2
    
    General Interest (France)
    
    TMF
    
    Music videosKabelkrant Nieuws TV
    
    Local news
    
    TRT
    
    Turkish channelKetnet/Canvas
    
    General Interest (Belgium)
    
    TV Noord-Holland
    
    Local programmingLokale omroep/kabelkrant
    
    Local programming
    
    TV5
    
    General Interest (France)MBC
    
    Arabic channel
    
    TVE
    
    General Interest (Spain)MTV Europe
    
    Music Videos
    
    Vox Kids/Veronica
    
    Children/General InterestMultiview
    
    Service Channel
    
    VRT TV1
    
    General Interest (Belgium)Nederland 1
    
    General Interest
    
    WDR
    
    General Interest (Germany)Nederland 2
    
    General Interest
    
    Yorin
    
    General InterestNederland 3
    
    General Interest
    
    ZDF
    
    General Interest (Germany)Net 5
    
    General Interest
 27




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Canal+ can be added to this package as a pay-tv product, but it is not
included in our basic or standard package and is not directly marketed by us. Current broadband product offeringDigital Television. We launched our
digital television product under the brand name Mr. Zap in May 2000. The
digital television product is widely available, and we provided digital service
to 5,963 subscribers as of December 31, 2003. We offer our digital television
product in cooperation with Mediakabel (a joint venture established by seven
Dutch cable operators (including us) to, offer a digital television package to
the Dutch cable market). Since mid 2002 we no longer provide pay-per-view/near
video-on-demand services and we have also stopped providing interactive games.
We currently have a basic digital package (consisting of additional channels
and channels which are available on the analog package), some special interest
channels and premium channels. These packages are summarized below:  
    
    Basic Digital Package Adventure 1
Adult ChannelAnimal Planet
ARD
Arte
AvanteBBC1
BBC2
BBC PrimeBBC World
Bloomberg
Cartoon Network
Club
CNBCCNN
Discovery Channel
Discovery Civilization
Discovery Science
Discovery Travel & Adventure
E! EntertainmentEuronews
Eurosport
Eurosport (News)
Extreme Sports
Fashion TVFrance 2
Hallmark
Mezzo
MTV 2
MTV BaseMTV Europe
    
    MTV Hits
Motors TV
Music Choice (40 digital music channels)National Geographic Channel
Nederland 1
Nederland 2
Nederland 3
Net 5
Nickelodeon/Kindernet
PerformancePhoenix CNE
Playboy TV
Private Blue
Private GoldRAI Uno
Reality TV
Sailing TV
Sat1/Pro7SBS 6
Sky News
TBN
TCMTMF
Travel ChannelTV 5
Veronica
VH1
VH1 ClassicWDR
ZDF
 Programs in italics are simulcast from analog 28




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
    
    Premium and special interest channels: In addition to the basic digital package subscribers may purchase the
following premium and special interest channels: CineNova
Set Asia/ Zee TV
TVBS-E
    
    Movie channel
Hindustani television
Chinese television
 Internet access. Since December 31, 2003, 79,493 residential subscribers
and 932 business subscribers received always-on, high-speed Internet services
from us. This compared to 48,367 residential and 550 business subscribers in
December 31, 2002. We offer the following packages to our residential
subscribers:  
    
    Easy package: Our always-on access, with speed of 128
Kbps downstream and 64 Kbps upstream, one e-mail account, with an
acceptable use policy (AUP).
    
    Family package(introduced in January, 2003): This
product provides Internet access speeds of 384 Kbps downstream
and 128 Kbps upstream, e-mail services and also an AUP regarding
download capacity.
    
    Power package.This product provides Internet access
speeds of at least 1,024 Kbps downstream and 128 Kbps upstream.
Subscribers also benefit from unlimited download capacity AUP,
e-mail services, and home page capability with 15 Mb capacity.
    
    Power Plus package.This product provides Internet
access speeds of at least 1.536 Kbps downstream and 256 Kbps
upstream. Subscribers also benefit from unlimited download
capacity AUP, e-mail services, a home page capability with 20 MB
capacity and the possibility of connecting several personal
computers.
    
    XL-lerate package. This package provides Internet
access speeds of at least 4 Mbps downstream and 512 Kbps
upstream. Subscribers will also benefit from unlimited download
capacity (AUP), e-mail services, a home page capability of 20 MB
and the possibility of connecting several personal computers.
    
    X-tra package. This package provides Internet access
speeds of at least 1,536 Kbps downstream and 1,024 Kbps upstream,
making this product more attractive for heavy users and game
players. E-mail and download facilities are similar to the
XL-lerate package. Our packages for the business market are:  
    
    Broadband Office regular. This product provides Internet
access speeds of at least 768 Kbps downstream and 128 Kbps upstream,
a fixed IP-address, e-mail services and possibilities for connecting
web and e-mail server; and
    
    Broadband Office Premium. This product provides Internet
access speeds of at least 1,536 Kbps downstream and 256 Kbps
upstream, a fixed IP-address, e-mail services and possibilities for
connecting web and e-mail server. Data communications. We offer the following data communications products
to business subscribers:  
    
    CableLink.This service uses existing coax cable connections
for datacommunications with a choice of 256 Kbps, 512 Kbps or 1,024
Kbps at a fixed monthly price depending on the speed and distance
between the locations of subscribers. This service offers the
security of a virtual private network. 29




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
    
    QualityLink.This service provides a dedicated fiber
connection for data communications (transparent or Ethernet) at a
fixed monthly price depending on the speed and distance between the
locations of subscribers. The transparent speeds are 2, 34, 155 or
622 Mbps. Ethernet-speeds range from: 512 Kbps, 1, 2, 4, 6, 8, 10,
50, 100 Mbps to 1 Gbps.
    
    Internet Link. This product provides Internet access speeds
of 256 Kbps, 512 Kbps, 1, 2, 4, 6, 8, 10, 50 and 100 Mbps
(non-overbooked, symmetric upstream and downstream) at a fixed
monthly price depending on the speed levels. We try to distinguish
ourself from competitors by offering a lower price, broader product
range and faster implementation.
    
    Kennisnet intranet service. As of December 31, 2003, we
connected 617 Dutch schools and educational institutions, libraries
and museums to the Kennisnetintranet service by linking our
networks with other cable operators. This intranet project provides
schools with access to the Internet through an organization called
nl.tree, which is a joint venture of several cable operators.
nl.tree successfully tendered a contract from the Dutch government
which expired in January 2004. After this term the schools are free
to choose their Internet provider. Following this retender we expect
to retain approximately 50% of the above customer base. TelephonyWe are currently rolling out a hybrid Internet protocol
(IP)/public switched telephone network (PSTN) based telephony service (VoIP)
which we expect to be able to offer to the entire upgraded area in the third
quarter of 2004. This will compliment the Internet subscription and provide end
customers with an attractive alternative to KPN. Although both penetration and
usage of fixed line telephony might decline in the future, the fixed fees of
telephony subscription offer an opportunity to gain additional revenues from
subscribers. As of December 31, 2003 we had 4,106 telephony subscribers. QuickNet DSL servicesIn areas which have not been upgraded and outside
the service area, QuickNeta 100% affiliaterecently started to offer
broadband Internet via Asymmetric Digital Subscriber Line (ADSL). The first
mile of the local loop is provided by bbned which takes over the line from KPN.
QuickNet uses the Digital Subscriber Line (DSL) backbone of bbned but it also
has its own serverpark. QuickNet DSL is available in all areas in The
Netherlands where bbned has use of the local loop, but it is only selectively
offered around our service area. As of December 31, 2003 QuickNet had 500 DSL
customers. Sales, marketing and customer service Germany Our sales and customer service function is organized regionally in
Germany. We employ account managers to originate and service large account
relationships with housing associations and local governmental authorities. In
addition, we conduct direct sales at the individual subscriber level via
telesales and door-to-door sales; for this purpose we have entered into service
contracts with external service providers and several housing associations. We
maintain centralized customer call centers in each of our operating regions,
which enable us to cost-effectively service a large number of subscribers in
each regional cluster. Customer call centers are available to handle new
account and service requests. We employ network operations staff and field
technicians in each region to handle new subscriber installations and service
interruptions. Moreover, we have installed a corporate sales unit which manages
key accounts on a national level, maintains relations with national
associations of housing corporations, real estate agents and the housing
industry association. The corporate sales unit works closely with our regional
sales offices. 30




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The Netherlands Members of our marketing and sales staff focus on specific product
offerings (e.g. the digital television package or the Internet portfolio). This
group works with product development and technical staff to improve the key
features of our product offering and to determine pricing and promotional
strategies. Our marketing program includes the following primary features:  
    
    Zo! Magazine: This quarterly publication is provided to all
residential subscribers and contains general news about Multikabel
and about new product offers. New subscribers also receive a
welcome package outlining the full range of products available to
subscribers.
    
    Inzake: This publication for our existing and potential
business customers focuses on our commercial leased line and
Internet products.
    
    MultiView channel: This television channel appears on all our
channels and broadcasts the full range of products available to our
subscribers.
    
    Multikabel website: Our local (Dutch) website also outlines
our products which can be purchased on-line.
    
    Direct mail and advertising: We have conducted targeted
direct mail and advertising campaigns specifically promoting our
analog and digital television services, our Internet and telephony
services and our commercial data communications and Internet
products.
    
    Development of the retail channel
    
    Outbound sales calls for digital television, telephony and Internet.
    
    Specific marketing campaigns such as offers to members only and, introductory discounts.
    
    Product bundling. Product Development is fully integrated within our marketing strategy. New
product development is always initiated by marketing but it engages all
operational divisions in the process. New product development is not time
consuming due to our flat organizational structure. The development of new
products and services is often undertaken through flexible and focused project
groups. Our customer call center employs approximately 130 persons (full time and
part time). The call center and the help desk are open from 9:00 a.m. to 9:00
p.m. on weekdays and from 10:00 a.m. to 5:00 p.m. on weekends to assist
subscribers with new services, billing-related inquiries and to respond to
questions about analog and digital television services, Internet and telephony
services. The customer call center works with third-party call centers to offer
24-hour use with service interruptions. We employ a team of full-time service
technicians, and also from time to time third-party technicians. Our billing for the analog audio/video services had been outsourced to
local utility companies until December 2003. Since January 2004 we invoice all
our analog customers directly and make use of direct debit facilities. We bill
Internet services, digital television and telephony in-house, although we have
outsourced the billing for ratings and mediation for Telephony. Billing and
collection efforts for the business offerings are carried out internally. 31




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Material contracts Germany Copyright royalties for television programming transmitted over our cable
television networks.Until 1998, we were able to receive our analog
programming, whether directly or indirectly, at no charge from the broadcaster
and without any formal agreement or contract with the broadcasters. The
applicable provisions of the German Copyright Act (Urheberrechtsgesetz)
regarding retransmission of programming were amended in 1998 to implement the
EC Directive on Cable and Satellite Broadcasting. This law provides for a
so-called compulsory license, which requires the broadcasters to permit cable
and broadband network operators to retransmit programming in return for payment
of a reasonable fee. In 1998, the German Copyright Act was amended to require the payment of
copyright royalties for the retransmission of copyright-protected television
and radio programming by cable and broadband operators. The German Copyright
Act does not set forth the amount to be paid. GEMA, one of the German copyright
collecting societies, has been mandated by the other German copyright
collecting societies to collect these retransmission royalties. GEMA has
publicly announced its intention to collect royalty fees for television and
radio signal received terrestrially by cable and broadband operators
retroactively to July 1, 1997. We have been informed that the license fee for
terrestrial retransmission will be assessed if such terrestrial broadcast is
received on the network operators own head-ends, but not, however, if it is
received via Kabel Deutschland signal delivery points, in which case GEMA
considers the license fees payable by Kabel Deutschland to cover all
retransmission of copyright-protected programming. In 1999, GEMA entered into a framework agreement with the Association of
Private Cable Operators e.V., or ANGA, which, among other things, provides for
the collection of license fees retroactively to July 1997. We believe that
under the ANGA and GEMA framework agreement, GEMA is not yet collecting license
fees for retransmission of satellite broadcasting from private cable and
broadband operators, but may choose to do so in the future. Members of ANGA who
accept this framework agreement receive a 20% reduction in the announced
standard fees, resulting in a general license fee equal to 4% of the monthly
subscription fees received by private operators from subscribers served by
level 2 and 3 networks. Value-added taxes are also due on the general license
fee. Since January 2000, we imposed a rate increase to cover the possible
imposition of GEMA fees and began accruing for what we consider to be
appropriate royalty fees if we had to pay GEMA. Our ability to recover
retroactive copyright royalty fees from subscribers may be undermined if we are
unable to pass on copyright royalties assessed for past periods. In May 2003, VG Media, Gesellschaft zur Verwertung der Urheber- und
Leistungsschutzrechte von Medienunternehmen mbH declared its mandate to
collect retransmission royalties for private radio and television societies.
Since then GEMA is only in charge of safeguarding the interests of the public
radio and television companies. We have been a member of ANGA since December 2003 and one affiliate
contracted with VG Media as part of the wider ANGA-contract. VG Media does not
charge us for fees where we receive signal from other providers, although it
does charge us for fees we receive for our programming services provided to
third cable network operators. This agreement is effective starting on January
1, 2003. For fees prior to that date, we are still still in negotiations. For the time period starting January 1, 2003 ANGA has been negotiating a
contract with GEMA and we will have to negotiate prior liabilities to GEMA
separately. 32




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Signal delivery payments to the regional companies of Kabel Deutschland
and successor private operators for television programming transmitted over our
cable television networks.For our level 3 and level 4 networks, we entered
into signal delivery contracts with the regional companies of Kabel Deutschland
prior to the sale by Kabel Deutschland of some of its cable networks. Where
Kabel Deutschland retained its network it remains our contract partner but
where it sold networks, successor private cable operators have assumed the
obligations of Kabel Deutschland under the signal delivery contracts and have
become our contract partners under the same terms as those contained in the
original signal delivery contracts. At December 31, 2003, approximately 51.3%
of our television subscribers were served by level 3 and level 4 networks,
which receive programming pursuant to signal delivery contracts and 48.7% of
our customers were served by own head ends. In Leipzig, (historically a level
3 network), we operate our own interactive network, that provides subscribers
with our digital package, high-speed Internet and pay-per-view services.
Galaxis waived our obligation to purchase the remainder of the set-top boxes.
We intend to continue to consolidate connection points and build head-ends to
reduce signal delivery fees paid to the regional companies of Kabel Deutschland
and successor private operators and to reduce our dependency on the product
offering and eliminate certain pricing constraints. The terms of our signal delivery contracts vary. Most signal delivery
contracts are for a fixed period, usually five to ten years, and are subject to
negotiated renewal. We typically pay Kabel Deutschland and successor private
operators either a flat fee or a fee per subscriber that is determined by
reference to a published fee schedule based on the number of homes connected to
one connection point. A number of signal delivery contracts provide for price
escalation during the first three or five years (Bauzeitenregelung) to ease our
initial network development costs. The ceilings in the majority of these
escalation clauses of these contracts have been reached. Rate increases by the
regional companies of Kabel Deutschland and their successors have resulted in
an increase in the aggregate amount of signal delivery fees we pay to Kabel
Deutschland and their successors. Due to negotiations with regional companies
of Kabel Deutschland and their successors we managed to partially lower the
increase. Moreover, we have generally been able to correspondingly increase
the monthly subscription rates paid by our subscribers to offset the increase
we have paid. We expect that our dependence on signal delivery contracts can
be reduced if we continue to increase delivery via our own head ends. Contracts for digital television programming transmitted over our
broadband networks.We have entered into contracts with the majority of the
program providers with whom we are required to enter into contracts to obtain
programming for our digital television packages and we are negotiating with the
remainder. In general, the terms of these contracts are from two to five years
and can be automatically extended for additional one year periods. 17 of our
agreements provide for the payment of a fixed fee per subscriber per month.
Three of our agreements provides for a monthly payment of 50% to 60% of the
revenues we generate from the channels which are subject to the agreement. In the event we wish to terminate our relationship with these program
providers, most of our contracts provide for termination by us if  
    
    less than 30% of our subscribers are interested in
subscribing;
    
    research conducted by us results in a finding that the
delivery of the channel does not meet market expectations;
    
    the content of the channel violates the statutory
requirements of the territory; or
    
    if the programmer breaches its obligations under the
agreement. In addition, we may terminate the agreements if the
programmer fails to deliver transmission during 15 minutes a day
for a total of 14 days during a 90 day period or if we are
obliged to do so by a governmental body. The contracts generally provide that the programmer may terminate only for
an uncured breach of the terms of the contract and upon 30 days written notice
to us. 33




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Contract for pay-per-view movies, sports and other events.We have
entered into contracts with program providers including Universal Studios
International B.V. for pay-per-view movies and other events we offer our
subscribers. These contracts are generally for short periods or for specific
events and have standard terms. Most of our agreements provide for the payment
of a flat fee per program. Contract for set-top boxes.On April 1, 2000, we entered into an
agreement with Galaxis Technology AG, or Galaxis, for the purchase of the
set-top boxes required for our digital television offering. Pursuant to this
agreement, we agreed to purchase up to 50,000 set-top boxes from Galaxis of
which 17,000 have been produced and 14,000 have been delivered. Galaxis waived
our obligation to purchase the remainder of the set-top-boxes. If we need
additional boxes we expect to enter into another agreement possibly with
Galaxis. We have not entered into any agreements with other set top box
manufacturers which require us to purchase a specific number of set top boxes. Concession agreements with our subscribers.In order to be able to provide
service to our subscribers, we have entered into public concession agreements
with local governmental authorities and private concession agreements with
housing associations that administer large housing blocks. The agreements with
governmental authorities were entered into prior to the enactment of the German
Telecommunications Act of August 1, 1996. We are generally not obligated to
make payments to local governmental authorities for the use we make of public
rights-of-way to deliver our services. Under the German Telecommunications
Act, holders of category 3 telecommunications licenses (which includes
broadband network operators like us) have the right to use public rights-of-way
free of charge for telecommunications lines serving public purposes provided
that the use does not unduly restrict the primary use of the public spaces.
Local building permits are required before new telecommunications lines are
laid or existing telecommunications lines are changed. The German
Telecommunications Act established a number of obligations related to this
free-of-charge use of public-rights-of-ways. As a result, since August 1,
1996, it has no longer been necessary for us to enter into public concession
agreements to obtain rights-of-way on public grounds. Therefore, we are in the
process to negotiate new public concession agreements with the local
governmental authorities coordinating the planning and construction of the
telecommunication lines with respect to the provisions of the German
Telecommunications Act. Otherwise we are terminating the extant public
concession agreement because of inoperativeness under the German
Telecommunications Act. Private concession agreements with housing associations provide us with
access to potential subscribers living in the housing blocks administered by
these authorities and also frequently provide us with the right to use the
respective private property owned by the housing associations. Individual
private concession agreements typically provide access to a relatively small
number of homes. As of December 31, 2003, our cable networks operated pursuant
to a few hundred public concession agreements with local governmental
authorities and more than 3,000 private concession agreements with housing
associations. Our private concession agreements typically contain standard conditions,
such as conditions of service and limitations on commencement and completion of
construction. Additionally, most of our concession agreements contain
provisions that permit us to raise the prices for our existing level of cable
services with reference to general inflation indices and to raise prices to
cover increased costs of programming. By timing rate increases to published
cost of living increases or the introduction of new or improved programming, we
have generally been able to increase the rates for our cable services without
the objection of the relevant contracting party. Many of our private concession agreements with housing associations
provide that we are the exclusive provider of cable services in the concession
area. Although we generally do not pay concession fees on any of our cable
networks, in some cases we pay housing associations for billing and collecting
subscription fees from homes within the applicable apartment blocks under
agreements entered into prior to our acquisition of the related cable systems.
In some limited cases, housing associations rather than the subscribers receive
the broadcasting signal as part of their agreements with us. In these cases,
the housing associations pay subscriber fees to us but are otherwise entirely
responsible for the handling of subscriber relationships. 34




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The Netherlands Analog programming.Generally we are currently not required to pay
programming fees for the channels included in our basic and standard analog
packages, except for the Discovery channel and Eurosport. In some instances,
we receive programming fees from broadcasters to carry their programming on our
networks. We pay royalty fees to BUMA/SENA, the Dutch copyright collection
agency, for the retransmission of programming over our network in The
Netherlands. Since July 2003, the following fees have applied for analog distribution:  BUMA:
    
    
    2.58 per subscriber per quarter for the basic package;2.93 per subscriber per quarter for the standard package (including basic package);SENA:
    
    
    0.10 per subscriber per quarter for the basic package;0.11 per subscriber per quarter for the standard package (including basic package). The agreement with Discovery was entered into in February 2002 and expires
on January 31, 2005, subject to earlier termination on three months notice.
The agreement with Eurosport was entered into on January 1, 2003 and ends on
December 31, 2005. Both agreements cover analog and digital delivery of
programming. We pay Eurosport 0.0833 per subscriber per quarter and Discovery:
 0.17017 per analog subscriber per quarter. Digital programming. In March 2000, Multikabel acquired a 15.71% share in
Mediakabel B.V., a consortium established by a group of Dutch cable television
operators in 1997 for the purpose of developing and introducing digital
broadcasting services in The Netherlands. Mediakabel provides a full range of
operational services to the consortium, in exchange for which each member of
the consortium, including Multikabel, pays a fee to Mediakabel based on the
number of subscribers in its service area. All revenues from digital
broadcasting services are recognized directly by Multikabel and all programming
fees are paid directly by Multikabel. In May 2000, Multikabel launched digital
audio and video services through its participation in Mediakabel. The initial
agreement with Mediakabel does not provide us with programming contracts for
our digital television offering. After a complete restructuring of the Mediakabel organization, Multikabel
is now solely responsible for digital programming. In 2002, we entered into a
contract with Mediakabel for the provision of digital TV-signals and have since
entered into agreements with a number of program providers to provide digital
television services. These agreements are standard and provide for the payment
of a fixed fee per digital subscriber per month. Most of our agreements except
that relating to the CineNova premium movie channel (see below), have terms
ranging from one to three years, many of which may be renewed at our option. In February 2000, we entered into a contract with Europe MovieCo Partners
Limited for the provision of the CineNova premium movie channel. Pursuant to
the agreement we pay a fixed amount which will increase on October 31 each year
to correspond with our subscribers in the franchise area in The Netherlands by
October 31, each year, regardless of the actual number of subscribers to the
CineNova channel. This agreement has a term of seven years unless earlier
terminated or extended. Either party may terminate the agreement with six
months notice if the CineNova channel does not have at least 100,000
subscribers in the relevant distribution areas by the end of the fifth year
(October 31, 2005). If six months prior to the end of the fifth year, the
CineNova channel has between 100,000 and 185,000 subscribers, MovieCo may
provide us with a written early termination notice, upon receipt of which we
will enter into good faith negotiations to reduce participation levels for the
remaining years under the agreement. Internet services. In July 2002 we migrated all of our subscribers to our
own Internet platform. We purchased and entered into standard maintenance
agreements for hardware and software programs relating to the ISP platform
servers and support. 35




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In addition as part of the development of our own Internet platform we
entered into standard transit and peering arrangements with the international
carriers (currently Cable & Wireless and Level3 deliver our transit capacity). We signed a standard framework agreement with Motorola Broadband
Communications for the delivery of cable modems for Internet access. We
contract with the Planhold Group B.V. who install Internet access at customer
premises as well as several other services like breakdowns and installation of
media terminal adaptors for telephony. Telephony.Multikabel entered into wholesale Integrated Service Agreement
with Priority Telecom Netherlands B.V. to provide residential telephony
services. Under the agreement Multikabel may terminate its roll out of
residential telephony services and prevent customers from connecting to the
service. If this occurred, Priority will continue to perform its obligations
under the agreement (so called grandfathering) but Multikabel will have to
compensate Priority (after 6 months: 550,000, after 12 months: 450,000, and
after 18 months: 400,000). The agreement is for 5 years. If either party
wishes to extend the agreement it must give notice to the other party no later
than 6 months before the expiration of the agreement. The parties will then
negotiate in good faith to try and agree a new set of terms and conditions,
without any contractual obligation to conclude a new agreement. Competition in Germany and The Netherlands The cable television and broadband businesses within Germany and The
Netherlands are highly competitive. We compete mainly for subscribers to cable
networks. Competition for subscribers In Germany, except in limited cases, overbuilding of secondary cable
networks does not occur. However, we do face competition for subscribers from:  
    
    a growing number of operators who deliver the same or similar
packages of television programming and other services on delivery
platforms that are different from ours including antennae, digital
direct-to-home (which can be both analog, or analog direct-to-home,
and digital, or digital direct-to-home), such as those offered by
Premiere, Canal +, and satellite master antenna television systems;
and
    
    providers of different products and services in those areas
where we operate our broadband networks, including Kabel Deutschland
and Premiere in Germany and Canal + (Canal Digital) and satellite in
The Netherlands, which offer other digital television services and,
through Deutsche Telekom in Germany and KPN in The Netherlands,
provide high-speed Internet and telephony services. In Germany the ability of viewers to receive terrestrial broadcast
television signal directly through antennae or otherwise, impedes our ability
to obtain additional cable television subscribers in areas where our cable
networks have already been installed. Digital Video Broadcasting Terrestrial
(DVB-T) has already been introduced in Berlin. The extent to which we are
limited in obtaining additional subscribers varies depending on the quality of
the reception to the subscriber and the zoning restrictions in the subscribers
region. In The Netherlands we will face soon competition from providers of
terrestrial digital television; although we anticipate our analog subscribers
base will remain stable. We do not consider alternative TV distribution
services such as satellite or the new Digitenne digital terrestrial
initiative to be a meaningful threat to our core business. However, we expect
these alternative platforms to sustain a growing number of subscribers albeit
in different markets (e.g. mobile/vacation homes) and therefore, this should
not adversely effect our subscriber base. Importantly, we believe that there is
scope for a gradual increase in subscription fees, justified by inflation and
the 36




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replacement of older, less interesting channels by new, more attractive
ones. Another important rationale for such price increase will be the higher
pricing level of some of our important peers. Analog direct-to-home satellite users obtain programming from one or a
number of different satellites, including Astra and Eutelsat, in both Germany
and The Netherlands. In order to receive analog direct-to-home
satellite-delivered programming, the consumer must have an outdoor reception
dish, which generally is smaller and less expensive than the satellite dish
typically used in the United States. Analog direct-to-home satellite-delivered
services are widely available in Germany and The Netherlands, although the
current consumer base in The Netherlands is limited due to high cable
penetration. We also believe that cable television has a number of competitive
advantages over analog direct-to-home satellite-delivered services for the
following reasons:  
    
    Cable television does not involve an up-front cost for the
purchase of a dish and related equipment required for analog
direct-to-home.
    
    Satellite dishes are often perceived as unsightly. Planning
or zoning laws and regulations, building rules and building lease
contracts often forbid satellite dishes being fixed to buildings
where cable television services are available.
    
    At present, there is generally a wider range of national,
regional and local programming available on cable networks. This is
due, in part, to the inability of analog direct-to-home reception
dishes to receive programming from multiple satellites at any given
time or to switch to a further satellite without being realigned by
a technician.
    
    Cable service operators generally provide a local presence
and service to their subscribers.
    
    Consumers have expressed concerns as to the level of fees
that they will be required to pay to providers of analog
direct-to-home satellite-delivered programming if and when digital
direct-to-home satellite signal is encrypted.
    
    As cable television networks are upgraded, a full range of
broadband network products and services may be offered which will
build subscriber loyalty. We believe that, if analog direct-to-home satellite signal would be
encrypted, we would benefit from an increase in the number of subscribers as
former analog direct-to-home users would seek alternative sources of television
programming. We believe that analog direct-to-home satellite-delivery service
may become more competitive with cable service if digital compression
technology is implemented in the industry such that satellite services can
provide more channels and direct specific programming to particular
subscribers. As we upgrade our cable television networks in Germany, we will be
able to offer substantially more programming alternatives and pay-per-view
services. Accordingly, we do not believe that our broadband networks will be at
a competitive disadvantage to either analog direct-to-home or digital
direct-to-home even if digital compression technology is implemented in the
satellite services. In addition, we face competition from digital direct-to-home
satellite-delivered services. During the last two years, Premiere has started
providing digital direct-to-home operations in the German market. We believe
that digital direct-to-home has not achieved significant penetration in the
German market. However, Premiere has exclusive programming, including sports
contracts. Therefore, we believe that Premiere can achieve additional market
share which will result in a loss of subscribers to cable network operators in
Germany, including subscribers to our networks. DTT in The Netherlands was introduced in the first half of 2003 after the
Digitenne consortium received a license to operate DTT services through 20
channels on five multiplexes. Both the interactive system and the conditional
access system are integrated into Digitennes digital Set top boxes (STB).
Despite the problems that have plagued pay-based DTT models in Spain and the
UK, the Dutch DTT package is subscription based and competes head to head with
the incumbent cable operators offerings and with Canal Digital (satellite).
Technical coverage is at a very high level given the flatness of the country.
The first rollout phase during 2003 included Amsterdam, 37




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Haarlem, Hilversum,
Alphen a/d Rijn and Almere (with a population of almost 1 million households).
In 2004, other main cities in The Netherlands are to be included and full
coverage is planned for 2005. Cable television networks also face competition from satellite master
antennae systems that serve condominiums, apartment buildings and other private
residential developments. These delivery methods are limited and are not able
to offer a full range of broadband services on a large scale. In addition to competition with providers of programming using different
platforms as described in the preceding paragraphs, we also compete for
subscribers with providers of different products and services in those areas
where we operate our broadband networks. Since we started offering digital
services in 2000, we have been competing with other digital television
services. Our primary competitor in Germany is Premiere. Premiere has several
exclusive long-term contracts with major film studios, program producers and
sports franchises for a substantial amount of entertainment and sports
programming. Premiere delivers its product in digital packages via Kabel
Deutschland and its successors cable television networks and pursuant to an
agreement entered into in 2002, via our cable network and direct-to-home via
satellite. We believe Premiere has a current market share of approximately 35%
of the digital television homes in Germany. In The Netherlands we compete with our hybrid IP/PSTN based telephony
service with several carrier (pre)select telephony companies and the Dutch
national operator KPN for fixed line telephony services. We will also be
competing with several wireless telephony services, many of which have
financial resources substantially in excess of our own. With respect to high-speed Internet access, we compete with other access
alternatives, such as ADSL lines, standard dial-up services and dial-up
services over digital direct-to-home. We believe high-speed Internet access
over broadband networks has several competitive advantages over these
alternative Internet service access mechanisms, including capacity, stability,
convenience, access speeds and price. Our Internet service requires no dial-up
time because the subscriber can always be on-line, 24 hours a day. Although the roll-out of ADSL in our Dutch service area is almost
complete, we have a very strong foothold in the broadband market. Over the past
year we have focused sales efforts on the large group of Internet subscribers
that currently have only a dial-up account with a competitor. Through the
recruitment of these customers into our entrance packages, we are creating a
customer base with relatively low initial average revenue per user (ARPU) but
with the scope to upgrade these subscribers to one of the more expensive
packages over time. With the current level of quality, service, technical
performance and brand awareness, we are well positioned to remain a premium
provider of broadband Internet services in the Dutch franchise. The extent to which a cable service is competitive depends, in part, on
the quality of the network and the cable operators ability to offer a greater
variety of programming at competitive prices to consumers than that available
through alternative delivery platforms. Advances in communications technology,
as well as changes in the marketplace and the regulatory environment, are
occurring constantly and their impact can not be predicted. Litigation The Company is currently in negotiations with third parties for the
payment of current and past royalty fees. No formal settlement agreement has
been reached as to final payment. However, because the expected future payment
is probable and can be reasonably estimated, the Company has accrued
approximately 2,563,000, 4,189,000 and 6,051,000 and as of December 31,
2001, 2002 and 2003, respectively. The Company is part to routine litigation incidental to the normal conduct
of business. In the opinion of management, the outcome of and liabilities in
excess of what has been provided for related to these proceedings, in the
aggregate, are not likely to be material to the financial condition or results
of operations. 38




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Regulation The provision of analog and digital television, telephone, Internet/data
and broadcasting services is regulated in the countries in which we operate.
The scope of regulation varies from country to country, although in some
significant respects the regulation we are subject to is harmonized under the
regulatory structure of the European Union. Below is a summary of the
regulatory environment in the European Union, Germany and The Netherlands. Regulation in Germany Cable television licenses.The German Telecommunications Act came into
force on August 1, 1996. The Act is meant to foster competition, to ensure
adequate services nationwide and to establish an administration system for
bandwidth frequencies. The German Telecommunications Act ended Deutsche
Telekoms network monopoly. Telecommunications services, including the
provision of transmission capacity, may now be provided by anybody subject to
the requirements established in the German Telecommunications Act. The German
Telecommunications Act sets forth licensing requirements for the operation of
transmission paths which extend beyond the borders of a single parcel of
property and which are used to offer telecommunications services to the public.
The establishment and operation of cable television and broadband networks
falls within the scope of the licensing requirements set forth in the German
Telecommunications Act. The German Telecommunications Act establishes the following four different
license classes:  
    
    licenses for the operation of transmission lines for mobile
radio services to the public by the licensee or another entity
(license class 1: mobile radio license),
    
    licenses for the operation of transmission lines for
satellite radio services to the public by the licensee or another
entity (license class 2: satellite radio license),
    
    licenses for the operation of transmission lines for
telecommunications services to the public by the licensee or another
entity, the provision of which is not covered by license classes 1
or 2 (license class 3), and
    
    licenses for voice telephony services to the public based on
self-operated telecommunications networks (license class 4). The operation of cable television networks, including those with two-way
transmission paths with reverse path capability, falls within license class 3.
We believe that we have obtained all material class 3 licenses required to
operate our business. Transmission lines for the operation of cable networks, including level 3
and level 4 system networks, which have been operated in accordance with the
legal provisions in effect prior to the entry into force of the German
Telecommunications Act continue to be authorized and do not need to be licensed
under the German Telecommunications Act. The operation of an in-house network
(level 4) does not require a license. Following Article 3 paragraph 2 of the Authorization Directive, the
provision of electronic communications networks or services can no longer be
made subject to an individual license. This provision is directly applicable in
Germany, even though it has not been implemented so far in the German
Telecommunications Act. Existing licenses remain effective. Under the German Telecommunications Act, a person offering
telecommunications services for which no license is required must notify the
regulatory authority within one month of the start-up, modification or
termination of operations. We believe that we have complied with this
notification obligation. 39




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The German Telecommunications Act subjects telecommunications enterprises
that are deemed to be market dominant to special provisions. These
provisions cover, in particular, the regulation of tariffs, business terms and
conditions and the granting of open network access, including interconnection
obligations. Tariffs for telecommunications services of market-dominating enterprises are subject
to the review of the regulatory authority. These tariffs have to be based on
the costs of efficient service provision. Detailed regulations are included in
the Ordinance on Telecommunications Tariff Regulation of October 1, 1996. The
business terms and conditions for telecommunications services subject to
license and for universal services are also subject to the regulatory
authoritys control. The regulatory authority has the right to object to
business terms and conditions which do not comply with relevant provisions of
European Union law. Public telecommunications carriers are required to
interconnect their networks with those of other carriers. Market-dominant
public telecommunications carriers are required to allow other users to
interconnect with their networks or parts thereof. Detailed regulations are
included in the Ordinance on Special Network Access of October 23, 1996. The Telecommunication Customer Protection Ordinance of December 11, 1997
regulates the relationship between providers of telecommunications services and
their subscribers. It sets forth several specific obligations for
market-dominant providers and various obligations for all other providers. It
specifies, for example, rules for invoicing, universal services and quality
parameters. The Ordinance also invalidates contractual clauses which attempt
to limit subscribers rights under the Ordinance. Currently, a telecommunications bill is being discussed in parliament.
This bill, which will implement the new European regulatory framework, aims,
among other things, at abolishing the licensing requirement, more efficient
administrative and shorter court proceedings and bringing telecommunications
regulation closer to general competition law. It is expected that the bill will
not be adopted before summer 2004. Retransmission and channel line-up provisions; media and Internet
services. The retransmission of cable television programs within Germany
through private cable television and broadband networks is regulated at the
state level pursuant to The State Treaty on Broadcasting within Federal
Germany, or the State Broadcasting Treaty, and at the state level pursuant to
the media laws of the various German states. The State Broadcasting Treaty
describes the various states authority to make decisions with respect to the
assignment and use of transmission capacities to be transformed into generally
binding law by way of the states media legislation. The State Broadcasting
Treaty also provides that the retransmission of cable television programs which
may be received nationwide and which have been produced in accordance with
applicable European legal provisions must be permitted by the federal states
within the framework of existing technical capabilities. With the most recent
amendments to the State Broadcasting Treaty, which entered into force in April
2000, cable television networks are obligated to transmit specific programs via
digital technology (must-carry obligation) as long as the aggregate
transmission capacity for these transmissions does not exceed the capacity of
four analog television channels. In addition, cable network operators must
guarantee that one third of the capacity available in digital technology is
used to transmit a diverse selection of programs, including special-interest
channels  e.g. foreign language channels that must be included in their choice
of programs (can-carry obligation). State laws generally provide that the
simultaneous retransmission of an unchanged and complete cable television
program is not subject to any licensing requirement, but does subject the
operator to an obligation to report the retransmission to the relevant state
media institution. Failure to comply with this reporting obligation may result
in a maximum fine of between 250,000 and 500,000, depending on the German
state in which the violation occurs. To date, the state media authorities have
not strictly enforced this reporting obligation. Broadcasting activity (which is defined to exclude the simultaneous and
unchanged retransmission of programming), such as the insertion of local
commercials, subjects the cable television or broadband operator to a different
regulatory regime. Private broadcasting companies require a broadcasting
license issued in accordance with the provisions of the State Broadcasting
Treaty and the media laws of the states. While the State Broadcasting Treaty
sets forth the framework for the regulation of private broadcasting, the state
media laws set forth detailed requirements with respect to diversity of
opinion, observation of constitutional principles, child protection,
professional ethics and restrictions on advertisement. 40




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Private cable television and broadband operators are required to observe
channel line-up priorities established by the state media institutions under
the state media laws with reference to the technical capabilities of the cable
television or broadband networks in connection with the retransmission of cable
television programs. Channel line-up refers to the order in which the various
television and radio programs are fed into the channels of,
and retransmitted through, cable television networks. Generally, the
channel line-up priority has been established as follows:  
    
    programs which have been legally prescribed by the
state;
    
    programs commonly received within the federal state
(i.e., those programs which may otherwise be received without
additional antennae);
    
    programs which may be received locally with the use of additional antennae; and
    
    all other programs. In addition, a number of state media laws have established priorities for
programs falling within the last-mentioned category for programming produced
within the European Union. The European Commission has stated that granting
German programs a higher priority than programs from outside Germany could be
discriminatory and contrary to European law. In the past, problems have existed due to the common use of some
frequencies by the receiving and distribution systems of cable operators, on
the one hand, and aeronautical radio navigation and public safety services on
the other hand. After lengthy discussions, the regulatory authority announced
in July 2000 that a compromise was reached between the regulatory authority,
the German Air Navigation Services Organization, Deutsche Telekom and the
German Association of Private Cable Operators known as ANGA. Pursuant to this
compromise, the air navigation services have relocated some of their operating
frequencies and have initiated international coordination of the operating
frequencies that are used at three German airports. In addition, Deutsche
Telekom has implemented a frequency offset. ANGA has requested its members
using extended band channel 24 for systems with their own head-end located in
the approach areas of German airports, to either change frequency or to ensure
that their systems do not exceed the 20 dBpW radiation disturbance limit set
out in the settlement. This compromise has resulted in the adoption of three ordinances governing
the allocation, use and assignment of frequencies. These three ordinances
entered into force in May 2001. Pursuant to the ordinance on the allocation of
frequencies, the free use (i.e., the use without an individual permit, approval
or other regulatory resolution) of frequencies between 9 KHz and 30 MHz in and
along conductors, including the cable networks we operate, is permitted
provided that specified conditions are met. These conditions include that (1)
radiation emitted by the conductors must not exceed identified limits and (2)
the frequencies are not used for security purposes, as identified by the German
regulatory authority. If the above conditions are not met with respect to a
frequency, the German regulatory authority will decide on a case by case basis
whether that frequency may be used and may impose restrictions or conditions on
use. This regulation may prevent us from using some or all of the relevant
frequency bands to retransmit programming over our cable networks. Should this
occur, we may need to make further investments in our German networks in order
to continue providing our current services. With respect to frequencies between 30 MHz and 3 GHz, the above conditions
for the free use of frequencies in and along conductors are applicable since
July 1, 2003. The German states have signed a State Treaty on new media services, which
came into force in August 1997, concurrently with the Teleservices Act. The
State Treaty on Media Services and the Teleservices Act regulate the
establishment and operation of various types of Internet and video-on-demand
services. The State Treaty on Media Services imposes various obligations on
providers of media services, which are defined in the State Treaty on Media
Services as information and communication services addressed to the general
public. Teleservices are defined in the Teleservices Act as information and
communication services for individual use on the basis of telecommunication
transmission. Media services include distribution services offering direct sale
or lease of objects or services, known as teleshopping, distribution services
in the form of television text, radio text or similar text 41




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services and other
call-services which offer text, sound or pictures in electronically stored
form. Providers of these media services include persons who offer their own or
third-party media services or who provide access to media services. To the
extent that we are considered a provider of media services, we may be subject
to obligations under the State Treaty on Media Services. The State Treaty on
Media Services includes, among other things, rules on
responsibility for content, advertising, data protection and protection of
children and young adults. Providers of tele services are responsible under
general laws for content, which they make available to others. The State Treaty on Media Services and the Teleservices Act have not, to
date, materially affected our ability to make independent business decisions
with respect to the rates charged for, or other matters relating to the
provision of the services covered. There can be no assurance that legislation
will not materially influence our business decisions on these matters in the
future. Data Protection.Each of the German Telecommunications Act, the Act on
Data Protection in connection with Teleservices and the State Treaty on Media
Services contain provisions relating to data protection. In addition, the
Federal Act on Data Protection also applies. These laws set forth the rules on
how and under what conditions subscribers personal data may be collected,
processed, used and forwarded to third parties. Each of these activities
requires either the subscribers consent or a specific authorization in the
relevant laws. Another requirement is that personal data may be collected and
processed only for specific purposes, which must be disclosed to the
subscribers including the scope and the manner of processing data. e-Commerce.In December 2001, the German Parliament adopted a new act on
electronic commerce. The act consists of various amendments to the current
Teleservices Act, the Act on Data Protection in connection with Teleservices
and the Act on Civil Procedure and seeks to harmonize these acts with the
provisions of the European Union e-Commerce Directive. On January 1, 2002 the German Civil Code was amended. Under the so-called
update of the law of obligation (Schuldrechtsmodernisierungsgesetz) new rules
were established, especially with respect to consumers. Therefore, all German
enterprises were forced to revise their standard terms by no later than
December 31, 2002. We have incorporated our new general terms and conditions
with effect from January 1, 2003. Regulation in The Netherlands Telecommunications and media services.The following regulatory regime
applies in The Netherlands.  
    
    Regulatory framework. The Dutch Telecommunications Act took
effect, with the exception of a few provisions, in December 1998 and
further liberalized the Dutch telecommunications and cable
television sectors. The Dutch Telecommunications Act governs, among
other things, the installation and operation of public
telecommunications networks, cable television networks, and the
provision of telecommunications services, including the provision of
telephony/data services and wholesale Internet services. The
provision of media services through cable television networks and
more specifically content is regulated primarily by the Dutch Media
Act, as amended, and the Media Decree. Competition laws and  in
some case  agreements with municipalities also impose restrictions
on cable television operators.Under the Dutch Telecommunications Act, the authority, known
as OPTA (Independent Post and Telecom Authority), is charged with
supervision, regulation of companies with significant market
power (i.e. KPN Telecom, the Dutch incumbent, and its subsidiary
KPN Mobile) and resolving disputes relating to the provision of
telecommunications networks and services. Appeals must be filed
exclusively at the District Court of Rotterdam and subsequently
to the Trades and Industry Appeals Tribunal. Under the media law,
media service providers are subject to content requirements,
which are overseen by the Commissariaat voor de Media(Media
Authority). 42




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
    
    Registration. The Dutch Telecommunications Act does not
require a license for the installation, maintenance or operation of
a cable network. Cable network operators need only to register with
OPTA. Registration does not give an operator any exclusive rights.
Any registered person may install, maintain and operate a cable
network alongside an existing duct. The Dutch Telecommunications Act
gives cable network operators and providers of other public
telecommunications networks, limited
rights of way to install and maintain their networks, which are
identical to those previously exclusively enjoyed by KPN.
    
    Ownership issues.The Dutch Telecommunications Act provides
that cables installed in public and/or private grounds which are
intended to be used for a public telecommunications network or a
cable television network are owned by the provider of the public
telecommunications network or cable television network concerned.
This provision is necessary because, as a general rule under the
Dutch Civil Code, the cables would, by accession, become part of the
grounds in which they are installed and the owner of the grounds
concerned would own the cables. On June 6, 2003 the (Tax Chamber of)
Dutch Supreme Court (Hoge Raad) rendered a ruling, which finally
settled a lengthy discussion in The Netherlands with regard to the
question whether a cable network should be considered as an
immovable or a tangible property. The Supreme Court decided that
cable networks should be considered as immovable property. This
ruling implies inter aliathat the acquisition of a cable network
will be taxable (partly retroactively), with regard to transfer tax
and property tax. The extent of the tax liability may ultimately
depend on inter aliathe deal-structure agreed by the parties (e.g.
share purchase or asset purchase). Furthermore, (legal and/or
economical) ownership of cable networks may have altered as a
consequence of the ruling. Currently, discussions are taking place
between interest groups/lobby groups and the Ministry of Economic
Affairs in order to neutralize any adverse consequences of the
ruling for interested parties by passing legislation.
    
    Programming. Pursuant to the Dutch Telecommunications Act
and the Media Act, a cable television network provider must transmit
to all its subscribers at least 15 television programs and at least
25 radio programs, called the basic package, including approximately
seven television and nine mandatory radio channels. The Media
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. The Media Authority may grant an exemption
from the obligation to transmit specified programs if this would
impose an unreasonably high financial burden on the provider.In the Netherlands, we often purchased cable television
networks from local municipalities. Pursuant to the terms of the
agreements with the municipalities, we were obligated to continue
to provide basic tier services of between 20 and 30 television
channels, including the 15 required under the media laws.Cable television operators are allowed to transmit their own
programs within The Netherlands upon obtaining a broadcast
license from the Media Authority. The licensee must comply with
the advertising and sponsorship rules set forth in the media
laws, which are consistent with the European Union Television
Without Frontiers Directive.
    
    Program council. Each municipality has to establish a
program council, which is an independent authority and provides the
cable network operator with advice concerning the 15 television
programs and 25 radio programs in its basic package. The cable
operator is only allowed to deviate from the advice in a limited
number of onerous circumstances. The cable network operator may ask
the program council for non-binding advice concerning the programs
distributed outside the scope of the basic package. When several
cable networks are connected and, in principal, function as one
cable network, a joint program council may be established. As a
result of this provision, we have one joint program council, with
the exception of our networks in the municipalities of Laren and
Muiden.
    
    Monitoring media concentrations. The Dutch government
recently assigned the Media Authority a monitoring task with regard
to, among other things, media concentrations. The Media Authority
has to annually report on issues like vertical concentrations
between content producers, content providers and rights owners.
Special focus will be on sports and movie rights. The report may
authorize OPTA and/or the Dutch Competition Authority to take
appropriate measures against offenders. 43




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
    
    Network access service providers. The Dutch government has
presented a policy memorandum (Kabel en consument: marktwerking en
digitalisering) in which it is stated that the government will
encourage competition in the near future between several types of
telecommunication infrastructures and competition on existing cable
infrastructures. Existing cable operators will have to allow
third-party service providers (e.g. Internet access providers) to
offer services to end users via their existing cable networks. This
implies that when the proposals are agreed upon, we would have to
offer third parties access to our networks in The Netherlands. Existing competition
regulation and the EU Open Network Provision directives (ONP), will be
similarly applied to cable infrastructures. Following the
presentation of the policy memorandum, a proposed bill was presented
that formalizes the guidelines contained in the policy memorandum. In
connection with the bill, the Dutch Competition Authority and OPTA
issued a joint consultation on the Internet market. The preliminary
conclusion of the consultation is that there is a separate market for
broadband Internet access and/or Internet network access. Depending on
the outcome of the consultation and/or the wording of the new bill,
OPTA may be authorized to impose obligations pursuant to the ONP
regulation. However, these obligations would not be imposed in an
emerging market.
    
    Network access program providers. In addition to the
guidelines in the proposed policy memorandum, OPTA will be
authorized to require designated cable network operators to provide
transport capacity to program providers. The proposed bill also
appears to regulate services that are closely linked with the
program for which access is requested.
    
    Price regulation. The Media Act authorizes the appropriate
minister to set maximum price levels for basic tier services. This
authority has not, however, been exercised in The Netherlands.
Furthermore, often the municipality contracts regulate the maximum
subscription price for the duration of their contracts with us. Telephony and Internet/data services.The following regulatory regime
applies to telephony and Internet/data services.  
    
    Regulation framework. Until recently KPN had a monopoly of
the fixed telecommunications infrastructure. 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 in 1999.
    
    Interconnection. The Dutch Telecommunications Act generally
implements European Union telecommunications policy on
interconnection.
    
    Price regulation. While telephony services offered by a
cable company are not currently subject to price regulation, the
prices of its competitor, KPN, are. OPTA indicated that KPN should
reduce its end-user tariffs in accordance with principles of cost
orientation as designated by OPTA in 1999. In September 1999, OPTA
introduced its new price cap mechanism, deciding that KPN was to
reduce a basket of its nominal end user rates (not including
international rates) by 5.3% per year for the next three years. KPN
may adjust its resulting rates for inflation, which must lead to a
net decrease of at least 3.3% in the first year. The fact that KPNs
end-user tariffs for all of its basic telephony services (with the
exception of international calls, but including ISDN) must be cost
orientated may have a negative effect on cable companies ability to
compete.
    
    Internet/data services. Under the Dutch Telecommunications
Act, Internet/data services are regulated as public
telecommunications services. As such, our Dutch operating systems
will have to register with OPTA as providers of public
telecommunications services and/or networks and our prices for these
services are not regulated.
    
    New regulatory Framework. In July 2000 the European
Commission proposed a package of measures for a new regulatory
framework for electronic communications networks and services. This
new framework intends to establish a new set of rules for various
sorts of electronic communication 44




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networks and services. Consequently, the (adjusted) ONP-regime shall not only apply to
inter alia (fixed and mobile) telephony networks and services, but
shall upon implementation also apply to a broader range of networks
and services, including (but not limited to) cable networks and
services. A number of directives should have been implemented in
Dutch law on July 25, 2003, whilst others had to be implemented in
the course of October 2003. The Dutch government did not meet these
timelines. It is expected that implementation will take place in the
course of the second or third quarter of 2004. Regulation in the European Union All Member States of the European Union, or EU, are required to enact
national legislation to implement directives issued by the EU. Regulations
issued by the EU have had, and will continue to have, a material effect on the
way in which cable operators offer services. For example, EU harmonization and
liberalization measures were responsible for cable operators being able to
offer telephony, Internet and video services. In February 2002, the European Parliament adopted a New Regulatory
Framework, consisting of four Directives (Framework, Access and
Interconnection, Authorization and Universal Service). This new framework,
which also applies to cable television networks, attempts to decrease national
variations in regulations and licensing systems and further increase market
competition by harmonizing licensing procedures, reducing administrative fees,
providing for easier access and interconnection, and reducing regulatory
burdens for telecommunications companies. The Member States were required to
implement the new regulatory framework by July 24, 2003 although, certain
provisions of the regulatory framework are directly applicable even if they are
not implemented. We believe that we will benefit from a simpler and more
coherent regulatory regime for all of our services in both The Netherlands and
Germany. Video
servicesConditional access. In order to enable further competition
in pay television services and accelerated development of advanced television
services, the Council of the European Union and the European Parliament passed
the Advanced Television Standards Directive in 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 conditional access systems are required to
make them available on a fair, reasonable and non-discriminatory basis to other
television service providers, such as broadcasters. This obligation is carried
forward in the new Access and Interconnection Directive and adapted to recent
technological developments. Regulation of the Internet and e-commerce.In June 2000, the European
Parliament and Council adopted a directive on a number of legal aspects of
information society services, in particular electronic-commerce, within the
European Union, known as the e-Commerce Directive. The purpose of the
e-Commerce Directive is to ensure the free movement of information society
services within the European Union. To achieve this purpose, the e-Commerce
Directive contains provisions regarding jurisdictional matters, authorization
of information society services, the scope of information to be provided within
the framework of information society service, the conclusion of contracts by
electronic means and the liability of service providers. As the provision of
Internet access, e-commerce, video-on-demand services, and, in particular, the
selling of goods on-line qualify as information society services, the
e-Commerce Directive will also have an impact on our business. To harmonize the
Member States approach to jurisdictional issues, the e-Commerce Directive
introduced the rule of the home country of the information service provider.
This means that in the so-called coordinated field, a service provider is
subject only to the rules and regulations set by its home country. The
coordinated field concerns requirements that apply to the taking up of the
activity and the pursuit of the activity of a provider of information society
services, including the service providers liability. However, because of the
many exceptions to the rule of the home country, we intend to continue to
comply with the relevant laws and regulations which are in force in Germany and
The Netherlands. The e-Commerce Directive also contains provisions regulating
the liability of providers of information society services, i.e., providers of
mere conduit, caching and hosting services. These provisions prohibit the
Member States to impose a general obligation on the providers of mere conduit,
caching and hosting services to monitor the information that they 45




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transmit. Except for the directive on e-commerce, no other Internet-specific regulations
have been issued, to date, at European Union level. However, more stringent data protection requirements have been imposed in
the meantime by the Directive on privacy and electronic communications. Among
the issues addressed in this directive are unsolicited communications by
automated calling systems, facsimile machines or electronic mail and the extent
to which a network or service operator may use traffic data from its customers
for marketing purposes or for the provision of
value-added services. The directive, which was to be implemented by the
Member States before October 31, 2003 requires prior consent from customers
before any such activity may be undertaken. 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 European Union Treatys competition rules and harmonization
measures have been put in place through the adoption of Open Network Provision
directives, or ONP. Cable Television Networks Directive.Following the European Commissions
Services Directive of June 1990, 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,
the lack of an alternative infrastructure to provide these liberalized services
operated as a major barrier to entry into the market by competitors. In an
effort to overcome this barrier, in October 1995, the European Union introduced
the Cable Television Networks Directive, which required member states to remove
existing restrictions on the use of cable television networks to provide
telecommunications services other than public voice telephony services. As a
result, cable television operators became able to use their networks to provide
telecommunications services except for public voice telephony. In 1996, the
European Commission issued the Full Competition Directive, which required the
European Community member states to remove all remaining exclusive rights for
the provision of telecommunications services including voice telephony by
January 1, 1998. The establishment and provision of telecommunications networks
were also liberalized under this directive. As a result of this directive, we
may establish and provide telecommunications networks and/or services,
including public voice telephone and Internet/data services, through our 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 annual revenues in the relevant
telecommunications market of more than 50,000,000 must account separately for
their telecommunications services and any cable television services. In
Germany, under national law, the requirement to separate the accounting for the
various telecommunications and cable television operations applies to companies
which are, pursuant to the German Competition Act, in a dominant position on
any one sub-market within the telecommunications market, including the cable
television market. Unlike the European Union Directive, this requirement
applies independently from the level of revenues generated in these markets.
We will likely qualify as a market player having a dominant position in various
cable television markets in Germany and we will likely be required to separate
our accounting system into subsystems for each of the cable television
operations and other telecommunications operations. The German regulatory
authority may also impose guidelines on us as to the details of the accounting
separation. In The Netherlands, 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 we achieve the requisite turnover in The
Netherlands, we would become subject to these requirements in that country as
well. 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 Interconnection
Directive in 1997, which sets forth the general framework for interconnection, including general 46




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obligations for telecommunications operators to interconnect
with their networks. The provisions of this directive form the basis of
telecommunications licensing, including any license we might hold or seek in
either Germany or The Netherlands. The directive contains provisions on number
portability, 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, we should be able to
interconnect with the public fixed network and other major telecommunications
networks on reasonable terms in order to provide these services when and if we
choose to provide them. 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. The new Directive on Access and Interconnection will apply to all forms of
electronic communications networks, including cable television networks. This
means that, once this new directive is implemented, we will also be subject to
the obligation to negotiate and grant access to, and interconnection with, our
networks if requested by other authorized communications network operators
providing publicly available electronic communications services. Moreover, a
national regulatory authority may, under certain conditions, impose obligations
on us to grant access to, and use of, specific network elements and associated
facilities, inter alia in situations where the national regulatory authority
considers that denial of access or unreasonable terms and conditions having a
similar effect would hinder the emergence of a sustainable competitive market
at the retail level, or would not be in the end-users interest. In particular,
it will be possible to impose network access obligations on us to the extent
that is necessary to ensure accessibility for end-users to digital radio and
television broadcasting services. Licensing. European Union telecommunications policy has also attempted to
harmonize the licensing requirements for the provision of public
telecommunications services. As a result of the Licensing Directive, which
became effective on December 31, 1997, member states are required to adopt
national legislation so that providers of telecommunications service 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 some situations. For example, the provision of public voice telephony
services and the establishment or provision of public telecommunication
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
determined to be 25% or more of the relevant market. License fees can only
include administrative costs, except with respect to scarce resources where
additional fees are allowed. The new directive on the authorization of electronic communications
networks and services, or the new Authorization Directive, once implemented by
the member states, will simplify, render more transparent and less expensive
the licensing of the establishment of electronic communications networks and
the provision of electronic communications networks and services, i.e., cable
television networks and services. Individual licenses will be required only in
connection with the assignment of radio frequencies and numbers. The new
Authorization Directive replaces the Licensing Directive. Video services      Video services through telecommunications networks. In Germany, the
concept of geographic franchise areas does not exist. Most of our
operating companies in Germany are one of several operators which may
serve customers in a given geographic area. Operators compete for long
term service contracts with Housing Associations. In The
Netherlands, geographic franchises are awarded. As with the
telecommunications sector, the cost of building a network to provide
television services is a considerable disincentive to potential new
entrants in the television services market. Our operating companies
may face competition in the long term in their franchise areas from
new entrants providing television 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 47




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incumbent telecommunications operator is testing whether it will be able to provide television 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 in 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 television service providers, such
as broadcasters. This obligation is carried forward in the new Access
and Interconnection Directive.      Broadcasting. The Television Without Frontiers Directive adopted in
October 1989 and amended in June 1997, is intended to introduce
freedom of broadcasting in the European Union. Generally, broadcasts
emanating from and intended for reception within a country have to respect the laws of that
country. Under the directive, EC member states are required to allow
broadcast signal of broadcasters in other member states to be freely
transmitted within their territory so long as the broadcaster complies with
the law of the originating, member state. The directive also establishes
quotas for the transmission of programming produced in Europe and programs
made by European producers who are independent of broadcasters. Television
advertising and sponsorship in member states must comply with specific
minimum rules and standards, although member states may set more detailed
and stricter rules for some matters. In addition to the Television Without Frontiers Directive, the other
primary source of European regulation affecting television broadcasting is the
1989 European Convention on Transfrontier Television, or the Convention. The
Convention is effective in those countries that have ratified it. Germany has
ratified and The Netherlands has signed but not ratified the Convention. The
Convention currently provides that the country in which a broadcaster uplinks
its programming to the satellite has jurisdiction over that broadcaster. A change to the Convention, or the Amendment, was agreed by parties to the
Convention in October 1998, but it will not enter into force until its
acceptance by France. The Amendment will bring the Convention into conformity
with the Television Without Frontiers Directives establishment test, providing
that a broadcaster should be regulated primarily by the authorities in the
member country in which the broadcaster is established. Additionally, the
Amendment would provide that when a broadcasters channel is wholly, or
principally, directed at a country other than where it is established, for the
purpose of evading the laws of that country in the areas covered by the
Convention, the broadcaster would become subject to the laws of the country of
reception. The Amendment allows parties to the Convention to designate that
some important events (e.g. major sporting events) cannot be broadcast
exclusively by a single television station so as to deprive a large proportion
of the public of that member country from seeing the event live or on a
deferred coverage basis on free-to-air television. C.     Organizational Structure The following is a list of our significant subsidiaries and our proportion
of ownership interest in each subsidiary: Organized under the laws of Germany
    
    % of OwnershipPrimaCom Verwaltungs GmbH
    
    
    100.0PrimaCom Management GmbH
    
    
    100.0PrimaCom Network & Operations GmbH
    
    
    100.0PrimaCom Region Dresden GmbH
    
    
    100.0PrimaCom Region Dresden GmbH & Co. KG
    
    
    100.0Zweite Kabelvision Management Beteiligungs GmbH & Co. KG (1)
    
    
    100.0PrimaCom Angelbachtal GmbH
    
    
    100.0PrimaCom Angelbachtal GmbH & Co. KG
    
    
    100.0PrimaCom Südwest I GmbH
    
    
    100.0PrimaCom Südwest I GmbH & Co. KG
    
    
    100.0
 48




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Organized under the laws of Germany
    
    % of OwnershipPrimaCom Region Magdeburg GmbH & Co. KG
    
    
    100.0PrimaCom Region Wiesbaden GmbH
    
    
    100.0PrimaCom Aachen GmbH
    
    
    100.0PrimaCom Kabelprojekt GmbH
    
    
    100.0PrimaCom Region Südwest II GmbH
    
    
    100.0PrimaCom Projektmanagement GmbH & Co. KG
    
    
    100.0PrimaCom Region Leipzig GmbH & Co. KG
    
    
    100.0PrimaCom Region Berlin GmbH & Co. KG
    
    
    100.0PrimaCom Osnabrück Beteiligungs-GmbH
    
    
    76.0PrimaCom Osnabrück GmbH & Co. KG
    
    
    99.9PrimaCom Nord GmbH
    
    
    100.0PrimaCom Projektmanagement Verwaltungs GmbH
    
    
    100.0KabelMedia Erste Fernsehkabelbeteiligungs Verwaltungs GmbH
    
    
    100.0KabelMedia Erste Fernsehkabelbeteiligungs GmbH & Co. KG
    
    
    100.0PrimaCom Berlin GmbH
    
    
    100.0Kabel-Fernsehen Leipzig Verwaltungs GmbH (3)
    
    
    100.0PrimaCom Region Schwerin GmbH & Co. KG
    
    
    100.0PrimaCom Region Magdeburg GmbH
    
    
    100.0PrimaCom Schwerin GmbH
    
    
    100.0RFH Regionalfernsehen Harz Verwaltungs-GmbH
    
    
    100.0RFH Regionalfernsehen Harz GmbH & Co. KG
    
    
    100.0PrimaCom Mettlach GmbH & Co. KG
    
    
    100.0PrimaCom Nettetal GmbH & Co. KG
    
    
    100.0PrimaCom Stormarn GmbH & Co. KG
    
    
    100.0PrimaCom Verl GmbH & Co. KG
    
    
    100.0PrimaCom Hessen GmbH
    
    
    100.0PrimaCom Kabelbetriebsverwaltungsgesellschaft mbH
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Hoyerswerda
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Leipzig
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Plauen
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Berlin
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Südwest
    
    
    100.0PrimaCom Kabelbetriebsgesellschaft mbH & Co. KG Region Nordwest
    
    
    100.0KABELCOM Halberstadt Gesellschaft für Breitbandkabel-Kommunikation mbH
    
    
    72.6Decimus Beteiligungs- und Verwaltungsgesellschaft mbH
    
    
    100.0PrimaCom Rheinland-Pfalz GmbH
    
    
    100.0PrimaCom Niedersachsen GmbH
    
    
    100.0Telekommunikationsgesellschaft mbH  TKG Eisenhüttenstadt(3)
    
    
    100.0TV Halle Fernsehgesellschaft mbH
    
    
    25.0MDF.1 Lokales Fernsehen Magdeburg GmbH(4)
    
    
    25.0primaTV broadcasting GmbH (5)
    
    
    100.0
 Organized under the law of The Netherlands
    
    % of OwnershipPrimaCom Netherlands Holding B.V.
    
    
    100.0N.V. Multikabel
    
    
    100.0Communikabel N.V.
    
    
    100.0QuickNet B.V.
    
    
    100.0Noord-Holland Digitaal B.V.
    
    
    100.0Mediakabel B.V.
    
    
    15.7Educatief Net B.V.
    
    
    5.1
  (1)
    
    pending merger with PrimaCom Region Dresden GmbH & Co. KG since
January 10, 2001 49




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(2)
    
    pending merger with PrimaCom Kabelbetriebsgesellschaft mbH & Co.
KG Region Leipzig since January 1, 2003(3)
    
    merger with PrimaCom Region Berlin GmbH & Co. KG since January 1,
2003, registered in the trade register as per March 15, 2004(4)
    
    thereof 0.5% ownership held by trustee(5)
    
    ownership held by trustee D.     Property and Equipment In connection with the operation of our cable networks in Germany, we own
or lease property for signal reception sites (antenna towers and head-ends) and
business offices. Our central operation center is located in Mainz, Germany. We
operate our Wiesbaden/Mainz regional network from an office building of
approximately 3,000 square meters that we own in Mainz. In connection with the operation of our cable networks in The Netherlands,
we own real property for signal distribution sites. In Germany and The Netherlands we own substantially all of our cable and
broadband networks and we lease the remaining fiber optic cable pursuant to
long-term leases. Our owned cables and those we lease generally are buried in
underground ducts or trenches. The physical components of our networks require
maintenance and periodic upgrading to keep pace with technological advances. We believe that our properties, both owned and leased, are in good
condition and are suitable and adequate for our business operations. 
 ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS A.      Operating Results Overview The following discussion refers to our financial performance for the year
ended December 31, 2003 as compared to our financial performance for the year
ended December 31, 2002 and our financial performance for the year ended
December 31, 2002 as compared to the financial performance for the year ended
December 31, 2001. It also contains a discussion of our liquidity and capital
resources from January 1, 2003 and for the near future. The following discussion relating to our financial performance in prior
periods may not be indicative of our financial prospects or future business
conditions. On April 16, 2004 we signed a Proposed Asset Sale and Purchase
Transaction that if consummated will result in our liquidation. For a
description of that transaction, see D. Trend Information below. We measure our financial performance in large part with reference to
EBITDA. We define EBITDA as earnings (loss) before discontinued operations,
extraordinary items, cumulative effect of change in accounting principle,
equity earnings (loss) in affiliate minority interests, gain (loss) on disposal
of fixed assets, net interest expense, income taxes and depreciation and
amortization. Other participants in the cable and broadband industries also use
EBITDA, defined in a similar but often not exactly comparable manner, as
measure of performance. We believe that EBITDA is a useful supplement to net
income and other income statement data in understanding cash flows generated
from operations that are available for taxes, debt service and capital
expenditures and because it is the most commonly used measures in the cable
television and broadband industries to analyze and compare cable television and
broadband companies on the basis of operating performance, leverage and
liquidity and because the senior secured credit facility requires us to meet
financial tests measured by EBITDA. However, because this term 50




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may not be defined by these other companies in exactly the same way as defined by us or
may reflect different adjustments, analysis and comparison of these measures
may be difficult. EBITDA is not a U.S. GAAP measure of income (loss) or cash
flow from operations and should not be considered as an alternative to net
income as an indication of its financial performance or as an alternative to
cash flow from operating activities as measures of its liquidity. We include in
this report a reconciliation of EBITDA to U.S. GAAP measures. We have
historically maintained positive EBITDA and expect to further grow this measure
in the future. Significant Accounting Policies:The consolidated financial statements
are prepared in accordance with accounting principles generally accepted in the
United States, which require us to make estimates and assumptions (see Note 2
of the notes to the consolidated financial statements). We believe the
following significant accounting policies involve the most significant judgment
and estimates used in the preparation of our consolidated financial statements. Impairment of property and equipment and intangible assets:In order to
assess impairment of property and equipment and intangible assets under U.S.
GAAP, we apply Statement Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets. If
management has concluded that impairment indicators exist, we test for
impairment by comparing the sum of the future undiscounted cash flows
derived from an asset or a group of assets to their carrying value. If
the carrying value of the asset or the group of assets exceeds the sum of the
future undiscounted cash flows, impairment is considered to exist and an
impairment charge will be measured and recorded. An impairment charge is
measured using an estimation of the assets fair value, typically using a
discounted cash flow method. In 2003, the Company recorded a charge of
approximately 3.0 million primarily attributable to impairment in both,
Germany and the Netherlands on certain long-term assets associated with the
digital cable business compared to 12,944,000 in the German segment only
during 2002. The identification of impairment indicators, the estimation of future cash
flows and the determination of fair values for assets or groups of assets
requires management to make significant judgments concerning the identification
and validation of impairment indicators, expected cash flows and applicable
discount rates. If actual results differ from these estimates, or if we adjust
these estimates in future periods, operating results could be significantly
affected. In calculating fair value based on discounted cash flows, the Company
makes significant estimates regarding the number of years of future cash flows,
discount rates, and revenues, costs, and expenses in future periods. The number
of years of future cash flows was based on the remaining useful life of the
underlying assets, discount rates were determined based on relevant market data
and revenues, costs and expenses were based on the Companys business plan. Goodwill:In order to assess impairment of goodwill under U.S. GAAP, we
apply SFAS No. 142, Goodwill and Other Intangibles, which we adopted on January
1, 2002. SFAS 142, requires that goodwill (and intangible assets deemed to
have indefinite lives) no longer be amortized, but rather is tested annually
for impairment or more frequently if events and circumstances indicate that the
goodwill might be impaired. An impairment loss is recognized to the extent
that the carrying amount of goodwill exceeds its fair value. On October 1, 2003, we performed an impairment test of goodwill which
indicated goodwill was not impaired. In performing the impairment tests, the Company calculated the fair value
of goodwill based on estimated discounted cash flows, which requires management
to make significant judgments concerning the expected cash flows and applicable
discount rates. If actual results differ from these estimates, or if we adjust
these estimates in future periods, operating results could be significantly
affected. In calculating fair value based on discounted cash flows, the Company
makes significant estimates regarding the number of years of future cash flows,
discount rates, and revenues, costs, and expenses in future periods. The number
of years of future cash flows and discount rates were determined based on
relevant market data and revenues, costs and expenses were based on the
Companys business plan. Deferred Taxes:Under U.S. GAAP, deferred taxes are recorded for
temporary differences, including the future tax benefit of net operating loss
carryforwards. In addition, under U.S. GAAP, we record a valuation allowance
to reduce our net deferred tax assets to the amount that will more likely than
not be realized. We have 51




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considered, for U.S. GAAP purposes, future taxable
income and ongoing prudent and feasible tax planning strategies in assessing
the need for a valuation allowance. In the event we were to determine that we
would be able to realize our deferred tax asset in the future in excess of
their recorded amounts, an adjustment to the deferred tax asset would increase
income in the period in which such determination was made. Similarly, should
we determine that it would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to expense in the period such determination was made. The
evaluation of net deferred tax assets requires considerable management
judgment. Years ended December 31, 2003 and 2002 Revenues.Revenues primarily include monthly subscription fees and to a
lesser extent installation and connection fees related to our basic analog
cable television service and high speed Internet access. Revenue also includes
monthly subscription fees and to a lesser extent installation and connection
fees related to our digital television service, which in turn includes revenue
from both near-video and video-on-demand services. We also earn monthly
subscription fees for data communication services provided to small-and
medium-sized businesses and schools in The Netherlands. Other notable sources
of revenue include signal delivery fees charged to other cable
television operators for delivery of signal to their networks and carriage
fees paid by program producers for the distribution of their programs to our
customers. Revenues increased by 8.7% from 182,042,000 in 2002 to 197,948,000 in
2003. The primary factors, which impacted revenue growth in 2003, were the
increases of Internet services and rate increases for basic analog cable
television service. 2002
    
    2003Homes passed by coaxial 450 MHz networks
    
    
    1,409,934
    
    
    
    1,373,863Analog cable television subscribers served by 450 MHz
    
    
    915,026
    
    
    
    891,570Homes passed by fiber
    
    
    568,024
    
    
    
    583,008Ready-for-service homes 862 MHz networks
    
    
    448.088
    
    
    
    463,153Analog cable television subscribers served by 862 MHz
    
    
    390,743
    
    
    
    410,733Digital television subscribers
    
    
    11,628
    
    
    
    12,183Internet subscribers
    
    
    53,545
    
    
    
    86,338Telephony subscribers
    
    
    
    
    
    
    4,106Data communication subscribers
    
    
    832
    
    
    
    932Total revenue generating units
    
    
    1,371,774
    
    
    
    1,405,862
 For the year ended December 31, 2002, Multikabel contributed 60,451,000
to our revenues. For the year ended December 31, 2003, Multikabel made a
contribution to revenues of 75,643,000. Increases in basic cable subscription
rates and customers, high-speed Internet access rates and customers, data
communication customers and other revenue account for the growth in
Multikabels revenues. In Germany, as a result of rate increases, we increased
revenues by 0.6% from 121,591,000 in 2002 to 122,305,000 in 2003. Revenues contributed from our basic analog cable television product
increased by 2.6% from 148,736,000 in 2002 to 152,606,000 in 2003.
Multikabel contributed 37,616,000 of analog cable television revenues in 2003
compared to 33,510,000 in 2002. The organic growth was derived from an
increase in average analog cable television subscribers of 8,335 from 306,345
in 2002 to 314,680 in 2003 and an increase in average revenue per subscriber
from 9.20 to 10.10. Revenues derived from basic analog cable television in
Germany decreased slightly by 0.2% from 115,226,000 in 2002 to 114,990,000 in
2003. Increased monthly average revenues per subscriber from 9.61 in 2002 to
9.66 in 2003 account for the trend in analog revenues. We expect the number
of subscribers of our basic analog cable television service to remain stable
over the coming years in The Netherlands and Germany. Significant increases
would only result from acquisitions in Germany and/or The Netherlands, which we do not 52




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anticipate due to our financial constraints. We expect to achieve
single digit revenue growth through increasing rates for the service to
coincide with inflation or improvements in the product offering. Revenues from high-speed Internet access services increased from
19,128,000 in 2002 to 27,956,000 in 2003. The increase primarily relates to
The Netherlands, where we were able to increase the number of overall
subscribers. For the year ended 2002 Multikabel contributed 17,711,000 of high-speed
Internet access revenues compared to 26,140,000 in 2003. Strong growth in the
subscriber base for this product also made a significant contribution. Total
high-speed residential Internet subscribers in The Netherlands increased by
62.5% from 48,917 at December 31, 2002 to 79,493 at December 31, 2003.
Penetration of high-speed Internet access customers from ready-for-service
homes increased from 15.2% in 2002 to 24.2% in 2003. The average monthly
revenue per subscriber decreased from 39.21 in 2002 to 34.63 in 2003 due to a
rate decrease caused by increased competition in the broadband Internet sector. In Germany, revenues contributed from the high-speed Internet access
service increased by 28.2% from 1,417,000 in 2002 to 1,816,000 in 2003. The
primary factor was our increase in average customers provided with high-speed
Internet. At December 31, 2002, we served 4,628 Internet customers, compared to
6,845 high-speed Internet customers at December 31, 2003. Penetration of
high-speed Internet access customers from ready-for-service homes increased
from 3.7% at December 31, 2002 to 5.1% at December 31, 2003. We expect high-speed Internet access subscribers and therefore,
penetration to ready-for-service homes to continue to increase at strong growth
rates over the next two to five years in both The Netherlands and Germany.
Average monthly revenue per subscriber is expected to remain close to the
current level. Revenue growth from this sector should therefore remain strong
over the next two to five years. Digital television revenues increased from 1,270,000 in 2002 to
1,435,000 in 2003. Multikabel contributed digital television revenues of
705,000 for 2003 compared to 557,000 for the year 2002. At December 31,
2002, Multikabel served 4,088 digital television subscribers, compared to 5,963
at December 31, 2003. The increase in revenues and subscribers is mainly a
result of modified marketing attention. In Germany, revenue from digital
television increased from 713,000 in 2002 to 730,000 in 2003 due to a growth
in average monthly revenue per digital subscriber in Germany to 8.92 for 2003
compared to 8.06 for 2002. Subscribers decreased from 7,540 at December 31,
2002 to 6,220 at December 31, 2003. We do not expect a substantial growth in
the digital television revenues in the near future, although we still believe
in the migration from analog towards digital. At December 31, 2003 the
penetration rate for digital subscribers to ready-for-service homes was 4.6%.
The growth in digital television subscribers has not met our expectations at
this point. We are constantly reviewing the product to either make it more
attractive to consumers or to reduce the cost associated with delivering the
product. Other revenues increased from 12,908,000 in 2002 to 15,951,000 in 2003.
Included in this category are revenues we receive in The Netherlands for data
communication services we provide to small-and medium-sized businesses and
schools. Multikabel served 221 small-and medium-sized businesses and 611
schools at the end of 2002, which contributed 4,770,000 of revenue for the
year ended December 31, 2002. At year-end 2003, Multikabel served 315 small-
and medium-sized businesses and 617 schools, which contributed 6,216,000 to
revenue in 2002. We supply 100% of the schools in The Netherlands. We are
currently serving a very small percentage of the small-and medium-sized
businesses in our franchise area. Throughout 2003, we faced some development
pressures due to the economic circumstances in the business market. In the last
quarter of 2003 we faced some positive developments and the number of
quotations and orders grew. We expect this product offering to continue to grow
at steady rates for the next few years as our penetration in the market of
small- and medium-sized business increases. In addition to the above, other
revenue in Germany and The Netherlands increased by 1,597,000 from 8.138.000
in 2002 to 9,735,000 in 2003, principally coming from increased carriage fees
in Germany and the start-up of telephony in The Netherlands. The following table reconciles average revenue per subscriber (ARPU) to
our U.S. GAAP consolidated financial statements: 53




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##### Table of Contents



Germany
    
    The Netherlands
    
    Total2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003Revenues
( in thousands)Analog
    
    
    115,226
    
    
    
    114,990
    
    
    
    33,510
    
    
    
    37,616
    
    
    
    148,736
    
    
    
    152,606Digital
    
    
    713
    
    
    
    730
    
    
    
    557
    
    
    
    705
    
    
    
    1,270
    
    
    
    1,435Internet
    
    
    1,417
    
    
    
    1,816
    
    
    
    17,711
    
    
    
    26,140
    
    
    
    19,128
    
    
    
    27,956Other
    
    
    4,235
    
    
    
    4,769
    
    
    
    8,673
    
    
    
    11,182
    
    
    
    12,908
    
    
    
    15,951121,591
    
    
    
    122,305
    
    
    
    60,451
    
    
    
    75,643
    
    
    
    182,042
    
    
    
    197,948Average subscribersAnalog
    
    
    999,284
    
    
    
    991,750
    
    
    
    303,568
    
    
    
    310,477
    
    
    
    1,302,852
    
    
    
    1,302,227Digital
    
    
    7,373
    
    
    
    6,820
    
    
    
    4,494
    
    
    
    4,586
    
    
    
    11,868
    
    
    
    11,406Internet
    
    
    6,134
    
    
    
    5,654
    
    
    
    37,624
    
    
    
    62,903
    
    
    
    43,758
    
    
    
    68,557Telefonie
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    1,478
    
    
    
    22
    
    
    
    1,478Datacommunication
    
    
    3
    
    
    
    
    
    
    
    810
    
    
    
    885
    
    
    
    813
    
    
    
    885ARPU(1) (in )Analog
    
    
    9.61
    
    
    
    9.66
    
    
    
    9.20
    
    
    
    10.10
    
    
    
    9.51
    
    
    
    9.77Digital
    
    
    8.06
    
    
    
    8.92
    
    
    
    10.33
    
    
    
    12.81
    
    
    
    8.92
    
    
    
    10.48Internet
    
    
    19.25
    
    
    
    26.77
    
    
    
    39.21
    
    
    
    34.63
    
    
    
    36.41
    
    
    
    33.98
   (1)
    
    The calculation of ARPUs has been changed to exclude carriage fees,
which are now reported in other revenues. Prior years ARPUs have been adjusted
accordingly for comparative purposes. Operations.Operations primarily include signal delivery fees paid to
Kabel Deutschland and private successor network operators in Germany which now
include Kabel Deutschland for city connections, Internet feed, copyright
royalty expense, film license payments, labor and materials relates to the
repair and maintenance of our networks and other repair and maintenance
expenses relating to our networks. Operating costs decreased by 1.8% from
47,900,000 in 2002 to 47,039,000 in 2003. In the Netherlands operating costs
increased slightly to 14,944,000 in 2003 compared to 14,935,000 in 2002. In
our German operations, operating costs decreased by 2.6% from 32,965,000 in
2002 to 32,095,000 in 2003. Selling, general and administrative.Selling, general and administrative
expenses primarily include salaries and wages of personnel directly involved in
the sales, general and administrative functions of our operating companies,
expenses of maintaining our operating offices, marketing expenses, costs of
consultants used to support our operating activities, automobile expenses,
certain cash management expenses, billing expenses, office supplies and other
expenses associated with the operation of our networks and services. Selling,
general and administrative expenses decreased by 9.4% from 36,172,000 in 2002
to 32,755,000 in 2003. In the year ended December 31, 2002, selling, general
and administrative expenses related to Multikabel was 10,310,000 compared to
10,389,000 for 2003. In our German operations, selling, general and
administrative expenses decreased by 17.5% from 23,363,000 in 2002 to
19,282,000 in 2003, reflecting the impact of ongoing cost saving programs and
lower bad debt expenses in 2003. In addition, we implemented certain
organizational changes in 2003 in order to control our selling, general and
administrative expenses. As a result, we expect selling, general and
administrative expenses to decrease as a percentage in revenues in the future. Corporate Overhead.Corporate overhead consists of personnel expenses of
senior management, financial accounting, information technology, product
development, licensing fees paid for our billing, subscriber and financial
accounting systems, the cost of our corporate office and legal and accounting
expenses related to the operation of our corporate office. Non-cash
compensation expense related to our stock option plans is also included in
corporate overhead. 54




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Corporate overhead decreased by 40.9% from 18.897,000 in 2002 to
11,173,000 in 2003. Non-cash compensation expenses associated with our stock
option plan decreased from 1,377,000 in 2002 to 123,000 in 2003. The primary
factor responsible for the decline was the expiration of the vesting period of
options issued at the IPO in February 1999 and a reduction in personnel and
associated options. In addition during 2002 one-time debt refinancing charges
of 2,432,000 were incurred relating to advisory fees and legal expenses in
connection with the conversion of the Working Capital Facility into the Convertible Seconds
Secured Loan agreement. Excluding the charge for non-cash compensation
expenses and one time debt refinancing costs, corporate overhead decreased by
4,038,000 from 15,088,000 in 2002 to 11,050,000 in 2003, reflecting the
effect of a cost reduction and centralization of function programs. We intend
to keep the growth of corporate overhead expenses substantially below the
growth in revenue, and, therefore, we expect corporate overhead as a percentage
of revenues to continue to decline. Depreciation and amortization.Depreciation and amortization decreased by
8.7% from 95,943,000 in 2002 to 87.587,000 in 2003. In 2002, we wrote-down
in accordance with SFAS No. 144, long-lived assets to fair value by
12,944,000, which is included in amortization expense. In 2003 we recorded a
charge of approximately 3.0 million largely attributable to impairment in both
Germany and The Netherlands on certain long-term assets associated with the
digital cable business. Operating profit.Operating profit increased by 36,264,000 from an
operating loss of 16,870,000 in 2002 to an operating profit of 19,394,000 in
2003. The primary factors were the reduction in non-cash compensation expenses
related to our stock option plan, lower impairment charges cost reduction
initiatives and the improved operating performance, which is primarily
attributed to the high-speed Internet access sector. Interest expense.Interest expense includes interest on our revolving
credit and convertible second secured borrowings, capital lease obligations and
other borrowings, changes in the fair market value of our interest rate
derivatives, payment of unused facility fees and the amortization of debt
issuance fees paid to obtain borrowings. In total, average indebtedness increased from 885,511,000 in 2002 to
933,122,000 in 2003. The primary factors responsible for the increase in
average indebtedness were the payment of financing fees, increased interest
expenses related to the cash and the non-cash interest on the convertible
second secured borrowings, the payments of deferred purchase obligations and
the investments in selective upgrades of our networks in Germany. Interest
expense increased by 3,678,000 or 3.4% from 109,421,000 in 2002 to
113,099,000 in 2003. In 2002, interest expense included 12,264,000 related
to the write-off of capitalized financing fees and related advisory fees
following the reduction of the 1.0 billion credit facility. The primary
factor responsible for the increased interest expense was the higher interest
rates associated with the 375 million Convertible Second Secured Facility, as
compared with our Revolving Credit Facility, under which this amount was
primarily due during the first quarter of 2002. This has been substantially
offset by lower interest rates on the Senior Facility and a decrease in the
fair value of interest rate derivatives. The average amount outstanding under the revolving credit agreement
decreased from approximately 559,501,000 in 2002 to 501,480,000 in 2003,
primarily as a result of the repayment funded with borrowings under the
convertible second secured facility. The average cash interest rate on the
revolving credit bank borrowings decreased from 5.70% in 2002 to 4,62% in 2003. The convertible second secured bank facility, which was entered into on
March 26, 2002 had an initial borrowing of 375.0 million. The accrued non-cash
interest was 73,139,000 at December 31, 2003. The average outstanding balance
between January 1, 2003 and December 31, 2003 was 426,896,000. There were no
borrowings under this facility in 2002. The average interest rate on the
convertible second secured borrowings was 19.47% during the period from January
1, 2003 through December 31, 2003. Interest expense in 2002 include non-cash
write-off of capitalized finance fees and related advisory fees of 12,264,000
related to the modification of the 1.0 billion revolving credit facility.
Interest expense also includes non-cash amortization of other capitalized
finance and legal fees of 6,695,000 and non-cash interest expense on the
convertible second secured borrowings of 42,060,000. 55




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Other income (expense). In 2003 we wrote off 42,000 of capitalized
non-operating cost. Loss from continuing operations before income taxes and other items.Loss
from operations before income taxes and other items decreased by 33,537,000
from 127,284,000 in 2002 to 93,747,000 in 2003 for the reasons discussed in
the above sections. Income tax benefit (expense).Income tax expense of 24,291,000 was
recorded in 2003 compared to 10,980,000 in 2002, primarily related to
additional valuation allowances related to the net deferred tax assets in
Germany. Loss from operations before extraordinary items and cumulative effect of
change in accounting principles.Loss from operations before extraordinary
loss and cumulative effect of changes in accounting principle decreased from
138,327,000 in 2002 to 118,099,000 in 2003 for the reasons discussed in the
above sections. Net loss.Net loss decreased from 138,327,000 in 2002 to 118,099,000 in
2003. EBITDA. In addition to other measurements, some of which are reflected in
our statement of operations data, we measure our financial performance by
EBITDA. We define EBITDA as earnings (loss) before extraordinary items,
cumulative effect of change in accounting principle, discontinued operations,
minority interests, net interest expense, income taxes and depreciation and
amortization. A reconciliation between EBITDA and our operating profit or loss
is detailed in Item 3 (a) at this filing. We believe that EBITDA is a
meaningful measure of performance because this is the most commonly used
measure in the cable television and broadband industry to analyze and compare
cable television and broadband companies on the basis of operating performance,
leverage and liquidity. EBITDA is not a U.S. GAAP measure of income (loss) or
cash flow from operations and should not be considered as an alternative to net
income as an indication of our financial performance or as alternatives to cash
flow from operating activities as a measure of liquidity. EBITDA increased from
79,073,000 for 2002 to 106,981,000 for 2003, primarily as a result of the
price increases in analog TV and positive contribution of high-speed Internet
access services and continuing cost reduction activities. As a percent of
revenue, EBITDA improved from 43.4% in 2002 to 54.0% in 2003 respectively. It
is our goal to continue to grow its EBITDA while preserving our margins in The
Netherlands and further improving them in Germany. Years ended December 31, 2002 and 2001 Revenues.Revenues primarily include monthly subscription fees and to a
lesser extent installation and connection fees relating to our basic analog
cable television service and high speed Internet access. Revenue also includes
monthly subscription fees and to a lesser extent installation and connection
fees relating to our digital television service, which in turn includes revenue
from both near-video and video-on-demand services. We also earn monthly
subscription fees for data communication services provided to small-and
medium-sized businesses and schools in The Netherlands. Other notable sources
of revenue include signal delivery fees charged to other cable television
operators for delivery of signal to their networks and carriage fees paid by
program producers for the distribution of their programs to our customers. Revenues increased by 10.0% from 165,496,000 in 2001 to 182,042,000 in
2002. The primary factors which impacted revenue growth in 2001 were the
acquisition of QuickNet in The Netherlands in July 2001 and several small
networks in Germany in 2001, the increases of Internet services and rate
increases for basic analog cable television service. 56




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2001
    
    2002Homes passed by coaxial 450 MHz networks
    
    
    1,404,049
    
    
    
    1,409,934Analog cable television subscribers served by 450 MHz
    
    
    904,452
    
    
    
    915,026Homes passed by fiber
    
    
    560,819
    
    
    
    568,024Ready-for-service homes 862 MHz networks
    
    
    440,883
    
    
    
    448,088Analog cable television subscribers served by 862 MHz
    
    
    400,042
    
    
    
    390,743Digital television subscribers
    
    
    11,875
    
    
    
    11,628Internet subscribers
    
    
    34,078
    
    
    
    53,545Data communication subscribers
    
    
    788
    
    
    
    832Total revenue generating units
    
    
    1,351,235
    
    
    
    1,371,774
 For the year ended December 31, 2001, Multikabel contributed 45,168,000
to our revenues. For the year ended December 31, 2002, Multikabel made a
contribution to revenues of 60,451,000. Increases in basic cable
television rates and customers, high-speed Internet access rates and
customers, data communication customers and other revenue account for the
growth in Multikabels revenues. In Germany, we increased revenues by 1.0% from
120,328,000 in 2001 to 121,591,000 in 2002. Rate increases account for the
small growth in Germany. In relation to product segmentation, revenues contributed by our basic
analog cable television product increased by 2.3% from 145,440,000 in 2001 to
148,736,000 in 2002. Multikabel contributed 33,510,000 of analog cable
television revenues in 2002 compared to 31,018,000 in 2001. The organic
growth was derived from a small increase in analog cable television subscribers
of 5,493 from 300,852 in 2001 to 306,345 in 2002 and an increase in average
revenue per subscriber from 8.60 to 9.20. Revenues derived from basic analog
cable television in Germany increased by 0.7% from 114,422,000 to
115,226,000. Increased monthly average revenues per subscriber from 9.46 in
2001 to 9.61 in 2002 accounts for the growth in analog revenues. We expect the
number of subscribers taking the basic analog cable television service to
remain stable over the coming years in The Netherlands and Germany.
Significant increases would only result from acquisitions in Germany and/or The
Netherlands, which we do not anticipate due to our financial constraints. We
expect to achieve single digit revenue growth through increasing rates for the
service to coincide with inflation or improvements in the product offering. Revenues from high-speed Internet access services increased from
6,755,000 in 2001 to 19,128,000 in 2002. The primarily factors responsible
for the increase were the inclusion of Multikabels Internet subsidiary
QuickNet for a full year (acquired in July 2001) and increases in the number of
subscribers taking the service as well as rates charged for the service. For the year ended 2001 Multikabel contributed 5,732,000 of high-speed
Internet access revenues compared to 17,711,000 in 2002. Strong growth in the
subscriber base for this product also made a significant contribution. Total
high-speed residential Internet subscribers in The Netherlands increased by
74.7% from 27,687 at December 31, 2001 to 48,917 at December 31, 2002.
Penetration of high-speed Internet access customers from ready-for-service
homes increased from 8.7% in 2001 to 15.0% in 2002. The other significant
contributor to revenue growth from the high-speed Internet access service in
Multikabel was the increase in average monthly revenue per subscriber from
22.41 in 2001 to 39.21 in 2002. The primary factor responsible for this
increase was the acquisition of QuickNet. Prior to July 1, 2001 QuickNet
provided high-speed Internet access services to our customers through an
affiliation agreement. Under the terms of this agreement, QuickNet directly
served the high-speed Internet customers and paid Multikabel approximately
8.50 per customer for the customers QuickNet served on our network. After our
acquisition of QuickNet on July 1, 2001, the affiliation agreement was
cancelled and Multikabel began to serve these customers directly. In addition
to this structural change, we were also able to increase the monthly rates for
the high-speed Internet service. In Germany, revenues contributed from the high-speed Internet access
service increased by 38.5% from 1,023,000 in 2001 to 1,417,000 in 2002. The
primary factor was our increase in average customers provided with high-speed
Internet. At December 31, 2001, we served 6,391 Internet customers, which
consisted of 3,368 high-speed Internet customers and 3,023 dial-up customers
compared to 4,628 high-speed Internet customers at December 31, 2002. The
reduction in total Internet customers was due to the closure of our dial up
business, which significantly 57




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reduced our cost structure, and enabled us to
focus our resources during the period on our broadband Internet product line.
Penetration of high-speed Internet access customers from ready-for-service
homes increased from 2.7% at December 31, 2001 to 3.7% at December 31, 2002. We expect high-speed Internet access subscribers and therefore penetration
to ready-for-service homes to continue to increase at strong growth rates over
the next two to five years in both The Netherlands and Germany. Average monthly
revenue per subscriber is expected to remain close to the current level.
Revenue growth from this sector should therefore remain strong over the next
two to five years. Digital television revenues increased from 941,000 in 2001 to 1,270,000
in 2002. Multikabel contributed digital television revenues of 557,000 for
2002 compared to 712,000 for the year 2001. At December 31, 2001, Multikabel
served 5,102 digital television subscribers, compared to 4,088 at December 31,
2002. The decrease in revenues and subscribers is mainly a result of decreased
marketing attention and declining interest from our potential customers, mainly
due to the competition from our analog packages. We do not expect a substantial
growth in the digital television revenues in the near future, although we still
believe in the migration from analog towards digital. In Germany, revenue from digital television increased from 229,000 in
2001 to 713,000 in 2002. An increase in subscribers from 6,773 at December 31,
2001 to 7,540 at December 31, 2002 accounts for the growth. The average monthly
revenue per digital subscriber in Germany was 8.06 for 2002 compared to 6.24
for 2001. At December 31, 2002 the penetration rate for digital subscribers to
ready-for-service homes was 6.0%. The growth in digital television subscribers
has not met our expectations at this point. We are constantly reviewing the
product to either make it more attractive to consumers or to reduce the cost
associated with delivering the product. In The Netherlands, we receive revenues for data communication services we
provide to small-and medium-sized businesses and schools. Multikabel served
approximately 192 small-and medium-sized businesses and 580 schools at the end
of 2001, which contributed 3,559,000 of revenue for the year ended December
31, 2001. At year end 2002, Multikabel served 221 small- and medium- sized
businesses and 611 schools, which contributed 4,770,000 to revenue in 2002. We
supply 100% of the schools. We are currently serving a very small percentage of
the small-and medium-sized businesses in our franchise area. Throughout 2002,
we faced some development pressures due to the economic circumstances in the
business market. In the last quarter of 2002 we faced some positive
developments and the number of quotations and orders grew. We expect this
product offering to continue to grow at good rates for the next few years as
our penetration in the market of small- and medium-sized business increases. Other revenues increased by 548,000 from 12,360,000 in 2001 to
12,908,000 in 2002. Other revenue includes signal delivery fees charged to
other cable television operators for delivery of signal to their networks and
carriage fees charged to programmers for the distribution of their programs. The following table reconciles average revenue per subscriber (ARPU) to
our U.S. GAAP consolidated financial statements: 58




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##### Table of Contents



Germany
    
    The Netherlands
    
    Total2001
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002Revenues
( in thousands)Analog
    
    
    114,422
    
    
    
    115,226
    
    
    
    31,018
    
    
    
    33,510
    
    
    
    145,440
    
    
    
    148,736Digital
    
    
    229
    
    
    
    713
    
    
    
    712
    
    
    
    557
    
    
    
    941
    
    
    
    1,270Internet
    
    
    1,023
    
    
    
    1,417
    
    
    
    5,732
    
    
    
    17,711
    
    
    
    6,755
    
    
    
    19,128Other
    
    
    4,654
    
    
    
    4,235
    
    
    
    7,706
    
    
    
    8,673
    
    
    
    12,360
    
    
    
    12,908120,328
    
    
    
    121,591
    
    
    
    45,168
    
    
    
    60,451
    
    
    
    165,496
    
    
    
    182,042Average subscribersAnalog
    
    
    1,007,946
    
    
    
    999,284
    
    
    
    300,562
    
    
    
    303,568
    
    
    
    1,308,508
    
    
    
    1,302,852Digital
    
    
    3,058
    
    
    
    7,373
    
    
    
    4,665
    
    
    
    4,494
    
    
    
    7,723
    
    
    
    11,868Internet
    
    
    5,971
    
    
    
    6,134
    
    
    
    21,315
    
    
    
    37,646
    
    
    
    27,286
    
    
    
    43,758ARPU (in )Analog
    
    
    9.46
    
    
    
    9.61
    
    
    
    8.60
    
    
    
    9.20
    
    
    
    9.26
    
    
    
    9.51Digital
    
    
    6.24
    
    
    
    8.06
    
    
    
    12.72
    
    
    
    10.33
    
    
    
    10.15
    
    
    
    8.92Internet
    
    
    14.28
    
    
    
    19.25
    
    
    
    22.41
    
    
    
    39.21
    
    
    
    20.63
    
    
    
    36.41
 Operations.Operations primarily include signal delivery fees paid to
Kabel Deutschland and private successor network operators in Germany which now
include Kabel Deutschland for city connections, Internet feed, copyright
royalty expense, film license payments, labor and materials relates to the
repair and maintenance of our networks and other repair and maintenance
expenses relating to our networks. Operating costs increased by 9.7% from
43,669,000 in 2001 to 47,900,000 in 2002. The primary factor responsible for
the increase is the growth of the activities in The Netherlands, including the
QuickNet acquisition in July 2001, which incurred operating costs of
approximately 14,935,000 in 2002 compared to 11,605,000 in 2001. In our
German operations, operating costs increased by 2.8% from 32,064,000 in 2001
to 32.965,000 in 2002. The increases in signal delivery fees and repair and
maintenance costs were the primary reasons for this increase. In total, operating costs directly associated with digital television,
high-speed Internet access and data communications services were approximately
10,931,000 in 2002 compared to 6,486,000 in 2001. Operating costs associated
with analog cable television were approximately 36.969,000 in 2002 compared to
37,183,000 in 2001. As a percentage of revenues, operating costs decreased
slightly from 26.4% in 2001 to 26.3% in 2002. Selling, general and administrative.Selling, general and administrative
expenses primarily include salaries and wages of personnel directly involved in
the sales, general and administrative functions of our operating companies,
expenses of maintaining our operating offices, marketing expenses, costs of
consultants used to support our operating activities, automobile expenses,
certain cash management expenses, billing expenses, office supplies and other
expenses associated with the operation of our networks and services. Selling,
general and administrative expenses increased by 3.7% from 34,878,000 in 2001
to 36.172,000 in 2002. In the year ended December 31, 2002, selling, general
and administrative expenses related to Multikabel was 12,809,000 compared to
9,900,000 for 2001. In our German operations, selling, general and
administrative expenses decreased by 6.5% from 24,978,000 in 2001 to
23,363,000 in 2002. Approximately 13,865,000 or 35.1% of our selling, general and
administrative expenses incurred in 2002 are directly related to our digital
television and high-speed Internet access businesses compared to 13,688,000 in
2001, the remaining 22,307,000 of selling, general and administrative expenses
compared to 21,190,000 in 2001 relate to the analog cable television business
in 2002. As a percentage of revenue, selling, general and administrative
expenses decreased slightly, from 21.1% in 2001 to 19.9% in 2002. We
implemented certain organizational changes in 2002 in order to control our
selling, general and administrative expenses. 59




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Corporate Overhead.Corporate overhead consists of personnel expenses of
senior management, financial accounting, information technology, product
development, licensing fees paid for our billing, subscriber and financial
accounting systems, the cost of our corporate office and legal and accounting
expenses related to the operation of our corporate office. Non-cash
compensation expense related to our stock option plans is also included in
corporate overhead. Corporate overhead decreased by 9.6% from 18,207,000 in 2001 to
16,465,000 in 2002. Non-cash compensation expenses associated with our stock
option plan decreased from 3,853,000 in 2001 to 1,377,000 in 2002. The
primary factor responsible for the decline was the expiration of the vesting
period of options issued at the IPO in February 1999 and a reduction in
personnel and associated options. In aggregate, non-cash compensation expense
accounted for 7.3% of total corporate overhead in 2002. Excluding the charge
for non-cash compensation expenses, corporate overhead increased by 734,000
from 14,354,000 in 2001 to 15,088,000 in 2002. As a percentage of revenue,
corporate overhead declined from 11.0% in 2001 to 9.0% in 2002. We intend to
keep the growth of corporate overhead expenses substantially below the growth
in revenue, and, therefore, we expect corporate overhead as a percentage of
revenues to continue to decline. Debt refinancing.Debt refinancing was 2,432,000 in 2002 and relates to
advisory fees and legal expenses incurred in connection with the conversion of
the working capital facility into the convertible second secured loan
agreement. Depreciation and amortization.Depreciation and amortization decreased by
18.9% from 118,360,000 in 2001 to 95,943,000 in 2002 primarily due to the new
rules on accounting for goodwill and other intangible assets. Under the new
rules beginning on January 1, 2002, goodwill is no longer amortized but is
subject to annual impairment testing. In 2002, we wrote-down in accordance with SFAS No. 144
our long-lived assets to fair value by 12,944,000, which is included in
depreciation expense. In 2001, we wrote-down in accordance with SFAS No. 121,
goodwill to fair value by 7,654,000, which is included in amortization
expense. Operating loss.Operating loss decreased by 32,748,000 from 49,618,000
in 2001 to 16,870,000 in 2002. The primary factors were the reduction in
non-cash compensation expenses related to our stock option plan and the
improved operating performance, which is primarily attributed to the high-speed
Internet access sector. Our digital television and high-speed Internet access
business segments contributed approximately 25,362,000 of revenues and
approximately 24,796,000 of costs and expenses in 2002, compared to
11,255,000 of revenues and 20,174,000 of costs and expenses, respectively, in
2001. Consequently these new services contributed and will contribute on a
growing degree positive EBITDA to our financial results. Interest expense.Interest expense includes interest on our revolving
credit and convertible second secured borrowings, capital lease obligations and
other borrowings, changes in the fair market value of our interest rate
derivatives, payment of unused facility fees and the amortization of debt
issuance fees paid to obtain borrowings. In total, average indebtedness increased from 797,011,000 in 2001 to
885,511,000 in 2002. The primary factors responsible for the increase in
average indebtedness were the payment of financing fees, increased interest
expenses related to the cash and the non-cash interest on the convertible
second secured borrowings, the payments of deferred purchase obligations and
the investments in selective upgrades of our networks in Germany. Interest
expense increased by 46,653,000 or 74.3% from 62,768,000 in 2001 to
109,421,000 in 2002. The primary factors responsible for the increase were the
write-off of approximately 12,264,000 of capitalized finance fees associated
with the reduction of the 1.0 billion revolving credit facility commitment by
375.0 million and the increased interest expense associated with the 375.0
million convertible second secured credit facility. The non-cash interest
expense due to the decrease in the fair value of our interest rate caps and
collars during 2002 was 860,000 compared to an expense of 2,906,000 in 2001. The average amount outstanding under the revolving credit agreement
decreased from approximately 780,471,000 in 2001 to 559,501,000 in 2002,
primarily as a result of the repayment funded with borrowings under 60




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the convertible second secured facility. The average cash interest rate on the
revolving credit bank borrowings decreased from 6.90% in 2001 to 5.70% in 2002. The convertible second secured bank facility, which was entered into on
March 26, 2002 had an initial borrowing of 375.0 million. The accrued non-cash
interest was 31,079,000 at December 31, 2002. The average outstanding balance
between March 26, 2002 and December 31, 2002 was 390,463,000. There were no
borrowings under this facility in 2001. The average interest rate on the
convertible second secured borrowings was 18.3% during the period from March
26, 2002 through December 31, 2002. Interest expense includes non-cash
write-off of capitalized finance fees and related advisory fees of 12,264,000
related to the modification of the 1.0 billion revolving credit facility.
Interest expense also includes non-cash amortization of other capitalized
finance and legal fees of 6,821,000 and non-cash interest expense on the
convertible second secured borrowings of 31,079,000. Other income (expense). Early in 2002, we agreed to sell our remaining
investment in MainzKom, a local city carrier in the city of Mainz. At December
31, 2001, we wrote-down 1,452,000 of the equity investment and related note
receivable to net realizable value based on the subsequent sale of the
investment and forgiveness of debt in 2002. In 2001, the Company wrote-off
capitalized costs of 4,938,000 related to the unsuccessful merger with UPC
Germany and the cancelled high-yield note offering. In addition, we recorded
other income of 741,000 in 2001 relating to a partial recovery on a third
party note which originated from the sale of certain non-strategic cable
television subscribers in 1998. In 2002, we wrote-off capitalized costs and
expenses related to non-operating business of 993,000. Loss from continuing operations before income taxes and other items.Loss
from operations before income taxes and other items increased by 9,249,000
from 118,035,000 in 2001 to 127,284,000 in 2002 for the reasons discussed in
the above sections. Income tax benefit (expense).Income tax expense of 10,980,000 was
recorded in 2002 compared to an income tax benefit of 15,381,000 in 2001,
primarily related to additional valuation allowances related to the net
deferred tax assets in Germany. Equity loss in affiliates.Equity loss in affiliates of 420,000
represents our share of the 2001 losses recorded by MainzKom. Loss from operations before extraordinary loss and cumulative effect of
change in accounting principles.Loss from operations before extraordinary
loss and cumulative effect of changes in accounting principle increased from
103,162,000 in 2001 to 138,327,000 in 2002 for the reasons discussed in the
above sections. Cumulative effect of change in accounting principle.In January 2001, the
Company recorded a charge of 946,000 to cumulative effect of change in
accounting principle upon the adoption of SFAS 133, Accounting for Derivatives
and Hedging Activities. Net loss.Net loss increased from 104,108,000 in 2001 to 138,327,000 in
2002. The primary factor for the increase in the net loss was the increase in
non-cash depreciation and amortization coupled with the increase in interest
expense which exceeds the increase in results from operations. EBITDA. In addition to other measurements, some of which are reflected in
our statement of operations data, we measure our financial performance by
EBITDA. We define EBITDA as earnings (loss) before extraordinary items,
cumulative effect of change in accounting principle, discontinued operations,
minority interests, net interest expense, income taxes and depreciation and
amortization. We believe that EBITDA is a meaningful measure of performance
because these are the most commonly used measures in the cable television and
broadband industries to analyze and compare cable television and broadband
companies on the basis of operating performance, leverage and liquidity. EBITDA
is not a U.S. GAAP measure of income (loss) or cash flow from operations and
should not be considered as an alternative to net income as an indication of
our financial performance or as alternatives to cash flow from operating
activities as a measure of liquidity. EBITDA increased from 68,742,000 for
2001 to 61




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79,073,000 for 2002, primarily as a result of price increases in
analog TV and the positive contribution of high-speed Internet access services
compared to the negative impact in the year 2001. As a percent of revenue,
EBITDA improved from 41.6% in 2001 to 43.4% in 2002 respectively. B.      Liquidity and Capital Resources We have historically relied on three sources for necessary funding:  
    
    cash flow from operations,
    
    sale-lease back transactions, and
    
    borrowings under our bank facilities. Net cash provided by operating activities amounted to 42,233,000 in 2003
compared to 31,091,000 in 2002. For the year ended December 31, 2003, we used cash for investing
activities of 32,470,000 compared to 37,012,000 in 2002. Net cash used in
financing activities amounted to 5,313,000 in 2003 compared with 3,790,000
provided by financing activities in 2002. Of the approximately 32,701,000 we invested in capital expenditures for
the year ended December 31, 2003, the majority was invested to improve the
technical standards of our network in The Netherlands in order to prepare for
the launch of telephony services and to replace electronic components and
improve the technical standards of our networks in Germany. We have only minimal commitments to
make capital expenditures under the terms of our concession or franchise
agreements, but anticipate that we will also make capital expenditures in the
near future to selectively upgrade existing cable systems. To the extent cash
flow is not sufficient to fund our operating expenses, debt service, taxation
expenses, and capital expenditures, we expect to borrow the necessary funds
under our bank facility. We believe that EBITDA provides more meaningful measures of fixed cost
coverage than does a deficiency of earnings to fixed charges. EBITDA amounts in
each period are not solely available to satisfy cash interest expense and may
also be required for other corporate purposes, including increases in working
capital, principal payments on debt and capital expenditures. EBITDA for the
year ended December 31, 2003, was 106,981,000. Included in EBITDA is 123,000
of non-cash compensation from our stock-option plans. Included in interest
expenses of 113,099,000 for the year ended December 31, 2003 is non-cash
amortization of finance fees of 6,695,000 and 42,060,000 capitalized non-cash
rate interest based on the convertible second secured facility and interest
credit of 3,615,000 due to the change in the fair value of our interest rate
caps and collars in the year ended December 31, 2003. A reconciliation between
EBITDA and our operating profit or loss is detailed in the Item 3 (a) of this
filing. At December 31, 2003, our aggregate consolidated indebtedness was
approximately 946,381,000, comprised of approximately 494,500,000 of senior
bank debt, 448,139,000 of convertible second secured debt, 2,904,000 of
capital leases obligations, and 838,000 of deferred purchase obligations. Our
debt instruments are described below. 62




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On September 18, 2000, our wholly-owned subsidiary PrimaCom Management
GmbH entered into a 1,000,000,000 reducing senior secured revolving credit
facility with a number of lenders. The senior secured facility was put in place
to refinance all outstanding debt at that time, to fund the acquisition of
Multikabel, future capital expenditures and acquisitions and for other general
corporate purposes. Under the terms of the senior secured revolving credit
facility, our subsidiaries may borrow, repay and reborrow, up to the commitment
amounts, until December 31, 2009, when all amounts will become due and payable.
As required by a condition to the senior secured facility, PrimaCom AG also
entered into a 375,000,000 working capital facility concurrently with entering
into the senior secured facility. The working capital facility was intended as
a means by which PrimaCom AG could access longer-term unsecured debt financing,
which would benefit the lenders under the senior secured facility, in the event
the high yield note issuance contemplated by PrimaCom AG at the time was not
completed. The working capital facility was committed until May 15, 2001. At
that time, we or the senior secured facility lenders could request that the
working capital facility be drawn, with the proceeds being used to repay
borrowings under the senior secured facility. If the working capital facility
had been drawn, it would have converted to a loan or debt security with a
ten-year maturity. The interest rate on the working capital facility would have
been no less than 13% per annum and no greater than a cap based on current
trading yields of high yield securities issued by comparable companies. In the
event that the working capital facility remained outstanding beyond September
30, 2001, PrimaCom also agreed to issue contingent value rights which would
provide the facility holders with an economic benefit payable in cash
equivalent to that which they would have received had they exercised warrants
to acquire up to 5% of our equity capital at prices based on relevant market
values. Therefore, we entered into a Contingent Value Right (CVR) Agreement,
which was a condition precedent to the obligations of the lenders under the
Senior Working Capital Facility. Pursuant to the CVR Agreement, we were
required, if requested on or before September 18, 2010, to make a payment in
either cash or common shares to the holders of each CVR Certificate equal to
the difference between the market price of a share of our common stock on the
date of exercise of such CVR and 110% of the market price of a share of such
common stock on the relevant release date, being September 30, 2001, December
31, 2001, March 31, 2002 and June 30, 2002, subject to the provisions of the
CVR Agreement, in particular various provisions protecting the holders of CVR
Certificates against dilution. The total number of CVRs to be issued under the
CVR Agreement equaled five percent of the outstanding number of our shares. The
total amount of CVRs to be issued under this assignment was 989,300. On March 8, 2004 PrimaCom AG signed a contingent value rights termination
agreement with a number of entities which are past or present holders of
contingent value rights under the CVR Agreement and the agent under the CVR
Agreement and Escrow Agent in relation to such contingent value rights. All
parties to the contingent value rights termination agreement agreed that all
contingent value rights issued and not already cancelled would be
cancelled and terminated on an effective date, such effective date to be
conditional upon certain matters being satisfied. The Contingent Value Rights
Termination Agreement was effective on March 16, 2004. Under the terms of the Revolving Credit Facility, our subsidiaries may
borrow, repay and reborrow, up to the commitment amounts until December 31,
2009, when all amounts will become due and payable. We announced our proposed merger with UPC Germany on March 29, 2001 and
requested an extension of the commitment under the working capital facility
until the merger could be consummated. On May 15, 2001 the lenders under our
senior secured and working capital facilities agreed to an extension of the
commitment under the working capital facility until November 15, 2001. In
addition, we agreed with the lenders under the working capital facility to a
cap on cash interest of 16% and on total interest of 18%. It was also agreed
that on November 15, 2001 either we or the lenders under the senior secured
revolving credit facility could request that the working capital facility be
drawn. If drawn, the working capital facility would then have converted to a
ten-year security or loan. On August 26, 2001, UPC notified us it would not vote in favor of our
merger with UPC Germany, and the merger was removed from the agenda of our
shareholders meeting held on August 28, 2001. Between September 18, 2000, on
which our credit facilities were entered into and August 2001, when the
proposed merger failed to proceed, the market for high-yield debt had
deteriorated significantly for broadband communications companies, as a result
of which we concluded that it was not realistic for us to seek to access that
market in the near to medium term. As a result, we immediately initiated
negotiations with the lenders under our senior secured revolving credit
facility and working capital facilities, with a view to amending certain terms
of the working capital facility which might in 63




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the future otherwise have
resulted in non-compliance with financial covenants included in those
facilities if the working capital facility were drawn in full. The lending
commitment and date of any mandatory drawing under the working capital facility
were extended on three further occasions while these negotiations progressed,
upon payment by us of commitment and other fees totaling approximately
25,000,000. On March 26, 2002, we completed the refinancing of our senior secured
revolving credit and working capital facilities. The amended working capital
facility was conditionally replaced by a 375,000,000 convertible second
secured term loan facility, which was drawn down in full on March 26, 2002.
Those borrowings were used to repay an equivalent amount of outstanding
borrowings under the senior secured facility. In addition, the lending
commitment under the senior secured facility was reduced by the amount of the
borrowings under the convertible second secured term loan facility, to
625,000,000. Approval of the modifications to our debt facilities by our
shareholders was obtained on June 5, 2002. The available commitment under the senior secured facility is to be
reduced in quarterly amounts beginning March 31, 2003 to the amounts reflected
below as of December 31 of the years indicated: Available commitment ()
    
    December 31,
2002
    
    
    625,000,000
    
    December 31, 2003
    
    
    594,500,000
    
    December 31, 2004
    
    
    533,500,000
    
    December 31, 2005
    
    
    472,500,000
    
    December 31, 2006
    
    
    411,500,000
    
    December 31, 2007
    
    
    335,250,000
    
    December 31, 2008
    
    
    225,450,000
    
    December 31, 2009
    
    
    
 The senior secured facility contains financial covenants common for
financings of this type. Our ability to borrow under the senior secured
facility depends on our continued compliance with these covenants. Breach of
these covenants may result in an event of default. In addition to the
requirement to meet certain financial covenants, there are restrictions on,
among other things:  
    
    Incurring debt,
    
    encumbering revenues or assets,
    
    lending funds to third parties or assuming liabilities,
    
    disposing of assets, and
    
    paying dividends or making distributions. The senior secured facility contains several events of default in addition
to the following:  
    
    amendment, suspension or termination of certain contracts which
results in a material adverse change, and
    
    a regulatory change in the environment in which we operate,
which results in a material adverse effect. The occurrence of an event of default could result in all amounts
outstanding under the senior secured facility becoming immediately due and
payable and the limitation of further drawings under the senior secured
facility. It could also result in the acceleration of amounts outstanding under
our other debt instruments, including the convertible second secured term loan
facility. 64




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The senior secured facility is secured by, among other things, pledges or
assignments of receivables from subscribers, intercompany loans, partnership
interests and shares of our subsidiaries. Amounts outstanding under the revolving credit facility bear interest at
the rate of EURIBOR in the case of amounts owing in Euro and LIBOR in the case
of amounts owing in a currency other than Euro plus a margin of between 0.75%
and 2.25%, depending on our ratio of total indebtedness to annualized Adjusted
EBITDA. The applicable margin is currently 2.25%. The convertible second secured term loan funded on March 26, 2002 and is
due and payable on March 31, 2010. The interest on this facility is divided
into cash and non-cash components. The non-cash interest is added to the
principal outstanding under the facility and will then incur further non-cash
interest as a principal amount. Cash interest begins to accrue at 8% and
increases to 12% over time and accrues only on the initial principal amount of
the facility, 375,000,000. All-in interest is initially 18% and increases to
20% over time. The cash, non-cash and all-in interest rates are set out on the
following schedule: Cash Rate
    
    Noncash Rate
    
    All-in rateMarch 26, 2002
    
    
    
    
    
    September 30, 2002
    
    
    8.0
    %
    
    
    10.0
    %
    
    
    18.0
    %October 1, 2002
    
    
    
    
    
    December 31, 2002
    
    
    8.5
    %
    
    
    10.5
    %
    
    
    19.0
    %January 1, 2003
    
    
    
    
    
    March 31, 2003
    
    
    9.5
    %
    
    
    9.5
    %
    
    
    19.0
    %April 1, 2003
    
    
    
    
    
    June 30, 2003
    
    
    10.5
    %
    
    
    8.5
    %
    
    
    19.0
    %July 1, 2003
    
    
    
    
    
    September 30, 2003
    
    
    11.5
    %
    
    
    8.5
    %
    
    
    20.0
    %October 1, 2003
    
    
    
    
    
    final maturity
    
    
    12.0
    %
    
    
    8.0
    %
    
    
    20.0
    %
 The convertible second secured term loan facility may be prepaid in whole
or in part at any time at our option and all accrued but unpaid non-cash
interest in excess of 18% for any period will be forgiven on the indebtedness
thereunder if the facility is repaid in full by December 31, 2004. Lenders who
were not party to the convertible second secured term loan when initially
funded on March 26, 2002 would receive a prepayment fee on any amount we prepay
to that lender of 3% of that amount during the first year of the loan, 2%
during the second year of the loan and 1% during the third year of the loan. At any time on or after December 31, 2004, the lenders under the
convertible second secured loan term facility may opt to convert their
outstanding loans into shares of PrimaCom Management GmbH having a nominal
value determined by computing the ratio of the amount of debt being converted
to the quotient of twelve times EBITDA (defined as earnings before interest,
tax, depreciation and amortization) for the twelve month period
through the end of the most recent calendar quarter less the amount of
then outstanding consolidated debt of PrimaCom AG at the end of the most recent
calendar quarter plus the amount of debt then being converted, and the total
nominal value of all PrimaCom Management GmbH shares then outstanding. However,
in no case will the lenders under the convertible second secured term loan
facility be entitled to convert their loans under that facility into shares
of PrimaCom Management comprising more than 65% of the total nominal capital of
PrimaCom Management GmbH. The convertible second secured term loan facility is guaranteed by
PrimaCom Management GmbH and is secured by second-ranking pledges (after the
pledges securing the senior facility) on the shares of the operating companies
owned by PrimaCom Management GmbH. In respect to our capital structure we also refer to our financial
restructuring as described above under item 3 D (risk factors) and below under
item 5 D (trend information). C.     Research and Development, Patents and Licenses, Etc. Not applicable. 65




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D.     Trend Information On April 16, 2004 we have signed a financing transaction (the Proposed
Asset Sale and Purchase Transaction) whereby we will, if the financing
transaction is successful, (i) transfer substantially all of our assets to a
special purpose vehicle, BK Breitband Kabelnetz Holding GmbH (BBKH), which is
an investment vehicle established by certain of our creditors, (ii) transfer,
or receive funding for, substantially all of our known liabilities to BBKH,
(iii) receive a cash consideration of 5 million that we intend, if it or any
part of it is available for such a purpose, to distribute to our shareholders
at the end of the liquidation of the Company and (iv) resolve on the
liquidation of the Company. There can be no assurance that the Proposed Asset
Sale and Purchase Transaction will be approved by the required majority of our
shareholders, that the conditions precedent for closing of the transaction will
be met or that any part of the cash consideration received will be available
for distribution to our shareholders. If we are unable to implement the
Proposed Asset Sale and Purchase Transaction on terms substantially similar to
those we have described, we are likely to default on several of our existing
credit facilities, which could lead to the commencement of insolvency
proceedings. Insolvency proceedings would be likely to result in the total
loss of value of the investment of our shareholders. E.     Off-Balance Sheet Arrangement We have no off-balance sheet arrangements, other than those disclosed in
the sections footnotes 10. Financial Instruments, 13. Commitments, 14. Stock
Option Plans, that have or are reasonably likely to have a current or future
effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors. F.     Tabular Disclosure of Contractual Obligations The following table represents our contractual obligations and other
commercial commitments as of December 31, 2003: Payments Due by PeriodLess thanTotal
    
    1 year
    
    1-3 years
    
    4-5 years
    
    After 5 years(Euro in thousands)Bank and other debt
    
    
    942,639
    
    
    
    
    
    
    
    159,250
    
    
    
    335,250
    
    
    
    448,139Signal Fees
    
    
    120,771
    
    
    
    22,927
    
    
    
    63,476
    
    
    
    28,880
    
    
    
    5,488Deferred Purchase Obligations
    
    
    838
    
    
    
    838
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    14,762
    
    
    
    2,874
    
    
    
    6,434
    
    
    
    3,020
    
    
    
    2,434Capital Lease Obligations
    
    
    2,904
    
    
    
    1,327
    
    
    
    1,577
    
    
    
    
    
    
    
    Film Contracts
    
    
    2,795
    
    
    
    1,501
    
    
    
    1,294
    
    
    
    
    
    
    
    Total Contractual Obligations
    
    
    1,084,709
    
    
    
    29,467
    
    
    
    232,031
    
    
    
    367,150
    
    
    
    456,061
 66




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A.      Directors and Senior Management We have a two-tiered board consisting of the management board and the
supervisory board. Management Board The standing orders for the management board provide for allocation of
areas of responsibility among the members, and, within these areas of
responsibility, the members of the management board act independently.
However, under German law and the standing orders, management board members are
jointly responsible for all management board matters, even if they fall within
another members area of responsibility. Some decisions of the management
board may only be taken jointly by all members, including decisions concerning
the preparation of annual accounts, the calling of a supervisory board meeting,
transactions which require the consent of the supervisory board, guidelines and
plans for individual business areas, transactions of exceptional importance or
risk and all other matters which have not been allocated to any members
specific area of responsibility. Listed below are the names, ages, responsibilities, dates of appointment
and experience of the members of the management board. The members of the
management board can be reached at PrimaCom AGs address. Age
    
    Position on the management board
    
    Date of AppointmentStefan Schwenkedel
    
    
    44
    
    
    Chief Financial Officer
    
    March 1, 2002Jens Kircher
    
    
    40
    
    
    Chief Operating Officer
    
    October 1, 2002
 Prof. Dr. Schwenkedelwas appointed Chief Strategy and Development Officer
of PrimaCom AG as of March 1, 2002. With Paul Thomasons resigning from
PrimaCom AG as of September 30, 2002, Stefan Schwenkedel was appointed Chief
Financial Officer as of October 1, 2002. Stefan Schwenkedel has served on our
supervisory board as a vice chairman since December 31, 1998 until his
resignation on February 28, 2002 and from 1997 until October 2000 he served as
chairman of the supervisory board of AGFB, a principal shareholder of one of
our predecessor companies until it was merged into us in October 2000. Since
March 2000 until May 2002, he has also been the chairman of the supervisory
board of F.A.M.E Film and Music Entertainment AG in Munich and since May 2001
until May 2002 he served as vice chairman of the supervisory board of
Delta-System Media + Communication AG, Rödermark since September 2000, he has been a member of
the supervisory board of 2Venture AG in Bonn. Since 1996, he has been
professor of business administration and finance at the Fachhochschule
Wiesbaden(University of Applied Sciences in Wiesbaden). From 1993 to 1996, he
served as executive manager (chief financial officer) at Schöller-Budatej, the
Hungarian subsidiary of Schöller Lebensmittel GmbH & Co. KG, a company of the
Südzucker Group. During that time period, he was also a member of the
supervisory board of MIRSA AG in Albertirsa in Hungary. Prior to 1993, amongst
other employment, he worked in the German paper and printing industry. Dr. Jens Kircherjoined PrimaCom on July 15, 2002 as Chief Technical
Officer. He was appointed to our management board effective October 1, 2002 and
assumed the duties of Chief Operating Officer. He studied physics in Karlsruhe,
Corvallis and Stuttgart. After his postgraduate education, Dr. Jens Kircher was
a visiting scientist in Berkeley working among other topics on optical data
communication and a staff scientist at the Max-Planck-Institute for Solid State
Research in Stuttgart working on superconductivity. After various assignments
in the automotive sector with Mannesmann and Robert-Bosch GmbH, Dr. Kircher
became senior officer at Bosch Broadband Networks. Among other things he was
responsible for the development and marketing of the new broadband services and
for corporate planning. 67




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Supervisory board Our articles of association and the rules of procedure determined by the
supervisory board govern how the supervisory board shall conduct its
activities. Currently, the members of the supervisory board must meet at least
twice within six months. Most supervisory board resolutions are passed by
simple majority vote. However, in certain instances when the standing orders of
the management board require that the supervisory board approve certain actions
of the management board, a 75% supervisory board vote is required. The
supervisory board elects a chairman and two vice chairmen. The chairman of the
supervisory board is authorized to represent the supervisory board and enforce
resolutions in all legal matters. Members of the supervisory board are currently divided into three classes
with two members in Class A, five members in Class B and two members in Class
C. The term of office of each member of Class A expires at the 2004
shareholders meeting to approve the actions taken by the supervisory board and
the term of office of each member of Class B will expire at the 2006
shareholders meeting to approve the actions taken by the supervisory board
except for Mr. Thoma and Mr. Eble, whose terms expire at the 2005 shareholders
meeting to approve the actions taken by the supervisory board. The term of
office of Class C will expire at the 2008 shareholders meetings to approve the
actions taken by the supervisory board. Members of the supervisory board are
elected to terms which expire at the shareholders meeting to approve the
actions taken by the supervisory board during the fourth year subsequent to the
beginning of their term of office. Members of the supervisory board replacing
members of any class will have the term applicable to that class. German law
provides that members of the supervisory board may be removed prior to the
expiration of their terms by 75% of the votes cast at a general shareholders
meeting. The members of the supervisory board can be reached at PrimaCom AGs
address. Set forth below is information with respect to the nine current
members of our supervisory board. Age
    
    Principal OccupationClass APeter Bogner
    
    
    43
    
    
    Chief Executive, The Bogner OrganizationShane ONeill
    
    
    42
    
    
    Chief Strategy Officer, UGC Europe and President, chellomedia n.v.Class BChristian Schwarz-Schilling
    
    
    73
    
    
    Retired Minister in the government of the Federal Republic of Germany;
International ArbitratorMichael Moriarty
    
    
    42
    
    
    Managing Director, UPCBoris Augustin
    
    
    35
    
    
    Market maker, Archelon Deutschland GmbHHelmut Thoma
    
    
    64
    
    
    LawyerHeinz Eble
    
    
    53
    
    
    LawyerClass CBrigitte Preuss
    
    
    43
    
    
    General Manager, Institut für Diagostik, Präventiv- und Sportmedizin GmbHKlaus von Dohnanyi
    
    
    73
    
    
    Consultant
 Peter Bogner,has been a member of the supervisory board since August 28,
2001. Mr. Bogner is currently Chief Executive of The Bogner Organization, Santa
Monica, California, and is a member of the supervisory board of the National
Academy of Television Arts and Sciences. In December 1999, he became a
consultant to UPC. From 1993 to 1997, Mr Bogner was responsible for
international development and television strategy at Time Warner Inc. and was
involved in the establishment of free and pay television platforms. In 1997,
Mr. Bogner became a member of the Global Media Counsel of the United Nations. 68




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Shane ONeillhas served on our supervisory board since August 28, 2001.
He joined UPC, which is a wholly owned subsidiary by UGC, as managing director,
strategy, acquisitions and corporate development in November 1999. Prior to
joining UPC, Mr. ONeill spent seven years at Goldman Sachs in the New York,
Sydney and London offices. Most recently, Mr. ONeill was an executive
director in the advisory group for Goldman Sachs in London where he worked on a
number of mergers and acquisitions and corporate finance transactions for
companies in the communications industry, including UPC. Prior to joining
Goldman Sachs, Mr. ONeill spent four years at Macquarie Bank in Sydney as well
as three years at KPMG in Dublin where he qualified as a chartered accountant. Dr. Christian Schwarz-Schillinghas served on our supervisory board as its
chairman since December 31, 1998. He resigned from his office as chairman on
April 21, 2004. He continues to hold his office as supervisory board member.
From 1996 to 1998, he was the head of the advisory committee of Aquila
Beteiligungs GmbH. From 1993 to 1997, he was chairman of the supervisory board
of Grundig AG and since 1993 he has served as the managing director of Dr.
Schwarz-Schilling & Partner Telecommunications Consulting GmbH. Since 1995, he
has been an international mediator for the Federation Bosnia-Herzegovina.
Since 1995 Dr. Schwarz-Schilling has been a deputy member of the Foreign
Affairs Committee of the German Parliament and from 1995 to 1998, he was the
chairman of the subcommittee for Human Rights and Humanitarian Aid, and since
1998 the vice chairman of that committee. From 1994 to 1995, he was a member
of the Foreign Affairs Committee of the German Parliament and from 1993 to
1998, he has served as a deputy member of the Committee for Economics of the
German Parliament. From 1982 to 1992, he was the Federal Minister of Post and
Telecommunications of the Federal Republic of Germany and has been serving as a
Member of the German Parliament since 1976. From 1957 to 1982, he was managing
director of the family-owned Sonnenschein Akkumulatorenfabrik Berlin/Büdingen
GmbH. Since 1999, he has also been chairman of the supervisory board of Mox
Telecom AG and is a director of 2 Venture AG. Michael Moriartyhas served on our supervisory board since June 5, 2002.
He is the Managing Director of Investments and Corporate Development for UPC.
From 1998 to 2000 he was the Managing Director of UPC in Hungary. From 1997 to
1998 Michael Moriarty was the Managing Director of UPC Slovakia and Romania. He
was also Vice President Operations for UPC Central Europe from 1995 to 1997.
Prior to joining UPC, Michael Moriarty was Director of Finance for Kabelkom in
Hungary which was owned by UPCs parent company UGC. Before joining UGC,
Michael Moriarty held a variety of positions at Westinghouse Broadcasting (USA)
for nine years. Michael Moriarty holds an MBA in Finance and was in various
positions responsible for the preparation of financial statements and liasing
with external auditors. Boris Augustinhas served on our supervisory board since December 30,
1998. Since October 1, 1998, he has been employed by Archelon Deutschland
GmbH, engaged in EUREX market making operations. From 1994 to 1998, he worked
in the financial services industry, including derivatives trading with Lehman
Brothers Bankhaus AG, Banque National de Paris (Deutschland) OHG, and Banque
Paribas (Deutschland) OHG. Mr. Augustin is the son of a sister of Wolfgang and
Ludwig Preuss, who are significant shareholders of ours. Prof. Dr. Helmut Thomabecame a member of the supervisory board of
PrimaCom on April 18, 2002. On April 21, 2004 Prof. Dr. Thoma was elected as
the new vice chairman of the supervisory board. He brings with him many years
experience in the media sector. After completion of his doctorate in law in
1962 he was employed by various Viennese law firms. In 1966 Prof. Dr. Thoma
became part of the legal team at ORF and was the head of department from 1968
to 1973. In 1973 Prof. Dr. Thoma joined Radio Luxemburg before moving to RTL
Plus in 1983 where his most recent position was as General Manager and Director
of Programmes. In 1999 Dr. Thoma became an advisor to the governor of
North-Rhine Westphalia on media-related issues of this state. Heinz Eblehas been a member of the supervisory board of the Company since
April 18, 2002. On April 21, 2004 Mr. Eble was elected as the new chairman of
the supervisory board. From 1982 Mr. Eble has been practicing law in Mainz
with the main focus on representing and consulting companies in the
Telecommunication sector. For 15 years he had been chairman of the supervisory
board of Süweda AG. 69




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Dr. Klaus von Dohnanyihas served on our supervisory board, the executive
committee of KabelMedia or a predecessor body carrying out comparable functions
since January 1996. In 1998, he was chairman of the supervisory board of
KabelMedia and from December 31, 1997 until 1998 he was chairman of the
executive committee of KabelMedia. Dr. von Dohnanyi has been vice chairman of
the supervisory board since December 10, 2002. He resigned from his office as
vice chairman on April 21, 2004. He continues to hold his office as
supervisory board member. Between 1954 and 1960, he worked for Ford Motor
Company, both in the United States and Germany. From 1960 to 1968, Dr. von
Dohnanyi was a co-owner and managing director of the Institut für
Marktforschung und Unternehmensberatung Infratest, Munich (Market and Social
Research, Infratest) and, between 1968 and 1969, he was Permanent Secretary at
the German Ministry of Economics. Dr. von Dohnanyi was a Member of Parliament
in Bonn from 1969 to 1981, Parliamentary Undersecretary from 1969 to 1972, and
Minister for Science, Technology and Education from 1972 to 1974. From 1976 to
1981, he was Deputy Foreign Minister (Staatsminister), in Bonn (in charge of
European affairs). From 1981 to 1988, he was Governor of the City State of
Hamburg. From 1990 to 1994, Dr. von Dohnanyi was chairman of the board of
TAKRAF Heavy Machinery, Leipzig, and since 1994 he has been a special advisor
to the board of directors of the Treuhandanstalt(since January 1, 1995,
Bundesanstalt für Vereinigungsbedingte Sonderaufgaben) in Berlin. Dr. von
Dohnanyi is chairman of Kirow AG and Wegweiser GmbH and a director of a:prico
AG. Brigitte Preuss, the wife of Wolfgang Preuss, one of major shareholders of
PrimaCom, has served on our supervisory board since December 30, 1998 and as
the general manager of Institut für Diagnostik, Präventiv- und Sportmedizin
GmbHsince 2003. From July 1984 to December 1992, she served in various
positions at Süweda. B.     Compensation On a yearly basis, the chairman of the supervisory board receives 40,903,
the vice chairmen receive 20,452 and each other member of the supervisory
board receives 10,226. In addition, each member of the supervisory board is
entitled to reimbursement for any reasonable business expenses incurred in the
performance of his or her duties. We will reimburse the members of the
supervisory board for any value-added taxes payable on their compensation. For the year ending December 31, 2003, we paid an aggregate of 735,560 in
cash compensation to Paul Thomason, former member of the management board,
Stefan Schwenkedel, and Jens Kircher for their services as a member of the
management board of the Company. We do not provide pension, retirement or
similar benefits for the members of our management board. Our articles of association provide that for the benefit of the members of
the management and supervisory boards, the Company bears the cost of liability
insurance coverage relating to their duties. To this end, we have renewed the
directors, officers and corporate liability insurance to cover general risks of
liability. None of the members of our management board or supervisory board has
received any loans from us. C.     Board Practices The date of expiration of the current term of office and the period during
which the members of our management and supervisory boards have served in that
office are provided in subsection 6.A above. We have not entered into service
contracts with the members of our supervisory board and the service contracts
we have entered into with the members of our management board do not provide
for benefits upon termination of employment other than payments under
non-competition clauses. The rules of procedure for the supervisory board provide that the
supervisory board may delegate any of its powers to a committee or committees
and require the establishment of an investment committee, a compensation
committee and an audit committee. However, the committees do not have the power
to make resolutions on behalf of the supervisory board and may only act in an
advisory capacity. The members of the committees are proposed by at least one
member of the supervisory board and elected by a simple majority of votes of
supervisory board members 70




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attending the meeting, provided, however, that a
majority of the members of the audit committee shall consist of independent
members of the supervisory board. Investment committee The investment committee consists of Mr. Augustin, Mr. Bogner, Mr. ONeill
and Prof. Dr. Thoma. The task of the investment committee is to consider and
evaluate matters submitted by our management as required by the standing orders
for management board, such as investment and financing plans by us or any of
our subsidiaries, disposition of assets or shares by us or any of our
subsidiaries, increases in capital, mergers and transactions between us or any
of our subsidiaries and any of our affiliates (other than transactions among us
and our wholly owned subsidiaries), all as proposed by our management, and to
make recommendations to the supervisory board. Compensation committee The compensation committee consists of Mr. Bogner, Mr. Moriarty, Mrs.
Preuss and Dr. Schwarz-Schilling. The task of the compensation committee is to
consider and evaluate the compensation payable to members of the management
board and any proposed stock option plans for employees and/or executives and
make recommendations to the supervisory board. Audit committee The audit committee consists of Mr. Augustin, Mr. Eble and Mr. Moriarty.
The purpose of the audit committee to assist the supervisory board in
fulfilling its responsibilities to oversee the accounting and financial
reporting processes at the Company. These include the oversight of the quality
and integrity the Companys consolidated financial statements and related
disclosure, the performance of its internal control and risk management and
audit functions. The committee further oversees the performance, qualifications
and independence of the external auditor. The committee also meets with
representatives of management and the external auditor at least twice annually. Agreements with directors Not applicable. D.     Employees At December 31, 2003, we had 435 full-time and approximately 73 part-time
employees in Germany and 154 full-time and 102 part-time employees in The
Netherlands. Our employees in Germany are not covered by a collective
bargaining agreement. However, 140 of our employees in Germany have voted to be
represented by works councils. 129 of our employees in The Netherlands are
covered by a collective labor agreement and have elected a works council. The establishment and the powers of a works council in Germany are laid
down in the German Labor Management Relations Act. The works council represents
all employees except managerial employees and participates in the
decision-making process with management. It has rights to obtain information
and of consultation and co-operation and holds co-determination and veto
rights. Although the German Labor Management Relations Act does not override
the constitutional right of entrepreneurial freedom and to make fundamental
business decisions which are reserved to the employer, rights of
co-determination and veto rights may be exercised by the works council to block
certain management decisions. Particularly in respect of social matters
subject to the co-determination right, management needs the consent of the
works council (or the favorable decision of a conciliation board) to enforce
its decisions. Such social matters cover, among others, plant regulations and
behavior of employees, work hours, the terms of payment of remuneration,
vacation, monitoring devices, safety and health, social facilities, wages and
salaries. With respect to personnel matters, the German Labor Management
Relations Act covers all rights, from 71




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access to information to
co-determination. For example, personnel planning, job posting, hiring,
grouping, transferring employees and, significantly, the dismissal of employees
are covered. Prior to carrying out a change in relation to such personnel
matters, the employer must attempt to obtain the works councils consent. The
rights and functions of the works council of our employees in The Netherlands
are comparable to those of the German works councils, except that individual
hirings and dismissals are not subject to works council approval in The
Netherlands. We consider our relations with our employees and with the works councils
in Germany and The Netherlands to be good. E.     Share Ownership To the best of our knowledge, the individual share ownership of the
persons named in subsection 6.B has not previously been disclosed to
shareholders or otherwise made public. Information about the aggregate share
ownership of members of our management and supervisory boards is set forth in
Item 7 below. In February 1999, we adopted one stock option plan for the benefit of all
of our and our subsidiaries employees, known as the universal stock option
plan, and one stock option plan for our and our subsidiaries executive
officers, known as the executive stock option plan. The two stock option plans
provided for the issuance of stock options allowing eligible employees and
executive officers to acquire a total of 1,000,000 shares, including
300,000 shares under the universal stock option plan and 700,000 shares
under the executive stock option plan. In July 2000, we created two new stock
option plans, a universal plan with 150,000 options and an executive plan with
350,000 options. We may not grant options under the 2000 plans until all
options under the 1999 plans have been granted. The options granted under all
of our stock option plans entitle participants to subscribe for shares at a
defined purchase price. The initial option grants under the stock option plans
have a purchase price equal to the initial public offering price of our shares
of 29.00. The purchase price for stock options issued under the stock option
plans after the initial public offering of our shares equal the average closing
price of our shares at the Frankfurt Stock Exchange of the quarterly period
preceding the grant of the option rights. Each option is exercisable only after
a two-year period from the date of grant and only if the average daily closing
price of the shares, calculated as the average over the five consecutive
trading days on the Frankfurt Stock Exchange immediately prior to the first
option exercise, equals at least 120% of the relevant purchase price of the
option rights, adjusted to account for any capital increases or reductions. The options granted under the stock option plans vest over a three-year
period. One third of the options vest on the first anniversary of the grant and
the remaining options vest in equal monthly amounts over the next two years.
The vested options are exercisable after the second anniversary of the grant.
If the participants employment agreement terminates before the options vest in
full, the participants options will be vested only in the portion of options
computed by multiplying 1/36 times the number of full months of employment
between the date of option grant and the date of termination. The options
granted under the universal stock option plan permit participant employees to
purchase shares having an aggregate exercise price ranging between 50% and 100%
of the participants annual base salary at the date of option grant, depending
on his term of employment with us or one of our subsidiaries preceding the
option grant. The number of options granted to an executive participant is
dependent on that participants position in our organization. Each of the
members of the management board is entitled to options for 100,000 shares. The
options granted to other executives are for between 5,000 and 35,000 shares. At
December 31, 2003, there were a total of 1,002,625 options outstanding under
the two plans at a weighted average exercise price of 27.52. The options under both the universal and executive stock option plans are
non-transferable, not inheritable, and expire on the termination of employment
of the participant for whatever reason if termination occurs within six months
of the date of option grant. We may require that participants not sell the
shares within a six-month period from the date when the options were exercised.
Apart from that, the participants in the universal stock option plan are not
restricted from selling the shares, subject to applicable securities laws.
However, the participants in the executive stock option plan are allowed to
exercise their option rights, to the extent that they have been accrued, wholly
or in part, and to sell shares (regardless of whether these shares have been
acquired in exercise of the option rights granted under the executive plan or
otherwise) only during an exercise period which begins one day after and ends
fifteen 72




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##### Table of Contents



days after either a general meeting, the publication of a management
report or an annual report. In the event of a merger of us or a restructuring
of our capital, participants will be given replacement shares or rights of a
similar value. Options also lapse when the exercise period expires, which will
happen on the fifth anniversary of the option grant, and in the event of a levy
of execution by the participants creditors on the participants stock option
plan, or a bankruptcy of the participant or the termination of a participant
for cause. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A.     Major Shareholders The following table sets forth certain information regarding the
beneficial ownership of our ordinary bearer shares by: (1) each person known by
us to own beneficially 5% or more of our ordinary bearer shares; and (2) all
members of our management and supervisory boards as a group. Our major
shareholders do not have different voting rights. Based on information
provided by the Bank of New York, as Depositary, we believe that 2,050,774 or
approximately 10.4% of our shares are held in the form of depositary
shares in the United States by six holders of record. Except as indicated in the footnotes to this table, to our knowledge the
persons named in the table have sole voting and investment power with respect
to the shares shown as beneficially owned by them, subject to community
property laws where applicable. Except as noted, the address of each of the
persons named in the table is c/o PrimaCom AG, An der Ochsenwiese 3, 55124
Mainz, Germany. Number ofShareholders
    
    shares
    
    In %Liberty Media Corporation(1)
    
    
    5,286,213
    
    
    
    26.70Wolfgang Preuß
    
    
    2,695,413
    
    
    
    13.61Gartmore Investment Management Limited(2)
    
    
    1,276,831
    
    
    
    6.45Supervisory Board/Management Board(3)
    
    
    209,819
    
    
    
    1.06Free Float
    
    
    10,330,276
    
    
    
    52.18Total shares in circulation
    
    
    19,798,552
    
    
    
    100.00Free Float according to the definition of the
German Stock Exchange(4)
    
    
    11,649,929
    
    
    
    58.84
   (1)
    
    Refer to notice about voting rights according to § 41 para. 3 Security
Trading Act (WpHG) in connection with § 25 para. 1 sentence 1 and 2 WpHG.
As per December 31, 2003 Liberty owned 339,161 or 1.71% of our shares
directly and 4,948,039 through its indirect subsidiary UPC.(2)
    
    The shares held by Gartmore are held in various accounts of Gartmore
Investments Limited (GIL). Gartmore Fund Managers Limited (GFM) and
Gartmore Global Partners are acting as investment managers to the
beneficial owners, who are pension funds, institutional clients, unit
trust holders and investment trust shareholders. The securities are held
for investment purposes and GIL, GFM and GGP are discretionary managers
who have voting power and disposal power over the shares.On January 8, 2004 the shareholding of the Gartmore entities
mentioned above in PrimaCom AG fell below 5% of the voting rights of
the company. This occurred as a result of a transfer of the management
of 394,546 shares to a non-Gartmore-related Investment Management
Company, which constitutes for the mentioned Gartmore companies a
total aggregate shareholding of 882,285 shares and represents 4.45% of
the voting rights as per January 8, 2004. 73




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(3) Number ofManagement and Supervisory Board
    
    
    
    
    shares
    
    In %Management Board
    
    Dr. Jens Kircher
    
    
    
    
    
    
    Prof. Dr. Stefan Schwenkedel
    
    
    
    
    
    
    Supervisory Board
    
    Boris Augustin
    
    
    3,464
    
    
    
    0.02Peter Bogner
    
    
    
    
    
    
    Dr. Klaus von Dohnanyi
    
    
    
    
    
    
    Heinz Eble
    
    
    39,358
    
    
    
    0.20Mike Moriarty(3.1)
    
    
    
    
    
    
    Shane O'Neill(3.1)
    
    
    
    
    
    
    Brigitte Preuß(3.2)
    
    
    166,997
    
    
    
    0.84Dr. Christian Schwarz-Schilling
    
    
    
    
    
    
    Prof. Dr. Helmut Thoma
    
    
    
    
    
    
    209,819
    
    
    
    1.06
   (3.1)
    
    Mike Moriarty and Shane ONeill are officers of United Pan-Europe
Communications NV (UPC) which is an indirect subsidiary of Liberty
and at the same time the 100% parent company of our shareholder UPC
Facility B.V. Mike Moriarty and Shane ONeill are subject to
directions of UPC and UPC Facility B.V. with respect to voting UPCs
interest in PrimaCom AG and disclaim beneficial ownership in the
shares held by UPC except for their respective pecuniary interests in
UPC. The address of Mike Moriarty and Shane ONeill is Michelin House,
Fulham Road, London SW3 6RD, England.(3.2)
    
    The 166,997 shares of Brigitte Preuß are held by Wolfgang
Preuß in trust for Brigitte Preuß and over which they have joint
voting power.(4) Number ofFree Float according to definition of the German Stock Exchange
    
    shares
    
    In %Free Float
    
    
    10,330,276
    
    
    
    52.18Gartmore
    
    
    1,276,831
    
    
    
    6.45Executives and Directors
    
    
    209,819
    
    
    
    1.06Brigitte Preuß
    
    
    (166,997
    )
    
    
    (0.84
    )Total shares in circulation
    
    
    11,649,929
    
    
    
    58.84
 74




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##### Table of Contents



Directors Dealings December 31,
    
    December 31,2003
    
    2002
    
    Changeshares
    
    options
    
    shares
    
    options
    
    shares
    
    optionsExecutive BoardDr. Jens Kircher (1)
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    Prof. Dr. Stefan Schwenkedel (2)
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    Supervisory BoardDr. Christian Schwarz-Schilling,
Chairman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dr. Klaus von Dohnanyi, Vice Chairman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Boris Augustin
    
    
    3,464
    
    
    
    
    
    
    
    3,464
    
    
    
    
    
    
    
    
    
    
    
    Peter Bogner
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Heinz Eble (4)
    
    
    39,358
    
    
    
    
    
    
    
    39,358
    
    
    
    
    
    
    
    
    
    
    
    Michael Moriarty (5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shane ONeill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brigitte Preuss (6)
    
    
    166,997
    
    
    
    
    
    
    
    166,997
    
    
    
    
    
    
    
    
    
    
    
    Prof. Dr. Helmut Thoma (7)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    209,819
    
    
    
    200,000
    
    
    
    209,819
    
    
    
    200,000
    
    
    
    
    
    
    
    
   (1)
    
    Dr. Jens Kircher was appointed to the Management Board effective October
1, 2002. At this date he was granted 100,000 options(2)
    
    Prof. Dr. Schwenkedel resigned from the Supervisory Board effective
February 28, 2002. At this date he had no -shares and no options.
Effective March 1, 2002 Prof. Dr. Schwenkedel was appointed to the
Management Board and was granted 100,000 options(4)
    
    Heinz Eble was appointed to the Supervisory Board effective April 18,
2002. At this date he had 39,358 -shares but no options(5)
    
    Michael Moriarty was appointed to the Supervisory Board effective June 5,
2002. At this date he had no -shares and no options(6)
    
    The shares held by Brigitte Preuss are held in trust for her by Wolfgang
Preuss. They have shared voting power over these shares.(7)
    
    Prof. Dr. Helmut Thoma was appointed to the Supervisory Board effective
April 18, 2002. At this date he had no shares and no options. B.     Related Party Transactions The Company had a 245,000 loan payable to WVH Wohnungsbau- und
Wohnungsbaugenossenschaft Heidenau mbH, a minority shareholder of one of its
subsidiaries. The total amount due for this loan was paid on January 10,
2001. The Company has a 15.7% investment in Mediakabel B.V., a consortium of
cable television operators in the Netherlands organized to provide digital
television services. The Company paid Mediakabel digital cable services fees
of approximately 2,575,000, 2,700,000 and 900,000 in 2001, 2002, and
2003, respectively. The Company uses services of BFE Nachrichtentechnik GmbH for
installation, repair and maintenance of cable networks, which is owned by
one of the Companys significant shareholders. In 2002 and 2003, the Company
paid approximately 424,000 and 481,000, respectively, for these services. C.     Interests of Experts and Counsel Not applicable. 75




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ITEM 8. FINANCIAL INFORMATION A.     Consolidated Statements and Other Financial Information The consolidated statements and other financial information are provided
in Item 18 below. B.     Significant Changes No significant change has occurred since the date of the financial statements provided in Item 18 below. 
 ITEM 9. THE OFFER AND LISTING A.     Offer and Listing Details Since February 22, 1999, our ordinary bearer shares traded on the Neuer
Markt segment of the Frankfurt Stock Exchange under the symbol PRC and our
depositary shares were quoted on the National Market segment of the Nasdaq
Stock Market under the symbol PCAG until July 18, 2002. Since July 19, 2002 our
ADRs are quoted on the OTC bulletin board where liquidity is limited, under the
symbol PCAGY. Each depositary share represents one-half of one of our ordinary
bearer shares. The Neuer Markt segment of the Frankfurt Stock Exchange ceased to operate
in 2003. Because the Neuer Markt was a sub-segment of the Geregelter Markt, we
continued to be listed in Geregelter Markt. As of June 5, 2003 we were listed
in the Prime Standard of the Frankfurt Stock Exchange. On March 25, 2004 we
applied for the shifting from the Prime Standard to the General Standard of the
Frankfurt Stock Exchange. The table set forth below, for the periods indicated, shows the reported
high and low quoted prices for the ordinary bearer shares on the Frankfurt
Stock Exchange and for the American depositary shares on Nasdaq. 76




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Nasdaq
    
    Frankfurt Stock ExchangeNasdaq / OTC BB
    
    Frankfurt Stock ExchangeHigh
    
    Low
    
    High
    
    Low(in U.S.$)
    
    (in )Annual
highs and lows1999 (from February 22, 1999)
    
    
    29.63
    
    
    
    15.00
    
    
    
    64.00
    
    
    
    29.502000
    
    
    50.00
    
    
    
    5.13
    
    
    
    99.00
    
    
    
    11.602001
    
    
    8.00
    
    
    
    1.40
    
    
    
    17.90
    
    
    
    2.382002
    
    
    1.75
    
    
    
    0.15
    
    
    
    3.80
    
    
    
    0.312003
    
    
    0.78
    
    
    
    0.17
    
    
    
    1.41
    
    
    
    0.31Quarterly
highs and lows2001First Quarter
    
    
    8.00
    
    
    
    5.38
    
    
    
    17.90
    
    
    
    10.60Second Quarter
    
    
    6.63
    
    
    
    3.70
    
    
    
    15.50
    
    
    
    8.10Third Quarter
    
    
    4.70
    
    
    
    2.00
    
    
    
    12.45
    
    
    
    2.38Fourth Quarter
    
    
    2.40
    
    
    
    1.40
    
    
    
    5.60
    
    
    
    2.68Quarterly
highs and lows2002First Quarter
    
    
    1.750
    
    
    
    0.650
    
    
    
    3.80
    
    
    
    1.34Second Quarter
    
    
    0.850
    
    
    
    0.210
    
    
    
    1.70
    
    
    
    0.54Third Quarter
    
    
    0.289
    
    
    
    0.150
    
    
    
    0.60
    
    
    
    0.31Fourth Quarter
    
    
    0.303
    
    
    
    0.157
    
    
    
    0.61
    
    
    
    0.32Quarterly
highs and lows2003First Quarter
    
    
    0.244
    
    
    
    0.187
    
    
    
    0.45
    
    
    
    0.35Second Quarter
    
    
    0.360
    
    
    
    0.171
    
    
    
    0.61
    
    
    
    0.31Third Quarter
    
    
    0.717
    
    
    
    0.259
    
    
    
    1.41
    
    
    
    0.45Fourth Quarter
    
    
    0.775
    
    
    
    0.493
    
    
    
    1.32
    
    
    
    0.79Monthly
highs and lows2003September
    
    
    0.717
    
    
    
    0.534
    
    
    
    1.41
    
    
    
    0.93October
    
    
    0.763
    
    
    
    0.572
    
    
    
    1.29
    
    
    
    0.97November
    
    
    0.775
    
    
    
    0.643
    
    
    
    1.32
    
    
    
    1.08December
    
    
    0.734
    
    
    
    0.493
    
    
    
    1.21
    
    
    
    0.792004January
    
    
    0.574
    
    
    
    0.460
    
    
    
    1.01
    
    
    
    1.00February
    
    
    0.596
    
    
    
    0.410
    
    
    
    0.94
    
    
    
    0.65March
    
    
    0.498
    
    
    
    0.439
    
    
    
    0.85
    
    
    
    0.70
 77




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B.     Plan of Distribution Not applicable. C.     Markets The information required by this item is set forth in 9.A above. D.     Selling Shareholders Not applicable. E.     Dilution Not applicable. F.     Expenses of the Issue Not applicable. 
 ITEM 10. ADDITIONAL INFORMATION A.     Share Capital Not applicable. B.     Memorandum and Articles of Association We are filing our amended articles of association as Exhibit 3.1 to this
Form 20-F. C.     Material Contracts Our material contracts are described in Item 4.B above. D.     Exchange Controls Capital transfer or money transfer restrictions are possible in Germany on
the basis of United Nations, European Union, European Community and national
authorities. In essence restrictions are possible only in the area of financial
sanctions. Such restrictions are significantly governed by EU and or EC laws.
It applies accordingly there are in principle no restrictions on capital or
payment transactions between the EC and third party countries. However, for statistical purposes only, every individual or corporation
residing in Germany must report to the German Central Bank (Deutsche
Bundesbank),subject only to certain exceptions, payments received from or made
to an individual or a corporation resident outside of Germany if the payment
exceeds 12,500 (or the equivalent in a foreign currency). This is covered in
detail in article 59 of the German foreign trade regulations
(Außenwirtschaftsverordnung, AWV). In addition, German residents must report
any claims against or any liabilities payable to non-residents if such claims
or liabilities, in the aggregate, exceed 5,000,000 (or the equivalent in a
foreign currency) at the end of a month. The treatment of remittance of
dividends, interest or other payments to nonresident holders of ordinary bearer
shares or depositary shares is described in subsection E below. 78




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E.     Taxation U.S. Federal Income Taxation The discussion that follows describes the material United States federal
income tax consequences of the purchase, ownership, and disposition of our
shares or American Depositary Shares, or ADSs, but it does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to a decision to purchase, own, or dispose of shares or ADSs. In particular,
this discussion of United States federal income tax matters deals only with
holders that will hold shares or ADSs as capital assets and does not address
the tax treatment of the purchase, ownership, and disposition of shares or ADSs
under applicable state or local tax laws, or the laws of any jurisdiction other
than the United States. In addition, this discussion does not address special
federal income tax situations, such as the United States federal income tax
treatment of holders:  
    
    who are securities dealers, financial institutions,
insurance companies or tax exempt organizations;
    
    who are holding shares or ADSs as part of a hedging or
larger integrated financial or conversion transaction;
    
    who are citizens or residents of a possession or
territory of the United States;
    
    who are United States holders (as defined below) with a
currency other than the U.S. dollar as their functional currency;
    
    who are holding shares or ADSs pursuant to certain
retirement plans;
    
    who are holding shares or ADSs pursuant to the exercise
of an employee stock option or otherwise as compensation; or
    
    who own, directly or indirectly, 10% or more of our
voting stock. In addition, the discussion below does not address
the tax treatment of partnerships or persons who hold shares or
ADSs through a partnership or other pass through entity. This discussion is based upon the federal income tax laws of the United
States as in effect on the date of this annual report, including the United
States Internal Revenue Code of 1986, as amended, or the Code, and the income
tax treaty between the United States and Germany, or the Treaty, which are
subject to change, possibly with retroactive effect. Subsequent developments
could have a material effect on this discussion. For United States federal income tax purposes, a United States holder of
an ADS will be treated as the owner of the shares underlying the ADS. United States holders As used herein, a United States holder means a beneficial owner of shares
or ADSs who is a United States person. A United States person is, for United
States federal income tax purposes, (1) a citizen or resident of the United
States; (2) a corporation, or other entity treated as a corporation created or
organized in or under the laws of the United States or any state thereof; (3)
an estate or trust, the income of which is subject to United States federal
income tax regardless of its source; (4) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust; or (5) a trust if it has an election in
effect to be treated as a United States person under United States federal
income tax law. Taxation of dividends. Subject to the discussions below relating to
passive foreign investment companies, a United States holder will be required
to include in gross income as a dividend when received (or in the case of ADSs, 79




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when received by the Depositary) the gross amount of any cash or the fair
market value of any property
distributed by us in respect of our shares, including the amount of any
German tax withheld to the extent of our current and accumulated earnings and
profits as determined under United States federal income tax principles, which
may include certain earnings and profits accumulated by our predecessors.
Dividend distributions in respect of shares (as opposed to ADSs) will
constitute foreign source income. Dividend distributions in respect of ADSs
will generally constitute partly foreign source and partly United States source
income. Dividends paid in any currency other than U.S. dollars will be
translated into U.S. dollars at the spot rate on the date the dividends are
received (which for holders of ADSs, would be the date such dividend is
received by the Depositary), regardless of whether the dividends are in fact
converted into U.S. dollars on that date. Gain or loss, if any, realized on a sale or other disposition of such
foreign currency will be ordinary income or loss and will generally be income
from sources within the United States for foreign tax credit limitation
purposes. If dividends paid in a foreign currency are converted into U.S.
dollars on the day such currency is received, United States holders generally
should not be required to recognize foreign currency gain or loss in respect of
the dividend income. A distribution with respect to our shares or ADSs in excess of our current
and accumulated earnings and profits, as determined under United States federal
income tax principles, will be treated as a tax-free return of basis in the
shares to the extent of the United States holders adjusted basis in such
shares, with the balance of the distribution, if any, treated as gain realized
by the United States holder from the sale, exchange or other disposition of the
shares. Dividends paid by us will not be eligible for the dividends received
deduction generally allowed to domestic corporate shareholders. A non-corporate United States holder will generally be eligible for
reduced rates of tax (i.e. the rates applicable to net long-term capital gain,
which are 5% and 15%) with respect to dividends on shares and ADSs under
section 1(h) of the Code if the United States holder has held the shares or
ADSs for more than 60 days during the 120-day period that begins on the date
that is 60 days before the ex-dividend date. For the purpose of determining
the holding period, no account is taken of days on which the holders risk of
loss with respect to the shares or ADSs is diminished by virtue of various
hedging strategies described in section 246(c) of the Code. The Treaty. Under German law, German corporations were required to
withhold tax on a distribution in 2001 of profits earned prior to 2001 in an
aggregate amount equal to 26.375% of the gross amount paid to resident and
nonresident stockholders, consisting of a 25% withholding tax plus a 5,5%
surtax thereon. German corporations must withhold tax at a rate of 21.1%,
consisting of 20% withholding tax and a 5.5% surtax thereon. In the case of a
United States holder, the German withholding tax is partially refunded under
the Treaty to reduce the withholding tax to 15% of the gross amount of the
dividend. In addition, so long as the German imputation system provides German
resident individual stockholders with a tax credit for corporate taxes with
respect to dividends paid by German corporations, the Treaty provides that
United States holders are entitled to a further refund equal to 5% of the gross
amount of the dividend. The German imputation system was abolished in 2002 and
consequently this amount will no longer be refundable as from 2002. Thus, for each $100 of gross dividend paid by us to a United States holder
in 2003, such holder will initially receive $79,900 ($100 less 21.1 withholding
tax). If the United States holder also applies for the available refunds under
the Treaty German withholding tax is effectively reduced to $15 and the cash
received per $100 of gross dividend is $85. Thus, for each $100 of gross
dividend, the United States holder will include $100 in gross income and will
be entitled to a foreign tax credit of $15, subject to the general limitations
of United States federal income tax law. For U.S. corporate shareholders who hold at least 10% of the shares in a
German corporation, the withholding tax rate is reduced to 5% plus a 5.5%
surtax thereon 80




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German refund procedures.In order to obtain the 5% tax credit-related
refund, the refund of the German withholding tax in excess of 15%, and the
refund of the 5.5% German surtax, United States holders of shares must
submit to the German tax authorities directly (1) a claim for refund, (2)
the original bank voucher (or certified copy thereof) issued by the paying
entity documenting the tax withheld, and (3) an IRS Form 6166. The claim for
refund must be filed within four years from the end of the calendar year in
which the dividend is received. Claims for refund are made on a special German claim for refund form,
which must be filed with the German tax authorities: Bundesamt für Finanzen,
Friedhofstrasse 1, 53225 Bonn, Germany. The German claim for refund forms may
be obtained from the German tax authorities at the same address, or from the
Embassy of the Federal Republic of Germany, 4645 Reservoir Road, N.W.
Washington D.C. 20007-1998. U.S. holders may obtain an IRS Form 6166, which is a certification of the
United States holders last filed United States federal income tax return, by
filing a request with the office of the Director of the Internal Revenue
Service Center at the following address: Internal Revenue Service Center,
Philadelphia, Pennsylvania, Foreign Certificate Request, P.O. Box 16347,
Philadelphia, PA 19114-0447. Requests for certification are to be made in
writing and must include the United States holders name, social security
number or employer identification number, tax return form number, and tax
period for which certification is requested. The Internal Revenue Service will
send the certification (IRS Form 6166) directly to the United States holders.
The issued IRS Form 6166 will be valid for a period of three years from the
date of the last filed return to which it relates. Refunds under the Treaty are not available in respect of shares or ADSs
held in connection with a permanent establishment or fixed base in Germany. Taxation of disposition of shares or ADSs. Subject to the discussions
below relating to passive foreign investment companies, any gain or loss
realized and recognized by a United States holder on the sale or other
disposition of a share or an ADS (including upon our liquidation or dissolution
or as a result of a non-pro rata redemption of shares) will be subject to
United States federal income tax, as a capital gain or loss, on an amount equal
to the difference between such United States holders adjusted tax basis in the
share or ADS and the amount realized on disposition. A United States holders
adjusted tax basis in a share or ADS (as described above) will be reduced (but
not below zero) by the amount of any distribution that is treated as a return
of basis. Any gain or loss recognized upon the sale or other disposition of a share
or an ADS will be long-term capital gain or loss if held for more than one
year. For non-corporate United States holders, the United States income tax
rate applicable to a net long-term capital gain currently will not exceed 15%.
For corporate United States holders, a capital gain is currently taxed at the
same rate as ordinary income. The deductibility of a capital loss, however, is
subject to limitations for both non-corporate and corporate United States
holders. Foreign tax credit considerations.For United States federal income tax
purposes, United States holders, upon payment of a dividend, will be treated as
having received the amount of any German tax withheld, which is not refundable
(as described above), and as then having paid this tax over to Germany. As a
result of this rule, the amount of dividend included in a United States
holders gross income may be greater than the amount of cash actually received
(or receivable) by the United States holder. Subject to the limitations and conditions set forth in the Code, United
States holders may claim a credit against their United States federal income
tax liability for German tax withheld from dividends or German tax imposed on
capital gains, if any, or, if they do not elect to credit any foreign income
tax for the taxable year, they may deduct such tax. For purposes of the foreign
tax credit limitation, foreign source income is classified into one of several
baskets, and the credit for foreign taxes on income in any basket is limited to
United States federal income tax allocable to that income. Dividends or capital
gains will generally constitute passive income or financial services income
for purposes of the foreign tax credit limitation. Dividends will generally
constitute foreign source income and currency gains and capital gains will
generally constitute United States source income. Capital loss will generally
be allocated against United States source income. Because capital gains will
generally constitute United States source income, as a result of the United
States foreign tax credit limitation, any German or other foreign 81




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income tax imposed upon capital gains in respect of the shares may not be currently
creditable unless a United States holder had other foreign source income for
the year in the appropriate foreign tax credit limitation basket. Passive foreign investment company rules. Special United States federal
income tax rules apply to holders of equity interests in a corporation
classified as a passive foreign investment company, or PFIC, under the Code. We
would constitute a PFIC for United States federal income tax purposes if 75% or
more of our gross income for a taxable year were to consist of passive income,
or 50% or more of our average assets held during a taxable year were to consist
of passive assets. We do not anticipate that we have or will have sufficient
passive income or assets in any year to constitute a PFIC. If we were to constitute a PFIC, a United States holder could be subject
to a number of materially adverse United States tax consequences. Prospective
United States holders should consult with their own tax advisors regarding the
potential application of PFIC rules to them. Non-United States holders Subject to the discussion of United States backup withholding tax below, a
holder of shares or ADSs other than a United States holder will not be subject
to United States federal income or withholding tax on income derived by us,
dividends paid to a stockholder or gains realized on the sale of shares or
ADSs, provided that: (1) such income items are not effectively connected with
the conduct by the non-United States holder of a trade or business within the
United States; (2) the non-United States holder is not or was not present in,
or does not have or did not have a permanent establishment in, the United
States; (3) there has not been a present or former connection between the
non-United States holder and the United States, including, without limitation,
such non-United States holders status as a citizen or former citizen thereof
or resident or former resident thereof; and (4) in the case of a gain from the
sale or disposition of shares or ADSs by an individual, the non-United States
holder is not present in the United States for 183 days or more during the
taxable year of the sale and certain other conditions are met. If a dividend, gain or income with respect to a share or ADS of a
non-United States holder is effectively connected with the conduct of a United
States trade or business (or attributable to a permanent establishment in the
United States, in the case of a holder who is a resident of a country which has
an income tax treaty with the United States), the non-United States holder may
be subject to United States income taxes on such dividend, gain or income at
the statutory rates provided for United States persons after deduction of
deductible expenses allocable to such effectively connected dividend, gain or
income. In addition, if such a non-United States holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits for the taxable year, as adjusted
for certain items, unless a lower rate applies under a United States income tax
treaty with the non-United States holders country of residence. For this
purpose, dividends, gain or income in respect of a share or ADS will be
included in earnings and profits subject to the branch profits tax if the
dividend, gain or income is effectively connected with the conduct of the
United States trade or business of the non-United States holder. United States backup withholding tax and information reporting Payments made by a U.S. paying agent or other United States intermediary
broker in respect of the shares or ADSs may be subject to information reporting
to the IRS and to backup withholding tax. Backup withholding will not apply,
however (i) to a holder who furnishes a correct taxpayer identification number
and makes any other required certification or (ii) to a holder who is otherwise
exempt from backup withholding (such as a corporation). Any amounts withheld under the backup withholding rules from a payment to
a holder will be allowed as a refund or a credit against such holders United
States federal income tax, provided that the holder has complied with
applicable reporting obligations. German Taxation The following is a short summary discussion of certain German taxation
principles which may be or become relevant in connection with the acquisition
and/or sale of our shares or ADSs. The discussion does not purport to be a 82




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comprehensive description of all of the German tax considerations which may be
relevant to our shareholders. The discussion is based on the tax laws of the
Federal Republic of Germany as in effect on the date of writing of this annual
report as well as on typical double taxation conventions as currently in effect
between the Federal Republic of Germany and other states. In both cases, some provisions may be subject to
change at short notice, possibly with retroactive effect. The discussion is limited to the impact of income taxes on income from
dividends and capital gains as well as gift and inheritance tax aspects under
German law, and does not address all aspects of German taxation. The summary
does not consider any specific facts or circumstances that may apply to a
particular investor. In particular, this discussion does not comprehensively
treat the tax considerations that will be relevant to prospective investors who
reside outside Germany. Prospective investors who are in doubt as to their
specific tax position are urged to consult a tax adviser before purchasing or
selling the new PrimaCom shares or ADSs. A short discussion of the relevant aspects of German corporate income
taxation precedes the discussion of taxes applicable to shareholders. German
tax law has undergone fundamental changes due to a major tax reform which
became effective in stages on January 1, 2001 and on January 1, 2002. Further
changes of German tax law are to be expected in the future. As a result, the
German tax law is transitory in certain respects. Taxation of PrimaCom.From January 1, 2001 PrimaCom is subject to
corporate income tax at a rate of 25%. For the tax year 2003 the corporate
income tax rate is 26.5 % due to the Flutopfersolidaritätsgesetz (Solidarity
Act for Flood Victims). These tax rates apply, irrespective of whether or not
profits are distributed. Certain foreign-source earnings are exempted from
corporate income tax. 95% of the dividends received by a corporation are
tax-exempt, and 95% of the profits it derives from the disposal of shares in
corporations are also exempted from corporate income tax. In addition, German corporations are subject to a profit-related trade
tax, the exact amount of which depends among other things, on the
municipalities in which the corporation maintains permanent establishments.
Trade tax on income is deductible as an operating expense for corporate income
and trade tax assessment purposes. If a corporation as per December 31, 2001 still had retained earnings
which, according to the corporate taxation system applicable until December 31,
2000, were subject to corporate income tax at the normal rate and not at the
lower rate applicable to distributed profits, the difference between the tax
paid and the tax that would have been paid under the lower rate for distributed
profits was determined in the form of a corporate income tax credit at the
level of the corporation, which will reduce future corporate income tax burdens
of the corporation in case dividends should be distributed in the future. In the case of dividend distributions paid in the years 2002 to 2020,
except for dividend distributions paid after April 11, 2003 and prior to
January 1, 2006, both the corporate income tax and the corporate income tax
credit of the corporation will be reduced by one-sixth of the distributed
profit, at most, however, by such portion of the corporate income tax credit
determined for the respective year as a result of an equal distribution of the
entire tax credit to the remaining tax credit period until 2020. Corporate
income tax credits which have not been realized by 2020 will lapse. Taxation of dividends- Dividends distributed after December 31, 2001.
Only half of the dividends paid to individual shareholders resident in Germany
(i.e. having their domicile or habitual abode in Germany) will be subject to
income tax (plus solidarity surcharge at a rate of 5.5% thereon) (so-called
half-income-method). Correspondingly, only half of the expenses associated
with each shareholders participation are tax deductible. Shares held as
private assets shall, however, only be subject to tax if the dividend payments
together with other investment income up to and including 2003 exceed the
amount of  1,601 ( 3,202 for spouses filing jointly) and from January 1, 2004
the amount of  1,370 ( 2,740). If the shareholder is a corporation with its statutory seat or place of
management in Germany, 95% of the dividends received will not be subject to
tax at its level. This applies only for trade tax, however, if the
participation 83




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held amounts to at least 10% at the beginning of the respective
calendar year. If the shareholder is a bank or financial services institution
within the meaning of section 1 subsection 12 of the German Banking Act, and
the shares are accounted for in the trading books (Handelsbuch), then dividends
are fully taxable. This is also true with respect to shares purchased by a
finance company (as defined by the Banking Act) with the aim of making
short-term gains on such companys own account. The same rules apply to banks, financial
services institutions and finance companies having their seat in a member state
of the European Community or another country that is a signatory to the Treaty
on the European Economic Area. An exemption of dividend income from trade tax
is only granted if, at the beginning of the year, the shareholder held at least
10% of the registered share capital of the corporation distributing such
dividends. German corporations must withhold, on behalf of their shareholders, tax
(capital yield tax) at a rate of 20.0% plus a 5.5% solidarity surcharge
thereon, representing a total rate of 21.1% of the amounts distributed,
irrespective of whether the dividends are fully or partially tax-exempt at the
level of the shareholders. The withholding tax is credited and, as the case may
be, refunded upon the shareholders tax assessment on income. Dividends will be paid without deduction of withholding tax and solidarity
surcharge to shareholders resident in Germany who have submitted to their
custodial bank a non-assessment certificate (Nichtveranlagungsbescheinigung)
issued by the tax office of their statutory seat or domicile. In addition, no
deduction for withholding tax will be made if the shareholder has given an
exemption order for capital gains (Freistellungsauftrag) to his bank, provided
that the exemption amount indicated in the order has not already been used up
by other investment income. The custodial bank may also pay dividends without
deducting withholding tax and surcharge to tax-exempt corporations, provided a
non-assessment certificate has been submitted. Individual shareholders and corporations who do not have their residence
or habitual abode or place of management in Germany shall be subject to
restricted taxation in Germany. This obligation to pay tax is deemed satisfied
with the deduction of withholding tax. Withholding tax on dividends distributed to shareholders who do not hold
their shares as part of the assets of a permanent establishment or fixed base
in Germany and who are resident in a country which is party to a double
taxation treaty with Germany is reduced to 15% under most German DTCs. The
withholding tax is reduced by refunding to the shareholder the difference
between the total amount withheld, including solidarity surcharge, less the
withholding tax actually owed according to the applicable double taxation
treaty upon the shareholders application to the Federal Tax Office (Bundesamt
für Finanzen, Friedhofstrasse 1, 53225 Bonn). Forms for refund requests can be obtained from the German tax authorities
or from German embassies and consulates in various countries. Most double
taxation treaties provide for a further reduction of capital yield tax on
dividends distributed to corporations not resident in Germany which hold at
least 25%, in some cases at least 10% of the shares (under some treaties:
voting shares) of the distributing corporation. The same rule applies to
dividends distributed to parent companies resident in the European Union within
the meaning of EC Directive 90/435/EEC of the Council of July 23, 1990 (the
Parent-Subsidiary Directive). Where dividends are distributed to EU parent
companies, upon request and provided that further requirements are met, either
the reduced withholding tax rate can be applied at the time of distribution or
the withholding tax may not have to be withheld at all. If the shares are held as part of the business assets of a permanent
establishment of a corporation in Germany, 95% of the dividend income shall be
tax-exempt at the level of the permanent establishment. Capital yield tax
withheld on the dividends is set off against the tax burden of the permanent
establishment and refunded as the case may be. If an individual shareholder
holds shares as part of the business assets of a permanent establishment in
Germany, only half of the dividends shall be subject to German income tax and
set off against the individual shareholders tax burden and refunded as the
case may be. If the shareholder holds less than one-tenth of the distributing
companys share capital at the beginning of the calendar year in which the
dividend is paid, then in case of a corporation the dividend which is exempt
from corporate income tax and in case of an individual shareholder the half of
the dividend which is exempt from income tax will be subject to trade tax in
full. 84




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Taxation of capital gains-Disposals from 2002 onwards.Half of the
capital gains derived from the sale of shares held by a shareholder resident in
Germany as part of the business assets or by a shareholder not resident in
Germany as part of the assets of a permanent establishment in Germany are
subject to taxation at the full tax rate. Whereas, half of the capital gains derived from the sale of shares held by
shareholders resident in Germany as part of their private assets are only
subject to tax if the shares are sold within one year after their acquisition
or after expiration of this period, if the shareholder at any time during the
five years immediately preceding the sale, directly or indirectly held at least
1% of the nominal capital of the corporation (substantial participation). In
case the shareholder has acquired the shares gratuitously, the term of
possession and the previous holders proportion of the participation will also
be taken into account. A shareholder not resident in Germany who does not hold the shares as part
of the assets of a permanent establishment in Germany is only subject to tax on
half of the capital gains derived from the sale of such shares if, at any time
during the five years immediately preceding the sale, he has directly or
indirectly held at least 1% of the nominal capital of the corporation. Most
German double taxation treaties, however, provide for a complete exemption from
German taxation. In principle, 95% of capital gains of shareholders subject to corporate
income tax are tax-exempt. The deductibility of losses from the sale of shares
is excluded. If the shareholder is a bank or a financial services institution, and if
the shares sold are accounted for in the trading books (Handelsbuch) within the
meaning of section 1 subsection 12 of the German Banking Act, any capital gains
will be fully taxable. The same applies, if the shares sold were acquired by a
finance company within the meaning of the Banking Act with the aim of realizing
short-term profits for such companys own account. This is also true for banks,
financial service institutions and finance companies having their domicile in a
member state of the European Community or another country that is a signatory
to the Treaty on the European Economic Area. Gift and inheritance tax.The transfer of shares to another person by way
of succession or gift is in principle only subject to German inheritance or
gift tax, respectively, if  (a)
    
    the decedent or donor or the heir, the donee or other
transferee has his/her residence or habitual abode in Germany at the
time of the transfer, or is a German citizen having not lived abroad
for a continuous period of more than five years without maintaining
a residence in Germany. At the transfer of shares listed on the stock exchange, the value of the
shares as determined according to the market price will be subject to taxation. Irrespective of the residence or habitual abode of the decedent or donor
or his/her heirs, donees or other transferees, the transfer of shares to
another person is only subject to inheritance or gift tax, if the transferred
assets are domestic assets, i. e.  (b)
    
    the shares are held by the decedent or donor as part of the
business assets of a permanent establishment in Germany; or(c)
    
    the decedent or donor at the time of the inheritance or gift,
either alone or together with related persons within the meaning of
section 1 International Tax Relations Law (Außensteuergesetz, AStG),
directly or indirectly holds at least 10% of the share capital of
the German corporation. If the participation amounts to at least 25%, only 60% of the
participation value in excess of  256,000 will be subject to tax. 85




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The few German double taxation treaties on inheritance and gift tax that
are currently in force (e.g. the treaty with the United States) usually provide
for German gift and inheritance tax to be levied only in the cases described
under (a) and otherwise only if the decedent or donor has his/her residence in
Germany. Other taxes.There is no German transfer tax, value added tax, stamp duty
or similar taxes on the purchase, sale or other disposal of shares. Wealth tax
is no longer levied for periods after January 1, 1997. If an individual or a corporation directly or indirectly acquires 95% or
more of the shares in PrimaCom or if the participation directly or indirectly
increases up to at least 95% by way of acquisition of additional PrimaCom
shares, a 3.5% land transfer tax will be levied on the value of all land which
PrimaCom and its subsidiaries own. F.     Dividends and Paying Agents Not applicable. G.     Statement by Experts Not applicable. H.     Documents on Display We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, we
file reports and other information with the Securities and Exchange Commission.
These materials, including this annual report and the exhibits thereto, may be
inspected and copied at the Commissions Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commissions regional offices
at 500 West Madison Street, Suite 1400,Chicago, Illinois 60661, and 233
Broadway New York, New York 10279. Copies of the materials may be obtained from
the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The public may obtain information
on the operation of the Commissions Public Reference Room by calling the
Commission in the United States at 1-800-SEC-0330. The Commission also
maintains a web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission. I.     Subsidiary Information Not applicable. 
  ITEM 11.
        
        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have a significant variable rate senior secured credit facility and as
a result could be significantly affected by changes in interest rates. In this
regard, changes in interest rates affect the interest paid on debt. To mitigate
the effect of changes in interest rates, we have entered into interest rate cap
agreements. The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For debt obligations, the table presents principal cash flows
and related applicable floating rate indices by expected maturity dates. For
interest rate caps and floors, the table presents notional amounts and
weighted-average strike rates by contractual maturity dates. Notional amounts
are used to calculate the contractual cash flows to be exchanged under the
contract. 86




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Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest Rate/Cap Strike Price Fair ValueDecember 31,2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    2003Variable-Rate Revolving
Credit Facility ( in
thousands). Floating
Rate Index LIBOR plus
0.50% - 2.25%
    
    
    
    
    
    
    
    
    
    
    22,000
    
    
    
    61,000
    
    
    
    76,250
    
    
    
    109,800
    
    
    
    225,450
    
    
    
    494,500
    
    
    
    494,500Interest Rate Derivatives Floors/CapsNotional Amount
 in thousands
    
    
    300,000Average Strike Rate(1)
    
    
    5.23
    %Average Floor Rate(2)
    
    
    3.23
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    (1,097
    )
   (1)
    
    Average strike rate of interest rate cap agreements.(2)
    
    Average floor rate as to the 200,000,000 of notional account. 
  ITEM 12.
        
        DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
  ITEM 13.
        
        DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 
  ITEM 14.
        
        MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND
USE OF PROCEEDS Not applicable. 
  ITEM 15.
        
        CONTROLS AND PROCEDURES Within the 90 days prior to the filing date of this annual report on Form
20-F, we performed an evaluation, under the supervision and with the
participation of our management, of the effectiveness and design and operation
of our disclosure controls and procedures. Disclosure controls and procedures
are designed to ensure that the material financial and non-financial
information required to be disclosed in our annual report on Form 20-F and
filed with the Securities and Exchange Commission is recorded, processed,
summarized and reported timely. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated can provide only
reasonable, rather than absolute, assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based upon that evaluation, our management concluded that our disclosure
controls and procedures are effective. Since the date of the evaluation, there
have been no significant 87




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changes in our internal controls or in other factors that
could significantly affect the controls. Therefore, no corrective actions were
taken. 
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our management board has designated Mr. Michael Moriarty as an audit committee
financial expert. For a description of Mr. Moriartys experience and
qualifications, see Item 6. Directors, Senior Management and Employees. 
 ITEM 16B. CODE OF ETHICS We have adopted a code of ethics that applies to our employees, including
our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. We
believe our code of ethics is substantially compliant with the definition of
code of ethics contained in Item 16B of Form 20-F, but we cannot give
assurance that it fully meets that definition. A copy of our code of ethics may
be obtained without charge upon request. To request a copy of our code of
ethics, please contact contact Stefan Schwenkedel at PrimaCom AG, An der
Ochsenwiese 3, 55124 Mainz, Germany. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 2003
    
    2002(in Euro)
    
    (in Euro)Accountant
fees and Services:(1) Audit Fees
    
    
    478,400
    
    
    
    674,000(2) Audit Related Fees
    
    
    7,000
    
    
    
    (3) Tax Fees
    
    
    122,800
    
    
    
    160,100(4) All Other Fees
    
    
    
    
    
    
    45,900Total
    
    
    608,200
    
    
    
    880,000
 Audit Fees Our audit fees for 2003 were 478,400 and for 2002 were 674,000. Audit-Related Fees Our audit-related fees for 2003 were 7,000 and included fees in respect
of risk assessment services in the IT area. Tax Fees Our tax fees for 2003 were 122,800 and for 2002 were 160,100. Tax fees
for those years included fees in respect of income tax consulting and
compliance services. 88




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All Other Fees We had no other fees in respect of products or services provided by the
principal accountant for 2003. For 2002, all fees under this category amounted
to 45,900, and included fees in respect of employee advisory services. Audit Committee Pre-Approval Policies and Procedures The external auditor who is responsible for auditing the Financial
Statements is appointed by the Supervisory Board upon recommendation of the
Audit Committee. The external auditor reports to the Audit Committee, to the
Supervisory Board and to the Management Board. The Audit Committee is,
together with the Supervisory Board, responsible for the appointment,
compensation and oversight of the work of the independent auditor. As part of
this responsibility, the Audit Committee is required to pre-approve the audit
and non-audit services performed by the independent auditor in order to assure
that they do not impair the auditors independence from the Company. In May 2003 our Audit Committee adopted and ratified a pre-approval policy
for Audit and Non-Audit Services, which sets forth the procedures and the
conditions pursuant to which services proposed to be performed by the
independent auditor may be pre-approved. The annual Audit service engagement terms and fees are subject to specific
pre-approval of the Audit Committee. All services performed in 2003 by our independent external auditor were in
compliance with the pre-approval policy. In 2003, approximately 1% of the total
fees paid to our independent auditors were approved pursuant to the de
minimis test. 
 PART III 
  ITEM 17.
        
        FINANCIAL STATEMENTS Not applicable. 89




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ITEM 18. FINANCIAL STATEMENTS See pages F-1 to F-26 90




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ITEM 19. EXHIBITS ExhibitNumber
    
    Description of Exhibit3.1*
    
    English translation of the Articles of Association3.2*
    
    Standing Orders for the Management Board3.3*
    
    Rules for Procedure of the Supervisory Board8.1**
    
    List of subsidiaries12.1
    
    Certification of Stefan Schwenkedel pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    Certification of Jens Kircher pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    Certifications filed pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   *
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2002 filed on
April 2, 2003**
    
    Incorporated by reference to Item 4.C. SIGNATURES The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf. PRIMACOM AG/s/ Jens KircherName: Jens KircherTitle: Member of the management board/s/ Stefan SchwenkedelName: Stefan SchwenkedelTitle: Member of the management boardDate: April 26, 2004
 91




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Report of Independent Auditors To the Board of Directors,
PRIMACOM AG We have audited the accompanying consolidated balance sheets of PrimaCom
AG and subsidiaries as of December 31, 2001, 2002 and 2003 and the related
consolidated statements of operations, shareholders equity and cash flows for
each of the three years in the period ended December 31, 2003. 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 Germany and the United States. 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 PrimaCom AG
and subsidiaries at December 31, 2001, 2002 and 2003 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 1, the Company incurred recurring losses in each of the three
years in the period ended December 31, 2003 and has a working capital
deficiency and a shareholders deficit as of December 31, 2003. In addition,
the Company has substantial debt obligations, which contain specific financial
covenants. Management anticipates that the Company will not be able to comply
with certain of these covenants in 2005, which could result in the debt
obligations becoming immediately payable to its lenders. In the case of a
violation of a debt covenant, a waiver will need to be obtained from the
lenders. Management anticipates that it will not be able to obtain waivers if
a violation of these covenants occurs. These conditions raise substantial
doubt about the Companys ability to continue as a going concern. Managements
plans as to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
these uncertainties. As disclosed in the Note 2 to the consolidated financial statements, in
2002, the Company adopted statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. Accordingly, the Company ceased
amortizing goodwill and indefinite lived intangible assets as of January 1,
2002. /s/ ERNST & YOUNGERNST & YOUNGDeutsche Allgemeine Treuhand AGFrankfurt, Germany
April 19, 2004
 F-1




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PRIMACOM AG AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands) Years ended December 31,2001
    
    2002
    
    2003
    
    2003Euro
    
    Euro
    
    Euro
    
    U.S.$(unaudited)Revenues
    
    
    165,496
    
    
    
    182,042
    
    
    
    197,948
    
    
    
    249,355Operating costs and expenses:Operations
    
    
    43,669
    
    
    
    47,900
    
    
    
    47,039
    
    
    
    59,255Selling, general and administrative
    
    
    34,878
    
    
    
    36,172
    
    
    
    32,755
    
    
    
    41,261Corporate overhead
    
    
    18,207
    
    
    
    16,465
    
    
    
    11,173
    
    
    
    14,075Debt refinancing
    
    
    
    
    
    
    2,432
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    118,360
    
    
    
    95,943
    
    
    
    87,587
    
    
    
    110,333Total
    
    
    215,114
    
    
    
    198,912
    
    
    
    178,554
    
    
    
    224,924Operating profit (loss)
    
    
    (49,618
    )
    
    
    (16,870
    )
    
    
    19,394
    
    
    
    24,431Interest expense:Convertible Second Secured Loan
non-cash interest
    
    
    
    
    
    
    31,079
    
    
    
    42,060
    
    
    
    52,983Other bank interest and other interest
    
    
    62,768
    
    
    
    78,342
    
    
    
    71,039
    
    
    
    89,488Total
    
    
    62,768
    
    
    
    109,421
    
    
    
    113,099
    
    
    
    142,471Other expense
    
    
    5,649
    
    
    
    993
    
    
    
    42
    
    
    
    53Loss from operations before income taxes and
other items
    
    
    (118,035
    )
    
    
    (127,284
    )
    
    
    (93,747
    )
    
    
    (118,093
    )Income tax benefit (expense)
    
    
    15,381
    
    
    
    (10,980
    )
    
    
    (24,291
    )
    
    
    (30,599
    )Loss from operations before minority interest
and equity earnings
    
    
    (102,654
    )
    
    
    (138,264
    )
    
    
    (118,038
    )
    
    
    (148,692
    )Minority interest in net income of subsidiaries
    
    
    (88
    )
    
    
    (63
    )
    
    
    (61
    )
    
    
    (77
    )Equity loss in affiliate
    
    
    (420
    )
    
    
    
    
    
    
    
    
    
    
    Loss from operations before cumulative effect
of change in accounting principle
    
    
    (103,162
    )
    
    
    (138,327
    )
    
    
    (118,099
    )
    
    
    (148,769
    )Cumulative effect of change in accounting
principle, net of income tax
    
    
    (946
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (104,108
    )
    
    
    (138,327
    )
    
    
    (118,099
    )
    
    
    (148,769
    )Loss per share:Basic and diluted:Loss from operations
    
    
    (5.21
    )
    
    
    (6.99
    )
    
    
    (5.97
    )
    
    
    (7.52
    )Cumulative effect of change in accounting
principle
    
    
    (0.05
    )
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (5.26
    )
    
    
    (6.99
    )
    
    
    (5.97
    )
    
    
    (7.52
    )
 See accompanying notes to consolidated financial statements. F-2




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PRIMACOM AG AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(in thousands) December 31,2001
    
    2002
    
    2003
    
    2003Euro
    
    Euro
    
    Euro
    
    U.S.$(unaudited)Cash and cash equivalents
    
    
    2,933
    
    
    
    802
    
    
    
    5,252
    
    
    
    6,616Trade accounts receivable  net
    
    
    8,997
    
    
    
    6,876
    
    
    
    6,362
    
    
    
    8,014Other current assets
    
    
    10,762
    
    
    
    8,735
    
    
    
    9,023
    
    
    
    11,366Total current assets
    
    
    22,692
    
    
    
    16,413
    
    
    
    20,637
    
    
    
    25,996Property and equipment  net
    
    
    576,695
    
    
    
    520,225
    
    
    
    469,598
    
    
    
    591,553Goodwill  net
    
    
    320,095
    
    
    
    359,686
    
    
    
    359,710
    
    
    
    453,127Other intangibles  net
    
    
    53,055
    
    
    
    47,890
    
    
    
    44,703
    
    
    
    56,312Deferred income tax assets
    
    
    104,060
    
    
    
    93,715
    
    
    
    70,370
    
    
    
    88,645Other assets
    
    
    48,409
    
    
    
    47,789
    
    
    
    40,744
    
    
    
    51,325TOTAL ASSETS
    
    
    1,125,006
    
    
    
    1,085,718
    
    
    
    1,005,762
    
    
    
    1,266,958Accounts payable
    
    
    25,157
    
    
    
    16,147
    
    
    
    12,357
    
    
    
    15,566Accrued expenses
    
    
    32,151
    
    
    
    42,847
    
    
    
    53,647
    
    
    
    67,580Deferred revenue
    
    
    2,225
    
    
    
    1,610
    
    
    
    2,103
    
    
    
    2,649Deferred purchase obligations
    
    
    10,984
    
    
    
    456
    
    
    
    838
    
    
    
    1,056Sale-leaseback obligations  current
    
    
    3,976
    
    
    
    2,713
    
    
    
    1,327
    
    
    
    1,671Bank and other debt  current
    
    
    554
    
    
    
    309
    
    
    
    
    
    
    
    Total current liabilities
    
    
    75,047
    
    
    
    64,082
    
    
    
    70,272
    
    
    
    88,522Sale leaseback  obligations
    
    
    5,617
    
    
    
    2,903
    
    
    
    1,577
    
    
    
    1,987Deferred income tax liability
    
    
    42,621
    
    
    
    82,544
    
    
    
    75,853
    
    
    
    95,552Convertible Second Secured Loan
    
    
    
    
    
    
    406,079
    
    
    
    448,139
    
    
    
    564,521Revolving credit facility and other
debt
    
    
    831,529
    
    
    
    496,795
    
    
    
    494,500
    
    
    
    622,921TOTAL LIABILITIES
    
    
    954,814
    
    
    
    1,052,403
    
    
    
    1,090,341
    
    
    
    1,373,503Minority interest
    
    
    200
    
    
    
    273
    
    
    
    351
    
    
    
    442SHAREHOLDERS EQUITY/DEFICITCommon stock  2.56 par valueAuthorized  31,692,792Issued  19,798,552
    
    
    50,582
    
    
    
    50,582
    
    
    
    50,614
    
    
    
    63,758Additional paid-in capital
    
    
    359,754
    
    
    
    361,131
    
    
    
    361,226
    
    
    
    455,036Accumulated deficit
    
    
    (240,344
    )
    
    
    (378,671
    )
    
    
    (496,770
    )
    
    
    (625,781
    )TOTAL SHAREHOLDERS EQUITY/DEFICIT
    
    
    169,992
    
    
    
    33,042
    
    
    
    (84,930
    )
    
    
    (106,987
    )TOTAL LIABILITIES AND SHAREHOLDERS
EQUITY/DEFICIT
    
    
    1,125,006
    
    
    
    1,085,718
    
    
    
    1,005,762
    
    
    
    1,266,958
 See accompanying notes to consolidated financial statements. F-3




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PRIMACOM AG AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY/DEFICIT
(in thousands) Additional
    
    
    
    
    
    TotalRegistered
    
    Paid-In
    
    Accumulated
    
    ShareholdersCapital
    
    Capital
    
    Deficit
    
    EquityEuro
    
    Euro
    
    Euro
    
    EuroBalance at December 31, 2000
    
    
    50,582
    
    
    
    354,838
    
    
    
    (136,236
    )
    
    
    269,184Release of contingent value rights
    
    
    
    
    
    
    1,063
    
    
    
    
    
    
    
    1,063Stock option compensation
    
    
    
    
    
    
    3,853
    
    
    
    
    
    
    
    3,853Net loss
    
    
    
    
    
    
    
    
    
    
    (104,108
    )
    
    
    (104,108
    )Balance at December 31, 2001
    
    
    50,582
    
    
    
    359,754
    
    
    
    (240,344
    )
    
    
    169,992Stock option compensation
    
    
    
    
    
    
    1,377
    
    
    
    
    
    
    
    1,377Net loss
    
    
    
    
    
    
    
    
    
    
    (138,327
    )
    
    
    (138,327
    )Balance at December 31, 2002
    
    
    50,582
    
    
    
    361,131
    
    
    
    (378,671
    )
    
    
    33,042Stock option compensation
    
    
    
    
    
    
    123
    
    
    
    
    
    
    
    123Sale of treasury shares
    
    
    32
    
    
    
    (28
    )
    
    
    
    
    
    
    4Net loss
    
    
    
    
    
    
    
    
    
    
    (118,099
    )
    
    
    (118,099
    )Balance at December 31, 2003
    
    
    50,614
    
    
    
    361,226
    
    
    
    (496,770
    )
    
    
    (84,930
    )
 See accompanying notes to consolidated financial statements. F-4




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##### Table of Contents



PRIMACOM AG AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years ended December 31,2001
    
    2002
    
    2003
    
    2003Euro
    
    Euro
    
    Euro
    
    U.S.$(unaudited)Operating ActivitiesNet loss
    
    
    (104,108
    )
    
    
    (138,327
    )
    
    
    (118,099
    )
    
    
    (148,769
    )Adjustments to reconcile net loss to net cash
provided by operating activities:Depreciation and amortization
    
    
    118,360
    
    
    
    95,943
    
    
    
    87,587
    
    
    
    110,333Amortization of financing fees and other
    
    
    4,072
    
    
    
    6,991
    
    
    
    6,579
    
    
    
    8,288Amortization of deferred revenue
    
    
    (18,018
    )
    
    
    (16,527
    )
    
    
    (16,260
    )
    
    
    (20,483
    )Non-cash interest expense  Convertible SecondSecured Loan
    
    
    
    
    
    
    31,079
    
    
    
    42,060
    
    
    
    52,983Loss on write-off of equity investment
    
    
    1,452
    
    
    
    
    
    
    
    
    
    
    
    Write-off of capitalized financing fees
    
    
    
    
    
    
    14,696
    
    
    
    
    
    
    
    Stock option compensation expense
    
    
    3,853
    
    
    
    1,377
    
    
    
    123
    
    
    
    155Deferred income taxes
    
    
    (13,270
    )
    
    
    10,980
    
    
    
    16,654
    
    
    
    20,979Other
    
    
    200
    
    
    
    78
    
    
    
    78
    
    
    
    98Changes in assets and liabilities, net of
effects of business acquisitions and
disposition:Trade accounts receivable
    
    
    (1,311
    )
    
    
    2,122
    
    
    
    514
    
    
    
    647Other assets
    
    
    5,113
    
    
    
    5,081
    
    
    
    (1,149
    )
    
    
    (1,447
    )Accounts payable
    
    
    (1,675
    )
    
    
    (9,010
    )
    
    
    (3,790
    )
    
    
    (4,774
    )Accrued expenses
    
    
    3,512
    
    
    
    10,696
    
    
    
    10,800
    
    
    
    13,605Deferred revenue
    
    
    17,141
    
    
    
    15,912
    
    
    
    16,753
    
    
    
    21,104Other
    
    
    
    
    
    
    
    
    
    
    383
    
    
    
    482Net cash provided by operating activities
    
    
    15,321
    
    
    
    31,091
    
    
    
    42,233
    
    
    
    53,201Investing ActivitiesAcquisitions of businesses and networks, net of
cash acquired
    
    
    (15,878
    )
    
    
    (375
    )
    
    
    
    
    
    
    Purchases of property and equipment
    
    
    (68,636
    )
    
    
    (36,861
    )
    
    
    (32,701
    )
    
    
    (41,193
    )Proceeds from sale of businesses
    
    
    2,850
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of property and equipment
    
    
    1,112
    
    
    
    224
    
    
    
    231
    
    
    
    291Net cash used in investing activities
    
    
    (80,552
    )
    
    
    (37,012
    )
    
    
    (32,470
    )
    
    
    (40,902
    )Financing ActivitiesProceeds from credit facilities
    
    
    95,000
    
    
    
    42,000
    
    
    
    5,000
    
    
    
    6,298Proceeds from term loan
    
    
    
    
    
    
    375,000
    
    
    
    
    
    
    
    Repayments of credit facilities
    
    
    
    
    
    
    (375,000
    )
    
    
    
    
    
    
    Repayment of bank debt
    
    
    
    
    
    
    
    
    
    
    (310
    )
    
    
    (391
    )Net proceeds from overdrafts
    
    
    1,221
    
    
    
    (1,979
    )
    
    
    (7,291
    )
    
    
    (9,184
    )Payments of other financing fees
    
    
    (25,001
    )
    
    
    (22,211
    )
    
    
    
    
    
    
    Repayments of related party liabilities
    
    
    (245
    )
    
    
    
    
    
    
    
    
    
    
    Repayments of sale-leaseback obligations
    
    
    (4,382
    )
    
    
    (3,977
    )
    
    
    (2,712
    )
    
    
    (3,416
    )Payments of deferred purchase obligations
    
    
    (3,072
    )
    
    
    (10,043
    )
    
    
    
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    63,521
    
    
    
    3,790
    
    
    
    (5,313
    )
    
    
    (6,693
    )Net (decrease)/increase in cash and
cash equivalent
    
    
    (1,710
    )
    
    
    (2,131
    )
    
    
    4,450
    
    
    
    5,606Cash and cash equivalents at beginning of year.
    
    
    4,643
    
    
    
    2,933
    
    
    
    802
    
    
    
    1,010Cash and cash equivalents at end of year
    
    
    2,933
    
    
    
    802
    
    
    
    5,252
    
    
    
    6,616
 See accompanying notes to consolidated financial statements. F-5




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##### Table of Contents



1.
    
    GENERALBasis of PresentationPrimaCom AG, (PrimaCom) and subsidiaries (the Company), a German
stock corporation, was formed on December 30, 1998, by the merger (the
Merger) of Süweda Elektronische Medien- und Kabelkommunikations-AG
(Süweda) into KabelMedia Holding AG (KabelMedia), two similarly sized
German cable television network operators. At the date of the Merger,
KabelMedia was renamed PrimaCom AG. KabelMedia and Süweda, also German stock
corporations, had been in existence since 1992 and 1983, respectively. Under
U.S. GAAP, the Merger was accounted for under the purchase method of
accounting as a reverse acquisition by Süweda of KabelMedia even though
KabelMedia issued shares to Süwedas shareholders as consideration in the
Merger and is the surviving legal entity.Since KabelMedias inception in 1992, the Company has primarily owned
and operated and acquired cable television networks in Germany. On
September 18, 2000, with the acquisition of N.V. Multikabel (Multikabel),
the Company expanded its operations from Germany to The Netherlands.Prior to December 31, 1999, the Company prepared and reported its
consolidated financial statements in Deutsche Marks (DM). With the
introduction of the Euro ( or Euro) on January 1, 1999, the Company has
presented the accompanying consolidated financial statements in Euro.
Accordingly, the Deutsche Mark consolidated financial statements for year
ended December 31, 2001 have been restated into Euro using the official
fixed conversion rate of 1.00 = DM 1.95583. The consolidated financial
statements will, however, not be comparable to the Euro financial statements
of other companies that previously reported their financial information in a
currency other than Deutsche Mark. All amounts herein are shown in Euros and
for the year ended December 31, 2003 are also presented in U.S. dollars
($), the latter being unaudited and presented solely for the convenience
of the reader at the rate of 0,79384 = $1.00, the Noon Buying Rate of the
Federal Reserve Bank of New York as per December 31, 2003. The translations
should not be construed as a representation that the amounts shown could
have been, or could be, converted into U.S. dollars at that or any other
rate.The financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States on a
going concern basis, which contemplates the realization of assets and the
discharge of liabilities in the normal course of business for the
foreseeable future. Accordingly, the financial statements do not include
any adjustments to recorded asset values that might be necessary should the
Company be unable to continue as a going concern.In addition to the current working capital deficiency and a
shareholders deficit, the Company incurred losses of 104.1 million, 138.3
million and 118.1 million for the years ended December 31, 2001, 2002 and
2003, respectively. Interest expense was approximately 62.8 million,
109.4 million and 113.1 million for the years ended December 31, 2001,
2002 and 2003, respectively. As a result of the interest expense
obligations under the Companys bank debt (see Note 9), management expects
losses to continue into the foreseeable future.In addition to the interest obligations, the Company must also comply
with specific financial covenants included in these debt agreements.
Although the Company has been able to comply with these covenants through
December 31, 2003, management anticipates that the Company will not be able
to comply with certain of these covenants in 2005. This non-compliance
could result in the bank debt obligations becoming immediately payable to
its lenders. In the case of a violation of a debt covenant, a waiver would
need to be obtained from the lenders. The Company anticipates that it will
not be able to obtain waivers if a violation of these covenants occurs and
will not have the funds available to repay the debt if required by the
lenders. These conditions raise substantial doubt about the Companys
ability to continue as a going concern.As a result of these conditions, on April 16, 2004, the Company agreed
to enter into a financing transaction (the Proposed Asset Sale and Purchase
Transaction) whereby the Company will (i) transfer substantially all of F-6




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##### Table of Contents



its assets to BK Breitband Kabelnetz Holding GmbH (BBKH), which is an
investment vehicle established by
certain of our creditors, (ii) transfer, or receive funding for, all of
its known liabilities, including bank and other debt, to BBKH, (iii) receive
cash consideration of 5.0 million that the Company intends, if it or any
part of it is available for such a purpose, to distribute to its
shareholders at the end of the liquidation of the Company, if the
shareholders resolve to liquidate the Company. The Proposed Asset Sale and
Purchase Transaction has been approved by the Supervisory Board and signed
by the management of the Company. In order for the Proposed Asset Sale and
Purchase Transaction to be finalized, it must to be approved by a majority
of the Companys shareholders. However, there can be no assurance it will
be approved. In addition, there are no assurances that the required
conditions will be met for closing the transaction or that any part of the
cash consideration received would be available for distribution to the
Companys shareholders.  2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESAccounting PrinciplesThe accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (U.S.
GAAP).ConsolidationThe consolidated financial statements include the accounts of PrimaCom
and its majority owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.Cash EquivalentsAll highly liquid investments purchased with an original maturity of
three months or less are considered cash equivalents.Concentration of Credit RiskFinancial instruments that potentially subject the Company to
concentrated credit risks consist primarily of cash and trade receivables.
Credit risk on trade receivables is minimized as a result of the large and
diverse nature of the Companys customer base. The Company maintains most of
its cash and cash equivalents at international financial institutions in
Germany and the Netherlands.Revenue RecognitionRevenue is comprised primarily of revenue earned from subscription fees
and to a much lesser extent charges for installation and connections.
Subscription revenue is recognized at the time services are provided to
customers. Charges for installation and connections are deferred and
amortized on a straight-line basis into income over the related service
agreements.Property and EquipmentProperty and equipment are stated at cost and are comprised principally
of assets used in the development and operation of cable television systems.Depreciation is provided using the straight-line method over estimated
useful lives as follows: cable television systems: 12 years; equipment and
fixtures: five to 10 years; buildings: 25 years; and purchased software:
three to five years.Repairs and maintenance are generally charged to expense during the
financial period in which they are incurred. F-7




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In 2001, 2002 and 2003, the Company capitalized 3,093,000, 3,676,000
and 2,801,000, respectively, of interest costs related to the construction
of networks.  Goodwill and Customer Lists Goodwill represents the excess of cost over the fair value of net
assets of acquired businesses and, for acquisitions prior to July 1, 2001,
was amortized using the straight-line method over an average life of
approximately 12 years. In June 2001, the Financial Accounting Standards
Board issued SFAS No.141, Business Combinations, effective for acquisitions
initiated on or after July 1, 2001, and No.142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15,
2001. SFAS No.141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001, and includes
guidance on the initial recognition and measurement of goodwill and other
intangible assets arising from business combinations. SFAS No.142 requires
that goodwill (and intangible assets deemed to have indefinite lives) no
longer be amortized but are subject to annual impairment tests. Other
intangible assets continue to be amortized over their useful lives.
Accumulated amortization for goodwill at December 31, 2001, 2002 and 2003
was 95,739,000. On January 1, 2002, the Company adopted SFAS No. 141 and SFAS No. 142.
As a result, goodwill is no longer amortized but rather is tested annually
for impairment or more frequently if events and circumstances indicate that
the asset might be impaired. An impairment loss is recognized to the extent
that the carrying amount of goodwill exceeds its fair value. Accumulated
amortization for goodwill at December 31, 2001 was 95.739.000, which was
used to reduce the carrying amount upon adoption of SFAS No. 141. In 2002 und 2003, the Company performed the required annual impairment
tests. As a result of those tests, goodwill was not determined to be
impaired. The Company determined fair value using the discounted cash flows
technique, which is subjective and requires management to use estimates of
future cash flows and discount rates. Because these estimates of future
cash flows are dependent on risks, uncertainties and other factors, the
Company will continue to evaluate its estimates, which could result in a
need to adjust the determination of fair value. The following table presents net loss per share as if the provisions of
SFAS No. 142 had been applied as of January 1, 2001: December 31,2001
    
    2002
    
    2003Net loss: ( in thousand)Reported net loss
    
    
    (104,108
    )
    
    
    (138,327
    )
    
    
    (118,099
    )Goodwill amortization
    
    
    35,057
    
    
    
    
    
    
    
    Goodwill impairment charge
    
    
    7,654
    
    
    
    
    
    
    
    Adjusted net loss
    
    
    (61,397
    )
    
    
    (138,327
    )
    
    
    (118,099
    )Basic and diluted loss per share (in ):Reported basic and diluted loss per share
    
    
    (5.26
    )
    
    
    (6,99
    )
    
    
    (5,97
    )Goodwill amortization
    
    
    1.77
    
    
    
    
    
    
    
    Goodwill impairment charge
    
    
    0.39
    
    
    
    
    
    
    
    Adjusted basic and diluted loss per share
    
    
    (3.49
    )
    
    
    (6,99
    )
    
    
    (5,97
    )
 Customer lists were acquired by the Company in 2000 and 2001 primarily
as part of the Multikabel and Quicknet B.V. acquisitions, respectively. The
changes in the carrying value of customer lists are as follows: F-8




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December 31,2001
    
    2002
    
    2003( in thousands)Customer lists:Acquisition cost January 1,
    
    
    57,267
    
    
    
    59,240
    
    
    
    59,240Additions
    
    
    1,973
    
    
    
    
    
    
    
    2,085Disposals
    
    
    
    
    
    
    
    
    
    
    Accumulated amortization December 31,
    
    
    (6,185
    )
    
    
    (11,350
    )
    
    
    (16,622
    )Net carrying amount December 31,
    
    
    53,055
    
    
    
    47,890
    
    
    
    44,703
  Impairment of Long Lived and Identifiable Intangible AssetsThe Company records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and undiscounted cash flows estimated to be generated by those
assets are less than the carrying amount of those assets.During 2001, due to weak economic conditions of the cable television
market in Germany and recent decline in the Companys share price, the
Company determined that certain long-lived assets relating to specific
regional locations in the Companys German business segment might not be
recoverable. As a result, the Company calculated as required by Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of (SFAS No.
121) the undiscounted cash flows attributable to these long-lived assets,
which included goodwill, and compared this total to the carrying value of
the long-lived assets. Based on this comparison, the Company determined
that these assets were no longer fully recoverable since the total
undiscounted cash flows were less than its carrying value.
As a result, the Company, using a discounted cash flow method,
calculated the fair value of these assets and recorded a charge, which is
included in depreciation and amortization expense, of 7,654,000 to reduce
the carrying value of goodwill to its fair value.During 2002, due to the continued weak economic conditions of the cable
television market in Germany, the Company determined that certain long-lived
assets relating to specific regional locations in the Companys German
business segment might not be recoverable. As a result, the Company
calculated as required by Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
No. 144) the undiscounted cash flows attributable to these long-lived
assets, which excluded goodwill, and compared this total to the carrying
value of the long-lived assets. Based on this comparison, the Company
determined that these assets were no longer fully recoverable since the
total undiscounted cash flows were less than its carrying value.As a result, the Company, using a discounted cash flow method,
calculated the fair value of these assets and recorded a charge, which is
included in depreciation and amortization expense, of 12,944,000 to reduce
the carrying value of cable network assets to its fair value.In 2003, the discounted cash flow calculation did not indicate that an
impairment of the long-lived assets existed. However, in 2003 the Company
took extra write-downs of approximately 3 million largely attributable to
impairment in both Germany and The Netherlands on certain long-term assets
associated with the digital cable business.In calculating fair value based on discounted cash flows, the Company
makes significant estimates regarding the number of years of future cash
flows, discount rates, and revenues, costs, and expenses in future periods.
The number of years of future cash flows were based on the remaining useful
life of the underlying assets, discount rates were determined based on
market discount rates, and revenues, costs and expenses were based on the
Companys business plan. F-9




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##### Table of Contents



Advertising CostsAdvertising costs are charged to expense as incurred. The Company
incurred advertising costs in 2001, 2002 and 2003 totaling 3,667,000,
2,769,000 and 2,072,000, respectively.Stock OptionsThe Company accounts for its stock option plans in accordance with
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123). In accordance with SFAS No. 123,
compensation expense is recognized over the vesting period based on the fair
value of all stock-based awards on the date of the grant.Income TaxesDeferred tax assets and liabilities are based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The effect of a change in tax rates on
deferred tax assets and liabilities is recognized in the period that
includes the enactment date. Deferred tax assets are reduced by a valuation
allowance when the Company cannot make the determination that it is more
likely than not that some portion or all of the related tax asset will be
realized.Fair Value of Financial InstrumentsThe carrying value of financial instruments such as cash, accounts
receivable and accounts payable approximates their fair value based on the
short-term maturities of these instruments. Based on the recent negotiations
in connection with the Sale and Purchase Agreement, the Company believes
that the carrying value of this portion of bank debt approximates fair
value.Use of EstimatesThe preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.ReclassificationsCertain amounts in the prior years have been reclassified to conform
with the 2003 consolidated financial statement presentation.  3.
    
    SIGNIFICANT ACQUISITIONS2001 AcquisitionsOn January 1, 2001, the Company acquired the shares of
Grossgemeinschafts-Antennenanlangen Lizenz und Betriebs GmbH (GGA) for
total consideration of approximately  2,213,000. GGA passed approximately
5,000 homes and served approximately 4,212 cable television subscribers at
the time of the acquisition.On January 1, 2001, the Company acquired the shares of
Telekommunikations GmbH Kirchheimbolanden (TKK) for total consideration of
approximately  1,000,000. TKK passed approximately 4,120 homes and served
approximately 1,790 cable television subscribers at the time of the
acquisition.On January 1, 2001, the Company signed an agreement to acquire 51% of
the shares of Telekommunikationsgesellschaft mbH Eisenhüttenstadt, (TKE)
for total consideration of approximately  26,000. After the municipal
supervisory authority had approved the transaction, a claim was filed
against the procedure of this sale. The court decided that the transaction
is valid and the Company received the written F-10




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##### Table of Contents



decision of the court. In December 2001, the Company finalized the purchase of the 51% of TKE. Under
the terms of the purchase agreement, the Company and TKE both had the
option at certain dates to respectively buy or sell the remaining 49% of the
shares of TKE for total consideration of approximately 7,414,000. The
Company advanced approximately 2,045,000 to the shareholders of TKE and the
remaining purchase obligation amounting to approximately 5,369,000 is
recorded in deferred purchase obligations as of December 31, 2001. On
October 2, 2002 the former TKE shareholders exercised their option to sell
its remaining 49% shares of TKE to the Company for cash consideration of
approximately 4,869,000 and forgiveness of approximately 500,000 in loans
receivable. TKE passed approximately 11,700 homes and served approximately
10,300 customers at the time of the acquisition.On April 1, 2001, the Company purchased cable television networks from
Kabelfernsehen Zwenkau GmbH (Zwenkau) for total consideration of
approximately 1,127,000. The networks acquired from Zwenkau passed
approximately 2,800 homes and served approximately 2,250 cable television
subscribers at the time of the acquisition.On July 1, 2001, the Company purchased cable television networks from
MULTICOM GmbH (MultiCom) for total consideration of approximately
1,024,000. The networks acquired from MultiCom passed approximately 1,335
homes and served approximately 1,335 cable television subscribers at the
time of the acquisition.On July 1, 2001, the Company acquired the shares of QuickNet, a
subsidiary of Sonera Plaza Netherlands B.V. for approximately 8,400,000.
Concurrent with the acquisition, PrimaCom sold a portion of the business to
Chello Broadband N.V. for approximately 2,850,000. QuickNet provided high
speed Internet access services to approximately 40,000 subscribers in The
Netherlands. Approximately 18,000 of QuickNets subscribers have already
been served by PrimaComs broadband networks.On August 1, 2001, the Company acquired 51% of the shares of EBH
Service GmbH (EBH) for total consideration of approximately 26,000. Under
the terms of the purchase agreement, the Company and EBH both had the option
at certain dates to respectively buy or sell the remaining 49% of the shares
of EBH for total consideration of approximately 956,000. The Company
advanced approximately 865,000 to the Shareholders of EBH and the remaining
purchase obligation amounting to approximately 91,000 was recorded in
deferred purchase obligations as of December 31, 2001. On January 9, 2002,
the former EBH shareholders exercised their option to sell its remaining 49% shares of EBH to the Company. EBH passed approximately 2,330 homes and
served approximately 2,150 customers at the time of the acquisition.Effects of consolidation of Kutz, TKE and EBHThe put and the call options of Kutz (acquisition in 2000), TKE and EBH
are viewed on a combined basis with the minority interest and are accounted
for as financing for the purchase by the Company. As a result, net income
attributable to the minority interest is allocated to PrimaCom, rather than
to the minority shareholder. Accordingly, the Company consolidated 100% of
these companies with an offsetting liability to purchase the remaining
minority interest owned by the remaining shareholders of these companies.As a result, depreciation and amortization expense in 2001 is 385,000
higher, deferred purchase obligations are 8,875,000 higher and long-lived
assets are 11,820,000 higher.The following unaudited proforma information for the year ended
December 31, 2001 assumes the aforementioned 2001 acquisitions occurred on
January 1, 2001: 2001Revenues ( in thousands)
    
    
    172,722Net loss ( in thousands)
    
    
    (103,694
    )Net loss per share ()
    
    
    (5.24
    )
 F-11




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##### Table of Contents



4.
    
    INVESTMENTSThroughout 2001, the Company was actively pursuing the sale of its
MainzKom investment. On March 22, 2002, the Company sold its investment in
MainzKom for 562,000 to a third party. As a result, in 2001, the Company
recorded a charge to other expense of 1,452,000 to write-down this
investment to the agreed upon sales price.5.
    
    UPCOn March 29, 2001, the Company entered into an agreement with United
Pan-European Communications N.V. (UPC), its largest shareholder, to
combine certain cable operations. On December 14, 2001, due to significant
changes in market conditions, the companies announced that they had agreed
to terminate the agreement effective December 15, 2001. Due to the
termination of the merger, the Company wrote-off approximately 4,938,000 of
capitalized costs to other expense in 2001.6.
    
    ACCOUNTS RECEIVABLETrade accounts receivable consists of the following: December 31,2001
    
    2002
    
    2003( in thousands)Trade accounts receivable  gross
    
    
    10,881
    
    
    
    12,994
    
    
    
    12,448Allowance for doubtful accounts
    
    
    (1,884
    )
    
    
    (6,118
    )
    
    
    (6,086
    )Trade accounts receivable  net
    
    
    8,997
    
    
    
    6,876
    
    
    
    6,362
  Accounts receivable are reported net of allowance for doubtful
accounts. The allowance for doubtful accounts reflects managements best
estimate of probable losses inherent in the account receivable balance.
Management determines the allowance based on known troubled accounts,
historical experience, and other currently available evidence. A summary of
activity in the allowance for doubtful accounts is as follows: December 31,2001
    
    2002
    
    2003( in thousands)Allowance for doubtful accounts:Balance at the beginning of the year
    
    
    1,580
    
    
    
    1,884
    
    
    
    6,118Charged to cost and expenses
    
    
    1,544
    
    
    
    4,243
    
    
    
    2,422Write-offs and other
    
    
    (1,240
    )
    
    
    (9
    )
    
    
    (2,454
    )Balance at the end of the year
    
    
    1,884
    
    
    
    6,118
    
    
    
    6,086
 F-12




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##### Table of Contents



7.
    
    PROPERTY AND EQUIPMENTThe components of property and equipment are as follows: December 31,2001
    
    2002
    
    2003( in thousands)Cable television networks
    
    
    726,237
    
    
    
    770,868
    
    
    
    792,994Equipment and fixtures
    
    
    55,838
    
    
    
    56,624
    
    
    
    56,917Land and buildings
    
    
    4,281
    
    
    
    4,378
    
    
    
    5,944Other
    
    
    14,306
    
    
    
    15,010
    
    
    
    16,511Construction in progress
    
    
    37,400
    
    
    
    23,923
    
    
    
    24,510Total
    
    
    838,062
    
    
    
    870,803
    
    
    
    896,876Less accumulated depreciation
    
    
    (261,367
    )
    
    
    (350,578
    )
    
    
    (427,278
    )Property and equipment  net
    
    
    576,695
    
    
    
    520,225
    
    
    
    469,598
  Depreciation expense on property and equipment was 69,722,000,
90,154,000 and 81,012,000 for 2001, 2002 and 2003, respectively. In 2002,
depreciation expense includes approximately 12,944,000 for an impairment
charge of cable networks. In 2003, the Company recorded a charge of
approximately 3.0 million largely attributable to impairment, in both
Germany and the Netherlands, on certain long term assets associated with our
digital cable business.  8.
    
    SALE-LEASEBACKIn March and October 1993, the Company entered into two master lease
agreements governing the terms of the majority of its cable network sale and
leaseback transactions. Under the March 1993 agreement, the sale and
leaseback transactions have a lease term of nine years and a monthly leasing
rate of approximately 1.6% of the original sales price. At the end of the
lease term, the Company has the option to extend leases under this agreement
for one year or to repurchase the cable networks at the higher of 10.0% of
the original sales price or the recorded net book value on the lessors
books. Under the October 1993 agreement, the sale and leaseback
transactions have a lease term of nine years and a monthly leasing rate of
approximately 1.5% of the original sales price. The lessor has the right to
require the Company to repurchase the cable networks at the end of the lease
term at an amount equal to approximately 11.5% of the original sales price.
If the lessor sale option is not exercised, the lease automatically renews
for an additional three years. December 31,2001
    
    2002
    
    2003( in thousands)Borrowings under sale-leaseback obligations
    
    
    9,593
    
    
    
    5,616
    
    
    
    2,904Current portion thereof
    
    
    3,976
    
    
    
    2,713
    
    
    
    1,327Non-current portion
    
    
    5.617
    
    
    
    2.903
    
    
    
    1,577
  Future minimum payments under capital leases with initial or remaining
terms in excess of one year consisted of the following at December 31, 2003: F-13




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##### Table of Contents



( in thousands)2004
    
    
    1,5362005
    
    
    1,0732006
    
    
    6072007
    
    
    28Total minimum lease payments
    
    
    3,244Less interest
    
    
    (340
    )Present value of minimum capitalized lease payments
    
    
    2,904
  Assets under capital leases are included within property and equipment
as follows: December 31,2001
    
    2002
    
    2003( in thousands)Cable television networks
    
    
    29,320
    
    
    
    29,320
    
    
    
    29,320Less accumulated depreciation
    
    
    (14,721
    )
    
    
    (17,168
    )
    
    
    (19,616
    )Cable television networks-net
    
    
    14,599
    
    
    
    12,152
    
    
    
    9,704
  Depreciation expense on assets recorded under capital leases
approximated, 2,392,000, 2,447,000 and 2,447,000 in 2001, 2002 and 2003,
respectively.  9.
    
    BANK AND OTHER DEBTBank and other debt consist of the following: December 31,2001
    
    2002
    
    2003( in thousands)Borrowings under Senior Facility
    
    
    822,500
    
    
    
    489,500
    
    
    
    494,500Convertible Second Secured Loan
    
    
    
    
    
    
    406,079
    
    
    
    448,139Overdrafts
    
    
    9,029
    
    
    
    7,295
    
    
    
    Other
    
    
    554
    
    
    
    309
    
    
    
    Total bank and other debt
    
    
    832,083
    
    
    
    903,183
    
    
    
    942,639Less current portion thereof
    
    
    554
    
    
    
    309
    
    
    
    Bank and other debt
    
    
    831,529
    
    
    
    902,874
    
    
    
    942,639
  On September 18, 2000, in connection with the acquisition of
Multikabel, the Company refinanced and cancelled its existing bank facility
and wrote-off the unamortized portion of the fees and expenses associated
with the canceled bank facility. The associated write-off resulted in an
extraordinary loss of 8,180,000 net of tax.In connection with this refinancing, the Company entered into a credit
facility (hereafter the Facility) with a number of banks. The total
aggregate amount of the Facility was 1,000,000,000, comprised of a
985,000,000 Revolving Credit Facility and a 15,000,000 Overdraft Facility.Under the terms of the Revolving Credit Facility and the Overdraft
Facility, the Company may borrow, repay and reborrow, up to the commitment
amounts, until December 31, 2009, when all amounts will become due and
payable.Amounts outstanding under the Revolving Credit Facility bear interest
at the rate of EURIBOR in the case of amounts owing in Euro and LIBOR in the
case of amounts owing in a currency other than Euro plus F-14




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##### Table of Contents



a margin of between 0.75% and 2.25%, depending on the ratio of total indebtedness of the
Companys subsidiaries to annualized earnings before interest, tax,
depreciation and amortization (EBITDA).The Facility is secured by, among other things, liens on receivables
from cable television subscribers, concession agreements, equipment and
interests in all shares of PrimaComs subsidiaries. In addition, the
Facility contains certain covenants, which, among other things, require the
Company to maintain specified ratios relating to cash flow and total debt.
Furthermore, there are restrictions on incurring debt, encumbering revenues
or assets, loaning funds to third parties or assuming liabilities, disposing
of properties and paying dividends or making distributions.In addition, on September 18, 2000, the Company entered into a
375,000,000 Senior Working Capital Facility. The Senior Working Capital
Facility had a term of 10 years. On this date, the Company entered
into a Contingent Value Right (CVR) Agreement, which was a condition
precedent to the obligations of the lenders under the Senior Working Capital
Facility. Pursuant to the CVR Agreement, the Company is required, if
requested on or before September 18, 2010, to make a payment in either cash
or the Companys common shares to the holders of each CVR Certificate equal
to the difference between the market price of a share of common stock of
PrimaCom on the date of exercise of such CVR and 110% of the market price of
a share of such common stock on the relevant release date, being September
30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002, subject to
the provisions of the CVR Agreement, in particular various provisions
protecting the holders of CVR Certificates against dilution. The total
number of CVRs to be issued under the CVR Agreement equaled five percent of
the outstanding number of shares of the Company. The total amount of CVRs
to be issued under this assignment was 989,300.On March 8, 2004 PrimaCom AG signed a contingent value rights
termination agreement with a number of entities which are past or present
holders of contingent value rights under the CVR Agreement and the agent
under the CVR Agreement and Escrow Agent in relation to such contingent
value rights. All parties to the contingent value rights termination
agreement agreed that all contingent value rights issued and not already
cancelled would be cancelled and terminated on an effective date, such
effective date to be conditional upon certain matters being satisfied. The
Contingent Value Rights Termination Agreement was effective on March 16,
2004.In connection with the release of CVRs on September 30, 2001 and
December 31, 2001, the Company recorded 1,063,000 to other assets and
additional paid in capital for the fair value of the CVRs on those dates.
The amount capitalized in other assets was amortized as bank debt interest
straight-line over the remaining life of the Senior Working Capital
Facility. Amortization expense relating to CVRs included in other assets
was approximately 19,000, 147,000 and 133,000 in 2001, 2002 and 2003,
respectively. The remaining balance of  764,000 in other assets related to
CVRs was written off at the time of cancellation.In 2001, the Company received commitments from groups of international
banks to amend its existing 1,000,000,000 Facility and 375,000,000 Senior
Working Capital Facility. These amendments restated certain terms and
conditions, including repayment and borrowing conditions and financial
covenants. The first amendment closed on May 15, 2001 and the Company paid
fees of approximately 7,813,000 in connection with this first amendment. On
November 15, 2001, a second amendment closed and the Company incurred fees
of approximately 6,875,000. In 2001 and 2002, the Company incurred fees
totaling approximately 14,688,000 and 7,388,000, respectively, in
connection with these amendments.On March 26, 2002, the Company completed the modification of its
1,000,000,000 Facility and the 375,000,000 Senior Working Capital
Facility. The terms and conditions were renegotiated subject to the approval
of the Companys shareholders. Bank fees for the modification in 2002
amounted for 15,284,000. On June 5, 2002, the shareholders approved the
modification of the Facility and Senior Working Capital Facility.The Senior Working Capital Facility was converted into a 375,000,000
Convertible Second Secured Term Loan Facility (Second Secured Loan), which
was utilized in full and those borrowings were used to repay an equivalent
amount of the outstanding borrowings under the 1,000,000,000 Facility. As a
result, the lending commitment under the 1,000,000,000 Facility was reduced
ahead of the original schedule by the amount of the 375,000,000 payment to
625,000,000. The Second Secured Loan is convertible to common F-15




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##### Table of Contents



shares of PrimaCom Management GmbH at the option of the lenders based on predetermined
financial ratios at any time on and after December 31, 2004.Under the terms of the modified Facility, the available commitment
amount is reduced in quarterly amounts to the amounts reflected below as of
December 31 of the years indicated: AvailablecommitmentYear ended
    
    and overdraft( in thousands)2003
    
    
    594,5002004
    
    
    533,5002005
    
    
    472,5002006
    
    
    411,5002007
    
    
    335,2502008
    
    
    225,4502009
    
    
    
  At December 31, 2003, the Company had unused availability under the
Revolving Credit Facility of 100,000,000. The interest rate on the
Revolving Credit Facility was 4.32% at December 31, 2003.At December 31, 2003, the Company had unused availability under the
Overdraft Facility of 15,000,000. The interest rate on the Overdraft
Facility was 7.0% at December 31, 2003.The Second Secured Loan balance bears an interest rate from 18.0% to
20.0% over the term of the loan. As of December 31, 2003, the interest rate
was 20.0%, which includes both a cash interest portion and a non-cash
interest portion. The Company is required to pay cash interest on a
quarterly basis on the principle amount of 375,000,000 at an interest rate
of 12.0% as per December 31, 2003. The remaining interest obligation is
capitalized to the outstanding loan amount and will be due upon repayment of
the Second Secured Loan.As of June 5, 2002, the Company had approximately 23,584,000 and
24,515,000 of capitalized debt issuance costs related to the original
Facility and Senior Working Capital Facility, respectively. In addition,
the Company paid 15,284,000, in fees in connection with March 26, 2002
modification.As a result of the modification, the Company recorded a charge of
approximately 12,264,000 to interest expense due to the decrease in the
borrowing capacity of the Facility commitment. The remaining balance of
debt issuance costs related to the Facility of 11,320,000 remained
capitalized in other assets and are amortized to interest expense over the
remaining term of the Facility. None of the previously capitalized debt
issuance costs related to the Senior Working Capital Facility were written
off, but instead remained capitalized and will be amortized into interest
expense over the term of the Second Secured Loan.Of the 15,284,000 in fees paid for the refinancing, the Company
capitalized 12,852,000, which is being amortized to interest expense over
the term of the refinanced debt agreements. The remaining fees of
approximately 2,432,000 paid for certain legal and consulting services for
the refinanced Senior Working Capital Facility were recorded as a charge in
operating costs and expenses.As of December 31, 2001, 2002 and 2003, the Company had net capitalized
bank financing fees totaling approximately 40,906,000 and 39,323,000 and
33,400,000, respectively, which are included in other assets. These
capitalized bank fees are being amortized as bank debt interest over the
remaining term of the Facility and Second Secured Loan. Interest expense
related to bank financing fees was 3,422,000, 17,812,000 and 5,917,000,
for 2001, 2002, and 2003, respectively.Maturities of the bank and other debt for the next five years are: F-16




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##### Table of Contents



Year ended
    
    Maturities( in thousands)2004
    
    
    2005
    
    
    22,0002006
    
    
    61,0002007
    
    
    76,2502008
    
    
    109,800Thereafter
    
    
    673,589Total bank and other debt
    
    
    942,639
 December 31,2001
    
    2002
    
    2003( in thousands)Cash paid for interest:Bank and other debt
    
    
    55,031
    
    
    
    54,556
    
    
    
    60,023Sale-leaseback transaction.
    
    
    1,323
    
    
    
    828
    
    
    
    43156,354
    
    
    
    55,384
    
    
    
    60,454
  10.
    
    FINANCIAL INSTRUMENTSAll derivative instruments are reported in the consolidated
financial statements at fair value. The fair value for all derivative
contracts is included in other assets or other liabilities and recorded
each period in the statement of operations or other comprehensive
income, depending on whether the derivative is designated as effective
as part of a hedged item and on the type of hedge transaction. Gains or
losses on derivative instruments reported in other comprehensive income
must be classified in the statement of operations in the period in which
net earnings (loss) are affected by the underlying hedged item and the
ineffective portion of all hedges is recognized in other income
(expense) in the statements of operations in the current period. These
new standards may result in additional volatility in reported earnings
(loss), other comprehensive income and accumulated other comprehensive
income. These rules became effective for the Company on January 1, 2001.
The Company recorded the effect of the transition to these new
accounting requirements as a change in accounting principle. The
transition adjustment resulted in a loss of 946,000, net of tax, from
the cumulative effect of a change in accounting principle.The Company is exposed to market risk from changes in interest rates
which can impact its operating results and overall financial condition. The
Company manages its exposure to these market risks through its operating and
financing activities and, when deemed appropriate, through the use of
derivative financial instruments.The Company purchased interest rate-cap and floor agreements that
limit its exposure to increasing interest rates and are economic hedges
of borrowings under its variable-rate revolving credit facility during
the five years from 1999 until 2004. An interest rate-cap entitles the
Company to receive a payment from the counter-party equal to the excess,
if any, of the hypothetical interest expense (strike price) on a
specified notional amount at a current market interest rate over an
amount specified in the agreement. The only amount the Company is
obligated to pay to the counter-party is a contract premium. The Company
has also entered into an interest rate-cap agreement with a double
strike price. The first strike price of a double strike price is
applicable until the relevant interest rate indice exceeds the second
strike price at which time the second strike price becomes applicable.
The premium of a double strike cap is typically lower than that of a
single strike cap. The premium can also be lower in those instances
where the agreement includes an interest rate floor. The interest rate
floor entitles the counter-party to receive a payment from the Company
should interest rates drop below an agreed upon limit (floor),
effectively limiting the Companys potential benefit from falling
interest rates. The strike price of these agreements may exceed the
current market levels at the time they are entered into. The interest
rate indices specified by the agreements have been and are F-17




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##### Table of Contents



expected to be highly correlated with the interest rates the Company incurs on its
variable-rate revolving credit facility.These contracts do not qualify for special hedge accounting and are
therefore marked-to-market each period through earnings (loss) as a
component of interest expense. Interest expense/income relating to the
change in fair value of these financial instruments was approximately
860,000 and (3,615,000) in 2002 and 2003, respectively. In 2003, the
Company recorded approximately 3,833,000 in additional interest expense
for payments to the counter-party as a result of interest rates falling
below the floor.The following table sets forth the status of financial instruments as
of December 31, 2003: Contract
    
    FairNotional
    
    
    
    
    
    
    
    
    
    Premium
    
    ValueEffective Date
    
    Termination Date
    
    Amount (T)
    
    Floor
    
    Strike Price
    
    (T)
    
    (T)June 10, 1999
    
    June 10, 2004
    
    
    25,000
    
    
    
    2.50
    %
    
    
    5.50
    %
    
    
    *200
    
    
    
    (45
    )June 22, 1999
    
    June 24, 2004
    
    
    25,000
    
    
    
    
    
    
    
    4.35
    %
    
    
    126
    
    
    
    (124
    )July 20, 1999
    
    July 20, 2004
    
    
    25,000
    
    
    
    
    
    
    
    4.50% - 5.50
    %
    
    
    131
    
    
    
    September 20, 1999
    
    September 22, 2004
    
    
    25,000
    
    
    
    2.75
    %
    
    
    5.50
    %
    
    
    105
    
    
    
    (107
    )January 16, 2001
    
    January 16, 2004
    
    
    50,000
    
    
    
    2,50
    %
    
    
    
    
    
    
    
    
    
    
    January 16, 2001
    
    January 16, 2004
    
    
    50,000
    
    
    
    
    
    
    
    5.50
    %
    
    
    
    
    
    
    106January 16, 2001
    
    January 16, 2004
    
    
    100,000
    
    
    
    3.90
    %
    
    
    
    
    
    
    
    
    
    
    (927
    )
  *
    
    This contract premium represents an upfront one-time payment for the
life of the contract. All other payments are paid annually over the life
of the contract.  11.
    
    RELATED PARTY TRANSACTIONSThe Company had a 245,000 loan payable to WVH Wohnungsbau- und
Wohnungsbaugenossenschaft Heidenau mbH, a minority shareholder of one of its
subsidiaries. The total amount due for this loan was paid on January 10,
2001.The Company has a 15.7% investment in Mediakabel B.V., a consortium of
cable television operators in the Netherlands organized to provide digital
television services. The Company paid Mediakabel digital cable services fees
of approximately  2,575,000,  2,700,000 and  900,000 in 2001, 2002 and
2003, respectively. These costs are exclusive of content costs or license
fees.The considerable decrease of the service fees is caused by reorganizing
the operations within Mediakabel and with the temporary cancellation of the
interactive and pay-per-view services within the digital offer.The Company uses services of BFE Nachrichtentechnik GmbH for
installation, repair and maintenance of cable networks, which is owned by
one of the Companys significant shareholders. 2002 and 2003, the Company
paid approximately 424,000 and 481,000, respectively, for these services. F-18




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##### Table of Contents



12.
    
    INCOME TAXESFor financial reporting purposes, the Company and its consolidated
subsidiaries calculate their respective tax liabilities on a separate return
basis which are combined in the accompanying consolidated financial
statements.The provisions for income tax benefit (expense) consisted of the
following: Years ended December 31,2001
    
    2002
    
    2003( in thousands)Current
    
    
    2,111
    
    
    
    35,561
    
    
    
    (7,637
    )Deferred
    
    
    13,270
    
    
    
    (46,541
    )
    
    
    (16,654
    )Total income tax
    
    
    15,381
    
    
    
    (10,980
    )
    
    
    (24,291
    )
  The components of loss before income taxes by jurisdiction are as
follows: Years ended December 31,2001
    
    2002
    
    2003( in thousands)Germany
    
    
    (72,380
    )
    
    
    (69,744
    )
    
    
    (51,862
    )The Netherlands
    
    
    (45,655
    )
    
    
    (44,565
    )
    
    
    (41,947
    )(118,035
    )
    
    
    (114,309
    )
    
    
    (93,809
    )
  A reconciliation between the statutory tax rates of 37.1% for 2001 and
2002 and 37.3% for 2003 and the Companys effective tax rate is as follows: Years ended December 31,2001
    
    2002
    
    2003( in thousands)Computed income tax benefit at statutory rates
    
    
    43,825
    
    
    
    42,547
    
    
    
    34,988Non-deductible interest expense on trade taxes
    
    
    (4,984
    )
    
    
    (7,674
    )
    
    
    (11,978
    )Change in valuation allowance
    
    
    (16,870
    )
    
    
    (60,382
    )
    
    
    (53,728
    )Goodwill amortization
    
    
    (16,024
    )
    
    
    
    
    
    
    Finalization of prior year tax returns
    
    
    
    
    
    
    15,907
    
    
    
    1,847Other
    
    
    9,434
    
    
    
    (1,378
    )
    
    
    4,580Total income tax (expense) benefit
    
    
    15,381
    
    
    
    (10,980
    )
    
    
    (24,291
    )
  In 2002, the Company finalized and amended corporate and trade tax
returns for certain of its subsidiaries. As a result, the Company recorded a
deferred tax benefit of 15,907,000 due to the increase the cumulative tax
loss carry forwards and recorded a corresponding valuation allowance.In 2002, in connection with the finalization of the accounting for the
acquisition of its Multikabel subsidiary, the Company recorded additional
deferred tax liabilities and goodwill of approximately 39,000,000.The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 2001, 2002 and 2003 are presented below: F-19




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##### Table of Contents



December 31,2001
    
    2002
    
    2003( in thousands)Deferred tax assets:Net operating loss carryforwards
    
    
    99,997
    
    
    
    149,272
    
    
    
    186,581Property and equipment
    
    
    55,915
    
    
    
    55,344
    
    
    
    49,588Intangibles
    
    
    
    
    
    
    
    
    
    
    423Financial instruments
    
    
    1,488
    
    
    
    1,821
    
    
    
    424Other
    
    
    
    
    
    
    1,000
    
    
    
    804157,400
    
    
    
    207,437
    
    
    
    237,820Less  valuation allowance
    
    
    (53,340
    )
    
    
    (113,722
    )
    
    
    (167,450
    )104,060
    
    
    
    93,715
    
    
    
    70,370Deferred tax liabilities:Property and equipment
    
    
    (30,712
    )
    
    
    (49,382
    )
    
    
    (47,085
    )Intangibles
    
    
    
    
    
    
    (14,614
    )
    
    
    (12,410
    )Financing fees
    
    
    (11,909
    )
    
    
    (14,834
    )
    
    
    (12,543
    )Other
    
    
    
    
    
    
    (3,714
    )
    
    
    (3,815
    )(42,621
    )
    
    
    (82,544
    )
    
    
    (75,853
    )Net deferred tax asset/(liability)
    
    
    61,439
    
    
    
    11,171
    
    
    
    (5,483
    )
  As of December 31, 2003, the Company had available in Germany combined
cumulative tax loss carryforwards for corporate income tax of approximately
365,010,000 and for trade tax of approximately 257,686,000. In addition,
the Company had in the Netherlands cumulative tax loss carryforwards of
approximately 122,032,000. Under current German and Netherlands tax laws,
these loss carryforwards have an indefinite life and may be used to offset
future taxable income. Cash paid for income taxes was 2,128,000 2001. In
2002 and 2003, no cash was paid for income taxes.  13.
    
    COMMITMENTSThe Company obtains certain programming directly from other net-level 3
provider through various signal delivery contracts. The signal delivery
contracts with Kabel Deutschland are generally for a fixed period of time
and are subject to negotiated renewal. Under these contracts the Company
typically pays to the vendors either a flat fee or a fee per customer that
is determined by reference to a published fee schedule. As of December 31,
2003, the Company had a total commitment of approximately 120,771,000
through 2010, the date upon which the last agreement expires. For the years
ended December 31, 2001, 2002 and 2003 total Kabel Deutschland fees expensed
amounted to approximately 20,343,000, 20,857,000 and 22,697,000,
respectively, and are included in operations expense.The Company has entered into certain agreements with film providers to
purchase film rights through 2005. License expense relating to these film
right agreements was 1,041,000, 1,190,000 and approximately  955,000 in
2001, 2002 and 2003, respectively.The Company leases other providers networks, certain office equipment
and vehicles. Lease terms generally range from three to five years with the
option to renew at varying terms. Rental expense was 3,637,000, 3,135,000
and 2,901,000 in 2001, 2002 and 2003, respectively.Future minimum payments under Kabel Deutschland commitments, film
commitments and non-cancelable operating leases with initial or remaining
terms in excess of one year consisted of the following at December 31, 2003: F-20




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##### Table of Contents



Signal-
    
    
    
    
    
    Operatingdelivery
    
    Films
    
    Leases
    
    Total(T)
    
    (T)
    
    (T)
    
    (T)2004
    
    
    22,927
    
    
    
    1,501
    
    
    
    2,874
    
    
    
    27,3022005
    
    
    22,260
    
    
    
    1,294
    
    
    
    2,198
    
    
    
    25,7522006
    
    
    22,117
    
    
    
    
    
    
    
    2,136
    
    
    
    24,2532007
    
    
    19,099
    
    
    
    
    
    
    
    2,100
    
    
    
    21,1992008
    
    
    15,084
    
    
    
    
    
    
    
    2,067
    
    
    
    17,151Thereafter
    
    
    19,284
    
    
    
    
    
    
    
    3,387
    
    
    
    22,671Total
    
    
    120,771
    
    
    
    2,795
    
    
    
    14,762
    
    
    
    138,328
  14.
    
    STOCK OPTION PLANSOn February 22, 1999, the Company adopted a stock option plan for the
benefit of all its employees and the employees of its subsidiaries (the
1999 Universal Stock Option Plan) and a stock option plan for its
executive officers and the executive officers of the subsidiaries (the 1999
Executive Stock Option Plan). The two stock option plans provide for the
issuance of stock options allowing eligible employees and executive officers
to acquire shares. The Company has been authorized to issue a total of
1,000,000 shares including 300,000 shares under the 1999 Universal Stock
Option Plan and 700,000 shares under the 1999 Executive Stock Option Plan.The options granted in 1999 and 2000 under both the 1999 Universal
Stock Option Plan and the 1999 Executive Stock Option Plan vest over a
three-year period. One third of the options vest on the first anniversary of
the grant and the remaining options vest in equal monthly amounts over the
next two years. The vested options are exercisable after the second
anniversary of the grant and expire on the fifth anniversary of the grant.
If the participants employment agreement terminates before the options vest
in full, the participants options will be vested only in the portions of
options computed by multiplying 1/36 times the number of full months of
employment between the date of the option grant and the date of termination.
Each option is exercisable only if the average daily closing price of the shares, calculated as the average over the five consecutive trading days on
the Frankfurt Stock Exchange immediately prior to the first option exercise,
equals at least 120% of the respective exercise price of the option.In July 2000, the Company created two new stock option plans, the 2000
Universal Stock Option Plan with 150,000 options and the 2000 Executive
Stock Option Plan with 350,000 options. The Company may not grant options
under the 2000 plans until all the options under the 1999 plans have been
granted. F-21




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##### Table of Contents



Stock option activity as of December 31, 2003 is as follows: Weighted
    
    Weighted averageaverage
    
    fair value ofexercise
    
    options grantedNumber of
    
    price
    
    during the yearShares
    
    (in )
    
    (in )Outstanding at December 31, 2000
    
    
    874,048
    
    
    
    34.38Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Forfeited
    
    
    31,694
    
    
    
    46.89Outstanding at December 31, 2001
    
    
    842,354
    
    
    
    33.90Granted
    
    
    200,000
    
    
    
    2.19
    
    
    
    0.48Exercised
    
    
    Expired
    
    
    Forfeited
    
    
    26,684
    
    
    
    23.34Outstanding at December 31, 2002
    
    
    1,015,670
    
    
    
    27.71Exercised
    
    
    Expired
    
    
    Forfeited
    
    
    13,045
    
    
    
    43.38Outstanding at December 31, 2003
    
    
    1,002,625
    
    
    
    27.52Options exercisable at December 31, 2003
    
    
    802,625
    
    
    
    33.82
  The options outstanding by range of exercise price at December 31, 2003 are
as follows: Outstanding
    
    ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    AverageExercise Prices
    
    Number
    
    Contractual Life
    
    Exercise Price
    
    Number
    
    Exercise Price()
    
    Outstanding
    
    in years
    
    ()
    
    Outstanding
    
    ()0.42
    
    
    100,000
    
    
    
    3.7
    
    
    
    0.42
    
    
    
    
    
    
    
    4.04
    
    
    100,000
    
    
    
    3.2
    
    
    
    4.04
    
    
    
    
    
    
    
    29.00 - 47.41
    
    
    703,691
    
    
    
    0.3
    
    
    
    31.24
    
    
    
    703,691
    
    
    
    31.2449.19
    
    
    81,084
    
    
    
    1.0
    
    
    
    49.19
    
    
    
    81,084
    
    
    
    49.1962.31
    
    
    12,169
    
    
    
    1.7
    
    
    
    62.31
    
    
    
    12,169
    
    
    
    62.3181.87
    
    
    5,681
    
    
    
    1.3
    
    
    
    81.87
    
    
    
    5,681
    
    
    
    81.871,002,625
    
    
    
    
    
    
    
    
    
    
    
    802,625
    
    
    
    33.82
  Compensation expense totaled 3,853,000, 1,377,000 and 123,000
relating to the options issued in 2001, 2002 and 2003, respectively. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: 2001
    
    2002Risk free rate of interest
    
    
    4.6%-5.1
    %
    
    
    3.4%-5.1
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Expected life
    
    3.0 years
    
    3.0 yearsExpected volatility
    
    
    58.0%-75.1
    %
    
    
    81
    %
 F-22




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##### Table of Contents



15.
    
    CONTINGENCIESThe Company is currently in negotiations with third parties for the
payment of current and past royalty fees. No formal settlement agreement has
been reached as to final payment. However, because the expected future payment
is probable and can be reasonably estimated, the Company has accrued
approximately 2,563,000, 4,189,000 and 6,051,000 as of December 31, 2001,
2002 and 2003, respectively.The Company is part to routine litigation incidental to the normal conduct
of business. In the opinion of management, the outcome of and liabilities in
excess of what has been provided for related to these proceedings, in the
aggregate, are not likely to be material to the financial condition or results
of operations.16.
    
    SHAREHOLDERS EQUITY/DEFICITThe Company is incorporated as an Aktiengesellschaft (hereafter AG)
under German law. Registered capital of an AG is in the form of shares and
represents negotiable securities. The minimum capital requirement for an AG
is 50,000. The Company has authorized 31,692,792 shares. The Company has
issued 19,798,552 ordinary bearer shares with a pro rata share in the
registered capital of 2.56 per share. Each ordinary bearer share is
entitled to one vote.On February 23, 1999, the Company concluded the initial public offering
of 3,945,710 of its shares at an offering price of 29.00 per share and
$16.27 per American Depositary Share (ADS). The Company realized net
proceeds of approximately 103,425,000 from the offering. Subsequent to the
offering, the Companys shares commenced trading on the Neuer Markt, a
market segment of the Frankfurt Stock Exchange, under the symbol PRC and the
Companys American Depositary Shares (ADS), each representing one-half of
a share, commenced trading on the Nasdaq National Market under the symbol
PCAG. The Neuer Markt segment of the Frankfurt Stock Exchange ceased to
operate in 2003. Because the Neuer Markt was a sub-segment of the
Geregelter Markt, we continued to be listed in Geregelter Markt. As of June
5, 2003 we were listed in the Prime Standard of the Frankfurt Stock
Exchange. On March 25, 2004 we applied for the shifting from the Prime
Standard to the General Standard of the Frankfurt Stock Exchange.Dividends may only be declared and paid from the accumulated retained
earnings (after deduction of certain reserves) shown in the Companys annual
German statutory unconsolidated accounts. Such amounts differ from the total
of shareholders deficiency as shown in the consolidated financial
statements as a result of the adjustments made to present the consolidated
financial statements in accordance with U.S. GAAP. As of December 31, 2002,
the Companys German statutory accounts reflect no retained earnings
available for distribution.In 2003, the Company sold 12,500 treasury shares. As a result,
registered capital increased by 32,000 to 50,614,000 and additional paid
in capital decreased by 28,000. F-23




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##### Table of Contents



17.
    
    LOSS PER SHAREThe following table sets forth the computation of basic and diluted
loss per share: Years ended December 31,2001
    
    2002
    
    2003Numerator:Numerator for basic and diluted earnings per
share  loss from operations ( in thousands)
    
    
    (103,162
    )
    
    
    (138,327
    )
    
    
    (118,099
    )Denominator:Denominator for basic and diluted earnings per
share  weighted average shares
    
    
    19,777,805
    
    
    
    19,786,052
    
    
    
    19,794,271Basic and diluted loss from operations per share ()
    
    
    (5.21
    )
    
    
    (6,99
    )
    
    
    (5,97
    )
  Outstanding stock options and contingent value rights are excluded from
the loss per share calculation because the effect would be antidilutive.  18.
    
    SEGMENT DISCLOSUREOperating segments are defined as components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision-making group,
in deciding how to allocate resources to an individual segment and in
assessing performance of the segment.The Company has two reportable segments based on geographic location:
Germany and The Netherlands. Both segments provide analog and digital cable
programming, high-speed Internet access and other network services.Revenues from these four product categories are regularly reviewed by
the chief operating decision maker or decision making group. However, for
internal reporting purposes, the Company does not allocate operating costs
and expenses to these product categories to evaluate their performance.The Company evaluates performance and allocates resources based on
profit or loss from operations before interest, taxes, depreciation and
amortization. All elimination amounts in the segments relate primarily to
intercompany transactions. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. F-24




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##### Table of Contents



(in  000)
    
    2001
    
    2002
    
    2003GermanyAnalog cable
    
    
    114,422
    
    
    
    115,226
    
    
    
    114,990Digital cable
    
    
    229
    
    
    
    713
    
    
    
    730High-speed Internet
    
    
    1,023
    
    
    
    1,417
    
    
    
    1,816Other revenue
    
    
    4,654
    
    
    
    4,235
    
    
    
    4,769120,328
    
    
    
    121,591
    
    
    
    122,305The NetherlandsAnalog cable
    
    
    31,018
    
    
    
    33,510
    
    
    
    37,616Digital cable
    
    
    712
    
    
    
    557
    
    
    
    705High-speed Internet
    
    
    5,732
    
    
    
    17,711
    
    
    
    26,140Other revenue
    
    
    7,706
    
    
    
    8,673
    
    
    
    11,18245,168
    
    
    
    60,451
    
    
    
    75,643Total revenues
    
    
    165,496
    
    
    
    182,042
    
    
    
    197,948Germany
    
    
    (22,702
    )
    
    
    (17,871
    )
    
    
    7,017The Netherlands
    
    
    (26,916
    )
    
    
    1,001
    
    
    
    12,377Total operating profit (loss)
    
    
    (49,618
    )
    
    
    (16,870
    )
    
    
    19,394Germany
    
    
    31,906
    
    
    
    63,855
    
    
    
    58,777The Netherlands
    
    
    30,862
    
    
    
    45,566
    
    
    
    54,322Total interest expense
    
    
    62,768
    
    
    
    109,421
    
    
    
    113,099Germany
    
    
    82,825
    
    
    
    67,157
    
    
    
    55,658The Netherlands
    
    
    35,535
    
    
    
    28,786
    
    
    
    31,929Total depreciation and
amortization
    
    
    118,360
    
    
    
    95,943
    
    
    
    87,587Germany
    
    
    204,106
    
    
    
    204,409
    
    
    
    206,411The Netherlands
    
    
    169,044
    
    
    
    203,167
    
    
    
    198,002Total goodwill and customer
lists
    
    
    373,150
    
    
    
    407,576
    
    
    
    404,413Germany
    
    
    633,045
    
    
    
    584,032
    
    
    
    538,454The Netherlands
    
    
    365,209
    
    
    
    352,270
    
    
    
    376,302Total long-lived assets
    
    
    998,254
    
    
    
    936,302
    
    
    
    914,756Germany
    
    
    733,445
    
    
    
    623,063
    
    
    
    587,329The Netherlands
    
    
    391,561
    
    
    
    462,655
    
    
    
    418,433Total assets
    
    
    1,125,006
    
    
    
    1,085,718
    
    
    
    1,005,762Germany
    
    
    60,241
    
    
    
    20,032
    
    
    
    15,398The Netherlands
    
    
    24,273
    
    
    
    17,204
    
    
    
    17,303Total capital expenditures
    
    
    84,514
    
    
    
    37,236
    
    
    
    32,701
 F-25




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##### Table of Contents



19.
    
    EURO CONVERSIONTwelve member countries of the European Union have established fixed
conversion rates between their existing currencies (legacy currencies) and
one common currency, the Euro. The Euro is traded on currency exchanges and
was used in only certain transactions, such as electronic payments before
December 31, 2001. Beginning in January 2002, new Euro-denominated notes and
coins were issued, and legacy currencies were withdrawn from circulation.
The conversion to the Euro has eliminated currency exchange rate risk for
transactions between the member countries, which for the Company, primarily
consists of the Netherlands.The Company has reviewed and has made the required modifications to
their information systems based on the new currency. At December 31, 2001,
the conversion to the Euro has not resulted in any material adverse impact
on the Companys financial position or results of operations.  20.
    
    NEW ACCOUNTING STANDARDSIn June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 143, Accounting
for Asset Retirement Obligations. SFAS No. 143 requires liability
recognition for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The adoption of
SFAS No. 143 on January 1, 2003 did not have a material effect on the
Companys financial position or results of operations.In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation elaborates on the
disclosures to be made by a guarantor in interim and annual financial
statements about the obligations under certain guarantees. FASB
Interpretation No. 45 also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of this interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. In 2003, the Company adopted the initial recognition and
initial measurement provisions of FASB Interpretation No. 45. The adoption
of this interpretation did not have a material impact on the Companys
financial position or results of operations.In December 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities. This interpretation addresses the
consolidation of business enterprises (variable interest entities) to which
the usual condition of consolidation does not apply. This interpretation
focuses on financial interests that indicate control. It concludes that in
the absence of clear control through voting interests, a companys exposure
(variable interest) to the economic risks and potential rewards from the
variable interest entitys assets and activities are the best evidence of
control. Variable interests are rights and obligations that convey economic
gains or losses from changes in the values of the variable interest entitys
assets and liabilities. Variable interests may arise from financial
instruments, service contracts, nonvoting ownership interests and other
arrangements. If an enterprise holds a majority of the variable interests of
an entity, it would be considered the primary beneficiary. The primary
beneficiary would be required to include assets, liabilities and the results
of operations of the variable interest entity in its financial statements.The Company currently owns a 15.7% minority interest in a joint venture
in The Netherlands. The Company purchased this ownership in 2000, along
with other digital television providers, for the purpose of providing
digital service to its customers. Following an evaluation of the provisions
of FASB Interpretation No. 46 the Company does not consider it necessary to
consolidate this entity. F-26




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##### Table of Contents



EXHIBITS INDEX ExhibitNumber
    
    Description of Exhibit3.1*
    
    English translation of the Articles of Association3.2*
    
    Standing Orders for the Management Board3.3*
    
    Rules for Procedure of the Supervisory Board8.1**
    
    List of subsidiaries12.1
    
    Certification of Stefan Schwenkedel pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    Certification of Jens Kircher pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   *
    
    Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2002 filed on April 2, 2003**
    
    Incorporated by reference to Item 4.C.