<PAGE>   1

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

                                    FORM 20-F
(Mark One)

|_|   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                                       OR

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended December 31, 2000

                                       OR

|_|   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

             (Exact name of Registrant as specified in its charter)

                           Federal Republic of Germany

                 (Jurisdiction of incorporation or organization)

                                 Hegelstrasse 61
                                   55122 Mainz
                               011 49 6131 931000

                    (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 registered
          None                                     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: 19,728,552

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 |X| No |_|

Indicate by check mark which financial statement item the registrant has elected
to follow:

                             Item 17 |_| Item 18 |X|

<PAGE>   2

TABLE OF CONTENTS

<TABLE>
<S>                                                                                         <C>
PART I ......................................................................................1

      ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.........................1
      ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.......................................1
      ITEM 3.  KEY INFORMATION...............................................................1
      ITEM 4.  INFORMATION ON THE COMPANY...................................................15
      ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.................................49
      ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...................................62
      ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTION.............................69
      ITEM 8.  FINANCIAL INFORMATION........................................................71
      ITEM 9.  THE OFFER AND LISTING........................................................71
      ITEM 10. ADDITIONAL INFORMATION.......................................................72
      ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................81
      ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.......................82

PART II ....................................................................................82

      ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..............................82
      ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE
               OF PROCEEDS .................................................................82
      ITEM 15. [RESERVED]...................................................................82
      ITEM 16. [RESERVED]...................................................................82

PART III ...................................................................................82

      ITEM 17. FINANCIAL STATEMENTS.........................................................82
      ITEM 18. FINANCIAL STATEMENTS.........................................................83
      ITEM 19. EXHIBITS.....................................................................84
</TABLE>

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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:

o     the speed and cost at which we are able to implement our cable television,
      or CATV, network upgrades and the response from our subscribers to the new
      services and products offered to them on our broadband networks,

o     changes in technology,

o     changes in the competitive environment for CATV network and broadband
      network operators,

o     changes in governmental regulation of the German, Dutch and EU
      telecommunications markets,

o     our ability to successfully integrate the operations of the cable
      operators we acquire,

o     our ability to manage our networks in regions where we have not operated
      in the past, and

o     our ability to secure adequate financing.

      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.

      A. Selected Financial Data

      The selected consolidated statement of operations data set forth below for
the years ended December 31, 1998, 1999 and 2000 and the selected consolidated
balance sheet data set forth below as at December 31, 1998, 1999 and 2000 have
been derived from our financial statements included elsewhere in this annual
report, which


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<PAGE>   4

have been audited by Ernst & Young, independent auditors. The selected
consolidated statement of operations data set forth below for the years ended
December 31, 1996 and 1997 and the consolidated balance sheet data set forth
below as at December 31, 1996 and 1997 have been derived from our financial
statements, which have been audited by Ernst & Young. We commenced operations as
a combined entity under the name PrimaCom AG, following the merger of KabelMedia
Holding AG and Suweda Elektronische Medien- und Kabelkommunikations AG, two
similarly sized German cable television operators, on December 30, 1998. In this
merger, shares of KabelMedia were issued to the shareholders of Suweda as
consideration in the merger and KabelMedia was the surviving corporate entity,
which then changed its name to PrimaCom AG.

      Our consolidated financial statements for 1996, 1997 and 1998 were
prepared using Deutsche Mark and have been restated in Euro using the Council of
the European Union's official fixed conversion rate between the Euro and the
Deutsche Mark of DM1.95583 per (euro)1.00. The Deutsche Mark and the Euro will
continue to have legal tender status through a transition period ending June 30,
2002. Our consolidated financial statements for 1999 and 2000 were prepared in
Euro and are not restated from Deutsche Mark into Euro.

      For purposes of U.S. GAAP, the merger was accounted for under the purchase
method as a reverse acquisition of KabelMedia by Suweda and Suweda was treated
as the accounting acquirer. As a result, Suweda's historical financial
statements for periods prior to the merger are treated as our historical
financial statements. 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.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                            -------------------------------------------------------------------------------------
                                               1996                1997                1998                1999            2000
                                            ----------          ----------         ----------           ----------     ----------
                                            (euro)'000          (euro)'000         (euro)'000           (euro)'000     (euro)'000
<S>                                          <C>                 <C>               <C>                 <C>             <C>
Revenues .........................            40,359              42,847              49,339             105,949         124,343
Operating costs and expenses:
  Operations .....................             9,116              10,238              13,062              24,543          30,191
  Selling, general and
    administrative ...............             8,803               8,168               6,271              18,590          28,584
  Corporate overhead .............                --                  --               1,278              12,413          17,219
  Depreciation and amortization ..            13,159              13,564              16,072              61,277          75,530
                                             -------             -------             -------             -------         -------
    Total ........................            31,078              31,970              36,683             116,823         151,524
                                             -------             -------             -------             -------         -------
Operating profit (loss) ..........             9,281              10,877              12,656             (10,874)        (27,181)
Interest expense:
  Related party ..................               366                 288                  11                  --              --
  Bank debt ......................             2,646               2,618               2,550               9,995          24,629
  Sale-leaseback .................             5,134               5,085               5,301               2,115           1,544
  Senior notes ...................                --                  --                  --               3,764              --
                                             -------             -------             -------             -------         -------
    Total ........................             8,146               7,991               7,862              15,874          26,173

Other income (expense) ...........                --              12,055                (232)               (767)          1,690
Income (loss) from continuing                 -------             -------             -------             -------         -------
    operations before income taxes
    and other items ..............             1,135              14,941               4,562             (27,515)        (51,664)
Income tax expense ...............               821               2,268                 827               1,667           4,258
                                             -------             -------             -------             -------        --------
Income from continuing operations
  before minority interest and
  equity earnings ................               314              12,673               3,735             (29,182)        (55,???)
Minority interest in net income of
  subsidiaries ...................               609               2,767                 303                  70              94
Equity loss in affiliate .........                --                  --                  --                  --            (128)
Income (loss) from continuing
  operations .....................              (295)              9,906               3,432             (29,252)        (56,144)
Income (loss) from discontinued
  operations, net of income tax
  benefit ........................               959              (6,977)             (2,922)                 --              --

Extraordinary loss, net of income
  tax ............................                --                  --                  --                  --          (8,180)

Net income (loss) ................               664               2,929                 510             (29,252)        (64,324)
                                             =======             =======             =======             =======       =========
Balance Sheet Data (at period end)
Total assets .....................           127,501             132,500             609,229             586,636       1,077,845
Total debt .......................           145,794             147,863             332,800             224,762         754,533
Total liabilities ................           159,338             158,160             368,757             257,961         808,463
Shareholders' equity (deficiency)            (33,399)            (31,748)            240,031             328,590         269,184
</TABLE>


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<PAGE>   5

<TABLE>
<S>                                      <C>                 <C>               <C>                 <C>               <C>
Cash Flow Data
Net cash provided by (used in)
  operating activities ...........        15,120              (3,121)             28,565              44,214           11,685
Net cash provided by (used in)
  investing activities ...........        (8,594)             15,972               8,451             (47,858)        (387,759)
Net cash provided by (used in)
  financing activities ...........        (7,638)             (3,309)            (39,706)              4,164          372,350
Capital expenditures (excluding
  acquisitions) ..................         9,918                   5               3,110              34,071           99,817
Operations Data
Homes passed(1) ..................       608,681             612,590           1,335,052           1,422,826        1,916,870
Ready for service homes(2) .......            --                  --                  --              30,456          413,000
Number of television subscribers .       325,514             329,010             877,152             919,641        1,302,297
Number of Internet subscribers ...            --                  --                  --                 150           16,381
Number of Digital television
 subscribers......................            --                  --                  --                  --            4,569
Video penetration(3) .............          53.5%               61.2%               65.7%               64.6%           53.92%
Internet penetration(4) ..........            --                  --                  --                 0.5%            3.97%
Digital penetration(5) ...........            --                  --                  --                  --             1.17%
Average monthly revenue per
  subscriber(6) ..................         10.54               10.84               11.41                9.46             9.49
EBITDA(7) ........................        22,440              24,441              28,728              50,403             38.9%
EBITDA margin(8) .................          55.6%               57.0%               58.2%               47.6%          48,349
ADJUSTED EBITDA
ADJUSTED EBITDA MARGIN............
</TABLE>

(1)   At end of the period. In 2000, 1,393,870 homes were passed by coaxial
      backbone and 523,000 were homes passed by fiber optic cable.
(2)   Upgraded from the fiber node to the home (862 MHz and two-way capable).
(3)   Television subscribers as a percentage of homes passed.
(4)   Internet subscribers as a percentage of ready for service homes.
(5)   Number of digital subscribers as a percentage of ready for service homes.
(6)   Historical average monthly revenue per subscriber equals (a) revenues for
      the period divided by the number of months in the period divided by (b)
      the average monthly number of subscribers for such period.
(7)   We define EBITDA as earnings (loss) before extraordinary items,
      discontinued operations, minority interests, net interest expense, income
      taxes and depreciation and amortization. We believe that EBITDA is a
      meaningful measure of performance because it is the most commonly used
      measure 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 an alternative to cash flow from operating activities as a measure
      of our liquidity.
(8)   EBITDA margin is EBITDA divided by revenues.

      Exchange rate information

      Effective January 1, 1999, Germany and ten other members of the European
Union introduced the Euro as their common 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 will be the official currency of all member countries.
There will be a transition period ending June 30, 2002 during which the local
currencies of participating countries may still be used alongside the Euro.

      The table below sets forth, for the periods and dates indicated, certain
information concerning the exchange rate for the Euro against the U.S. Dollar,
based on the noon buying rate and expressed in Euro per U.S. Dollar. Since the
Euro did not exist during the whole of this period, a portion of the information
stated has been derived from the noon buying rate in The City of New York for
cable transfers in Deutsche Mark, as certified for customs purposes by the
Federal Reserve Bank of New York, expressed as DM per U.S. Dollar and converted
to Euro at the fixed exchange rate between the Euro and the Deutsche Mark of
DM1.95583 per (euro)1.00.

<TABLE>
<CAPTION>
                                                                 U.S. Dollar per Euro
                                                       -----------------------------------------
                                                       Period-end     Average
Calendar Year                                             Rate         Rate(1)   High       Low
-------------                                          -----------   ---------  ------    ------
<S>                                                       <C>          <C>      <C>       <C>
1996..............................................        0.7867       0.7705   0.8004    0.7339
1997..............................................        0.9199       0.8893   0.9617    0.7881
1998..............................................        0.8523       0.8993   0.9480    0.8211
1999..............................................        0.9930       0.9445   0.9984    0.8466
2000..............................................        0.9388       0.9207   1.0355    0.8270
</TABLE>

----------


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<PAGE>   6

(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, certain
information concerning the noon buying rate of U.S. Dollar per Euro.

<TABLE>
<CAPTION>
                                                                     U.S. Dollar per Euro
                                                          Period-end
 Month                                                       Rate          High             Low
------                                                       ----          ----             ---
<S>                                                         <C>            <C>             <C>
September 2000....................................          .8837          .8993           .8462
October 2000......................................          .8486          .8806           .8270
November 2000.....................................          .8694          .8694           .8382
December 2000.....................................          .9388          .9388           .8765
January 2001......................................          .9308          .9535           .9181
February 2001.....................................          .9212          .9395           .9057
March 2001                 .......................          .8794          .9340           .8794
April 2001 (until April 3) .......................          .8930          .8930           .8824
</TABLE>

      On April 3, 2001, the noon buying rate of U.S. Dollar per Euro was
(euro)0.8930 = $1.00.

      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

      Risk associated with our business

      We expect our net losses to continue and to increase in the short term

      We incurred net losses of approximately (euro)64,324,000 in the year ended
December 31, 2000. We expect to continue to incur net losses in the near term
and we cannot assure you that we will be able to generate net income in the
future.

      Our substantial leverage poses potential financial and operating problems

      As of December 31, 2000, we have approximately (euro)754,333,000 in debt
outstanding and approximately (euro)269,184,000 in shareholders' equity. This
substantial leverage poses the risk that:

      o     a significant portion of our cash flow from operations will have to
            be dedicated to servicing our debt, and any remaining portion may
            not be adequate to fund our planned capital expenditures,
            operations, and acquisition strategy,

      o     we could be more vulnerable to changes in general economic
            conditions, and to competitive pressures, as many of our competitors
            have greater financial resources than we do,


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<PAGE>   7

      o     our operating and financial flexibility may be limited by
            restrictions imposed by various debt instruments, and

      o     because certain of our borrowings are and will continue to be at
            variable rates of interest (including borrowings under our senior
            secured credit facility), we will be subject to higher interest
            expenses if interest rates increase.

      If we fail to comply with the covenants and other provisions of our debt
instruments, our debt under these instruments could become payable prior to its
scheduled repayment date. The agreements governing our existing debt limit, but
do not prohibit, our ability to incur additional debt and we anticipate that we
will incur additional debt in the future. For example, we may incur up to
(euro)1.0 billion in debt under our senior secured credit facility. Any new debt
that we add to our current debt levels would exacerbate the risks described
above.

      If our operating cash flows are not sufficient to meet operating expenses,
capital expenditures and debt service requirements as they become due, we may be
forced, in order to meet our debt service obligations, to:

      o     reduce or delay capital expenditures, including those relating to
            the upgrade of our networks in Germany,

      o     sell assets, or

      o     forgo business opportunities.

      If we are unable to meet our debt service obligations, we could attempt to
restructure or refinance our existing indebtedness or seek additional funding.
We may not be able to do so on satisfactory terms, if at all.

      Our future capital expenditures and acquisitions may require additional
financing, which may be difficult to obtain

      We may require additional capital to achieve our business strategy and
sustain our growth. We cannot offer any assurance that our existing and
anticipated sources of capital will be sufficient for our needs, or that we will
be able to access additional capital if needed. Our future capital requirements
will depend on acquisitions, competitive conditions, regulatory and
technological developments and equipment costs and other costs associated with
the deployment of our upgraded broadband networks. In particular, the actual
amounts and timing of our capital requirements may vary significantly from our
estimates. For example, we may need to seek additional capital sooner than we
expect if:

      o     we are unable to achieve a sufficient subscriber base and market
            penetration for our broadband services within our projected
            timeframe,

      o     our development plans (in particular our cable network upgrade and
            expansion plans) change or our projections concerning supply,
            demand, prices, subscriber preferences, technological or regulatory
            developments or the cost of pursuing strategic opportunities prove
            to be inaccurate with respect to amounts, rates or timing,

      o     delays or cost overruns occur in the construction, testing or
            activation of our broadband network, or

      o     we are unable to implement or renegotiate concession agreements in
            Germany as we expand or upgrade our network.

      We may not be able to obtain additional capital on terms that are
favorable or even acceptable to us. In addition, our current financing
arrangements contain covenants that restrict, among other things, our ability to
incur additional debt. Any failure by us to raise such capital would require us
to delay or abandon some or all of our plans, which could materially adversely
affect our business and our ability to pay interest and other amounts due on our
debt.


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<PAGE>   8

      We may be unable to integrate the operations of Multikabel NV or other
networks we have recently acquired and may acquire in the future

      On September 18, 2000, we acquired control of Multikabel. The acquisitions
of Multikabel and of other cable television or broadband networks carry the risk
that the integration of our operations, the acquired networks' sales forces, and
the billing and subscriber management systems will take longer than we planned,
use more resources than we expected, change the nature of our business or
strategy substantially, or will prove to be unsuccessful. Achieving such
integration will present significant challenges and will divert management
attention from efforts to develop our subscriber base, product range and
network. If we fail to integrate operations or to manage our rapid growth and
development successfully, it could have a material adverse effect on our
financial condition and operating results. As a result, we cannot assure you
that the consolidation of our businesses will produce the operational and the
financial benefits that we expect.

      We may be unable to manage our growth

      If we continue to grow to meet our strategic objectives, the development
of our financial and management controls may not keep up with our growth. This
development could require additional capital expenditures. We may also be unable
to control our construction and other costs related to our network upgrades in
Germany, while at the same time incurring costs for marketing activities and
training new personnel.

      Our acquisition strategy involves significant risks

      A key element of our growth strategy is to continue to acquire networks,
and in some of our networks to increase the number of subscribers we serve.
Future acquisitions will be accompanied by risks such as:

      o     Difficulty of identifying appropriate acquisitions. If we are not
            able to identify and acquire cable and broadband networks that are
            either near our existing networks or are large enough to form the
            core of a new subscriber cluster of sufficient size, our growth may
            suffer.

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

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

      o     Difficulties in completing due diligence. Some of our acquisitions
            may involve an auction process where we are generally subject to
            limited opportunities to conduct extensive due diligence. As such,
            we may not be aware of a number of risks prior to consummation of
            the acquisition and as a result of limited warranty coverages we may
            not have adequate recourse against the seller.

      Our growth in subscribers may suffer if we cannot make strategic
acquisitions

      If our acquisition strategy is not successful, our growth will be limited
to obtaining new subscribers in our existing CATV and broadband networks and any
further cable and broadband networks we might construct. Both the German and
Dutch cable industries are undergoing consolidation. We believe that this will
lead to increased competition in Germany and the Netherlands for the acquisition
of cable networks from both existing cable television operators and financial
investors. Many of these competitors have significantly greater financial


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<PAGE>   9
 resources than we do including, in Germany, the cable television operations of
Deutsche Telekom, Robert Bosch GmbH, TeleColumbus GmbH, Telematics Systems and
Services B.V., or EWT/tss which is owned by United Pan-Europe Communications NV,
or UPC, our largest shareholder, and in the Netherlands, UPC, Essent Kabelcom
and Casema Kabel Televisie NV which is owned by France Telecom. In addition, in
Germany, we may face competition from Klesch & Company Limited if that entity
acquires network assets from Deutsche Telekom in the Sachsen, Sachsen-Anhalt and
Thuringen region, where we have operations, and from UPC, if that entity
acquires network assets from Deutsche Telekom in the Rheinland region, where we
also have operations. If any of the existing or potential competitors
significantly expand their operations or acquisition activities in the markets
in which we operate, we may be unable to continue acquiring other cable and
broadband networks.

      We have only recently undertaken large scale upgrading of our networks in
Germany and we may encounter difficulties or delays which may be costly to
overcome and negatively impact our financial performance

      We have only recently begun to upgrade our CATV networks to broadband
networks in Germany on a large scale and we believe that we are the first German
cable operator to begin this process on this scale. In order to continue to
upgrade our cable network, we must obtain a number of licenses, permits and
other authorizations including easements, rights-of-way and concessions from
local governments, public authorities and housing associations. We do not yet
have all of these authorizations and may not be able to obtain them or maintain
them on acceptable terms. Moreover, some of our local approvals may be
short-term or may be canceled at any time, and we may not have continued access
to existing rights of way and concessions after they expire. If we encounter
difficulties that result in construction delays and/or in additional costs, the
negative impact on our financial performance will be immediate and we may lose
any first-to-market advantage. Examples of difficulties that we may encounter
are:

      o     delays related to receiving the required licenses, construction
            permits and other authorizations from local governments, public
            authorities and housing associations,

      o     delays in delivery of materials and equipment to be installed such
            as decoders or digital boxes, in particular, certain networking
            equipment may not be available in the quantities and quality we
            demand,

      o     delays in construction of our broadband networks due to, among other
            things, problems with contractors, suppliers or labor problems,
            including the ability to hire suitable subcontractors to carry out
            these projects,

      o     delays in procuring programming contracts which could impact our
            ability to offer competitive digital television and pay-per-view
            services,

      o     delays in integrating the many components of the network, and

      o     cost overruns.

      In Germany, our broadband networks allow us to provide Internet access and
advanced digital television services and will allow us to provide cable
telephony to our subscribers in the future, but we have limited experience in
obtaining those services and providing them to our subscribers

      Where we have upgraded our networks in Germany, we have begun to offer
several new broadband services. We do not produce or own the broadband services
we are offering and we may be unable to obtain those services on favorable
terms, if at all. Our competitors hold some of the rights to programming we may
wish to offer to our subscribers in the future on an exclusive basis and may
limit the availability of programming to us. In addition, regulatory constraints
will affect our ability, as well as the ability of other network operators, to
choose which programming we want to provide. If we do not succeed in obtaining
these new services either independently or with partners, on commercially
reasonable terms, or at all, demand for our services would be reduced, limiting
our revenues.


                                       7
<PAGE>   10

      In the Netherlands, our digital television product is dependent upon
Mediakabel BV, a partnership of cable companies in which we have an interest

      We are dependent on Mediakabel, a corporation owned by a number of cable
companies in which we purchased a 15.71% interest in May 2000, for the provision
of Mr. Zap, our digital television product in the Netherlands. In the event one
or more partners of Mediakabel fail to pay their partnership contributions, we
may be required to increase our contributions in order to ensure the
continuation of the operations of Mediakabel, Mr. Zap 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 partners fail to cooperate in the operation of Mediakabel or
Mediakabel is otherwise unable to continue to provide us with Mr. Zap, we will
also be required to find an alternative source for our digital television
product. The loss of Mr. Zap would result in loss of revenue and have a material
adverse effect on our subscriber relationships in the Netherlands.

      In the Netherlands, our subscribers obtain Internet services only from
Sonera, which makes us susceptible to the loss of subscribers in the event
Sonera discontinues or does not provide these services satisfactorily

      We have agreed to allow Sonera exclusive access to our networks to provide
Internet access services to our subscribers in the Netherlands. In the event
Sonera ceases to provide these services to our subscribers, or in the event of
any significant disruption in the availability of Sonera's services, capacity
constraint or quality control, we could experience significant subscriber loss
for these and our other services while we identify and enter into an agreement
with another provider or establish our own service, which would also
significantly increase our costs.

      We may face significant challenges in operating our broadband networks in
Germany once they are fully deployed

      We have recently begun providing broadband services over our networks in
Leipzig and in other portions of the Sachsen, Sachsen-Anhalt and Thuringen
region and our success will depend on our ability to operate, manage and
maintain our broadband networks, to generate and maintain traffic on those
networks, to attract and retain an efficient sales and marketing staff and to
establish a customer service operation to assist our subscribers 24 hours per
day and seven days per week.

      Management of our broadband network subjects us to many risks, including
operating and technical problems and regulatory uncertainties. Our broadband
cable networks are subject to additional risks that are outside our control,
including:

      o     software and hardware damage,

      o     power loss,

      o     natural disaster,

      o     general transmission failure,

      o     actions of Deutsche Telekom and private network operators, on whom
            we rely for the delivery of programming signal either to our
            head-end or to our subscribers,

      o     the pricing of interconnection fees, and

      o     regulatory restraints.

      These and other risks that are outside our control could cause significant
interruption to our operations, which could materially affect our business,
financial condition and results of operations. If we have prolonged or
significant system failures or our subscribers have difficulties in accessing or
maintaining connections to our broadband network, our relationships with our
subscribers could be threatened, our reputation could be seriously damaged and
we could experience subscriber attrition and financial losses.


                                       8
<PAGE>   11

      The competitiveness of the telephone services industry will make it
difficult to enter the market for cable telephone services

      In the future, when we start offering cable telephone services to our
subscribers, we will face competition from incumbent telecommunications
operators, wireless telephone carriers and other new entrants to the European
telephone market. The incumbent operators and other established competitors have
significant competitive advantages over us, including:

      o     cost advantages as a result of economies of scale,

      o     greater resources, Internet presence and network coverage,

      o     greater brand name recognition, and

      o     close ties to national and local regulatory authorities, which may
            be reluctant to adopt policies that would give rise to increased
            competition.

      In addition, some of these competitors have more experience in providing
telephone services than we have. Some of our competitors can also devote more
capital to these services than we can.

      If our competitors decide to devote significant resources to entering our
target markets, pursuing our target subscriber base or improving the quality of
their products and services, we may not be able to compete effectively. Our
ability to compete successfully and to continue developing a profitable
telephone service will depend, among other things, on whether we can:

      o     enter our markets early,

      o     generate high traffic volumes from our existing subscribers,

      o     attract additional subscribers and limit loss of subscribers,

      o     maintain competitive prices, and

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

      If we are unable, on a timely basis, to respond to competitive pressures,
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, our operating results may be
materially adversely affected. We cannot assure you that we will be able to
achieve these goals.

      When we start providing cable telephone services, we will be subject to
pricing pressures that may have a negative effect on our cash flow or net income

      European telecommunications prices have fallen significantly in recent
years and, as competition increases, we expect our competitors to continue to
reduce their prices. Although we do not intend to compete primarily on the basis
of price, such declines will affect the prices we will be able to charge our
subscribers once we provide cable telephone services. Our success will depend on
our ability to compete in this declining price environment. We cannot assure you
that we will be able to do so or that our competitors will not be able to do so
more effectively. As a result, we cannot assure you that we will be able to
generate positive cash flow or net income from telephony services in the future.

      Competition from other methods of delivering television signal may limit
our growth or cause us to lose subscribers

      As a result of competition for subscribers from other television signal
delivery methods, we may be unable to increase the number of our subscribers or
we may lose subscribers. The ability of viewers to directly receive traditional
public over-the-air television signal from land-based or terrestrial antennae
impedes our ability to obtain


                                       9
<PAGE>   12

additional cable television subscribers in areas where our networks have already
been installed. We also face increasing competition from other methods of
delivering television signal to the home, including both analog and digital
satellite-delivered direct-to-home systems and satellite master antenna
television systems, particularly in areas of low cable penetration. In
particular, Premiere World, one of our competitors and part of the Kirch group
of media companies, has begun digital direct-to-home television operations in
Germany and it will be able to use its substantial financial resources and
exclusive programming and sports 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.

      Rapid technological changes in our industry are difficult to predict and
we may incur significant costs of implementing new technologies

      The cable television and broadband industries are subject to rapid and
significant changes in technology and the effect of technological changes on our
business cannot be predicted. The cost of implementing emerging technologies
could be significant and our ability to fund such implementation may be
dependent upon our ability to obtain additional financing.

      Use of the Internet, e-commerce, data services and other
bandwidth-intensive applications may not increase as we expect

      Our business plan assumes that the use of the Internet, e-commerce, data
services and other bandwidth-intensive applications will increase substantially
in Germany and the Netherlands in the next few years. However, if the use of
bandwidth-intensive applications in those countries does not increase as
anticipated, demand for many of our services will be lower than we currently
anticipate, which would likely have a negative impact on our pricing power,
results of operations and financial condition.

      Potential programming signal delivery and copyright charges may lead to
decreases in our operating margins and cash flows of our German operations

      Charges for signal delivery may increase

      It is possible that the prices we are charged for programming signal
delivery may increase. As of December 31, 2000, approximately 61.2% of our
subscribers in Germany were served by networks that received programming under
signal delivery contracts we have with Deutsche Telekom and a number of private
cable operators. Under some of these contracts, we pay a fixed fee, which is not
dependent on the number of actual subscribers and connection points we have.
Over the next two years, our programming signal delivery fees under these fixed
fee contracts will increase. In addition, we may have to pay more fees under our
variable rate contracts. Any fee increases under programming signal delivery
contracts may have an adverse effect on our operating margins.

      Program suppliers may begin charging us for programming

      Historically, we have been in the business of providing analog television
programming to our subscribers over our CATV networks in Germany. Like other
cable network operators in Germany, we have generally been able to receive
analog programming from program suppliers and retransmit that analog programming
without any payments. Although we have not paid for our analog programming in
Germany in the past, some or all of our suppliers could require us to pay for
programming in the future. If we are charged for programming in the future and
cannot pass these charges on to our subscribers, our operating margins and cash
flows would suffer.

      Program suppliers may also begin offering programming exclusively or on
more favorable terms (both as to price and availability) to our competitors.
Even if we succeed in increasing the number of our own head-ends to reduce
signal delivery fees payable to Deutsche Telekom or private network operators,
we will still face this competitive risk. This risk may intensify as satellite
broadcasters become more established in Germany.


                                       10
<PAGE>   13

      As we upgrade our networks and begin to enter into contracts for digital
programming, pay-per-view movies and sports events, we may have to guarantee
certain minimum payments regardless of how many subscribers actually sign up to
receive our digital product. If we are not successful in marketing digital
and/or pay-per-view services, fixed payments under these contracts could have an
adverse impact on our cash flows and margins.

      We may have to pay copyright royalties for retransmitting programming to
our subscribers

      Like other German cable network operators, we have not paid copyright
royalties for retransmission of programming we received other than from Deutsche
Telekom and certain private cable operators in the past. However, GEMA, one of
the German copyright collection agencies, has started to collect these royalties
from cable network operators and may collect these royalties retroactively from
July 1, 1997. In addition, as we are reducing retransmission of programming we
receive from Deutsche Telekom or private network operators, we may be required
to pay 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 offered to our subscribers over our broadband
network. If we cannot pass these royalties on to our subscribers, our net income
and cash flows will decrease. If royalties were collected retroactively, our net
loss for the period for which this retroactive payment has to be made would
increase.

      Extensive government regulation of the cable television industry could
restrict the way we operate our business

      We are subject to extensive regulatory controls and may, from time to
time, not be in complete 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 operate our networks, serve
our subscribers and 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 Deutsche Telekom and KPN and
interconnection arrangements, could have a material adverse effect on the way we
conduct our business.

      In 1999, the German government announced its intent to issue an order
restricting the use of cable channels using particular frequency bands on the
grounds that the use of these channels for broadcasting interferes with other
essential telecommunication uses. Should the regulatory authority issue this
order, it would adversely affect our business since it would limit the number of
cable channels available to us and other cable operators.

      In addition, under German telecommunications and competition law we are
likely to be considered market- dominating in providing cable television or
broadband products and services in those areas where we are the only cable or
broadband operator or where we provide a high percentage of the available cable
or broadband products and services. In that case, the federal regulatory
authority may have the right to review and object to increases in our subscriber
fees. It could also review other terms of our subscriber agreements. If we are
determined to be market dominant, the regulatory authority could require that we
provide interconnections between our networks and those of other operators. If
approvals for fee increases or for the introduction of fee packages for new
services were delayed or refused, our operating margins, cash flow and
competitive position could suffer. If the authority requires us to provide
significantly increased numbers of interconnections or change other aspects of
our operations, there could be a similar adverse impact on our business and
financial results.

      Under Dutch competition law it is likely that future acquisitions will
have to be reported to and approved by the Dutch Competition Authority, or DCA,
as it is likely that we will be considered market dominating in providing cable
television in a geographic area where we are the only operator or provider.
Although we have several competitors it is unlikely that the DCA will consider
their products and services as substitutes. Therefore, the activities of these
competitors might not, or only to a certain extent, be taken into account by the
DCA, when it assesses a future acquisition which is subject to Dutch merger
control. Approval of a future acquisition by the DCA could be subject to certain
undertakings or assurances which might have to be provided by us, prior to
clearance of the proposed acquisition.


                                       11
<PAGE>   14

      Moreover, we might have to take into account that in 2000, in response to
complaints from Dutch consumers dissatisfied with UPC's services, members of the
Dutch Parliament and the Dutch Consumers Organization (Consumentenbond)
expressed their concerns with regard to what they referred to as the
'monopolistic behavior' of UPC and other owners and operators of cable
television networks in the Netherlands. Although it is currently possible under
Dutch law for multiple authorizations to be given to build cable networks in the
same geographic area, no multiple authorizations have been given to date.
Pressure to further liberalize access to cable networks in the Netherlands may
become stronger in the future.

      Regulation of channel allocation by German media authorities could result
in delays or lower revenues

      We cannot assure you that the transition from analog to digital format
will not be delayed or altered by legal or regulatory disputes with media
authorities in Germany on the exact allocation of analog and digital channels.
We have had to alter our program offerings in Germany several times following
complaints by Sachsische Landesanstalt fur privaten Rundfunk und neue Medien,
one of these media authorities. Delays in the introduction or alterations in our
program offerings results in lower revenues and, in the case of alteration in
our program offering, subscriber attrition.

      In addition, we may earn less revenue than we expect from our digital
offering if the media authorities in Germany require us to offer popular
channels in analog mode instead of in digital mode only. This could have a
material adverse effect on our revenues.

      When we commence offering cable telephony, we will be subject to
significant government regulation and future regulatory changes may adversely
affect our business

      Our ability to deploy our network and provide our proposed services
depends on the pace at which liberalized telecommunications regulatory regimes
are implemented in Germany, the Netherlands and in other EU member states, to
the extent that developments in those countries influence developments in
Germany, the Netherlands or other countries in which we may decide to operate in
the future.

      Many aspects of the laws and regulations applicable to the
telecommunications industry in the European Union and other markets that we may
enter in the future are new and developing. As a result, it will often be
difficult to determine how regulators will interpret regulations or assess
compliance and what, if any, enforcement action they may take. In addition,
future changes in laws and regulations or in the current interpretation of
existing laws and regulations in our target markets could have an adverse effect
on us. In particular, a review of the telecommunications regulatory framework by
the European Commission that was undertaken at the end of 1999 is likely to
result in new EU legislation. This new legislation could have a material adverse
effect on us if it is more favorable to the incumbent cable providers or
requires additional commitments from alternative cable operators. For a more
detailed discussion of the regulatory environment in which we operate see "Item
4 B. Business Overview -- Regulation."

      We may become subject to Internet regulation in Germany and the
Netherlands

      The provision of Internet services has, to date, not been materially
restricted by regulation in Germany and the Netherlands. However, certain
Internet services are subject to regulation with respect to licensing and
notification requirements and responsibility for content at either the German
federal or state level. 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. New and existing laws may cover issues like:

      o     value-added sales or other taxes,

      o     user privacy,

      o     pricing controls,


                                       12
<PAGE>   15

      o     characteristics and quality of products and services,

      o     consumer protection,

      o     cross-border commerce,

      o     libel and defamation,

      o     electronic signatures,

      o     transmission security,

      o     copyright, trademark and patent infringement, and

      o     other claims based on the nature and content of Internet materials.

      Any such 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.

      Our principal shareholders can obstruct mergers, block the declaration of
dividend payments and influence other major corporate actions

      UPC, a telecommunications provider in Europe, has informed us that it owns
more than a quarter of our shares, making it our single largest shareholder. As
a result, UPC, acting alone, is able without the approval of our other
shareholders, to:

      o     block significant amendments to our articles of association,

      o     block the approval of a merger or other major corporate
            transactions,

      o     delay or defeat any non-negotiated takeover attempt that might
            otherwise benefit the public shareholders,

      o     block the declaration of dividends to be paid to shareholders, and

      o     otherwise influence the outcome of all matters submitted for a
            shareholder vote in a manner that could conflict with the interests
            of our other public shareholders.

      In addition, because German corporate law provides that the majority of
shares present and voting at a shareholder meeting can pass resolutions, UPC,
alone or with other shareholders, may be able to determine the outcome of all
matters submitted for even a simple majority shareholder vote if the
participation of our other shareholders in meetings is not significant.

      The priority share of N.V. Houdstermaatschappij GKNH requires us to seek
their consent if we want to make certain management changes in our business in
the Netherlands

      GKNH, the seller of Multikabel, holds one priority share in the share
capital of Multikabel. The priority share gives GKNH the right, among other
things, until January 1, 2003, to:

      o     veto decisions of the management of Multikabel on pricing and
            composition of the analog basic and standard cable packages (basis
            en standaardpakket) that are distributed over the network, and on
            the roll-out of the so-called white areas plan (witte gebiedenplan),

      o     veto decisions of the management of Multikabel to undertake a legal
            merger (juridische fusie) or spin-off (splitsing), to apply for a
            moratorium of payments (surseance) or bankruptcy (faillissement), to
            relocate the activities of a substantial part of the employees to a
            location outside the municipality of Alkmaar, and


                                       13
<PAGE>   16

      o     amend certain provisions of the articles of association of
            Multikabel or allow for the liquidation of Multikabel.

      Our ability to retain our key personnel and attract additional qualified
personnel in the intensely competitive European market for skilled
telecommunications personnel is critical to our future success

      Because broadband network technology is complex and requires frequent
upgrading, we believe that our growth and success will depend in large part on
our ability to attract, train, manage, motivate and retain highly skilled and
qualified managerial, sales, marketing, administrative, operating, and technical
personnel. However, there is limited availability of persons with the requisite
knowledge of and experience in the telecommunications industry in Germany and
the Netherlands and there is intense competition for skilled personnel in the
European telecommunications industry in general. Our failure to attract, train,
manage, motivate and retain sufficient numbers of qualified employees, could
materially adversely affect our business, financial condition and results of
operations.

      If any of the small number of our key employees leaves our company, it
could have a material adverse effect on the implementation of our acquisition
strategy and on our day-to-day operations. This is because these individuals
possess significant experience in our business and industry, especially with
respect to managing our assets, both in the Netherlands and Germany and would be
difficult to replace. Our key employees include Paul Thomason, our chief
financial officer and Hans Wolfert, our chief corporate development officer.
Both have entered into employment contracts with us but we cannot assure you
that either of them will not choose to terminate his employment relationship
with us or that they will not otherwise become unable to continue to perform
services for us. We have not purchased key-man life insurance policies for
either of them.

      We have limited insurance on the underground portion of networks

      Any catastrophe affecting a significant portion of our underground
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, like many other operators of cable
television networks in Germany, do not insure the underground portion of our
cable networks and we carry only minimal insurance on the underground portion of
our cable networks in the Netherlands. The magnitude of this risk will increase
as we continue to upgrade to more valuable broadband networks.

      We depend on sophisticated customer care and billing systems

      Sophisticated customer care and billing systems are vital to our growth
and our ability to:

      o     manage and monitor subscriber demands and justify the prices we
            charge for our services,

      o     track service provisioning, network faults and repairs,

      o     achieve operating efficiencies and monitor costs,

      o     efficiently segment our subscriber base and monitor the productivity
            of our sales force,

      o     bill and receive payments from subscribers, and

      o     manage our credit exposures.

      Errors or problems with our customer care systems could affect our ability
to respond quickly and effectively to our subscribers and could therefore affect
the quality of our service and/or our ability to retain our subscribers. Errors
or problems with our billing system could adversely affect our ability to send
bills and/or provide billing information to our subscribers. The customer care
and billing systems we use will require further enhancements and on-going
investments, particularly as our subscriber volumes increase. We may encounter
difficulties in enhancing, or integrating new technology into our systems in a
timely and cost-effective manner. Such difficulties could have a material
adverse effect on our ability to operate efficiently and to provide adequate
customer service.


                                       14
<PAGE>   17

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 Suweda. We are a stock corporation organized under the
laws of the Federal Republic of Germany. Our principal executive offices are
located at Hegelstrasse 61, Mainz 55122, Germany. Our telephone number is
+49-6131-9310. 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 2000 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 and
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, 2000, we own and operate CATV and
broadband networks passing more than 1,800,000 homes and available to
approximately 1,300,000 subscribers as follows:

      o     Germany: CATV networks passing approximately 1,500,000 homes and
            available to approximately 1,000,000 subscribers and broadband
            networks passing 203,000 homes with fiber optic cable and available
            to 116,000 homes of which 95,000 are analog television subscribers,
            including 1,318 high-speed Internet subscribers and 340 digital
            television subscribers, and

      o     The Netherlands: Cable and broadband networks passing approximately
            320,000 homes with fiber optic cable and available to approximately
            297,000 television subscribers, 14,938 high-speed Internet
            subscribers and 4,230 digital television subscribers.

      We believe that in Germany we are the fourth largest private cable network
operator in terms of the number of direct subscribers (excluding Deutsche
Telekom, which is not considered to be a private operator by the German cable
television industry) and the first and largest private operator of broadband
networks. In the Netherlands, we believe we are the fourth largest cable
operator.

      In Germany, we have passed approximately 203,000 homes with fiber optic
cable and have upgraded 116,000 homes which serve approximately 95,000 analog
television subscribers. We are currently offering our German 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, near video-on-demand and high-speed Internet
access, in addition to our basic cable television offering. We also currently
offer our business subscribers in the Netherlands leased lines with speeds of up
to STM-4 and data communications services. We intend to leverage our existing
experience in offering broadband services as we expand our broadband offering
across a wider range of services and throughout our upgraded regions in Germany.

     On March 29, 2001, we entered into an agreement with United Pan- Europe
Communications N.V., our largest shareholder, to combine our German cable
businesses. Under the terms of the agreement, we will combine with UPC's German
subsidiary EWT/tss which has approximately 570,000 CATV subscribers, UPC will
assign its option to acquire potentially 530,000 additional CATV subscribers
from Deutsche Bank and will contribute its subsidiary B.V. Holding CAI located
in Alkmaar, the Netherlands which has approximately 42,000 subscribers. This
agreement is subject to a number of conditions, including shareholder approval
and we cannot assure you that this transaction will take place.

      Our strategy

      Our objective is to enhance the value of our business by continuing to
upgrade our CATV networks in Germany, expanding and promoting our broadband
service offering, and capitalizing on acquisition opportunities presented in the
German and Dutch cable television markets. Our business strategy focuses on the
following specific goals:

      o     Complete our network upgrade and continue network expansion. We
            intend to upgrade a significant portion of our German networks over
            the next five years to levels comparable with our fully-upgraded


                                       15
<PAGE>   18

            Dutch networks. In addition, we intend to build out of networks to
            pass potential new subscribers as we implement our network upgrade.

      o     Expand and promote our broadband service offering. In conjunction
            with the upgrading of our networks, we intend to further expand our
            broadband service offering in Germany beyond digital TV,
            pay-per-view services and high-speed Internet services to include
            video-on-demand, interactive television, and, ultimately, telephony
            services. We also intend to expand our broadband service offering in
            the Netherlands to include interactive television, e-commerce and
            telephony services. We intend to offer individual new broadband
            products to our subscribers one by one or bundled in packages for a
            combined price that is generally expected to be lower than the sum
            of the prices of the individual products or services. In the
            Netherlands, we intend to expand our service offering to include
            e-commerce, interactive television and telephone services. We
            believe our broadband products and services will generate higher
            revenues per subscriber as penetration of these services increases.

      o     Exploit continuing consolidation opportunities. We intend to
            capitalize on continuing opportunities to acquire cable networks,
            focusing on the fragmented German market but also in the
            Netherlands. We will continue to pursue a clustering strategy
            focused on acquisitions of cable systems in close proximity to our
            existing networks. We believe this clustering strategy will continue
            to produce operational efficiencies and cost synergies between our
            existing networks and acquired cable systems, and will generate
            economies of scale in relation to our network upgrade strategy. We
            have established regional clusters of cable networks in Berlin,
            Sachsen, Sachsen-Anhalt and Thuringen, Wiesbaden Mainz and Osnabruck
            in Germany and in the Noord Holland region in the Netherlands. We
            believe that, excluding the ten largest cable operators, there are
            more than 5,000 private cable operators in Germany, many of whom
            serve less than 1,000 subscribers each. We believe that, excluding
            the four largest cable operations, the Dutch market includes more
            than 40 cable operators available to approximately 1,000,000
            subscribers in the aggregate or an average of approximately 25,000
            subscribers each.

      o     Realize further internal growth. We intend to generate increased
            revenues from our basic television cable services, in addition to
            our broadband service offering. In Germany, we will continue to
            target selective rate increases for basic cable services and
            continue marketing programs designed to increase subscriber
            penetration. In particular, we intend over time to increase monthly
            service rates in the new German states to levels similar to those in
            the old German States. In the Netherlands, we will become exempt
            from pricing regulations imposed by local municipalities following
            the expiration of our contracts with these municipalities in 2003,
            and we intend to seek to increase basic cable television prices
            following the expiration of these contracts.

      o     Increase network ownership and reduce signal delivery fees. In
            Germany, we continue to rely on Deutsche Telekom, and on private
            operators who have recently purchased cable assets from Deutsche
            Telekom, to deliver programming signal to our cable networks serving
            approximately 61.2% of our subscribers. We intend to reduce our
            dependence on Deutsche Telekom and other private operators by
            continuing to construct our own head-ends and add new infrastructure
            where appropriate. We believe that selectively installing our own
            head-ends and infrastructure will reduce our signal delivery fees
            and have a positive effect on our operating results and our quality
            of service.

      o     Build-out new areas. We expect to pass new homes as we continue our
            network build-out in Germany. As we upgrade new cities, we intend to
            upgrade not only those areas covered by our existing network but the
            entire city, which means we will pass new homes. The passing of
            these new homes will 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 strategy
            complements our consolidation activities in the city because small
            cable operators may not have the technical or


                                       16
<PAGE>   19

            financial resources to compete in the broadband market and, as a
            result, may be more inclined to sell their networks.

      o     Improve efficiency and margins by streamlining operations. We
            believe our clustering strategy has produced and will continue to
            produce operational efficiencies, economies of scale and cost
            synergies between our existing networks and acquired cable networks.
            Upon completion of an acquisition in accordance with our existing
            strategy, we generally implement extensive management, operational
            and organizational changes designed to enhance operating cash flow
            and operating margins. In Germany, for example, we typically
            maintain existing subscriber services in acquired regions, but
            transfer subscriber account processing and administrative services
            for acquired cable networks to one centralized location, thereby
            reducing overhead costs.

      o     Strengthen subscriber orientation. We will continue to employ 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 within each region. We believe that this
            regional operating structure enables us to be more responsive to
            subscriber needs and to maintain good relationships with the local
            housing associations and our subscribers.

      Our subscribers

      We have subscribers in four primary operating regions in Germany and in
one operating region in the Netherlands. At December 31, 2000, we served our
subscribers in Germany from networks operated at level 2, level 3, level 4, and
level 4 (B-1) levels as well as from broadband networks, and we served our
subscribers in the Netherlands substantially from broadband networks only, as
outlined in the table below.

<TABLE>
<CAPTION>
                             Sachsen,                                            Noord-
                           Sachsen-Anhalt,            Wiesbaden                 Holland,
                             Thuringen       Berlin     Mainz     Osnabruck  the Netherlands    Total
                             ---------       ------     -----     ---------  ---------------    -----
<S>                        <C>              <C>        <C>         <C>        <C>             <C>
Cable networks
CATV homes passed             682,949       232,435    329,844     268,642            --      1,513,870
Analog subscribers            507,023       184,921    176,165     135,279            --      1,003,388
  Level 2 subscribers         246,449        58,393     59,984      23,826            --        388,652
  Level 3 subscribers         143,377        36,300     16,976      15,192            --        211,845
  Level 4 subscribers         117,197        90,228     12,205       6,942            --        226,572
(non B-1)
  Level 4 subscribers              --            --     87,000      89,319            --        176,319
(B-1)
Penetration                                                                           --           66.3%

Broadband networks
Homes passed by fiber         203,000            --         --          --       320,000        523,000
Ready for service homes       116,000            --         --          --       296,538        412,538
Analog TV subscribers          95,000                                                            95,000
Digital TV subscribers            340            --         --          --         4,230          4,570
Internet subscribers            1,318            --         --          --        14,938         16,356
</TABLE>

      Germany. We serve our subscriber s 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
823,000, or 82%, of our subscribers. We have indirect billing and servicing
relationships with approximately 180,300, or 18%, 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.


                                       17
<PAGE>   20

      The Netherlands. Our Dutch subscribers reside in 43 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 sole 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. We outsource
billing of our analog cable services to local energy companies. Billing of our
digital cable services is handled by Mediakabel, and billing of Sonera Internet
services is handled by Sonera. We manage billing internally for our data
communications and Kennisnet product offerings.

      Our networks

      Germany

      We operate a combination of level 2, level 3, level 4 and level 4 (B-1)
cable networks as well as broadband networks in Germany. We intend to upgrade a
significant portion of our cable networks to broadband networks over the next
five years.

      CATV networks. Deutsche Telekom's historic monopoly position in the German
cable industry and the limitations it observed in laying cable only to the
outside of a subscriber's home has resulted in the development of a dual
ownership network structure serving cable subscribers, whereby Deutsche Telekom
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 EU countries, whereby 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.

        Level 2                         Level 3                    Level 4

    [GRAPHIC OMITTED]             [GRAPHIC OMITTED]           [GRAPHIC OMITTED]

        Headend                     Backbone Network               In-House

      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,
Deutsche Telekom (or the private operator) continues to own and operate the
head-end and the principal transmission lines. Cable network operators are
required to pay Deutsche Telekom a signal delivery fee pursuant to agreements
known as signal delivery contracts.

      A variation of the 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 level B-1. 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


                                       18
<PAGE>   21

of this pre-determined number of subscribers, whether or not the cable operator
actually succeeded in enrolling such subscribers.

      Level 3 networks. A network where the cable network operator has entered
into a signal delivery contract with Deutsche Telekom (or a successor private
operator) 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 Deutsche Telekom's or a private operator's network to the
front-door of the subscriber. In a level 3 network, cable network operators are
required to pay Deutsche Telekom a fee for access to Deutsche Telekom's network
or signal, as the case may be.

      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 akin to 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 Deutsche Telekom or a successor private cable operator but receive
programming via terrestrial antenna and satellite through their own head-ends.

      Substantially all of our CATV networks are capable of distributing more
than 40 channels and are constructed using star architecture. Our CATV networks
in Germany have the following technical characteristics:

      o     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),

      o     Received signal is amplified and transmitted to the home through
            coaxial cable over bandwidths of up to 450 MHz, and

      o     Transmitting of signal is one-way for our analog cable subscribers.

      Broadband networks. We believe we are the largest cable operator of
broadband networks in Germany and were the first operator in Germany to begin
upgrading our CATV networks to broadband networks. We pass approximately 203,000
homes and have upgraded approximately 116,000 homes in the Sachsen,
Sachsen-Anhalt and Thuringen region. We intend to upgrade a significant portion
of our German networks over the next five years and to focus our upgrading
activity on regions with higher subscriber density. In the Sachsen,
Sachsen-Anhalt and Thuringen region, we have already upgraded the city of
Leipzig and have commenced network upgrades in the cities of Magdeburg,
Chemnitz, Halle, Aschersleben and Naumburg, in other portions of the Sachsen,
Sachsen-Anhalt and Thuringen region in the second quarter of 2000. To support
the development and introduction of our broadband services, we established the
broadband group in the second half of 1999. Approximately half of the members of
this group focus on network operations, including the design and implementation
of our network upgrade. These members of the broadband group work in conjunction
with our regional network operations staff and with third-party contractors to
execute our upgrade.

      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.


                                       19
<PAGE>   22

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
            Interactive 862 MHz Broadband Network with 65 MHz Return Path
--------------------------------------------------------------------------------------
<S>                     <C>                   <C>                   <C>
[GRAPHIC OMITTED]      [GRAPHIC OMITTED]      [GRAPHIC OMITTED]     [GRAPHIC OMITTED]

    Headend            Backbone Network          In-House               On-Premise

--------------------------------------------------------------------------------------
     Superior high         Fiber backbone to      Two-way coaxial         Modem
     definition TV        within approximately     to wall outlet      Set top box
   head-end, digital      500 meters from the
playout facilities and            home
   Internet server.
 Platform switches and
 interconnections are
        planned
--------------------------------------------------------------------------------------
</TABLE>

      Our upgraded network in the city of Leipzig and other portions of the
Sachsen, Sachsen-Anhalt and Thuringen region is the model for our continuing
network upgrades with the exception of the digital playout facilities. We intend
to use the 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 Sachsen, Sachsen-Anhalt and Thuringen
region but also in our other regions when we upgrade our networks there.
Ultimately, we intend to install switches and interconnections at the Leipzig
head-end to support our future telephone offering. A fiber optic loop that
circumnavigates the city connects our subscribers to the head-end and allows for
the delivery of our services. Within this main fiber loop, smaller fiber loops
are connected to the larger loop and, in effect, create a fiber optic matrix
covering the entire city. As we continue to add more loops, the fiber optic
matrix will cover increasingly more portions of the city inside of 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
from 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 an average of 625 coaxial connections. 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 require a cable
modem. The network also 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) electronic equipment which amplifies the capabilities of the
coaxial cable so that transmission speed over the cables is increased and signal
can be sent in two directions between the head-end and the home. 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.


                                       20
<PAGE>   23

      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 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
Deutsche Telekom, and on private operators who have recently 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 controlling our network will have a positive effect on our programming
flexibility, our quality of service, and our penetration among broadband
subscribers.

      The Netherlands

      Substantially all of our network in the Netherlands is a fully upgraded,
two-way broadband network capable of delivering a full range of broadband
services including interactive digital television, high-speed Internet access
and telecommunications services. Approximately 8,000 of our 320,000 network
homes are located in three geographic areas that are not contiguous to the rest
of our network and that have not been upgraded. These homes receive programming
signal from third-party head-ends and we intend to sell these non-upgraded
network homes over time. 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 including the main
cities of Amsterdam, the Hague, Utrecht, Rotterdam or Eindhoven. 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 home connection point
available to our subscribers, with the exception of approximately 92 kilometers
of fiber optic cabling that we lease. Our network in the Netherlands has the
following characteristics:

      o     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.

      o     A fiber optic backbone, which passes the network region with 1,190
            km of 862 MHz fiber optic cabling, transmits optical signal to 38
            fiber hubs and 586 fiber nodes.

      o     Fiber nodes convert optical signal to electrical signal of up to 862
            MHz and distribute this signal via coaxial cable to subscriber
            homes.

      o     Modems and set-top boxes are located on our subscribers' homes
            premises, if the subscriber wishes to receive digital programming.

      The fiber nodes receive additional local radio and television channels,
supplementing signal received from the head-end. Our set-top box, provided by
Sagem SA, enables subscribers to receive digital television. Subscribers
purchasing high-speed Internet services also require a cable modem. Most of our
network in the Netherlands has an 80 MHz return path, with the exception of the
Communikabel region, which has a 65 MHz return path. We intend to pass
additional homes in our existing regions over time. In addition, during the
remainder of 2001, we expect to install an uninterruptible power supply system
to support the future provision of telephony services.

      Programming and product offerings

      Germany

      Basic CATV television

      We offer two primary packages of basic cable television programming
service: 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 typically includes an average of 32
television channels and 29 radio channels, depending on


                                       21
<PAGE>   24

the service area. Additionally, in certain 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, with exceptions depending on the service
area.

<TABLE>
<CAPTION>
    Channel                   Description                 Channel                    Description
    -------                   -----------                 -------                    -----------
<S>               <C>                                  <C>                <C>
3Sat.........     ADR/ZDF, ORF and SRG news and        Onyx-tv......      Music and entertainment
                  sports
ARD..........     General interest                     ORB..........      Regional news, sports and
                                                                          entertainment
ARTE.........     Cultural arts                        Phoenix......      Documentary and political events
Bayern 3.....     Regional news, sports and            Premiere           Pay-TV
                  entertainment                        analog.......
Bloomberg TV.     News and information                 Pro Sieben...      News and entertainment
BR-Alpha.....     Cultural and educational programming QVC Germany..      Teleshopping
DSF..........     German sports                        RTL 2........      Entertainment for young people
DW-Tv........     German programming broadcast abroad  RTL                24-hour entertainment
                                                       Television...
Eurosport....     European sports                      SAT 1........      24-hour entertainment
HR 3.........     Regional news, sports and            Super RTL....      Entertainment
                  entertainment
HOT..........     Teleshopping                         SWR..........      Regional news, sports and
                                                                          entertainment
Kabel 1......     Entertainment and movies             Tm3..........      Entertainment
Kika.........     Programming for children             VH-1.........      24-hour music television
MDR 3........     Regional news, sports and            Viva.........      24-hour music television
                  entertainment
MTV..........     Music videos                         Viva 2.......      24-hour music television
N24..........     24-hour news programming             Vox..........      News and entertainment
Nord 3.......     Regional news, sport and             WDR..........      Regional news, sports and
                  entertainment                                           entertainment
n-tv.........     News and information                 ZDF..........      Gemera; interest

</TABLE>

      We receive our programming either directly from broadcasters via our own
head-end or indirectly from broadcasters through signal delivery contracts with
Deutsche Telekom or private network cable operators. Approximately 38.8% of our
television subscribers are served by networks that obtain their programming
directly from broadcasters via our head-ends and approximately 61.2% of our
television subscribers are served by networks that obtain their programming
indirectly via Deutsche Telekom or private cable network operators.

      Current broadband product offering

      We currently offer the following broadband service to subscribers in
Leipzig and other portions of the Sachsen, Sachsen-Anhalt and Thuringen region
who are connected to our upgraded networks:

      Digital television. We believe we are the first German cable operator to
offer digital services to our subscribers. We launched our digital television
services in the city of Leipzig in October and November of 2000. We had to adapt
our program offerings several times following complaints by the media
authorities and after the judgments of the court of Leipzig as discussed below.
Under German law, any change from analog to digital delivery has to be filed
with the media authorities prior to its implementation. The media authority can
also issue enforcement orders to compel us to distribute certain channels for
free. As of December 31, 2000, our digital offering was available to
approximately 116,000 homes which serve approximately 95,000 analog television
subscribers, and approximately 1,555 digital set-top boxes had already been
installed in subscriber homes of which approximately 340 subscribers had
retained the digital set-top boxes upon termination of the free promotion
period. We intend to continually expand and improve the range of channels
included in our digital television offering.


                                       22
<PAGE>   25

      Our PrimaTV digital offering is currently comprised of the simulcast of
our basic analog channel offering in digital format plus additional basic
digital channels and five different offers as follows:

<TABLE>
----------------------------------------------------------------------------------------------------
<S>                       <C>                           <C>                      <C>
primaTV Basic
                          3sat                          MDR 3                    RTL Television
                          ARD                           MTV                      RTL 2
                          Arte                          Nord 3                   SAT1
                          Bayern 3                      NIK                      Super RTL
                          BR-Alpha                      n-tv                     SWR
                          DW-Tv                         Onyx tv                  tm 3
                          DSF                           ORB                      Viva
                          Eurosport                     Phoenix                  Viva 2
                          HOT                           PrimaCom Servicekanal    VOX
                          HR3                           Pro Sieben               WDR
                          Kika                          QVC Germany              ZDF
                          Kabel 1


                          B1                            Euronews                 TW1
                          CNN                           Regional TV**            VIA 1
                          EinsExtra                     Sneak Preview**          ZDF.doku
                          EinsFestival                  SWR Saarland             ZDF.info
                          Eins MuXx                     TV 5                     ZDF Theaterkanal

                          + ARD Online Kanal as an
                          additional media source

  primaTV program bouquets:

  primaFamily*            Avante, Game Channel**, Innergy, Reality TV** Muzzik and Wishline

  primaLife*              Bet On Jazz, Extreme Sports Channel, Fashion TV and MCM Africa

  primaInfo*              BBC World, Bloomberg TVand CNBC

  The Adult Channel       The Adult Channel

  MTV                     MTV 2, MTV Base, MTV Extra, VH-1 and VH-1 Classic      (Status 3/15/01)
----------------------------------------------------------------------------------------------------
</TABLE>

------------
* Subscribers can subscribe to these three offers for a combined price which
is generally lower than the sum of the individual prices. (primaTV Maxi)

** to come

      PrimaTV Basic contains non-crypted digital channels. Access to these
channels is available TV by every DVB-C-compatible set-up-box. We offer to rent
a set-up box for a monthly fee. Customers can also subscribe to primaTV MAXI
(including primaINFO, primaLIFE and primaFAMILY) for a bundled discount and a
stand-alone package as offered by MTV, and by March 15, 2001, a stand-alone
erotica channel (THE ADULT CHANNEL). As we introduce expanded and improved
programming and as penetration of our digital service increases, we expect to
target selective rate increases for our digital offering.

      Interactive Pay-per-view. Digital subscribers also have access to up to 15
pay-per-view channels which can be ordered by subscribers using their remote
control, featuring films and other special events.

      High-speed Internet access. We launched high-speed Internet services to
both residential and business subscribers in the fourth quarter of 1999. At
December 31, 2000, we provided high-speed Internet service to 1,318 subscribers.
Our high-speed Internet offering includes the following products:


                                       23
<PAGE>   26

      o     Easy-to-go package. This package offers subscribers in the city of
            Magdeburg in the Sachsen, Sachsen-Anhalt and Thuringen region,
            24-hour high-speed Internet access at up to two times the speed of
            ISDN or 128 kbps (64 kbps upstream), for a monthly fee including the
            cable modem fee based on the amount of usage by the subscriber.
            Subscribers receive 1 MB web space, e-mail account services and
            access to our Internet portal for broadband services such as our
            game server and additional value-added services.

      o     Easy package. This package offers subscribers 24-hour high-speed
            Internet access at up to four times the speed of ISDN or 256 kbps
            (64 kbps upstream), for a monthly fee including the cable modem fee
            based on the amount of usage by the subscriber. Subscribers receive
            10MB web space, 500 Mbps of download capacity and e-mail account
            services with full support from our customer service team.
            Subscribers may also access our Internet portal for broadband
            services such as game servers and additional value-added services.

      o     Pro package. 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 including the cable
            modem fee. As with the Easy Package, subscribers receive 10MB web
            space, unlimited download capacity, e-mail account services with
            full support from our customer service team, and access to our
            Internet portal.

      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.

      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:

      o     Video-on-demand. We intend to develop and introduce a range of
            video-on-demand services to complement our existing 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.

      o     Interactive television. We are currently developing and expect to
            introduce interactive television services to our upgraded
            subscribers over the next two years. Over time, we expect our
            interactive television offering to include services such as
            interactive games, e-commerce and TV-based Internet services.

      o     Telephony. We intend to develop and introduce telephony services to
            our residential and business subscribers over the next two years. We
            expect to develop and offer these services in cooperation with one
            or more strategic partners. We will evaluate both a cable telephony
            platform and a voice-over-IP platform, focusing on the costs to us
            of developing both platforms, the technical capabilities of each,
            and the demands of our subscribers.

      The Netherlands

      Current broadband product offering

      Analog Television. Our analog television offering includes two packages of
television programming: a basic package and a standard package. The basic
package consists of 15 television and 40 radio channels. The standard package
consists of 38 television and 40 radio channels. Both packages carry a one-time
installation fee. Almost all of our analog subscribers purchase the standard
package.

      The standard packages include the following channels, with certain
exceptions in some municipalities.


                                       24
<PAGE>   27

<TABLE>
<CAPTION>
        Channel                   Description                 Channel                   Description
        -------                   -----------                 -------                   -----------
<S>                       <C>                         <C>                       <C>
Nederland 1.............  General Interest            Regionet/ljmond TV...     General Interest
                                                                                (Regional)
Nederland 2.............  General Interest            ZDF..................     German language
                                                                                (Germany)
Nederland 3.............  General Interest            WDR..................     German language
                                                                                (Germany)
Beeldmozaiek............  Overview of channel         BBC 2................     English language (UK)
                          offerings
Lokale omroep/kabelkrant  Local cable channel         RTL Television.......     General Interest
VRT TV1.................  General Interest            TCM..................     Classic Movies
Ketnet/Canvas...........  Belgian                     TV Noord-Holland.....     Local programming
ARD.....................  German language (Germany)   Phoenix/CNE..........     Chinese language
BBC 1...................  English language (UK)       TMF..................     Music videos
TV5.....................  French language (France)    CNBC/Nat. Geographic.     News/Documentary
RAI Uno.................  Italian language (Italy)    Eurosport............     Sports
TVE.....................  Spanish language (Spain)    Euronews.............     News
TRT.....................  Turkish                     Cartoon Network......     Children
MBC.....................  Arabic                      Discovery Channel....     Documentary
RTL4....................  General Interest            MTV Europe...........     Music Videos
RTL 5 Nieuws & Weer.....  News & Weather              The Box..............     Music Videos
SBS 6...................  General Interest            CNN..................     International News
Veronica................  General Interest            Abonnee t.v. (Canal       Pay-per-view service
                                                      +1)..................
Fox 8...................  General Interest            Abonnee t.v. (Canal       Pay-per-view service
                                                      +2)..................
Kindernet/Net 5.........  Children                    Videorecorder-afstellin   Video outlet
Kabelkrant Nieuws TV....  News                        Decoderuitgang Canal+     Pay-per-view service
</TABLE>

      Digital Television. We launched our digital television product under the
brand name Mr. Zap in May 2000. The digital television product is currently
available to more than 97% of our subscribers, and we provided digital service
to 4,230 subscribers as of December 31, 2000. We offer our digital television
product in cooperation with Mediakabel, a joint venture established by seven
Dutch cable operators, including us, for the purpose of introducing interactive
digital television to the Dutch cable market.

      The basic digital television package includes the following primary
features:

      o     Pay-per-view/near video-on-demand. Subscribers may select from
            approximately 50 films per month and a broad selection of other
            events including sports and entertainment. Films are shown at
            varying frequencies (e.g. every 15 minutes to every two hours)
            depending on the popularity of the films.

      o     Television channels. Subscribers receive four basic channels and may
            choose to receive a package of ten channels for an additional
            monthly fee as follows:

<TABLE>
--------------------------------------------------------------------------------
<S>                                          <C>
Four Basic Digital Channels                  ANWB Weer & Verkeer
                                             (traffic & weather),
                                             VH-1 (music videos),
                                             Sports 1,and Sky News
                                             (24-hour UK news).

One Premium Package                          CNBC
                                             Performance
                                             Eurosport News
                                             Travel Channel
                                             Landscape,
                                             The Adult Channel,
                                             Extreme Sports,
                                             Film 1,
                                             Bloomberg Television
                                             Fashion TV and
                                             The Playboy Channel.
--------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>   28

      o     Music and game channels. Subscribers receive five music channels and
            one game channel.

      In addition, subscribers may purchase the following theme channels and
product offerings individually.

<TABLE>
<CAPTION>
         Channel                         Description
         -------                         -----------
<S>                              <C>
 Music Choice...............     40 additional digital music channels
 Game Channels..............     Five additional game channels
 Zee TV.....................     Hindustani television
 Set Asia...................     Hindustani television
 Cinenova...................     Movie channel
 TVBS-E.....................     Chinese television
 ART........................     Arabic television
</TABLE>

      Internet access. 14,938 residential subscribers receive always-on,
high-speed Internet services as of December 31, 2000, in co-operation with
Sonera, a relationship that is exclusive until July 2001. Under our Sonera
agreement established in July 1999, we receive a monthly fee for each
residential subscriber who purchases one of the following Sonera packages:

      o     Profit package. This product provides Internet access speeds of at
            least 64 kpbs downstream and 32 kpbs upstream. Subscribers also
            benefit from 600 Mbps of download capacity, e-mail services and
            homepage capability with 20 Mb capacity.

      o     Power package. This product provides Internet access speeds of at
            least 512 kpbs downstream and 64 kpbs upstream. Subscribers also
            benefit from unlimited download capacity, e-mail services, and
            homepage capability with 20 Mb capacity.

      Following the expiration of Sonera's exclusivity period in July 2001, we
will consider providing a competing high-speed Internet service, either
independently or with a strategic partner.

      Data communications. We offer the following data communications products
to business subscribers:

      o     QualityLink. This service provides a dedicated fiber connection for
            data communications at a fixed monthly price depending on whether
            subscribers elect to receive speeds of 2, 10, 34, 155 or 622
            megabits per second.

      o     CableLink. This service uses existing cable connections for
            datacommunications with a choice of between 256 to 512 kbps at a
            fixed monthly price depending on the chosen speed and the distance
            between the locations of the subscribers. This service provides the
            security of a virtual private network.

      Kennisnet intranet service. We are in the process of connecting 550 Dutch
schools and educational institutions, libraries and museums to our intranet
service by linking our networks with other cable operators. As of December 31,
2000, we are providing service to 110 institutions. This intranet project
provides such institutions with network access and access to the Internet
through an organization called Educatief Net B.V., or Educatief, which is a
joint venture of several cable operators. Educatief has obtained funding from
the Dutch government for a period of three years, and will provide subsidies to
participating institutions.


                                       26
<PAGE>   29

      Future broadband product offerings

      In addition to the offerings described below, we intend to expand our
broadband product offering to include a range of additional broadband products
including video-on-demand, interactive television, and telephony services. We
intend to introduce these new services to our subscribers over the next two
years.

      o     Interactive and enhanced digital cable television services. We are
            also working with Mediakabel to continually improve and expand our
            premium programming offering included in the Mr. Zap package. We
            intend to continually introduce new digital television product
            offerings and product enhancements as we develop these additional
            services. We are working with Mediakabel to develop and introduce a
            range of enhanced television services, including video-on-demand and
            interactive television. We expect our interactive television
            offering to include services such as interactive games, home
            shopping, e-mail by television and interactive advertising.

      o     E-commerce. We are developing e-commerce services to be offered via
            computer and television through our planned interactive television
            offering. Our e-commerce offering is intended to be an extensive
            shop window, enabling subscribers to purchase products and services
            on-line from a broad range of vendors, both inside and outside of
            the Netherlands. In addition, subscribers will be able to purchase
            additional Multikabel services on-line via our e-commerce offering.
            We are currently developing the technical capability to offer these
            services and are recruiting potential vendors to make their products
            available via our offering. We expect to enter into revenue sharing
            arrangements with participating vendors. We expect to offer
            e-commerce to our subscribers over the next two years.

      o     Telephony services. We have been providing cable telephony services
            on a pilot basis to approximately 100 subscribers in the Den Helder
            municipality since 1996. Our pilot offering includes local, long
            distance and international telephony services. We intend to offer
            full-scale telephony services to our subscribers over the next three
            years. We expect our telephony offering will include the basic
            service included in our pilot offering, and may also include other
            enhanced services such as voice mail, caller identification, call
            waiting, call barring, call diversion and three-way calling. We will
            evaluate both a cable telephony platform and a voice-over-IP
            platform, and decide between these alternative platforms based on
            the costs to us of developing the platforms, the technical
            capabilities of each, and the demands of our subscribers.

      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 governmental authorities. In
addition, we conduct direct sales at the individual subscriber level via
telesales and door-to-door sales. We employ sales representatives both directly
and as agents, some of which are 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 24-hours per day, six days per week 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.

      Members of our broadband group focus on product development, marketing and
sales of our broadband service offering. Marketing efforts undertaken by this
group in the Leipzig region primarily focus on the following:

      o     Direct marketing. Typical initiatives include sending advertising
            materials with monthly bills to existing analog subscribers, other
            direct mail advertising and direct telemarketing campaigns.

      o     Advertising. We have used limited advertising campaigns in local
            newspapers and magazines to promote our broadband service offering.


                                       27
<PAGE>   30

      The Netherlands

      Members of our sales and marketing staff focus on a specific product
offering, such as our analog television offering, our digital offering provided
in cooperation with Mediakabel, our data communications product, or our
Kennisnet offering. This group works with product development and technical
staff to continually improve the key features of our product offering and to
determine pricing strategies. Sales and marketing of the Sonera Internet product
is coordinated primarily by Sonera in cooperation with us. Sales and marketing
of our digital services is managed by us in cooperation with Mediakabel. Our
marketing program includes the following primary features:

      o     MultiMedia magazine: This quarterly publication is provided to all
            subscribers and contains general news about Multikabel and about new
            product offerings. New subscribers also receive a welcome package
            outlining the full range of products available to subscribers.

      o     MultiView channel: This television channel is included in all our
            channel offerings and broadcasts the full range of products
            available to our subscribers at all times.

      o     MultiMedia website: Our corporate website also outlines our product
            offering, and we ultimately intend to enable our subscribers to
            purchase our products on-line.

      o     Direct mail and advertising: We have conducted targeted direct mail
            and advertising campaigns specifically promoting our digital
            television offering and our data communications product.

      Our customer call center is open during regular business hours five days
per week to assist subscribers with routine inquiries such as new services and
billing-related inquiries. In addition, our customer call center cooperates with
local utilities to offer 24-hour assistance with service interruptions. We
employ a team of full-time service technicians, and also contract with
third-party technicians. New subscription calls for digital services are
currently referred to a Mediakabel call center, but we intend to enable our call
center to handle requests for new digital services during the remainder of 2001.
Ultimately, we expect that our call center will be able to make outgoing
telemarketing calls for digital services and to cross-sell digital services. All
requests related to the Sonera Internet offering, other than certain
service-related inquiries, are referred to Sonera's call center. Our billing
function is largely outsourced to third-party providers, and most billing
inquiries are handled directly by, or referred to, these providers, namely the
local utilities, Mediakabel, and Sonera.

      Material contracts

      Germany

      Copyright royalties for television programming transmitted over our CATV
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 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,


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<PAGE>   31

but not, however, if it is received via Deutsche Telekom signal delivery points,
in which case GEMA considers the license fees payable by Deutsche Telekom to
cover all retransmission.

      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. 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.

      We are not a member of ANGA and are in the process of negotiating a
contract with GEMA regarding the payment of royalties for retransmission of
programming. Starting in January 2000, we initiated a rate increase to cover the
possible imposition of GEMA fees and began accruing for what we believe are
appropriate royalty fees we may have to pay to GEMA. Our ability to recover any
retroactive copyright royalty fee from subscribers cannot be assured because we
may be unable to pass on copyright royalties assessed for past periods. We do
not believe any retroactive payment of copyright royalty fees will be material.

      We have been informed that for a number of years Deutsche Telekom has been
paying copyright royalties to GEMA for the retransmission of terrestrial
broadcasting. Deutsche Telekom has advised us that it believes payment of this
royalty permits Deutsche Telekom to allow private cable system operators
connected to Deutsche Telekom signal delivery points to retransmit terrestrial
broadcasting on level 4 networks. Deutsche Telekom has indemnified us in certain
instances against claims by the German copyright collecting societies for
copyright royalties for level 4 network retransmission. The copyright royalty
paid by Deutsche Telekom does not, however, cover retransmission of programming
on level 2 and level 3 networks. The signal delivery contracts between us and
Deutsche Telekom with respect to level 3 networks expressly provide that we will
indemnify Deutsche Telekom in case of claims against Deutsche Telekom for breach
of retransmission rights by us.

      Signal delivery payments to Deutsche Telekom and private cable operators
for television programming transmitted over our CATV networks

      For our level 3 networks and level 4 networks, we entered into signal
delivery contracts with Deutsche Telekom to receive programming signal for
delivery to our subscribers prior to Deutsche Telekom's sale of some of its
networks. Where Deutsche Telekom has retained its network it remains our
contract partner but where it has sold networks, private cable operators have
assumed the obligations of Deutsche Telekom 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, 2000, approximately
61.2% of our television subscribers are served by level 3 and level 4 networks,
which receive programming pursuant to signal delivery contracts. In the city of
Plauen, which historically had a level 3 network, we consolidated the Deutsche
Telekom connection points, installed a head-end, and cancelled our Deutsche
Telekom contract. In Leipzig, also historically a level 3 network, we
consolidated Deutsche Telekom connection points, upgraded the network,
constructed a head-end and cancelled the existing Deutsche Telekom contract. The
Plauen network is now considered a level 2 network and the upgraded portion of
the network in Leipzig and portions of the Sachsen, Sachsen-Anhalt and Thuringen
region, is now considered a broadband network. We intend to continue to
consolidate connection points and insert head-ends to reduce signed delivery
fees paid to Deutsche Telekom and private cable operators.

      The terms of our signal delivery contracts vary. Most signal delivery
contracts are for a fixed period, usually 10 to 12 years, and are subject to
negotiated renewal. We typically pay Deutsche Telekom or the private cable
operator 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 an
escalation of fees during the first three to five years (Bauzeitenregelung) to
ease our initial network development costs. The escalation clauses in the vast
majority of these contracts have been triggered. Rate increases by Deutsche
Telekom or private cable operators permitted under the fee escalation clauses in
a number of these signal delivery


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<PAGE>   32

contracts could result in an increase in the aggregate amount of signal delivery
fees we pay to Deutsche Telekom and private cable operators. Historically, we
have been able to increase the monthly subscription rates paid by our
subscribers following increases in signal delivery fees by Deutsche Telekom or
private cable operators. The risks we face with respect to our signal delivery
contracts are set forth in "Item 3.D. Risk Factors - Risks associated with our
business - Potential programming signal delivery and copyright charges may lead
to decreases in our operating margins and cash flows of our German operations."
We expect that the additional costs associated with these fee increases will be
reduced as a result of our anticipated reduced reliance on these agreements.

      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. Most of our agreements
provide for the payment of a fixed fee per subscriber per month. One of our
agreements provides for a monthly payment of 50% 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 (1) less than
30% of our subscribers are interested in subscribing, (2) research conducted by
us results in a finding that the delivery of the channel does not meet market
expectations, (3) the content of the channel violates the statutory requirements
of the territory, or (4) 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.

      Contract for pay-per-view movies, sports and other events

      We have entered into contracts with program providers including Atlas Film
& Medien GmbH & Co. KG, ZDF Enterprises GmbH, TeleMunchen Fernseh GmbH & Co.,
Telepool Europaisches Fernsehprogrammkontor GmbH, Advanced Licencing GmbH,
Helkon Media AG, Kinowelt Lizenzverwertungs GmbH, Prokino FilmverIeih GmbH and
Troma Entertainment Inc. for the pay-per-view movies, and other events we offer
our subscribers. We are also in contact and negotiations with the major U.S.
studios, such as UIP, Warner Brothers and others. These contracts are generally
for shorter periods or for specific events and have standard terms. Most of our
agreements provide for the payment of a minimum guaranteed fee per program and a
revenue share arrangement, which means a split of the revenues we generate from
subscribers for all transmissions during the license period.

      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 purchased 50,000 set-top
boxes at (euro)274 per unit from Galaxis. Orders for additional set-top boxes
will be governed by this agreement. This agreement may be terminated by either
party in the event of an uncured material breach by the other party. PrimaCom
may terminate the agreement upon Galaxis' delivery of defective set-top boxes or
if the services and products delivered by Galaxis do not meet PrimaCom's
specifications.

      Concession agreements with our subscribers

      In order to be able to provide service to our subscribers, we have entered
into long-term 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


                                       30
<PAGE>   33

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.

      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, 2000, 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.

      We are party to a number of concession agreements with
Wohnungsbaugesellschaft Magdeburg GmbH, or WoBau, most of which were entered
into by Funkmechanik Magdeburg GmbH, which we acquired in 1999, and by Antennen
Lindemann, which we acquired in 1996. Of these concession agreements, the larger
part, covering approximately 25,750 subscribers, will expire in 2001 and the
remaining concession agreements with WoBau, covering approximately 5,000
subscribers, will expire between 2002 and 2006. We have been notified by WoBau
that it will not extend or renew these agreements with us. If we do not succeed
in negotiating a renewal of these agreements or in protecting our interest by
way of litigation, we may not be able to deliver CATV services to 25,750 of our
subscribers in Magdeburg after January 1, 2002 and to another 5,000 subscribers
after various dates between 2002 and 2006.

      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 certain 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.

      The Netherlands

      Analog programming

      We are not currently required to pay programming fees for the channels
included in our basic and standard analog packages, except for Discovery 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.

      The agreement with Discovery was entered into on January 1, 1998 and has
been automatically extended annually since then. The agreement will extend until
January 1, 2002, subject to earlier termination with three months' notice. The
agreement with Eurosport is valid until January 2003, and provides for the
payment of a fixed fee per subscriber.


                                       31
<PAGE>   34

      Digital programming

      In March 2000, Multikabel acquired a 15.71% share in Mediakabel B.V., a
joint venture established by a group of Dutch CATV 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
joint venture, in exchange for which each member of the joint venture, 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 agreement with Mediakabel does not provide us
with programming contracts for our digital television offering.

      We have entered into agreements with a number of program providers for our
digital television offering. These agreements are standard and provide for the
payment of a fixed fee per subscriber per month. Most of our agreements, with
the exception of our agreement for the Cinenova channel described 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 channel. The agreement provides for
payment by us of a fixed fee for 50,000 subscribers which will increase to cover
all of our subscribers in the Netherlands by October 31, 2003, regardless of the
actual number of our subscribers which are purchasing the Cinenova channel. This
agreement has a term of seven years unless earlier terminated or extended.
Either party may terminate the agreement if six months prior to the end of the
fifth year, the Cinenova channel does not have at least 100,000 subscribers. 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 written notice, upon receipt of which we will enter into good faith
negotiations to reduce the participation levels for the remaining years under
the agreement.

      Pay-per-view programming

      With respect to films, we have entered into agreements with DreamWorks
International Distribution LLC, Twentieth Century Fox Telecommunications
International, Inc., Warner Bros. International Television Distribution,
Monarchy Enterprises B.V., CPT Holdings, Inc and Universal Studios International
B.V. The agreements have terms ranging from three months to three years. With
respect to sports and entertainment events, we have entered into agreements with
HBO, 3DD Entertainment, The Big Events Company and Holland Media Group. We also
expect to enter negotiations for obtaining seasonal sporting event rights, such
as football, boxing and auto racing for our subscribers.

      Internet services

      Until July 1999, we operated an Internet service provider to provide
Internet access services to our Internet subscribers. On July 9, 1999, we sold
MultiWeb, our Internet service provider, to Sonera and entered into a
distribution agreement with Sonera, under which our Internet subscribers obtain
Internet access. Pursuant to our agreement with Sonera, which terminates on
December 31, 2003, we receive fees from Sonera in exchange for provision of
their services over our network. In 2000, we received approximately
(euro)802,000 from Sonera. We have granted Sonera the exclusive right to provide
services over our network until July 2001.

      Contracts relating to the network

      We have retained City Com B.V. to design, implement, deliver and install a
management system, using switching multitaps, modems and related equipment for
our interconnected cable networks. This management system enables us to remotely
manage our entire cable television network in the Netherlands. This turnkey
order was delivered in May 2000 with the exception of one portion which is
expected to be completed in April 2001. In addition, we purchased a synchronous
digital hierarchy network from Lucent in 2000.


                                       32
<PAGE>   35

      In December 1999, we entered into a Cablelink Agreement with KPN Telecom
B.V. or KPN, effective as of July 1, 1999. Pursuant to this agreement, KPN
provides us with various channels and radio frequencies, which we, in turn,
provide to other networks and our subscribers. This agreement will terminate on
July 1, 2002.

      Transfer and operating agreements

      We, along with N.V. Nutsbedrijf Haarlemmermeer, entered into certain
transfer and operating agreements with 43 municipalities whereby we both own and
operate the central antennae installations located on land owned by the
municipalities. Many of these agreements are standard and will expire in 2003.

      Competition in Germany and the Netherlands

      The cable television and broadband businesses within Germany and the
Netherlands are highly competitive. We compete for subscribers and for
acquisitions of cable networks.

      Competition for subscribers

      Competition for subscribers comes from:

      o     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, satellite
            direct-to-home, or DTH (which can be both analog, or A-DTH, and
            digital, or D-DTH), and satellite master antenna television, also
            known as SMATV systems, and

      o     providers of different products and services in those areas where we
            operate our broadband networks including, Premiere in Germany and
            UPC, Essent and Cassema in the Netherlands which offer other digital
            television services, providers of other methods of high-speed
            Internet access and Deutsche Telekom in Germany and KPN in the
            Netherlands which offer telephony services.

      In both Germany and the Netherlands, 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. 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 addition, in the Netherlands we face competition from providers of
terrestrial digital television.

      A-DTH satellite users obtain programming from one of a number of different
satellites, including Astra and Eutelsat, in both Germany and the Netherlands.
In order to receive A-DTH 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. A-DTH
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 believe that A-DTH satellite-delivered
services will continue to provide significant competition in the future.
However, we believe cable television has a number of competitive advantages over
A-DTH satellite-delivered services for the following reasons:

      o     Cable television does not involve an up-front cost for the purchase
            of a dish and related equipment required for A-DTH.

      o     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.

      o     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 A-DTH reception dishes to receive


                                       33
<PAGE>   36

            programming from multiple satellites at any given time or to switch
            to a further satellite without being realigned by a technician.

      o     Cable service operators generally provide a local presence and
            service to their subscribers.

      o     Consumers have expressed concerns as to the level of fees that they
            will be required to pay to providers of A-DTH satellite-delivered
            programming if and when DTH satellite signal is encrypted.

      o     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, should A-DTH satellite signal be encrypted, we would
benefit from an increase in the number of subscribers as former A-DTH users seek
alternative sources of television programming. We believe that A-DTH
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
and the Netherlands, 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 A-DTH or
D-DTH even if digital compression technology is implemented in the satellite
services.

      In addition, we face competition from D-DTH satellite-delivered services.
In the Netherlands, licenses have been awarded for DTH television, which will
compete with our digital television offering. During the last two years,
Premiere has commenced D-DTH operations in the German market. We believe that
D-DTH has not achieved meaningful penetration of the German market. However,
Premiere has substantial financial resources and exclusive programming and
sports contracts. Therefore, we believe that additional penetration will be
achieved by Premiere and will frequently represent a loss of subscribers to
cable network operators in Germany, including subscribers to our networks. The
introduction of our digital television and pay-per-view services will compete
directly with Premiere. In the Netherlands, D-DTH operations currently exist on
an even smaller scale than in Germany.

      Cable television networks also face competition from SMATV 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 earlier this year, 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 analog and digital packages via
Deutsche Telekom's cable television network and direct-to-home via satellite. We
believe Premiere has a current market share of approximately 4% of the
television homes in Germany. In the Netherlands, UPC, our largest shareholder,
is the largest broadband operator, followed by Essent and Casema. We believe
that these three operators account for approximately 80% of the Dutch cable
market.

      Once we launch our voice-over-IP platform, we will compete with several
other providers of local telephony service, including Deutsche Telekom's fixed
line network in Germany and KPN's fixed line network in the Netherlands. We will
also be competing with several wireless telephony services, many of which have
financial resources substantially in excess of ours.

      With respect to high-speed Internet access, we compete with other access
mechanisms, such as ADSL lines, standard dial-up services and dial-up services
over ISDN. We believe high-speed Internet access over broadband networks has
several competitive advantages over these alternative Internet service access
mechanisms, including convenience, speed of access, and price. Our Internet
service requires no dial-up time because the subscriber is always on-line,
twenty-four hours a day. We believe Internet access over broadband networks can
be


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<PAGE>   37

10 to 15 times faster than access over ISDN. Finally, our product is priced on a
flat fee basis with no additional charges for usage. From a pricing standpoint,
we believe our product becomes particularly attractive, compared to most other
alternative access mechanisms, to subscribers who use the service for more than
20 hours in a month. We do not believe that we actively compete with larger,
more well established Internet service providers such as T-Online (Deutsche
Telekom's Internet service provider), AOL Europe in Germany, KPN, Chello
Broadband NV and World Online in the Netherlands.

      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 is impossible to predict.

      Competition for acquisition of cable networks

      The cable television industry in Germany is in the process of undergoing
consolidation. We encounter competition for the acquisition of cable networks
from both existing cable television operators and financial investors. Many of
these competitors or potential competitors, including the cable operations of
Deutsche Telekom, Bosch, TeleColumbus, EWT/tss and UPC, our largest shareholder,
in Germany, and in the Netherlands, UPC, Essent, and Casema. In addition, in
Germany, we may face competition from Klesch & Company Limited and Liberty Media
if these entities acquire network assets from Deutsche Telekom in the Sachsen,
Sachsen-Anhalt and Thuringen region, where we have operations, and from UPC, our
largest shareholder, if that entity acquires network assets from Deutsche
Telekom in the Rheinland region, where we also have operations. If any of the
existing or potential competitors significantly expand their acquisition
activities, our ability to continue implementing our acquisition strategy may be
materially affected.

      Litigation

      We may from time to time be involved in litigation incidental to the
conduct of our business. We are not a party to any lawsuit or legal proceeding
that, in the opinion of management, is likely to have a material adverse effect
on our business and financial condition.

      Litigation relating to operations of Suweda prior to merger

      As a result of the merger between KabelMedia and Suweda in December 1998,
we succeeded to certain litigation against Suweda or its affiliates. In order to
allocate the risks related to this litigation, KabelMedia and Wolfgang and
Ludwig Preuss, two major shareholders of Suweda, entered into an indemnity
agreement under which Wolfgang and Ludwig Preuss, jointly and severally, agreed
to indemnify KabelMedia, us and our successors, until November 20, 2003, from
any claim and damages arising out of or in connection with civil or criminal
litigation or proceedings arising out of events relating to Suweda prior to our
merger with it, whether brought against us or our affiliates, our officers or
former officers, or KabelMedia (our predecessor) in its capacity as Suweda's
successor, including certain ongoing litigation.

      All litigation risks vis-a-vis manufacturers or users arising from the
planning, manufacturing, operation and distribution of broadband cable networks,
and all litigation risks arising in the ordinary course of business and which do
not exceed approximately (euro)13,000 individually or approximately
(euro)511,000 in the aggregate, are excluded from this indemnification. In the
event the total claims exceed (euro)511,000, the liability under the indemnity
agreement will be limited to the amount of such excess. We have the right to
manage any litigation but Wolfgang and Ludwig Preuss have the right to object to
the settlement of any claim. The agreement provides that any dispute between us
and Wolfgang and Ludwig Preuss regarding such settlement will be determined by
an independent lawyer.

      There is currently one ongoing civil proceeding covered by the indemnity
agreement. This litigation was instituted by the East German Privatization
Agency (Bundesanstalt fur Vereinigungsbedingte Sonderaufgaben, or BVS) against
Suweda and arose from Suweda's purchase of Brandenburgische Bau AG, or BBAG. BVS
sued


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<PAGE>   38

Suweda for payment of (euro)7,465,000 for breach of contract. BVS alleged that
Suweda, by reducing the workforce of BBAG, had acted in breach of contract. The
district court in Berlin dismissed the claim for payment. In November 1998, BVS
appealed this decision, reducing its claim to (euro)6,851,000. PrimaCom has
rescinded a settlement which was reached at a first court hearing on November 1,
2000, pursuant to which PrimaCom would have had to pay (euro)3,553,000 to BVS.
The superior court of Berlin has scheduled the next hearing for June 2001. There
is a risk that BVS will increase its claim to the original amount.

      Litigation with housing associations

      During 1998, GGG in Chemnitz, a housing association which is party to a
concession agreement with us, brought a civil action seeking to limit our
ability to increase the subscriber fees charged by us to tenants of the housing
association without the prior consent of the housing association. The housing
association's claim was based on a clause in the concession agreement which GGG
contended makes increases in subscriber fees subject to the consent of the
housing association. Subsequently, Chemnitzer Siedlungsgemeinschaft e.G.,
another housing association in Chemnitz which is party to a concession agreement
with us containing a similar clause, joined this civil action on the plaintiffs
side. We serve 30,000 and 4,000 subscribers under these concession agreements.

      In October 1998, the court of first instance hearing the claim against us
in Chemnitz held in favor of GGG. We appealed the decision of the Chemnitz court
to the superior court (Oberlandesgericht) in Dresden. In these appeal
proceedings, in addition to Chemnitzer Siedlungsgemeinschaft e.G., two more
housing associations, Wohnungsbaugenossenschaft Chemnitz-Helbersdorf e.G,
through which we serve 128 subscribers, and Helbersdorfer Tor Wohnungs- und
Vetriebs und Verwaltungs GmbH & Co. KG, through which we serve 24 subscribers,
also joined this civil action on GGG's side. The superior court in Dresden
dismissed our appeal. We then appealed this judgment to the federal civil court
(Bundesgerichtshof) in the spring of 1999. Even though we believe that
eventually we will prevail in these proceedings, we have not recognized the
revenue associated with the rate increase in question since January 1, 1999. The
grounds of appeal filed with the federal civil court are focused on legal issues
related to German competition law. The court hearing before the federal civil
court was scheduled for March 6, 2001 and on that date the federal civil court
held that the decision of the superior court in Dresden is reversed and the
action brought against us before the Chemnitz courts was dismissed. We are
awaiting the opinion of the federal civil court in this case before ascertaining
the impact of this decision on our business.

      In December 1998, GGG gave notice of termination of the concession
agreement with effect from December 31, 1999, approximately 12 years prior to
the end of its term. The bases asserted for this early termination were an
alleged breach of the concession agreement when we increased prices without the
consent of GGG, as well as the action which was the subject matter of the
lawsuit now pending before the federal civil court referred to above; and an
allegation that because the concession agreement contains standard
non-negotiated terms and the duration of the contract is 20 years, it is
terminable at any time by either party. We rejected the early termination and
GGG sought judicial confirmation of the early termination, filing another civil
action against us to this end with the regional court (Landgericht) in Chemnitz.
On January 17, 2000, this court dismissed the action. It acknowledged our
substantial investments in Chemnitz and further ruled that in considering the
duration of a concession agreement as imposing hardship on the house owner, the
period which is required for building the cable network must not be taken into
account, and hence confirmed our long-term contract concluded with GGG. It also
ruled that irrespective of whether consent by the GGG Housing Association was
required, increase in our fees did not constitute sufficient grounds for early
termination of the contract. In February 2000, GGG appealed the decision to the
superior court in Dresden. The regional court has stayed the proceedings until
the federal civil court has rendered its decision in the case now pending before
that court, referred to in the previous paragraph. We believe that we will
eventually prevail in this matter.

      In October 1999, Wohnungsbaugenossenschaft Wendenschloss e.G., through
which we serve 1,365 subscribers, has applied to the regional court
(Landgericht) in Berlin for a judgment permitting the early termination of its
concession agreement. The court has held that the concession agreement is
terminable after 12 years. We have appealed the decision to the court of appeal
(Kammergericht) in Berlin and a hearing has been scheduled for July 2, 2002.


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<PAGE>   39

      Programming litigation with housing authorities and with program providers

      In early September 2000, we, through our subsidiary PrimaCom Region
Leipzig GmbH & Co KG, conducted a test launch of our digital television product
in Leipzig and chose the premises of Wohnungsbaugenossenschaft Leipzig e.G., a
local housing association in Leipzig, as a test area. On October 18, 2000, the
district court in Leipzig issued an injunction on application of
Wohnungsbaugenossenschaft Leipzig e.G., which precluded us from (1) reducing our
previous offering of analog television channels and (2) offering digital
television to subscribers on the premises of Wohnungsbaugenossenschaft Leipzig
e.G. The court held that we had violated the terms of the concession agreement
by reducing our analog television offering and by introducing digital television
without obtaining the prior approval of the housing association. After the
injunction was issued, we restored our analog television offering and entered
into negotiations with Wohnungsbaugenossenschaft Leipzig e.G. in an effort to
jointly revise the concession agreement to allow for the introduction of digital
television in premises owned by the housing association. We have also appealed
the decision of the district court to the superior court (Oberlandesgericht) in
Dresden and a first hearing has been scheduled for April 5, 2001.

      In November and December 2000, several German program providers (Kabel 1,
SAT 1, Pro 7, DSF, tm 3, N 24, RTL 2, Super RTL, and Vox) obtained injunctions
from the district court in Leipzig precluding us from carrying the programs
provided by Kabel 1, Pro 7, DSF, tm 3, N 24 on our cable networks solely in
digital format, and from carrying programs provided by RTL2, Super RTL and Vox
in digital format in return for the payment of subscriber fees without the
consent of these program providers. We have restored our analog television
offering and are validly operating under the injunctions. We commenced
negotiations with these programmers and reached an agreement with RTL 2, Super
RTL and Vox on February 1, 2001, and with tm 3 on February 23, 2001. Both
agreements provide that we will continue to carry the programs of RTL and tm 3
in analog and digital format and we will neither pay nor receive payment for
this programming. The agreements further provide that we will work with the
other parties toward a definitive programming agreement and that in the event
any fees are to be paid under that agreement, the payment will be retroactive to
January 1, 2001. We are also engaged in negotiations with Kabel 1, Pro 7, DSF
and N24, which are all seeking judicial confirmation to prevent us from offering
their programs in either analog and digital formatting. The first court hearing
for DSF was on February 27, 2001. The district court in Leipzig will announce
its decision on March 30, 2001. We believe that we may lose these proceedings
and be prohibited from broadcasting the DSF channel in digital format. We plan
to appeal any adverse decision in this matter.

      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.

      European Union

      Austria, the Netherlands, Belgium, France, Sweden, Denmark, Finland, the
United Kingdom and Italy are all member states of the European Union. As such,
these countries are required to enact national legislation which implements
directives issued by the EU Commission and other EU bodies. In recent years, the
European Union has led the liberalization of the telecommunications and
television services sectors, which includes the use of cable networks to provide
public voice telephone and other telecommunications services, in EU member
states. As a result, the markets in which we operate have been significantly
affected by regulation initiated at the EU level. As it develops, such EU
regulation will continue to have a significant effect on these markets,
including future developments relating to the convergence of telecommunications,
media and information technology.

      In 1999, the EU Commission reviewed the consequences of this convergence
for the regulatory environment and the effects of the liberalization on the
telecommunications markets of the member states. This


                                       37
<PAGE>   40

review is expected to result in changes of the current regulatory framework. The
current regulatory framework and the expected changes are described in more
detail below.

      In November 1999, the European Union released the 1999 Communications
Report proposing new policies for telecommunications regulation and requested
comments on its proposals. In July 2000, the Commission submitted a package of
specific legislative proposals to drive forward the liberalization of, and to
strengthen the competition in, the electronic communications markets in the
European Union. The package puts particular emphasis on the stimulation of
affordable high-speed Internet access and providing a light-touch legal
framework for market players. The package of proposals represents a
comprehensive reform of the regulatory framework for telecommunications in
Europe. The proposed regulatory framework would attempt to decrease national
variations in regulations and licensing systems and further increase market
competition. These policies would seek to harmonize licensing procedures, reduce
administrative fees, ease access and interconnection, and reduce the regulatory
burden for telecommunications companies. The European Union is proposing that
electronic communications networks and services be subject to general
authorizations.

      The proposed new directive on a common regulatory framework for electronic
communication, known as the new Framework Directive, would introduce a
harmonized regulatory framework for all electronic communications networks and
services. Electronic communications networks are defined as transmission systems
and, where applicable, switching or routing equipment and other resources which
permit the conveyance of signal by wire, by radio, by optical or by other
electromagnetic means; and electronic communications services are defined as
services provided for remuneration which consist wholly or mainly in the
transmission and routing of signal on electronic communications networks.
Therefore, cable TV networks and services would also qualify as electronic
communications networks and services and fall under the scope of the new
directives. Of particular relevance are the proposed Framework Directive's
criteria for determining whether or not operators have significant market power.
Pursuant to the new Framework Directive, a company would be deemed to have
significant market power if, either individually or jointly with others, it
enjoys a position of economic strength affording it the power to behave to an
appreciable extent independently of competitors and subscribers and ultimately
consumers. Many elements of this provision are unclear. However, if this
directive is adopted and implemented, it could have a significant effect on our
business because we could also be deemed to have significant market power and,
thus, be subject to special obligations to be imposed by the respective national
regulatory authority.

      Video services

      o Video services through telecommunications networks. Most of our
operating companies are the only cable television operators in their franchise
areas. As with the telecommunications sector, the cost of building a network to
provide 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 incumbent
telecommunications operator is testing whether it will be able to provide
television services through its fixed networks.

      o 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 anticipated to be carried forward in
the new Interconnection Directive.

      o 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


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<PAGE>   41

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 certain minimum
rules and standards, although member states may set more detailed and stricter
rules for certain 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
certain 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.

      We believe that the Television Without Frontiers Directive will apply to
the broadcasting of these joint-venture channels to such operating companies so
that one broadcasting license within an EC member state will permit us to
broadcast such channels to cable operators throughout the European Union. Where
the joint venture partner is already a licensed broadcaster within the European
Union, we believe the joint venture activities may fall within the scope of our
partner's broadcast license, and that the joint venture could operate under the
terms and conditions of that license. We plan to enter into joint venture
agreements with programming providers in order to launch eight new channels,
which we intend to broadcast to our operating companies and other cable
television operators for distribution through their networks. We also plan to
apply for a broadcasting license in a EU country to accommodate joint ventures
with those partners that do not have a broadcast license in a member state of
the European Union or channels created without a partner. We are currently in
discussions with the regulatory authorities in the Netherlands and plan to
obtain a broadcasting license in the Netherlands.

      Another major EU Commission Directive for broadcasting, Directive on
Satellite Transmission and Cable Retransmission of September 1993, requires
member states to permit a satellite broadcaster to obtain the necessary
copyright license for its programs in just one country (generally, the country
in which the broadcaster is established), rather than obtaining copyright
licenses in each country in which the broadcast is received.

      In addition to national laws which implement the EU directives on
broadcasting described in this section, various other types of national
broadcasting regulations apply to our business. Over-the-air, terrestrial
television and radio broadcasters operate pursuant to licenses granted by
national or local regulatory authorities allowing use of certain radio
frequencies in a specified geographic area, generally for a limited duration
which can be renewed. Broadcasters operate subject to various regulatory
conditions such as limitations on advertising, program content and ownership.

      Regulation of the Internet and e-commerce

      In June 2000, the European Parliament and Council adopted a directive on
certain legal aspects of information society services, in particular
electronic-commerce, written 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 in the Internal Market. To achieve this
purpose, the E-Commerce Directive contains provisions regarding jurisdictional
matters, authorization of information society services, the scope of information
to be


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<PAGE>   42

provided within the framework of information society services, 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, there are so many
exceptions to the rule of the home country that, effectively, we must continue
to invest in examining and complying 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 certain 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 transmit. Except for the directive on e-commerce, no other
Internet-specific regulations have been issued.

      Telephone and Internet/data services

      o Liberalization of telecommunications services and infrastructure. A
central aim of the liberalization process has been to reduce the monopoly power
of the incumbent telecommunications operators in order to introduce competition
in the European telecommunications market. Liberalization measures have been
adopted under the EU Treaty's competition rules and harmonization measures have
been put in place through the adoption of Open Network Provision directives, or
ONP. ONP includes the principle that public telecommunications networks have to
be made accessible on the basis of objective, transparent, public and
nondiscriminatory conditions. The ONP framework applies to providers of public
telecommunications networks or services having significant market power in the
relevant market. At the moment the ONP principles do not apply to television
networks or services. Any future application of ONP principles to television
networks or services could have a material effect on our business. Following the
EU 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, and the lack of an alternative infrastructure to provide such
liberalized services operated as a major barrier to entry into the market by
competitors. In an effort to overcome this barrier, 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 telephone 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 EU Commission issued the Full Competition
Directive, which required the European Community member states to remove all
remaining exclusive rights over public voice telephone and public
telecommunications networks of incumbent public voice telephone operators by
January 1, 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 (euro)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 TV operations applies to companies which
are, pursuant to the German Competition Act, in a dominant position on either or
both of the telecommunications and the cable TV market. Unlike the EU Directive,
this requirement applies independent from the level of revenues generated on
these markets. As we are likely to qualify as a market player having a dominant
position on various German cable TV markets, in Germany, we will be required to
separate our accounting system into subsystems for each of the cable TV
operations and other telecommunications operations. The German regulatory
authority may impose


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<PAGE>   43

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 June 1999, the EU Commission adopted a directive amending the Services
Directive requiring member states to enact legislation directing certain
telecommunications operators to separate their cable television and
telecommunications operations into distinct legal entities. This directive is
intended to aid the development of the cable television sector and to encourage
competition and innovation in local telecommunications and high-speed Internet
access. The directive includes competition safeguards to deter anticompetitive
cross-subsidies or discrimination by incumbent telecommunications operators as
they enter into cable television or broadband services.

      o Universal service obligation. The concept of universal services was
introduced by various EU Council Resolutions from 1992 onwards. Universal
service obligations were set forth in the Voice Telephony Directive in 1999 and
the Interconnection Directive in 1997. Currently, the universal service
obligation includes only voice telephone and related services including
directory and inquiry services. Following the 1999 Communications Review, a new
directive on universal service and user's rights relating to electronic
communications networks, or the new Universal Service Directive, has been
proposed. Pursuant to the new Universal Service Directive, the scope of
universal services would also include access to data communications such as the
Internet via the public telephone network. Given our involvement in the data
communication and especially the Internet business, if this new directive is
adopted and implemented, it could have a significant effect on our business.

      o 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 obligations for telecommunications operators to interconnect
with their networks. The directive requires member states to impose obligations
on public telecommunications network operators to negotiate interconnection
agreements on a non-discriminatory basis. Public telecommunications network
operators with significant market power (which, although it may vary, is
presumed when an operator has 25% or more of the relevant market) are subject to
additional obligations. They must offer interconnection without discriminating
between operators that offer similar services, and their interconnection charges
must follow the principles of transparency and be based on the actual cost of
providing the interconnection. The directive also contains provisions
portability with certain exceptions, supplementary charges to contribute to the
costs of universal service obligations and other interconnection standards. As a
result, if the principles in the directive are fully applied, 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.

      As a result of the 1999 Communications Review, a new directive on access
to, and interconnection of, electronic communications networks and associated
facilities, or the new Access and Interconnection Directive, is expected to be
adopted, replacing the 1997 Directive on Interconnection in Telecommunications.
The new Access and Interconnection Directive would apply to all forms of
communications networks, including cable TV networks. This means that, if this
new directive is adopted and implemented, we would 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. Pursuant to the
new Access and Interconnection Directive, the basic principle of giving priority
to full commercial negotiations will remain the same and rules would be set
forth regulating regulatory intervention to impose obligations.

      o Licensing. EU telecommunications policy has also aimed to harmonize the
licensing requirements for the provision of public telecommunications services.
As a result of the Licensing Directive, 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


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procedures must be objective, transparent and non-discriminatory. Member states
may issue individual licenses in certain situations. For example, the provision
of public voice telephone 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 25% of the relevant market. License fees can only include
administrative costs except in the case of scarce resources where additional
fees are allowed.

      Based on the 1999 Communications Review, a new directive on the
authorization of electronic communications networks and services, or the new
Authorization Directive, is expected to be adopted. The Commission intends to
further harmonize and to streamline the licensing process. Pursuant to the new
Authorization Directive, if adopted and implemented by the member states, the
licensing of the establishment of electronic communications networks and the
provision of electronic communications networks and services, i.e., cable TV
networks and services, would become simpler, more transparent and less expensive
and individual licenses would be required only in connection with the assignment
of radio frequencies and numbers. The new Authorization Directive would replace
the Licensing Directive.

      Germany

      Cable television licenses

      The German Telecommunications Act came into force on August 1, 1996. The
purposes of the Act are, by means of regulation in the telecommunications
sector, to foster competition, to ensure adequate services nationwide and to
establish an administration system for bandwidth frequencies. The German
Telecommunications Act ended the network monopoly of Deutsche Telekom. Deutsche
Telekom's network monopoly was previously established in the Telecommunications
Installations Act of 1989. Telecommunications services, including the provision
of transmission capacity, may now be provided by anybody subject to the
requirements established in the German Telecommunications Act. The German
Telecommunications Act sets forth licensing requirements for, amongst other
things 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 four different license
classes:

      o     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),

      o     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),

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

      o     licenses for voice telephony services to the public based on
            self-operated telecommunications networks (license class 4).

      The operation of transmission paths, including two-way transmission paths
with back channel feasibility for the purpose of receipt and distribution of
broadcasting signal, which includes the operation of cable television networks,
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 under the legal provisions
in effect prior to the entry into force of the German


                                       42
<PAGE>   45


Telecommunications Act continue to be authorized and do not need to be licensed
under the German Telecommunications Act. The operation of the in-house network
(level 4) does not require a license.

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

      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-dominating providers and various obligations for all other providers. It
specifies, for example, rules for invoicing, universal service, quality
parameters and limitations of liability. Contractual clauses which limit rights
which subscribers have under the Ordinance are invalid.

      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 commencing, altering or terminating
such services. We comply with those notification obligations.

      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 joint-state
level pursuant to The State Treaty on Broadcasting within 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, public broadcasting
companies are allowed to transmit specific programs via digital technology and
these programs are subject to must carry regulation as long as the aggregate
transmission capacity for these transmissions does not exceed the capacity of
three analog television channels. State laws generally provide that the
simultaneous retransmission of an unchanged and complete cable television
program is not subject to any licensing requirement, but does subject the
operator to an obligation to report the retransmission to the relevant state
media institution.

      Broadcasting activity (which is defined to exclude the simultaneous and
unchanged retransmission of programming), such as the insertion of local
commercials, subjects the cable television 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 the detailed requirements with respect to diversity of opinion,
observation of constitutional principles, child protection professional ethics
and restrictions on advertisement.

      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.


                                       43
<PAGE>   46

Generally, the channel line-up priority has been established as follows: (1)
programs which have been legally prescribed by the state, (2) programs commonly
received within the federal state (i.e., those programs which may otherwise be
received without additional antennae), (3) programs which may be received
locally with the use of additional antennae and (4) all other programs. In
addition, certain state media laws have established priorities for programs
falling within category (4) for programming produced within the European Union.
The EU commission has stated that ranking decisions granting German programs a
higher priority than programs from outside Germany could be discriminatory and
contrary to European law. Although there are no rules that determine which
channels have to be offered in analog or in digital form, media authorities are
concerned that the choice of programs is not unduly restricted by shifting
high-audience analog programs offered without payment into digital programs for
which we charge subscribers. Media authorities can also issue enforcement orders
to compel us to distribute certain channels for free.

      In the past, problems have existed due to the common use of certain
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. Pursuant to this compromise, the air
navigation services have relocated certain of their operating frequencies and
have initiated international coordination of the operating frequencies that are
used at three German airports, Deutsche Telekom has implemented a frequency
offset and the association of private cable operators has requested its members
using extended band channel 24 for systems with their own head-end, and located
in the approach areas of certain German airports to implement a shift in
frequency, or to check and ensure that their systems do not exceed the 20 dBpW
radiation disturbance limit. The concerned parties are currently negotiating
suitable monitoring procedures with respect to this cable and radio
intercompatibility problem. When an agreement is reached it is expected that a
formal amendment to the Frequency Allocation Plan will be adopted by the
Government.

      The German states have signed a State Treaty on new media services, or the
State Treaty on Media Services, which came into force in August 1997,
concurrently with the new Federal Act on the Utilization of Teleservices, or the
Teleservices Act. The State Treaty on Media Services and the Teleservices Act
basically constitute currently effective legislation relevant to setting up and
operating various types of Internet and video-on-demand services. The State
Treaty on Media Services imposes various obligations on providers of media
services. Media services are defined in the State Treaty on Media Services as
information and communication services which are addressed to the general
public, as opposed to teleservices, which 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 directly the sale or lease of objects or services, known as
teleshopping, distribution services in the form of television text, radio text
or similar text services and certain call-services which offer text, sound or
pictures in electronically stored form. Providers of such media services include
persons who offer their own or third-party media services or who provide access
to media services. To the extent that 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, inter alia, rules on
responsibility for content, advertising, data protection and protection of
minors. Similar rules apply for the provision of teleservices under the
applicable Teleservices Act.

      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,
such services. There can be no assurance that legislation will not have a
material adverse effect on such matters in the future.

      Telephony deregulation

      The Telecommunications Act establishes licensing requirements for the
provision of voice telephony services to the public on the basis of own or
third-party operated transmission paths. Regulations governing licenses for
voice telephony services came into effect in January 1998. Should we offer voice
telephony or voice-over-IP services over our networks, we may have to obtain a
class 4 license, depending on how those services are provided.


                                       44
<PAGE>   47

      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.

      The Netherlands

      Telecommunications and media services

      o Regulatory framework. The liberalization of the Dutch telecommunications
and cable television sector has generally proceeded at a quicker pace than
required by the EU directives. The Dutch Telecommunications Act took effect,
with the exception of a few provisions, in December 1998, and further
liberalized these sectors. The Dutch Telecommunications Act governs, among other
things, the installation and operation of public telecommunications networks,
which include cable television networks, and the provision of telecommunications
services, including the provision of telephone and Internet/data services. The
provision of media services through the cable television network, and more
specifically content, is regulated primarily by the Dutch Media Act, as amended,
and the Media Decree. The most important term in the Media Act is Program,
defined as an electronic product containing images or sound, meant to be
broadcasted and designated to be received by the general audience or a part
thereof, excepted data services, services that are only available on individual
demand and other interactive services. Agreements with municipalities and the
competition laws also impose restrictions on cable television operators.

      Under the new Dutch Telecommunications Act, OPTA is charged with
regulation and dispute settlement in relation to the provision of
telecommunications networks and services. An appeal to a decision of OPTA has to
be filed exclusively at the District Court of Rotterdam. Under the media laws,
media service providers are subject to certain content requirements, which are
overseen by the Commissariaat voor de Media.

      o 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. The registration does not
give an operator any exclusive right. Any registered person may install,
maintain and operate a cable network alongside an existing one. The Dutch
Telecommunications Act gives cable network operators and providers of other
public telecommunications networks, under certain conditions and restrictions,
rights of way to install and maintain the network concerned, which are identical
to those previously exclusively enjoyed by KPN, the incumbent telecommunications
operator in the Netherlands.

      o Ownership issues. The Dutch Telecommunications Act provides that the
ownership of cables, that have been installed in public and/or private grounds
and are intended to be used for a public telecommunications network or a CATV
network, is retained by the provider of the public telecommunications network or
CATV network concerned. This provision is necessary, because a general rule
under the Dutch Civil Code would otherwise entail that the cables would, by
accession, become part of the grounds in which they are installed and that their
ownership would fall to the owner of the grounds concerned.

      o 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 programs for television and at least 25 programs for radio, the so
called basic package, including approximately seven television and nine radio
must carry channels. OPTA 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 the financial burden on the provider would be
unreasonably high.


                                       45
<PAGE>   48

      Our Dutch operating companies often purchased their cable television
networks from the local municipalities. Pursuant to the terms of the agreements
with the municipalities, our Dutch operating companies were obligated to
continue to provide basic tier services of between 20 and 30 television
channels, including the 15 required under the media laws.

      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 EU Television without
Frontiers Directive.

      o Program council. Each municipality has to establish a program council,
which is an independent authority and provides the cable network operator with
advice concerning its basic package's 15 television programs and 25 radio
programs. The cable operator is only allowed to deviate from the advice in
certain 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.

      o Monitoring media concentrations. The Dutch government recently assigned
the Dutch Media Authority a monitoring task with regard to, among others, media
concentrations. The Media Authority has to report on an annual basis 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 the Dutch Independent Telecommunications Authority and or the Dutch
Competition Authority to take appropriate measures in this regard.

      o Network access program providers. In August 1999, OPTA and the Dutch
Competition Authority issued joint guidelines for the settlement of network
access disputes between cable network operators and providers of cable
programming. Pursuant to these guidelines, cable network operators are obliged
to charge cost orientated transmission fees to program providers (fees should
reflect the underlying transmission costs but may include a limited return on
assets) and are obligated to provide non-discriminatory access to the cable
network. This implies that third-party program providers must be granted access
to the cable network under the same conditions that cable network operator or
its subsidiaries have access to the network. These guidelines only apply to the
provision of cable television services.

      o 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 the existing cable networks. This implies, when the
proposals are agreed upon, that we would have to offer third parties access to
our networks in the Netherlands. Existing competition regulation and the ONP
regulation will be similarly applied to cable infrastructures.

      o Price regulation. The Media Act authorizes the competent minister to set
maximum price levels for basic tier services. This authority has not, however,
been exercised in the Netherlands.

      Telephone and Internet/data services

      o Regulation framework. Until recently, the fixed telecommunications
infrastructure was a statutory monopoly of KPN. As described above, the Dutch
telecommunications sector has been liberalized in advance of and in accordance
with EU 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.

      o Interconnection. The Dutch Telecommunications Act generally implements
EU telecommunications policy on interconnection.

      o Price regulation. While telephone 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 set forth by OPTA during 1999.
In September 1999, OPTA


                                       46
<PAGE>   49

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 telephone 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.

      In a decision of November 29, 1999, OPTA ruled that the temporary tariffs
(based on KPN's expected costs) that KPN can charge for interconnection for the
period between July 1, 1999 and July 1, 2000, would be higher than the temporary
tariffs that KPN was allowed to charge for the period between July 1, 1998 and
July 1, 1999. The costs for cable companies for interconnection with KPN are
therefore likely to rise. In its decision of December 16, 1999, OPTA ruled that
the temporary interconnection tariffs that it set for the period of July 1, 1998
to July 1, 1999, would not be corrected pursuant to calculations based upon
KPN's actual costs over that period. OPTA has therefore decided to consider
these temporary interconnection tariffs as the definitive tariffs (although on
the basis of the calculation that OPTA made, the tariffs for this period should
be higher, it decided not to allow a raise since that would have a negative
effect on the position of new entrants in the market).

      OPTA has furthermore decided that the provisional interconnection tariffs
determined for the period of July 1, 1999 until July 1, 2000, will continue to
apply after July 1, 2000, until a decision has been made concerning the new cost
allocation method to be used by KPN in calculating its interconnections rates.
In addition OPTA has announced a market consultation on the so-called price
squeeze issue, which concerns the fact that KPN should maintain a reasonable
margin between its wholesale interconnection rates and its retail rates for
fixed voice telephony services.

      o 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.

      E-Commerce

      o Copyright and related rights Directive. The draft EU Directive on
copyright and related rights in the information society and amended proposal of
May 1999, intends to ensure and harmonize a high level of copyright protection
for creators of copyright protected works and related entities throughout the
European Union with respect to the transferability of copyright protected works.
The Copyright Directive will, by its nature, have particular importance for all
e-commerce and is committed to create the legal framework for efficient
copyright protection in light of the ongoing technological development and the
emerging new business opportunities of e-commerce. Subject to the ongoing
discussion and finalization process, the Copyright Directive will develop
further the exclusive distribution rights of copyright owners and create certain
exemptions therefrom, such as by distinguishing between digital and analog as
well as temporary and permanent copies; granting certain privileges for private
use, as well as for research and scientific purposes and public education.
Further, the Copyright Directive will address the legal protection of technical
facilities for the protection of copyright works. Given the eminence of
e-commerce and the necessity to effectively protect intellectual property rights
in the context of the Internet and e-commerce, the draft Copyright Directive
envisions an implementation into the national laws of the Member States within
the year 2000 and monitoring by the European Commission of the implementation
progress.

      o E-commerce Directive. The recently adopted E-commerce Directive, on
certain legal aspects of information society services, in particular electronic
commerce in the internal market, determines some of the essential legal
parameters for the development and operation of e-Commerce in the internal
market. The Member States have to implement the Directive into national
legislation before January 17, 2002. The Directive is not yet a part of national
law and the Dutch government has not yet prepared legislation to implement the
Directive.

      o Distance Contracts Directive. The Distance Contracts Directive sets out
the legal framework for consumer protection in certain fields of e-commerce
(excluding, among others, financial services, telecommunications services,
transportation services and others). Consumer protection, as regulated by the
Distance Contracts Directive, will be of relevance for direct and indirect
e-commerce transactions, in particular business to consumer transactions. Any
vendor engaging in business to a consumer transactions in the European Union
should


                                       47
<PAGE>   50

make sure that his business is operated in conformity with the minimum
requirements of this Distance Contracts Directive, unless member states set out
higher legal thresholds with regard to business to a consumer transactions when
implementing the Distance Contracts Directive (however, the Dutch government has
stated that in the Netherlands no stricter rules will be included in the Dutch
Civil Code other then those necessary for the implementation of the Distance
Contracts Directive). The Netherlands is in the process of implementing the
Distance Contracts Directive in the Dutch Civil Code. We have no information
when the Act will be passed and come into force, however the EU Member States
are required to implement the Distance Contracts Directive. Germany did so on
June 27, 2000. The Distance Contracts Directive applies to each contract
negotiated at a distance, between a professional business and a consumer,
involving the use of one or more means of distance communication. The various
means of communication have to be used as part of an organized distance sales or
service provision scheme not involving the simultaneous presence of the supplier
and the consumer. The aim of the Distance Contracts Directive is to ensure that
the use of the means of distance communication must not lead to a reduction in
the amount of information provided to the consumer, and thus determines the
information that is required to be sent to the consumer prior to the conclusion
of an agreement or, ultimately, during the performance of the contract or at the
time of delivery of the goods. The Distance Contracts Directive expressly states
that the consumer may not wave the rights conferred on him by the transposition
of this directive into national law. The Distance Contracts Directive thus has a
binding nature.

      C. Organizational Structure

      The following is a list of our significant subsidiaries and our proportion
of ownership interest in each subsidiary:

<TABLE>
<CAPTION>
                                                                        % of
Organized under the laws of Germany                                   Ownership
-----------------------------------                                   ---------
<S>                                                                      <C>
PrimaCom Management GmbH                                                 100
PrimaTV broadcasting GmbH                                                100
Sudwest II Gmbh                                                          100
PrimaCom
PrimaCom Region Wiesbaden Gmbh & Co. KG                                  100
PrimaCom Mettlach GmbH & Co. KG                                          100
PrimaCom Maintal GmbH & Co. KG                                           100
PrimaCom Stormarn GmbH & Co. KG                                          100
PrimaCom Verl GmbH & Co. KG                                              100
PrimaCom Nettetal GmbH & Co. KG                                          100
PrimaCom Kabelbetriebsges. mbH & Co. KG Region Berlin                    100
PrimaCom Kabelbetriebsges. mbH & Co. KG Region Leipzig                   100
PrimaCom Kabelbetriebsges. mbH & Co. KG Region Sudwest                   100
Kabelcom Aachen Gesellschaft fur Kabelkommunikation mbH & Co. KG        99.0
TELEVIS Grimma GmbH                                                      100
PrimaCom Network & Operations GmbH                                       100
PrimaCom Marketing & Development GmbH                                    100
PrimaCom Region Schwerin GmbH & Co. KG                                   100
PrimaCom Projektmanagement GmbH& Co. KG                                  100
PrimaCom Region Leipzig GmbH & Co. KG                                    100
PrimaCom Region Magdeburg GmbH & Co. KG                                  100
PrimaCom Region Dresden GmbH & Co. KG                                    100
Zweite Kabelvision Management Beteiligungs GmbH & Co. KG                 100
PrimaCom Region Angelbachtal GmbH & Co. KG                               100
PrimaCom Region Berlin GmbH & Co. KG                                     100
PrimaCom Nord GmbH                                                       100
Antennentechnik Busler GmbH                                              100
Nexus Kabelfernsehservice GmbH                                           100
Ad-media GmbH & Co. Local TV KG                                          100
Kabelcom Halberstadt Ges. F. BreitbandkabelKommunikations mbH           72.6
</TABLE>


                                      48
<PAGE>   51
<TABLE>
<S>                                                                     <C>
PKG Kabelbetriebsgesellschaft mbH                                        100
Komco GmbH                                                               100
PrimaCom Sudwest I GmbH & Co. KG                                         100
MKM Sonderhein Hordt GmbH & Co. KG                                       100
PrimaCom Osnabruck mbH & Co. KG                                         99.5
PrimaCom Projektmanagement GmbH                                         100
Kutz-Kabel Service GmbH                                                   51

Organized under the laws of the Netherlands
Multikabel N.V.                                                         99.74
Communikabel N.V                                                        99.74
</TABLE>

      D. Property, Plants and Equipment

      In connection with the operation of our cable networks in Germany, we own
or lease real property for signal reception sites (antennae towers and
head-ends) and business offices. Our central operation center is located in
approximately 1,657 square meters of leased space in Mainz, Germany. We operate
our Wiesbaden/Mainz regional network from another 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. All of our
operating assets are pledged as collateral under the senior secured credit
facility.

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, 2000 as compared to our financial performance for the year
ended December 31, 1999 and our financial performance for the year ended
December 31, 1999 as compared to the financial performance of Suweda for the
year ended December 31, 1998. It also contains a discussion of our liquidity and
capital resources from January 1, 2000 and for the near future. We did not exist
as a combined entity during all of the historical periods presented and all
references to we, us and our in the discussion of those periods are to Suweda
prior to December 30, 1998. Because we did not exist as a combined entity during
all of the historical periods presented, the usefulness of these comparisons is
limited.

      We measure our financial performance in large part with reference to
EBITDA and adjusted EBITDA. We define EBITDA as earnings (loss) before
extraordinary items, discontinued operations, minority interests, net interest
expense, income taxes and depreciation and amortization. We define adjusted
EBITDA as EBITDA plus non-cash compensation expense related to stock options and
nonoperating expenses less non-operating income. We believe that EBITDA and
adjusted EBITDA are meaningful measures of performance because they 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 and because the senior



                                       49
<PAGE>   52
secured credit facility requires us to meet financial tests measured by EBITDA
and adjusted EBITDA. EBITDA and adjusted EBITDA are not U.S. GAAP measures of
income (loss) or cash flow from operations and should not be considered as
alternatives to net income as an indication of our financial performance or as
alternatives to cash flow from operating activities as measures of our
liquidity. While we have historically maintained positive EBITDA and adjusted
EBITDA, the capital intensive nature of our broadband network buildout and
start-up-costs of our new products and services may cause our EBITDA and
adjusted EBITDA to decrease significantly in the future until we will start
recognizing increased revenue from the value-added services offered over our
broadband networks.

       YEARS ENDED DECEMBER 31, 1999 AND 2000

       Revenues

       Revenues

       Revenues primarily include monthly subscription fees and to a lesser
extent installation and connection fees related to our basic analog cable
television service. In late 1999, we launched our high-speed Internet service in
Germany and began to recognize monthly subscription fees and to a lesser extent
installation and connection fees for this service. In late 2000, we launched our
digital television service in Germany and began to recognize monthly
subscription fees and to a lesser extent installation and connection fees for
this service. We also acquired Multikabel in late 2000. Multikabel offers a full
range of broadband products and services including basic analog cable
television, high-speed Internet access, digital television and data
communication services for small businesses and schools in the Netherlands.

       Revenues increased by 17.4% from (euro)105,949,000 in 1999 to (euro)
124,343,000 in 2000. The primary factors which impacted revenue growth were the
acquisitions of Multikabel in the Netherlands and several acquisitions in
Germany throughout 1999 and 2000, rate increases for basic analog cable
television services and the introduction in Germany of our high-speed Internet
access and digital television services. The following table reflects the revenue
contributions from the noted sources:
<TABLE>
<CAPTION>
                                DECEMBER 31,                   1999           2000        ONGOING     DECEMBER 31,
                                    1999       MULTIKABEL  ACQUISITIONS   ACQUISITIONS   OPERATIONS       2000
                                -----------    ----------  ------------   ------------   ----------   ------------

<S>                               <C>            <C>           <C>           <C>          <C>         <C>
Average Cable TV Subscribers      907,574        73,855        17,778        30,068       (3,594)     1,025,681
Average Monthly Revenue per
Subscriber (euro)                    9.46          8.20          7.18          7.88           --           9.49
Cable TV Revenue ((euro)'000)     103,059         7,269         1,531         2,843        2,178        116,880

Average Internet Subscribers           25         3,751            --           706          663          5,145
Average Monthly Revenue per
   Subscriber (euro)                 40.9          8.22            --          4.95        38.71          12.07
Internet Revenue ((euro)'000)          25           370            --            42          308            745
Average Digital Subscribers            --         1,013            --            --           85          1,098
Average Monthly Revenue per
   Subscriber (euro)                   --          7.15            --            --        15.69           7.82
Digital Revenue (euro)                 --            87            --            --           16            103
                                  -------        ------        ------        ------       ------        -------
Other Revenue ((euro)'000)          2,865         1,113            --            --        2,637          6,615
                                  -------        ------        ------        ------       ------        -------
Total Revenue                     105,949         8,839         1,531         2,885        5,139        124,343
</TABLE>


       We acquired Multikabel on September 18, 2000. We have included the
results of Multikabel's operations beginning October 1, 2000. At December 31,
2000, Multikabel passed approximately 320,000 homes and served 296,538 basic
cable television subscribers, 14,938 high-speed Internet access subscribers and
4,230 digital television subscribers. Multikabel also derived revenue from data
communication services provided to small businesses and schools. Multikabel
contributed a total of approximately (euro) 8,839,000 to our revenue in 2000, or
approximately 48.1% of the total revenue growth recorded during the year. We
believe that the first time inclusion of the Multikabel acquisition will
continue to contribute to revenue growth through the third quarter of 2001.

       During 1999, we made six acquisitions in Germany which served
approximately 45,600 cable television subscribers at the date of acquisition. On
average approximately 17,778 of the acquired subscribers made their first
contribution to revenue during the year ended December 31, 2000. These
subscribers contributed a total of approximately (euro) 1,531,000 to our revenue
in the year 2000 or approximately 8.3% of the total revenue growth recorded
during the year.

                                       50
<PAGE>   53

       During 2000, in addition to the Multikabel acquisition, we made 12
acquisitions which served approximately 87,770 cable television subscribers at
the date of acquisition. On average approximately 30,068 of the acquired
subscribers contributed to revenue during the year ended December 31, 2000.
These subscribers contributed a total of approximately (euro) 2,843,000 to our
revenue in 2000, or approximately 15.5% of the total revenue growth recorded
during the year. We believe that the first time inclusion of a portion of these
acquired subscribers will continue to contribute to revenue growth through the
third quarter of 2001.

       During 2000, we lost through attrition an average of approximately 3,594
subscribers. The loss of subscribers primarily occurred in the new German states
as a result of a loss of population and changes in demographics. The loss of
subscribers through attrition partially offset the revenue growth by
approximately (euro) 408,000. During 2000, we increased the average monthly
revenue per subscriber for cable television service by an average of (euro) 0.14
per month. The primary factor responsible for the increase in revenue per
subscriber was rate increases. A portion of the rate increases implemented in
2000 was to cover the possible increase in the cost of copyright fees which we
expect will be imposed on us by GEMA. The increase in revenue per subscriber
contributed a total of approximately (euro) 2,586,000 or 14.1% of the total
revenue growth recorded during the year.

       During 2000, we added approximately 16,231 high-speed Internet access
subscribers and 4,240 dial-up Internet access subscribers, of which
approximately 10,427 were acquired through the acquisition of Multikabel. Since
its acquisition Multikabel connected an additional 4,511 high-speed Internet
access subscribers. At year-end 2000 Multikabel had 14,938 high-speed Internet
customers. Of these subscribers an average of 3,751 contributed (euro)370,000
of revenue to us in 2000. In addition, we acquired through the assumption of
operating obligations approximately 4,240 Internet access subscribers in Germany
from an Internet service provider which was exiting the business. These
subscribers currently access the Internet through dial up connections and we
plan to migrate these customers to high-speed access over time. For the year
ended December 31, 2000, an average of 706 of these subscribers contributed a
total of (euro) 42,000 of revenue to us. In Germany, we added an additional
1,293 high-speed Internet access subscribers in 2000. Of these, an average of
688 subscribers made a full year revenue contribution of (euro) 333,000 to
revenue in 2000. In total, we recorded (euro) 745,000 of revenue from our
high-speed Internet access product. We expect that the acquired Internet
subscribers and those connected during 2000 will continue to contribute to
revenue through the third quarter of 2001.

       During 2000, we added approximately 4,569 digital television subscribers.
Of these, approximately 2,128 were acquired through the acquisition of
Multikabel. Since its acquisition, Multikabel added another 2,102 digital
television subscribers. At year-end, Multikabel had 4,230 digital television
subscribers. On average, approximately 1,013 of these subscribers contributed
approximately (euro) 87,000 to revenue in 2000. During the last quarter of 2000,
we launched our digital television service in Germany. At year-end, we had
approximately 339 digital subscribers. On average, approximately 85 of the
subscribers contributed (euro) 16,000 to revenue in 2000. In total, we recorded
(euro) 103,000 of revenue from digital television services. We expect that the
acquired subscribers and those connected in the fourth quarter will continue to
make first time revenue contributions through the third quarter of 2001.

       Other revenue consists of carriage fees, advertising fees paid to us, the
lease to third parties of capacity in our ducts, joint trenching agreements
associated with our broadband upgrade, e-commerce, data communication services
for small businesses and schools and, in 2000, the sale of excess fiber optic
cable to third parties. Other revenue was (euro) 6,615,000 in 2000 as compared
to (euro) 2,865,000 of other revenue in 1999. Multikabel generated approximately
(euro) 1,113,000 of other revenue in 2000. Data communication services accounted
for (euro) 424,000 of the total other revenue. Other operating revenue from the
German operations increased by (euro) 2,637,000 in 2000. The increase was
primarily related to the sale of excess fiber to third parties. We do not expect
that we will sell excess fiber to third parties in the future.

       Operations

       Operations primarily include signal delivery fees paid to Deutsche
Telekom in Germany and other third parties, copyright royalty expense, labor and
materials related to the repair and maintenance of our networks and other
repairs and maintenance expenses related to our networks.


                                       51
<PAGE>   54
       Operations cost increased 23.0% from approximately (euro)24,543,000 in
1999 to approximately (euro) 30,191,000 in 2000. The following table reflects
the factors which contributed to the increase:
<TABLE>
<CAPTION>

                                    DECEMBER 31,                   1999           2000          ONGOING      DECEMBER 31,
                                        1999       MULTIKABEL   ACQUISITION    ACQUISITION     OPERATIONS        2000
                                    -----------    ----------   -----------    -----------     ----------    ------------
                                     (euro)'000    (euro)'000   (euro)'000     (euro)'000       (euro)'000    (euro)'000

<S>                                    <C>            <C>            <C>             <C>            <C>         <C>
Signal delivery fees.............      18,592         1,274          210             210            531         20,617
Copyright royalties..............           -             -           20              33            997          1,050
Repair and maintenance...........       2,155           230           77             122            144          2,728
Labor............................       3,472           546           33               -            166          4,217
Materials........................         324             5            -              28            947          1,304
Other............................           -           275            -               -              -            275
                                       ------         -----          ---             ---          -----         ------
Total............................      24,543         2,130          340             393          2,785         30,191
                                       ======         =====          ===             ===          =====         ======
</TABLE>

       The first time inclusion of Multikabel accounts for approximately 37.7%
of the entire increase in operating costs. We believe that our operating margin
of 75.7% is indicative of the results anticipated in the future over the next
few quarters.

       In Germany, the 1999 acquisitions and the 2000 acquisitions added
approximately (euro) 733,000 of operations cost between 1999 and 2000. Signal
delivery fees were the primary factor. Operating costs in the existing German
operations increased by (euro) 2,785,000 during 2000. The first time inclusion
of GEMA copyright royalty fees in 2000 accounted for 35.5% of the total
increase. Cost of materials which includes the one time sale of fiber optic
cable accounts for approximately 17.4% of the increase. Other items which
contributed to the increase in operating cost include Deutsche Telekom signal
delivery fees related to contractual rate increases and to a lesser extent
increases in repair and maintenance and labor. In total the cost of operations
as a percent of revenue increased slightly from 23.2% to 24.3%. Most of the
deterioration in the margin relates to the sale of excess fiber optic cable. We
anticipate that the cost of operations as a percent of revenue will return to
historic levels over the next few quarters.

       In regard to copyright royalty fees in Germany we have not yet entered
into an agreement to pay copyright royalties to GEMA, the organization
responsible for the collection of copyright royalty fees. However, as a result
of the uncertainty regarding the payment of these royalties, we believe it is
appropriate to accrue for this probable exposure given anticipated market
developments.

       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 regional operating companies, telecommunications
and billing expenses, expenses of leasing and maintaining the regional offices,
marketing expenses, costs of consultants and temporary personnel, automobile
expense and legal and accounting expenses. It also includes travel expenses,
bank expenses, office supplies and other expenses associated with the operation
of the regional offices. Selling, general and administrative expenses increased
by 53.8% from (euro)18,590,000 in 1999 to (euro) 28,584,000 in 2000. The
following table reflects the factors which contributed to the increase:

<TABLE>
<CAPTION>

                                  DECEMBER 31,                      1999            2000         ONGOING      DECEMBER 31,
                                      1999        MULTIKABEL    ACQUISITIONS    ACQUISITIONS    OPERATIONS        2000
                                  ------------    ----------    ------------    ------------    ----------    ------------
                                    (euro)'000     (euro)'000    (euro)'000      (euro)'000     (euro)'000     (euro)'000

<S>                                   <C>              <C>            <C>            <C>           <C>           <C>
Salaries and wages..............      8,092            426            77             40            414           9,049
Cost of services................        917          1,163             -             19          1,532           3,631
Cost of premises................      2,186             -              -             61          1,470           3,717
Automobile......................        558             42             -             11              7             618
Telecommunications and
  Distribution..................      2,080             -             35              6           (186)          1,935
Legal and accounting............        661             -              -              -            121             782
Marketing.......................      1,506            517                            -          2,248           4,271
Other...........................      2,590             39             -              -          1,952           4,581
                                     ------          -----           ---            ---         ------          ------
Total...........................     18,590          2,187           112            137          7,558          28,584
                                     ======          =====           ===            ===         ======          ======
</TABLE>


                                       52
<PAGE>   55
       The first time inclusion of Multikabel accounts for 21.9% of the total
increase in selling, general and administrative expenses. As per percent of
revenue selling, general and administrative expenses for Multikabel were
approximately 24.7%.

       The 1999 acquisitions and 2000 acquisitions contributed approximately
(euro) 249,000 to the increase in selling, general and administrative expenses.
During 2000, our existing operations recorded an increase in selling, general
and administrative expenses of approximately (euro) 7,558,000 or 75.6% of the
total increase in selling, general and administrative expenses. The increase in
salary and wages primarily relate to the addition of personnel needed to manage,
operate and market our high-speed Internet access and digital television
services. Cost of services, which includes temporary personnel and consultants,
increased by (euro) 1,532,000 from 1999 levels. Almost the entire increase is
directly associated with the new products and services offerings. Cost of
premises increased by (euro) 1,470,000 in 2000. This increase primarily relates
to the expanded regional office in Leipzig where the head-end containing all the
technical aspects for the delivery of all new products and services have been
constructed and where the sales, service and construction activities for
high-speed Internet access and digital television are now centered. In total our
office space more than tripled in this regional office. In addition, the fiber
optic lines used to interconnect the five upgraded cities in the Sachsen,
Sachsen-Anhalt and Thuringen region are included in the cost of premises. In
2000, these costs were approximately (euro) 267,000. Expanded regional offices
in Berlin, Chemnitz and Hoyerswerda also contributed to the increase in cost of
premises. Other less significant items include telecommunications and
distribution expenses which decreased by (euro) 186,000 in 2000 and legal and
accounting expenses, which increased by (euro) 121,000 during 2000 as compared
to 1999. Marketing expenses increased by (euro) 2,248,000 in 2000. The entire
increase was associated with the introduction and on going marketing efforts of
high-speed Internet access and digital television services.

       Miscellaneous expenses include bank fees, office supplies, travel
expenses, training and bad debt reserves. In 2000, miscellaneous expenses
increased by (euro) 1,952,000 or 24.6% from (euro)2,540,000. Of this, (euro)
925,000 relates to a charge to increase the allowance for doubtful accounts.

       In regard to the total increase in SG&A we believe that the substantially
all of the increase in selling, general and administrative expense are
predominantly related to the introduction of new products and services, which
began in late 1999 and continued throughout 2000.

       Corporate overhead

       Corporate overhead consists of personnel expenses of senior management,
financial accounting, information technology and legal staff. Additionally it
includes personnel expenses of the key competence centers of the new product and
services group. We also record the non-cash compensation expense related to our
stock option plans in corporate overhead. This item also includes the licensing
fees paid for our billing, subscriber and financial accounting system, the cost
of the corporate office and legal and accounting and other costs and expenses
related to the operation of our corporate office.

       Corporate overhead expenses increased by 38.7% from (euro) 12,413,000 in
1999 to (euro) 17,219,000 in 2000. For 1999, we recorded non-cash compensation
expense of (euro) 2,757,000 related to our stock option plans, which were
implemented in February 1999. In the same period in 2000, we recorded a charge
of approximately (euro) 3,558,000. The increase in this non-cash charge
accounted for 16.7% of the total increase in corporate overhead. The other major
component responsible for the increase in corporate overhead was the competence
centers for the broadband group. The wages and salaries of staff, coupled with
consultants, travel and legal and accounting costs associated with these
activities, accounted for (euro) 1,423,000 in 2000. In 1999, we expended
approximately (euro) 623,000 in the new products and services group and
corporate. The increase of (euro) 800,000 in 2000 accounts for 16.6% of the
total increase in corporate overhead. The remaining components of corporate
overhead increased by approximately (euro) 3,205,000 between the two periods.
The increase primarily relates to enlarged corporate headquarters and increased
legal and accounting expenses related to due diligence and legal issues
regarding our transformation into a multiservice broadband communications
company and the inclusion of approximately (euro) 337,000 related to the
Multikabel Acquisition.

                                       53
<PAGE>   56
       Depreciation and amortization

       Depreciation and amortization expense increased by 23.3% from
(euro)61,277,000 in 1999 to (euro)75,530,000 in 2000. The primary factor
responsible for the increase in depreciation and amortization expense was the
increase in our depreciable asset base related to the 1999 and 2000 acquisitions
and capital expenditures.

       Operating loss

       Operating loss increased by (euro) 16,307,000 from (euro) 10,874,000 in
1999 to (euro) 27,181,000 in 2000. The primary factors responsible for the
increase in operating loss were the increase in non-cash compensation expense
related to our stock option plans of (euro) 801,000, the increase in non-cash
depreciation and amortization expense of (euro) 14,253,000, the first time
inclusion of the GEMA copyright royalty expense of (euro) 1,050,000 and the
costs and expenses of the broadband group of (euro) approximately 10,000,000.
These items were partially offset by the increase in cable television operating
income derived from both internal growth and acquisitions.

       Interest expense

       Interest expense increased by (euro) 10,299,000 from (euro)15,874,000 in
1999 to (euro) 26,173,000 in 2000. The primary factor was an increase in the
average indebtedness from (euro) 238,500,000 to approximately (euro)
431,500,000. The increase in the average indebtedness primarily resulted from
the funding of our Multikabel acquisition and to a lesser extent acquisitions in
Germany and capital expenditures associated with the upgrade of our German
networks.

       Other income

       Other income in 2000 was (euro) 1,690,000 and relates to the sale of
15.4% of our holdings in MainzCom, a local city carrier in the city of Mainz.
PrimaCom continues to own 22.0% of MainzCom.

       Loss from continuing operations before income taxes and other items.

       Loss from continuing operations before income taxes and other items
increased from (euro)27,515,000 in the 1999 to (euro) 51,664,000 in 2000, for
the reasons discussed above.

        Income tax expense

       Income tax expense was (euro) 4,258,000 in 2000. Income tax expense of
(euro) 1,258,000 relates to taxes on the net income of certain subsidiaries.
The remaining (euro) 3,000,000 relates to the write down of deferred tax asset
associated with the change in the German corporate tax rate offset by other
factors. In accordance with German tax law, we do not file a consolidated
income tax return.

        Minority interest in net income of subsidiaries

Minority interest in net income of subsidiaries increased from (euro)70,000
to (euro) 94,000 primarily because of improved operating results in these
companies.

        Loss from continuing operations

       Loss from continuing operations of (euro)29,252,000 in 1999 increased
to a loss from continuing operations of (euro) 56,144,000 in 2000 as a
result of the factors discussed above.

       Extraordinary loss

       Extraordinary loss of (euro) 8,180,000 incurred in 2000 were related to
the refinancing and cancellation of our bank facility. We wrote off the
unamortized fees and expenses associated with this facility.

       Net loss/EBITDA

       In addition to other measurements, some of which are reflected in its
statement of operations data, we measure our financial performance by EBITDA and
adjusted EBITDA. We define EBITDA as earnings (loss) before extraordinary items,
discontinued operations, minority interests, net interest expense, income taxes
and depreciation and amortization. We define adjusted EBITDA as EBITDA plus
non-cash compensation expense related to stock options and nonoperating expenses
less non-operating income. We believe that EBITDA and adjusted EBITDA are
meaningful measures 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 and

                                       54
<PAGE>   57
adjusted EBITDA are not U.S. GAAP measures of income (loss) or cash flow from
operations and should not be considered as alternatives 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 decreased from
euro50,403,000 for 1999 to euro 48,349,000 for 2000, primarily as a result of
the start-up costs of the broadband group the first-time inclusion of GEMA
copyright royalty expense, the increase in the non-cash compensation expense
related to our stock option plans. Adjusted EBITDA decreased from euro53,160,000
in 1999 to euro 51,907,000 in 2000, primarily because of the start-up costs of
the broadband group first-time inclusion of the GEMA copyright royalty expense.

      Years ended December 31, 1999 and 1998

      Revenues

      Revenues primarily include monthly subscription fees and to a lesser
extent installation and connection fees related to cable television service. In
1999, we launched our high-speed Internet access and recorded our first revenue
associated with this product offering.

      Revenues increased by approximately 114.7% from (euro)49,339,000 in 1998
to (euro)105,949,000 in 1999. In general the primary factors which impacted
revenue growth in 1999 were the merger with Suweda, the acquisitions of
CableStar Gesellschaft fur Kommunikations-Systeme GmbH, Comtel Sachsen GmbH and
Comtel Gorbitz GmbH, Acotec Kabelvision GmbH and Nehls & Schulz GmbH, which we
refer to as the 1998 acquisitions, the 1999 acquisitions and increases in
average subscribers and rate increases. In addition a small amount of revenue
was derived from the commercial launch of our high-speed Internet access product
offering. The following table reflects the impact of each of the above noted
factors on revenue in 1999:

<TABLE>
<CAPTION>
                                 1998                                              Internal                     1999
                                 Cable                   1998           1999      Subscriber      Rate          Cable        1999
                              Television     Merger  Acquisitions   Acquisitions    Growth      Increases     Television    Internet
                              ----------    -------  ------------   ------------  ----------    ---------     ----------    --------
<S>                             <C>         <C>         <C>            <C>            <C>        <C>            <C>             <C>
Average Subscribers .......     360,256     493,229     22,634         27,836         717        907,574        907,574         25
Average Monthly Revenue
   per Subscriber (euro)          11.41        8.32       7.56           6.80       10.58           0.27           9.73         41
                                -------     -------     ------         ------       -----        -------        -------      -----
Revenue ((euro)'000) .....       49,339      49,259      2,101          2,270          91          2,879        105,939         10
                                =======     =======     ======         ======       =====        =======        =======      =====
</TABLE>

      Suweda was merged into KabelMedia on December 30, 1998. However, for
purposes of U.S. GAAP, the merger was accounted for as a reverse acquisition by
Suweda of KabelMedia. As a result, Suweda's historical financial statements are
treated as our historical statements. The 1998 statement of operations only
includes the operating results of Suweda. On the date of the merger, KabelMedia
served approximately 493,229 subscribers. In 1999, these subscribers contributed
approximately (euro)49,259,000 or 87.0% of the total revenue increase recorded
in 1999.

      In 1998, we (formerly Suweda) acquired approximately 53,186 subscribers.
On average, approximately 22,634 of these subscribers contributed to revenue for
the first time in 1999. For 1999, the 1998 acquisitions contributed
approximately (euro)2,101,000 or 3.7% of the total revenue increase recorded in
1999.

      In 1999, we acquired approximately 42,806 subscribers. On average,
approximately 27,836 of these subscribers contributed to revenue in 1999. The
remaining 14,970 subscribers contributed to revenue growth for the first time in
2000. For 1999, the 1999 acquisitions contributed approximately (euro)2,270,000
or 4.0% of the total revenue increase in 1999.


                                       55
<PAGE>   58

      The remainder of the revenue growth in the cable television sector
resulted from a combination of an increase in the existing average cable
television subscribers from 1998 to 1999 and rate increases implemented on the
cable television subscribers in both 1998 and 1999. For 1999, average cable
television subscribers from the existing base increased by approximately 717
subscribers. In effect, average subscribers in the old German states increased
by approximately 5,974 subscribers while subscribers in the new German states
declined by approximately 5,257 subscribers. The decline in the new German
states is believed to primarily relate to changes in demographics and a loss of
population. The increase in average cable television subscribers contributed
approximately (euro)91,000 to revenue growth in 1999. Rate increases implemented
in 1998 and 1999 contributed approximately (euro)3,339,000 to revenue growth,
which was partially offset by a (euro)460,000 reserve against revenue related to
a legal dispute in Chemnitz over a 1998 rate increase.

      The merger, 1998 acquisitions and 1999 acquisitions had the effect of
reducing the average revenue per subscriber while the shift in subscribers from
the old to the new German states and the rate increases had the effect of
increasing the average revenue per subscriber. In total, the average revenue per
cable television subscriber declined from approximately (euro)11.41 in 1998 to
approximately (euro)9.73 in 1999.

      In October 1999, we launched our high-speed Internet access product in
Leipzig. By December 31, 1999, we had approximately 150 connected subscribers
subscribing to the service, which generated approximately (euro)10,000 of
revenue in 1999.

      Operations

      Operations include the cost of signal delivery fees paid to Deutsche
Telekom, repair and maintenance related to the networks, labor related to the
repair, maintenance and operation of the networks and materials. Operations
costs increased by 87.9% from (euro)13,062,000 in 1998 to (euro)24,543,000 in
1999. In general the primary factors which contributed to the increase in costs
of operations were the merger ((euro)9,130,000), 1998 acquisitions
((euro)539,000), 1999 acquisitions ((euro)729,000) and increased costs
associated with day-to-day operations ((euro)1,083,000).

<TABLE>
<CAPTION>
                                                                             1998            1999         Organic
                                          1998             Merger        Acquisitions    Acquisitions      Growth           1999
                                      ------------      ------------     ------------    ------------   ------------    ------------
                                      ((euro)'000)      ((euro)'000)     ((euro)'000)    ((euro)'000)   ((euro)'000)    ((euro)'000)
<S>                                      <C>               <C>               <C>             <C>           <C>             <C>
Signal delivery fees .............       10,499            5,782             399             329           1,583           18,592
Labor ............................        2,449            1,453             119              51            (600)           3,472
Repair and maintenance ...........          246            1,690               5             119              95            2,155
Cost of materials ................         (132)             205              16             230               5              324
                                         ------            -----             ---             ---           -----           ------

Total ............................       13,062            9,130             539             729           1,083           24,543
                                         ======            =====             ===             ===           =====           ======
</TABLE>

      In regard to the day-to-day operations, the most prominent increase
related to signal delivery fees paid to Deutsche Telekom, which increased by
approximately (euro)1,583,000 in 1999. Almost all of this increase relates to
escalation clauses contained in several of our level 4 (B-1) contracts with
Deutsche Telekom. Other factors include increases in repair and maintenance, and
materials of (euro)100,000 in aggregate. Offsetting these increases was a
reduction in labor costs of approximately (euro)600,000, which resulted from
synergies achieved in both the merger with Suweda and the 1998 and 1999
acquisitions and reduced performance bonuses paid in 1999.

      As a percentage of revenue, operating expenses declined from 26.5% to
23.2% from 1998 to 1999.

      Selling, general and administrative

      Selling, general and administrative expenses primarily include salaries
and wages of personnel directly involved in the general and administrative
functions of the regional companies, telecommunications and billing expenses,
expenses of leasing and maintaining the regional offices, sales and marketing
expenses, cost of consultants and temporary personnel, automobile expense and
legal and accounting expenses. It also includes travel


                                       56
<PAGE>   59

expenses, bank expenses, office supplies and other minor items directly
attributable to the regional offices. Selling, general and administrative
expenses increased by 196.4% from (euro)6,271,000 in 1998 to (euro)18,590,000 in
1999. The primary factors contributing to this increase include the merger
between KabelMedia and Suweda ((euro)9,710,000), the 1998 acquisitions
((euro)516,000), the 1999 acquisitions ((euro)254,000), increases required to
maintain the day-to-day operations ((euro)970,000) and expenses related to the
launch of high-speed Internet access and preparation for the launch of digital
television in the second half of 2000 ((euro)869,000).

<TABLE>
<CAPTION>
                                                                                                              New
                                                                                                           Products
                                                                    1998          1999       Organic          and
                                       1998          Merger     Acquisitions  Acquisitions    Growth        Services        1999
                                   ------------  ------------   ------------  -------------------------   ------------   -----------
                                   ((euro)'000)  ((euro)'000)   ((euro)'000)  ((euro)'000) ((euro)'000)   ((euro)'000)  ((euro)'000)
<S>                                   <C>           <C>             <C>           <C>        <C>              <C>          <C>
Salaries and wages ..............     4,494         4,292           250           119        (1,063)           --          8,092
Telecommunications and billing ..        --         1,040            39            28           973            --          2,080
Cost of premises ................       444         1,493            31            --            65           153          2,186
Sales and marketing .............       749           613             1            --           143            --          1,506
Cost of services ................        --           438            --            --            --           479            917
Automobile ......................       280           204             3            --            71            --            558
Legal and accounting ............        --           228            96            11            89           237            661
Other ...........................       304         1,402            96            96           692            --          2,590
                                      -----         -----           ---           ---           ---           ---         ------
                                      6,271         9,710           516           254           970           869         18,590
                                      =====         =====           ===           ===           ===           ===         ======
</TABLE>

      In regard to the day-to-day operations, the single largest increase
related to the costs and expenses of communicating with our subscribers through
mailings as they were transferred to a new billing system. During 1999, we
transferred approximately 421,000 subscribers to a new billing system. We also
had to increase our phone lines and network capacity in the regional offices to
handle the increased number of subscribers. In aggregate, we incurred additional
costs and expenses of approximately (euro)973,000 in telecommunications and
billing expenses. We also upgraded and enlarged two of our regional offices,
which resulted in higher lease expenses of (euro)65,000. Other increases
occurred in sales and marketing, automobiles, legal and accounting, rental fees
on leased office equipment, bank fees related to processing subscriber receipts,
collections expense and office supplies. In aggregate these items increased by
(euro)995,000. Offsetting a portion of the increases in selling, general and
administrative expenses was a decrease in personnel costs of (euro)1,063,000.
The decrease in personnel expense resulted from synergies achieved in both the
merger with Suweda, the 1998 and 1999 acquisitions and reduced performance
bonuses paid in 1999.

      We incurred approximately (euro)869,000 of selling, general and
administrative expenses related to the introduction of the high-speed Internet
access product in Leipzig and the planned launch of digital television in the
second half of 2000. The primary expenses were approximately (euro)153,000 for
new office space in Leipzig and approximately (euro)716,000 for consultants,
temporary personnel and legal advice.

      As a percentage of revenue, selling, general and administrative expenses
increased from 12.7% to 17.5%. Excluding selling, general and administrative
expenses associated with high-speed Internet access and digital television
products, selling, general and administrative expenses were approximately 16.7%
of revenue.

      Corporate overhead

      Corporate overhead has historically consisted of the personnel expenses of
senior management, financial accounting, information technology and legal.
Additionally it consists of licensing fees for our billing, subscriber and
financial accounting systems, legal and accounting expenses, the cost of the
corporate offices and other costs and expenses related to our corporate office.
Corporate overhead increased by (euro)11,135,000 from (euro)1,278,000 to
(euro)12,413,000. The primary factors were the merger with Suweda
((euro)6,961,000) and a non-cash compensation charge of (euro)2,757,000 related
to the stock options issued in 1999. We also added key personnel in corporate
development, investor relations, legal, tax, controlling, and information
technology. In total, personnel expense related to these functions increased by
approximately (euro)343,000. The increased cost related to a larger corporate
office, director and officer and property insurance, and legal and accounting
added approximately (euro)639,000 in aggregate corporate


                                       57
<PAGE>   60

overhead in 1999. 1999 was the first year that we were a public company. The
cost of the annual meeting and public filings increased costs by (euro)230,000.
Offsetting these increases were reductions in bonuses paid to corporate
personnel of approximately (euro)419,000.

      In addition in 1999, we hired approximately 22 people who are responsible
for the development, planning and marketing of high-speed Internet access and
digital television. In 1999, personnel expense of these individuals was
approximately (euro)451,000. Advertising and promotion expenses related to the
marketing of these new services and products were approximately (euro)172,000 in
1999.

      As a percentage of revenue, corporate overhead increased from 2.6% in 1998
to 11.7% in 1999. Excluding the non-cash compensation charge related to the 1999
options, corporate overhead approximated 9.1% of revenue.

      Depreciation and amortization

      Depreciation and amortization expense increased by (euro)45,205,000 from
(euro)16,072,000 in 1998 to (euro)61,277,000 in 1999. The primary factor for the
increase was the treatment of the merger as a reverse acquisition for U.S. GAAP
accounting purposes. Of the additional depreciation and amortization recorded in
1999, approximately (euro)42,437,000 was related to the merger. The remainder of
the increase can be attributed to the 1998 acquisitions, 1999 acquisitions and
an increase in depreciable assets related to capital expenditures made in 1998
and 1999.

      Operating profit (loss)

      Operating loss was (euro)10,874,000 in 1999 compared to an operating
profit of (euro)12,656,000 in 1998. The primary factors responsible for the loss
were the large increase in depreciation and amortization associated with the
accounting treatment of the merger, the increase in signal delivery fees paid to
Deutsche Telekom, the non-cash compensation expense related to the 1999 stock
option grants and the costs and expenses associated with the launch of
high-speed Internet and digital television.

      Interest expense

      Interest expense increased from (euro)7,862,000 in 1998 to
(euro)15,874,000 in 1999 primarily because our average outstanding indebtedness
increased from approximately (euro)110,212,000 in 1998 to (euro)238,459,000 in
1999. The increase in average indebtedness was primarily related to the merger.
On December 31, 1998, one day after the merger was consummated, we had
approximately (euro)332,800,000 of outstanding indebtedness. The net proceeds of
approximately (euro)103,425,000 from our initial public offering and the sale of
foreign exchange contracts of (euro)10,650,000 were used to repurchase our 13
5/8% senior discount notes on March 30, 1999, and reduced indebtedness to
approximately (euro)212,534,000. Additional indebtedness was incurred during the
year to fund acquisitions.

      Other expense

      Other expense in 1999 primarily related to the write-off of a
(euro)767,000 note receivable, which originated from the sale of a cable network
in 1997.

      Income (loss) from continuing operations before income taxes and other
items

      Loss from continuing operations before minority interest and income taxes
was (euro)27,515,000 in 1999, compared to income of (euro)4,562,000 in 1998. The
primary factors responsible for the loss in 1999 were the large increase in
depreciation and amortization associated with the accounting treatment of the
merger, the increase in signal delivery fees paid to Deutsche Telekom, the
non-cash compensation expense related to the 1999 stock option grants, the costs
and expenses associated with the launch of high-speed Internet access services
and digital television and interest expense.


                                       58
<PAGE>   61


      Income tax expense

      Our income tax expense increased by 101.6% from (euro)827,000 in 1998 to
(euro)1,667,000 in 1999. German tax law does not allow for the filing of
consolidated tax returns. In 1999, certain operating subsidiaries reported net
profits for tax purposes. We undertook a corporate restructuring in 1999 to
rationalize our structure subsequent to the merger and reduce our potential tax
exposure in the operating companies. In total, 29 mergers were consummated at
the operating level. The restructuring was completed in 2000.

      Minority interest in net income subsidiaries

      The decrease in minority interest in net income of subsidiaries from
(euro)303,000 in 1998 to (euro)70,000 in 1999 primarily relates to our
acquisitions of minority shares in Kabelcom Aachen Gesellschaft fur
Kabel-Kommunikation GmbH & Co KG in 1998. During 1999, we increased our
ownership position from approximately 87.6% to 97.8%. It is our intention to
acquire the remaining 2.2% of Kabelcom Aachen.


      Income (loss) from discontinued operations

      There was no income or loss from discontinued operations in 1999.

      Net income (loss)

      Net loss was (euro)29,252,000 in 1999 compared to net income of
(euro)510,000 in 1998 for the reasons discussed in the above sections.

      EBITDA and adjusted EBITDA

      In addition to other measurements, some of which are reflected in its
statement of operations data, we measure our financial performance by EBITDA and
adjusted EBITDA. We define EBITDA as earnings (loss) before extraordinary items,
discontinued operations, minority interests, net interest expense, income taxes
and depreciation and amortization. We define adjusted EBITDA as EBITDA plus
non-cash compensation expense related to stock options and nonoperating expenses
less non-operating income. We believe that EBITDA and adjusted EBITDA are
meaningful measures 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 and adjusted EBITDA are not U.S. GAAP measures of
income (loss) or cash flow from operations and should not be considered as
alternatives 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 75.4% from (euro)28,728,000 in 1998 to (euro)50,403,000 in
1999. Adjusted EBITDA increased 85.0% from (euro)28,728,000 in 1998 to
(euro)53,160,000.

      B. Liquidity and Capital Resources

      During the last three years, we have relied on the following sources for
necessary funding:

      o     cash flow from operations,

      o     borrowings under our bank facilities, and

      o     issuance of shares

      We intend to fund our future growth with cash flow from operations and
borrowing under senior credit facilities.


                                       59
<PAGE>   62
       In September 2000, we purchased Multikabel for approximately
(euro)250,600,000, including acquisition expenses and the assumption of
approximately (euro)124,300,000 of Multikabel debt, which was refinanced.

       At December 31, 2000, our aggregate consolidated indebtedness was
approximately (euro) 754,333,000, comprised of (euro) 736,191,000 of bank debt
outstanding, (euro) 245,000 of related party notes payable(euro), 13,669,000 of
capital leases, and (euro) 4,228,000 of deferred purchase obligations.

       For the year ended December 31, 2000, we generated net cash from
operating activities of (euro) 11,685,000.

       For the year December 31, 2000, we used cash in investing activities of
(euro) 387,759,000. Of this amount, approximately (euro) 245,915,000 relates to
the acquisition of Multikabel. Net cash provided by financing activities
amounted to (euro) 372,350,000.

       Approximately (euro) 288,338,000 of the total capital used in investing
activities for the year ended December 31, 2000, was related to the acquisition
of cable television networks, primarily Multikabel. The remainder of the capital
used in investing activities was related to the continued construction,
expansion and upgrading of existing cable network systems. We have only minimal
commitments to make capital expenditures under the terms of concession
agreements or otherwise, but anticipate that we will continue to increase our
capital expenditures in the future to further upgrade existing or newly acquired
cable systems. To the extent cash flow is not sufficient to fund our capital
expenditures, we expect to borrow the necessary funds under our bank facility.

       Substantial amounts of depreciation and amortization expense and non-cash
compensation expense have continued to contribute to our net losses. These
expenses, however, did not result in a current outflow of cash. Depreciation and
amortization expenses are expected to contribute to losses in the future.

       We believe that EBITDA and adjusted EBITDA provide more meaningful
measures of fixed cost coverage than does a deficiency of earnings to fixed
charges. EBITDA and adjusted EBITDA amount recorded in each period are not
solely available to satisfy cash interest expense amounts payable by us and may
also be required for other corporate purposes, including increases in working
capital, principal payments on debt, and capital expenditures. EBITDA and
adjusted EBITDA for the year ended December 31, 2000 were (euro) 48,349,000 and
(euro) 51,907,000. Total interest expense for the same period was (euro)
26,173,000. Of the total interest expense recorded in the year,
(euro) 4,633,000 related to non-cash interest expense and amortization of
financing fees.

A description of our senior secured credit facility is set forth below. In
addition to the senior secured credit facility, we also have minimal obligations
under our sale-leaseback agreements with Philips, which we intend to pay back in
their entirety. We closed on our senior secured credit facility and obtained
funds on September 18, 2000 through our wholly-owned subsidiary PrimaCom
Management GmbH, pursuant to a credit agreement with Bank of America
International Limited, Barclays Capital, Chase Manhattan Plc, Dresdner Bank AG
London Branch, Fortis Bank (Nederland) N.V., ING Bank N.V., The Royal Bank of
Scotland Plc and TD Bank (Europe) Limited as lead arrangers, Chase Manhattan
Bank AG as agent, fronting bank, overdraft bank and security trustee, and the
financial institutions named therein as banks. Pursuant to this agreement, the
lenders agreed to make available up to (euro)1,000,000,000 to PrimaCom
Management GmbH which can lend funds to our wholly-owned subsidiaries subject to
meeting a number of conditions.

       Under the terms and conditions of the revolving loan and letter of credit
facility, which we refer to as the revolving facility, we have total committed
availability of (euro)985,000,000 and under the terms and conditions of the
overdraft facility, we have total committed availability of (euro)15,000,000.
Amounts outstanding under the revolving 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 2.5%,
depending on the ratio of the total indebtedness of our subsidiaries to
annualized EBITDA. On December 31, 2000, we had approximately (euro)
735,236,000 outstanding under the revolving facility and the overdraft facility
at a floating interest rate of EURIBOR plus 2.5%, or 7.50%. We may use proceeds
from the revolving facility for future acquisition financing, refinancing
indebtedness for borrowed money, capital expenditures, financing distributions
to PrimaCom AG to purchase senior notes and to make certain interest payments
and for working capital and general corporate purposes.


                                       60
<PAGE>   63

      The available commitment under the revolving facility is to be reduced in
quarterly amounts to the amounts reflected below as of December 31 of the years
indicated:

<TABLE>
<CAPTION>
          Reduction Date             Available Commitment ((euro))
          --------------             -----------------------------
<S>                                  <C>
          March 31,2003                     972,687,500
        December 31, 2003                   935,750,000
        December 31, 2004                   837,223,000
        December 31, 2005                   738,723,000
        December 31, 2006                   640,223,000
        December 31, 2007                   517,097,500
        December 31, 2008                   339,797,500
        September 30, 2009                  113,247,500
</TABLE>

      The revolving facility contains financial covenants common for financings
of this type. Our ability to borrow under the revolving 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:

      o     incurring debt,

      o     encumbering revenues or assets,

      o     lending funds to third parties or assuming liabilities,

      o     disposing of revenues or assets, and

      o     paying dividends or making distributions.

      The revolving facility contains standard events of default in addition to
the following:

      o     amendment, suspension or termination of any relevant contract, as
            that term is defined in the revolving facility, which results in a
            material adverse change, and

      o     a change in the regulatory 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 revolving facility becoming immediately due and payable
and the cancellation of the revolving facility. It could also result in the
acceleration of amounts outstanding under our other debt instruments.

      The revolving facility is secured by, among other things, pledges or
assignments of receivables from cable television subscribers, intercompany
loans, partnership interests and shares of some of our subsidiaries.

On September 18, 2000, we entered into a (euro)375,000,000 senior working
capital facility. The senior working capital facility has a term of 10 years. On
December 31, 2000, we did not have any funds outstanding under the senior
working capital facility.

      As a condition to entering into the senior secured credit facility, we
entered into a contingent value right agreement on September 18, 2000 granting a
total of 974,000 contingent value rights to Chase Securities, Inc, as contingent
value right agent. Pursuant to the contingent value right agreement we are
required, if requested on or before September 18, 2010, to make a cash payment
to the holder of each contingent value right certificate equal to


                                       61
<PAGE>   64

the difference between the market price of a share of our common stock on the
date of exercise of such contingent value right and 110% of the market price of
a share of our common stock on the relevant release date, being either September
30, 2001, December 31, 2001, March 31, 2002 and June 30, 2002. The contingent
value right agreement also contains various provisions protecting the holders of
contingent value right certificates against dilution, change of control and
other events. The certificates evidencing the contingent value rights are held
in escrow in accordance with the provisions of the contingent value right escrow
agreement pending their release.

      Introduction of Euro compliance

      On January 1, 1999, 10 of the 15 member countries of the EU, including
Germany and the Netherlands, adopted the Euro as their common legal currency in
addition to their existing currencies. On January 1, 2002, the Deutsche Mark and
the Dutch Guilder will no longer be legal tender and we will be required to
conduct our business only in Euro. We recognize the need to ensure that our
operations will not be adversely affected by software failures related to this
change. We use licensed software for our financial accounting system and
subscriber management system. The total cost of acquiring upgrades and achieving
Euro compliance is not expected to have a material effect on our operations and
our consolidated financial position and results of operations. However, while we
expect that our systems will be Euro compliant in a timely manner, we are still
in the process of ascertaining whether our main contracting parties, such as
Deutsche Telekom, our banks and the main electricity providers to our cable
networks will be Euro compliant in a timely manner. At this time, we cannot
ascertain the magnitude of the impact of non-compliance of our main contracting
parties on our business and our financial condition.

      C. Research and Development, Patents and Licenses, Etc.

      Not applicable.

      D. Trend Information

      Over the next three quarters we expect the impact of the Multikabel
acquisition and the recent German acquisitions to continue to have a positive
impact on our revenues and EBITDA. We also expect that any additional
acquisitions that we may do in Germany, rate increases on our basic cable
television offering and increased subscriber levels in our new products and
services will continue to have positive impacts on revenue and EBITDA.

      The potential loss of a contract with a housing association in Magdeburg
could result the decline of our basic cable television subscriber levels by
25,000 during the year. This would be the first contract we have lost and would
negatively impact our revenue and EBITDA.

      We also intend to increase the channels we offer our digital television
subscribers in Germany [and the Netherlands] and we expect that the addition of
channels will result in an increase in the number of subscribers who purchase
our digital services. In the medium to long-term we expect that the increase in
digital services will be positive for our operating results, but in the first
year to two years increased spending on additional channels will have a negative
impact on EBITDA.

      In general, we expect revenues to continue to grow rapidly while EBITDA
growth is expected to substantially lag revenue growth in the next one to two
years before we expect to see an increase in EBITDA growth as well.

      Our capital expenditures will remain at very high levels as we continue
to implement our upgrade strategy in Germany. We expect to increase our
borrowings significantly during the next five years to meet these needs coupled
as well as to finance future acquisitions. Thereafter we expect to start
repaying our outstanding indebtedness.

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 management board takes action by majority vote or, if there are only
two members, by unanimous vote. The current members of the management board,
their ages and responsibilities, dates of appointment and experience are set
forth below.

<TABLE>
<CAPTION>
                 Age   Position on the management board      Date of Appointment
                 ---   --------------------------------      -------------------
<S>              <C>   <C>                                   <C>
Paul Thomason    45    Chief Financial Officer               December 30, 1998
                       (Finanzvorstand)

Hans Wolfert     40    Chief Corporate Development Officer   February 4, 2000
</TABLE>


                                       62
<PAGE>   65

      Mr. Thomason has more than 15 years experience in the communication and
media industries. He has been our chief financial officer since December 30,
1998. From 1996 to 1998, he was chief financial officer of KabelMedia. From 1981
until February 1996, he was employed by the First Union National Bank of North
Carolina, where he served as senior vice president in its communications and
media finance group from 1986 to January 1996.

      Mr. Wolfert has more than twelve years experience in the communications
and media industries. He was appointed to our executive management board by the
supervisory board on January 4, 2000 as our chief corporate development officer.
He joined PrimaCom as executive vice president in February 1999. From 1995 to
December 1998 he served as chief executive officer of A2000, Europe's first
broadband cable operator, as well as senior vice president of corporate
development and president of UPC NL. From 1994 to 1995 he worked as vice
president and director of international business development with Philips Media.
Before that, he was director of sales at KPN broadcast and satellite services
(1991-1994). He started his career at the Ministery of Economic Affairs
Netherlands, responsible for telecom and media policy.

      Other senior officers in Germany

      Mr. Ernst Uhlig has more than 30 years experience in the
telecommunications industry and 10 years experience in the cable industry and
has served as the chief operating officer for cable television network
operations since December 30, 1998 and as the chief operating officer of
KabelMedia since October 1995. Prior to joining KabelMedia, he held several
positions at Bosch, including as sales director of its broadband communications
division and as technical director of Telenorma S.A. in Brussels, Belgium. In
addition, from October 1994 to September 1995, Mr. Uhlig was a member of the
board of directors of the broadband division of the Central Federation of the
electronics industry.

      Mr. Alexander Hoffmann has more than seven years experience in the cable
TV industry. He has been our executive vice president of investor relations and
public relations since June 1, 1999. He was been a member of the executive board
of AGFB AG, Mainz from November 1997 until AGFB was merged with us in the third
quarter of 2000. From 1994 until October 1997, he was a member of the AGFB's
supervisory board and its chairman from May 1997 until AGFB's merger with us.
Prior to 1994, Mr. Hoffmann was in international corporate banking for over 20
years with a number of financial institutions.

      Mr. Andrei Noppe has more than five years of experience in the cable
television and broadband industries. He has been our vice president of
technology and network operations since May of 1999. Prior to joining PrimaCom,
Mr. Noppe served as director of engineering and construction for A2000, a
subsidiary of UPC.

      Other senior officers in the Netherlands

      Mr. Jos Molenkamp has served on our supervisory board since September 2000
and has over 15 years experience working in the Dutch CATV and utilities sector
in senior management positions. He is the chairman of the supervisory board of
Educatief Net B.V and was the founder of the ISP MultiWeb B.V., which was sold
to Sonera Nederland B.V. in 1999. He is also a member of Vecai, the Dutch cable
organization.

      Mr. Walter Blom has been an active member of the management team since
1998, and as director of finance and sales he is responsible for financial and
management accounting, implementation of subscription registration system
(MARS), other accounting and operating systems, the implementation of Mr. Zap,
marketing and sales and customer service.

      Mr. Ritzo Holtman has 15 years experience working in the Dutch CATV sector
in different managerial engineering positions. As director of the network, he is
responsible for the development, the expansion, and the maintenance of the
network.


                                       63
<PAGE>   66

      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, our articles of association require that until December 31, 2003,
the management board needs the approval of 75% of the supervisory board members
in connection with one or more increases of our share capital by issuance of new
shares for contribution in kind or contribution of cash up to a maximum of
(euro)24,031,000. Moreover, 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 our
resolutions in all legal matters.

      In accordance with our articles of association, our supervisory board
consists of nine members elected by the general meeting of shareholders, three
of which are independent directors. John Berylson resigned from the supervisory
board on November 16, 1999. On February 18, 2000, the chairman of the
supervisory board and the management board jointly filed with the competent
register court, the Landgericht in Mainz, a formal application to have this
vacancy filled by Mr. Roland Steindorf who would become a court appointed member
of the supervisory board, in accordance with German stock corporation law. The
court appointed Mr. Steindorf to the supervisory board on March 24, 2000.

      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 the members of the Class A expires at the 2001 shareholders' meeting
to approve the actions taken by the supervisory board and the terms of the
members of Class B and Class C expire at the 2002 and 2003 shareholders'
meetings to approve the actions taken by the supervisory board. The year when
the member was elected is not taken into account when determined towards the
duration of their terms. After their initial terms, members of the supervisory
board will be 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 new term. 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.

      Set forth below is certain information with respect to the members of our
supervisory board.

<TABLE>
<CAPTION>
                             Age     Principal Occupation
                             ---     --------------------
<S>                           <C>    <C>
Class A
Roland Steindorf              47     Managing director SMC Consulting, Kronberg
Paul 't Hoen                  55     Vice president strategy -- Lucent
                                     Technologies, Hilversum

Class B
Christian Schwarz-Schilling   70     Chairman of our supervisory board
James S. Hoch                 41     Managing director of Morgan Stanley Dean
                                     Witter
Boris Augustin                32     Broker and market maker in EUREX options
Stefan Schwenkedel            41     Vice chairman of our supervisory board,
                                     professor of business administration and
                                     finance at the Fachhochschule Wiesbaden
                                     (University of Applied Science in
                                     Wiesbaden)
Klaus von Dohnanyi            70     Consultant/author

Class C
Massimo Prelz Otramonti       46     Vice chairman of our supervisory board, a
                                     managing director of Gilbert Global Equity
                                     Capital Europe Limited
Brigitte Preuss               40     General manager of Kurhotel Parkschlosschen
                                     Bad Wildstein GmbH
</TABLE>


                                       64
<PAGE>   67

      Mr. Steindorf was appointed to the supervisory board on March 24,
2000 by the register court, the Landgericht in Mainz to fill the vacancy created
by John Berylson's resignation. Mr. Steindorf currently is the managing director
of SMC Consulting, Kronberg. From 1994 to 1996, he was managing director of CLT,
Luxemburg. From 1990 to 1994, he worked as director of Central Europe for Braun
AG and between 1987 and 1990 as manager of marketing and sales for Pirelli. He
is also a member of the supervisory board of Highway One.

      Mr. 't Hoen has served on our supervisory board since March 1, 1999. Mr.
't Hoen is currently serving as vice president strategy for Europe at Lucent
Technologies in Hilversum, the Netherlands. Since 1985, he has been a member of
the board of the Dutch PTT Telecom (now KPN Telecom). Since 1992, he has been
the head of the corporate development of KPN Telecom and since 1995, he has been
chief executive officer of KPN Telecom subsidiary, Vision Networks N.V., which
had cable networks in Great Britain (ComTel), France (RCF), Poland (Intercable),
the Czech Republic (Interkabel) and the Netherlands (Casema). Mr. 't Hoen is a
director of TSS Telematics Systems and Services B.V., Amper S.A. and SNT Holding
N.V.

      Dr. Schwarz-Schilling has served on our supervisory board as our chairman
since the merger. 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 he 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, since 1998
as 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/Budingen
GmbH. Since 1999, he has also been chairman of the supervisory board of Mox
Telecom AG.

      Mr. Hoch has served on our supervisory board, the executive committee of
KabelMedia or on a predecessor body carrying out comparable functions since
September 1995. Since August 2000, Mr. Hoch has been a managing director of
Morgan Stanley Dean Witter. From December 1998 to August 2000, Mr. Hoch was a
managing director of Morgan Stanley and Co. Limited. From 1994 to 1998, Mr. Hoch
was an executive director of Morgan Stanley and Co. Limited. Mr. Hoch is a
director of Choice One Communications, Netscalibur Ltd., Xtempus and TL Com.

      Mr. Augustin has 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

      Prof. Dr. Schwenkedel has served on our supervisory board as a vice
chairman since the Suweda merger and as chairman of the supervisory board of
AGFB from 1997 until October 2000. Since March 2000, he has also been the
chairman of the supervisory board of F.A.M.E Film and Music Entertainment AG in
Munich and 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 Scholler-Budatej, the Hungarian subsidiary
of Scholler Lebensmittel GmbH & Co. KG, a company of the Sudzucker Group. During
that time period, he was also a member of the supervisory board of MIRSA AG in
Albertirsa in Hungary. Prior to 1993, he worked inter alia in the German paper
and printing industry.


                                       65
<PAGE>   68

      Dr. von Dohnanyi has served on our supervisory board, the executive
committee of KabelMedia or a predecessor body carrying out comparable functions
since January 1996. From the conversion until the merger, he was chairman of the
supervisory board of KabelMedia and from December 31, 1997 until the conversion
he was chairman of the executive committee of KabelMedia. Between 1954 and 1960,
he worked for Ford Motor Company, both in the United States and Germany. From
1960 to 1968, Dr. von Dohnanyi was a co-owner and managing director of the
Institut fur Marktforschung und Unternehmensberatung Infratest, Munich (Market
and Social Research, Infratest) and, between 1968 and 1969, he was Permanent
Secretary at the German Ministry of Economics. Dr. von Dohnanyi was a Member of
Parliament in Bonn from 1969 to 1981, Parliamentary Undersecretary from 1969 to
1972, and Minister for Science, Technology and Education from 1972 to 1974. From
1976 to 1981, he was Deputy Foreign Minister (Staatsminister), 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 fur Vereinigungsbedingte Sonderaufgaben), in Berlin.

      Mr. Prelz Oltramonti has served on our supervisory board as a vice
chairman, the executive committee, or on a predecessor body carrying out
comparable functions, of KabelMedia since April 1993. Mr. Prelz Oltramonti has
been a managing director of Gilbert Global Equity Capital Europe Limited since
September 1999 and assists in the management of its European investment
activities with a particular focus on the media and communications sectors. From
1991 to September 1999, Mr. Prelz Oltramonti was at Advent, most recently as a
managing director of Advent International plc and as senior vice president of
Advent International. Mr. Prelz Oltramonti is a director of E-via S.p.a.,
Jazztel plc and World Access Inc.

      Mrs. Preuss, the wife of Wolfgang Preuss, has served on our supervisory
board since December 30, 1998 and as the general manager of Kurhotel
Parkschlosschen Bad Wildstein GmbH, Traben-Trabach since January 1993. From July
1984 to December 1992, she served in various positions at Suweda.

      B. Compensation

      On a yearly basis, the chairman of the supervisory board receives
(euro)41,000, the vice chairmen receive (euro)20,000 and each other member of
the supervisory board receives (euro)10,000. 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, 2000, we paid an aggregate of
approximately (euro)621,000 in cash compensation to Jacques Hackenberg, our CEO
until November 2000, Paul Thomason and Hans Wolfert. 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.

      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


                                       66
<PAGE>   69

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 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 Dr. Schwarz-Schilling, Mr. Prelz
Oltramonti and Prof. Dr. Schwenkedel. 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 Dr. Schwarz-Schilling, Mr. Prelz
Oltramonti and Preuss. 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 our independent directors (as defined by
Nasdaq), Mr. von Dohnanyi, and Mr. Hoch and Mr. Augustin. The task of the
audit committee is to consider and evaluate our financial statements and
accounting policies and to make recommendations to the supervisory board, to
undertake such investigations of our financial condition, operations, financial
controls and reporting procedures as it deems necessary and to take all other
actions which are customarily included in the responsibility of an audit
committee of a public company and to report on our investigations and actions to
the supervisory board.

      D. Employees

      At December 31, 2000, we had 594 full-time and approximately 30 part-time
employees in Germany and 75 full-time and 25 part-time employees in the
Netherlands. Our employees in Germany are not covered by a collective bargaining
agreement. However, 103 employees have voted to be represented by a works
council. The elections have resulted in the creation of two works councils, one
for a work unit in PrimaCom Management GmbH and one for a work unit in PrimaCom
AG. Our employees in the Netherlands are in the process of electing 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 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


                                       67
<PAGE>   70

consent. The rights and functions of the proposed works council of our employees
in the Netherlands will be comparable to those of our German works councils.

      We consider our relations with our employees and with the works councils
in Germany to be good and we expect that, once established, we will be able to
maintain good relations with the Dutch works council as well.

      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
stock options. We may not grant stock 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
((euro)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,
2000 there were a total of 853,684 options outstanding under the two plans at a
weighted average exercise price of (euro)34.38.

      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 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


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<PAGE>   71

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 approximately 1,526,000
or 7.73% of our shares are held in the form of depositary shares in the United
States by seven record owners.

      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.

<TABLE>
<CAPTION>
                                        Name                                          Number             Percent
                                        ----                                          ------             -------
<S>                                                                                 <C>                   <C>
Shareholders
United Pan-Europe Communications N.V. (1)..................................          4,942,002            25.05%
Wolfgang Preuss (2)........................................................          3,186,755            16.15%
Wellington Management Company, LLP (3).....................................          1,419,900             7.20%
Morgan Stanley Dean Witter (4).............................................          1,023,985             5.19%
                                                                                    ----------            -----
Total......................................................................         10,572,642            53.59%
Management and supervisory boards
All management and supervisory board members as a group....................            619,961(5)          3.14%
</TABLE>

----------

(1)   Represents 4,926,102 shares and 31,800 American depositary shares owned
      directly by United Pan-Europe Communications N.V., which is a
      majority-owned subsidiary of UnitedGlobalCom, Inc. Although
      UnitedGlobalCom, Inc. has the power to elect all of the supervisory board
      members of United Pan-Europe Communications N.V., the members of the
      supervisory board have a fiduciary duty to all shareholders of United
      Pan-Europe Communications N.V. and are subject to other Dutch corporate
      law principles as they exercise their control of United Pan-Europe
      Communications N.V. Based on the information provided by United Pan-Europe
      Communications N.V. in its filings with the U.S. Securities and Exchange
      Commission, we believe that UPC purchased 3,510,385 of our shares on
      December 21, 1999, and made subsequent purchases during the remainder of
      December 1999 and in January, February and March 2000. The address of
      United Pan-Europe Communications N.V. is Fred, Roeskestraat 123, 1070EE
      Amsterdam, the Netherlands.

(2)   We have been informed by Mr. Preuss that this includes 2,868,894 shares
      over which Mr. Preuss has voting and investment power and 166,997 shares
      that he holds in trust for Brigitte Preuss and over which they have shared
      voting power. The address of Mr. Preuss is Wolfer Weg 3, 56841
      Traben-Trabach.

(3)   Represents the shares held by Wellington Management Company, LLP, an
      investment advisor under the Investment Advisors Act of 1940 with shared
      voting power with respect to 1,046,400 shares and shared dispositive power
      with respect to 1,419,900 shares, based on Wellington Management Company,
      LLP's most


                                       69
<PAGE>   72

      recent Schedule 13G filing made on February 14, 2001. The address of
      Wellington Management Company, LLP is 75 State Street, Boston,
      Massachusetts 02109.

(4)   Represents the shares held by Morgan Stanley Capital Partners III, L.P.,
      which holds 4.59% of the shares, MSCP III 892 Investors, L.P., which holds
      0.47% of the shares, and Morgan Stanley Capital Investors, L.P., which
      holds 0.13% of the shares. MSCP III, L.L.C. is the sole general partner of
      Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P.
      and Morgan Stanley Capital Investors, L.P., and, as such, has the power to
      vote or direct the vote and to dispose or direct the disposition of all of
      the shares held by Morgan Stanley Capital Partners III, L.P., MSCP
      III 892 Investors L.P. and Morgan Stanley Capital Investors, L.P. Morgan
      Stanley Capital Partners III, Inc., as the institutional managing member
      of MSCP III, L.L.C., controls the actions of MSCP III, L.L.C. Morgan
      Stanley Dean Witter & Co., as the sole shareholder of Morgan Stanley
      Capital Partners III, Inc., controls the actions of Morgan Stanley Capital
      Partners III, Inc. Therefore, MSCP III, L.L.C., Morgan Stanley Capital
      Partners III, Inc. and Morgan Stanley Dean Witter & Co. may each be deemed
      to have beneficial ownership of the 1,023,985  shares held collectively by
      Morgan Stanley Capital Partners III, L.P., MSCP III 892 Investors, L.P.
      and Morgan Stanley Capital Investors, L.P. The general partner of each of
      these investment limited partnerships is an affiliate of Morgan Stanley
      Dean Witter & Co., Inc. Morgan Stanley Dean Witter & Co., Inc. disclaims
      beneficial ownership of shares held by such investment limited
      partnerships, except to the extent of its pecuniary interest therein.
      The address for each of the above limited partnerships is c/o Morgan
      Stanley Capital Partners, 1221 Avenue of the Americas, New York, New York
      10020.

(5)   Includes 166,997 shares in which the beneficial owner has shared voting
      power and 200,000 stock options. Approximately 108,500 shares of the
      200,000 stock options have vested and of the vested options, approximately
      69,500 are currently exercisable. All of these stock options were granted
      under the executive stock option plan described above.

      B Related Party Transactions

      Jacques Hackenberg, our CEO since 1998, resigned effective October 17,
2000. We entered into an agreement with Mr. Hackenberg on that date providing
for a one time severance payment of (euro) 179,000 and receipt of his salary of
(euro) 31,000 per month until July 2001 and (euro) 11,000 per month from August
2001 to December 2001. Mr. Hackenberg's stock options continue to vest until
December 31, 2000, at which time substantially all of his 100,000 stock options
will be vested. Under the agreement, Mr. Hackenberg is prohibited from competing
with us until December 31, 2001.

      Pursuant to an agreement effective on November 30, 2000, we purchased all
the partnership interests from Messrs. Wolfgang Preuss, one of our largest
shareholders, Bruno H. Schubert and Hans Werner Klose and Suweda
Betriebsgesellschaft fur Kabelkommunikation im Saarland Kabelprojekt
Friedrichsthal KG for a total purchase price of (euro) 3,153,000 and the
outstanding balances in the partnership's bank accounts. The assets of this
partnership networks serve approximately 3,100 subscribers.

      As a result of the Suweda merger on December 30, 1998, AGFB became one of
our largest shareholders. AGFB's only asset, except for a limited amount of
cash, was 3,750,000 of our shares. In connection with the Suweda merger, we
agreed to take all actions necessary to effect a merger of AGFB with us. In this
merger, which was registered with the commercial court on October 2, 2000, the
PrimaCom shares held by AGFB and transferred to us formed the consideration for
the merger and were distributed to the AGFB shareholders who then became our
direct shareholders.

      C Interests of Experts and Counsel

      Not applicable.


                                       70
<PAGE>   73

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 trade on the Neuer
Markt segment of the Frankfurt Stock Exchange under the symbol PRC and our
depositary shares are quoted on the National Market segment of the Nasdaq Stock
Market under the symbol PCAG. Each depositary share represents one-half ordinary
bearer share.

      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.

<TABLE>
<CAPTION>
                                                         Nasdaq                         Frankfurt Stock Exchange
                                               High                 Low                 High                Low
                                          ----------------    -----------------    ----------------    ---------------
                                                        (in USD)                                 (in (euro))
<S>                                                 <C>                  <C>                 <C>                <C>
Annual highs and lows
1999 (from February 22, 1999)..........             29.63                15.00               64.00              29.50
2000...................................             50.00                 5.13               99.00              11.60

Quarterly highs and lows
1999
First Quarter..........................             20.00                15.00               34.00              29.50
Second Quarter.........................             25.00                16.50               48.00              30.90
Third Quarter..........................             29.63                22.63               56.00              44.75
Fourth Quarter.........................             32.63                23.25               64.00              42.10
2000
First Quarter..........................             50.00                30.63               99.00              59.00
Second Quarter.........................             43.50                18.13               86.10              36.00
Third Quarter..........................             23.88                13.63               50.35              31.00
Fourth Quarter.........................             13.13                 5.13               32.00              11.60

Monthly highs and lows
2000
September..............................             19.13                13.63               44.80              31.00
October................................             13.13                 5.75               32.00              14.04
November...............................             11.00                 5.13               24.60              12.19
December...............................              7.50                 5.13               17.60              11.60
2001
January................................              8.00                 5.38               16.70              10.50
February...............................              7.50                 5.50               16.40              12.97
March..................................              7.94                 6.38               17.98              13.89
April (through April 3)................              6.63                 5.59               15.45              12.50
</TABLE>


                                       71
<PAGE>   74

      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 incorporate by reference the articles of association filed as Exhibit
3.1 to the Registration Statement on Form F-1 (Registration Number 333-9854
filed on January 29, 1999.

      C. Material Contracts

      Our material contracts are described in Item 4.B above.

      D. Exchange Controls

     At the present time, Germany does not restrict the export or import of
capital, except for investments in areas like Iraq and Libya in accordance with
applicable resolutions adopted by the United Nations and the European Union.
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 immaterial exceptions, any payment received from or made to an
individual or a corporation resident outside of Germany if such payment exceeds
approximately (euro)2,556 (or the equivalent in a foreign currency). In
addition, residents must report any claims against or any liabilities payable
to non-residents if such claims or liabilities, in the aggregate, exceed
approximately (euro)1,534,000 (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.

      E. Taxation


                                       72
<PAGE>   75

      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 (1) who are securities dealers, financial institutions,
insurance companies, or tax exempt organizations; (2) who are holding shares or
ADSs as part of a hedging or larger integrated financial or conversion
transaction; (3) who are citizens or residents of a possession or territory of
the United States; (4) who are United States holders (as defined below) with a
currency other than the U.S. Dollar as their functional currency; (5) who are
holding shares or ADSs pursuant to certain retirement plans; (6) who are holding
shares or ADSs pursuant to the exercise of an employee stock option or otherwise
as compensation; or (7) who own, directly or indirectly, 10 percent 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

      A United States holder will be required to include in gross income as a
dividend when received (or in the case of ADSs, when received by the Depositary)
the gross mount of any cash or the fair market value of any property distributed
by us in respect of our shares 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. 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.


                                       73
<PAGE>   76

      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.

      The Treaty

      Under German law, German corporations are required to withhold tax on
dividends 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 1.375% surtax. 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 will be abolished as from 2002 and consequently this amount
will no longer be refundable as from 2002 as described in the section entitled
"Tax reform 2001" below. For United States federal income tax purposes, the
benefit resulting from this refund is treated as a dividend received by the
United States holder with respect to German corporate taxes equal to 5.88% of
the gross amount of the dividend, subject to a withholding tax of 0.88% of the
gross amount of the dividend (15% of 5.88%).

      Thus, for each $100 of gross dividend paid by us to a United States
holder, such holder will initially receive $73.625 ($100 less 26.375%
withholding tax). If the United States holder also applies for the available
refunds under the Treaty (including the additional 5% refund), German
withholding tax is effectively reduced to $10 and the cash received per $100 of
gross dividend is $90. For United States federal income tax purposes, the United
States holder is treated as receiving a total dividend of $105.88, consisting of
the $100 gross dividend and the deemed refund of German corporate tax of $5.88.
Thus, for each $100 of gross dividend, the United States holder will include
$105.88 in gross income and will be entitled to a foreign tax credit of $15.88,
subject to the general limitations of United States federal income tax law.

      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 fur Finanzen,
Friedhofstrasse 1, 53225 Bonn, Germany. The German claim for refund forms may be
obtained from the German tax authorities at the same address where the
applications are filed, 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 a 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 0 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


                                       74
<PAGE>   77

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

      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 our disposition. A United
States holder's adjusted tax basis in a share or ADS will generally be equal to
the holder's cost of acquiring the share or ADS 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 recognized for a year currently will
not exceed 20%. 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 elect to 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
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 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.


                                       75
<PAGE>   78

      If we were to constitute a PFIC, a United States holder could be subject
to certain materially adverse United States tax consequences. Prospective United
States holders should consult with their own tax advisors regarding the
potential application of PFIC rules.

      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 US 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 a 31% 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 summary discussion of certain tax matters arising under
German tax law. The discussion does not purport to be a comprehensive
description of all of the tax considerations which may be relevant to a decision
to purchase and/or to sell our shares or ADSs. The discussion is based on the
tax laws of the Federal Republic of Germany as in effect on the date of this
annual report, which are subject to change, possibly with retroactive effect.
With the exception of certain illustrative data, the discussion is limited to
the taxation of dividends, capital gains, income, gifts and inheritance under
German law, and does not address all aspects of German taxation. The discussion
does not consider any specific facts or circumstances that may apply to a
particular purchaser. In particular, this discussion does not comprehensively
treat the tax considerations that will be relevant to prospective investors who
reside outside Germany. Any person who is in doubt as to his tax position is
urged to consult a tax adviser before purchasing or selling shares or ADSs.


                                       76
<PAGE>   79

      A short discussion of German corporate taxation precedes the discussion of
taxes applicable to shareholders. German tax law is currently undergoing a
fundamental change due to a major tax reform which became effective, in part, on
January 1, 2001 and which will result in further changes effective on January 1,
2002. As a result, the German tax law is transitory in certain respects.

      Taxation of PrimaCom

      The corporate income tax rate is reduced from the split level rates of 30%
for distributed and 40% retained earnings to 25% rate as from January 1, 2001.
The new 25% tax rate for corporations is applicable to both, retained and
distributed earnings. Since January 1, 1998, the surtax (Solidaritatszuschlag)
has been charged at a rate of 5.5% on the corporate income tax liability. For
profits generated from 2001, the effective overall tax burden from corporate
income tax and surtax amounts to 26,38%. When seen in conjunction with a
municipal trade tax which is generally levied at rates of between 15% and 20%),
the effective tax rate on profits will be between 35% and 40%, depending on the
local municipality and its local multiplier, as from the fiscal year 2001
onwards.

      Another important change is the abolition of the imputed tax credit as of
2002 which shall already apply to the distribution of the annual profit of
fiscal year 2001 in 2002. For the distribution of the annual profit of fiscal
year 2001 the shareholders will no longer benefit from tax credit associated
with the distribution. However, the distribution of the annual profit of the
fiscal year 2000 by a German corporation which is made in 2001 will still be
treated in accordance to the imputation system. As part of the transition rules
each German corporation will assess the remaining tax credit which is available
for the shareholders and which was not used for the distribution of the annual
profit as of December 31, 2000. The amount of the tax credit available under the
imputation system will be used to reduce the corporate income tax of the
corporation in case a dividend is paid during a transition period through 2016.

      German corporations are subject to a trade tax which, depending upon the
municipal district in which their facilities are located, can amount to between
15% and 21 % of net income. The trade tax is, however, deductible from net
income for the purpose of calculating the regular corporate tax. As a result,
the effective burden of the trade tax generally lies between 13% and 18% of net
income. For purposes of assessing net income subject to trade tax, 50% of
interest payable on long-term debt is added back.

     The effective overall tax burden beginning on January 1, 2001 is
approximately 38% depending on the rate of the trade tax.

      Taxation of dividends

      Taxpayers resident in Germany are generally entitled to a tax credit in
the amount of three-sevenths of the gross amount (before dividend withholding
tax) of profits received in 2001 in distribution of the annual profits of any
year prior to 2001. This credit reduces their personal or corporate income tax
liability. The credit also reduces the basis for the 5.5% surtax on the German
taxpayer's personal or corporate income tax liability. Shareholders who are not
tax resident in Germany are not entitled to such tax credit. Even shareholders
who are tax residents in Germany are not entitled to this tax credit under
certain circumstances, for example when they receive dividends in distributions
that were tax free pursuant to an applicable income tax treaty.

      Dividends paid in 2001 by a German resident stock corporation
(Aktiengesellschaft) are subject to withholding tax equal to 25% of the amount
of the gross dividend distributed plus a 5.5% surtax (Solidaritdtszuschlag) on
that amount (corresponding to a tax of 1.375% of the gross dividend). The
withholding tax and surtax retained by the distributing stock corporation will
be credited against the personal or corporate income tax liability of German tax
resident shareholders or will be refunded to them. Thus, German shareholders are
effectively taxed in advance.

      For shareholders who are tax resident in Germany, the German corporate tax
imputation system leads to a neutralization of the corporate income tax, i.e.
the income underlying the dividend is taxed at the individual income or
corporate income tax rate of the shareholder. Under the transition law
applicable in fiscal year


                                       77
<PAGE>   80

2001 the dividend received by a corporate shareholder will be subject to 30%
corporate income tax instead of 25% for other source income in order to avoid
tax refund due to the reduced corporate income tax rate.

      To achieve the imputations, the income of the shareholder is taxed on a
grossed-up basis, i.e. the German tax resident shareholder receives for taxation
purposes 51.54% of the taxable dividend in cash, 17.5% as a tax credit resulting
from withholding tax (plus 0.96% tax credit for the surtax thereon) and 30% as a
tax credit for the underlying corporate income tax. If the assessable personal
or corporate income tax plus surtax thereon of the shareholder is less than the
tax credit of 48.46%, the excess tax credit will be refunded; if the personal or
corporate income tax is higher, additional personal or corporate income tax plus
surtax thereon becomes payable.

      German tax resident individual shareholders whose shares are part of a
business property and German tax resident corporate shareholders are subject to
trade tax on gross dividends received, unless the shareholder owns 10% or more
of the nominal share capital of the company at the beginning of the calendar
year. The applicable trade tax burden generally amounts to between 15% and 21%,
depending upon the trade tax rate fixed by the municipality in which the
business of the shareholder is located. Trade tax is a deductible expense for
income or corporate income tax purposes of the shareholder.

      Under the provisions of any applicable income tax treaty, the level of the
German withholding tax on a dividend paid by a company tax resident in Germany
to a shareholder not tax resident in Germany may be reduced. The shareholder
entitled to the reduced rate of withholding tax under the applicable double tax
treaty is, however, generally required to file a claim with the German tax
authorities for repayment of the amount by which the actual amount of
withholding tax, including surtax thereon, exceeds the maximum amount of
withholding tax permitted to be collected by the applicable double tax treaty as
described above.

      Most of the double tax treaties applicable to dividends provide for
further reductions in the withholding tax rate if the recipient of the dividend
is a joint stock company owning at least 10% of the shares of the distributing
company entitled to vote. The withholding tax on dividends distributed to
holding companies may, in some circumstances, be reduced to zero. In those cases
the reduced withholding tax rates can be applied to the distribution or
withholding tax may be dispensed with if an application has been filed and if
other conditions are fulfilled. Broadly speaking, this applies only to
situations where the shareholder is a qualifying corporation not tax resident in
Germany but tax resident in one of the other member states of the European
Union.

      Where the shares are part of the business property of a permanent
establishment or a fixed base of the non-resident shareholder maintained in
Germany, the shareholder will be taxed on the same basis as a shareholder tax
resident in Germany who holds the shares as business property in a German trade
or business, and the shareholder may be able to make use of the tax credits
granted to German tax resident shareholders. Trade tax will be payable under the
same circumstances and at the same rate as in the case of a German tax resident
shareholder.

      The corporate income tax rate for a shareholder not tax resident in
Germany holding the shares as part of the business property of a permanent
establishment which the shareholder maintains in Germany is 40%. If the
permanent establishment earned no other income and had no expenses (such as
interest on loans to finance the shareholding or trade tax), the shareholder
would not be entitled to a repayment other than tax withheld by the company on
the dividend. There is no withholding tax payable on transferring the dividend
from an establishment or fixed base in Germany to a head office abroad.

      Under German law, German corporations are required to withhold tax on
dividends 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 1.375% surtax. A partial refund of this withholding tax can be obtained by
United States holders under the Convention between the United States of America
and the Federal Republic of Germany for the Avoidance of Double Taxation and the
Prevention or Fiscal Evasion With Respect to Taxes on Income and Capital and to
Certain other Taxes described above.

      Taxation of capital gains


                                       78
<PAGE>   81

      A shareholder tax resident in Germany who realizes any capital gains upon
the disposal of shares is subject to taxes in Germany if the disposal is made
within 12 months of the acquisition.

      Under German tax law, a capital gain resulting from the disposal of shares
is also subject to taxation in Germany, regardless how long the shares have been
held, if the shareholder directly or indirectly holds or at any time during a
period of five years before the disposal held 10% or more of the nominal share
capital of the company. The same rules apply to non-resident shareholders,
unless they enjoy double tax treaty protection. Most double tax treaties with
Germany provide that shareholders not resident in Germany who do not maintain a
permanent establishment or fixed base in Germany are not subject to German
income or trade tax on such capital gains.

      In addition thereto, irrespective of the term of the possession, any
capital gains resulting from the disposal of shares are subject to taxation in
Germany if such shares were held as put of the business property of a permanent
establishment or fixed base maintained in Germany.

      Capital gains realized by a disposal of an interest in foreign
corporations will probably be tax exempt as from 2001 but the applicable
provisions are not entirely clear insofar.

      Tax law changes as from January 1, 2002

      As from January 1, 2002 the tax imputation system will be abolished. The
new system shall no longer provide for a tax credit. Instead a domestic natural
person shareholder pays personal income tax on 50 % of the dividends received.
The other 50 % will not be taxable for a domestic natural person.

      As a consequence of this change also capital gains realized by a domestic
natural person shareholder are 50 % tax exempt provided the natural person held
at least 1% in the corporation at any time during the last 5 years or in case he
held the interest no longer than 12 months. The capital gain will be entirely
tax exempt in case the natural person held less than 1 % in the corporation and
provided the interest is held for more than 12 months. The treatment of capital
gains is doubtful if the natural person shareholder held 1% or more but less
than a 10% interest in the corporation before the beginning of fiscal year 2002.

      Expenses incurred by domestic natural persons, directly or indirectly,
related to dividend income or capital gains will only be deductible at 50 %
irrespective whether they arose in the same year as the income. In case that the
disposal is entirely tax exempt and no expenses incurred in relation to the sale
are deductible.

      For domestic corporate shareholders any dividend income from another
German corporation and any capital gain from the disposal the interest in
another domestic or foreign corporation will be fully tax exempt. No holding
percentages or holding periods need to be respected insofar.

      Business expenses incurred by a domestic corporate shareholder which are
directly related to tax free capital gains from the sale of shares in a
corporation or related to tax free dividends from a German corporation will no
longer be deductible for tax purposes when they arise in the same year as the
dividends (and up to the same amount) Also capital losses will no longer be
deductible.

      Dividends from foreign corporations will still be 95 % tax exempt.
However, all business expenses related thereto will be deductible.

      In 2002 the withholding tax rate for dividends will be reduced to 20 %
plus 5.5 % solidarity surcharge thereon. The German refund procedure will not be
altered in that context. However, the 5 % refund to United States holders which
is related to the existence of the German imputation system will no longer apply
as of fiscal year 2002.



                                       79
<PAGE>   82
      Gift and inheritance tax

      Under German law, the transfer of shares will be subject to German
inheritance and gift tax on a transfer by reason of death or a gift, if:

      (1) the shares were held by the donor or transferor as part of the
business property for which an establishment is maintained in Germany or for
which a permanent representative has been appointed;

      (2) the donor or transferor or the heir, donee or other beneficiary is a
tax resident in Germany or, with respect to German citizens who are not resident
in Germany, if such donor, transferor or beneficiary has not been continuously
residing outside of Germany for a period of more than five years; or

      (3) the shareholder holds, alone or together with affiliated persons,
directly or indirectly, ten percent or more of the corporation's nominal share
capital.

      The few German estate tax treaties currently in effect (e.g., the treaty
with the United States) generally provide that German gift or inheritance tax
may only be imposed in cases (1) and (2) above.

      Other German taxes

      There are no German transfer stamp or other similar taxes which would
apply on the sale or transfer of the shares. Wealth tax is no longer levied as
of 1997. However, it is possible that wealth tax will be reintroduced in
connection with the tax reform proposals.

      Effective January 1, 2000, if a single shareholder, another person or a
company directly or indirectly acquires 95% of our shares, a 3.5% land transfer
tax will be levied on the value of all land which we or one of our subsidiaries
owns.

      F. Dividends and Paying Agents

      Not applicable.


                                       80
<PAGE>   83

      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 7 World Trade
Center, New York, New York 10048. 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.

<TABLE>
<CAPTION>
                                             Interest Rate Sensitivity
                                   Principal (Notional) Amount by Expected Maturity
                                        Average Interest Rate/Cap Strike Price
                                                                                                            Fair Value
                                                                                                             December
                                          2001      2002   2003    2004     2005    Thereafter    Total     31, 2000
                                        ================================================================================
<S>                                        <C>         <C>    <C>      <C>  <C>          <C>       <C>          <C>
Variable-Rate Revolving Credit
Facility ((euro)in thousands) Floating
Rate Index EURIBOR plus .75%- 2.50%:........ 955      --     --      --       --       735,236    736,191      736,191
Interest Rate Derivative
     Financial Instruments
     Related to Variable-Rate
     Revolving Credit Facility
Interest Rate Caps ((euro)in thousands)
Notional Amount.......................................................      225,000                           (605,000)
Average Strike Rate(1) ...............................................       5.1833%
Average Floor Rate(2).................................................       3.6125%
</TABLE>

(1)   Average strike rate of interest rate cap agreements.
(2)   Average floor rate as to (euro)175,000,000 of notional account.


                                       81
<PAGE>   84

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. [RESERVED]

ITEM 16. [RESERVED]

PART III

ITEM 17. FINANCIAL STATEMENTS

      Not applicable.


                                       82
<PAGE>   85

ITEM 18. FINANCIAL STATEMENTS


INDEPENDENT AUDITORS REPORT

To the Board of Directors,
PRIMACOM AG

         We have audited the accompanying consolidated balance sheets of
PrimaCom AG and subsidiaries as of December 31, 2000, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. 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, 2000, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.


                                                             /s/  ERNST & YOUNG
                                                             ------------------
                                                                  ERNST & YOUNG
                                                Deutsche Allgemeine Treuhand AG
Frankfurt, Germany
March 29, 2001



                                     F-1
<PAGE>   86



                          PRIMACOM AG AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                       YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------------------
                                                        1998          1999          2000          2000
                                                      ----------   -----------   -----------   ------------
                                                        EURO          EURO          EURO          U.S.$

<S>                                                     <C>          <C>           <C>            <C>
Revenues........................................        49,339       105,949       124,343        116,732
Operating costs and expenses:
   Operations...................................        13,062        24,543        30,191         28,343
   Selling, general and administrative..........         6,271        18,590        28,584         26,834
   Corporate overhead...........................         1,278        12,413        17,219         16,165
   Depreciation and amortization................        16,072        61,277        75,530         70,907
                                                        ------       -------       -------        -------
Total...........................................        36,683       116,823       151,524        142,249
                                                        ------       -------       -------        -------
Operating profit (loss).........................        12,656       (10,874)      (27,181)       (25,517)
Interest expense:
   Related party................................            11            --            --             --
   Bank debt....................................         2,550         9,995        24,629         23,121
   Sale-leaseback...............................         5,301         2,115         1,544          1,450
   Senior Notes.................................            --         3,764            --             --
                                                        ------       -------       -------        -------
                                                         7,862        15,874        26,173         24,571
Other income (expense)..........................          (232)         (767)        1,690          1,587
                                                        ------       -------       -------        -------
Income (loss) from continuing operations before
   income taxes and other items.................         4,562       (27,515)      (51,664)       (48,501)

Income tax expense..............................           827         1,667         4,258          3,998
                                                        ------       -------       -------        -------
Income (loss) from continuing operations before
   minority interests and equity earnings.......         3,735       (29,182)      (56,927)       (52,499)
Minority interest in net income of subsidiaries            303            70            94             88
   Equity loss in affiliate.....................            --            --          (128)          (120)
                                                        ------       -------       -------        -------
Income (loss) from continuing operations........         3,432       (29,252)      (56,144)       (52,707)
     Extraordinary loss, net of income tax......            --            --        (8,180)        (7,680)

     Loss from discontinued operations, net of
      income tax expense of (euro) 2,896 for 1998       (2,922)           --           --             --
                                                        ------       -------       -------        -------

 Net income (loss)..............................           510       (29,252)      (64,324)       (60,387)
                                                        ======       =======       =======        =======
Earnings (loss) per share:
   Basic and diluted:
   Continuing operations........................          0.22         (1.53)        (2.85)         (2.67)
                                                        ------       -------       -------        -------
   Net income (loss)............................          0.03         (1.53)        (3.26)         (3.06)
                                                        ======       =======       =======        =======
</TABLE>

           See accompanying notes to consolidated financial statements


 The accompanying financial statements for periods prior to January 1, 1999 have
  been restated from Deutsche Mark to Euro using the official conversion rate
                             as of January 1, 1999.



                                       F-2
<PAGE>   87



                          PRIMACOM AG AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                   DECEMBER 31,
                                           --------------------------------------------------------
                                              1998           1999          2000           2000
                                           ------------    ----------   -----------    ------------
                                              EURO           EURO          EURO           U.S.$
<S>                                              <C>           <C>           <C>             <C>
  Cash.................................          7,847         8,367         4,643           4,359
  Trade accounts receivable-- net......          2,783         3,715         9,178           8,616
  Deferred tax asset-- net.............         44,829        47,306        48,169          45,221
  Property and equipment-- net.........        278,344       276,788       559,581         525,330
  Goodwill-- net.......................        242,148       238,850       357,754         335,856
  Customer lists-- net.................             --            --        56,067          52,635
  Foreign currency forward contracts...         10,638            --            --              --
  Other assets.........................         22,640        11,610        42,453          39,854
                                               -------       -------     ---------
  TOTAL ASSETS.........................        609,229       586,636     1,077,845       1,011,871
                                               =======       =======     =========       =========
  Accounts payable.....................          4,597         5,806        26,786          25,146
  Accrued expenses.....................         26,450        14,800        24,608          23,102
  Deferred revenue.....................          4,910        12,593         2,736           2,569
  Deferred purchase obligations........          3,388         2,304         4,228           3,969
  Sale-leaseback obligations...........         44,166        14,122        13,669          12,832
  Related party liabilities............            264           245           245             230
  Bank and other debt..................        143,875       208,091       736,191         691,129
  Senior Notes.........................        141,107            --            --              --
                                               -------       -------     ---------       ---------
  TOTAL LIABILITIES....................        368,757       257,961       808,463         758,977
                                               -------       -------     ---------       ---------
  Minority interest....................            441            85           198             186
  SHAREHOLDERS' EQUITY
  Registered capital...................         40,348        50,435        50,582          47,486
  Additional paid-in capital...........        242,343       350,067       354,838         333,119
  Accumulated deficit..................        (42,660)      (71,912)     (136,236)       (127,897)
                                              --------      --------     ---------       ---------
  TOTAL SHAREHOLDERS' EQUITY...........        240,031       328,590       269,184         252,708
                                               -------       -------       -------         -------
  TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY..............        609,229       586,636    1,077,845        1,011,871
                                               =======       =======    =========        =========
</TABLE>

           See accompanying notes to consolidated financial statements

   The accompanying financial statements for periods prior to January 1, 1999
        have been restated from Deutsche Mark to Euro using the official
                     conversion rate as of January 1, 1999.



                                      F-3
<PAGE>   88



                          PRIMACOM AG AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                              ADDITIONAL                              TOTAL
                                            REGISTERED         PAID-IN           ACCUMULATED       SHAREHOLDERS'
                                             CAPITAL           CAPITAL             DEFICIT            EQUITY
                                            ---------         ----------         -----------       -------------
                                               EURO              EURO               EURO                EURO

<S>                                             <C>                <C>              <C>                 <C>
Balance at December 31, 1997..........          5,113              5,133            (41,994)            (31,748)
   Capital contribution...............         13,851            (13,851)                --                  --
   Shareholder contributions..........             --             73,808                 --              73,808
   Dividend...........................             --                 --             (1,176)             (1,176)
   Issuance of shares in reverse
      acquisition.....................         21,384            177,253                 --             198,637
   Net income.........................             --                 --                510                 510
                                              -------           --------           --------            --------
   Balance at December 31, 1998.......         40,348            242,343            (42,660)            240,031
   Capital contribution...............             --              5,931                 --               5,931
   Issuance of shares in initial
      public offering.................         10,087             99,036                 --             109,123
   Stock options granted..............             --              2,757                 --               2,757
   Net loss...........................             --                 --            (29,252)            (29,252)
                                              -------           --------           --------            --------
   Balance at December 31, 1999.......         50,435            350,067            (71,912)            328,590
   Issuance of shares in acquisition..            179              1,543                 --               1,722
   Merger with AGFB...................            (32)              (330)                --                (362)
   Stock options granted..............             --              3,558                 --               3,558
   Net loss...........................             --                 --            (64,324)            (64,324)
                                              -------           --------           --------            --------
   Balance at December 31, 2000                50,582            354,838           (136,236)            269,184
                                              =======           ========           ========            ========
</TABLE>

           See accompanying notes to consolidated financial statements

   The accompanying financial statements for periods prior to January 1, 1999
  have been restated from Deutsche Mark to Euro using the official conversion
                          rate as of January 1, 1999.




                                      F-4

<PAGE>   89


                          PRIMACOM AG AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                YEARS ENDED DECEMBER 31,
                                                            ------------------------------------------------------------
                                                               1998            1999            2000             2000
                                                               ----            ----            ----             ----
                                                               EURO            EURO            EURO             U.S.$
<S>                                                              <C>        <C>             <C>               <C>
OPERATING ACTIVITIES
Net income (loss)..................................              510        (29,252)        (64,324)          (60,387)
Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
Gain on sale of business...........................             (967)            --              --                --
Depreciation and amortization......................           16,164         61,277          75,530            70,907
Amortization of other assets.......................            6,024          5,719           6,064             5,693
Amortization of deferred revenue...................           (2,682)       (16,683)        (29,076)          (27,296)
Gain on sale of equity investment..................               --             --         (1,689)            (1,586)
Write-off of capitalized financing fees............               --             --           7,600             7,135
Stock option compensation expense..................               --          2,757           3,558             3,340
Other..............................................              241             70             230               216
Minority interest..................................              303             70             113               106
Deferred income taxes..............................            2,877          3,222           3,000             2,816
Changes in assets and liabilities, net of effects of
    business acquisitions and disposition:
Trade accounts receivable..........................              954           (861)           (750)             (704)
Other assets.......................................           (4,373)         2,002         (13,269)          (12,457)
Accounts payable...................................             (411)           828          11,988            11,254
Accrued expenses...................................            9,752         (9,091)         (6,079)           (5,707)
Deferred revenue...................................              476         24,226          18,902            17,745
                                                             -------        -------         -------           -------
Net cash provided by
    operating activities...........................           28,565         44,214          11,685            10,969
                                                             -------        -------         -------           -------
INVESTING ACTIVITIES
Acquisitions of businesses, net of
    cash acquired..................................           11,859        (14,441)       (288,338)         (270,689)
Dividends of minority interest.....................           (5,684)            --              --                --
Purchases of property and equipment................           (3,110)       (34,071)        (99,817)          (93,707)
Proceeds from sale of property and equipment.......              100            654             396               372
Proceeds from sale of business.....................            5,286             --              --                --
                                                             -------        -------         -------           -------
Net cash provided by (used in) investing activities            8,451        (47,858)       (387,759)         (364,024)
                                                             -------        -------         -------           -------
FINANCING ACTIVITIES
Proceeds from credit facilities....................               --        170,770         969,635           910,284
Proceeds from bank debt............................            9,973             --              --                --
Repayments of credit facilities....................           (9,119)      (100,980)       (475,736)         (446,617)
Repayments of bank debt............................          (33,130)        (3,077)       (124,615)         (116,987)
Net proceeds from (repayments of) bank overdrafts..             (143)        (2,740)          7,726             7,253
Proceeds from related party liabilities............            7,365             --              --                --
Repayments of related party liabilities............           (6,267)           (18)             --                --
Repayments of sale-leaseback obligations...........           (5,711)       (30,045)         (3,582)           (3,363)
Repayments of Deutsche Telekom loans...............           (1,498)          (527)           (110)             (103)
Payments of deferred purchase obligations..........               --         (2,101)           (968)             (909)
Proceeds from initial public offering..............               --        103,425              --                --
Repayment of Senior Notes..........................               --       (141,194)             --                --
Proceeds from settlement of foreign currency forward
    contracts......................................               --         10,651              --                --
Dividend distribution..............................           (1,176)            --              --                --
                                                             -------        -------         -------           -------
Net cash provided by (used in) financing
    activities.....................................          (39,706)         4,164         372,350           349,558
                                                             -------        -------         -------           -------
Net increase (decrease) in cash and
    cash equivalents...............................           (2,690)           520          (3,724)           (3,497)
                                                                                                              -------
Cash and cash equivalents at beginning of year.....           10,537          7,847           8,367             7,855
                                                             -------        -------         -------           -------
Cash and cash equivalents at end of year...........            7,847          8,367           4,643             4,359
                                                             =======        =======         =======           =======

</TABLE>

           See accompanying notes to consolidated financial statements

   The accompanying financial statements for periods prior to January 1, 1999
        have been restated from Deutsche Mark to Euro using the official
                     conversion rate as of January 1, 1999.


                                      F-5
<PAGE>   90


1    FORMATION OF BUSINESS AND BASIS OF PRESENTATION

     PrimaCom AG, ("PrimaCom") and subsidiaries ("the Company"), a German stock
     corporation, was formed on December 30, 1998, by the merger ("the Merger")
     of Suweda Elektronische Medien- und Kabelkommunikations-AG ("Suweda") 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 Suweda, 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 Suweda of KabelMedia even though KabelMedia issued
     shares to Suweda's shareholders as consideration in the Merger and is the
     surviving legal entity. Accordingly, the accompanying historical financial
     statements prior to December 30, 1998, are those of Suweda.

     All amounts in the accompanying notes to the consolidated financial
     statements refer to continuing operations unless otherwise noted (see Note
     5).

     Prior to December 31, 1999, the Company prepared and reported its
     consolidated financial statements in Deutsche Marks ("DM"). With the
     introduction of the Euro ("(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
     prior periods have been restated into Euro using the official fixed
     conversion rate of (euro)1.00 = DM 1.95583. The Company's 1998 restated
     Euro financial statements depict the same trends as would have been
     presented if it had continued to present its consolidated financial
     statements in Deutsche Marks. 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 Marks. All amounts herein are shown in Euros
     and for the year ended December 31, 2000 are also presented in U.S. dollars
     ("$"), the latter being unaudited and presented solely for the convenience
     of the reader at the rate of (euro)0.9388 = $1.00, the Noon Buying Rate of
     the Federal Reserve Bank of New York. The translations should not be
     construed as a representation that the amounts shown could have been, or
     could be, converted into U.S. dollars at that or any other rate.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

     ACCOUNTING PRINCIPLES

     The accompanying financial statements have been prepared in accordance with
     United States generally accepted accounting principles ("U.S. GAAP").

     CONSOLIDATION

     The consolidated financial statements include the accounts of PrimaCom and
     it's majority owned subsidiaries. All significant intercompany accounts and
     transactions have been eliminated in consolidation.

     CASH EQUIVALENTS

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

     CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to concentrated
     credit risks consist primarily of cash and trade receivables. Credit risk
     on trade receivables is minimized as a result of the large and diverse
     nature of the Company's customer base. The Company maintains most of its
     cash and cash equivalents at international financial institutions in
     Germany and the Netherlands.


                                      F-7
<PAGE>   91


     REVENUE RECOGNITION

     Revenue 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 EQUIPMENT

     Property 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.

     GOODWILL AND INTANGIBLE ASSETS

     Goodwill consists of the excess purchase price over the fair value of the
     identifiable net assets acquired in various acquisitions. Such amounts are
     generally amortized using the straight-line method over 12 years.
     Intangible assets consist of the value assigned to customer lists acquired
     by the Company in 2000 as part of the Multikabel acquisition. Accumulated
     amortization for goodwill at December 31, 1998, 1999 and 2000 was
     (euro)4,880,000, (euro)26,980,000 and (euro)53,121,000 respectively.
     Accumulated amortization of intangible assets at December 31, 2000 was
     (euro)1,244,000.

     IMPAIRMENT OF LONG LIVED AND IDENTIFIABLE INTANGIBLE ASSETS

     The Company evaluates the carrying value of long-lived assets and
     identifiable intangible assets and goodwill for potential impairment on an
     ongoing basis. Impairment is determined by comparing the estimated
     undiscounted future cash flows to the carrying amount of the asset. The
     impairment loss would be measured as the amount by which the carrying
     amount of the asset is less than the estimated fair value.

     ADVERTISING COSTS

     Advertising costs are charged to expense as incurred. The Company first
     incurred significant advertising costs in 2000 totaling (euro)4,271,000.

     STOCK OPTIONS

     The Company accounts for its stock option plans in accordance with
     Financial Accounting Standards No. 123, "Accounting for Stock-Based
     Compensation" (FAS 123). In accordance with FAS 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.

     BASIC AND DILUTED EARNINGS PER SHARE

     The Company calculates earnings per share in accordance with Financial
     Accounting Standards No. 128, "Earnings per Share" (FAS 128).

     INCOME TAXES

     The Company accounts for income taxes in accordance with Financial
     Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). In
     accordance with FAS 109, deferred 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.

                                      F-8
<PAGE>   92


     FAIR VALUE OF FINANCIAL INSTRUMENTS

     The 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. The carrying value of bank and
     other debt approximates fair value based on quoted market prices for the
     same or similar issues as well as current rates offered to the Company.

     USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect the amounts reported in the financial statements
     and accompanying notes. Actual results could differ from those estimates.

     RECLASSIFICATIONS

     Certain amounts in the prior years have been reclassified to conform with
     the 2000 consolidated financial statement presentation.

3.   THE MERGER

     On December 30, 1998, Suweda was merged into KabelMedia by the issuance of
     8,364,914 KabelMedia shares to the former Suweda shareholders. Under U.S.
     GAAP the Merger was accounted for under the purchase method as a reverse
     acquisition by Suweda of KabelMedia even though KabelMedia issued shares to
     Suweda's shareholders as consideration in the Merger and is the surviving
     legal entity. The shares issued by KabelMedia were treated as if issued by
     Suweda as the acquirer. The effects of the reverse acquisition have been
     reflected for all share amounts in the accompanying financial statements.
     The assets and liabilities of KabelMedia are included in the consolidated
     balance sheet as of December 31, 1998. The purchase price of
     (euro)198,637,000 assigned to the KabelMedia net assets was based on an
     independent third party valuation. The financial statements reflect the
     final allocation of the purchase price which resulted in an excess purchase
     price over the fair value of the KabelMedia net assets of (euro)235,905,000
     which is being amortized on a straight-line basis over 12 years.

     The following unaudited pro forma information for the year ended December
     31, 1998 assumes the reverse acquisition occurred January 1, 1998:
<TABLE>
<CAPTION>

                                                                         1998
                                                                         ----
<S>                                                                     <C>
     Revenues ((euro)in thousands)..................................    94,100
     Loss from continuing operations ((euro)in thousands)...........   (42,341)
     Loss per share from continuing operations ((euro)).............     (2.68)
</TABLE>

     Net loss per share has been calculated on the basis of 15,782,842 shares
     outstanding.

4.   SIGNIFICANT BUSINESS ACQUISITIONS

     1999 ACQUISITIONS

     On January 1, 1999, the Company acquired the shares of Funkmechanik
     Magdeburg GmbH ("FUMA") for total consideration of (euro)7,970,000. FUMA
     passed approximately 25,017 homes and served 23,588 customers at the time
     of the acquisition.

     On October 22, 1999, the Company acquired 72.6% of the shares of Kabelcom
     Halberstadt GmbH ("Halberstadt") for total cash consideration of
     approximately (euro)4,083,000. Halberstadt passed approximately 10,000
     homes and served 9,100 customers at the time of the acquisition.

     Since January 1, 1999, the Company has been acquiring the minority
     interests in its majority owned subsidiary, Kabelcom Aachen Gesellschaft
     fur Kabel-Kommunikation mbH & Co. KG ("Kabelcom Aachen"). During 1999, the
     Company acquired 10.2% of the minority interests of Kabelcom Aachen for
     (euro)1,916,000, bringing its total ownership position to 97.8%. It is
     PrimaCom's intention to seek to acquire the remaining 2.2% of Kabelcom
     Aachen.

     All acquisitions have been accounted for under the purchase method of
     accounting and accordingly the results of operations of the acquired
     business have been included in the consolidated financial statements since
     the

                                      F-9
<PAGE>   93

     respective dates of acquisition. The 1999 acquisitions resulted in goodwill
     of (euro)12,610,000, which is being amortized over 12 years.

     The pro forma impact on revenues and income from continuing operations from
     the aforementioned acquisitions for the years ended December 31, 1998 and
     1999 is immaterial.

     2000 ACQUISITIONS

     On January 1, 2000, the Company purchased cable television networks from
     Regionalservice Kabelfernsehen GmbH ("REKA") for total consideration of
     approximately (euro)3,323,000. The networks acquired from REKA passed
     approximately 7,039 homes and served approximately 5,889 customers at the
     time of the acquisition.

     On January 1, 2000, the Company purchased cable television networks from
     Ver.Di neue Medien GmbH ("Ver.Di") for total consideration of approximately
     (euro)1,659,000. The networks acquired from Ver.Di passed approximately
     4,682 homes and served approximately 4,682 customers at the time of the
     acquisition.

     On June 16, 2000, the Company acquired 26% of the shares of MAINZ-KOM
     Telekommunikation GmbH ("Mainz Kom") for total consideration of
     approximately (euro)1,150,000. Mainz Kom is a city carrier with
     approximately 90 kilometers of fiber optic lines in Mainz and Wiesbaden,
     Germany.

     On July 1, 2000, the Company purchased cable television networks from
     Antennendienst Cabel Tec GmbH ("ADCT") for total consideration of
     approximately (euro)5,931,000. The networks acquired from ADCT passed
     approximately 9,600 homes and served approximately 7,320 customers at the
     time of the acquisition.

     On August 1, 2000, the Company acquired the shares of Steinert und Kuhn
     GmbH & Co. KG ("S&K") for total consideration of approximately
     (euro)1,964,000. S&K passed approximately 5,200 homes and served
     approximately 5,100 customers at the time of the acquisition.

     On September 18, 2000, the Company acquired the shares of N.V. Multikabel
     ("Multikabel"), a cable television operator based in the Netherlands, for
     total cash consideration of approximately (euro)250,600,000 (including
     acquisition expenses) and the assumption of approximately (euro)124,300,000
     of Multikabel debt, which was refinanced by the Company. Multikabel passed
     approximately 318,000 homes and served approximately 297,000 customers at
     the time of the acquisition.

     On October 1, 2000, the Company purchased cable television networks from
     Pfalzwerke AG ("Pfalzwerke") for total consideration of approximately
     (euro)4,581,000. The networks acquired from Pfalzwerke passed approximately
     11,068 homes and served approximately 6,400 customers at the time of the
     acquisition.

     On October 1, 2000, the Company acquired the shares of Komco
     Kommunikationstechnik GmbH ("Komco") for total consideration of
     approximately (euro)7,158,000. Komco passed approximately 19,573 homes and
     served approximately 15,900 customers at the time of the acquisition.

     On October 1, 2000, the Company acquired 51% of the shares of Kutz
     Kabel-Service GmbH ("Kutz") for total consideration of approximately
     (euro)1,563,000. The Company has the right to acquire the remaining 49% of
     the shares in 2002. Kutz passed approximately 12,000 homes and served
     approximately 10,000 customers at the time of the acquisition.

     On October 25, 2000, the Company acquired the shares of Televis Grimma GmbH
     ("Televis") for total cash consideration of approximately (euro)10,819,000
     and the future issuance of 70,000 PrimaCom shares, which at the time of the
     acquisition had a market value of approximately (euro)1,722,000, based on
     the closing price on the Neuer Markt. Televis' passed approximately 27,000
     homes and served approximately 24,000 customers at the time of the
     acquisition.

     On December 31, 2000, the Company acquired the shares of Suweda
     Betriebsgesellschaft fur Kabelkommunikationim Saarland Kabelprojekt
     Friedrichsthal KG ("Friedrichsthal"), which was partially owned by Wolfgang
     Preuss, a shareholder of the Company for total consideration of
     (euro)3,153,000. Friedrichstahl serviced approximately 3,100 customers at
     the time of the acquisition.



                                      F-10


<PAGE>   94

     All acquisitions have been accounted for under the purchase method of
     accounting and accordingly the results of operations of the acquired
     business have been included in the consolidated financial statements since
     the respective dates of acquisition. The 2000 acquisitions resulted in
     goodwill of (euro)143,552,000 ((euro)129,473,000 for the Multikabel
     acquisition), and customer lists of (euro)57,267,000 for the Multikabel
     acquisition. The goodwill and customer lists are being amortized over 12
     years.

     The following unaudited proforma information for the years ended December
     31, 1999 and 2000 assumes the aforementioned 2000 acquisitions occurred on
     January 1, 1999:
<TABLE>
<CAPTION>

                                                                       1999          2000
                                                                       ----          ----
<S>                                                                    <C>           <C>
     Revenues  ((euro) in thousands)..............................     134,708       152,706
     Net loss from continuing operations ((euro) in thousands)....     (64,713)      (88,253)
     Net loss per share ((euro))..................................       (3.38)        (4.47)
</TABLE>


5.   DISCONTINUED OPERATIONS

     On September 9, 1998, the Company divested its non-cable television
     businesses by selling such businesses to an entity under the common control
     of certain shareholders of Suweda. Accordingly, the operating results of
     these non-cable television businesses have been segregated from continuing
     operations.

     Operating results from discontinued operations (exclusive of any corporate
     charges or interest expense) are as follows:

<TABLE>
<CAPTION>
                                                                1998
                                                                ----
                                                             ((EURO) IN
                                                              THOUSANDS)
<S>                                                                <C>
     Revenues..............................................        611
                                                                ======
     Loss before income taxes..............................        (26)
     Income tax expense....................................     (2,896)
                                                                ------
     Net loss..............................................     (2,922)
                                                                ======
</TABLE>


6.   ACCOUNTS RECEIVABLE

     Trade accounts receivable consists of the following:
<TABLE>
<CAPTION>

                                                                                       DECEMBER 31,
                                                                             --------------------------------
                                                                               1998         1999         2000
                                                                               ----         ----         ----
                                                                                     ((EURO) IN THOUSANDS)
<S>                                                                           <C>           <C>        <C>
     Trade accounts receivable-- gross..............................           3,994        5,337      10,758
     Allowance for doubtful accounts................................          (1,211)      (1,622)     (1,580)
                                                                              ------       ------      ------
     Trade accounts receivable-- net................................           2,783        3,715       9,178
                                                                              ======       ======      ======
</TABLE>

7.   PROPERTY AND EQUIPMENT

     The components of property and equipment are as follows:
<TABLE>
<CAPTION>

                                                                                        DECEMBER 31,
                                                                              --------------------------------------
                                                                                 1998         1999         2000
                                                                                 ----         ----         ----
                                                                                      ((EURO) IN THOUSANDS)

<S>                                                                             <C>          <C>          <C>
     Cable television networks..............................................    338,077      352,506      602,062
     Equipment and fixtures.................................................     35,697       42,716       81,806
     Land and buildings.....................................................      2,910        2,416        3,912
     Other..................................................................      2,581        5,926       12,071
     Construction in progress...............................................      9,298       19,719       52,832
                                                                                  -----    ---------    ---------
     Total..................................................................    388,563      423,283      752,863
     Less accumulated depreciation..........................................   (110,219)    (146,495)    (193,102)
                                                                              ---------    ---------    ---------
     Property and equipment-- net...........................................    278,344      276,788      559,581
                                                                              =========    =========    =========
</TABLE>


                                      F-11
<PAGE>   95


     Depreciation expense on property and equipment was (euro)15,184,000,
     (euro)36,318,000 and (euro)46,727,000 for 1998, 1999 and 2000,
     respectively.

8.   SALE-LEASEBACK

     In 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 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 Company has the option
     to terminate leases under this agreement at the end of 6 years at an amount
     equal to approximately 11.5% percent of the original sales price plus the
     present value of remaining unpaid monthly lease payments. 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 purchase option is not exercised, the lease
     automatically renews for an additional three years. The leases have been
     accounted for as capital leases in accordance with Statement of Financial
     Accounting Standards No. 98 "Accounting for Leases".

<TABLE>
<CAPTION>

                                                                                            DECEMBER 31,
                                                                                    -----------------------------
                                                                                     1998        1999       2000
                                                                                     ----        ----       ----
                                                                                          ((EURO) IN THOUSANDS)
<S>                                                                                  <C>         <C>        <C>
     Borrowings under sale-leaseback obligations..............................       44,166      14,122     13,669
     Current portion thereof..................................................       21,437       3,481      4,341
</TABLE>

     On February 1, 1999, the Company repurchased certain cable networks which
     had previously been subject to various sale-leaseback arrangements. The
     difference between the purchase price and the net book value of the related
     sale-leaseback obligations was (euro)5,991,000 and increased property and
     equipment by an equivalent amount.

     On July 1, 1999, the Company purchased certain cable networks which had
     previously been subject to various sale-leaseback arrangements. The
     difference between the purchase price and the net book value of the related
     sale-leaseback obligations was (euro)2,003,000 and increased property and
     equipment by an equivalent amount.

     Maturities of the sale-leaseback obligations for the next five years
     consisted of the following at December 31, 2000:
<TABLE>
<CAPTION>

                                                                           ((EURO)IN
                                                                           THOUSANDS)
                                                                           ----------
<S>                                                                          <C>
     2001............................................................        4,341
     2002............................................................        3,931
     2003............................................................        2,665
     2004............................................................        1,274
     2005............................................................          906
     Thereafter......................................................          552
                                                                            ------
     Total...........................................................       13,669
                                                                            ======
</TABLE>

     Assets under capital leases are included within property and equipment as
     follows:


                                      F-12

<PAGE>   96

<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                    --------------------------------
                                                                                      1998        1999        2000
                                                                                      ----        ----        ----
                                                                                          ((EURO) IN THOUSANDS)

<S>                                                                                  <C>         <C>         <C>
     Cable television networks.................................................      58,410      24,070      27,991
     Less accumulated depreciation.............................................     (20,642)    (10,238)    (12,329)
                                                                                     ------      ------      ------
     Cable television networks - net...........................................      37,768      13,832      15,662
                                                                                     ======      ======      ======
</TABLE>

     Depreciation expense on assets recorded under capital leases approximated
     (euro)4,627,000, (euro)2,506,000 and (euro)2,091,000 in 1998, 1999 and
     2000, respectively.

9.   BANK AND OTHER DEBT

     Bank and other debt consists of the following:
<TABLE>
<CAPTION>

                                                                                              DECEMBER 31,
                                                                                    --------------------------------
                                                                                      1998        1999        2000
                                                                                      ----        ----        ----
                                                                                          ((EURO) IN THOUSANDS)

<S>                                                                                 <C>         <C>         <C>
     Borrowings under credit facilities......................................       138,049     207,840     727,500
     Overdrafts..............................................................         2,750          11       7,736
     Deutsche Telekom loans..................................................           722         196          85
     Other...................................................................         2.354          44         870
                                                                                    -------     -------     -------
     Total bank and other debt...............................................       143,875     208,091     736,191
                                                                                    =======     =======     =======
</TABLE>

     Effective September 18, 2000, the Company entered into a new credit
     facility (hereafter the "Facility") with a number of banks. The total
     aggregate amount of the Facility was (euro)1,000,000,000, comprised of a
     (euro)985,000,000 Revolving Credit Facility and a (euro)15,000,000
     Overdraft Facility. Under the terms of the Facility, the available
     commitment amount is reduced in equal quarterly amounts to the amounts
     reflected below as of December 31 of the years indicated:
<TABLE>
<CAPTION>

                                                                       COMMITMENT
      YEAR ENDED                                                         AMOUNT
      ---------                                                        ----------
                                                                       ((EURO) IN
                                                                       THOUSANDS)

<S>    <C>                                                               <C>
       2001...........................................................   1,000,000
       2002...........................................................   1,000,000
       2003...........................................................     935,750
       2004...........................................................     837,223
       2005...........................................................     738,723
       2006...........................................................     640,223
       2007...........................................................     517,098
       2008...........................................................     339,798
       2009...........................................................          --
</TABLE>

     Under the terms of the Revolving Credit Facility, the Company's
     subsidiaries may borrow, repay and reborrow, up to the commitment amounts,
     until December 31, 2009, when all amounts will become due and payable. At
     December 31, 2000 the Company had issued letters of credit totalling
     (euro)6,344,000 in connection with an acquisition which limits the
     Company's ability to borrow by an equivalent amount. At December 31, 2000,
     the Company had unused availability under the Revolving Credit Facility of
     (euro)251,156,000. The interest rate on the Revolving Credit Facility was
     7.50% at December 31, 2000.

     Under the Overdraft Facility, the Company may borrow, repay and reborrow,
     up to the commitment amounts, until December 31, 2009, when all outstanding
     amounts will become due and payable. At December 31, 2000, the Company had
     unused availability under the Overdraft Facility of (euro)7,264. The
     interest rate on the Overdraft Facility was 7.50% at December 31, 2000.

     Amounts outstanding under the 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 2.5%,
     depending on the ratio of total indebtedness of our subsidiaries to
     annualized EBITDA. At December 31, 2000, the borrowings were at a floating
     interest rate of EURIBOR 5.0% plus a margin of 2.50% or 7.50%.

     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


                                      F-13
<PAGE>   97

     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.

     On September 18, 2000, the Company entered into a (euro)375,000,000 senior
     working capital facility. The senior working capital facility has 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 cash payment 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 equals five
     percent of the outstanding number of shares of the Company. As of December
     31, 2000, the Company did not have any borrowings outstanding under this
     senior working capital facility.

     Bank financing fees of (euro)20,073,000 relating to the execution of the
     Facility have been capitalized in other assets. These fees are being
     amortized and recorded as bank debt interest over a period of nine years,
     representing the term of the Facility. Commitment fees of 0.5% per year are
     charged on the unused portion of the Facility.

     In 2000, the Company incurred an additional (euro)2,045,000 of interest
     costs to finance the construction of networks. This amount has been
     capitalized to networks.

     On September 18, 2000, in conjunction 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 (euro)8,180,000 net of income tax.

     The Company has obtained loans from Deutsche Telekom to finance the
     construction of certain of its cable networks. The loan amounts granted are
     in direct proportion to the number of subscribers connected to the
     networks. Loan amounts are repayable in 96 installments each equal to
     1/70th of the original loan balance plus interest.

     Maturities of the bank and other debt for the next five years are:

<TABLE>
<CAPTION>

      YEAR ENDED                                                            AMOUNT DUE
      ----------                                                            ----------
                                                                            ((EURO) IN
                                                                             THOUSANDS)

<S>                                                                              <C>
       2001...............................................................       955
       2002...............................................................        --
       2003...............................................................        --
       2004...............................................................        --
       2005...............................................................        --
       Thereafter.........................................................   735,236
                                                                             -------
       Total bank and other debt..........................................   736,191
                                                                             =======
</TABLE>

<TABLE>
<CAPTION>

                                                                                             DECEMBER 31,
                                                                                     -----------------------------
                                                                                      1998       1999       2000
                                                                                      ----       ----       ----
                                                                                           ((EURO)IN THOUSANDS)
<S>                                                                                  <C>        <C>       <C>
     Cash paid for interest during the period:
       Bank and other debt....................................................       2,574      4,264     24,173
       Sale-leaseback transaction (Note 8)....................................       1,314      2,115      1,544
                                                                                     -----      -----      -----
                                                                                     3,888      6,379     25,717
                                                                                     =====      =====     ======
</TABLE>

10.  SENIOR NOTES AND FOREIGN EXCHANGE

                                      F-14
<PAGE>   98


     On March 30, 1999, the Company redeemed and canceled substantially all of
     its outstanding Senior Notes for cash consideration of (euro)140,297,000
     plus brokerage fees of approximately (euro)597,000. On April 21, 1999, the
     Company redeemed and canceled the remainder of its outstanding Senior Notes
     for cash consideration of (euro)892,000. The purchase price and fees paid
     approximated the net book value of the Senior Notes at the time of the
     redemption.

     On March 26, 1999, in connection with the purchase of the Senior Notes, the
     Company settled its foreign currency forward contracts for cash
     consideration of (euro)10,650,000. The sales proceeds approximated the net
     book value of the contracts at the time of the disposition. Cash paid for
     interest on the Senior Notes was (euro)3,764,000 in 1999.

     The fair values of the foreign currency forward contracts are estimated by
     obtaining quotes from brokers. Information at December 31, 1998 is as
     follows:
<TABLE>
<CAPTION>

                                                                        NOTIONAL             FAIR
                                                                         AMOUNT             VALUE
                                                                        ---------          -------
<S>                                                                  <C>                <C>
     December 31, 1998..........................................     $ 130,000,000      $ 6,810,000
</TABLE>

11.  FINANCIAL INSTRUMENTS

     The Company has purchased interest rate-cap agreements that are designed to
     limit its exposure to increasing interest rates and are designed as hedges
     to borrowings under its variable-rate revolving credit facility during the
     next five years. 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 price 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 expected to be highly
     correlated with the interest rates the Company incurs on its variable-rate
     revolving credit facility. Payments to be received as a result of the
     specified interest rate index exceeding the strike price are accrued in
     other assets and are recognized as a reduction of interest expense. The
     contract premium related to these agreements is included in other assets
     and amortized to interest expense ratably during the life of the agreement.

     The following table sets forth the status of financial instruments as of
     December 31, 2000:
<TABLE>
<CAPTION>

                                                    NOTIONAL                               CONTRACT
                                                     AMOUNT                                 PREMIUM      FAIR VALUE
         EFFECTIVE DATE        TERMINATION DATE     ((EURO))     FLOOR   STRIKE PRICE      ((EURO))       ((EURO))
         --------------        ----------------    ----------    ------  -------------    ------------   -----------
<S>                         <C>                   <C>           <C>       <C>                <C>            <C>
                                                                                               200,000      127,000
     June 10, 1999           June 10, 2004         25,000,000    2.50%    5.50%               one time
                                                                                               126,500
     June 22, 1999           June 24, 2004         25,000,000   --        4.35%              per annum       50,000
                                                                                               130,500

     July 20, 1999           July 20, 2004         25,000,000   --        4.50% - 5.50%      per annum      (48,000)
                                                                                               105,000
     September 20, 1999      September 22, 2004    25,000,000    2.75%     5.50%             per annum
     December 18, 2000       December 18, 2003     62,500,000    4.65%     5.25%                    --     (265,000)
     December 18, 2000       December 18, 2003     62,500,000    4.55%     5.50%                    --     (271,000)
</TABLE>


     Upon termination of an interest rate-cap agreement, to the extent a gain
     represents the value attributable to the market interest rate exceeding the
     strike price of the cap and it continues to be probable that borrowing on
     the variable-rate revolving credit facility of at least as much as the
     notional amount of the terminated cap will be outstanding, the gain is
     deferred in other liabilities and amortized over the remaining term of the
     original

                                      F-15
<PAGE>   99

     contractual life of the agreement as a reduction of interest expense.
     Additional gains or losses are recognized in earnings. Any notional amounts
     of agreements in excess of the balance of the variable-rate revolving
     credit facility expected to be outstanding during the terms would be marked
     to market, with changes in market value recorded in other income (expense).

12.  RELATED PARTY TRANSACTIONS

     In September 1998, in preparation for the merger, Aktiengesellschaft fur
     Beteiligungen an Telekommunikationsunternehmen ("AGFB"), Suweda's largest
     single shareholder and a publicly traded company, contributed it's interest
     in certain cable companies to Suweda and forgave loans due from Suweda in
     exchange for 68,255 ordinary shares of Suweda. Further, in connection with
     the Merger, AGFB and the shareholders of KabelMedia and Suweda agreed that
     they would merge AGFB with PrimaCom with PrimaCom as the surviving
     corporation. In October 2000, the merger of AGFB into PrimaCom was
     registered with the Commercial Register of the Amtsgericht (local court) of
     Mainz. AGFB's only significant asset was it's holding of 3,750,000 PrimaCom
     shares, all of which were issued to AGFB shareholders when the merger was
     consummated. An equivalent number of new PrimaCom shares were issued to
     AGFB shareholders in the merger, reflecting the exchange ratio of one
     PrimaCom share for every four AGFB shares.

     On December 31, 2000, the Company acquired the shares of Friedrichsthal,
     which was partially owned by Wolfgang Preuss, a shareholder of the Company
     (see Note 4).

     The Company has a (euro) 245,000 loan payable to WVH Wohnungsbau- und
     Wohnungsverwaltungsgesellschaft Reiderau mbH, a minority shareholder of one
     of its subsidiaries.

13.  INCOME TAXES

     For financial reporting purposes, the Company and its consolidated
     subsidiaries calculate their respective tax liabilities on a separate
     return basis which are combined in the accompanying consolidated financial
     statements.

     The provisions for income tax benefit (expense) consisted of the following:
<TABLE>
<CAPTION>

                                                      YEARS ENDED DECEMBER 31,
                                                  -----------------------------
                                                     1998      1999      2000
                                                     ----      ----      ----
                                                        ((EURO)IN THOUSANDS)

<S>                                                  <C>    <C>        <C>
     Current...................................      (845)  (1,667)   (1,258)
     Deferred..................................        18       --    (3,000)
                                                     ----   ------    ------
     Total income tax..........................      (827)  (1,667)   (4,258)
                                                     ====   ======    ======
</TABLE>


     A reconciliation between the German corporate statutory tax rates of 54.0%
     for 1998, and 51.8% for 1999 and 2000 and the Company's effective tax rate
     is as follows:

<TABLE>
<CAPTION>

                                                                                      YEARS ENDED DECEMBER 31,
                                                                                   --------------------------------
                                                                                     1997       1998       1999
                                                                                     ----       ----       ----
                                                                                          ((euro)IN THOUSANDS)

<S>                                                                                  <C>         <C>       <C>
     Computed income tax (expense) benefit at German statutory rate............      (2,463)     14,252    31,020
     Change in valuation allowance.............................................      (2,377)     16,666    (8,290)
     Non-taxable income........................................................        4,591         --        --
     Goodwill amortization.....................................................        (290)    (11,585)  (11,280)
     Change in corporate tax rate..............................................          --        (616)  (15,074)
     Finalization of prior year tax returns....................................          --     (21,414)       --
     Other.....................................................................        (288)      1,030      (634)
                                                                                       -----    -------   -------
     Total income tax expense..................................................        (827)    (1,667)    (4,258)
                                                                                       =====    =======   =======
</TABLE>


                                      F-16
<PAGE>   100


     In 2000, tax legislation was enacted in Germany lowering the corporate tax
     rate from 40% to 25%. In accordance with FAS 109, the Company recorded a
     non-cash deferred tax charge in 2000 amounting to (euro)15,074,000 as a
     result of this change in the tax rate.

     In 1999, tax legislation was enacted in Germany lowering the corporate tax
     rate from 45% to 40%. In accordance with FAS 109, the Company recorded a
     non-cash deferred tax charge in 1999 amounting to (euro)616,000 as a result
     of this change in the tax rate.

     During 1999, the Company finalized or amended corporate and trade tax
     returns for certain of its subsidiaries. As a result of these revisions,
     the amount of benefit attributable to cumulative tax loss carryforwards as
     of December 31, 1998 was reduced by (euro)21,414,000.

     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, 1998, 1999 and 2000 are presented below:
<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,
                                                                                   ----------------------------
                                                                                   1998       1999        2000
                                                                                   ----       ----        ----
                                                                                        ((EURO)IN THOUSANDS)
    <S>                                                                           <C>         <C>        <C>
     Deferred tax assets:
        Net operating loss carryforwards.......................................    75,553      83,792     55,109
        Property and equipment.................................................        --       1,694     33,364
        Senior Notes...........................................................    19,082          --         --
        Sale-leaseback obligations.............................................     1,049         150         --
        Accrued expenses.......................................................     4,893         462         --
                                                                                  -------    --------    -------
                                                                                  100,577      86,098     88,473
        Less-- valuation allowance.............................................   (18,149)     (1,483)    (9,773)
                                                                                 --------    --------    -------
                                                                                   82,428      84,615     78,700
     Deferred tax liabilities:
        Property and equipment.................................................   (31,025)    (34,588)   (30,001)
        Financing fees.........................................................    (2,950)     (1,860)        --
        Sale-leaseback obligations.............................................    (1,181)         --         --
        Other..................................................................    (2,243)       (861)      (530)
                                                                                 --------    --------    -------
     Net deferred tax asset....................................................    44,829      47,306     48,169
                                                                                 ========    ========    =======
</TABLE>


     As of December 31, 2000, the Company had available in Germany combined
     cumulative tax loss carryforwards from continuing operations for corporate
     income tax of approximately (euro)133,773,000 and for trade tax on income
     of approximately (euro)131,483,000. In addition, the Company had in the
     Netherlands cumulative tax loss carryforwards from continuing operations
     for corporate income tax of approximately (euro)12,594,000. Under current
     German and Netherlands tax laws, these loss carryforwards have an
     indefinite life and may be used to offset the future taxable income of the
     Company. Cash paid for income taxes was (euro)565,000, (euro)1,670,000 and
     (euro)1,656,000 in 1998, 1999 and 2000 respectively.

14.  COMMITMENTS

     The Company obtains certain programming directly from Deutsche Telekom
     ("Telekom"), through various signal delivery contracts. The signal delivery
     contracts with Telekom are generally for a fixed period of time and are
     subject to negotiated renewal. Under these contracts the Company typically
     pays Telekom either a flat fee or a fee per customer that is determined by
     reference to a published fee schedule. As of December 31, 2000, the Company
     had a total commitment of approximately (euro)118,788,000 through 2010, the
     date upon which the last agreement expires. For the years ended December
     31, 1998, 1999 and 2000, total Telekom fees expensed amounted to
     approximately (euro)10,499,000, (euro)18,592,000 and (euro)20,617,000
     respectively, and are included in operations expense.


                                      F-17
<PAGE>   101

     The Company leases 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 (euro)511,000, (euro)1,585,000 and
     (euro)1,900,000 in 1998, 1999 and 2000, respectively.

     Future minimum payments under non-cancelable operating leases with initial
     or remaining terms in excess of one year consisted of the following at
     December 31, 2000:
<TABLE>
<CAPTION>

                                                     ((euro) IN
                                                     THOUSANDS)
                                                    ------------
<S>                                                      <C>
     2001........................................        1,956
     2002........................................        1,311
     2003........................................          745
     2004........................................          490
     2005........................................          228
     Thereafter..................................          681
                                                         -----
     Total.......................................        5,411
                                                         =====
</TABLE>


15.  STOCK OPTION PLANS

     On 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 Universal Stock Option
     Plan and the 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.

     Stock option activity to date is as follows:
<TABLE>
<CAPTION>


                                                                                  WEIGHTED      WEIGHTED AVERAGE
                                                                                  AVERAGE        FAIR VALUE OF
                                                                                  EXERCISE      OPTIONS GRANTED
                                                                    NUMBER OF      PRICE        DURING THE YEAR
                                                                     SHARES      (IN(EURO))       (IN(EURO))
                                                                   ------------ ------------- -------------------
<S>                                                                    <C>             <C>           <C>
     Outstanding at December 31, 1998............................           --           --
     Granted.....................................................      913,428         31.02         12.74
     Exercised...................................................           --           --
     Expired.....................................................           --           --
     Forfeited...................................................      154,931         29.00
                                                                       -------
     Outstanding at December 31, 1999............................      758,497         31.44
     Granted.....................................................      121,000         53.81         23.25
     Exercised...................................................           --           --
     Expired.....................................................           --           --
     Forfeited...................................................       25,813         38.85
                                                                        ------
     Outstanding at December 31, 2000............................      853,684         34.38
     Options exercisable at December 31, 1999....................           --           --
</TABLE>

                                      F-18
<PAGE>   102

     For the options outstanding at December 31, 2000, the range of exercise
     price is from (euro)29.00 to (euro)81.87 and the weighted average remaining
     contractual life is 1.4 years.

     Compensation expense totaled (euro)2,757,000 and (euro)3,558,000 relating
     to the options issued in 1999 and 2000 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:
<TABLE>
<CAPTION>

                                                                              1999             2000
                                                                             ------           ------
<S>                                                                         <C>              <C>
     Risk free rate of interest............................................ 3.2-4.6%         4.6-5.1%
     Expected dividend yield...............................................     0.0%             0.0%
     Expected life.........................................................     3.0 Years        3.0 Years
     Expected volatility...................................................    58.0%            58.0%
</TABLE>

16.  CONTINGENCIES

     LEGAL PROCEEDINGS


       LITIGATION RELATING TO OPERATIONS OF SUWEDA PRIOR TO MERGER

       As a result of the merger between KabelMedia and Suweda in December 1998,
     the Company succeeded to certain litigation against Suweda or its
     affiliates. In order to allocate the risks related to this litigation,
     KabelMedia and Wolfgang and Ludwig Preuss, two major shareholders of
     Suweda, entered into an indemnity agreement under which Wolfgang and Ludwig
     Preuss, jointly and severally, agreed to indemnify KabelMedia, the Company
     and its successors, until November 20, 2003, from any claim and damages
     arising out of or in connection with civil or criminal litigation or
     proceedings arising out of events relating to Suweda prior to our merger
     with it, whether brought against the Company or its affiliates, its
     officers or former officers, or KabelMedia in its capacity as Suweda's
     successor, including certain ongoing litigation.

       All litigation risks vis-a-vis manufacturers or users arising from the
     planning, manufacturing, operation and distribution of broadband cable
     networks, and all litigation risks arising in the ordinary course of
     business and which do not exceed approximately (euro)13,000 individually or
     approximately (euro)511,000 in the aggregate, are excluded from this
     indemnification. In the event the total claims exceed (euro)511,000, the
     liability under the indemnity agreement will be limited to the amount of
     such excess. The Company has the right to manage any litigation but
     Wolfgang and Ludwig Preuss have the right to object to the settlement of
     any claim. The agreement provides that any dispute between the Company and
     Wolfgang and Ludwig Preuss regarding such settlement will be determined by
     an independent lawyer.

       There is currently one ongoing civil proceeding covered by the indemnity
     agreement. This litigation was instituted by the East German Privatization
     Agency (Bundesanstalt fur Vereinigungsbedingte Sonderaufgaben, or BVS)
     against Suweda and arose from Suweda's purchase of Brandenburgische Bau AG,
     or BBAG. BVS sued Suweda for payment of (euro)7,465,000 for breach of
     contract. BVS alleged that Suweda, by reducing the workforce of BBAG, had
     acted in breach of contract. The district court in Berlin dismissed the
     claim for payment. In November 1998, BVS appealed this decision, reducing
     its claim to (euro)6,851,000. The Company has rescinded a settlement which
     was reached at a first court hearing on November 1, 2000, pursuant to which
     it would have had to pay (euro)3,553,000 to BVS. The superior court of
     Berlin has scheduled the next hearing for June 2001. There is a risk that
     BVS will increase its claim to the original amount.

       LITIGATION WITH HOUSING ASSOCIATIONS

       During 1998, GGG in Chemnitz, a housing association which is party to a
     concession agreement with the Company, brought a civil action seeking to
     limit the Company's ability to increase the subscriber fees charged by the
     Company to tenants of the housing association without the prior consent of
     the housing association. Subsequently, Chemnitzer Siedlungsgemeinschaft
     e.G., another housing association in Chemnitz which is party to a
     concession agreement with the Company containing a similar clause, joined
     this civil action on the plaintiffs side. The Company serves 30,000 and
     4,000 subscribers under these concession agreements.

       In October 1998, the court of first instance hearing the claim against
     the Company in Chemnitz held in favor of GGG. The Company appealed the
     decision of the Chemnitz court to the superior court (Oberlandesgericht) in
     Dresden. In these appeal proceedings, two more housing associations, also
     joined this civil action on GGG's side. The superior court in Dresden
     dismissed the Company's appeal. The Company then appealed this judgment to
     the federal civil court (Bundesgerichtshof) in the spring of 1999. Even
     though the Company believes that eventually it will prevail in these
     proceedings, since January 1, 1999 the Company has not recognized the
     revenue associated with the rate increase in question. The court hearing
     before the federal civil court was scheduled for March 6, 2001, and on that
     date the federal civil court held that the decision of the superior court
     in Dresden is reversed and the action brought against the Company before
     the Chemnitz courts was dismissed. The Company is awaiting the opinion of
     the federal civil court in this case before ascertaining the impact of this
     decision on our business.

       In December 1998, GGG gave notice of termination of the concession
     agreement with effect from December 31, 1999, approximately 12 years prior
     to the end of its term. The bases asserted for this early termination were
     an alleged breach of the concession agreement when the Company increased
     prices without the consent of GGG, as well as the action which was the
     subject matter of the lawsuit now pending before the federal civil court
     referred to above; and an allegation that because the concession agreement
     contains standard non-negotiated terms and the duration of the contract is
     20 years, it is terminable at any time by either party. The Company
     rejected the early termination and GGG sought judicial confirmation of the
     early termination, filing another civil action against us to this end with
     the regional court (Landgericht) in Chemnitz. On January 17, 2000, this
     court dismissed the action. In February 2000, GGG appealed the decision to
     the superior court in Dresden. The regional court has stayed the
     proceedings until the federal civil court has rendered its decision in the
     case now pending before that court, referred to in the previous paragraph.
     The Company believes that it eventually prevail in this matter.

       In October 1999, Wohnungsbaugenossenschaft Wendenschloss e.G., through
     which the Company serves 1,365 subscribers, has applied to the regional
     court (Landgericht) in Berlin for a judgment permitting the early
     termination of its concession agreement. The court has held that the
     concession agreement is terminable after 12 years. The Company has appealed
     the decision to the court of appeal (Kammergericht) in Berlin and a hearing
     has been scheduled for July 2, 2002.

       PROGRAMMING LITIGATION WITH HOUSING AUTHORITIES AND WITH PROGRAM
     PROVIDERS

       In early September 2000, the Company, through its subsidiary PrimaCom
     Region Leipzig GmbH & Co KG, conducted a test launch of its digital
     television product in Leipzig and chose the premises of
     Wohnungsbaugenossenschaft Leipzig e.G., a local housing association in
     Leipzig, as a test area. On October 18, 2000, the district court in Leipzig
     issued an injunction on application of Wohnungsbaugenossenschaft Leipzig
     e.G., which precluded us from (1) reducing our previous offering of analog
     television channels and (2) offering digital television to subscribers on
     the premises of Wohnungsbaugenossenschaft Leipzig e.G. The court held that
     the Company had violated the terms of the concession agreement by reducing
     its analog television offering and by introducing digital television
     without obtaining the prior approval of the housing association. After the
     injunction was issued, the Company restored its analog television offering
     and entered into negotiations with Wohnungsbaugenossenschaft Leipzig e.G.
     in an effort to jointly revise the concession agreement to allow for the
     introduction of digital television in premises owned by the housing
     association. The Company has also appealed the decision of the district
     court to the superior court (Oberlandesgericht) in Dresden and a first
     hearing has been scheduled for April 5, 2001.

     In November and December 2000, several German program providers (Kabel 1,
     SAT 1, Pro 7, DSF, tm 3, N 24, RTL 2, Super RTL, and Vox) obtained
     injunctions from the district court in Leipzig precluding the Company from
     carrying the programs provided by Kabel 1, Pro 7, DSF, tm 3, N 24 on our
     cable networks solely in digital format, and from carrying programs
     provided by RTL2, Super RTL and Vox in digital format in return for the
     payment of subscriber fees without the consent of these program providers.
     The Company has restored its analog television offering and is validly
     operating under the injunctions. The Company commenced negotiations with
     these programmers and reached an agreement with RTL 2, Super RTL and Vox on
     February 1, 2001, and with tm 3 on February 23, 2001. Both agreements
     provide that the Company will continue to carry the programs of RTL and tm
     3 in analog and digital format and the Company will neither pay nor receive
     payment for this programming. The agreements further provide that the
     Company will work with the other parties toward a definitive programming
     agreement and that in the event any fees are to be paid under that
     agreement, the payment will be retroactive to January 1, 2001. The Company
     is also engaged in negotiations with Kabel 1, Pro 7, DSF and N24, which are
     all seeking judicial confirmation to prevent us from offering their
     programs in either analog and digital formatting. The first court hearing
     for DSF was on February 27, 2001. The district court in Leipzig will
     announce its decision on March 30, 2001. The Company believes that it may
     lose these proceedings and be prohibited from broadcasting the DSF channel
     in digital format. The Company plans to appeal any adverse decision in this
     matter.

     Various additional legal matters are pending against the Company. In the
     opinion of management, the ultimate resolution of such legal proceedings
     and claims, including the matters described above, will not have a material
     effect on the consolidated financial position or results of the Company.

17.  SHAREHOLDERS' EQUITY

     The 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 (euro)50,000. The Company has authorized 30,128,552 shares. The Company
     has issued 19,786,052 ordinary bearer shares with a pro rata share in the
     registered capital of (euro)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 (euro)29.00 per share and
     $16.27 per American Depositary Share ("ADS"). The Company realized net
     proceeds of approximately (euro)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.

     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, 2000, the Company's German statutory accounts reflect no
     retained earnings available for distribution.

18.  EARNINGS (LOSS) PER SHARE

     The following table sets forth the computation of basic and diluted
     earnings (loss) per share:

<TABLE>
<CAPTION>

                                                                                   YEARS ENDED DECEMBER 31,
                                                                             -------------------------------------
                                                                               1998            1999          2000
                                                                               ----            ----          ----
<S>                                                                          <C>          <C>            <C>

     Numerator:
        Numerator  for  basic  and  diluted  earnings  per  share-- income
          (loss) from continuing operations ((euro)in thousands)............      3,432      (29,252)       (56,144)
     Denominator:
        Denominator  for basic and diluted  earnings  per share-- weighted
          average shares.................................................... 15,782,842   19,155,613     19,726,195
                                                                             ----------   ----------     ----------
     Basic and diluted earnings (loss) from continuing operations per
     share ((euro)).......................................................         0.22        (1.53)         (2.85)
                                                                             ==========   ==========     ==========
</TABLE>
     The effects of the stock options are anti-dilutive.

19.  SEGMENT DISCLOSURE

                                      F-19
<PAGE>   103

     Operating 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 operates in one business segment
     and through the 2000 acquisition of Multikabel commenced operations in the
     Netherlands in addition to existing operations in Germany.

     The following table sets forth sales and long-lived assets based on
     geographic areas:
<TABLE>
<CAPTION>

                                                                     2000
                                                                    ------
                                                                  ((EURO) IN
                                                                   THOUSANDS)
<S>                                                                 <C>
     Sales:
     Germany.................................................       115,504
     Netherlands.............................................         8,839
                                                                    -------
     TOTAL SALES-NET.........................................       124,343
                                                                    =======
     Long-lived assets:
     Germany.................................................       603,692
     Netherlands.............................................       369,710
                                                                    -------
     TOTAL LONG-LIVED ASSETS-NET.............................       973,402
                                                                    =======
</TABLE>


20.  SUBSEQUENT EVENTS

     On January 1, 2001, the Company acquired the shares of
     Grossgemeinschafts-Antennenanlangen Lizenz und Betriebs GmbH ("GGA") for
     total consideration of approximately (euro)2,213,000. GGA passed
     approximately 5,000 homes and served approximately 4,212 customers at the
     time of the acquisition.

     On January 1, 2001, the Company acquired the shares of Telekommunikations
     GmbH Kirschheimbolanden ("TKK") for total consideration of approximately
     (euro)1,000,000. TKK passed approximately 4,120 homes and served
     approximately 1,790 customers at the time of the acquisition.

     On January 1, 2001, the Company signed an agreement to acquire 51% of the
     shares of Tele- Kommunikationsgesellschaft mbH Eisenhuettenstadt, ("TKE")
     for total consideration of approximately (euro)26,000. The municipal
     supervisory office of Eisenhuettenstadt still needs to give its approval to
     the transaction. The Company has the right to acquire the remaining 49% of
     the shares for (euro)7,414,000 in 2002. The seller has the right to put the
     remaining 49% to PrimaCom for the same amount. TKE passed approximately
     11,700 homes and served approximately 10,300 customers at the time of the
     acquisition.

     On March 29, 2001, the Company entered into an agreement with United
     Pan-Europe Communications N.V. ("UPC") its largest shareholder to combine
     their German cable businesses. Under the terms of the agreement, the
     Company will combine with UPC's German subsidiary EWT/tss, which has
     approximately 570,000 cable television subscribers, UPC will assign its
     option to acquire potentially 230,000 additional cable television
     subscribers from Deutsche Bank and will contribute its
     subsidiary B.V. Holding CAI located in Alkmaar, the Netherlands, which has
     approximately 42,000 subscribers. This agreement is subject to a number of
     conditions including shareholder approval.



                                      F-20
<PAGE>   104

ITEM 19. EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number     Description of Exhibit
------     ----------------------
<S>        <C>
3.1*       English translation of the Articles of Association
3.2*       Standing Orders for the Management Board
3.3*       Rules for Procedure of the Supervisory Board
4.1        Senior working capital credit agreement dated as of September 18,
           2000
4.2        Contingent value right agreement dated as of September 18, 2000
4.3        Contingent value right escrow agreement dated September 18, 2000
4.4        Revolving loan and letter of credit facility dated September 18, 2000
8.1        List of subsidiaries
</TABLE>

* Incorporated by reference to the Registration Statement on Form F-1
(Registration Number 333-9854) first filed on January 29, 1999


                                       84
<PAGE>   105

                                   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/ Paul Thomason
                                           -------------------------------------
                                           Name: Paul Thomason
                                           Title: Member of the management board

                                           /s/ Hans Wolfert
                                           -------------------------------------
                                           Name: Hans Wolfert
                                           Title: Member of the management board

Date: March 30, 2001

<PAGE>   106

<TABLE>
<CAPTION>
Exhibit
Number      Description of Exhibit
------      ----------------------
<S>         <C>
3.1*        English translation of the Articles of Association
3.2*        Standing Orders for the Management Board
3.3*        Rules for Procedure of the Supervisory Board
4.1         Senior working capital credit agreement dated as of September 18,
            2000
4.2         Contingent value right agreement dated as of September 18, 2000
4.3         Contingent value right escrow agreement dated September 18, 2000
4.4         Revolving loan and letter of credit facility dated September 18,
            2000
8.1         List of subsidiaries
</TABLE>

* Incorporated by reference to the Registration Statement on Form F-1
(Registration Number 333-9854) first filed on January 29, 1999